SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-K

(Mark One)

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

FOR THE FISCAL YEAR ENDED DECEMBER 31, 2016

☐	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		46-2733709
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)

6363 Main Street, Williamsville, New York 14221		(716) 635-5000
(Address of principal executive offices, including zip code)		(Telephone Number)

Securities registered pursuant to Section 12(b) of the Act: None

Securities registered pursuant to Section 12(g) of the Act: None

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ☐ No ☒

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes ☒ No ☐

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 if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. ☒

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company (as defined in Rule 12b-2 of the Exchange Act).

Large accelerated filer	☐		Accelerated filer	☐

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

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

As of March 30, 2017, 126,559 shares of common stock of the registrant were outstanding.

TOPS HOLDING II CORPORATION

TABLE OF CONTENTS

PART I

	ITEM 1.	BUSINESS	2

	ITEM 1A.	RISK FACTORS	5

	ITEM 1B.	UNRESOLVED STAFF COMMENTS	11

	ITEM 2.	PROPERTIES	11

	ITEM 3.	LEGAL PROCEEDINGS	12

	ITEM 4.	MINE SAFETY DISCLOSURES	12

PART II

	ITEM 5.	MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES	13

	ITEM 6.	SELECTED FINANCIAL DATA	13

	ITEM 7.	MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS	15

	ITEM 7A.	QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK	29

	ITEM 8.	FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA	30

	ITEM 9.	CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE	60

	ITEM 9A.	CONTROLS AND PROCEDURES	60

	ITEM 9B.	OTHER INFORMATION	61

PART III

	ITEM 10.	DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE	61

	ITEM 11.	EXECUTIVE COMPENSATION	63

	ITEM 12.	SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS	72

	ITEM 13.	CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE	73

	ITEM 14.	PRINCIPAL ACCOUNTANT FEES AND SERVICES	73

PART IV

	ITEM 15.	EXHIBITS AND FINANCIAL STATEMENT SCHEDULES	74

	ITEM 16.	FORM 10-K SUMMARY	76

SIGNATURES			77

In this Annual Report on Form 10-K, or 10-K, the terms “we,” “our,” “us,” and the “Company,” refer to Tops Holding II Corporation and its consolidated subsidiaries, including its wholly-owned subsidiary, Tops Holding LLC, and its indirect subsidiaries, Tops Markets, LLC (“Tops Markets”) and Erie Logistics, LLC (“Erie Logistics”). In this 10-K, we may identify our fiscal years by reference to the calendar year ended nearest to the end of that fiscal year. Refer to “Management’s Discussion and Analysis of Financial Condition and Results of Operations – Basis of Presentation” in Item 7 of this 10-K for additional information.

Forward-Looking Statements

This 10-K 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, food cost deflation 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 unions and unionized employees, and the terms of future collective bargaining agreements or labor strikes;

•

increased operating costs resulting from increases in the minimum wage, rising employee benefit costs or pension funding obligations;

•

changes in, or the failure or inability to comply with, laws and governmental regulations applicable to the operation of our pharmacy and other businesses;

•

the adequacy of our insurance coverage against claims of our customers in connection with our pharmacy services;

•

estimates of the amount and timing of payments under our self-insurance policies;

•

risks of liability under environmental laws and regulations;

•

our ability to maintain and improve our information technology systems;

•

events that give rise to actual or potential food contamination, drug contamination or food-borne illness or any adverse publicity relating to these types of concerns, whether or not valid;

•

threats or potential threats to security;

•

our ability to retain key personnel;

•

risks of data security breaches or losses of confidential customer information;

•

risks relating to our substantial indebtedness;

•

claims or legal proceedings against us; and

•

other factors discussed under “Risk Factors” and elsewhere in this 10-K.

- 1 -

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.

PART I

ITEM 1.

BUSINESS

The Company is a leading supermarket retailer with supermarkets in Upstate New York, Northern Pennsylvania, Western Vermont and North Central Massachusetts. Tops Holding II Corporation was incorporated on May 7, 2013. Introduced in 1962, the Company’s Tops brand is widely recognized as a strong retail supermarket brand name in the Company’s market area, supported by strong customer loyalty and attractive supermarket locations. As of December 31, 2016, the Company 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. The Company is headquartered in Williamsville, New York.

