10-Q

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 JULY 16, 2016

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 333-191029

TOPS HOLDING II CORPORATION(Exact name of registrant as specified in its charter)

Delaware(State or other jurisdiction of incorporation or organization)	46-2733709 (I.R.S. Employer Identification No.)
6363 Main Street, Williamsville, New York 14221(Address of principal executive offices, 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  o    No  x

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 during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    Yes  x    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 (as defined in Rule 12b-2 of the Exchange Act).

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

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

As of August 11, 2016, 126,559 shares of common stock of the registrant were outstanding.

TOPS HOLDING II CORPORATION

TABLE OF CONTENTS

PART I – FINANCIAL INFORMATION (Unaudited)
ITEM 1.	FINANCIAL STATEMENTS
	Condensed Consolidated Balance Sheets as of July 16, 2016 and January 2, 2016	1
	Condensed Consolidated Statements of Comprehensive Loss for the 12-week and 28-week periods ended July 16, 2016 and July 11, 2015	2
	Condensed Consolidated Statements of Cash Flows for the 28-week periods ended July 16, 2016 and July 11, 2015	3
	Notes to Unaudited Condensed Consolidated Financial Statements	4
ITEM 2.	MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS	14
ITEM 3.	QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK	25
ITEM 4.	CONTROLS AND PROCEDURES	25
PART II – OTHER INFORMATION
ITEM 1.	LEGAL PROCEEDINGS	25
ITEM 1A.	RISK FACTORS	25
ITEM 6.	EXHIBITS	26
SIGNATURE		26

i

PART I – FINANCIAL INFORMATION (Unaudited)

ITEM 1. FINANCIAL STATEMENTS

TOPS HOLDING II CORPORATION

CONDENSED CONSOLIDATED BALANCE SHEETS

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

(Unaudited)

	July 16, 2016			January 2, 2016
Assets
Current assets:
Cash and cash equivalents	$	29,318		$	35,557
Accounts receivable, net		66,496			68,198
Inventory, net		153,206			141,223
Prepaid expenses and other current assets		13,953			16,857
Total current assets		262,973			261,835
Property and equipment, net		351,322			369,446
Goodwill (Note 2)		213,096			213,096
Intangible assets, net (Note 2)		168,534			173,730
Other assets (Note 9)		15,396			11,547
Total assets	$	1,011,321		$	1,029,654
Liabilities and Shareholders' Deficit
Current liabilities:
Accounts payable	$	89,681		$	81,812
Accrued expenses and other current liabilities (Note 3)		87,217			96,757
Current portion of capital lease obligations (Note 4)		9,468			8,566
Current portion of long-term debt (Note 5)		2,182			2,075
Total current liabilities		188,548			189,210
Capital lease obligations (Note 4)		140,251			143,122
Long-term debt, net (Note 5)		682,727			681,372
Other long-term liabilities		47,162			44,680
Non-current deferred tax liabilities		44,648			43,694
Total liabilities		1,103,336			1,102,078
Commitments and contingencies (Note 9)
Common stock ($0.001 par value; 300,000 authorized shares, 126,560 shares issued    and 126,559 shares outstanding as of July 16, 2016 and January 2, 2016)		—			—
Treasury stock (at cost; 1 share as of July 16, 2016 and January 2, 2016)		(1	)		(1	)
Paid-in capital		6,405			7,974
Accumulated deficit		(96,814	)		(78,792	)
Accumulated other comprehensive loss, net of tax		(1,605	)		(1,605	)
Total shareholders' deficit		(92,015	)		(72,424	)
Total liabilities and shareholders' deficit	$	1,011,321		$	1,029,654

See notes to unaudited condensed consolidated financial statements.

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TOPS HOLDING II CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS

(Dollars in thousands)

(Unaudited)

	12-week periods ended						28-week periods ended
	July 16, 2016			July 11, 2015			July 16, 2016			July 11, 2015
Net sales	$	589,589		$	585,911		$	1,303,325		$	1,308,761
Cost of goods sold		(404,286	)		(404,259	)		(891,152	)		(898,384	)
Distribution costs		(9,646	)		(11,563	)		(21,460	)		(25,823	)
Gross profit		175,657			170,089			390,713			384,554
Operating expenses:
Wages, salaries and benefits		(84,559	)		(82,771	)		(192,392	)		(192,227	)
Selling and general expenses		(27,231	)		(26,548	)		(63,736	)		(64,350	)
Administrative expenses (inclusive of share-based    compensation expense of $38, $55, $127 and $124)		(18,578	)		(17,509	)		(44,048	)		(41,002	)
Rent expense, net		(6,505	)		(6,374	)		(15,106	)		(14,571	)
Depreciation and amortization		(14,718	)		(14,566	)		(34,633	)		(33,172	)
Advertising		(5,594	)		(5,854	)		(12,018	)		(11,689	)
Impairment (Note 11)		(2,076	)		—			(2,076	)		—
Gain on sale of assets (Note 7)		—			—			—			11,014
Total operating expenses		(159,261	)		(153,622	)		(364,009	)		(345,997	)
Operating income		16,396			16,467			26,704			38,557
Loss on debt extinguishment		—			(34,503	)		—			(34,503	)
Interest expense, net		(18,567	)		(19,042	)		(43,454	)		(44,785	)
Loss before income taxes		(2,171	)		(37,078	)		(16,750	)		(40,731	)
Income tax expense		(701	)		(400	)		(1,272	)		(942	)
Net loss		(2,872	)		(37,478	)		(18,022	)		(41,673	)
Other comprehensive income		—			—			—			—
Comprehensive loss	$	(2,872	)	$	(37,478	)	$	(18,022	)	$	(41,673	)

See notes to unaudited condensed consolidated financial statements.

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TOPS HOLDING II CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Dollars in thousands)

(Unaudited)

	28-week periods ended
	July 16, 2016			July 11, 2015
Cash flows provided by operating activities:
Net loss	$	(18,022	)	$	(41,673	)
Adjustments to reconcile net loss to net cash provided by operating activities:
Depreciation and amortization		41,131			39,494
Impairment		2,076			—
Amortization of deferred financing costs		1,246			2,113
Deferred income taxes		954			933
Straight-line rent adjustment		493			561
LIFO inventory valuation adjustments		295			425
Share-based compensation expense		127			124
Loss on debt extinguishment		—			34,503
Gain on sale of assets		—			(11,014	)
Other		327			442
Changes in operating assets and liabilities:
Decrease (increase) in accounts receivable		1,702			(4,932	)
(Increase) decrease in inventory, net		(12,278	)		4,129
Decrease (increase) in prepaid expenses and other current assets		2,904			(1,753	)
Increase in other assets		(3,849	)		—
Increase in accounts payable		10,102			10,974
(Decrease) increase in accrued expenses and other current liabilities		(8,349	)		7,879
Increase in other long-term liabilities		2,175			1,301
Net cash provided by operating activities		21,034			43,506
Cash flows used in investing activities:
Cash paid for property and equipment		(18,210	)		(21,843	)
Cash proceeds from sale of assets		413			11,255
Net cash used in investing activities		(17,797	)		(10,588	)
Cash flows used in financing activities:
Borrowings on 2017 ABL Facility		455,100			197,666
Repayments on 2017 ABL Facility		(454,100	)		(222,166	)
Principal payments on capital leases		(4,866	)		(4,822	)
Repayments of long-term debt borrowings		(2,365	)		(520,981	)
Dividends to Tops MBO Corporation (Note 8)		(2,015	)		(775	)
Change in bank overdraft position		(1,556	)		202
Capital contribution		326			—
Proceeds from long-term debt borrowings		—			560,000
Debt extinguishment costs paid		—			(24,215	)
Deferred financing costs paid		—			(9,469	)
Purchase of treasury stock		—			(1	)
Net cash used in financing activities		(9,476	)		(24,561	)
Net (decrease) increase in cash and cash equivalents		(6,239	)		8,357
Cash and cash equivalents-beginning of period		35,557			26,316
Cash and cash equivalents-end of period	$	29,318		$	34,673

See notes to unaudited condensed consolidated financial statements.

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TOPS HOLDING II CORPORATION

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

1. THE COMPANY, BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

The Company

Tops Holding II Corporation (“Holding II,” or collectively with its subsidiaries, the “Company”), the parent of Tops Holding LLC (“Holding I”), formerly Tops Holding Corporation, was incorporated on May 7, 2013.  Holding I is the parent of Tops Markets, LLC (“Tops Markets”), a supermarket retailer with supermarkets in Upstate New York, Northern Pennsylvania and Vermont.  As of July 16, 2016, the Company operated 165 supermarkets; 164 under the Tops banner and one under the Orchard Fresh banner, with an additional five supermarkets operated by franchisees under the Tops banner.  Holding II has no business operations other than the ownership of Holding I and as the issuer of the 2018 Notes (see Note 5) and a guarantor of the 2022 Notes (see Note 5).

Holding II is the reporting entity for the 2018 Notes and 2022 Notes.  Tops MBO Corporation (“Tops MBO Co”), the parent company of Holding II, is neither a co-issuer nor guarantor of these notes.  Accordingly, the condensed consolidated financial statements have been prepared for Holding II and exclude the assets and results of operations of Tops MBO Co.  Tops MBO Co’s assets consist solely of its investment in Holding II.  Tops MBO Co has no operations other than as the equity owner of Holding II.

Accounting Policies

A summary of the Company’s significant accounting policies is included in Note 1 to the audited consolidated financial statements of Holding II for the fiscal year ended January 2, 2016, which appear in the Company’s Annual Report on Form 10-K filed with the Securities and Exchange Commission on March 23, 2016.

Basis of Presentation and Principles of Consolidation

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

The Company operates on a 52/53 week fiscal year ending on the Saturday closest to December 30.  Fiscal years include 13 four-week reporting periods, with an additional week in the thirteenth reporting period for 53-week fiscal years.  The first quarter of each fiscal year includes four reporting periods, while the remaining quarters include three reporting periods.

The Company’s condensed consolidated financial statements for the 12-week and 28-week periods ended July 16, 2016 and July 11, 2015 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.

Recently Issued Accounting Pronouncements – Not Yet Adopted

In May 2014, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2014-09, “Revenue from Contracts with Customers” (“ASU No. 2014-09”), which provides guidance regarding revenue recognition.  ASU No. 2014-09’s core principle is that a company will recognize revenue when it transfers promised goods or services to customers in an amount that reflects the consideration to which the company expects to be entitled in exchange for those goods or services.  In August 2015, the FASB issued ASU No 2015-14, “Revenue from Contracts with Customers: Deferral of the Effective Date,” which deferred the effective date of ASU 2014-09 to annual reporting periods beginning after December 15, 2017, with earlier application permitted as of annual reporting periods beginning after December 15, 2016.  The Company is currently assessing the potential impact of ASU No. 2014-09 on its consolidated financial statements.

In February 2016, the FASB issued ASU No. 2016-02, “Leases,” (“ASU No. 2016-02”), which stipulates that lessees recognize a right-of-use asset and a lease liability for substantially all leases.  ASU No. 2016-02 is effective on a modified retrospective basis for reporting periods beginning after December 15, 2018, with early adoption permitted.  The Company is currently in the process of evaluating the effect of adoption of ASU No. 2016-02 on its consolidated financial statements.

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In March 2016, the FASB issued ASU No. 2016-08, “Principal versus Agent Considerations” (Reporting Revenue Gross versus Net) (“ASU No. 2016-08”).  ASU No. 2016-08 does not change the core principle of the guidance stated in ASU No. 2014-09, instead, the amendments in this ASU are intended to improve the operability and understandability of the implementation guidance on principal versus agent considerations and whether an entity reports revenue on a gross or net basis.  ASU No. 2016-08 will have the same effective date and transition requirements as the new revenue standard issued in ASU No. 2014-09.  The Company is currently in the process of evaluating the effect of adoption of ASU No. 2016-08 on its consolidated financial statements.

In June 2016, the FASB issued ASU No. 2016-13, “Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments” (“ASU No. 2016-13”).  The standard changes the methodology for measuring credit losses on financial instruments and the timing of when such losses are recorded.  ASU No. 2016-13 is effective for fiscal years, and interim periods within those years, beginning after December 15, 2019.  Early adoption is permitted for fiscal years, and interim periods within those years, beginning after December 15, 2018.  The Company does not expect that the adoption of this guidance will have a material impact on its consolidated financial statements.

Segments

The Company’s 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.  As of July 16, 2016, 51 corporate supermarkets offered pharmacy services and 52 corporate fuel centers were in operation.  The Company’s retail operations, which represent substantially all of the Company’s consolidated sales, earnings and total assets, are its only operating segment and reportable segment.  The Company’s retail operations as a whole reflect the level at which the business is managed and how the Company’s Chief Executive Officer and the Company’s President, who act as the Company’s chief operating decision makers, assess performance internally.    

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

	12-week periods ended										28-week periods ended
	July 16, 2016					July 11, 2015					July 16, 2016					July 11, 2015
			% of					% of					% of					% of
	Amount		Total			Amount		Total			Amount		Total			Amount		Total
Non-perishables(1)	$	331,244		56.2	%	$	325,349		55.5	%	$	744,175		57.1	%	$	738,329		56.4	%
Perishables(2)		184,455		31.3	%		181,151		30.9	%		396,883		30.5	%		392,906		30.0	%
Fuel		34,600		5.9	%		41,335		7.1	%		70,212		5.4	%		87,489		6.7	%
Pharmacy		34,113		5.8	%		32,892		5.6	%		79,976		6.1	%		78,127		6.0	%
Other(3)		5,177		0.8	%		5,184		0.9	%		12,079		0.9	%		11,910		0.9	%
	$	589,589		100.0	%	$	585,911		100.0	%	$	1,303,325		100.0	%	$	1,308,761		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 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 goodwill and intangible assets, lease classification, self-insurance reserves, inventory valuation and income taxes.  Actual results could differ from these estimates.

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Fair Value of Financial Instruments

The provisions of 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 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.

Financial instruments include cash and cash equivalents, accounts receivable, accounts payable and long-term debt.  The carrying amounts of cash and cash equivalents, accounts receivable and accounts payable approximate fair value because of the short-term nature of these financial instruments.  At July 16, 2016 and January 2, 2016, the carrying value and the estimated fair value of the Company’s debt instruments were as follows (dollars in thousands):

	July 16, 2016		January 2, 2016
Carrying value of long-term debt:
Current portion of long-term debt	$	2,182	$	2,075
Long-term debt		682,727		681,372
Total carrying value of debt instruments		684,909		683,447
Fair value of debt instruments		612,949		677,450
Excess of carrying value over fair value	$	71,960	$	5,997

The fair values of the 2018 Notes and 2022 Notes (see Note 5), which are included in long-term debt as of July 16, 2016 and January 2, 2016, were based on quoted market prices, a Level 2 source.

Fair value measurements of non-financial assets and non-financial liabilities are primarily used in the impairment analysis of long-lived assets, goodwill and intangible assets.  Long-lived assets and definite-lived intangible assets are measured at fair value on a nonrecurring basis using Level 3 inputs.  Goodwill and the Tops tradename are reviewed annually for impairment on December 1, or more frequently if impairment indicators arise.

2. GOODWILL AND INTANGIBLE ASSETS, NET

The following table summarizes the change in the Company’s goodwill balance during the 28-week period ended July 16, 2016 (dollars in thousands):

Balance - January 2, 2016	$	213,096
Adjustments		—
Balance - July 16, 2016	$	213,096

Goodwill is reviewed annually for impairment on December 1, or more frequently upon the occurrence of trigger events.  Based on the Company’s assessment, no goodwill impairment was recorded during the 12-week and 28-week periods ended July 16, 2016 and July 11, 2015.

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

	Gross					Net		Average
	Carrying		Accumulated			Carrying		Amortization
July 16, 2016	Amount		Amortization			Amount		Period
Tradename – indefinite	$	131,200	$	—		$	131,200	Indefinitelife
Customer relationships		29,200		(16,270	)		12,930		14.0
Favorable lease rights		19,050		(5,695	)		13,355		9.6
Franchise agreements		13,300		(4,696	)		8,604		14.0
Pharmacy scripts		3,979		(1,534	)		2,445		14.0
	$	196,729	$	(28,195	)	$	168,534		12.8

	Gross					Net
	Carrying		Accumulated			Carrying
January 2, 2016	Amount		Amortization			Amount
Tradename – indefinite	$	131,200	$	—		$	131,200
Customer relationships		29,200		(14,117	)		15,083
Favorable lease rights		21,550		(6,328	)		15,222
Franchise agreements		13,300		(3,872	)		9,428
Pharmacy scripts		3,979		(1,182	)		2,797
	$	199,229	$	(25,499	)	$	173,730

The Tops tradename is reviewed annually for impairment on December 1, or more frequently if impairment indicators arise.  Based on the Company’s assessment, no impairment was recorded during the 12-week and 28-week periods ended July 16, 2016 and July 11, 2015.

During the 12-week periods ended July 16, 2016 and July 11, 2015, amortization expense related to intangible assets was $1.9 million and $2.7 million, respectively.  During the 28-week periods ended July 16, 2016 and July 11, 2015, amortization expense related to intangible assets was $5.2 million and $6.2 million, respectively.  This amortization is included in depreciation and amortization in the condensed consolidated statements of comprehensive loss.

Depreciation and amortization in the condensed consolidated statements of comprehensive loss during each of the 12-week periods ended July 16, 2016 and July 11, 2015 includes $0.1 million of contra-expense related to the amortization of unfavorable lease rights, which are classified in other long-term liabilities in the condensed consolidated balance sheets.  During each of the 28-week periods ended July 16, 2016 and July 11, 2015, depreciation and amortization in the condensed consolidated statements of comprehensive loss includes $0.2 million of contra-expense related to the amortization of unfavorable lease rights.  Expected future amortization of these unfavorable lease rights is contra-expense of $0.1 million in the remaining period of Fiscal 2016, $0.3 million in Fiscal 2017, $0.3 million in Fiscal 2018, $0.3 million in Fiscal 2019, $0.3 million in Fiscal 2020 and $0.7 million thereafter.

