SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

☒	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

FOR THE QUARTERLY PERIOD ENDED ~~OCTOBER~~APRIL 822, ~~2016~~2017

☐	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 ☐ No ☒

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or aan emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” ~~(as~~and ~~defined~~“emerging growth company” in Rule 12b-2 of the Exchange Act).

Large accelerated filer ☐ Accelerated filer ☐ Non-accelerated filer ☒ (Do not check if a smaller reporting company) Smaller reporting company ☐ Emerging growth company ☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

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

As of ~~November~~June 86, ~~2016~~2017, 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 October 8, 2016 and January 2, 2016	1
	Condensed Consolidated Balance Sheets as of April 22, 2017 and December 31, 2016	1
	Condensed Consolidated Statements of Comprehensive Loss for the 12-week and 40-week periods ended October 8, 2016 and October 3, 2015	2
	Condensed Consolidated Statements of Comprehensive Loss for the 16-week periods ended April 22, 2017 and April 23, 2016	2
	Condensed Consolidated Statements of Cash Flows for the 40-week periods ended October 8, 2016 and October 3, 2015	3
	Condensed Consolidated Statements of Cash Flows for the 16-week periods ended April 22, 2017 and April 23, 2016	3
	Notes to Unaudited Condensed Consolidated Financial Statements	4
ITEM 2.	MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS	1416
ITEM 3.	QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK	2423
ITEM 4.	CONTROLS AND PROCEDURES	2423
PART II – OTHER INFORMATION
ITEM 1.	LEGAL PROCEEDINGS	2423
ITEM 1A.	RISK FACTORS	2423
ITEM 6.	EXHIBITS	2524
SIGNATURE		2524

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)

	October 8, 2016			January 2, 2016
	April 22, 2017			December 31, 2016
Assets
Current assets:
Cash and cash equivalents	$	3124,~~377~~414		$	3524,~~557~~994
Accounts receivable, net		6968,~~836~~905			6876,~~198~~874
Inventory, net		~~163~~153,~~628~~452			~~141~~153,~~223~~306
Prepaid expenses and other current assets		1617,~~700~~011			1615,~~857~~889
Total current assets		~~281~~263,~~541~~782			~~261~~271,~~835~~063
Property and equipment, net		~~350~~335,~~117~~340			~~369~~348,~~446~~299
Goodwill (Note 3)		219,~~828~~886			~~213~~219,~~096~~886
Intangible assets, net (Note 3)		~~170~~166,~~237~~035			~~173~~168,~~730~~385
Other assets (Note 10)		17,321			11,547
Other assets (Note 9)		21,170			19,245
Total assets	$	1,~~039~~006,~~044~~213		$	1,~~029~~026,~~654~~878
Liabilities and Shareholders' Deficit
Current liabilities:
Accounts payable	$	8875,~~223~~050		$	8176,~~812~~930
Accrued expenses and other current liabilities (Note 4)		~~105~~97,~~541~~274			96106,~~757~~266
Current portion of capital lease obligations (Note 5)		910,~~447~~576			810,~~566~~490
Current portion of long-term debt (Note 6)		21,~~126~~916			23,~~075~~120
Total current liabilities		~~205~~184,~~337~~816			~~189~~196,~~210~~806
Capital lease obligations (Note 5)		~~137~~136,~~086~~711			~~143~~139,~~122~~240
Long-term debt, net (Note 6)		~~705~~722,~~756~~867			~~681~~709,~~372~~206
Other long-term liabilities		5056,~~594~~929			4454,~~680~~494
Non-current deferred tax liabilities		45,057			43,694
Deferred tax liabilities, net		46,089			45,509
Total liabilities		1,~~143~~147,~~830~~412			1,~~102~~145,~~078~~255
Commitments and contingencies (Note 10)
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 October 8, 2016 and January 2, 2016)		—			—
Common stock ($0.001 par value; 300,000 authorized shares, 126,560 shares issued and 126,559 shares outstanding as of April 22, 2017 and December 31, 2016)		—			—
Treasury stock (at cost; 1 share as of October 8, 2016 and January 2, 2016)		(1	)		(1	)
Treasury stock (at cost; 1 share as of April 22, 2017 and December 31, 2016)		(1	)		(1	)
Paid-in capital		6,~~367~~399			76,~~974~~381
Accumulated deficit		(~~109~~146,~~547~~195	)		(78123,~~792~~355	)
Accumulated other comprehensive loss, net of tax		(1,~~605~~402	)		(1,~~605~~402	)
Total shareholders' deficit		(~~104~~141,~~786~~199	)		(72118,~~424~~377	)
Total liabilities and shareholders' deficit	$	1,~~039~~006,~~044~~213		$	1,~~029~~026,~~654~~878

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						40-week periods ended
	16-week periods ended
	October 8, 2016			October 3, 2015			October 8, 2016			October 3, 2015
	April 22, 2017			April 23, 2016
Net sales	$	~~568~~740,~~753~~828		$	~~560~~713,~~744~~736		$	~~1,872,078~~		$	~~1,869,505~~
Cost of goods sold		(~~388~~509,~~758~~450	)		(~~386~~486,~~195~~866	)		~~(1,279,910~~	)		~~(1,284,579~~	)
Distribution costs		(1114,~~586~~603	)		(911,~~125~~814	)		~~(33,046~~	)		~~(34,948~~	)
Gross profit		~~168~~216,~~409~~775			~~165~~215,~~424~~056			~~559,122~~			~~549,978~~
Operating expenses:
Wages, salaries and benefits		(84115,~~725~~868	)		(80107,~~354~~833	)		~~(277,117~~	)		~~(272,581~~	)
Selling and general expenses		(2838,~~352~~063	)		(2736,~~459~~505	)		~~(92,088~~	)		~~(91,809~~	)
Administrative expenses (inclusive of share-based compensation expense of $(39), $53, $88 and $177)		(21,923	)		(17,842	)		(65,971	)		(58,844	)
Administrative expenses (inclusive of share-based compensation expense of $18 and $89)		(23,517	)		(25,470	)
Rent expense, net		(79,~~004~~931	)		(68,~~292~~601	)		~~(22,110~~	)		~~(20,863~~	)
Depreciation and amortization		(1419,~~968~~993	)		(1419,~~719~~915	)		~~(49,601~~	)		~~(47,891~~	)
Advertising		(56,~~140~~422	)		(46,~~901~~424	)		~~(17,158~~	)		~~(16,590~~	)
Impairment (Note 11)		—			—			(2,076	)		—
Total operating expenses		(213,794	)		(204,748	)
Gain on sale of assets (Note 8)		—			—			—			11,014
Operating income		2,981			10,308
Total operating expenses		(162,112	)		(151,567	)		(526,121	)		(497,564	)
Interest expense, net		(25,148	)		(24,887	)
Operating income		6,297			13,857			33,001			52,414
Loss before income taxes		(22,167	)		(14,579	)
Loss on debt extinguishment		—			—			—			(34,503	)
Income tax expense		(673	)		(571	)
Interest expense, net		(18,581	)		(18,619	)		(62,035	)		(63,404	)
Net loss		(22,840	)		(15,150	)
Loss before income taxes		(12,284	)		(4,762	)		(29,034	)		(45,493	)
Other comprehensive income		—			—
Income tax expense		(449	)		(400	)		(1,721	)		(1,342	)
Comprehensive loss	$	(22,840	)	$	(15,150	)
Net loss		(12,733	)		(5,162	)		(30,755	)		(46,835	)
Other comprehensive income		—			—			—			—
Comprehensive loss	$	(12,733	)	$	(5,162	)	$	(30,755	)	$	(46,835	)

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)

	40-week periods ended
	16-week periods ended
	October 8, 2016			October 3, 2015
	April 22, 2017			April 23, 2016
Cash flows provided by operating activities:
Net loss	$	(3022,~~755~~840	)	$	(4615,~~835~~150	)
Adjustments to reconcile net loss to net cash provided by operating activities:
Adjustments to reconcile net loss to net cash (used in) provided by operating activities:
Depreciation and amortization		5823,~~850~~409			5723,~~179~~614
Impairment		2,076			—
LIFO inventory valuation adjustments		1,132			369
Amortization of deferred financing costs		~~1,770~~701			~~2,618~~731
Deferred income taxes		~~1,363~~580			~~1,334~~545
Straight-line rent adjustment		~~759~~294			~~775~~266
LIFO inventory valuation adjustments		241			661
Share-based compensation expense		18			89
Share-based compensation expense		88			177
Other		186			153
Loss on debt extinguishment		—			34,503
Gain on sale of assets		—			(11,014	)
Other		75			490
Changes in operating assets and liabilities:
Increase in accounts receivable		(1,638	)		(6,234	)
Decrease in accounts receivable		7,969			7,689
Increase in inventory, net		(171,~~640~~278	)		(13,~~341~~849	)
Decrease (increase) in prepaid expenses and other current assets		236			(2,382	)
(Increase) decrease in prepaid expenses and other current assets		(1,122	)		2,682
Increase in other assets		(51,~~774~~925	)		—(1,925	)
Increase (decrease) in accounts payable		8,535			(537	)
Decrease in accounts payable		(1,527	)		(7,427	)
Increase in accrued expenses and other current liabilities		7,509			22,684
(Decrease) increase in accrued expenses and other current liabilities		(8,332	)		863
Increase in other long-term liabilities		2,~~905~~299			1,~~846~~799
Net cash provided by operating activities		28,600			53,924
Net cash (used in) provided by operating activities		(436	)		10,449
Cash flows used in investing activities:
Cash paid for property and equipment		(258,~~035~~512	)		(308,~~692~~685	)
Acquisition of supermarkets		(17,409	)		-
Cash proceeds from sale of assets		—			413
Cash proceeds from sale of assets		413			11,255
Net cash used in investing activities		(8,512	)		(8,272	)
Net cash used in investing activities		(42,031	)		(19,437	)
Cash flows provided by (used in) financing activities:
Borrowings on 2017 ABL Facility		695,600			353,966
Borrowings on 2021 ABL Facility		244,100			—
Repayments on 2017 ABL Facility		(672,800	)		(374,466	)
Repayments on 2021 ABL Facility		(231,000	)		—
Principal payments on capital leases		(7,052	)		(6,680	)
Borrowings on 2017 ABL Facility		—			293,000
Repayments of long-term debt borrowings		(2,990	)		(521,480	)
Repayments on 2017 ABL Facility		—			(290,800	)
Dividends to Tops MBO Corporation (Note 9)		(2,015	)		(775	)
Principal payments on capital leases		(3,243	)		(2,644	)
Change in bank overdraft position		(1,818	)		(223	)
Repayments of long-term debt borrowings		(1,421	)		(2,043	)
Capital contribution		326			—
Deferred financing costs paid		(44	)		—
Proceeds from long-term debt borrowings		—			560,000
Change in bank overdraft position		(24	)		(551	)
Debt extinguishment costs paid		—			(24,290	)
Dividends to Tops MBO Corporation (Note 8)		—			(2,015	)
Deferred financing costs paid		—			(10,593	)
Capital contribution		—			326
Purchase of treasury stock		—			(1	)
Net cash provided by (used in) financing activities		8,368			(4,727	)
Net cash provided by (used in) financing activities		9,251			(24,542	)
Net decrease in cash and cash equivalents		(580	)		(2,550	)
Net (decrease) increase in cash and cash equivalents		(4,180	)		9,945
Cash and cash equivalents-beginning of period		24,994			35,557
Cash and cash equivalents-beginning of period		35,557			26,316
Cash and cash equivalents-end of period	$	24,414		$	33,007
Cash and cash equivalents-end of period	$	31,377		$	36,261