The Company’s revenues are earned and cash is generated as products are sold to customers at its supermarkets and fuel locations. The Company earns income predominantly by selling products at prices in excess of its costs to make these products available to its customers. These costs include procurement and distribution costs, facility occupancy and operational costs and overhead expenses.

EMPLOYEES

As of December 31, 2016, the Company employed approximately 14,800 associates. Approximately 83% of these associates are members of United Food and Commercial Workers (“UFCW”) District Union Local One (“Local One”), or six other UFCW unions. Approximately 5% of these associates are members of Teamsters Local 264, who work in our western New York (“WNY”) warehouse and distribution facilities. All other associates are non-union. The Company is a party to five collective bargaining agreements with Local One expiring between April 2017 and October 2018. The Company also is a party to seven other non-Local One UFCW collective bargaining agreements expiring between April 2017 and October 2019 and three collective bargaining agreements with Teamsters Local 264 expiring in August 2019.

See the discussion under Item 1A of this 10-K — “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” and the heading “Retirement Plans” in Note 13 to the consolidated financial statements contained in Item 8 of this 10-K for additional information regarding the status of the Teamsters Local 264 collective bargaining agreements.

STORE PROFILE AND LOCATION

As of December 31, 2016, the Company operated 172 supermarkets with an additional five supermarkets operated by franchisees.

Substantially all of the Company’s supermarkets are either freestanding or located in small neighborhood shopping centers. The Company believes that its supermarkets are strategically positioned and clustered in an efficient and targeted manner, focusing on key regions in Upstate New York and Northern Pennsylvania.

The Company’s corporate supermarkets are located in the following markets:

	Number
Market	of Stores
Buffalo, NY		58
Syracuse / Mid State, NY		47
Rochester, NY		27
Northeastern NY / Vermont / Massachusetts		22
Northern Pennsylvania		18
Total supermarkets		172

- 2 -

The Company has a variety of supermarket sizes that are tailored to the specific needs of the local communities in which the Company operates. The majority of supermarkets are open 24 hours a day, 7 days a week. The following summarizes the number of supermarkets by size categories:

	Number
Square Feet	of Stores
75,000 and above		19
50,000 to 74,999		46
25,000 to 49,999		61
Under 25,000		46
Total		172

The Company will continue to look for opportunities to further optimize its store profile. This could involve, among other things, acquisitions, disposals, or closings of stores and other restructuring initiatives.

COMPETITION

The supermarket industry is highly competitive. The Company competes with various types of retailers, including local, regional and national supermarket retailers, convenience stores, retail drug chains, national general merchandisers and discount retailers, membership clubs, warehouse stores, “big box” retailers and independent and specialty grocers. We compete on the basis of location, quality of products, service, price, product variety and store conditions and face pressure from existing competitors and the threatened entry of new competitors. Some of the Company’s larger national competitors may have an advantage through stronger buying power and greater capital resources.

SEGMENTS

The Company’s supermarkets offer grocery, produce, frozen, dairy, meat, floral, seafood, health and beauty care, general merchandise, deli, prepared foods 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 December 31, 2016, 56 corporate supermarkets offered pharmacy services and 52 corporate fuel stations were in operation. The Company’s retail operations, which represent substantially all of its consolidated sales, earnings and total assets, are its only operating segment and reportable segment.

MERCHANDISING

The Company’s supermarkets offer a wide variety of high quality nationally advertised food and non-food products, local specialties and quality private label items. In addition, the Company offers services such as full-service in-store butchers, home meal replacement items, delicatessens, bakeries, organic products, floral departments, greeting cards and a wide variety of health and beauty care items. The Company’s merchandising strategy has created strong brand recognition in the markets in which we operate. The Company positions Tops supermarkets as “one-stop shops,” including such services as pharmacies, Tops branded fuel stations and in-store banking. The Company is the only conventional supermarket chain to offer fuel in the Buffalo and Rochester markets. Additionally, the Company drives customer loyalty through successful loyalty card programs. These programs provide loyalty incentives through price discounts and special promotions, including discounts on fuel prices at the Company’s fuel stations. These loyalty card programs also provide the Company with valuable data used to identify customer shopping patterns, preferences and demographics, and to optimize merchandising and inventory management.