As of July 16, 2016, expected future amortization of intangible assets is as follows (dollars in thousands):

2016 (remaining period)	$	3,778
2017		7,012
2018		5,904
2019		4,917
2020		4,127
Thereafter		11,596

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3. ACCRUED EXPENSES AND OTHER CURRENT LIABILITIES

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

	July 16, 2016		January 2, 2016
Wages, taxes and benefits	$	19,427	$	28,623
Lottery		12,363		13,127
Union medical, pension and 401(k)		8,798		5,817
Self-insurance reserves		6,452		6,502
Professional and legal fees		5,963		5,773
Interest payable		4,745		3,177
Sales and use tax		4,465		1,431
Gift cards		3,381		9,467
Utilities		2,595		2,346
Repairs and maintenance		1,915		2,050
Property and equipment expenditures		1,341		2,525
Money orders		951		2,682
Other		14,821		13,237
	$	87,217	$	96,757

4. CAPITAL LEASE OBLIGATIONS

The Company has a number of capital leases in effect for supermarket properties and equipment.  The initial lease terms generally range up to twenty-five years and will expire at various times through 2036, with options to renew for additional periods.  The majority of the supermarket leases provide for base rental, plus real estate taxes, insurance, common area maintenance and other operating expenses applicable to the leased premises.  Some leases contain escalation clauses for future rents and contingent rents based on sales volume.

As of July 16, 2016, future minimum lease rental payments applicable to non-cancelable capital lease obligations were as follows (dollars in thousands):

2016 (remaining period)	$	14,786
2017		31,116
2018		27,438
2019		24,723
2020		21,479
Thereafter		114,558
Total minimum lease payments		234,100
Less amounts representing interest		(149,177	)
Present value of net minimum lease payments		84,923
Less current obligations		(9,468	)
Long-term cash obligations		75,455
Non-cash obligations		64,796
Total long-term capital lease obligations	$	140,251

The Company entered into build-to-suit and 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 ASC Topic 840, “Leases,” due to the existence of continuing involvement within the lease agreements.

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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, as applicable, 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 and the estimated net book value of the buildings at the conclusion of the lease terms.  The related land assets are not depreciated, and at the end of the lease terms, the remaining capital lease obligations will equal the combined net book values of the land and buildings.  At the expiration of the lease terms, which range from 2017 to 2036, or when the Company’s continuing involvement under the lease agreements ends, the related land, buildings and capital lease obligations will be removed from the consolidated balance sheet, with no underlying cash payments.  These capital lease obligations are reflected as non-cash obligations in the preceding table.

5. DEBT

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

	July 16, 2016			January 2, 2016
2022 Notes	$	560,000		$	560,000
2018 Notes		85,514			86,704
Discount on 2018 Notes		(371	)		(470	)
Deferred financing fees		(11,441	)		(12,716	)
2017 ABL Facility		47,700			46,700
Other loans		3,507			3,229
Total debt		684,909			683,447
Current portion		(2,182	)		(2,075	)
Total long-term debt	$	682,727		$	681,372

On June 10, 2015, Holding I and Tops Markets II Corporation (collectively, the “Issuers”) issued $560.0 million in aggregate principal amount of senior secured notes due in 2022, bearing annual interest at a rate of 8.00% (the “2022 Notes”).  The proceeds from the 2022 Notes were used to fund a tender offer for, and redeem the balance of, the previously outstanding $460.0 million of senior secured notes issued by Holding I, Tops Markets and Tops Markets II Corporation (the “2017 Notes”) and to fund a partial tender offer for $60.0 million of the $150.0 million outstanding 8.75%/9.50% senior unsecured notes issued by Holding II (the “2018 Notes”), including tender and redemption premiums of $23.0 million and $1.2 million, respectively, which have been recorded within loss on debt extinguishment in the condensed consolidated statements of comprehensive loss during the 12-week and 28-week periods ended July 11, 2015.  The proceeds were also used to pay accrued and unpaid interest related to the tendered and redeemed notes and fees and expenses related to the issuance of the 2022 Notes.  The 2022 Notes mature on June 15, 2022 and require semi-annual interest payments on June 15 and December 15.  The 2022 Notes are redeemable, in whole or in part, at any time on or after June 15, 2018 at specified redemption prices.  Prior to June 15, 2018, the Company may redeem the 2022 Notes, in whole or in part, at a specified “make-whole” premium.

The 2022 Notes are collateralized by (i) first priority security interests, subject to certain exceptions and permitted liens, in the stock held by the Issuers and the guarantor subsidiaries, Tops Markets, Tops PT, LLC, Tops Gift Card Company, LLC and Erie Logistics LLC (collectively, the “Guarantors”), the Company’s warehouse and distribution facility in Lancaster, New York, the Company’s retail facility located in Fayetteville, New York and certain owned real property acquired by the Issuers and the Guarantors following the issue date of the 2022 Notes, equipment, intellectual property, and substantially all other assets of the Issuers and the Guarantors, other than those assets securing the Company’s asset-based revolving credit facility (the “2017 ABL Facility”) on a first priority basis (collectively, the “2022 Notes Priority Collateral”), and (ii) second priority security interests, subject to certain exceptions and permitted liens, in the assets of Holding II, the Issuers and the Guarantors that secure the 2017 ABL Facility on a first priority basis, including present and future receivables, deposit accounts, inventory, prescription lists, and certain rights and proceeds relating thereto (collectively, the “ABL Priority Collateral”).

The 2022 Notes are guaranteed on a senior secured basis, jointly and severally, by each of the Guarantors and will in the future be guaranteed by certain of Holding I’s future domestic subsidiaries.  The 2022 Notes are also guaranteed on a senior unsecured basis by Holding II.

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On May 15, 2013, Holding II issued $150.0 million of 2018 Notes.  As discussed above, on June 10, 2015, Holding II successfully tendered for and repurchased $60.0 million of 2018 Notes.  On January 20, 2016 and December 18, 2015, $1.2 million and $3.3 million, respectively, of 2018 Notes were repurchased in “open market” transactions, resulting in a remaining outstanding principal amount of $85.5 million as of July 16, 2016.  If certain conditions are met, Holding II may be entitled to pay interest on the 2018 Notes by increasing the principal of the notes or by issuing new notes as pay-in-kind interest.  This payment in kind interest would accrue at an annual rate of 9.50%.  The 2018 Notes mature on June 15, 2018 and require semi-annual interest payments on June 15 and December 15.  To the extent permitted by the indenture governing the 2022 Notes and the 2017 ABL Facility (see below), Holding I may make dividend payments to Holding II to fund additional repurchases and the semi-annual interest payments for the 2018 Notes.  The 2018 Notes are redeemable, in whole or in part, at specified redemption prices.  

On December 14, 2012, Tops Markets entered into the 2017 ABL Facility with Bank of America, N.A. as collateral agent and administrative agent.  The 2017 ABL Facility allows a maximum borrowing capacity of $125.0 million, subject to a borrowing base calculation, with an option for up to $50.0 million of additional borrowing capacity if the required conditions are met.  The borrowing base includes inventory, pharmacy prescription files and certain receivables.  The 2017 ABL Facility matures on December 14, 2017.

Costs associated with the 2022 Notes and 2018 Notes of $10.7 million and $2.7 million, respectively, were capitalized and are being amortized over the respective terms of the 2022 Notes and 2018 Notes using the effective interest method.  Costs associated with the 2017 ABL Facility of $1.1 million were capitalized and are being amortized on a straight-line basis over the term of the 2017 ABL Facility.  

During the 12-week periods ended July 16, 2016 and July 11, 2015, amortization expense related to the deferred financing costs was $0.5 million and $0.8 million, respectively.  During the 28-week periods ended July 16, 2016 and July 11, 2015, amortization expense related to the deferred financing costs was $1.2 million and $2.1 million, respectively.  This amortization expense is included in interest expense in the condensed consolidated statements of comprehensive loss.  At July 16, 2016, long-term debt included deferred financing costs, net of accumulated amortization of $3.0 million, totaling $11.4 million.  At January 2, 2016, long-term debt included deferred financing costs, net of accumulated amortization of $1.8 million, totaling $12.7 million. 

As of July 16, 2016, the unused availability under the 2017 ABL Facility was $46.5 million, after giving effect to the borrowing base calculation, $22.8 million of letters of credit outstanding and $47.7 million of borrowings outstanding.  As of January 2, 2016, $23.8 million of letters of credit were outstanding under the 2017 ABL Facility.  Revolving loans under the 2017 ABL Facility, at the Company’s option, bear interest at either LIBOR plus a margin of 150 to 200 basis points, determined based on levels of borrowing availability, or the prime rate plus a margin of 50 to 100 basis points, determined based on levels of borrowing availability.  As of July 16, 2016 and January 2, 2016, the weighted average interest rates on borrowings under the 2017 ABL Facility were 2.56% and 3.20%, respectively.  The 2017 ABL Facility is collateralized primarily by (i) first priority interests, subject to certain exceptions and permitted liens, in the ABL Priority Collateral, and (ii) second priority interests, subject to certain exceptions and permitted liens, in the 2022 Notes Priority Collateral.

The instruments governing the 2022 Notes, 2018 Notes and the 2017 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 obligations on a change in control.  Failure to meet any of these covenants would be an event of default.  On August 19, 2014, the 2017 ABL Facility was amended to reduce specified restrictions on the Company’s ability to make certain restricted payments, including dividends.  As of July 16, 2016, the Company was in compliance with its covenants under these agreements.

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6. INCOME TAXES

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

	12-week periods ended						28-week periods ended
	July 16, 2016			July 11, 2015			July 16, 2016			July 11, 2015
Current	$	(292	)	$	(7	)	$	(318	)	$	(9	)
Deferred		(409	)		(393	)		(954	)		(933	)
Total income tax expense	$	(701	)	$	(400	)	$	(1,272	)	$	(942	)

Based on an assessment of positive and negative evidence regarding the realization of the Company’s deferred tax assets, the Company continues to maintain a full valuation allowance against total net deferred tax assets, and consequently, the Company recognized no income tax benefit during the 12-week and 28-week periods ended July 16, 2016 and July 11, 2015.

The income tax expense recognized for the 12-week and 28-week periods ended July 16, 2016 solely reflects the recognition of additional valuation allowance associated with the tax amortization of the Company’s indefinite-lived tradename and goodwill deferred tax liabilities.  The effective tax rates would have been 38.9% and 39.0%, respectively, without the establishment of valuation allowance.

The income tax expense recognized for the 12-week and 28-week periods ended July 11, 2015 solely reflects the recognition of additional valuation allowance associated with the tax amortization of the Company’s indefinite-lived tradename and goodwill deferred tax liabilities.  The effective tax rate would have been 39.1% during each of the periods without the establishment of valuation allowance.

As of the beginning of fiscal year 2016, the Company had U.S. federal and state net operating loss carryforwards of $70.9 million and $71.5 million, respectively, which expire beginning in 2029.  In addition, the Company had federal tax credits of $5.4 million, which expire beginning in 2027.

7. GAIN ON SALE OF ASSETS

During January 2015, the Company sold pharmacy scripts and inventory related to 27 of its in-store pharmacy locations for cash proceeds of $14.9 million.  These pharmacies were then closed.  A resulting gain on sale of assets of $11.0 million, net of the carrying value of sold inventory of $3.2 million and direct selling expenses of $0.7 million, was recognized in the condensed consolidated statement of comprehensive loss for the 28-week period ended July 11, 2015.

8. DIVIDENDS PAID

On January 14, 2016, the Company paid a dividend to Tops MBO Co totaling $2.0 million.

On January 8, 2015, the Company paid a dividend of $0.8 million to Tops MBO Co to repurchase outstanding shares of common stock of Tops MBO Co from a former Company executive.  In addition, one outstanding share of common stock of Holding II was repurchased.

9. COMMITMENTS AND CONTINGENCIES

Multiemployer Pension Plans

On December 22, 2013, Tops Markets acquired all of the membership interests of Erie Logistics, LLC (“Erie Logistics”) and certain other assets from C&S Wholesale Grocers, Inc. (“C&S”).  Erie Logistics operates the Company’s warehouse and distribution facilities located in Lancaster and Cheektowaga, New York and employs the warehouse and driver personnel at these facilities, all of whom are represented by Teamsters Local 264.  Under its supply agreement with Tops Markets, C&S, through Erie Logistics, had operated these facilities since 2002.

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In late January 2014, the Company received notice that the New York State Teamsters Conference Pension and Retirement Fund (the “Fund”) had suspended Erie Logistics as a participating employer in the Fund pending the Fund’s investigation into the acquisition of Erie Logistics from C&S.  This suspension was retroactive to the effective date of the acquisition.  During this “suspension” and thereafter through the date of this Quarterly Report on Form 10-Q, Erie Logistics has elected to continue to make contributions to the Fund in accordance with the terms set forth in the collective bargaining agreements with Teamsters Local 264.  The Fund has rejected and returned these contributions.  During the 12-week periods ended July 16, 2016 and July 11, 2015, these rejected contributions totaled $1.2 million and $0.8 million, respectively.  During the 28-week periods ended July 16, 2016 and July 11, 2015, these rejected contributions totaled $2.9 million and $2.4 million, respectively.  On May 27, 2014, the Fund provided Erie Logistics and C&S with notice of its determination that Erie Logistics incurred employer withdrawal liability as a result of the acquisition.  The notice provides that Erie Logistics owes withdrawal liability of $183.7 million, payable in a lump sum or in monthly installments, calculated to give effect to a limit on total withdrawal liability imposed by the Employee Retirement Income Security Act (“ERISA”), of $641,514 for 240 months.

The Company believes that the Fund’s determination of a withdrawal violates ERISA, the existing participation agreements between Erie Logistics and the Fund, and the fiduciary duties of the trustees of the Fund.  The Company is vigorously contesting this determination through mandatory arbitration under ERISA.

The Company has not recorded any reserve for this matter as a loss is not considered probable.  If it were ultimately determined that Erie Logistics has incurred a withdrawal liability to the Fund, the Company would bear financial responsibility for this liability.  Under the terms of the purchase agreement for the acquisition of Erie Logistics from C&S, and as a continuation of its prior contractual obligations, the Company retains the obligation to indemnify C&S in the event withdrawal liability is imposed on Erie Logistics, the Company or C&S.  During the pendency of the proceeding to contest the withdrawal determination, ERISA requires that conditional monthly payments of withdrawal liability be made, which began July 28, 2014.  During each of the 28-week periods ended July 16, 2016 and July 11, 2015, the monthly conditional payments of withdrawal liability totaled $3.8 million.  These monthly conditional payments are in addition to pension contributions the Company has elected to make for the benefit of Erie Logistics’ associates under the collective bargaining agreements with Teamsters Local 264 which, as noted, the Fund has refused to accept.  The aggregate conditional monthly payments of withdrawal liability, totaling $15.4 million as of July 16, 2016, have been recorded in other assets, while the aggregate rejected contributions that the Company has elected to make, totaling $11.8 million as of July 16, 2016, have been recorded in other long-term liabilities and cash within its condensed consolidated balance sheet.

On July 28, 2014, Teamsters Local 264 filed a grievance charging a violation of its collective bargaining agreements by reason of the Company’s failing to participate in the Fund.  On July 4, 2016, the arbitrator denied this grievance.  The Company is in active discussions with Teamsters Local 264 regarding certain aspects of the grievance and the arbitrator’s decision.  

Purchase Commitments

Effective December 22, 2013, in connection with its purchase of all the membership interests of Erie Logistics and certain other assets from C&S, the Company modified its existing agreement with C&S whereby the Company resumed warehousing and transportation functions for the WNY warehouses, while C&S continues to provide procurement and purchasing services in support of the majority of the Company’s supply chain.  This modified agreement sets out the parties' respective responsibilities for the procurement and purchase of merchandise intended for use or resale in a majority of the Company’s supermarkets.  In consideration for the services it provides under this agreement, C&S is paid a fee based on all merchandise purchased by the Company from C&S through the WNY warehouses with C&S also having incentive income opportunities under the agreement.  As of April 1, 2015, the Company and C&S agreed in principle to amend certain operating terms of this agreement and extend the term through April 1, 2020.

On September 24, 2012, the Company entered into a separate agreement with C&S to provide warehousing, transportation, procurement and purchasing services in support of the 21 supermarkets acquired from GU Markets in October 2012.  This agreement expires on September 23, 2022.

Effective May 1, 2013, Tops Markets entered into a member participation agreement with Topco, a procurement cooperative for food retailers and wholesalers, for the supply of substantially all of the Company’s prescription drugs.  Tops Markets must purchase 95% of its branded prescription drugs and 95% of its generic pharmaceutical products through Topco.  This agreement expires February 28, 2017.

Effective March 1, 2016, the Company extended its existing IT outsourcing agreement with HP Enterprise Services, LLC (“HPE”) through February 29, 2024.  Under this agreement, HPE provides data center operations, mainframe processing, business applications and systems development, which are expected to enhance the Company’s customer service and efficiency.  The amounts payable to HP under this agreement are based upon the services requested by the Company at predetermined rates.

The costs of these purchase commitments are not reflected in the Company’s consolidated balance sheets.

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Environmental Liabilities

The Company is contingently liable for potential environmental issues related to some of its properties.  As the Company is unaware of environmental issues that are expected to materially impact the Company’s consolidated financial statements as a whole, no amounts were accrued as of July 16, 2016 or January 2, 2016.

Collective Bargaining Agreements

The Company employs approximately 15,000 associates.  Approximately 83% of these associates are members of United Food and Commercial Workers, or UFCW, District Union Local One, or Local One, or two other UFCW unions.  Approximately 4% of these associates are members of Teamsters Local 264, who work in the Company’s WNY warehouse and distribution facilities.  All other associates are non-union.  The Company is a party to five collective bargaining agreements with Local One expiring between April 2017 and October 2018.  The Company has one non-Local One UFCW collective bargaining agreement that expired in April 2016.  The Company is currently operating under a memorandum of agreement to extend that expired collective bargaining agreement.  The Company also is a party to one other non-Local One UFCW collective bargaining agreement that expires in February 2018.  The Company is a party to three collective bargaining agreements with Teamsters Local 264 that expire in August 2019.

Legal Proceedings

Except as otherwise disclosed in this note, the Company is unaware of any legal proceedings that are expected to materially impact the Company’s consolidated financial statements as a whole.  No amounts related to contingent liabilities due to legal proceedings were accrued as of July 16, 2016 or January 2, 2016.