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, Western Vermont and North Central Massachusetts. As of ~~October~~April 822, ~~2016~~2017, the Company operated 172 supermarkets; 171 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 6) and a guarantor of the 2022 Notes (see Note 6).

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~~December 231, 2016, which appear in the Company’s Annual Report on Form 10-K filed with the Securities and Exchange Commission on March 2330, ~~2016~~2017.

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 1216-week ~~and 40-week~~ periods ended ~~October~~April 822, ~~2016~~2017 and ~~October~~April 323, ~~2015~~2016 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~~Codification (“ASU”) ~~No.~~ 2014-09, “Revenue from Contracts with Customers,” ~~(“ASU~~as ~~No.~~amended ~~2014-09”)~~by several subsequent ASUs, which provides guidance ~~regarding~~for revenue recognition. ~~ASU~~ ~~No.~~The ~~2014-09~~standard’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,” (“ASU No. 2015-14”), which deferred the effective date of ASU No. 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~~ASU ~~Company~~No. is2015-14 ~~currently~~allows ~~assessing~~for ~~the~~both ~~potential~~retrospective ~~impact~~and modified retrospective methods of adoption of ASU No. 2014-09. The Company plans to adopt ASU No. 2014-09 in the first quarter of the fiscal year ending December 29, 2018. The Company is currently in the process of evaluating the impact of adoption of this standard on its consolidated financial statements and is in the process of completing its initial evaluation of the major focus areas that could impact the Company, which include loyalty programs, principal versus agent considerations, and prepaid stored-value cards. The Company expects there to be only immaterial changes to revenue recognition based on how the Company currently accounts for the impact of loyalty programs.

- 4 -

In March 2016, the FASB issued ASU No. 2016-08, “Revenue from Contracts with Customers (Topic 606), 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 isplans ~~currently~~to adopt ASU No. 2016-08 in the ~~process~~first quarter of ~~evaluating~~the fiscal year ending December 29, 2018 and does not believe there will be a material impact to revenues upon adoption. For principal versus agent considerations, the ~~effect~~Company has evaluated its significant arrangements and has determined that revenue recognition on a gross reporting basis will remain relatively unchanged, with the exception of ~~adoption~~a group of ~~ASU~~small ~~No.~~contracts ~~2016-08~~that could be reported on ~~its~~a ~~consolidated~~net ~~financial~~basis ~~statements~~depending on the nature of the arrangements and management’s final assessment.

The Company expects to complete its evaluation and implementation of the new revenue recognition standard in mid-2017 and is currently in the process of developing changes to its existing accounting policies as well as implementing processes and controls to address the relevant changes that will result from adopting the new standard.

In March 2016, the FASB issued ASU No. 2016-04, “Liabilities - Extinguishment of Liabilities (Subtopic 405-20), Recognition of Breakage for Certain Prepaid Stored-Value Products” (“ASU No. 2016-04”), which specifies how prepaid stored-value product liabilities within the scope of ASU No. 2016-04 should be derecognized. ASU No. 2016-04 will be effective for the Company beginning in the fiscal year ending December 29, 2018, including interim periods therein, and allows for both retrospective and modified retrospective methods of adoption. Early adoption is permitted. Preliminarily, the Company plans to adopt ASU No. 2016-04 in the first quarter of the fiscal year ended December 29, 2018. The Company expects there to be only immaterial changes to revenue recognition based on how the Company currently records prepaid stored-value cards breakage.

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 plans to adopt ASU No. 2016-02 in the first quarter of the fiscal year ending December 28, 2019. The adoption of ASU No. 2016-02 will result in a significant increase to the Company’s consolidated balance sheets for lease liabilities and right-of-use assets. While the Company is continuing to assess all potential impacts of the standard, the Company currently believes the most significant impact relates to the accounting for supermarket leases.

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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 ~~October~~April 822, ~~2016~~2017, 56 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 collectively 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										40-week periods ended
	16-week periods ended
	October 8, 2016					October 3, 2015					October 8, 2016					October 3, 2015
	April 22, 2017					April 23, 2016
			% of					% of					~~% of~~					~~% of~~
	Amount		Total			Amount		Total			~~Amount~~		~~Total~~			~~Amount~~		~~Total~~
Non-perishables(1)	$	~~330~~424,~~202~~831		5857.13	%	$	~~321~~412,~~794~~931		57.49	%	$	~~1,074,377~~		~~57.4~~	%	$	~~1,060,122~~		~~56.7~~	%
Perishables(2)		~~167~~220,~~092~~636		29.48	%		~~162~~212,~~354~~428		29.08	%		~~563,975~~		~~30.1~~	%		~~555,260~~		~~29.7~~	%
Fuel		31,005		5.5	%		38,275		6.8	%		101,217		5.4	%		125,764		6.7	%
Pharmacy		47,145		6.4	%		45,863		6.4	%
Pharmacy		35,316		6.2	%		33,302		5.9	%		115,292		6.2	%		111,429		6.0	%
Fuel		41,661		5.6	%		35,612		5.0	%
Other(3)		56,~~138~~555		0.89	%		56,~~019~~902		0.9	%		~~17,217~~		~~0.9~~	%		~~16,930~~		~~0.9~~	%
	$	~~568~~740,~~753~~828		100.0	%	$	~~560~~713,~~744~~736		100.0	%	$	~~1,872,078~~		~~100.0~~	%	$	~~1,869,505~~		~~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.

- 5 -

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 October 8, 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):

	October 8, 2016		January 2, 2016
Carrying value of long-term debt:
Current portion of long-term debt	$	2,126	$	2,075
Long-term debt		705,756		681,372
Total carrying value of debt instruments		707,882		683,447
Fair value of debt instruments		650,765		677,450
Excess of carrying value over fair value	$	57,117	$	5,997

The fair values of the 2018 Notes and 2022 Notes (see Note 6), which are included in long-term debt as of October 8, 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. BUSINESS ACQUISITION

In August 2016, the Company acquired four supermarkets from The Stop & Shop Supermarket Company LLC, which operated these stores under the Stop & Shop banner, and two supermarkets from Hannaford Bros. Co., LLC and Martin’s Foods of South Burlington, LLC, which operated these stores under the Hannaford banner, in eastern New York and Massachusetts. The aggregate purchase price for this acquisition of $16.4 million, including acquired inventory of $5.0 million, was funded using cash on hand and available borrowings under the 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 allocation of the aggregate purchase price, the assets acquired and liabilities assumed were recorded at their respective estimated fair values as of the acquisition dates. The preliminary allocation of the aggregate purchase price is based on management’s best estimates of fair values as of the acquisition dates using information available as of the date of this Quarterly Report on Form 10-Q and is subject to adjustments. The valuations are expected to be finalized within 12 months of the closing of the acquisitions. As the valuations are finalized, any changes to the preliminary valuation of assets acquired and liabilities assumed may result in material adjustments to the fair value of inventory, equipment, goodwill and identifiable intangible assets acquired, and accrued expenses and other current liabilities assumed and will be adjusted in the quarter identified, as required by ASU No. 2015-16 “Business Combinations (Topic 805).”

- 6 -

~~The~~Financial ~~following~~instruments ~~table~~include ~~summarizes~~cash ~~the~~and ~~preliminary~~cash ~~allocation~~equivalents, ofaccounts ~~the~~receivable, ~~purchase~~accounts ~~price~~payable toand ~~the~~long-term ~~assets~~debt. The ~~acquired~~carrying amounts of cash and ~~liabilities~~cash ~~assumed~~equivalents, asaccounts receivable and accounts payable approximate fair value because of the ~~transaction~~short-term ~~dates~~nature of these financial instruments. At April 22, 2017 and ~~adjustments~~December 31, ~~made~~2016, tothe carrying value and the estimated fair ~~values~~value of ~~these~~the ~~assets~~Company’s debt instruments were as follows (dollars in thousands):

		Initial						Revised
	April 22, 2017			December 31, 2016
Assets acquired:		Estimate			Adjustments			Estimate
Carrying value of long-term debt:
Inventory		$	5,939		$	(933	)	$	5,006
Current portion of long-term debt	$	1,916		$	3,120
Prepaid expenses			—			79			79
Long-term debt		722,867			709,206
Equipment			5,888			(624	)		5,264
Total carrying value of debt instruments		724,783			712,326
Goodwill			1,839			3,911			5,750
Fair value of debt instruments		638,288			642,829
Pharmacy scripts			3,950			(698	)		3,252
Excess of carrying value over fair value	$	86,495		$	69,497
Customer lists			323			(93	)		230
Total assets acquired			17,939			1,642			19,581
Liabilities assumed:
Accrued expenses and other current liabilities			—			799			799
Unfavorable lease rights			—			2,370			2,370
Total liabilities assumed			—			3,169			3,169
Acquisition price		$	17,939		$	(1,527	)	$	16,412

The ~~following~~fair ~~table~~values ~~summarizes~~of the ~~Company’s~~2018 ~~unaudited~~Notes ~~pro~~and ~~forma~~2022 ~~operating~~Notes ~~results~~(see ~~for~~Note ~~the~~6), ~~12-week~~which ~~and~~are 40included in long-~~week~~term ~~periods~~debt ~~ended~~as ~~October~~of 8April 22, ~~2016~~2017 and ~~October~~December 331, ~~2015~~2016, ~~giving~~were ~~effect~~based toon ~~the~~Level ~~acquisition~~2 asinputs. The iffair itvalues ~~occurred~~for asLevel of2 ~~the~~inputs ~~beginning~~are ofbased ~~fiscal~~on ~~year~~quoted ~~2015~~market ~~(dollars~~prices inand ~~thousands):~~taking into consideration the underlying terms of the debt.