- 3 -

SOURCES OF SUPPLY

For the period from January 3, 2016 to December 31, 2016 (“Fiscal 2016”), approximately 65% of the Company’s products were procured by C&S Wholesale Grocers, Inc. (“C&S”). Although there are a limited number of companies that can procure products for its supermarkets, the Company believes that other companies could procure similar products on comparable terms, or, alternatively, the Company could self-procure.

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

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.

On December 1, 2016, Tops Markets amended and restated 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, 2022.

LICENSES AND TRADEMARKS

The Company’s supermarkets require a variety of licenses and permits that are renewed on a periodic basis. Payment of a fee and adherence to the licensing agency’s requirements are generally the conditions to maintaining these licenses and permits. The Company maintains registered trademarks for nearly all its supermarket banner tradenames and private label brand names, including Tops, Tops Friendly Markets and Orchard Fresh. Trademarks are generally renewable on a 10-year cycle. The Company considers trademarks an important way to establish and protect our brands in a competitive environment.

GOVERNMENT REGULATION

The Company is subject to regulation by a variety of governmental authorities, including federal, state and local agencies that regulate trade practices, building standards, labor, health and safety matters. The Company is also subject to the oversight of government agencies that regulate the distribution and sale of alcoholic beverages, pharmaceuticals, tobacco products, milk and other agricultural products and other food items. The Company believes that its operations are in material compliance with these laws and regulations.

ENVIRONMENTAL MATTERS

The Company is subject to various federal, state and local environmental laws and regulations, including those relating to underground storage tanks, the release or discharge of regulated materials into the air, water and soil, the generation, storage, handling, use, transportation and disposal of regulated materials, the exposure of persons to regulated materials, the remediation of contaminated soil and groundwater and the health and safety of its employees.

Certain environmental laws, including the Comprehensive Environmental Response, Compensation, and Liability Act of 1980, or CERCLA, impose strict, and under certain circumstances, joint and several, liability on the owner and operator as well as former owners and operators of properties for the costs of investigation, removal or remediation of contamination, and also impose liability for any related damages to natural resources. In addition, under CERCLA and similar state laws, as a person who arranges for the transportation, treatment or disposal of regulated materials, the Company also may be subject to similar liability at sites where such regulated materials come to be located. The Company may also be subject to third‑party claims alleging property damage and/or personal injury in connection with releases of or exposure to regulated materials at, from or in the vicinity of current or formerly owned or operated properties or off-site waste disposal sites.

- 4 -

The Company is required to comply with federal, state and local regulations governing underground storage tanks that store fuel or other regulated substances. Pursuant to the Resource Conservation and Recovery Act of 1976, as amended, the federal Environmental Protection Agency, or EPA, has established a comprehensive regulatory program for the detection, prevention, investigation and cleanup of leaking underground storage tanks. State or local agencies are often delegated the responsibility for implementing the federal program or developing and implementing equivalent or stricter state or local regulations. The Company has a comprehensive program in place for performing routine tank testing and other compliance activities intended to promptly detect and investigate any potential releases. In addition, the Federal Clean Air Act and similar state laws impose requirements on our emissions from motor fueling activities in certain areas of the country, including those that do not meet state or national ambient air quality standards. These laws may require the installation of vapor recovery systems to control emissions of volatile organic compounds to the air during the motor fueling process.

ITEM 1A. RISK FACTORS

General economic conditions that impact consumer spending could adversely affect us.

The retail food business is sensitive to general economic conditions. Recessionary economic cycles, increases in interest rates, higher prices for commodities, fuel and other energy, inflation, high levels of unemployment and consumer debt, high tax rates and other economic factors that affect consumer spending or buying habits may make consumers more cautious and have a material adverse effect on the demand for products we sell in our supermarkets. This may lead to reduced consumer spending, to consumers trading down to a less expensive mix of products or to consumers trading down to discounters for grocery items. Food deflation could reduce sales growth, while food inflation, combined with reduced consumer spending, could reduce gross profit margins.

Furthermore, we may experience additional reductions in traffic in our supermarkets or limitations on the prices we can charge for our products, either of which may reduce our sales and profit margins and have a material adverse effect on our business.

Significant competition in the supermarket industry could adversely affect us.