10. BUSINESS ACQUISITION

On July 13, 2016, the Company announced an agreement to acquire four supermarkets from The Stop & Shop Supermarket Company LLC, which currently operates these stores under the Stop & Shop banner, and two supermarkets from Hannaford Bros. Co., LLC and Martin’s Foods of South Burlington, LLC, which currently operate these stores under the Hannaford banner, in eastern New York and Massachusetts. These transactions are expected to close beginning August 21, 2016 and are subject to customary closing conditions. The aggregate purchase price for this combined acquisition of $12.0 million, plus an estimated purchase price for inventory of $5.9 million, is expected to be funded using cash on hand and available borrowings under the Company’s 2017 ABL Facility.  

The Company believes the acquisition creates significant strategic value due to the expansion it provides to the Company’s supermarket base as well as the minimal incremental general and administrative expenses expected to be incurred.

Based upon a preliminary expected allocation of the aggregate purchase price, the assets to be acquired will be recorded at their respective estimated fair values as of the acquisition dates.  Due to the timing of the closings for the acquisition, the preliminary expected allocation of the aggregate purchase price is based on management’s best estimates of fair values as of the expected acquisition dates using information available as of the date of this 10-Q and is subject to adjustments.  The valuations are expected to be finalized within 12 months of the closing of the acquisition.  As the valuations are finalized, any changes to the preliminary expected valuation of assets acquired may result in material adjustments to the fair value of inventory, equipment and identifiable intangible assets acquired and will be adjusted retrospectively.  

The following table summarizes the expected preliminary allocation of the purchase price to the assets acquired as of the expected transaction dates (dollars in thousands):  

Assets acquired:
Inventory	$	5,939
Equipment		5,888
Pharmacy scripts		3,950
Goodwill		1,839
Customer lists		323
Acquisition price	$	17,939

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The following table summarizes the Company’s unaudited pro forma operating results for the 12-week and 28-week periods ended July 16, 2016 and July 11, 2015, giving effect to the acquisition as if it occurred as of the beginning of fiscal year 2015 (dollars in thousands):

	12-week periods ended					28-week periods ended
	July 16, 2016		July 11, 2015			July 16, 2016			July 11, 2015
Net sales	$	628,820	$	625,142		$	1,394,863		$	1,400,299
Operating income		19,776		19,636			34,309			45,740
Net income (loss)		508		(34,309	)		(10,417	)		(34,490	)

The pro forma financial information above reflects the $0.2 million of transaction costs incurred by the Company during the 12-week and 28-week periods ended July 16, 2016 within the operating results for the 28-week period ended July 11, 2015.  Additionally, the pro forma information includes estimated depreciation and amortization of $0.5 million during each of the 12-week periods ended July 16, 2016 and July 11, 2015, and estimated depreciation and amortization of $1.2 million during each of the 28-week periods ended July 16, 2016 and July 11, 2015.  This pro forma financial information is not intended to represent or be indicative of what would have occurred if the acquisition had taken place as of the beginning of the periods presented and should not be taken as representative of the Company’s future consolidated results of operations.

11. IMPAIRMENT

During August 2016, the Company determined that the expected future cash flows associated with one supermarket location were insufficient to recover that location’s aggregate net book value of long-lived assets.  As a result, the net book values of leasehold improvements and equipment assets were written down to their estimated fair values, a Level 3 fair value source.  A corresponding non-cash impairment of $2.1 million was recognized in the condensed consolidated statements of comprehensive loss for the 12-week and 28-week periods ended July 16, 2016.

ITEM 2.  MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following discussion should be read in conjunction with our condensed consolidated financial statements and related notes and other financial information appearing elsewhere in this Quarterly Report on Form 10-Q (the “10-Q”).

We are a leading supermarket retailer in Upstate New York, Northern Pennsylvania and Vermont.  Introduced in 1962, our Tops brand is widely recognized as a strong retail supermarket brand name in our market area, supported by strong customer loyalty and attractive supermarket locations.  As of July 16, 2016, we operated 165 full-service supermarkets, 164 under the Tops banner and one under the Orchard Fresh banner, with an additional five supermarkets operated by franchisees under the Tops banner.

Forward-Looking Statements

This 10-Q 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:

· 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 store acquisition, construction and remodel programs;

· fluctuations in utility, fuel and commodity prices, which could impact consumer spending and buying habits and the cost of doing business;

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· risks inherent in our fuel station 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 our unions and unionized employees, the terms of future collective bargaining agreements or labor strikes;

· increased operating costs resulting from increases in the minimum wage, 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; and

· other factors discussed under “Risk Factors” in our Annual Report on Form 10-K for the year ended January 2, 2016 and elsewhere in this 10-Q.

We caution that investors 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 30.  Our fiscal years include 13 four-week reporting periods, with an additional week in the thirteenth reporting period for 53-week fiscal years.  Our first quarter of each fiscal year includes four reporting periods, while the remaining quarters include three reporting periods.

Our condensed consolidated financial statements for the 12-week and 28-week periods ended July 16, 2016 and July 11, 2015 are unaudited, and, in the opinion of our 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 EVENTS AFFECTING OUR RESULTS OF OPERATIONS AND THE COMPARABILITY OF REPORTED RESULTS OF OPERATIONS

June 2015 Refinancing

On June 10, 2015, Holding I and Tops Markets II Corporation issued $560.0 million in aggregate principal amount of 2022 Notes, bearing annual interest at a rate of 8.00%. The proceeds from the 2022 Notes were used to fund a tender offer for, and redeem the balance of, the previously outstanding $460.0 million of 2017 Notes and to fund a partial tender offer for $60.0 million of the $150.0 million outstanding 2018 Notes, including tender and redemption premiums of $23.0 million and $1.2 million, respectively.  The proceeds were also used to pay accrued and unpaid interest related to the tendered and redeemed notes and fees and expenses related to the issuance of the 2022 Notes.

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2015 Sale of Pharmacy Assets

During January 2015, we sold pharmacy scripts and inventory related to 27 of our in-store pharmacy locations, which resulted in a gain on sale of assets of $11.0 million in the condensed consolidated statement of comprehensive loss for the 28-week period ended July 11, 2015.

RESULTS OF OPERATIONS

12-Week Period Ended July 16, 2016 Compared with the 12-Week Period Ended July 11, 2015

Summary

The results of operations during the 12-week period ended July 16, 2016 were impacted by the $12.8 million incremental inside sales contribution from seven acquired and new supermarkets opened since May 2015 and a same store sales decrease of 1.1%, primarily resulting from food cost deflation.  Relatively lower margin fuel sales decreased $6.7 million during the 12-week period ended July 16, 2016, primarily as a result of a decrease in fuel retail prices.  This decrease in lower margin fuel sales, combined with a $1.9 million decrease in distribution costs, which occurred largely due to lower self-insured workers’ compensation claims expense, drove an 80 basis points increase in gross profit margin.  

Net Sales

The following table includes the components of our net sales for the 12-week periods ended July 16, 2016 and July 11, 2015.

(Dollars in thousands)

	12-week periods ended
	July 16, 2016		July 11, 2015		$ Change			% Change
Inside sales	$	554,989	$	544,576	$	10,413			1.9	%
Fuel sales		34,600		41,335		(6,735	)		(16.3	)%
Net sales	$	589,589	$	585,911	$	3,678			0.6	%

Inside sales increased due to the $12.8 million incremental contribution from seven acquired and new supermarkets opened since May 2015.  Same store sales decreased 1.1%, primarily due to food cost deflation in certain categories, including meat and dairy, and competitive pressure to lower food prices in response.  Same store sales is inside sales, excluding franchise revenue, for “same stores,” which are supermarkets that have been operating for at least 13 full four-week periods.  To calculate the same store sales change, we used the 12-week period ended July 18, 2015, as this represents the most comparable period to the 12-week period ended July 16, 2016.

The decrease in fuel sales was due to a 15.6% decrease in the average retail price per gallon, net of applicable discounts, and a 0.9% net decrease in gallons sold.

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Gross Profit

The following table includes a comparison of cost of goods sold, distribution costs and gross profit for the 12-week periods ended July 16, 2016 and July 11, 2015.

(Dollars in thousands)

	12-week						12-week
	period ended			% of			period ended			% of			$			%
	July 16, 2016			Net Sales			July 11, 2015			Net Sales			Change			Change
Cost of goods sold	$	(404,286	)		68.6	%	$	(404,259	)		69.0	%	$	(27	)		(0.0	)%
Distribution costs		(9,646	)		1.6	%		(11,563	)		2.0	%		1,917			16.6	%
Gross profit	$	175,657			29.8	%	$	170,089			29.0	%	$	5,568			3.3	%

As a percentage of net sales, the decrease in cost of goods sold was due to a shift in product mix given the smaller proportion of relatively lower margin fuel sales.  Non-cash LIFO inventory valuation adjustments changed from expense of $0.2 million during the 12-week period ended July 11, 2015 to income of $0.1 million during the 12-week period ended July 16, 2016.  Excluding the impact of LIFO adjustments, cost of goods sold as a percentage of inside sales was 67.4% during each of the 12-week periods ended July 16, 2016 and July 11, 2015.

The decrease in distribution costs was largely due to a $1.7 million decrease in self-insured workers’ compensation claims expense.

Operating Expenses

The following table includes a comparison of operating expenses for the 12-week periods ended July 16, 2016 and July 11, 2015.

(Dollars in thousands)

	12-week					12-week
	period ended		% of			period ended		% of			$			%
	July 16, 2016		Net Sales			July 11, 2015		Net Sales			Change			Change
Wages, salaries and benefits	$	84,559		14.3	%	$	82,771		14.1	%	$	1,788			2.2	%
Selling and general expenses		27,231		4.6	%		26,548		4.5	%		683			2.6	%
Administrative expenses		18,578		3.2	%		17,509		3.0	%		1,069			6.1	%
Rent expense, net		6,505		1.1	%		6,374		1.1	%		131			2.1	%
Depreciation and amortization		14,718		2.5	%		14,566		2.5	%		152			1.0	%
Advertising		5,594		0.9	%		5,854		1.0	%		(260	)		(4.4	)%
Impairment		2,076		0.4	%		—	N/A				2,076		N/A
Total	$	159,261		27.0	%	$	153,622		26.2	%	$	5,639			3.7	%

Wages, Salaries and Benefits

The increase in wages, salaries and benefits as a percentage of net sales was due to the smaller proportion of fuel sales as a percentage of net sales, which require relatively modest labor investments.  As a percentage of inside sales, wages, salaries and benefits was a consistent 15.2%.

Selling and General Expenses

Selling and general expenses remained relatively consistent as a percentage of net sales.

Administrative Expenses

The increase in administrative expenses was largely due to a $0.4 million increase in bonus expense based upon performance against budget metrics and $0.2 million of incremental legal and professional fees incurred during the 12-week period ended July 16, 2016 related to the ongoing dispute and associated arbitration proceeding with the New York State Teamsters Conference Pension and Retirement Fund discussed in Note 9 to our condensed consolidated financial statements contained in Item 1 of this Form 10-Q.  

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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.  The increase in rent expense was due to new supermarket openings since May 2015.

Depreciation and Amortization

The increase in depreciation and amortization was due to incremental depreciation related to capital expenditures since mid-2015.

Advertising

Advertising remained relatively consistent as a percentage of net sales.

Impairment

During the 12-week period ended July 16, 2016, we determined that the expected future cash flows associated with one supermarket location were insufficient to recover the location’s aggregate net book value of long-lived assets.  As a result, the net book values of leasehold improvements and equipment assets were written down to their estimated fair values.  A corresponding non-cash impairment of $2.1 million was recognized in the condensed consolidated statement of comprehensive loss.  

Loss on debt extinguishment

During June 2015, we satisfied and discharged our obligations under our 2017 Notes and redeemed $60.0 million of our 2018 Notes.  In connection with these financing activities, we recorded a $34.5 million loss on debt extinguishment during the 12-week period ended July 11, 2015.  See Note 5 to our condensed consolidated financial statements in Item 1 of this 10-Q for further details.

Interest Expense, Net

Interest expense decreased $0.5 million due to a lower average borrowing rate on long-term debt as a result of our June 2015 refinancing activities.  

Income Tax Expense

Based on an assessment of positive and negative evidence regarding the realization of our deferred tax assets, we continue to maintain a full valuation allowance against total net deferred tax assets, and consequently, we recognized no income tax benefit during the 12-week periods ended July 16, 2016 and July 11, 2015.  

The income tax expense recognized for the 12-week periods ended July 16, 2016 and July 11, 2015 solely reflects the recognition of additional valuation allowance associated with the tax amortization of our indefinite-lived tradename and goodwill deferred tax liabilities.  The effective tax rates would have been 38.9% and 39.1%, respectively, without the establishment of valuation allowance.

Net Loss

Our net loss decreased $34.6 million for the reasons described above.

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28-Week Period Ended July 16, 2016 Compared with the 28-Week Period Ended July 11, 2015

Summary

The results of operations during the 28-week period ended July 16, 2016 compared with the 28-week period ended July 11, 2015 were impacted by the $29.5 million incremental inside sales contribution from seven acquired and new supermarkets opened since May 2015 and a same store sales decrease of 1.3%, primarily resulting from food cost deflation.  Fuel sales decreased $17.3 million during the 28-week period ended July 16, 2016, primarily as a result of a decrease in fuel retail prices.  Due to market changes in fuel retail prices and costs, fuel profit was unusually high during the 28-week period ended July 11, 2015 and returned to normal levels in 2016, which was the primary driver of the fuel gross profit decrease of $2.5 million.  Offsetting this decrease were incremental savings of $2.4 million associated with the amendment of certain operating terms in our agreement with C&S, which became effective April 1, 2015.  Our operating expenses were impacted by $2.2 million of incremental legal and professional fees during the 28-week period ended July 16, 2016 related to the ongoing dispute and associated arbitration proceeding with the New York State Teamsters Conference Pension and Retirement Fund.  

Net Sales

The following table includes the components of our net sales for the 28-week periods ended July 16, 2016 and July 11, 2015.

(Dollars in thousands)

	28-week periods ended
	July 16, 2016		July 11, 2015		$ Change			% Change
Inside sales	$	1,233,113	$	1,221,272	$	11,841			1.0	%
Fuel sales		70,212		87,489		(17,277	)		(19.7	)%
Net sales	$	1,303,325	$	1,308,761	$	(5,436	)		(0.4	)%

Inside sales increased due to the $29.5 million incremental contribution from seven acquired and new supermarkets opened since May 2015.  This increase was partially offset by a $2.4 million reduction in pharmacy sales attributable to the closure of 27 in-store pharmacies during January 2015.  Same store sales decreased 1.3%, primarily due to food cost deflation in certain categories, including meat and dairy, and competitive pressure to lower food prices in response.  Same store sales is inside sales, excluding franchise revenue, for “same stores,” which are supermarkets that have been operating for at least 13 full four-week periods.  Sales related to the 27 closed in-store pharmacies have been excluded for purposes of calculating same store sales.  To calculate the same store sales change, we used the 28-week period ended July 18, 2015, as this represents the most comparable period to the 28-week period ended July 16, 2016.

The decrease in fuel sales was due to a 19.0% decrease in the average retail price per gallon, net of applicable discounts, and a 1.0% net decrease in gallons sold.

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Gross Profit

The following table includes a comparison of cost of goods sold, distribution costs and gross profit for the 28-week periods ended July 16, 2016 and July 11, 2015.

(Dollars in thousands)

	28-week						28-week
	period ended			% of			period ended			% of			$		%
	July 16, 2016			Net Sales			July 11, 2015			Net Sales			Change		Change
Cost of goods sold	$	(891,152	)		68.4	%	$	(898,384	)		68.6	%	$	7,232		0.8	%
Distribution costs		(21,460	)		1.6	%		(25,823	)		2.0	%		4,363		16.9	%
Gross profit	$	390,713			30.0	%	$	384,554			29.4	%	$	6,159		1.6	%

As a percentage of net sales, the decrease in cost of goods sold was due to a shift in product mix given the smaller proportion of relatively lower margin fuel sales.  Non-cash LIFO inventory valuation expense decreased $0.1 million from $0.4 million during the 28-week period ended July 11, 2015 to $0.3 million during the 28-week period ended July 16, 2016.  Excluding the impact of LIFO adjustments, cost of goods sold as a percentage of inside sales was 67.3% during each of the 28-week periods ended July 16, 2016 and July 11, 2015.  

The decrease in distribution costs was due to $1.9 million of incremental savings associated with the amendment of certain operating terms of our agreement with C&S, which became effective April 1, 2015.  This amount recorded in distribution costs is in addition to $0.5 million of savings classified in cost of goods sold related to the amended terms.  In addition, there was a $1.7 million decrease in self-insured workers’ compensation claims expense.

Operating Expenses

The following table includes a comparison of operating expenses for the 28-week periods ended July 16, 2016 and July 11, 2015.

(Dollars in thousands)

	28-week					28-week
	period ended		% of			period ended			% of			$			%
	July 16, 2016		Net Sales			July 11, 2015			Net Sales			Change			Change
Wages, salaries and benefits	$	192,392		14.8	%	$	192,227			14.7	%	$	165			0.1	%
Selling and general expenses		63,736		4.9	%		64,350			4.9	%		(614	)		(1.0	)%
Administrative expenses		44,048		3.4	%		41,002			3.1	%		3,046			7.4	%
Rent expense, net		15,106		1.2	%		14,571			1.1	%		535			3.7	%
Depreciation and amortization		34,633		2.7	%		33,172			2.5	%		1,461			4.4	%
Advertising		12,018		0.9	%		11,689			0.9	%		329			2.8	%
Impairment		2,076		0.2	%		—		N/A				2,076		N/A
Gain on sale of assets		—	N/A				(11,014	)		(0.8	)%		11,014			100.0	%
Total	$	364,009		28.1	%	$	345,997			26.4	%	$	18,012			5.2	%

Wages, Salaries and Benefits

Wages, salaries and benefits remained relatively consistent as a percentage of net sales.

Selling and General Expenses

The decrease in selling and general expenses was primarily due to a $1.4 million decrease in utility costs attributable to lower commodity costs and usage due to the milder weather during early 2016.