	12-week periods ended						40-week periods ended
	October 8, 2016			October 3, 2015			October 8, 2016			October 3, 2015
Net sales	$	604,868		$	599,052		$	1,997,577		$	1,997,197
Operating income		9,364			16,829			44,424			60,214
Net loss		(9,666	)		(2,190	)		(19,332	)		(39,035	)

~~The pro forma financial information above reflects the $~~2.1 ~~million~~BUSINESS of transaction costs incurred by the Company during the 40-week period ended October 8, 2016 within the operating results for the 40-week period ended October 3, 2015. Additionally, the pro forma financial information includes estimated depreciation and amortization of $0.3 million during each of the 12-week periods ended October 8, 2016 and October 3, 2015, and estimated depreciation and amortization of $0.9 million during each of the 40-week periods ended October 8, 2016 and October 3, 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.ACQUISITIONS

In ~~addition~~August to2016, the ~~acquisition~~Company ~~discussed~~acquired ~~above,~~four ~~during~~supermarkets ~~the~~from ~~12-week~~The ~~period~~Stop ~~ended~~& ~~October~~Shop 8,Supermarket ~~2016~~Company LLC, which operated these stores under the ~~Company~~Stop ~~purchased~~& ~~one~~Shop ~~additional~~banner, ~~store~~and ~~for~~two $2supermarkets from Hannaford Bros.0 ~~million~~Co., LLC and Martin’s Foods of ~~which~~South ~~$0.5~~Burlington, ~~million~~LLC, ~~was~~which ~~paid~~operated ~~during~~these stores under the ~~12-week~~Hannaford ~~period~~banner, ~~ended~~in ~~October~~Eastern 8New York and North Central Massachusetts. The aggregate purchase price for this acquisition of $16.4 million, ~~2016~~including acquired inventory of $4.7 million, ~~with~~was ~~the~~funded using cash ~~remainder~~on tohand beand ~~paid~~available ~~over~~borrowings under the ~~next~~2017 ~~three~~ABL ~~years~~Facility.

3The Company engaged a third party valuation specialist to assist with the valuation of assets acquired. For ~~GOODWILL~~purposes ~~AND~~of ~~INTANGIBLE~~an ~~ASSETS~~allocation of the assets acquired and liabilities assumed, ~~NET~~the excess of the purchase price over the fair value of tangible and intangible net assets has been assigned to goodwill. The fair value of inventory was determined based upon the Company’s estimated replacement cost. The fair values of equipment and leasehold improvements were determined using the cost approach. The fair values of customer lists were primarily determined using the replacement cost method, which measures the value of an asset by considering the cost to reconstruct or replace it with another of like utility. The fair values of pharmacy scripts were primarily determined using the excess earnings method, which reflects the present value of the projected cash flows that are expected to be generated by the existing script relationships less charges representing the contribution of other assets to those cash flows, and an appropriate discount rate to reflect the time value and risk associated with the cash flows. The fair values of the unfavorable lease rights were calculated using market rates and a discounted differential cash flows analysis.

The following table summarizes the ~~change~~final inallocation of the ~~Company’s~~purchase ~~goodwill~~price ~~balance~~to ~~during~~ the ~~40-week~~assets ~~period~~acquired ~~ended~~and ~~October~~liabilities 8,assumed ~~2016~~as of the transaction dates (dollars in thousands):

Balance - January 2, 2016	$	213,096
Assets acquired:
Acquisitions		6,732
Inventory	$	4,749
Balance - October 8, 2016	$	219,828
Prepaid expenses		79
Equipment		5,840
Goodwill		5,809
Pharmacy scripts		3,340
Customer lists		230
Total assets acquired		20,047
Liabilities assumed:
Accrued expenses and other current liabilities		1,265
Unfavorable lease rights		2,370
Total liabilities assumed		3,635
Acquisition price	$	16,412

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 40-week periods ended October 8, 2016 and October 3, 2015.

- 7 -

~~Intangible~~The ~~assets,~~goodwill ~~net~~ of ~~accumulated~~$5.8 ~~amortization,~~million ~~consist~~resulted offrom the ~~following~~Company’s ~~(dollars~~expectation inthat ~~thousands):~~the acquisition will create 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.

	Gross					Net		Average
	Carrying		Accumulated			Carrying		Amortization
October 8, 2016	Amount		Amortization			Amount		Period
Tradename – indefinite	$	131,200	$	—		$	131,200	Indefinite life
Customer relationships		29,430		(17,194	)		12,236		14.0
Favorable lease rights		19,050		(6,193	)		12,857		9.6
Franchise agreements		13,300		(5,048	)		8,252		14.0
Pharmacy scripts		7,231		(1,781	)		5,450		16.5
Non-compete agreement		250		(8	)		242		5.0
	$	200,461	$	(30,224	)	$	170,237		13.1

The results of operations of the acquired supermarkets have been included in the 16-week period ended April 22, 2017 condensed consolidated statement of comprehensive loss following the closing of the acquisition. The acquired supermarkets contributed net sales and operating loss of $39.7 million and $1.2 million, respectively, during the 16-week period ended April 22, 2017.

	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 following table summarizes the Company’s unaudited pro forma operating results for the 16-week periods ended April 22, 2017 and April 23, 2016, giving effect to the acquisition as if it occurred as of the beginning of Fiscal 2016 (dollars in thousands):

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 40-week periods ended October 8, 2016 and October 3, 2015.

	16-week periods ended
	April 22, 2017			April 23, 2016
Net sales	$	740,828		$	764,813
Operating income		2,981			14,168
Net loss		(22,840	)		(11,290	)

~~During~~The ~~the~~pro ~~12-week~~forma ~~periods~~financial ~~ended~~information ~~October~~includes 8,actual ~~2016~~ and ~~October~~estimated 3,depreciation ~~2015,~~and amortization ~~expense~~of ~~related to intangible assets was~~ $2.0.8 million and $20.64 million, ~~respectively. During~~during the 4016-week periods ended ~~October~~April 822, ~~2016~~2017 and ~~October~~April 323, ~~2015~~2016, ~~amortization~~respectively. This ~~expense~~pro ~~related~~forma financial information is not intended to ~~intangible~~represent ~~assets~~or ~~was~~be ~~$7.2~~indicative ~~million~~of ~~and~~what ~~$8.8~~would ~~million,~~have ~~respectively. This~~occurred ~~amortization~~if isthe ~~included~~acquisition inhad ~~depreciation~~taken place as of the beginning of the periods presented and ~~amortization~~should innot be taken as representative of the ~~condensed~~Company’s future consolidated ~~statements~~results of ~~comprehensive loss~~operations.

~~Depreciation~~In ~~and~~addition ~~amortization~~to in the ~~condensed~~acquisition ~~consolidated~~discussed ~~statements~~above, ~~of comprehensive loss~~ during ~~each~~Fiscal of2016, the ~~12-week~~Company ~~periods~~purchased ~~ended~~one ~~October 8,~~additional ~~2016~~supermarket ~~and~~for ~~October 3, 2015 includes~~ $02.10 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~~$0. ~~During~~5 ~~each~~million ofwas ~~the~~paid ~~40-week~~during ~~periods~~Fiscal ~~ended October 8,~~ 2016 ~~and October 3~~, ~~2015,~~with ~~depreciation and amortization in~~ the ~~condensed~~remainder ~~consolidated~~to ~~statements~~be ofpaid ~~comprehensive~~over ~~loss includes $0.3 million of contra-expense related to~~ the ~~amortization~~next ofthree ~~unfavorable lease rights~~years. ~~Expected~~Resulting ~~future~~goodwill ~~amortization~~ of ~~these unfavorable lease rights is contra-expense of~~ $01.~~2 million in the remaining period of Fiscal 2016, $~~0.8 million inwas ~~Fiscal~~recorded ~~2017,~~within ~~$0.8~~the ~~million~~Company’s inconsolidated ~~Fiscal~~balance ~~2018, $0~~sheet.~~8 million in Fiscal 2019, $0.8 million in Fiscal 2020 and $2.1 million thereafter.~~

AsOf ofthe ~~October~~total goodwill of $6.8, ~~2016,~~million ~~expected~~resulting ~~future~~from ~~amortization~~the oftwo ~~intangible~~acquisitions ~~assets~~above, $4.4 million is asexpected ~~follows~~to ~~(dollars~~be indeductible ~~thousands):~~for tax purposes.

2016 (remaining period)	$	1,936
2017		7,592
2018		6,394
2019		5,332
2020		4,482
Thereafter		13,301

- 8 -

3. GOODWILL AND INTANGIBLE ASSETS, NET

The following table summarizes the change in the Company’s goodwill balance during the 16-week period ended April 22, 2017 (dollars in thousands):

Balance - December 31, 2016	$	219,886
Adjustments		—
Balance - April 22, 2017	$	219,886

Goodwill is reviewed annually for impairment on December 1, or more frequently upon the occurrence of trigger events. The Company applies significant judgment when determining the estimated fair value of its reporting unit. The valuation methodologies utilized are subject to key judgments and assumptions that are sensitive to change. Estimates of fair value are inherently uncertain and represent only the Company’s reasonable expectation regarding future developments. These estimates and the judgments and assumptions upon which the estimates are based will, in all likelihood, differ in some respects from actual future results. Declines in the estimated fair value of the Company’s reporting unit could result in goodwill impairment in future periods which could materially adversely affect the results of operations or financial position. Based on the Company’s assessment, no goodwill impairment was recorded during the 16-week periods ended April 22, 2017 and April 23, 2016.

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

	Gross					Net		Average
	Carrying		Accumulated			Carrying		Amortization
April 22, 2017	Amount		Amortization			Amount		Period
Tradename – indefinite	$	131,200	$	—		$	131,200	Indefinite life
Customer relationships		29,430		(19,024	)		10,406		14.0
Favorable lease rights		19,050		(7,346	)		11,704		9.6
Franchise agreements		13,300		(5,810	)		7,490		14.0
Pharmacy scripts		7,319		(2,299	)		5,020		16.5
Non-compete agreement		250		(35	)		215		5.0
	$	200,549	$	(34,514	)	$	166,035		13.1

	Gross					Net
	Carrying		Accumulated			Carrying
December 31, 2016	Amount		Amortization			Amount
Tradename – indefinite	$	131,200	$	—		$	131,200
Customer relationships		29,430		(18,092	)		11,338
Favorable lease rights		19,050		(6,680	)		12,370
Franchise agreements		13,300		(5,392	)		7,908
Pharmacy scripts		7,319		(1,981	)		5,338
Non-compete agreement		250		(19	)		231
	$	200,549	$	(32,164	)	$	168,385

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 16-week periods ended April 22, 2017 and April 23, 2016.

During the 16-week periods ended April 22, 2017 and April 23, 2016, amortization expense related to intangible assets was $2.3 million and $3.3 million, respectively. This amortization is included in depreciation and amortization in the condensed consolidated statements of comprehensive loss.

During the 16-week periods ended April 22, 2017 and April 23, 2016, depreciation and amortization in the condensed consolidated statements of comprehensive loss includes $0.2 million and $0.1 million, respectively, 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. Expected future amortization of these unfavorable lease rights is contra-expense of $0.4 million in the remaining period of Fiscal 2017, $0.5 million in Fiscal 2018, $0.5 million in Fiscal 2019, $0.5 million in Fiscal 2020, $0.5 million in Fiscal 2021 and $1.5 million thereafter.

- 9 -

As of April 22, 2017, expected future amortization of intangible assets is as follows (dollars in thousands):

2017 (remaining period)	$	5,255
2018		6,405
2019		5,345
2020		4,487
2021		3,524
Thereafter		9,819

4. ACCRUED EXPENSES AND OTHER CURRENT LIABILITIES

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

	October 8, 2016		January 2, 2016
	April 22, 2017		December 31, 2016
Interest payable	$	1618,~~610~~631	$	32,~~177~~750
Wages, taxes and benefits		1916,~~917~~657		2821,~~623~~334
Lottery		1214,~~099~~231		13,~~127~~934
Union medical, pension and 401(k)		9,138		5,817
Professional and legal fees		8,162		9,942
Professional and legal fees		8,210		5,773
Self-insurance reserves		6,841		6,841
Self-insurance reserves		6,452		6,502
Union medical, pension and 401(k)		4,655		8,005
Gift cards		4,~~003~~345		915,~~467~~835
Property and equipment expenditures		3,282		2,525
Sales and use tax		3,455		1,913
Sales and use tax		3,244		1,431
Utilities		2,574		2,409
Utilities		2,723		2,346
Repairs and maintenance		1,841		1,973
Repairs and maintenance		1,876		2,050
Property and equipment expenditures		1,378		2,014
Money orders		~~1,289~~892		2,~~682~~294
Other		1613,~~698~~612		1317,~~237~~022
	$	~~105~~97,~~541~~274	$	96106,~~757~~266

5. 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~~2037, 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 ~~October~~April 822, ~~2016~~2017, future minimum lease rental payments applicable to non-cancelable capital lease obligations were as follows (dollars in thousands):

2016 (remaining period)	$	7,286
2017 (remaining period)	$	22,159
2017		30,997
2018		29,550
2018		27,358
2019		26,813
2019		24,646
2020		22,791
2020		21,363
2021		19,312
Thereafter		~~112~~106,~~665~~185
Total minimum lease payments		~~224~~226,~~315~~810
Less amounts representing interest		(142,~~578~~868	)
Present value of net minimum lease payments		8183,~~737~~942
Less current obligations		(910,~~447~~576	)
Long-term cash obligations		7273,~~290~~366
Non-cash obligations		6463,~~796~~345
Total long-term capital lease obligations	$	~~137~~136,~~086~~711

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.”

- 910 -

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~~2018 to ~~2036~~2037, 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.

6. DEBT

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

	October 8, 2016			January 2, 2016
	April 22, 2017			December 31, 2016
2022 Notes	$	560,000		$	560,000
2018 Notes		85,514			8685,~~704~~514
Discount on 2018 Notes		(~~330~~230	)		(~~470~~288	)
Deferred financing fees		(10,~~917~~178	)		(1210,~~716~~860	)
2017 ABL Facility		69,500			46,700
2021 ABL Facility		86,000			72,900
Other loans		43,~~115~~677			35,~~229~~060
Total debt		~~707~~724,~~882~~783			~~683~~712,~~447~~326
Current portion		(21,~~126~~916	)		(23,~~075~~120	)
Total long-term debt	$	705,756		$	681,372
Total long-term debt, net	$	722,867		$	709,206

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 statement of comprehensive loss during the 40-week period ended October 3, 2015~~. The proceeds were also used to pay accrued and unpaid interest related to the tendered and redeemed ~~notes~~2017 Notes and 2018 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~~2021 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~~2021 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.

- 1011 -

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~~additional ~~million and $3.3 million, respectively, of~~ 2018 Notes were repurchased in “open market” transactions in the amounts of $1.2 million and $3.3 million, respectively, resulting in a remaining outstanding principal amount of $85.5 million as of ~~October~~April 822, ~~2016~~2017. 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. For the 16-week periods ended April 22, 2017 and April 23, 2016, such conditions did not exist. 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~~2021 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, including at 100.000% beginning on June 15, 2017 and thereafter.

On December 1430, ~~2012~~2016, Tops Markets entered into the ~~2017~~Second Amended and Restated Credit Agreement (the “2021 ABL Facility”) with Bank of America, N.A., as collateral agent and administrative agent, which amended and restated the Company’s 2017 ABL Facility. The ~~2017~~2021 ABL Facility allows a maximum borrowing capacity of $~~125~~150.0 million, consisting of: (i) a $140.0 million revolving credit facility, subject to a borrowing base calculation (the “Revolver”) and (ii) a $10.0 million first-in, ~~with~~last-out term loan (the “FILO Loan”). The borrowing base for the 2021 ABL Facility includes certain inventory, pharmacy prescription files, credit card receivables, trade receivables and other reserves. The 2021 ABL Facility also contains an option for the Company to upsize the Revolver by up to, in the aggregate, an additional $50.0 million, ofto ~~additional~~$190.0 ~~borrowing~~million, ~~capacity~~ if ~~the~~certain ~~required~~ conditions are met~~. The~~, including an increase in the borrowing base ~~includes~~and ~~inventory,~~the ~~pharmacy~~existence ~~prescription~~of ~~files~~no ~~and~~events ~~certain~~of ~~receivables~~default. The ~~2017~~2021 ABL Facility ~~matures~~will mature on December 1430, ~~2017~~2021.

Costs associated with the 2022 Notes and the 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 the 2018 Notes, respectively, using the effective interest method. Costs associated with the ~~2017~~2021 ABL Facility of $10.15 million were capitalized and are being amortized on a straight-line basis over the term of the ~~2017~~2021 ABL Facility.

During each of the 1216-week periods ended ~~October~~April 822, ~~2016~~2017 and ~~October~~April 323, ~~2015~~2016, amortization expense related to the deferred financing costs was $0.57 million~~. During the 40-week periods ended October 8~~, ~~2016 and October 3, 2015, amortization expense related to the deferred financing costs was $1.8 million and $2.6 million,~~ respectively. This amortization expense is included in interest expense in the condensed consolidated statements of comprehensive loss. At ~~October~~April 822, ~~2016~~2017, long-term debt, net included deferred financing costs, net of accumulated amortization of $34.57 million, totaling $10.92 million. At ~~January~~December 231, 2016, long-term debt, net included deferred financing costs, net of accumulated amortization of $14.81 million, totaling $1210.79 million.

As of ~~October~~April 822, ~~2016~~2017, the unused availability under the ~~2017~~2021 ABL Facility was $3218.72 million, after giving effect to the borrowing base calculation, $2225.81 million of letters of credit outstanding and $6986.50 million of borrowings outstanding. As of ~~January~~December 231, 2016, $2322.8 million of letters of credit were outstanding under the ~~2017~~2021 ABL Facility. Revolving loans under the ~~2017~~2021 ABL Facility, at the Company’s option, bear interest at either LIBOR plus a margin of ~~150~~125 to ~~200~~175 basis points, determined based on levels of borrowing availability, or the prime rate plus a margin of 5025 to ~~100~~75 basis points, determined based on levels of borrowing availability. The FILO Loan under the 2021 ABL Facility, at the Company’s option, bears interest at either LIBOR plus a margin of 275 to 325 basis points, determined based on levels of the Revolver borrowing availability, or the prime rate plus a margin of 175 to 225 basis points, determined based on levels of the Revolver borrowing availability. As of ~~October~~April 822, ~~2016~~2017 and ~~January~~December 231, 2016, the weighted average interest rates on borrowings under the ~~2017~~2021 ABL Facility were 23.6207% and 32.2053%, respectively. The ~~2017~~2021 ABL Facility is collateralized primarily by (i) first priority security interests, subject to certain exceptions and permitted liens, in the ABL Priority Collateral, and (ii) second priority security interests, subject to certain exceptions and permitted liens, in the stock held by the Company, and equipment, intellectual property, and substantially all other assets of the Company that are not subject to a first priority security interest. These assets that are subject to a second priority security interest serve to collateralize the 2022 Notes ~~Priority~~on ~~Collateral~~a first priority basis. In connection with entry into the 2021 ABL Facility, the lenders released, as of December 30, 2016, from among the assets collateralizing the 2021 ABL Facility their second priority mortgages previously held on the Company’s warehouse and distribution facility in Lancaster, New York and retail facility located in Fayetteville, New York. The Company’s warehouse and distribution facility in Lancaster, New York and retail facility located in Fayetteville, New York continue to be subject to a mortgage for purposes of collateralizing the 2022 Notes.