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Administrative Expenses

The increase in administrative expenses was largely due to $2.2 million of incremental legal and professional fees incurred during the 28-week period ended July 16, 2016 related to the ongoing dispute and associated arbitration proceeding with the New York State Teamsters Conference Pension and Retirement Fund discussed in Note 9 to our condensed consolidated financial statements contained in Item 1 of this Form 10-Q.  The increase also reflects normal wage adjustments and increased corporate associate healthcare costs.  

Rent Expense, Net

Rent expense reflects our rental expense for supermarkets under operating leases, net of income we receive from various entities that rent space in our supermarkets under subleases.  The increase in rent expense was due to new supermarket openings since May 2015.

Depreciation and Amortization

The increase in depreciation and amortization was due to incremental depreciation related to capital expenditures since early 2015.

Advertising

Advertising remained relatively consistent as a percentage of net sales.

Impairment

During the 28-week period ended July 16, 2016, we determined that the expected future cash flows associated with one supermarket location were insufficient to recover the location’s aggregate net book value of long-lived assets.  As a result, the net book values of leasehold improvements and equipment assets were written down to their estimated fair values.  A corresponding non-cash impairment of $2.1 million was recognized in the condensed consolidated statement of comprehensive loss.  

Gain on Sale of Assets

During January 2015, we sold pharmacy scripts and inventory related to 27 of our in-store pharmacy locations for cash proceeds of $14.9 million.  These pharmacies were then closed.  A resulting gain on sale of assets of $11.0 million, net of the carrying value of sold inventory of $3.2 million and direct selling expenses of $0.7 million, was recognized in the condensed consolidated statement of comprehensive loss for the 28-week period ended July 11, 2015.

Loss on debt extinguishment

During June 2015, we satisfied and discharged our obligations under our 2017 Notes and redeemed $60.0 million of our 2018 Notes.  In connection with these financing activities, we recorded a $34.5 million loss on debt extinguishment during the 28-week period ended July 11, 2015.  See Note 5 to our condensed consolidated financial statements in Item 1 of this 10-Q for further details.

Interest Expense, Net

Interest expense decreased $1.3 million due primarily to a lower average borrowing rate on long-term debt as a result of our June 2015 refinancing activities.

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Income Tax Expense

Based on an assessment of positive and negative evidence regarding the realization of our deferred tax assets, we continue to maintain a full valuation allowance against total net deferred tax assets, and consequently, we recognized no income tax benefit during the 28-week periods ended July 16, 2016 and July 11, 2015.  

The income tax expense recognized for the 28-week periods ended July 16, 2016 and July 11, 2015 solely reflects the recognition of additional valuation allowance associated with the tax amortization of our indefinite-lived tradename and goodwill deferred tax liabilities.  The effective tax rates would have been 39.0% and 39.1%, respectively, without the establishment of valuation allowance.

Net Loss

Our net loss decreased $23.7 million for the reasons described above.

LIQUIDITY AND CAPITAL RESOURCES

Our primary sources of cash are cash flows generated from our operations and borrowings under our 2017 ABL Facility.  Our 2017 ABL Facility allows a maximum borrowing capacity of $125.0 million, subject to a borrowing base calculation, with an option for future upsizing with up to $50.0 million of incremental commitments if the required conditions are met.  As of July 16, 2016, the unused availability under our 2017 ABL Facility was $46.5 million, after giving effect to the borrowing base calculation, $22.8 million of letters of credit outstanding and $47.7 million of borrowings outstanding.  We expect that cash generated from operations and availability under our 2017 ABL Facility will permit us to fund our debt service requirements, investments in working capital, capital expenditures, acquisitions and other cash requirements for at least the next twelve months.  We do not expect to make dividends of significant size in the near future; however, we may pay dividends to our stockholders from time to time.  Our financial flexibility 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.  Although unforeseen, if faced with the need to increase liquidity, we could readily respond through the control of variable operating expenses (for example, by adjusting employment levels) and through the reduction of planned capital expenditure and acquisition activities.

On June 10, 2015, Holding I and Tops Markets II Corporation issued $560.0 million in aggregate principal amount of 2022 Notes, bearing annual interest of 8.00%.  The proceeds from the 2022 Notes were used to fund a tender offer for, and redeem the balance of, the previously outstanding $460.0 million of 2017 Notes and to fund a partial tender offer for $60.0 million of the $150.0 million outstanding 2018 Notes, including tender and redemption premiums of $23.0 million and $1.2 million, respectively.  The proceeds were also used to pay accrued and unpaid interest related to the tendered and redeemed 2017 Notes and 2018 Notes and fees and expenses related to the issuance of the 2022 Notes.  See Note 5 to our condensed consolidated financial statements of Item 1 in this 10-Q.

During January 2015, we sold pharmacy scripts and inventory related to 27 of our in-store pharmacies for cash proceeds of $14.9 million.  These pharmacies were then closed.

On December 15, 2016, semi-annual cash interest payments totaling $26.1 million are payable related to our 2022 Notes and 2018 Notes.  We expect these payments will be primarily funded through cash from operations.  No principal amounts are payable related to these notes until their respective maturities on June 15, 2022 and June 15, 2018.

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Cash Flows Information

The following is a summary of cash provided by or used in each of the indicated types of activities:

(Dollars in thousands)

	28-week periods ended
	July 16, 2016			July 11, 2015
Cash provided by (used in):
Operating activities	$	21,034		$	43,506
Investing activities		(17,797	)		(10,588	)
Financing activities		(9,476	)		(24,561	)

Cash provided by operating activities during the 28-week period ended July 16, 2016 decreased $22.5 million compared with the 28-week period ended July 11, 2015.  Changes in operating assets and liabilities represented a use of cash of $7.6 million during the 28-week period ended July 16, 2016 compared with a source of cash of $17.6 million during the 28-week period ended July 11, 2015.  This year-over-year change was primarily attributable to a larger decrease in accrued expenses and an increase in inventory during the 28-week period ended July 16, 2016.  The larger decrease in accrued expenses was due to an $8.9 million increase in bonus payments due to better performance against budget metrics in 2015 versus 2014.  Inventory decreased during the 28-week period ended July 11, 2015, in part due to the sale of pharmacy inventory related to the closure of 27 of our in-store pharmacies.  Inventory increased during the 28-week period ended July 16, 2016 due to the replenishment of lower than normal inventory levels at 2015 year-end, which was caused in part by the 2015 fiscal year ending after the New Year's Day holiday.    

Cash used in investing activities increased $7.2 million during the 28-week period ended July 16, 2016 compared with the 28-week period ended July 11, 2015 due to net cash proceeds of $11.3 million from the sale of pharmacy scripts during January 2015, partially offset by a decrease in normal capital expenditure payments.  We expect to invest $40 million to $45 million in capital expenditures during fiscal year 2016, primarily related to new supermarket locations, including the six supermarkets to be acquired in late August, remodels and maintenance activities.  We expect to fund these capital expenditures primarily with cash from operations.

Cash used in financing activities decreased $15.1 million during the 28-week period ended July 16, 2016 compared with the 28-week period ended July 11, 2015.  The decrease reflects a change in net borrowings and repayments on our 2017 ABL Facility of $25.5 million, from net repayments of $24.5 million during the 28-week period ended July 11, 2015 to net borrowings of $1.0 million during the 28-week period ended July 16, 2016.  Partially offsetting this impact were cash flows related to the June 2015 refinancing activities, including the proceeds from the 2022 Notes of $560.0 million, the tender offer for, and redemption of the balance of, the previously outstanding 2017 Notes and partial tender offer for the 2018 Notes, and fees and expenses incurred related to the 2022 Notes issuance.  We paid a dividend of $2.0 million to Tops MBO Co and repurchased $1.2 million of our 2018 Notes during the 28-week period ended July 16, 2016.

Multiemployer Pension Plans

We contribute to the 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.  We are contingently liable for withdrawal liability in the event that we withdraw from the Local One plan.  The actuary for the Local One plan has estimated that, as of December 31, 2014, our withdrawal liability would have been $349.2 million in the event of our complete withdrawal from the Local One plan during 2015.  In accordance with applicable accounting rules, our contingent withdrawal liability is not included in our consolidated financial statements.  We have no intention to withdraw from the Local One plan.  During the 28-week periods ended July 16, 2016 and July 11, 2015, we made contributions of $7.8 million and $6.6 million, respectively, to this plan.  We are required to increase our annual contributions to the Local One plan pursuant to our current collective bargaining agreements and the Local One plan’s current rehabilitation plan.

As a result of our acquisition of Erie Logistics from C&S in December 2013, we believe we assumed the obligation to participate in and contribute to the Fund.  During the 28-week periods ended July 16, 2016 and July 11, 2015, we made contributions to the Fund of $2.9 million and $2.7 million, respectively.

We are contingently liable for withdrawal liability in the event of a withdrawal from the Fund, which includes any withdrawal liability imposed on Erie Logistics for which C&S is liable.  In late January 2014, we received notice that the Fund had suspended Erie Logistics as a participating employer in the Fund pending the Fund’s investigation into the acquisition and on May 27, 2014, the Fund provided notice (“Notice”) to Erie Logistics and C&S of its determination that Erie Logistics incurred employer withdrawal liability as a result of the acquisition.

- 23 -

Though no longer contractually required to do so given the suspension and Notice, we have elected to continue to tender contributions to the Fund for the Erie Logistics associates in accordance with the terms set forth in the collective bargaining agreements with Teamsters Local 264.  The Fund has rejected and returned these contributions to date.  As a result, to date, we have chosen to establish a separate interest bearing account to hold these rejected contributions, although we may decide, in our sole discretion, to discontinue this practice in the future.

The Notice provides that Erie Logistics owes withdrawal liability of $183.7 million, payable in a lump sum or in monthly installments, calculated to give effect to a limit on total withdrawal liability imposed by ERISA, of $641,514 for 240 months.  If it were ultimately determined that Erie Logistics incurred a withdrawal liability to the Fund, the Company would bear financial responsibility for this liability.  Under the terms of the purchase agreement for the acquisition of Erie Logistics from C&S, and as a continuation of our prior contractual obligations, the Company retains the obligation to indemnify C&S in the event withdrawal liability is imposed on Erie Logistics, the Company or C&S.  Although we are vigorously contesting the withdrawal determination, during the pendency of the proceeding to contest such determination, ERISA requires that conditional monthly payments of withdrawal liability be made, which began July 28, 2014.  During each of the 28-week periods ended July 16, 2016 and July 11, 2015, the monthly conditional payments of withdrawal liability totaled $3.8 million.  These monthly conditional payments are in addition to pension contributions the Company has tendered which the Fund has rejected and returned, as discussed above and in Note 9 to our condensed consolidated financial statements included in Item 1 of this 10-Q.

Off-Balance Sheet Arrangements

Our off-balance sheet arrangements at July 16, 2016 consisted of operating leases and any potential withdrawal liability obligations under our multi-employer pension plans.  We are not a party to any other 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.

Refer to Holding II’s audited consolidated financial statements as of January 2, 2016 included in our Annual Report on Form 10-K for 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.

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ITEM 3.   QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

The table below provides information about our outstanding debt as of July 16, 2016.  The amounts shown for each year represent the contractual maturities of long-term debt, excluding capital lease obligations.  Interest rates reflect the weighted average rates for the outstanding instruments.  The Fair Value column includes the fair value of our debt instruments as of July 16, 2016.  Refer to Note 1 of our condensed consolidated financial statements in Item 1 of this 10-Q for information about our accounting policy for financial instruments.

(Dollars in thousands)

	Remainder
	of 2016			2017			2018			2019			2020			Thereafter			Fair Value
Debt
Fixed rate	$	1,273		$	1,160		$	86,052		$	139		$	39		$	560,358		$	576,690
Average interest rate		4.6	%		4.7	%		8.7	%		4.4	%		4.0	%		8.0	%
Variable rate	$	—		$	47,700		$	—		$	—		$	—		$	—		$	47,700
Average interest rate	N/A				2.6	%	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, which are not considered predictable or within our control.

ITEM 4. CONTROLS AND PROCEDURES

EVALUATION OF DISCLOSURE CONTROLS AND PROCEDURES

As of July 16, 2016, the Chief Executive Officer and the Chief Financial Officer, together with designated members of the finance and accounting organization, evaluated the Company’s disclosure controls and procedures.  Based on that evaluation, the Company’s Chief Executive Officer and Chief Financial Officer concluded that those disclosure controls and procedures were effective as of July 16, 2016.

CHANGES IN INTERNAL CONTROL OVER FINANCIAL REPORTING

There was no change in the Company’s internal control over financial reporting during the 12-week period ended July 16, 2016 that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting.

PART II – OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

The disclosure contained under the heading “Multiemployer Pension Plans” in Note 9 to the condensed consolidated financial statements contained in Item 1 of this 10-Q is hereby incorporated by reference.

The Company is subject to various claims and legal proceedings which arise in the ordinary course of business.  While the outcome of these claims and proceedings cannot be predicted with certainty, management does not believe that the outcome of any of these claims and proceedings will have a material 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 Company’s Annual Report on Form 10-K for the fiscal year ended January 2, 2016.

- 25 -

ITEM 6. EXHIBITS

Exhibit No.
31.1*	Certification of Chief Executive Officer pursuant to Rule 13a-14(a) / 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) / 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.INS*	XBRL Instance Document
101.SCH*	XBRL Taxonomy Extension Schema Document
101.CAL*	XBRL Taxonomy Extension Calculation Linkbase Document
101.DEF*	XBRL Taxonomy Extension Definition Linkbase Document
101.LAB*	XBRL Taxonomy Extension Label Linkbase Document
101.PRE*	XBRL Taxonomy Extension Presentation Linkbase Document

* Filed herewith.

** Furnished herewith.

SIGNATURE

Pursuant to the requirements 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 II CORPORATION
By:	/s/ David Langless
	David Langless
	Executive Vice President and Chief Financial Officer
	August 11, 2016

- 26 -

EX-31.1

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 II 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: August 11, 2016

/s/ Frank Curci

Frank Curci

Chief Executive Officer

EX-31.2

Exhibit 31.2

CERTIFICATIONS PURSUANT TO SECTION 302

OF THE SARBANES-OXLEY ACT OF 2002

I, David Langless, certify that:

1. I have reviewed this Quarterly Report on Form 10-Q of Tops Holding II 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: August 11, 2016

/s/ David Langless

David Langless

Executive Vice President and 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 II Corporation (the “Company”) for the 12-week period ended July 16, 2016 (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

August 11, 2016

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 II Corporation (the “Company”) for the 12-week period ended July 16, 2016 (the “Report”) pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

I, David Langless, 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/ David Langless

David Langless

Executive Vice President and Chief Financial Officer

August 11, 2016

XML

Document and Entity Information - shares	6 Months Ended
	Jul. 16, 2016	Aug. 11, 2016
Document And Entity Information [Abstract]
Document Type	10-Q
Amendment Flag	false
Document Period End Date	Jul. 16, 2016
Document Fiscal Year Focus	2016
Document Fiscal Period Focus	Q2
Entity Registrant Name	TOPS HOLDING II CORP
Entity Central Index Key	0001584701
Current Fiscal Year End Date	--01-02
Entity Filer Category	Non-accelerated Filer
Entity Common Stock, Shares Outstanding		126,559

XML

Condensed Consolidated Balance Sheets (Unaudited) - USD ($) $ in Thousands	Jul. 16, 2016	Jan. 02, 2016
Current assets:
Cash and cash equivalents	$ 29,318	$ 35,557
Accounts receivable, net	66,496	68,198
Inventory, net	153,206	141,223
Prepaid expenses and other current assets	13,953	16,857
Total current assets	262,973	261,835
Property and equipment, net	351,322	369,446
Goodwill	213,096	213,096
Intangible assets, net	168,534	173,730
Other assets (Note 9)	15,396	11,547
Total assets	1,011,321	1,029,654
Current liabilities:
Accounts payable	89,681	81,812
Accrued expenses and other current liabilities	87,217	96,757
Current portion of capital lease obligations	9,468	8,566
Current portion of long-term debt	2,182	2,075
Total current liabilities	188,548	189,210
Capital lease obligations	140,251	143,122
Long-term debt, net	682,727	681,372
Other long-term liabilities	47,162	44,680
Non-current deferred tax liabilities	44,648	43,694
Total liabilities	1,103,336	1,102,078
Commitments and contingencies
Common stock ($0.001 par value; 300,000 authorized shares, 126,560 shares issued and 126,559 shares outstanding as of July 16, 2016 and January 2, 2016)	0	0
Treasury stock (at cost; 1 share as of July 16, 2016 and January 2, 2016)	(1)	(1)
Paid-in capital	6,405	7,974
Accumulated deficit	(96,814)	(78,792)
Accumulated other comprehensive loss, net of tax	(1,605)	(1,605)
Total shareholders' deficit	(92,015)	(72,424)
Total liabilities and shareholders' deficit	$ 1,011,321	$ 1,029,654

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Condensed Consolidated Balance Sheets (Unaudited) (Parenthetical) - $ / shares	Jul. 16, 2016	Jan. 02, 2016
Statement Of Financial Position [Abstract]
Common shares, par value	$ 0.001	$ 0.001
Common shares, authorized	300,000	300,000
Common shares, issued	126,560	126,560
Common shares, outstanding	126,559	126,559
Treasury stock, shares	1	1

XML

Condensed Consolidated Statements of Comprehensive Loss (Unaudited) - USD ($) $ in Thousands	3 Months Ended		6 Months Ended
	Jul. 16, 2016	Jul. 11, 2015	Jul. 16, 2016	Jul. 11, 2015
Income Statement [Abstract]
Net sales	$ 589,589	$ 585,911	$ 1,303,325	$ 1,308,761
Cost of goods sold	(404,286)	(404,259)	(891,152)	(898,384)
Distribution costs	(9,646)	(11,563)	(21,460)	(25,823)
Gross profit	175,657	170,089	390,713	384,554
Operating expenses:
Wages, salaries and benefits	(84,559)	(82,771)	(192,392)	(192,227)
Selling and general expenses	(27,231)	(26,548)	(63,736)	(64,350)
Administrative expenses (inclusive of share-based compensation expense of $38, $55, $127 and $124)	(18,578)	(17,509)	(44,048)	(41,002)
Rent expense, net	(6,505)	(6,374)	(15,106)	(14,571)
Depreciation and amortization	(14,718)	(14,566)	(34,633)	(33,172)
Advertising	(5,594)	(5,854)	(12,018)	(11,689)
Impairment (Note 11)	(2,076)		(2,076)
Gain on sale of assets (Note 7)				11,014
Total operating expenses	(159,261)	(153,622)	(364,009)	(345,997)
Operating income	16,396	16,467	26,704	38,557
Loss on debt extinguishment		(34,503)		(34,503)
Interest expense, net	(18,567)	(19,042)	(43,454)	(44,785)
Loss before income taxes	(2,171)	(37,078)	(16,750)	(40,731)
Income tax expense	(701)	(400)	(1,272)	(942)
Net loss	(2,872)	(37,478)	(18,022)	(41,673)
Comprehensive loss	$ (2,872)	$ (37,478)	$ (18,022)	$ (41,673)