The instruments governing the 2022 Notes, 2018 Notes and the ~~2017~~2021 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 ~~October~~April 822, ~~2016~~2017, the Company was in compliance with ~~its covenants under~~ these ~~agreements~~covenants.

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7. INCOME TAXES

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

	12-week periods ended						40-week periods ended
	16-week periods ended
	October 8, 2016			October 3, 2015			October 8, 2016			October 3, 2015
	April 22, 2017			April 23, 2016
Current	$	(4093	)	$	—(26	)	$	~~(358~~	)	$	(8	)
Deferred		(~~409~~580	)		(~~400~~545	)		~~(1,363~~	)		~~(1,334~~	)
Total income tax expense	$	(~~449~~673	)	$	(~~400~~571	)	$	~~(1,721~~	)	$	~~(1,342~~	)

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 1216-week ~~and 40-week~~ periods ended ~~October~~April 822, ~~2016~~2017 and ~~October~~April 323, ~~2015~~2016.

The income tax expense recognized for the 16-week 11periods ended April 22, 2017 and April 23, 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 impact of the valuation allowance resulted in effective tax rates of (3.0)% and (3.9)% during the 16-week periods ended April 22, 2017 and April 23, 2016, respectively.

~~The~~As ~~income~~of ~~tax expense recognized for~~ the ~~12-week~~beginning ~~and~~of ~~40-week~~fiscal ~~periods~~year ~~ended October 8~~2017, ~~2016 and October 3, 2015 solely reflects~~ the ~~recognition~~Company ofhad ~~additional~~U.S. ~~valuation~~federal ~~allowance~~and ~~associated~~state ~~with~~net ~~the~~operating ~~tax~~loss ~~amortization~~carryforwards of ~~the~~$80.4 ~~Company’s~~million ~~indefinite-lived tradename~~ and ~~goodwill deferred tax liabilities~~$72. ~~The~~0 ~~effective tax rates would have been 39.1%~~million, ~~without the establishment of valuation allowance~~respectively, ~~during~~which ~~each~~expire ofbeginning ~~the~~in ~~12-week and 40-week periods ended October 8, 2016~~2031. ~~The~~In ~~effective~~addition, ~~tax rates during~~ the ~~12-week~~Company ~~and~~had ~~40-week~~federal ~~periods~~tax ~~ended~~credits ~~October~~of ~~3, 2015 would have been 39~~$5.3% ~~and 39.1%~~million, ~~respectively,~~which ~~without~~expire ~~the~~beginning ~~establishment~~in ~~of valuation allowance~~2027.

~~As of the beginning of fiscal year 2016, the Company had U~~8.S. ~~federal~~DIVIDENDS 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.PAID

8.On ~~GAIN~~January ON14, ~~SALE~~2016, OFthe ~~ASSETS~~Company paid a dividend to Tops MBO Corporation (“Tops MBO Co”) totaling $2.0 million.

~~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~~COMMITMENTS ~~were~~AND 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 40-week period ended October 3, 2015.CONTINGENCIES

9. 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.

10. 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 West Seneca, 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 ~~the~~these ~~Company’s warehouse and distribution~~ 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~~except ~~12-week~~for ~~periods~~the ~~ended~~April ~~October~~2017 8contribution which, ~~2016~~as ~~and~~described ~~October 3~~below, ~~2015,~~the ~~these~~Fund ~~rejected~~has ~~contributions~~to ~~totaled~~date $0retained.~~8 million and $1.2 million respectively.~~ During the 4016-week periods ended ~~October~~April 822, ~~2016~~2017 and ~~October~~April 323, ~~2015~~2016, these rejected contributions totaled $31.79 million and $31.67 million, respectively. On May 27, 2014, the Fund provided Erie Logistics and C&S with notice of ~~its~~the fund’s 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.

On May 22, 2017 the Fund commenced an action in federal court purporting to request the court to determine whether the April 2017 contribution should be returned to Erie Logistics or paid to Teamsters Local 264. The Company is currently evaluating an appropriate response to this action.

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.

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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~~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. 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 4016-week periods ended ~~October~~April 822, ~~2016~~2017 and ~~October~~April 323, ~~2015~~2016, the monthly conditional payments of withdrawal liability totaled $51.89 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 $1721.32 million as of ~~October~~April 822, ~~2016~~2017, have been recorded in other assets, while the aggregate ~~rejected~~ contributions that we have elected to make and the ~~Company~~fund has ~~elected~~refused to ~~make~~accept, totaling $1215.78 million as of ~~October~~April 822, ~~2016~~2017, 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~~failure to participate in the Fund. On July 4, 2016, the arbitrator denied this grievance. ~~The~~Following ~~Company~~the isarbitrator’s decision, Teamsters Local 264 has taken the position that its collective bargaining agreements with Erie Logistics expired in ~~active~~August ~~discussions~~2016, in accordance with the expiration date stated therein. Erie Logistics maintains these collective bargaining agreements remain in effect until August 2019 as a result of the memorandum of understanding agreed to by the parties in August 2013, as modified by a side letter agreement, dated October 30, 2013, which extended the term of these agreements until August 2019. Erie Logistics believes that its position is in accordance with the findings expressed by the arbitrator. Erie Logistics and Teamsters Local 264 ~~regarding~~have ~~certain~~subsequently ~~aspects~~negotiated ofshort-term standstill agreements while they attempt to resolve the ~~grievance~~matter. On ~~and~~January 5, 2017, Erie Logistics also filed an unfair labor practice charge with the ~~arbitrator~~National Labor Relations Board (“NLRB”) as a result of Teamsters Local 264’s ~~decision~~refusal to recognize the extension of the collective bargaining agreements to August 2019. This charge still remains under investigation by the NLRB. However, the NLRB has preliminarily determined that these collective bargaining agreements were extended until at least August 14, 2017. Although Local 264 has denied the unfair labor practice charge, it has advised the NLRB, its members and Erie Logistics that it will recognize that these collective bargaining agreements are valid through August 14, 2017. The parties are continuing to attempt to reach a resolution on the matter.

If Erie Logistics and Teamsters Local 264 are unable to resolve the matter, including by negotiating additional standstill agreements, Teamsters Local 264 and its members may seek to strike, participate in a work stoppage or slowdown or engage in other forms of labor disruption. Any such strike, work stoppage or slowdown or other form of labor disruption could cause an interruption to the Company’s operations at its WNY warehouse and distribution facilities and could have a material adverse effect on the Company’s results of operations, financial condition and business. The Company continues to believe that it has binding collective bargaining agreements with Local 264 that preclude any threatened labor disruption prior to August 10, 2019.

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 ~~Lancaster~~WNY ~~and West Seneca, New York~~ 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 ~~Lancaster~~WNY ~~and West Seneca, New York~~ 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~~On ~~May~~ December 1, ~~2013~~2016, Tops Markets ~~entered~~amended ~~into~~and arestated its member participation agreement with Topco, a procurement cooperative for food retailers and wholesalers, for the purchase and supply of substantially all of the Company’s prescription drugs. Pursuant to the terms of this agreement, 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~~2022.

~~Effective~~- ~~March~~14 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.-

Effective March 1, 2016, the Company extended its existing IT outsourcing agreement with Hewlett Packard Enterprise, now known as DXC Technology (“DXC”), through February 29, 2024 to provide a range of information systems services. Under this agreement, DXC provides data center operations, mainframe processing, business applications and systems development to enhance the Company’s customer service and efficiency. The charges under this agreement are based upon the services requested 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 ~~October~~April 822, ~~2016~~2017 or ~~January~~December 231, 2016.

Collective Bargaining Agreements

~~The~~As of April 22, 2017, the Company ~~employs~~employed approximately 1514,~~000~~400 associates. Approximately 8180% of these associates are members of United Food and Commercial Workers, or UFCW, District Union Local One, or Local One, or six other UFCW unions. Approximately 45% of these associates are members of Teamsters Local 264, who work in the Company’s western New York warehouse and distribution facilities. All other associates are non-union. The Company has three Local One collective bargaining agreements that expired in April 2017 and are currently in the process of being negotiated. The Company is also a party to ~~five~~two collective bargaining agreements with Local One expiring between ~~April~~July 2017 and October 2018. The Company ~~also~~has a non-Local One UFCW collective bargaining agreement that expired in April 2017, which is currently in process of being negotiated. The Company is also a party to ~~seven~~six other non-Local One UFCW collective bargaining agreements expiring between ~~April~~December 2017 and October 2019~~. The~~ ~~Company~~and ~~is a party to~~ three collective bargaining agreements with Teamsters Local 264 ~~that~~expiring ~~expire~~ in August 2019. Refer to the discussion under “Multiemployer Pension Plans” above for more information regarding the Teamsters Local 264 collective bargaining agreements.

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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 ~~October~~April 822, ~~2016~~2017 or ~~January~~December 231, 2016.

~~11.~~- ~~IMPAIRMENT~~15 -

During the 40-week period ended October 8, 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 statement of comprehensive loss for the 40-week period ended October 8, 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 with supermarkets in Upstate New York, Northern Pennsylvania, Western Vermont and North Central Massachusetts. 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 ~~October~~April 822, ~~2016~~2017, we operated 172 full-service supermarkets, 171 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;

•

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;

- 14 -

•

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;

- 16 -

•

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~~December 231, 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 1216-week ~~and 40-week~~ periods ended ~~October~~April 822, ~~2016~~2017 and ~~October~~April 323, ~~2015~~2016 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~~August ~~2015~~2016 ~~Refinancing~~Acquisition

OnIn ~~June~~August 102016, ~~2015,~~we ~~Holding~~acquired Ifour ~~and~~supermarkets ~~Tops~~from ~~Markets~~The IIStop ~~Corporation~~& ~~issued~~Shop ~~$560.0~~Supermarket ~~million~~Company inLLC, ~~aggregate~~which ~~principal~~operated ~~amount~~these ofstores ~~2022~~under ~~Notes,~~the ~~bearing~~Stop ~~annual~~& ~~interest~~Shop atbanner, aand ~~rate~~two ofsupermarkets ~~8.00%. The proceeds~~ from ~~the~~Hannaford ~~2022~~Bros. ~~Notes~~Co., ~~were~~LLC ~~used~~and toMartin’s ~~fund~~Foods aof ~~tender~~South ~~offer~~Burlington, ~~for~~LLC, ~~and~~which ~~redeem~~operated ~~the~~these ~~balance~~stores ~~of,~~under the ~~previously~~Hannaford ~~outstanding~~banner, ~~$460.0~~in ~~million~~Eastern ofNew ~~2017~~York ~~Notes~~ and toNorth ~~fund~~Central ~~a partial tender offer for $60~~Massachusetts.0 The ~~million~~six ofacquired ~~the~~supermarkets ~~$150.0~~contributed ~~million~~net ~~outstanding~~sales ~~2018 Notes, including tender~~ and ~~redemption~~operating ~~premiums~~loss of $2339.07 million and $1.2 million, respectively~~. The~~, ~~proceeds~~during ~~were also used to pay accrued and unpaid interest related to~~ the ~~tendered~~16-week ~~and~~period ~~redeemed~~ended ~~notes~~April ~~and~~22, ~~fees and expenses related to the issuance of the 2022 Notes~~2017.

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 40-week period ended October 3, 2015.

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RESULTS OF OPERATIONS

1216-Week Period Ended ~~October~~April 822, ~~2016~~2017 Compared with the 1216-Week Period Ended ~~October~~April 323, ~~2015~~2016

Summary

The results of operations during the 1216-week period ended ~~October~~April 822, 2017 compared with the 16-week period ended April 23, 2016 were impacted by the $2844.63 million incremental inside sales contribution from 129 acquired and new supermarkets opened since ~~September~~April ~~2015~~2016, and a same store sales decrease of 23.94%, resulting from food cost deflation, ~~and~~a ~~lower~~decrease ~~traffic~~in ~~and~~Supplemental ~~weakness~~Nutrition inAssistance ~~consumer~~Program (“SNAP”) spending, ~~levels. Relatively~~and lower ~~margin~~traffic. Fuel ~~fuel~~ sales ~~decreased~~increased $76.30 million during the 1216-week period ended ~~October~~April 822, ~~2016~~2017, primarily as a result of aan ~~decrease~~increase in fuel retail prices. Our ~~gross~~operating ~~profit~~expenses ~~margin~~were ~~rate~~impacted ~~remained relatively flat as the impact of a decrease in lower margin fuel sales was offset~~ by an increase in ~~distribution costs~~wages, ~~which~~salaries ~~occurred~~and ~~largely~~benefits ~~due~~of to $18.20 million, inprimarily ~~costs~~due ~~associated with our August 2016 relocation~~ to aacquired and new ~~freezer~~stores, ~~warehouse~~an ~~facility~~increase ~~during~~in the ~~12-week~~New ~~period~~York ~~ended~~State ~~October~~minimum 8,wage ~~2016. Our~~rate ~~operating~~from ~~expenses~~$9.00 ~~were~~to ~~impacted by~~ $29.370, ~~million of incremental legal~~ and ~~professional~~increases ~~fees~~in ~~during~~pension ~~the 12-week period ended October 8, 2016 related to the ongoing dispute~~ and ~~associated~~health ~~arbitration proceeding with the New York State Teamsters Conference Pension~~ and ~~Retirement~~welfare ~~Fund~~costs.

Net Sales

The following table includes the components of our net sales for the 12-week periods ended October 8, 2016 and October 3, 2015.

(Dollars in thousands)

	12-week periods ended
	October 8, 2016		October 3, 2015		$ Change			% Change
Inside sales	$	537,748	$	522,469	$	15,279			2.9	%
Fuel sales		31,005		38,275		(7,270	)		(19.0	)%
Net sales	$	568,753	$	560,744	$	8,009			1.4	%

Inside sales increased due to the $28.6 million incremental contribution from 12 acquired and new supermarkets opened since September 2015. Same store sales decreased 2.9%, primarily due to food cost deflation in certain categories, including meat and dairy, and competitive pressure to lower food prices in response, as well as lower traffic and weakness in consumer spending levels. 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 October 10, 2015, as this represents the most comparable period to the 12-week period ended October 8, 2016.

The decrease in fuel sales was due to a 14.6% decrease in the average retail price per gallon, net of applicable discounts, and a 5.1% net decrease in gallons sold that was primarily attributable to the timing of promotional gas rewards redemption weeks.

Gross Profit

The following table includes a comparison of cost of goods sold, distribution costs and gross profit for the 12-week periods ended October 8, 2016 and October 3, 2015.

(Dollars in thousands)

	12-week						12-week
	period ended			% of			period ended			% of			$			%
	October 8, 2016			Net Sales			October 3, 2015			Net Sales			Change			Change
Cost of goods sold	$	(388,758	)		68.4	%	$	(386,195	)		68.9	%	$	(2,563	)		(0.7	)%
Distribution costs		(11,586	)		2.0	%		(9,125	)		1.6	%		(2,461	)		(27.0	)%
Gross profit	$	168,409			29.6	%	$	165,424			29.5	%	$	2,985			1.8	%

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 October 3, 2015 to income of $0.1 million during the 12-week period ended October 8, 2016. Excluding the impact of LIFO adjustments, cost of goods sold as a percentage of inside sales was 67.5% and 67.4%, respectively, during the 12-week periods ended October 8, 2016 and October 3, 2015.

The increase in distribution costs as a percentage of net sales was largely due to $1.2 million of costs associated with our August 2016 relocation to a new freezer warehouse facility.

- 16 -

Operating Expenses

The following table includes a comparison of operating expenses for the 12-week periods ended October 8, 2016 and October 3, 2015.

(Dollars in thousands)

	12-week					12-week
	period ended		% of			period ended		% of			$		%
	October 8, 2016		Net Sales			October 3, 2015		Net Sales			Change		Change
Wages, salaries and benefits	$	84,725		14.9	%	$	80,354		14.3	%	$	4,371		5.4	%
Selling and general expenses		28,352		5.0	%		27,459		4.9	%		893		3.3	%
Administrative expenses		21,923		3.9	%		17,842		3.2	%		4,081		22.9	%
Rent expense, net		7,004		1.2	%		6,292		1.1	%		712		11.3	%
Depreciation and amortization		14,968		2.6	%		14,719		2.6	%		249		1.7	%
Advertising		5,140		0.9	%		4,901		0.9	%		239		4.9	%
Total	$	162,112		28.5	%	$	151,567		27.0	%	$	10,545		7.0	%

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 15.8% and 15.4%, respectively, during the 12-week periods ended October 8, 2016 and October 3, 2015. The increase was due to increases in minimum wages and pension contributions, as well as labor costs of $0.6 million related to the integration of the six acquired stores in Eastern New York and North Central Massachusetts during the 12-week period ended October 8, 2016.

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 $2.3 million of incremental legal and professional fees during the 12-week period ended October 8, 2016 related to the ongoing dispute and associated arbitration proceeding with the New York State Teamsters Conference Pension and Retirement Fund discussed in Note 10 to our condensed consolidated financial statements contained in Item 1 of this 10-Q. Additionally, we incurred $1.7 million of costs in connection with an unsuccessful potential acquisition and $0.8 million of costs related to the integration of the six acquired stores in Eastern New York and North Central Massachusetts during the 12-week period ended October 8, 2016. These increases in administrative expenses were offset by a $1.2 million decrease in bonus expense based upon performance against budget metrics.

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 September 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.

Interest Expense, Net

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

- 17 -

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 October 8, 2016 and October 3, 2015.

The income tax expense recognized for the 12-week periods ended October 8, 2016 and October 3, 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 39.1% and 39.3%, respectively, without the establishment of valuation allowance.

Net Loss

Our net loss increased by $7.6 million for the reasons described above.

40-Week Period Ended October 8, 2016 Compared with the 40-Week Period Ended October 3, 2015

Summary

The results of operations during the 40-week period ended October 8, 2016 compared with the 40-week period ended October 3, 2015 were impacted by the $57.9 million incremental inside sales contribution from 14 acquired and new supermarkets opened since May 2015, and a same store sales decrease of 1.8% resulting from food cost deflation and lower traffic and weakness in consumer spending levels. Fuel sales decreased $24.5 million during the 40-week period ended October 8, 2016, primarily as a result of a decrease in fuel retail prices. Our gross profit margin rate improved 50 basis points due to the decrease in lower margin fuel sales combined with incremental savings of $2.6 million associated with the amendment of certain operating terms of our agreement with C&S, which became effective April 1, 2015. Our operating expenses were impacted by $4.5 million of incremental legal and professional fees during the 40-week period ended October 8, 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 4016-week periods ended ~~October~~April 822, ~~2016~~2017 and ~~October~~April 323, ~~2015~~2016.

(Dollars in thousands)

40-week periods ended

16-week periods ended

October 8, 2016

October 3, 2015

$ Change

% Change

April 22, 2017

April 23, 2016

$ Change

% Change

Inside sales

1699,~~770,861~~167

1678,~~743,741~~124

2721,~~120~~043

13.61

Fuel sales

~~101~~41,~~217~~661

~~125~~35,~~764~~612

~~(24~~6,~~547~~049

)

~~(19~~17.50

Net sales

1740,~~872,078~~828

1713,~~869,505~~736

227,~~573~~092

03.18

Inside sales increased due to the $5744.93 million incremental contribution from 149 acquired and new supermarkets opened since ~~May~~April ~~2015~~2016. ~~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 13.84%, primarily due to food cost deflation in certain categories, ~~including~~in ~~meat~~particular ~~and dairy~~meat, and competitive pressure to lower food prices in response, as well as lower traffic. Additionally, ~~and~~a ~~weakness~~decline in ~~consumer~~federal ~~spending~~funding ~~levels~~for SNAP had an estimated negative impact of 40 basis points on same store sales. 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 40-week period ended October 10, 2015, as this represents the most comparable period to the 40-week period ended October 8, 2016.

The ~~decrease~~increase in fuel sales was due to a 1723.72% ~~decrease~~increase in the average retail price per gallon, net of applicable discounts, ~~and~~partially offset by a 25.20% ~~net~~ decrease in gallons sold, due to a gas points promotion program during the 2016 period that was not repeated in the 2017 period.

- 18 -

Gross Profit

The following table includes a comparison of cost of goods sold, distribution costs and gross profit for the 4016-week periods ended ~~October~~April 822, ~~2016~~2017 and ~~October~~April 323, ~~2015~~2016.