XML

Condensed Consolidated Statements of Comprehensive Loss (Unaudited) (Parenthetical) - USD ($) $ in Thousands	3 Months Ended		6 Months Ended
	Jul. 16, 2016	Jul. 11, 2015	Jul. 16, 2016	Jul. 11, 2015
Income Statement [Abstract]
Share-based compensation expense included in administrative expenses	$ 38	$ 55	$ 127	$ 124

XML

Condensed Consolidated Statements of Cash Flows (Unaudited) - USD ($) $ in Thousands	6 Months Ended
	Jul. 16, 2016	Jul. 11, 2015
Cash flows provided by operating activities:
Net loss	$ (18,022)	$ (41,673)
Adjustments to reconcile net loss to net cash provided by operating activities:
Depreciation and amortization	41,131	39,494
Impairment	2,076
Amortization of deferred financing costs	1,246	2,113
Deferred income taxes	954	933
Straight-line rent adjustment	493	561
LIFO inventory valuation adjustments	295	425
Share-based compensation expense	127	124
Loss on debt extinguishment		34,503
Gain on sale of assets		(11,014)
Other	327	442
Changes in operating assets and liabilities:
Decrease (increase) in accounts receivable	1,702	(4,932)
(Increase) decrease in inventory, net	(12,278)	4,129
Decrease (increase) in prepaid expenses and other current assets	2,904	(1,753)
Increase in other assets	(3,849)
Increase in accounts payable	10,102	10,974
(Decrease) increase in accrued expenses and other current liabilities	(8,349)	7,879
Increase in other long-term liabilities	2,175	1,301
Net cash provided by operating activities	21,034	43,506
Cash flows used in investing activities:
Cash paid for property and equipment	(18,210)	(21,843)
Cash proceeds from sale of assets	413	11,255
Net cash used in investing activities	(17,797)	(10,588)
Cash flows used in financing activities:
Principal payments on capital leases	(4,866)	(4,822)
Repayments of long-term debt borrowings	(2,365)	(520,981)
Dividends to Tops MBO Corporation (Note 8)	(2,015)	(775)
Change in bank overdraft position	(1,556)	202
Capital contribution	326
Proceeds from long-term debt borrowings		560,000
Debt extinguishment costs paid		(24,215)
Deferred financing costs paid		(9,469)
Purchase of treasury stock		(1)
Net cash used in financing activities	(9,476)	(24,561)
Net (decrease) increase in cash and cash equivalents	(6,239)	8,357
Cash and cash equivalents-beginning of period	35,557	26,316
Cash and cash equivalents-end of period	29,318	34,673
2017 ABL Facility [Member]
Cash flows used in financing activities:
Borrowings on ABL Facility	455,100	197,666
Repayments on ABL Facility	$ (454,100)	$ (222,166)

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The Company, Basis of Presentation and Summary of Significant Accounting Policies

6 Months Ended

Jul. 16, 2016

Organization Consolidation And Presentation Of Financial Statements [Abstract]

The Company, Basis of Presentation and Summary of Significant Accounting Policies

1. THE COMPANY, BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

The Company

Tops Holding II Corporation (“Holding II,” or collectively with its subsidiaries, the “Company”), the parent of Tops Holding LLC (“Holding I”), formerly Tops Holding Corporation, was incorporated on May 7, 2013.  Holding I is the parent of Tops Markets, LLC (“Tops Markets”), a supermarket retailer with supermarkets in Upstate New York, Northern Pennsylvania and Vermont.  As of July 16, 2016, the Company operated 165 supermarkets; 164 under the Tops banner and one under the Orchard Fresh banner, with an additional five supermarkets operated by franchisees under the Tops banner.  Holding II has no business operations other than the ownership of Holding I and as the issuer of the 2018 Notes (see Note 5) and a guarantor of the 2022 Notes (see Note 5).

Holding II is the reporting entity for the 2018 Notes and 2022 Notes.  Tops MBO Corporation (“Tops MBO Co”), the parent company of Holding II, is neither a co-issuer nor guarantor of these notes.  Accordingly, the condensed consolidated financial statements have been prepared for Holding II and exclude the assets and results of operations of Tops MBO Co.  Tops MBO Co’s assets consist solely of its investment in Holding II.  Tops MBO Co has no operations other than as the equity owner of Holding II.

Accounting Policies

A summary of the Company’s significant accounting policies is included in Note 1 to the audited consolidated financial statements of Holding II for the fiscal year ended January 2, 2016, which appear in the Company’s Annual Report on Form 10-K filed with the Securities and Exchange Commission on March 23, 2016.

Basis of Presentation and Principles of Consolidation

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

The Company operates on a 52/53 week fiscal year ending on the Saturday closest to December 30.  Fiscal years include 13 four-week reporting periods, with an additional week in the thirteenth reporting period for 53-week fiscal years.  The first quarter of each fiscal year includes four reporting periods, while the remaining quarters include three reporting periods.

The Company’s condensed consolidated financial statements for the 12-week and 28-week periods ended July 16, 2016 and July 11, 2015 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.

Recently Issued Accounting Pronouncements – Not Yet Adopted

In May 2014, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2014-09, “Revenue from Contracts with Customers” (“ASU No. 2014-09”), which provides guidance regarding revenue recognition.  ASU No. 2014-09’s core principle is that a company will recognize revenue when it transfers promised goods or services to customers in an amount that reflects the consideration to which the company expects to be entitled in exchange for those goods or services.  In August 2015, the FASB issued ASU No 2015-14, “Revenue from Contracts with Customers: Deferral of the Effective Date,” which deferred the effective date of ASU 2014-09 to annual reporting periods beginning after December 15, 2017, with earlier application permitted as of annual reporting periods beginning after December 15, 2016.  The Company is currently assessing the potential impact of ASU No. 2014-09 on its consolidated financial statements.

In February 2016, the FASB issued ASU No. 2016-02, “Leases,” (“ASU No. 2016-02”), which stipulates that lessees recognize a right-of-use asset and a lease liability for substantially all leases.  ASU No. 2016-02 is effective on a modified retrospective basis for reporting periods beginning after December 15, 2018, with early adoption permitted.  The Company is currently in the process of evaluating the effect of adoption of ASU No. 2016-02 on its consolidated financial statements.

In March 2016, the FASB issued ASU No. 2016-08, “Principal versus Agent Considerations” (Reporting Revenue Gross versus Net) (“ASU No. 2016-08”).  ASU No. 2016-08 does not change the core principle of the guidance stated in ASU No. 2014-09, instead, the amendments in this ASU are intended to improve the operability and understandability of the implementation guidance on principal versus agent considerations and whether an entity reports revenue on a gross or net basis.  ASU No. 2016-08 will have the same effective date and transition requirements as the new revenue standard issued in ASU No. 2014-09.  The Company is currently in the process of evaluating the effect of adoption of ASU No. 2016-08 on its consolidated financial statements.

In June 2016, the FASB issued ASU No. 2016-13, “Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments” (“ASU No. 2016-13”).  The standard changes the methodology for measuring credit losses on financial instruments and the timing of when such losses are recorded.  ASU No. 2016-13 is effective for fiscal years, and interim periods within those years, beginning after December 15, 2019.  Early adoption is permitted for fiscal years, and interim periods within those years, beginning after December 15, 2018.  The Company does not expect that the adoption of this guidance will have a material impact on its consolidated financial statements.

Segments

The Company’s 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.  As of July 16, 2016, 51 corporate supermarkets offered pharmacy services and 52 corporate fuel centers were in operation.  The Company’s retail operations, which represent substantially all of the Company’s consolidated sales, earnings and total assets, are its only operating segment and reportable segment.  The Company’s retail operations as a whole reflect the level at which the business is managed and how the Company’s Chief Executive Officer and the Company’s President, who act as the Company’s chief operating decision makers, assess performance internally.    

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

	12-week periods ended										28-week periods ended
	July 16, 2016					July 11, 2015					July 16, 2016					July 11, 2015
			% of					% of					% of					% of
	Amount		Total			Amount		Total			Amount		Total			Amount		Total
Non-perishables(1)	$	331,244		56.2	%	$	325,349		55.5	%	$	744,175		57.1	%	$	738,329		56.4	%
Perishables(2)		184,455		31.3	%		181,151		30.9	%		396,883		30.5	%		392,906		30.0	%
Fuel		34,600		5.9	%		41,335		7.1	%		70,212		5.4	%		87,489		6.7	%
Pharmacy		34,113		5.8	%		32,892		5.6	%		79,976		6.1	%		78,127		6.0	%
Other(3)		5,177		0.8	%		5,184		0.9	%		12,079		0.9	%		11,910		0.9	%
	$	589,589		100.0	%	$	585,911		100.0	%	$	1,303,325		100.0	%	$	1,308,761		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 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 goodwill and 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 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 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.

Financial instruments include cash and cash equivalents, accounts receivable, accounts payable and long-term debt.  The carrying amounts of cash and cash equivalents, accounts receivable and accounts payable approximate fair value because of the short-term nature of these financial instruments.  At July 16, 2016 and January 2, 2016, the carrying value and the estimated fair value of the Company’s debt instruments were as follows (dollars in thousands):

	July 16, 2016		January 2, 2016
Carrying value of long-term debt:
Current portion of long-term debt	$	2,182	$	2,075
Long-term debt		682,727		681,372
Total carrying value of debt instruments		684,909		683,447
Fair value of debt instruments		612,949		677,450
Excess of carrying value over fair value	$	71,960	$	5,997

The fair values of the 2018 Notes and 2022 Notes (see Note 5), which are included in long-term debt as of July 16, 2016 and January 2, 2016, were based on quoted market prices, a Level 2 source.

Fair value measurements of non-financial assets and non-financial liabilities are primarily used in the impairment analysis of long-lived assets, goodwill and intangible assets.  Long-lived assets and definite-lived intangible assets are measured at fair value on a nonrecurring basis using Level 3 inputs.  Goodwill and the Tops tradename are reviewed annually for impairment on December 1, or more frequently if impairment indicators arise.

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Goodwill and Intangible Assets, Net

6 Months Ended

Jul. 16, 2016

Goodwill And Intangible Assets Disclosure [Abstract]

Goodwill and Intangible Assets, Net

2. GOODWILL AND INTANGIBLE ASSETS, NET

The following table summarizes the change in the Company’s goodwill balance during the 28-week period ended July 16, 2016 (dollars in thousands):

Balance - January 2, 2016	$	213,096
Adjustments		—
Balance - July 16, 2016	$	213,096

Goodwill is reviewed annually for impairment on December 1, or more frequently upon the occurrence of trigger events.  Based on the Company’s assessment, no goodwill impairment was recorded during the 12-week and 28-week periods ended July 16, 2016 and July 11, 2015.

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

	Gross					Net		Average
	Carrying		Accumulated			Carrying		Amortization
July 16, 2016	Amount		Amortization			Amount		Period
Tradename – indefinite	$	131,200	$	—		$	131,200	Indefinitelife
Customer relationships		29,200		(16,270	)		12,930		14.0
Favorable lease rights		19,050		(5,695	)		13,355		9.6
Franchise agreements		13,300		(4,696	)		8,604		14.0
Pharmacy scripts		3,979		(1,534	)		2,445		14.0
	$	196,729	$	(28,195	)	$	168,534		12.8

	Gross					Net
	Carrying		Accumulated			Carrying
January 2, 2016	Amount		Amortization			Amount
Tradename – indefinite	$	131,200	$	—		$	131,200
Customer relationships		29,200		(14,117	)		15,083
Favorable lease rights		21,550		(6,328	)		15,222
Franchise agreements		13,300		(3,872	)		9,428
Pharmacy scripts		3,979		(1,182	)		2,797
	$	199,229	$	(25,499	)	$	173,730

The Tops tradename is reviewed annually for impairment on December 1, or more frequently if impairment indicators arise.  Based on the Company’s assessment, no impairment was recorded during the 12-week and 28-week periods ended July 16, 2016 and July 11, 2015.

During the 12-week periods ended July 16, 2016 and July 11, 2015, amortization expense related to intangible assets was $1.9 million and $2.7 million, respectively.  During the 28-week periods ended July 16, 2016 and July 11, 2015, amortization expense related to intangible assets was $5.2 million and $6.2 million, respectively.  This amortization is included in depreciation and amortization in the condensed consolidated statements of comprehensive loss.

Depreciation and amortization in the condensed consolidated statements of comprehensive loss during each of the 12-week periods ended July 16, 2016 and July 11, 2015 includes $0.1 million of contra-expense related to the amortization of unfavorable lease rights, which are classified in other long-term liabilities in the condensed consolidated balance sheets.  During each of the 28-week periods ended July 16, 2016 and July 11, 2015, depreciation and amortization in the condensed consolidated statements of comprehensive loss includes $0.2 million of contra-expense related to the amortization of unfavorable lease rights.  Expected future amortization of these unfavorable lease rights is contra-expense of $0.1 million in the remaining period of Fiscal 2016, $0.3 million in Fiscal 2017, $0.3 million in Fiscal 2018, $0.3 million in Fiscal 2019, $0.3 million in Fiscal 2020 and $0.7 million thereafter.

As of July 16, 2016, expected future amortization of intangible assets is as follows (dollars in thousands):

2016 (remaining period)	$	3,778
2017		7,012
2018		5,904
2019		4,917
2020		4,127
Thereafter		11,596

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Accrued Expenses and Other Current Liabilities

6 Months Ended

Jul. 16, 2016

Accrued Liabilities And Other Liabilities [Abstract]

Accrued Expenses and Other Current Liabilities

3. ACCRUED EXPENSES AND OTHER CURRENT LIABILITIES

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

	July 16, 2016		January 2, 2016
Wages, taxes and benefits	$	19,427	$	28,623
Lottery		12,363		13,127
Union medical, pension and 401(k)		8,798		5,817
Self-insurance reserves		6,452		6,502
Professional and legal fees		5,963		5,773
Interest payable		4,745		3,177
Sales and use tax		4,465		1,431
Gift cards		3,381		9,467
Utilities		2,595		2,346
Repairs and maintenance		1,915		2,050
Property and equipment expenditures		1,341		2,525
Money orders		951		2,682
Other		14,821		13,237
	$	87,217	$	96,757

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Capital Lease Obligations

6 Months Ended

Jul. 16, 2016

Leases [Abstract]

Capital Lease Obligations

4. CAPITAL LEASE OBLIGATIONS

The Company has a number of capital leases in effect for supermarket properties and equipment.  The initial lease terms generally range up to twenty-five years and will expire at various times through 2036, with options to renew for additional periods.  The majority of the supermarket leases provide for base rental, plus real estate taxes, insurance, common area maintenance and other operating expenses applicable to the leased premises.  Some leases contain escalation clauses for future rents and contingent rents based on sales volume.

As of July 16, 2016, future minimum lease rental payments applicable to non-cancelable capital lease obligations were as follows (dollars in thousands):

2016 (remaining period)	$	14,786
2017		31,116
2018		27,438
2019		24,723
2020		21,479
Thereafter		114,558
Total minimum lease payments		234,100
Less amounts representing interest		(149,177	)
Present value of net minimum lease payments		84,923
Less current obligations		(9,468	)
Long-term cash obligations		75,455
Non-cash obligations		64,796
Total long-term capital lease obligations	$	140,251

The Company entered into build-to-suit and 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 ASC Topic 840, “Leases,” due to the existence of continuing involvement within the lease agreements.

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, as applicable, 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 and the estimated net book value of the buildings at the conclusion of the lease terms.  The related land assets are not depreciated, and at the end of the lease terms, the remaining capital lease obligations will equal the combined net book values of the land and buildings.  At the expiration of the lease terms, which range from 2017 to 2036, or when the Company’s continuing involvement under the lease agreements ends, the related land, buildings and capital lease obligations will be removed from the consolidated balance sheet, with no underlying cash payments.  These capital lease obligations are reflected as non-cash obligations in the preceding table.

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Debt

6 Months Ended

Jul. 16, 2016

Debt Disclosure [Abstract]

Debt

5. DEBT

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

	July 16, 2016			January 2, 2016
2022 Notes	$	560,000		$	560,000
2018 Notes		85,514			86,704
Discount on 2018 Notes		(371	)		(470	)
Deferred financing fees		(11,441	)		(12,716	)
2017 ABL Facility		47,700			46,700
Other loans		3,507			3,229
Total debt		684,909			683,447
Current portion		(2,182	)		(2,075	)
Total long-term debt	$	682,727		$	681,372

On June 10, 2015, Holding I and Tops Markets II Corporation (collectively, the “Issuers”) issued $560.0 million in aggregate principal amount of senior secured notes due in 2022, bearing annual interest at a rate of 8.00% (the “2022 Notes”).  The proceeds from the 2022 Notes were used to fund a tender offer for, and redeem the balance of, the previously outstanding $460.0 million of senior secured notes issued by Holding I, Tops Markets and Tops Markets II Corporation (the “2017 Notes”) and to fund a partial tender offer for $60.0 million of the $150.0 million outstanding 8.75%/9.50% senior unsecured notes issued by Holding II (the “2018 Notes”), including tender and redemption premiums of $23.0 million and $1.2 million, respectively, which have been recorded within loss on debt extinguishment in the condensed consolidated statements of comprehensive loss during the 12-week and 28-week periods ended July 11, 2015.  The proceeds were also used to pay accrued and unpaid interest related to the tendered and redeemed notes and fees and expenses related to the issuance of the 2022 Notes.  The 2022 Notes mature on June 15, 2022 and require semi-annual interest payments on June 15 and December 15.  The 2022 Notes are redeemable, in whole or in part, at any time on or after June 15, 2018 at specified redemption prices.  Prior to June 15, 2018, the Company may redeem the 2022 Notes, in whole or in part, at a specified “make-whole” premium.