(Dollars in thousands)

	40-week						40-week
	16-week						16-week
	period ended			% of			period ended			% of			$			%
	October 8, 2016			Net Sales			October 3, 2015			Net Sales			Change			Change
	April 22, 2017			Net Sales			April 23, 2016			Net Sales			Change			Change
Cost of goods sold	$	(1509,~~279,910~~450	)		68.48	%	$	(1486,~~284,579~~866	)		68.72	%	$	4(22,~~669~~584	)		0.(4.6	)%
Distribution costs		(3314,~~046~~603	)		12.80	%		(3411,~~948~~814	)		1.97	%		1(2,~~902~~789	)		5(23.46	)%
Gross profit	$	~~559~~216,~~122~~775			29.93	%	$	~~549~~215,~~978~~056			2930.41	%	$	91,~~144~~719			10.78	%

As a percentage of net sales, the ~~decrease~~increase in cost of goods sold was due to a shift in product mix given the ~~smaller~~larger proportion of relatively lower margin fuel sales. Non-cash LIFO inventory valuation expense ~~decreased~~increased $0.57 million from $0.74 million during the 4016-week period ended ~~October~~April 323, ~~2015~~2016 to $01.21 million during the 4016-week period ended ~~October~~April 822, ~~2016~~2017. Excluding the impact of LIFO adjustments, cost of goods sold as a percentage of inside sales was 67.34% ~~during~~and ~~each~~67.2%, ofrespectively, during the 4016-week periods ended ~~October~~April 822, 2017 and April 23, 2016. The majority of this increase was due to the impact of the six stores acquired from The Stop & Shop Supermarket Company LLC and ~~October~~Hannaford 3Bros. Co., ~~2015~~LLC and Martin’s Foods of South Burlington, LLC during August 2016. As expected, these stores had a higher cost of goods sold rate during the 16-week period ended April 22, 2017 due to their initial promotional mix and grand-opening programs.

The ~~decrease~~increase in distribution costs was due to new stores, a $21.1 million ofincrease ~~incremental~~in ~~savings~~self-insured ~~associated~~workers’ ~~with~~compensation ~~the~~claims ~~amendment~~expense ofresulting ~~certain~~from ~~operating~~adverse ~~terms~~claims ~~of our agreement with C&S~~activity, ~~which~~and ~~became~~a ~~effective April 1, 2015. This amount recorded in distribution costs is in addition to~~ $0.5 million ofincrease ~~savings classified~~ in ~~cost~~health ofand ~~goods~~welfare ~~sold related to the amended terms~~expense. ~~This decrease was partially offset by $1.2 million of costs associated with our August 2016 relocation to a new freezer warehouse facility.~~

- 18 -

Operating Expenses

The following table includes a comparison of operating expenses for the 4016-week periods ended ~~October~~April 822, ~~2016~~2017 and ~~October~~April 323, ~~2015~~2016.

(Dollars in thousands)

	40-week					40-week
	16-week					16-week
	period ended		% of			period ended			% of			$			%
	October 8, 2016		Net Sales			October 3, 2015			Net Sales			Change			Change
	April 22, 2017		Net Sales			April 23, 2016			Net Sales			Change			Change
Wages, salaries and benefits	$	~~277~~115,~~117~~868		1415.86	%	$	~~272~~107,~~581~~833			1415.61	%	$	48,~~536~~035			1.7.5	%
Selling and general expenses		9238,~~088~~063		45.91	%		9136,~~809~~505			45.91	%		~~279~~1,558			04.3	%
Administrative expenses		6523,~~971~~517		3.52	%		5825,~~844~~470			3.16	%		7(1,~~127~~953	)		12(7.17	)%
Rent expense, net		229,~~110~~931		1.23	%		208,~~863~~601			1.12	%		1,~~247~~330			615.05	%
Depreciation and amortization		4919,~~601~~993		2.67	%		4719,~~891~~915			2.68	%		~~1,710~~78			30.64	%
Advertising		176,~~158~~422		0.9	%		166,~~590~~424			0.9	%		~~568~~(2	)		~~3.4~~—	%
Impairment		2,076		0.1	%		—		N/A				2,076		N/A
Total	$	213,794		28.8	%	$	204,748			28.7	%	$	9,046			4.4	%
Gain on sale of assets		—	N/A				(11,014	)		(0.6	)%		11,014			100.0	%
Total	$	526,121		28.0	%	$	497,564			26.6	%	$	28,557			5.7	%

Wages, Salaries and Benefits

The increase in wages, salaries and benefits asis aprimarily ~~percentage~~related ~~of net sales was due~~ to ~~the~~acquired ~~smaller~~and ~~proportion~~new ofstores, ~~fuel~~combined ~~sales~~with asan aincrease ~~percentage~~in ofthe ~~net~~New ~~sales,~~York ~~which~~State ~~require~~minimum ~~relatively~~wage ~~modest~~rate ~~labor~~from ~~investments~~$9. As00 ato ~~percentage~~$9.70, ofand ~~inside~~higher ~~sales,~~pension ~~wages,~~and ~~salaries~~health and ~~benefits~~welfare ~~was a consistent 15~~costs.~~6%.~~

Selling and General Expenses

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

- 19 -

Administrative Expenses

The ~~increase~~decrease in administrative expenses was largely due to a $1.0.9 million ofdecrease ~~costs related to the integration of the six acquired stores~~ in ~~Eastern~~information ~~New~~technology ~~York~~outsourcing ~~and North Central Massachusetts, and $1.7 million of~~ costs in connection with ana ~~unsuccessful~~new ~~potential~~outsourcing ~~acquisition~~contract, ~~during~~along the 40-week period ended October 8, 2016. Additionally, $4.5 million of incremental legal and professional fees were incurred during the 40-week period ended October 8, 2016 related to the ongoing dispute and associated arbitration proceeding with the New York State Teamsters Conference Pension and Retirement Fund discussed in Note 10 to our condensed consolidated financial statements contained in Item 1 of this 10-Q. These increases in administrative expenses were partially offset by a $2.0.8 million decrease in bonus expense based upon performance against budget metrics.

Rent Expense, Net

Depreciation and Amortization

~~The~~Depreciation ~~increase~~and inamortization ~~depreciation~~remained ~~and~~relatively ~~amortization~~consistent ~~was~~during ~~due~~the to16-week ~~incremental~~period ~~depreciation~~ended ~~related~~April 22, to2017 ~~capital~~compared ~~expenditures~~with ~~since~~the ~~early~~16-week ~~2015.~~period ended April 23, 2016.

Advertising

Advertising remained ~~relatively~~ consistent as a percentage of net sales.

Impairment

During the 40-week period ended October 8, 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 40-week period ended October 3, 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 40-week period ended October 3, 2015. See Note 6 to our condensed consolidated financial statements in Item 1 of this 10-Q for further details.

Interest Expense, Net

Interest expense ~~decreased~~remained ~~$1.4~~relatively ~~million~~consistent ~~due~~during ~~primarily~~the to16-week aperiod ~~lower~~ended ~~average~~April ~~borrowing~~22, ~~rate~~2017 oncompared ~~long-term~~with ~~debt~~the as16-week aperiod ~~result~~ended ofApril ~~our~~23, ~~June 2015 refinancing activities~~2016.

- 19 -

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 4016-week periods ended ~~October~~April 822, ~~2016~~2017 and ~~October~~April 323, ~~2015~~2016.

The income tax expense recognized ~~for~~during the 4016-week periods ended ~~October~~April 822, ~~2016~~2017 and ~~October~~April 323, ~~2015~~2016 solely reflects the recognition of additional valuation allowance associated with the tax amortization of our indefinite-lived tradename and goodwill deferred tax liabilities. The impact of the valuation allowance resulted in effective tax rates ~~would~~of ~~have~~(3.0)% ~~been~~and 39(3.19)% during ~~each of~~ the 4016-week periods ended ~~October~~April 822, ~~2016~~2017 and ~~October~~April 323, ~~2015~~2016, ~~without the establishment of valuation allowance~~respectively.

- 20 -

Net Loss

Our net loss ~~decreased~~increased by $167.17 million for the reasons described above.

LIQUIDITY AND CAPITAL RESOURCES

Our primary sources of ~~cash~~liquidity are cash flows generated from our operations and borrowings under our ~~2017~~2021 ABL Facility. Our ~~2017~~2021 ABL Facility allows a maximum borrowing capacity of $~~125~~150.0 million, ~~subject~~consisting toof: (i) a ~~borrowing base calculation, with an option for future upsizing with up to~~ $50140.0 million ofrevolving ~~incremental~~credit ~~commitments if the required conditions are met. As of October 8~~facility, ~~2016,~~subject ~~the unused availability under our 2017 ABL Facility was $32.7 million, after giving effect~~ to ~~the~~a borrowing base calculation, ~~$22.8~~(the ~~million~~“revolver”) ofand ~~letters~~(ii) ofa ~~credit outstanding and~~ $6910.50 million offirst-in, ~~borrowings~~last-out ~~outstanding. We~~term ~~expect~~loan ~~that~~(the ~~cash~~“FILO ~~generated~~loan”). The ~~from~~borrowing ~~operations~~base ~~and~~for ~~availability~~the ~~under~~2021 ~~our 2017~~ ABL Facility ~~will~~includes ~~permit~~certain usinventory, topharmacy ~~fund~~prescription ~~our debt service requirements~~files, ~~investments~~credit incard ~~working capital~~receivables, ~~capital~~trade ~~expenditures,~~receivables ~~acquisitions~~ and other ~~cash~~reserves. The ~~requirements~~2021 ~~for~~ABL atFacility ~~least~~also ~~the~~contains ~~next~~an ~~twelve~~option ~~months. We~~for dothe ~~not~~Company ~~expect~~ to ~~make~~upsize ~~dividends~~the ofrevolver ~~significant~~by ~~size~~up to, in the ~~near future; however~~aggregate, wean ~~may~~additional ~~pay~~$50.0 ~~dividends~~million, to ~~our stockholders from time to time~~$190. ~~Our~~0 ~~financial~~million, ~~flexibility~~if ~~will~~certain ~~depend~~conditions ~~upon~~are ~~our future operating performance~~met, ~~which~~including ~~will~~an beincrease ~~affected by prevailing economic conditions~~ in the ~~grocery~~borrowing ~~industry~~base and ~~financial,~~the ~~business,~~existence ~~and~~of ~~other~~no ~~factors,~~events ~~some~~of default. As of ~~which~~April ~~are~~22, ~~beyond~~2017, ~~our~~the ~~control. Although~~unused ~~unforeseen,~~availability ifunder ~~faced~~our ~~with~~2021 ~~the~~ABL ~~need~~Facility towas ~~increase~~$18.2 ~~liquidity~~million, weafter ~~could~~giving ~~readily~~effect ~~respond~~to ~~through~~ the ~~control~~borrowing ofbase ~~variable~~calculation, ~~operating~~$25.1 ~~expenses~~million ~~(for~~of ~~example,~~letters byof ~~adjusting~~credit ~~employment~~outstanding ~~levels)~~ and ~~through~~$86.0 ~~the~~million ~~reduction~~ of ~~planned~~borrowings ~~capital expenditure and acquisition activities~~outstanding.