The 2022 Notes are collateralized by (i) first priority security interests, subject to certain exceptions and permitted liens, in the stock held by the Issuers and the guarantor subsidiaries, Tops Markets, Tops PT, LLC, Tops Gift Card Company, LLC and Erie Logistics LLC (collectively, the “Guarantors”), the Company’s warehouse and distribution facility in Lancaster, New York, the Company’s retail facility located in Fayetteville, New York and certain owned real property acquired by the Issuers and the Guarantors following the issue date of the 2022 Notes, equipment, intellectual property, and substantially all other assets of the Issuers and the Guarantors, other than those assets securing the Company’s asset-based revolving credit facility (the “2017 ABL Facility”) on a first priority basis (collectively, the “2022 Notes Priority Collateral”), and (ii) second priority security interests, subject to certain exceptions and permitted liens, in the assets of Holding II, the Issuers and the Guarantors that secure the 2017 ABL Facility on a first priority basis, including present and future receivables, deposit accounts, inventory, prescription lists, and certain rights and proceeds relating thereto (collectively, the “ABL Priority Collateral”).

The 2022 Notes are guaranteed on a senior secured basis, jointly and severally, by each of the Guarantors and will in the future be guaranteed by certain of Holding I’s future domestic subsidiaries.  The 2022 Notes are also guaranteed on a senior unsecured basis by Holding II.

On May 15, 2013, Holding II issued $150.0 million of 2018 Notes.  As discussed above, on June 10, 2015, Holding II successfully tendered for and repurchased $60.0 million of 2018 Notes.  On January 20, 2016 and December 18, 2015, $1.2 million and $3.3 million, respectively, of 2018 Notes were repurchased in “open market” transactions, resulting in a remaining outstanding principal amount of $85.5 million as of July 16, 2016.  If certain conditions are met, Holding II may be entitled to pay interest on the 2018 Notes by increasing the principal of the notes or by issuing new notes as pay-in-kind interest.  This payment in kind interest would accrue at an annual rate of 9.50%.  The 2018 Notes mature on June 15, 2018 and require semi-annual interest payments on June 15 and December 15.  To the extent permitted by the indenture governing the 2022 Notes and the 2017 ABL Facility (see below), Holding I may make dividend payments to Holding II to fund additional repurchases and the semi-annual interest payments for the 2018 Notes.  The 2018 Notes are redeemable, in whole or in part, at specified redemption prices.  

On December 14, 2012, Tops Markets entered into the 2017 ABL Facility with Bank of America, N.A. as collateral agent and administrative agent.  The 2017 ABL Facility allows a maximum borrowing capacity of $125.0 million, subject to a borrowing base calculation, with an option for up to $50.0 million of additional borrowing capacity if the required conditions are met.  The borrowing base includes inventory, pharmacy prescription files and certain receivables.  The 2017 ABL Facility matures on December 14, 2017.

Costs associated with the 2022 Notes and 2018 Notes of $10.7 million and $2.7 million, respectively, were capitalized and are being amortized over the respective terms of the 2022 Notes and 2018 Notes using the effective interest method.  Costs associated with the 2017 ABL Facility of $1.1 million were capitalized and are being amortized on a straight-line basis over the term of the 2017 ABL Facility.  

During the 12-week periods ended July 16, 2016 and July 11, 2015, amortization expense related to the deferred financing costs was $0.5 million and $0.8 million, respectively.  During the 28-week periods ended July 16, 2016 and July 11, 2015, amortization expense related to the deferred financing costs was $1.2 million and $2.1 million, respectively.  This amortization expense is included in interest expense in the condensed consolidated statements of comprehensive loss.  At July 16, 2016, long-term debt included deferred financing costs, net of accumulated amortization of $3.0 million, totaling $11.4 million.  At January 2, 2016, long-term debt included deferred financing costs, net of accumulated amortization of $1.8 million, totaling $12.7 million. 

As of July 16, 2016, the unused availability under the 2017 ABL Facility was $46.5 million, after giving effect to the borrowing base calculation, $22.8 million of letters of credit outstanding and $47.7 million of borrowings outstanding.  As of January 2, 2016, $23.8 million of letters of credit were outstanding under the 2017 ABL Facility.  Revolving loans under the 2017 ABL Facility, at the Company’s option, bear interest at either LIBOR plus a margin of 150 to 200 basis points, determined based on levels of borrowing availability, or the prime rate plus a margin of 50 to 100 basis points, determined based on levels of borrowing availability.  As of July 16, 2016 and January 2, 2016, the weighted average interest rates on borrowings under the 2017 ABL Facility were 2.56% and 3.20%, respectively.  The 2017 ABL Facility is collateralized primarily by (i) first priority interests, subject to certain exceptions and permitted liens, in the ABL Priority Collateral, and (ii) second priority interests, subject to certain exceptions and permitted liens, in the 2022 Notes Priority Collateral.

The instruments governing the 2022 Notes, 2018 Notes and the 2017 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 obligations on a change in control.  Failure to meet any of these covenants would be an event of default.  On August 19, 2014, the 2017 ABL Facility was amended to reduce specified restrictions on the Company’s ability to make certain restricted payments, including dividends.  As of July 16, 2016, the Company was in compliance with its covenants under these agreements.

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Income Taxes

6 Months Ended

Jul. 16, 2016

Income Tax Disclosure [Abstract]

Income Taxes

6. INCOME TAXES

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

	12-week periods ended						28-week periods ended
	July 16, 2016			July 11, 2015			July 16, 2016			July 11, 2015
Current	$	(292	)	$	(7	)	$	(318	)	$	(9	)
Deferred		(409	)		(393	)		(954	)		(933	)
Total income tax expense	$	(701	)	$	(400	)	$	(1,272	)	$	(942	)

Based on an assessment of positive and negative evidence regarding the realization of the Company’s deferred tax assets, the Company continues to maintain a full valuation allowance against total net deferred tax assets, and consequently, the Company recognized no income tax benefit during the 12-week and 28-week periods ended July 16, 2016 and July 11, 2015.

The income tax expense recognized for the 12-week and 28-week periods ended July 16, 2016 solely reflects the recognition of additional valuation allowance associated with the tax amortization of the Company’s indefinite-lived tradename and goodwill deferred tax liabilities.  The effective tax rates would have been 38.9% and 39.0%, respectively, without the establishment of valuation allowance.

The income tax expense recognized for the 12-week and 28-week periods ended July 11, 2015 solely reflects the recognition of additional valuation allowance associated with the tax amortization of the Company’s indefinite-lived tradename and goodwill deferred tax liabilities.  The effective tax rate would have been 39.1% during each of the periods without the establishment of valuation allowance.

As of the beginning of fiscal year 2016, the Company had U.S. federal and state net operating loss carryforwards of $70.9 million and $71.5 million, respectively, which expire beginning in 2029.  In addition, the Company had federal tax credits of $5.4 million, which expire beginning in 2027.

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Gain on Sale of Assets

6 Months Ended

Jul. 16, 2016

Discontinued Operations And Disposal Groups [Abstract]

Gain on Sale of Assets

7. GAIN ON SALE OF ASSETS

During January 2015, the Company sold pharmacy scripts and inventory related to 27 of its in-store pharmacy locations for cash proceeds of $14.9 million.  These pharmacies were then closed.  A resulting gain on sale of assets of $11.0 million, net of the carrying value of sold inventory of $3.2 million and direct selling expenses of $0.7 million, was recognized in the condensed consolidated statement of comprehensive loss for the 28-week period ended July 11, 2015.

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Dividends Paid

6 Months Ended

Jul. 16, 2016

Equity [Abstract]

Dividends Paid

8. DIVIDENDS PAID

On January 14, 2016, the Company paid a dividend to Tops MBO Co totaling $2.0 million.

On January 8, 2015, the Company paid a dividend of $0.8 million to Tops MBO Co to repurchase outstanding shares of common stock of Tops MBO Co from a former Company executive.  In addition, one outstanding share of common stock of Holding II was repurchased.

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Commitments and Contingencies

6 Months Ended

Jul. 16, 2016

Commitments And Contingencies Disclosure [Abstract]

Commitments and Contingencies

9. COMMITMENTS AND CONTINGENCIES

Multiemployer Pension Plans

On December 22, 2013, Tops Markets acquired all of the membership interests of Erie Logistics, LLC (“Erie Logistics”) and certain other assets from C&S Wholesale Grocers, Inc. (“C&S”).  Erie Logistics operates the Company’s warehouse and distribution facilities located in Lancaster and Cheektowaga, New York and employs the warehouse and driver personnel at these facilities, all of whom are represented by Teamsters Local 264.  Under its supply agreement with Tops Markets, C&S, through Erie Logistics, had operated these facilities since 2002.

In late January 2014, the Company received notice that the New York State Teamsters Conference Pension and Retirement Fund (the “Fund”) had suspended Erie Logistics as a participating employer in the Fund pending the Fund’s investigation into the acquisition of Erie Logistics from C&S.  This suspension was retroactive to the effective date of the acquisition.  During this “suspension” and thereafter through the date of this Quarterly Report on Form 10-Q, Erie Logistics has elected to continue to make contributions to the Fund in accordance with the terms set forth in the collective bargaining agreements with Teamsters Local 264.  The Fund has rejected and returned these contributions.  During the 12-week periods ended July 16, 2016 and July 11, 2015, these rejected contributions totaled $1.2 million and $0.8 million, respectively.  During the 28-week periods ended July 16, 2016 and July 11, 2015, these rejected contributions totaled $2.9 million and $2.4 million, respectively.  On May 27, 2014, the Fund provided Erie Logistics and C&S with notice of its determination that Erie Logistics incurred employer withdrawal liability as a result of the acquisition.  The notice provides that Erie Logistics owes withdrawal liability of $183.7 million, payable in a lump sum or in monthly installments, calculated to give effect to a limit on total withdrawal liability imposed by the Employee Retirement Income Security Act (“ERISA”), of $641,514 for 240 months.

The Company believes that the Fund’s determination of a withdrawal violates ERISA, the existing participation agreements between Erie Logistics and the Fund, and the fiduciary duties of the trustees of the Fund.  The Company is vigorously contesting this determination through mandatory arbitration under ERISA.

The Company has not recorded any reserve for this matter as a loss is not considered probable.  If it were ultimately determined that Erie Logistics has incurred a withdrawal liability to the Fund, the Company would bear financial responsibility for this liability.  Under the terms of the purchase agreement for the acquisition of Erie Logistics from C&S, and as a continuation of its prior contractual obligations, the Company retains the obligation to indemnify C&S in the event withdrawal liability is imposed on Erie Logistics, the Company or C&S.  During the pendency of the proceeding to contest the withdrawal determination, ERISA requires that conditional monthly payments of withdrawal liability be made, which began July 28, 2014.  During each of the 28-week periods ended July 16, 2016 and July 11, 2015, the monthly conditional payments of withdrawal liability totaled $3.8 million.  These monthly conditional payments are in addition to pension contributions the Company has elected to make for the benefit of Erie Logistics’ associates under the collective bargaining agreements with Teamsters Local 264 which, as noted, the Fund has refused to accept.  The aggregate conditional monthly payments of withdrawal liability, totaling $15.4 million as of July 16, 2016, have been recorded in other assets, while the aggregate rejected contributions that the Company has elected to make, totaling $11.8 million as of July 16, 2016, have been recorded in other long-term liabilities and cash within its condensed consolidated balance sheet.

On July 28, 2014, Teamsters Local 264 filed a grievance charging a violation of its collective bargaining agreements by reason of the Company’s failing to participate in the Fund.  On July 4, 2016, the arbitrator denied this grievance.  The Company is in active discussions with Teamsters Local 264 regarding certain aspects of the grievance and the arbitrator’s decision.  

Purchase Commitments

Effective December 22, 2013, in connection with its purchase of all the membership interests of Erie Logistics and certain other assets from C&S, the Company modified its existing agreement with C&S whereby the Company resumed warehousing and transportation functions for the WNY warehouses, while C&S continues to provide procurement and purchasing services in support of the majority of the Company’s supply chain.  This modified agreement sets out the parties' respective responsibilities for the procurement and purchase of merchandise intended for use or resale in a majority of the Company’s supermarkets.  In consideration for the services it provides under this agreement, C&S is paid a fee based on all merchandise purchased by the Company from C&S through the WNY warehouses with C&S also having incentive income opportunities under the agreement.  As of April 1, 2015, the Company and C&S agreed in principle to amend certain operating terms of this agreement and extend the term through April 1, 2020.

On September 24, 2012, the Company entered into a separate agreement with C&S to provide warehousing, transportation, procurement and purchasing services in support of the 21 supermarkets acquired from GU Markets in October 2012.  This agreement expires on September 23, 2022.

Effective May 1, 2013, Tops Markets entered into a member participation agreement with Topco, a procurement cooperative for food retailers and wholesalers, for the supply of substantially all of the Company’s prescription drugs.  Tops Markets must purchase 95% of its branded prescription drugs and 95% of its generic pharmaceutical products through Topco.  This agreement expires February 28, 2017.

Effective March 1, 2016, the Company extended its existing IT outsourcing agreement with HP Enterprise Services, LLC (“HPE”) through February 29, 2024.  Under this agreement, HPE provides data center operations, mainframe processing, business applications and systems development, which are expected to enhance the Company’s customer service and efficiency.  The amounts payable to HP under this agreement are based upon the services requested by the Company at predetermined rates.

The costs of these purchase commitments are not reflected in the Company’s consolidated balance sheets.

Environmental Liabilities

The Company is contingently liable for potential environmental issues related to some of its properties.  As the Company is unaware of environmental issues that are expected to materially impact the Company’s consolidated financial statements as a whole, no amounts were accrued as of July 16, 2016 or January 2, 2016.

Collective Bargaining Agreements

The Company employs approximately 15,000 associates.  Approximately 83% of these associates are members of United Food and Commercial Workers, or UFCW, District Union Local One, or Local One, or two other UFCW unions.  Approximately 4% of these associates are members of Teamsters Local 264, who work in the Company’s WNY warehouse and distribution facilities.  All other associates are non-union.  The Company is a party to five collective bargaining agreements with Local One expiring between April 2017 and October 2018.  The Company has one non-Local One UFCW collective bargaining agreement that expired in April 2016.  The Company is currently operating under a memorandum of agreement to extend that expired collective bargaining agreement.  The Company also is a party to one other non-Local One UFCW collective bargaining agreement that expires in February 2018.  The Company is a party to three collective bargaining agreements with Teamsters Local 264 that expire in August 2019.

Legal Proceedings

Except as otherwise disclosed in this note, the Company is unaware of any legal proceedings that are expected to materially impact the Company’s consolidated financial statements as a whole.  No amounts related to contingent liabilities due to legal proceedings were accrued as of July 16, 2016 or January 2, 2016.

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Business Acquisition

6 Months Ended

Jul. 16, 2016

Business Combinations [Abstract]

Business Acquisition

10. BUSINESS ACQUISITION

On July 13, 2016, the Company announced an agreement to acquire four supermarkets from The Stop & Shop Supermarket Company LLC, which currently operates these stores under the Stop & Shop banner, and two supermarkets from Hannaford Bros. Co., LLC and Martin’s Foods of South Burlington, LLC, which currently operate these stores under the Hannaford banner, in eastern New York and Massachusetts. These transactions are expected to close beginning August 21, 2016 and are subject to customary closing conditions. The aggregate purchase price for this combined acquisition of $12.0 million, plus an estimated purchase price for inventory of $5.9 million, is expected to be funded using cash on hand and available borrowings under the Company’s 2017 ABL Facility.  

The Company believes the acquisition creates significant strategic value due to the expansion it provides to the Company’s supermarket base as well as the minimal incremental general and administrative expenses expected to be incurred.

Based upon a preliminary expected allocation of the aggregate purchase price, the assets to be acquired will be recorded at their respective estimated fair values as of the acquisition dates.  Due to the timing of the closings for the acquisition, the preliminary expected allocation of the aggregate purchase price is based on management’s best estimates of fair values as of the expected acquisition dates using information available as of the date of this 10-Q and is subject to adjustments.  The valuations are expected to be finalized within 12 months of the closing of the acquisition.  As the valuations are finalized, any changes to the preliminary expected valuation of assets acquired may result in material adjustments to the fair value of inventory, equipment and identifiable intangible assets acquired and will be adjusted retrospectively.  

The following table summarizes the expected preliminary allocation of the purchase price to the assets acquired as of the expected transaction dates (dollars in thousands):  

Assets acquired:
Inventory	$	5,939
Equipment		5,888
Pharmacy scripts		3,950
Goodwill		1,839
Customer lists		323
Acquisition price	$	17,939

The following table summarizes the Company’s unaudited pro forma operating results for the 12-week and 28-week periods ended July 16, 2016 and July 11, 2015, giving effect to the acquisition as if it occurred as of the beginning of fiscal year 2015 (dollars in thousands):

	12-week periods ended					28-week periods ended
	July 16, 2016		July 11, 2015			July 16, 2016			July 11, 2015
Net sales	$	628,820	$	625,142		$	1,394,863		$	1,400,299
Operating income		19,776		19,636			34,309			45,740
Net income (loss)		508		(34,309	)		(10,417	)		(34,490	)

The pro forma financial information above reflects the $0.2 million of transaction costs incurred by the Company during the 12-week and 28-week periods ended July 16, 2016 within the operating results for the 28-week period ended July 11, 2015.  Additionally, the pro forma information includes estimated depreciation and amortization of $0.5 million during each of the 12-week periods ended July 16, 2016 and July 11, 2015, and estimated depreciation and amortization of $1.2 million during each of the 28-week periods ended July 16, 2016 and July 11, 2015.  This pro forma financial information is not intended to represent or be indicative of what would have occurred if the acquisition had taken place as of the beginning of the periods presented and should not be taken as representative of the Company’s future consolidated results of operations.

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Impairment

6 Months Ended

Jul. 16, 2016

Goodwill And Intangible Assets Disclosure [Abstract]

Impairment

11. IMPAIRMENT

During August 2016, the Company determined that the expected future cash flows associated with one supermarket location were insufficient to recover that location’s aggregate net book value of long-lived assets.  As a result, the net book values of leasehold improvements and equipment assets were written down to their estimated fair values, a Level 3 fair value source.  A corresponding non-cash impairment of $2.1 million was recognized in the condensed consolidated statements of comprehensive loss for the 12-week and 28-week periods ended July 16, 2016.

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The Company, Basis of Presentation and Summary of Significant Accounting Policies (Policies)

6 Months Ended

Jul. 16, 2016

Organization Consolidation And Presentation Of Financial Statements [Abstract]

Accounting Policies

Accounting Policies

A summary of the Company’s significant accounting policies is included in Note 1 to the audited consolidated financial statements of Holding II for the fiscal year ended January 2, 2016, which appear in the Company’s Annual Report on Form 10-K filed with the Securities and Exchange Commission on March 23, 2016.

Basis of Presentation and Principles of Consolidation

Basis of Presentation and Principles of Consolidation

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

The Company operates on a 52/53 week fiscal year ending on the Saturday closest to December 30.  Fiscal years include 13 four-week reporting periods, with an additional week in the thirteenth reporting period for 53-week fiscal years.  The first quarter of each fiscal year includes four reporting periods, while the remaining quarters include three reporting periods.

The Company’s condensed consolidated financial statements for the 12-week and 28-week periods ended July 16, 2016 and July 11, 2015 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.

Recently Issued Accounting Pronouncements – Not Yet Adopted

Recently Issued Accounting Pronouncements – Not Yet Adopted

In May 2014, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2014-09, “Revenue from Contracts with Customers” (“ASU No. 2014-09”), which provides guidance regarding revenue recognition.  ASU No. 2014-09’s core principle is that a company will recognize revenue when it transfers promised goods or services to customers in an amount that reflects the consideration to which the company expects to be entitled in exchange for those goods or services.  In August 2015, the FASB issued ASU No 2015-14, “Revenue from Contracts with Customers: Deferral of the Effective Date,” which deferred the effective date of ASU 2014-09 to annual reporting periods beginning after December 15, 2017, with earlier application permitted as of annual reporting periods beginning after December 15, 2016.  The Company is currently assessing the potential impact of ASU No. 2014-09 on its consolidated financial statements.

In February 2016, the FASB issued ASU No. 2016-02, “Leases,” (“ASU No. 2016-02”), which stipulates that lessees recognize a right-of-use asset and a lease liability for substantially all leases.  ASU No. 2016-02 is effective on a modified retrospective basis for reporting periods beginning after December 15, 2018, with early adoption permitted.  The Company is currently in the process of evaluating the effect of adoption of ASU No. 2016-02 on its consolidated financial statements.

In March 2016, the FASB issued ASU No. 2016-08, “Principal versus Agent Considerations” (Reporting Revenue Gross versus Net) (“ASU No. 2016-08”).  ASU No. 2016-08 does not change the core principle of the guidance stated in ASU No. 2014-09, instead, the amendments in this ASU are intended to improve the operability and understandability of the implementation guidance on principal versus agent considerations and whether an entity reports revenue on a gross or net basis.  ASU No. 2016-08 will have the same effective date and transition requirements as the new revenue standard issued in ASU No. 2014-09.  The Company is currently in the process of evaluating the effect of adoption of ASU No. 2016-08 on its consolidated financial statements.

In June 2016, the FASB issued ASU No. 2016-13, “Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments” (“ASU No. 2016-13”).  The standard changes the methodology for measuring credit losses on financial instruments and the timing of when such losses are recorded.  ASU No. 2016-13 is effective for fiscal years, and interim periods within those years, beginning after December 15, 2019.  Early adoption is permitted for fiscal years, and interim periods within those years, beginning after December 15, 2018.  The Company does not expect that the adoption of this guidance will have a material impact on its consolidated financial statements.

Segments

Segments

The Company’s 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.  As of July 16, 2016, 51 corporate supermarkets offered pharmacy services and 52 corporate fuel centers were in operation.  The Company’s retail operations, which represent substantially all of the Company’s consolidated sales, earnings and total assets, are its only operating segment and reportable segment.  The Company’s retail operations as a whole reflect the level at which the business is managed and how the Company’s Chief Executive Officer and the Company’s President, who act as the Company’s chief operating decision makers, assess performance internally.    

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

	12-week periods ended										28-week periods ended
	July 16, 2016					July 11, 2015					July 16, 2016					July 11, 2015
			% of					% of					% of					% of
	Amount		Total			Amount		Total			Amount		Total			Amount		Total
Non-perishables(1)	$	331,244		56.2	%	$	325,349		55.5	%	$	744,175		57.1	%	$	738,329		56.4	%
Perishables(2)		184,455		31.3	%		181,151		30.9	%		396,883		30.5	%		392,906		30.0	%
Fuel		34,600		5.9	%		41,335		7.1	%		70,212		5.4	%		87,489		6.7	%
Pharmacy		34,113		5.8	%		32,892		5.6	%		79,976		6.1	%		78,127		6.0	%
Other(3)		5,177		0.8	%		5,184		0.9	%		12,079		0.9	%		11,910		0.9	%
	$	589,589		100.0	%	$	585,911		100.0	%	$	1,303,325		100.0	%	$	1,308,761		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

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 goodwill and intangible assets, lease classification, self-insurance reserves, inventory valuation and income taxes.  Actual results could differ from these estimates.

Fair Value of Financial Instruments

Fair Value of Financial Instruments

The provisions of 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 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.

Financial instruments include cash and cash equivalents, accounts receivable, accounts payable and long-term debt.  The carrying amounts of cash and cash equivalents, accounts receivable and accounts payable approximate fair value because of the short-term nature of these financial instruments.  At July 16, 2016 and January 2, 2016, the carrying value and the estimated fair value of the Company’s debt instruments were as follows (dollars in thousands):

	July 16, 2016		January 2, 2016
Carrying value of long-term debt:
Current portion of long-term debt	$	2,182	$	2,075
Long-term debt		682,727		681,372
Total carrying value of debt instruments		684,909		683,447
Fair value of debt instruments		612,949		677,450
Excess of carrying value over fair value	$	71,960	$	5,997

The fair values of the 2018 Notes and 2022 Notes (see Note 5), which are included in long-term debt as of July 16, 2016 and January 2, 2016, were based on quoted market prices, a Level 2 source.

Fair value measurements of non-financial assets and non-financial liabilities are primarily used in the impairment analysis of long-lived assets, goodwill and intangible assets.  Long-lived assets and definite-lived intangible assets are measured at fair value on a nonrecurring basis using Level 3 inputs.  Goodwill and the Tops tradename are reviewed annually for impairment on December 1, or more frequently if impairment indicators arise.

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The Company, Basis of Presentation and Summary of Significant Accounting Policies (Tables)

6 Months Ended

Jul. 16, 2016

Organization Consolidation And Presentation Of Financial Statements [Abstract]

Summary of Sales Revenue by Type of Product

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

	12-week periods ended										28-week periods ended
	July 16, 2016					July 11, 2015					July 16, 2016					July 11, 2015
			% of					% of					% of					% of
	Amount		Total			Amount		Total			Amount		Total			Amount		Total
Non-perishables(1)	$	331,244		56.2	%	$	325,349		55.5	%	$	744,175		57.1	%	$	738,329		56.4	%
Perishables(2)		184,455		31.3	%		181,151		30.9	%		396,883		30.5	%		392,906		30.0	%
Fuel		34,600		5.9	%		41,335		7.1	%		70,212		5.4	%		87,489		6.7	%
Pharmacy		34,113		5.8	%		32,892		5.6	%		79,976		6.1	%		78,127		6.0	%
Other(3)		5,177		0.8	%		5,184		0.9	%		12,079		0.9	%		11,910		0.9	%
	$	589,589		100.0	%	$	585,911		100.0	%	$	1,303,325		100.0	%	$	1,308,761		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.

Schedule of Carrying and Estimated Values of Debt Instruments

At July 16, 2016 and January 2, 2016, the carrying value and the estimated fair value of the Company’s debt instruments were as follows (dollars in thousands):

	July 16, 2016		January 2, 2016
Carrying value of long-term debt:
Current portion of long-term debt	$	2,182	$	2,075
Long-term debt		682,727		681,372
Total carrying value of debt instruments		684,909		683,447
Fair value of debt instruments		612,949		677,450
Excess of carrying value over fair value	$	71,960	$	5,997

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Goodwill and Intangible Assets, Net (Tables)

6 Months Ended

Jul. 16, 2016

Goodwill And Intangible Assets Disclosure [Abstract]

Summary of Change in Goodwill

The following table summarizes the change in the Company’s goodwill balance during the 28-week period ended July 16, 2016 (dollars in thousands):

Balance - January 2, 2016	$	213,096
Adjustments		—
Balance - July 16, 2016	$	213,096

Summary of Intangible Assets, Net of Accumulated Amortization

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

	Gross					Net		Average
	Carrying		Accumulated			Carrying		Amortization
July 16, 2016	Amount		Amortization			Amount		Period
Tradename – indefinite	$	131,200	$	—		$	131,200	Indefinitelife
Customer relationships		29,200		(16,270	)		12,930		14.0
Favorable lease rights		19,050		(5,695	)		13,355		9.6
Franchise agreements		13,300		(4,696	)		8,604		14.0
Pharmacy scripts		3,979		(1,534	)		2,445		14.0
	$	196,729	$	(28,195	)	$	168,534		12.8

	Gross					Net
	Carrying		Accumulated			Carrying
January 2, 2016	Amount		Amortization			Amount
Tradename – indefinite	$	131,200	$	—		$	131,200
Customer relationships		29,200		(14,117	)		15,083
Favorable lease rights		21,550		(6,328	)		15,222
Franchise agreements		13,300		(3,872	)		9,428
Pharmacy scripts		3,979		(1,182	)		2,797
	$	199,229	$	(25,499	)	$	173,730

Summary of Expected Future Amortization of Intangible Assets

As of July 16, 2016, expected future amortization of intangible assets is as follows (dollars in thousands):

2016 (remaining period)	$	3,778
2017		7,012
2018		5,904
2019		4,917
2020		4,127
Thereafter		11,596

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Accrued Expenses and Other Current Liabilities (Tables)

6 Months Ended

Jul. 16, 2016

Accrued Liabilities And Other Liabilities [Abstract]

Summary of Accrued Expenses and Other Current Liabilities

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

	July 16, 2016		January 2, 2016
Wages, taxes and benefits	$	19,427	$	28,623
Lottery		12,363		13,127
Union medical, pension and 401(k)		8,798		5,817
Self-insurance reserves		6,452		6,502
Professional and legal fees		5,963		5,773
Interest payable		4,745		3,177
Sales and use tax		4,465		1,431
Gift cards		3,381		9,467
Utilities		2,595		2,346
Repairs and maintenance		1,915		2,050
Property and equipment expenditures		1,341		2,525
Money orders		951		2,682
Other		14,821		13,237
	$	87,217	$	96,757

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Capital Lease Obligations (Tables)

6 Months Ended

Jul. 16, 2016

Leases [Abstract]

Schedule of Future Minimum Lease Rental Payments for Capital Lease Obligations

As of July 16, 2016, future minimum lease rental payments applicable to non-cancelable capital lease obligations were as follows (dollars in thousands):

2016 (remaining period)	$	14,786
2017		31,116
2018		27,438
2019		24,723
2020		21,479
Thereafter		114,558
Total minimum lease payments		234,100
Less amounts representing interest		(149,177	)
Present value of net minimum lease payments		84,923
Less current obligations		(9,468	)
Long-term cash obligations		75,455
Non-cash obligations		64,796
Total long-term capital lease obligations	$	140,251

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Debt (Tables)

6 Months Ended

Jul. 16, 2016

Debt Disclosure [Abstract]

Summary of Long-term Debt

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

	July 16, 2016			January 2, 2016
2022 Notes	$	560,000		$	560,000
2018 Notes		85,514			86,704
Discount on 2018 Notes		(371	)		(470	)
Deferred financing fees		(11,441	)		(12,716	)
2017 ABL Facility		47,700			46,700
Other loans		3,507			3,229
Total debt		684,909			683,447
Current portion		(2,182	)		(2,075	)
Total long-term debt	$	682,727		$	681,372

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Income Taxes (Tables)

6 Months Ended

Jul. 16, 2016

Income Tax Disclosure [Abstract]

Summary of Income Tax Expense

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

	12-week periods ended						28-week periods ended
	July 16, 2016			July 11, 2015			July 16, 2016			July 11, 2015
Current	$	(292	)	$	(7	)	$	(318	)	$	(9	)
Deferred		(409	)		(393	)		(954	)		(933	)
Total income tax expense	$	(701	)	$	(400	)	$	(1,272	)	$	(942	)

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Business Acquisition (Tables) - The Stop & Shop Supermarket Company LLC and Hannaford Bros. Co., LLC and Martin's Foods of South Burlington, LLC [Member]

6 Months Ended

Jul. 16, 2016

Business Acquisition [Line Items]

Allocation of Purchase Price to Assets Acquired

The following table summarizes the expected preliminary allocation of the purchase price to the assets acquired as of the expected transaction dates (dollars in thousands):  

Assets acquired:
Inventory	$	5,939
Equipment		5,888
Pharmacy scripts		3,950
Goodwill		1,839
Customer lists		323
Acquisition price	$	17,939

Unaudited Pro forma Financial Information

The following table summarizes the Company’s unaudited pro forma operating results for the 12-week and 28-week periods ended July 16, 2016 and July 11, 2015, giving effect to the acquisition as if it occurred as of the beginning of fiscal year 2015 (dollars in thousands):

	12-week periods ended					28-week periods ended
	July 16, 2016		July 11, 2015			July 16, 2016			July 11, 2015
Net sales	$	628,820	$	625,142		$	1,394,863		$	1,400,299
Operating income		19,776		19,636			34,309			45,740
Net income (loss)		508		(34,309	)		(10,417	)		(34,490	)

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The Company, Basis of Presentation and Summary of Significant Accounting Policies - Additional Information (Detail)	6 Months Ended
	Jul. 16, 2016 Store Segment
Basis Of Presentation And Summary Of Significant Accounting Policies [Line Items]
Number of reportable segment | Segment	1
Number of supermarkets offered pharmacy services	51
Number of supermarkets offering fuel filling services	52
Supermarkets [Member]
Basis Of Presentation And Summary Of Significant Accounting Policies [Line Items]
Number of retail supermarkets	165
Supermarkets [Member] | Tops Markets, LLC [Member]
Basis Of Presentation And Summary Of Significant Accounting Policies [Line Items]
Number of retail supermarkets	164
Additional operated supermarkets by franchisees	5
Supermarkets [Member] | Orchard Fresh [Member]
Basis Of Presentation And Summary Of Significant Accounting Policies [Line Items]
Number of retail supermarkets	1

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The Company, Basis of Presentation and Summary of Significant Accounting Policies - Summary of Sales Revenue by Type of Product (Detail) - USD ($) $ in Thousands		3 Months Ended		6 Months Ended
		Jul. 16, 2016	Jul. 11, 2015	Jul. 16, 2016	Jul. 11, 2015
Sales Revenue, Goods, Net [Abstract]
Sales revenue		$ 589,589	$ 585,911	$ 1,303,325	$ 1,308,761
Sale revenue percentage		100.00%	100.00%	100.00%	100.00%
Non-perishables [Member]
Sales Revenue, Goods, Net [Abstract]
Sales revenue	[1]	$ 331,244	$ 325,349	$ 744,175	$ 738,329
Sale revenue percentage	[1]	56.20%	55.50%	57.10%	56.40%
Perishables [Member]
Sales Revenue, Goods, Net [Abstract]
Sales revenue	[2]	$ 184,455	$ 181,151	$ 396,883	$ 392,906
Sale revenue percentage	[2]	31.30%	30.90%	30.50%	30.00%
Pharmacy [Member]
Sales Revenue, Goods, Net [Abstract]
Sales revenue		$ 34,113	$ 32,892	$ 79,976	$ 78,127
Sale revenue percentage		5.80%	5.60%	6.10%	6.00%
Other Products [Member]
Sales Revenue, Goods, Net [Abstract]
Sales revenue	[3]	$ 5,177	$ 5,184	$ 12,079	$ 11,910
Sale revenue percentage	[3]	0.80%	0.90%	0.90%	0.90%
Fuel [Member]
Sales Revenue, Goods, Net [Abstract]
Sales revenue		$ 34,600	$ 41,335	$ 70,212	$ 87,489
Sale revenue percentage		5.90%	7.10%	5.40%	6.70%

[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.