We do not expect to declare dividends of significant size in the near future; however, we may decide to 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 currently unexpected, 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 scale back 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 6 to our condensed consolidated financial statements of Item 1 in this 10-Q.

~~During~~On ~~January~~December ~~2015~~30, 2016, we ~~sold~~amended ~~pharmacy~~and ~~scripts~~restated ~~and~~our ~~inventory~~2017 ~~related~~ABL Facility, which among other changes, extended its maturity date to 27December of30, ~~our~~2021 ~~in-store~~and ~~pharmacies~~increased ~~for~~the ~~cash~~maximum ~~proceeds~~borrowing ofcapacity under the facility from $14125.90 million to $150.0 million. ~~These~~See ~~pharmacies~~Note ~~were~~6 ~~then~~to ~~closed~~our condensed consolidated financial statements included in Item 1 of this 10-Q for discussion of the terms of our 2021 ABL Facility.

On ~~December~~June 15, ~~2016~~2017, 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.

-We 21currently -expect that we will have sufficient access to cash flows to continue as a going concern, to fund our ongoing capital expenditure programs and meet our debt obligations, including interest payments, for at least the next twelve months. We will be required to repay the remaining principal balance of our 2018 Notes by June 2018. The 2018 Notes have an outstanding balance of $85.5 million as of April 22, 2017.

Our plans rely on certain underlying assumptions and estimates that may differ from actual results. Such assumptions include targeted sales, operating costs, working capital, cash flows and liquidity. These plans may also rely on us securing additional financing or refinancing the 2018 Notes. If our efforts are not successful, we may not have sufficient cash flows to repay the 2018 Notes by June 2018.

- 20 -

Cash Flows Information

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

(Dollars in thousands)

	40-week periods ended
	16-week periods ended
	October 8, 2016			October 3, 2015
	April 22, 2017			April 23, 2016
Cash provided by (used in):
Cash (used in) provided by:
Operating activities	$	~~28,600~~(436	)	$	5310,~~924~~449
Investing activities		(428,~~031~~512	)		(198,~~437~~272	)
Financing activities		98,~~251~~368			(244,~~542~~727	)

Cash (used in) provided by operating activities changed by $10.9 million from a source of cash during the 4016-week period ended ~~October~~April 823, 2016 ~~decreased~~to ~~$25.3~~a ~~million~~usage ~~compared~~of ~~with~~cash during the 4016-week period ended ~~October~~April 322, ~~2015~~2017 due to a decrease in earnings, adjusted for non-cash income and expense, of $57.41 million primarily related to ~~one-time~~increases ~~administrative~~in ~~expenses,~~employee ~~including~~costs ~~$4.5~~due ~~million of incremental legal and professional fees paid related~~ to ~~the~~an ~~ongoing~~increase ~~dispute~~in ~~and~~minimum ~~associated~~wages ~~arbitration~~in ~~proceeding with the~~ New York State ~~Teamsters~~and ~~Conference~~increases ~~Pension~~in pension and ~~Retirement~~health ~~Fund~~and welfare costs. Changes in operating assets and liabilities represented a use of cash of $53.9 million during the 4016-week period ended ~~October~~April 822, ~~2016~~2017 compared with a ~~source~~use of cash of $~~14.~~0.2 million during the 4016-week period ended ~~October~~April 323, ~~2015. A~~2016, ~~lower~~primarily ~~increase in accrued expenses was~~ due to anthe ~~$8.9 million~~ increase in ~~bonus~~cash ~~payments~~used ~~during~~for the ~~2016~~reduction ~~period~~of ~~related~~accrued ~~to 2015 due to better performance against budget metrics in 2015 versus 2014~~expenses. ~~Inventory~~During ~~increased slightly during~~ the 4016-week period ended ~~October~~April 322, ~~2015~~2017, inan ~~part~~incremental ~~due~~$6.1 tomillion ~~the~~was ~~sale~~paid ofout ~~pharmacy~~for ~~inventory~~third ~~related~~party togift ~~the~~card ~~closure~~purchases ofthat 27were ofmade ~~our~~before ~~in-store~~the ~~pharmacies~~previous year-end. ~~Inventory~~Additionally, ~~increased~~our ~~approximately~~accrual for legal fees was reduced $91.08 million during the ~~40-week~~2017 period ~~ended October 8~~, ~~2016~~compared ~~due~~ to ~~the~~an ~~replenishment~~increase of ~~lower~~$1.3 ~~than~~million ~~normal~~in ~~inventory~~outstanding ~~levels~~legal atfees ~~2015~~during ~~year-end, which was caused in part by~~ the ~~2015~~2016 ~~fiscal~~period. ~~year~~These ~~ending~~were ~~after~~partially ~~the~~offset ~~New~~by ~~Year's~~a ~~Day~~decrease ~~holiday,~~of as$8.1 ~~well~~million ~~as increases~~ in ~~inventory~~annual ~~associated~~incentive ~~with~~bonus ~~nine new stores added during the 40-week period ended October 8, 2016~~payments.

Cash used in investing activities increased $220.62 million during the 4016-week period ended ~~October~~April 822, ~~2016~~2017 compared with the 4016-week period ended ~~October~~April 323, ~~2015 due to $17.4 million paid in connection with seven supermarkets acquired in August~~ 2016~~, partially offset by a decrease in normal capital expenditure payments~~. We expect to invest $4020 million to $4525 million in capital expenditures, ~~exclusive of acquired inventory,~~ during fiscal year ~~2016~~2017, primarily related to ~~new~~maintenance ~~supermarket~~activities ~~locations, remodels~~ and ~~maintenance activities~~remodels. These capital expenditures are funded using cash on hand and available borrowings under the ~~2017~~2021 ABL Facility.

Cash provided by (used in) financing activities changed $3313.1 million to an $8.4 million source of cash during the 4016-week period ended ~~October~~April 822, ~~2016~~2017 ~~compared~~from ~~with~~a $4.7 million use of cash during the 4016-week period ended ~~October~~April 323, ~~2015. The~~2016 ~~change~~primarily ~~reflects~~reflecting a change in net borrowings and repayments on our 2017 ABL Facility and 2021 ABL Facility of $4310.39 million, from net ~~repayments~~borrowings of $202.52 million during the 4016-week period ended ~~October~~April 323, ~~2015~~2016 to net borrowings of $2213.81 million during the 4016-week period ended ~~October~~April 822, 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 4016-week period ended ~~October~~April 823, 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~~2015, our withdrawal liability would have been $~~349~~379.2 million in the event of our complete withdrawal from the Local One plan during ~~2015~~2016. 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 4016-week periods ended ~~October~~April 822, ~~2016~~2017 and ~~October~~April 323, ~~2015~~2016, we made contributions of $115.24 million and $9.4.5 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 4016-week periods ended ~~October~~April 822, ~~2016~~2017 and ~~October~~April 323, ~~2015~~2016, we made contributions to the Fund of $4.1.9 million and $31.97 million, respectively.

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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.

Though no longer contractually required to do so given the suspension and Notice, to date 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~~Except as described under Note 9 to our condensed consolidated financial statements included in Item 1 of this 10-Q, 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 4016-week periods ended ~~October~~April 822, ~~2016~~2017 and ~~October~~April 323, ~~2015~~2016, the monthly conditional payments of withdrawal liability totaled $51.89 million. These monthly conditional payments are in addition to pension contributions the Company has tendered which the Fund has ~~rejected~~refused ~~and~~to ~~returned~~accept, as discussed above and in Note 109 to our condensed consolidated financial statements included in Item 1 of this 10-Q.

Off-Balance Sheet Arrangements

Our off-balance sheet arrangements at ~~October~~April 822, ~~2016~~2017 consisted of operating leases and any potential withdrawal liability obligations under our ~~multi-employer~~multiemployer 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~~December 231, 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 ~~October~~April 822, ~~2016~~2017. 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 ~~October~~April 822, ~~2016~~2017. 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
	of 2017			2018			2019			2020			2021			Thereafter			Fair Value
Debt
Fixed rate	$	~~650~~1,741		$	186,~~612~~443		$	~~86,461~~610		$	~~509~~39		$	3941		$	560,~~357~~317		$	~~592~~552,~~182~~288
Average interest rate		47.65	%		68.37	%		89.71	%		84.80	%		4.0	%		8.0	%
Variable rate	$	—		$	~~69,500~~—		$	—		$	—		$	—86,000		$	—		$	6986,~~500~~000
Average interest rate	N/A			N/A	~~2.6~~	%	N/A			N/A			~~N/A~~	3.1	%	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 ~~October~~April 822, ~~2016~~2017, 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 ~~October~~April 822, ~~2016~~2017.

CHANGES IN INTERNAL CONTROL OVER FINANCIAL REPORTING

There was no change in the Company’s internal control over financial reporting during the 1216-week period ended ~~October~~April 822, ~~2016~~2017 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 109 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~~December 231, 2016, except that the risk factor entitled “A determination that there has been a withdrawal from the New York State Teamsters Conference Pension and Retirement Fund (the “Fund”), or that the Company has violated the collective bargaining agreements with Teamsters Local 264 by failing to participate in the Fund, could result in significant financial exposure to us” is hereby updated by reference to the disclosure under “Multiemployer Pension Plans” in Note 9 to the condensed consolidated financial statements contained in Item 1 of this 10-Q.

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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
		November 8, 2016
		June 6, 2017

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Filing Compare · TOPS HOLDING II CORP