XML

The Company, Basis of Presentation and Summary of Significant Accounting Policies - Schedule of Carrying and Estimated Values of Debt Instruments (Detail) - USD ($) $ in Thousands	Jul. 16, 2016	Jan. 02, 2016
Carrying value of long-term debt:
Current portion of long-term debt	$ 2,182	$ 2,075
Long-term debt	682,727	681,372
Total carrying value of debt instruments	684,909	683,447
Fair value of debt instruments	612,949	677,450
Excess of carrying value over fair value	$ 71,960	$ 5,997

XML

Goodwill and Intangible Assets Net - Summary of Change in Goodwill (Detail) - USD ($) $ in Thousands	Jul. 16, 2016	Jul. 13, 2016
Goodwill And Intangible Assets Disclosure [Abstract]
Goodwill, Beginning Balance		$ 213,096
Goodwill, Ending Balance	$ 213,096

XML

Goodwill and Intangible Assets Net - Additional Information (Detail) - USD ($)	3 Months Ended		6 Months Ended
	Jul. 16, 2016	Jul. 11, 2015	Jul. 16, 2016	Jul. 11, 2015
Finite-Lived Intangible Assets [Line Items]
Goodwill impairment charges	$ 0	$ 0	$ 0	$ 0
Impairment	2,076,000		2,076,000
Amortization expense	1,900,000	2,700,000	5,200,000	6,200,000
Contra-expense related to amortization of unfavorable lease rights	100,000	100,000	200,000	200,000
Future amortization expense, 2016 (remaining period)	100,000		100,000
Future amortization expense, 2017	300,000		300,000
Future amortization expense, 2018	300,000		300,000
Future amortization expense, 2019	300,000		300,000
Future amortization expense, 2020	300,000		300,000
Future amortization expense, Thereafter	700,000		700,000
Tradename - Indefinite [Member]
Finite-Lived Intangible Assets [Line Items]
Impairment	$ 0	$ 0	$ 0	$ 0

XML

Goodwill and Intangible Assets Net - Summary of Intangible Assets, Net of Accumulated Amortization (Detail) - USD ($) $ in Thousands	6 Months Ended
	Jul. 16, 2016	Jan. 02, 2016
Intangible Assets, Net (Excluding Goodwill) [Abstract]
Gross Carrying Amount	$ 196,729	$ 199,229
Accumulated Amortization	(28,195)	(25,499)
Net Carrying Amount	$ 168,534	173,730
Average Amortization Period	12 years 9 months 18 days
Tradename - Indefinite [Member]
Intangible Assets, Net (Excluding Goodwill) [Abstract]
Gross Carrying Amount	$ 131,200	131,200
Net Carrying Amount	$ 131,200	131,200
Average Amortization Period, Indefinite Life	Indefinite life
Customer Relationships [Member]
Intangible Assets, Net (Excluding Goodwill) [Abstract]
Gross Carrying Amount	$ 29,200	29,200
Accumulated Amortization	(16,270)	(14,117)
Net Carrying Amount	$ 12,930	15,083
Average Amortization Period	14 years
Favorable Lease Rights [Member]
Intangible Assets, Net (Excluding Goodwill) [Abstract]
Gross Carrying Amount	$ 19,050	21,550
Accumulated Amortization	(5,695)	(6,328)
Net Carrying Amount	$ 13,355	15,222
Average Amortization Period	9 years 7 months 6 days
Franchise Agreements [Member]
Intangible Assets, Net (Excluding Goodwill) [Abstract]
Gross Carrying Amount	$ 13,300	13,300
Accumulated Amortization	(4,696)	(3,872)
Net Carrying Amount	$ 8,604	9,428
Average Amortization Period	14 years
Pharmacy Scripts [Member]
Intangible Assets, Net (Excluding Goodwill) [Abstract]
Gross Carrying Amount	$ 3,979	3,979
Accumulated Amortization	(1,534)	(1,182)
Net Carrying Amount	$ 2,445	$ 2,797
Average Amortization Period	14 years

XML

Goodwill and Intangible Assets Net - Summary of Expected Future Amortization of Intangible Assets (Detail) $ in Thousands	Jul. 16, 2016 USD ($)
Finite Lived Intangible Assets Future Amortization Expense [Abstract]
Future amortization expense, 2016 (remaining period)	$ 3,778
Future amortization expense, 2017	7,012
Future amortization expense, 2018	5,904
Future amortization expense, 2019	4,917
Future amortization expense, 2020	4,127
Future amortization expense, Thereafter	$ 11,596

XML

Accrued Expenses and Other Current Liabilities - Summary of Accrued Expenses and Other Current Liabilities (Detail) - USD ($) $ in Thousands	Jul. 16, 2016	Jan. 02, 2016
Other Liabilities Disclosure [Abstract]
Wages, taxes and benefits	$ 19,427	$ 28,623
Lottery	12,363	13,127
Union medical, pension and 401(k)	8,798	5,817
Self-insurance reserves	6,452	6,502
Professional and legal fees	5,963	5,773
Interest payable	4,745	3,177
Sales and use tax	4,465	1,431
Gift cards	3,381	9,467
Utilities	2,595	2,346
Repairs and maintenance	1,915	2,050
Property and equipment expenditures	1,341	2,525
Money orders	951	2,682
Other	14,821	13,237
Accrued expenses and other current liabilities, Total	$ 87,217	$ 96,757

XML

Capital Lease Obligations - Additional Information (Detail)	6 Months Ended
	Jul. 16, 2016
Leases [Line Items]
Leases expire year	2036
Leases term	25 years
Minimum [Member]
Leases [Line Items]
Capital lease expiration year	2017
Maximum [Member]
Leases [Line Items]
Capital lease expiration year	2036

XML

Capital Lease Obligations - Schedule of Future Minimum Lease Rental Payments for Capital Lease Obligations (Detail) - USD ($) $ in Thousands	Jul. 16, 2016	Jan. 02, 2016
Leases [Abstract]
2016 (remaining period)	$ 14,786
2017	31,116
2018	27,438
2019	24,723
2020	21,479
Thereafter	114,558
Total minimum lease payments	234,100
Less amounts representing interest	(149,177)
Present value of net minimum lease payments	84,923
Less current obligations	(9,468)	$ (8,566)
Long-term cash obligations	75,455
Non-cash obligations	64,796
Total long-term capital lease obligations	$ 140,251	$ 143,122

XML

Debt - Summary of Long-term Debt (Detail) - USD ($) $ in Thousands	Jul. 16, 2016	Jan. 02, 2016	Jun. 10, 2015	Dec. 27, 2014
Secured Debt [Abstract]
Deferred financing fees	$ (11,441)	$ (12,716)
Other loans	3,507	3,229
Total carrying value of debt instruments	684,909	683,447
Current portion	(2,182)	(2,075)
Total long-term debt	682,727	681,372
2017 ABL Facility [Member]
Secured Debt [Abstract]
ABL Facility	47,700	46,700
2022 Notes [Member]
Secured Debt [Abstract]
Notes	560,000	560,000	$ 560,000
2018 Notes [Member]
Secured Debt [Abstract]
Notes	85,514	86,704		$ 150,000
Discount on notes	$ (371)	$ (470)

XML

Debt - Additional Information (Detail) - USD ($)			3 Months Ended		6 Months Ended		12 Months Ended
	Jun. 10, 2015	May 15, 2013	Jul. 16, 2016	Jul. 11, 2015	Jul. 16, 2016	Jul. 11, 2015	Jan. 02, 2016	Jan. 20, 2016	Dec. 18, 2015	Dec. 27, 2014	Dec. 14, 2014
Debt Instrument [Line Items]
Repayments of long-term debt borrowings					$ 2,365,000	$ 520,981,000
Redemption premium payment						24,215,000
Amortization of deferred financing costs			$ 500,000	$ 800,000	1,246,000	$ 2,113,000
Deferred financing costs, accumulated amortization			3,000,000		3,000,000		$ 1,800,000
Deferred financing costs			11,400,000		$ 11,400,000		12,700,000
2017 ABL Facility [Member]
Debt Instrument [Line Items]
Maximum borrowing capacity in ABL Facility											$ 125,000,000
Credit facility maturity date					Dec. 14, 2017
Unused availability under the ABL Facility			46,500,000		$ 46,500,000
Line of credit facility, amount outstanding			47,700,000		$ 47,700,000		$ 46,700,000
Weighted average interest rate on borrowings under the ABL Facility					2.56%		3.20%
2017 ABL Facility [Member] | Letter of Credit [Member]
Debt Instrument [Line Items]
Letters of credit outstanding			22,800,000		$ 22,800,000		$ 23,800,000
Maximum [Member] | 2017 ABL Facility [Member]
Debt Instrument [Line Items]
Increase in capacity upon met specified condition											$ 50,000,000
Maximum [Member] | 2017 ABL Facility [Member] | LIBOR Plus [Member]
Debt Instrument [Line Items]
Debt instrument, applicable margin rate					2.00%
Maximum [Member] | 2017 ABL Facility [Member] | Prime Rate Plus [Member]
Debt Instrument [Line Items]
Debt instrument, applicable margin rate					1.00%
Minimum [Member] | 2017 ABL Facility [Member] | LIBOR Plus [Member]
Debt Instrument [Line Items]
Debt instrument, applicable margin rate					1.50%
Minimum [Member] | 2017 ABL Facility [Member] | Prime Rate Plus [Member]
Debt Instrument [Line Items]
Debt instrument, applicable margin rate					0.50%
2022 Notes [Member]
Debt Instrument [Line Items]
Debt instrument carrying amount	$ 560,000,000		560,000,000		$ 560,000,000		560,000,000
Interest rate, notes	8.00%
Maturity date of senior notes	Jun. 15, 2022
Semi-annual interest payments date					The 2022 Notes mature on June 15, 2022 and require semi-annual interest payments on June 15 and December 15.
Capitalized cost					$ 10,700,000
2017 Notes [Member]
Debt Instrument [Line Items]
Repayments of long-term debt borrowings	$ 460,000,000
Redemption premium payment	23,000,000
Unamortized deferred financing costs			1,100,000		1,100,000
2018 Notes [Member]
Debt Instrument [Line Items]
Debt instrument carrying amount			85,514,000		$ 85,514,000		$ 86,704,000			$ 150,000,000
Debt instrument repurchased	60,000,000
Redemption premium payment	$ 1,200,000
Semi-annual interest payments date					The 2018 Notes mature on June 15, 2018 and require semi-annual interest payments on June 15 and December 15.
Unamortized deferred financing costs			2,700,000		$ 2,700,000
2018 Notes [Member] | Open Market [Member]
Debt Instrument [Line Items]
Debt instrument repurchased								$ 1,200,000	$ 3,300,000
2018 Notes [Member] | Holding II [Member]
Debt Instrument [Line Items]
Debt instrument carrying amount		$ 150,000,000	$ 85,500,000		$ 85,500,000
Interest rate, notes			9.50%		9.50%
Maturity date of senior notes		Jun. 15, 2018
8.75% Senior Unsecured Notes [Member] | Holding II [Member]
Debt Instrument [Line Items]
Interest rate, notes	8.75%
9.50% Senior Unsecured Notes [Member] | Holding II [Member]
Debt Instrument [Line Items]
Interest rate, notes	9.50%

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Income Taxes - Summary of Income Tax Expense (Detail) - USD ($) $ in Thousands	3 Months Ended		6 Months Ended
	Jul. 16, 2016	Jul. 11, 2015	Jul. 16, 2016	Jul. 11, 2015
Income Tax Disclosure [Abstract]
Current	$ (292)	$ (7)	$ (318)	$ (9)
Deferred	(409)	(393)	(954)	(933)
Total income tax expense	$ (701)	$ (400)	$ (1,272)	$ (942)

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Income Taxes - Additional Information (Detail) - USD ($) $ in Millions	3 Months Ended		6 Months Ended
	Jul. 16, 2016	Jul. 11, 2015	Jul. 16, 2016	Jul. 11, 2015	Jan. 03, 2016
Income Taxes [Line Items]
Effective income tax rates without adjustment valuation allowance	38.90%	39.10%	39.00%	39.10%
Expiration dates for operating losses			Jan. 01, 2029
Expiration dates for tax credits			Jan. 01, 2027
United States Federal Tax [Member]
Income Taxes [Line Items]
Operating loss carryforwards net					$ 70.9
Federal tax credits					5.4
State and Local Jurisdiction [Member]
Income Taxes [Line Items]
Operating loss carryforwards net					$ 71.5

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Gain on Sale of Assets - Additional Information (Detail) $ in Thousands	1 Months Ended	6 Months Ended
	Jan. 31, 2015 USD ($) Location	Jul. 11, 2015 USD ($)
Discontinued Operations And Disposal Groups [Abstract]
Number of locations pharmacy scripts and inventory sold | Location	27
Proceeds from sale of assets	$ 14,900
Gain on sale of assets		$ 11,014
Carrying value of sold inventory		3,200
Direct selling expenses on sale of assets		$ 700

XML

Dividends Paid - Additional Information (Detail) - USD ($) $ in Millions	Jan. 14, 2016	Jan. 08, 2015
Equity [Abstract]
Dividend paid by company to TOPS MBO Co	$ 2.0
Dividends paid		$ 0.8
Common shares repurchased		1

XML

Commitments and Contingencies - Additional Information (Detail)			3 Months Ended		6 Months Ended
	May 27, 2014 USD ($)	Sep. 24, 2012 Store	Jul. 16, 2016 USD ($) EMP	Jul. 11, 2015 USD ($)	Jul. 16, 2016 USD ($) EMP Agreement	Jul. 11, 2015 USD ($)	Jan. 02, 2016 USD ($)
Commitments Contingencies And Litigation [Line Items]
Payment of withdrawal liability			$ 3,800,000	$ 3,800,000	$ 3,800,000	$ 3,800,000
Number of supermarkets acquired | Store		21
Agreement expiration date					Sep. 23, 2022
Expiration date of supply agreement					Feb. 28, 2017
Accrued Environmental Liabilities			$ 0		$ 0		$ 0
Number of employed associates | EMP			15,000		15,000
Percentage of associates engaged in various unions					83.00%
Number of collective bargaining agreements | Agreement					5
Pending Litigation [Member]
Commitments Contingencies And Litigation [Line Items]
Accrued amount related to contingent liabilities due to legal proceedings			$ 0		$ 0		$ 0
Teamster Local 264 [Member]
Commitments Contingencies And Litigation [Line Items]
Percentage of members working in distribution facilities			4.00%		4.00%
Number of collective bargaining agreements | Agreement					3
Expiration date of collective bargaining agreements					2019-08
Local One Collective Bargaining Arrangement [Member] | Five Collective Bargaining Agreements [Member] | Minimum [Member]
Commitments Contingencies And Litigation [Line Items]
Expiration date of collective bargaining agreements					2017-04
Local One Collective Bargaining Arrangement [Member] | Five Collective Bargaining Agreements [Member] | Maximum [Member]
Commitments Contingencies And Litigation [Line Items]
Expiration date of collective bargaining agreements					2018-10
Non Local Collective Bargaining Arrangement One [Member]
Commitments Contingencies And Litigation [Line Items]
Expiration date of collective bargaining agreements					2016-04
Non Local Collective Bargaining Arrangement Two [Member]
Commitments Contingencies And Litigation [Line Items]
Expiration date of collective bargaining agreements					2018-02
Branded Prescription Drugs [Member]
Commitments Contingencies And Litigation [Line Items]
Minimum purchase requirement					95.00%
Generic Pharmaceutical Products [Member]
Commitments Contingencies And Litigation [Line Items]
Minimum purchase requirement					95.00%
Other Assets [Member]
Commitments Contingencies And Litigation [Line Items]
Payment of withdrawal liability			$ 15,400,000		$ 15,400,000
Other Long Term Liabilities [Member]
Commitments Contingencies And Litigation [Line Items]
Aggregate rejected contributions			11,800,000		11,800,000
Multiemployer Plans, Pension [Member]
Commitments Contingencies And Litigation [Line Items]
Company made contributions			$ 1,200,000	$ 800,000	$ 2,900,000	$ 2,400,000
Liability estimate due to withdrawal from fund	$ 183,700,000
Contribution payable period	240 months
Monthly installment amount	$ 641,514

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Business Acquisition - Additional Information (Detail) $ in Thousands			3 Months Ended		6 Months Ended
	Jul. 13, 2016 USD ($) Supermarket	Sep. 24, 2012 Store	Jul. 16, 2016 USD ($)	Jul. 11, 2015 USD ($)	Jul. 16, 2016 USD ($)	Jul. 11, 2015 USD ($)
Business Acquisition [Line Items]
Number of supermarkets acquired | Store		21
The Stop & Shop Supermarket Company LLC and Hannaford Bros. Co., LLC and Martin's Foods of South Burlington, LLC [Member]
Business Acquisition [Line Items]
Business acquisition agreement date					Jul. 13, 2016
Business acquisition expected close date of transactions					Aug. 21, 2016
Estimated purchase price of inventory	$ 5,939
Transaction cost			$ 200		$ 200
Business acquisition pro forma estimated depreciation and amortization			$ 500	$ 500	$ 1,200	$ 1,200
The Stop & Shop Supermarket Company LLC and Hannaford Bros. Co., LLC and Martin's Foods of South Burlington, LLC [Member] | 2017 ABL Facility [Member]
Business Acquisition [Line Items]
Aggregate purchase price	12,000
Estimated purchase price of inventory	$ 5,900
The Stop & Shop Supermarket Company LLC [Member]
Business Acquisition [Line Items]
Number of supermarkets acquired | Supermarket	4
Hannaford Bros. Co., LLC and Martin's Foods of South Burlington, LLC [Member]
Business Acquisition [Line Items]
Number of supermarkets acquired | Supermarket	2

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Business Acquisition - Allocation of Purchase Price to Assets Acquired and Adjustments to Estimated Fair Values of Assets and Liabilities (Detail) - USD ($) $ in Thousands	Jul. 16, 2016	Jul. 13, 2016	Jan. 02, 2016
Assets acquired:
Goodwill	$ 213,096		$ 213,096
The Stop & Shop Supermarket Company LLC and Hannaford Bros. Co., LLC and Martin's Foods of South Burlington, LLC [Member]
Assets acquired:
Inventory		$ 5,939
Equipment		5,888
Goodwill		1,839
Acquisition price		17,939
The Stop & Shop Supermarket Company LLC and Hannaford Bros. Co., LLC and Martin's Foods of South Burlington, LLC [Member] | Pharmacy Scripts [Member]
Assets acquired:
Intangible assets		3,950
The Stop & Shop Supermarket Company LLC and Hannaford Bros. Co., LLC and Martin's Foods of South Burlington, LLC [Member] | Customer Lists [Member]
Assets acquired:
Intangible assets		$ 323

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Business Acquisition - Unaudited Pro forma Financial Information (Detail) - The Stop & Shop Supermarket Company LLC and Hannaford Bros. Co., LLC and Martin's Foods of South Burlington, LLC [Member] - USD ($) $ in Thousands	3 Months Ended		6 Months Ended
	Jul. 16, 2016	Jul. 11, 2015	Jul. 16, 2016	Jul. 11, 2015
Business Acquisition Pro Forma Information [Line Items]
Net sales	$ 628,820	$ 625,142	$ 1,394,863	$ 1,400,299
Operating income	19,776	19,636	34,309	45,740
Net income (loss)	$ 508	$ (34,309)	$ (10,417)	$ (34,490)

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Impairment - Additional Information (Detail) - USD ($) $ in Thousands	3 Months Ended	6 Months Ended
	Jul. 16, 2016	Jul. 16, 2016
Impairment Charges [Abstract]
Impairment	$ 2,076	$ 2,076