The supermarket industry, including within our market areas in Upstate New York, Northern Pennsylvania, Western Vermont and North Central Massachusetts, is highly competitive. We compete with various types of retailers, including local, regional, national and international supermarket retailers, convenience stores, retail drug chains, national general merchandisers and discount retailers, membership clubs, warehouse stores and “big box” retailers and independent and specialty grocers. We compete on the basis of location, quality of products, service, price, product variety and store conditions and face pressure from existing competitors and the threatened entry of new competitors. Some of our competitors have attempted to increase market share through expanding their footprint and discount pricing, creating a more difficult environment in which to consistently increase year-over-year sales. Some of our competitors have greater resources and purchasing power than we have. Additionally, some of our competitors are not unionized, resulting in potentially lower labor and benefit costs than we face. Any future consolidation within the supermarket industry could exacerbate these concerns. Our in-store delicatessens and prepared food offerings also face competition from restaurants and fast food chains.

The low profit margins in the grocery industry could adversely affect us.

Profit margins in the grocery industry are very low. In order to increase or maintain our profit margins, we use various strategies to reduce costs, such as productivity improvements, shrink reduction, increased distribution center efficiencies and energy efficiency programs. Our inability to effectively implement these strategies or otherwise manage costs could have a material adverse effect on our financial results.

Increases in fuel, utility and commodity prices could adversely affect us.

We are dependent on the use of trucks to distribute goods to our supermarkets. Therefore, fluctuations in the price of fuel affect our overall cost of doing business. Additionally, increases in the cost of utilities affect the cost of operating our stores and warehouse and distribution facilities, and the cost of goods sold or used by us, including plastic bags, can be significantly impacted by increases in commodity prices. We may not be able to recover these rising costs through increased prices charged to our customers and our results of operations and cash flows could therefore be materially adversely affected.

- 5 -

Increases in wholesale and retail fuel prices could adversely affect us.

Crude oil and domestic wholesale petroleum markets are volatile. General political conditions, acts of war or terrorism, instability in oil producing regions, availability of supply and disasters could significantly impact crude oil supplies and wholesale petroleum costs. Significant increases or volatility in wholesale petroleum costs could result in significant increases in our retail price of fuel and could have an adverse effect on our total fuel sales (both in terms of dollars and gallons sold), the profitability of fuel sales and our plans to develop additional fuel centers. Retail gas price volatility could also diminish customer fuel purchases and reduce customer traffic at our supermarkets.

The geographic concentration of our supermarkets creates a heavy exposure to the risks of the local economy and other adverse local conditions.

Our headquarters, our supermarkets and our primary warehouse and distribution facility that services the majority of our supermarkets are located in Upstate New York, Northern Pennsylvania, Western Vermont and North Central Massachusetts and our business is therefore vulnerable to economic downturns in those regions. As a result, we are more susceptible to local conditions than the operations of more geographically diversified competitors and any unforeseen events or circumstances that affect our operating area could also materially adversely affect our business. These conditions include, among other things, an unfavorable business and tax climate, adverse changes in the local economy, unfavorable demographics and population loss.

Severe weather, natural disasters and adverse climate changes may materially adversely affect our business.

Severe weather conditions and other natural disasters in our operating areas or in areas from which we obtain products may materially adversely affect our business. These conditions may result in physical damage to our properties, closure of one or more of our supermarkets or distribution facilities, inadequate work force in our markets, temporary disruption in the supply of products, delays in the delivery of goods to our supermarkets, and a reduction in the availability of products in our supermarkets. In addition, adverse climate conditions and adverse weather patterns, such as drought or flood, that impact growing conditions and the quantity and quality of crops may materially adversely affect the availability or cost of certain products within the grocery supply chain.

Increases in labor costs and prolonged labor disputes with unionized employees could adversely affect us.

Our largest operating costs are attributable to labor costs and, therefore, our financial performance is greatly influenced by increases in wage and benefit costs, including pension and health care costs, a competitive labor market and the risk of labor disruption of our unionized work force. Approximately 88% of our associates are represented by unions and covered by collective bargaining or similar agreements that are subject to periodic renegotiation. Any labor cost increases or prolonged labor disputes with unionized employees could disrupt our operations and have a material adverse effect on our business.

We are currently required to contribute to an underfunded multiemployer pension plan for our employees and our contribution levels under the plan may increase.

Based on information provided to us, the pension plan for our supermarket employees represented by UFCW and Local One is in critical status. As a result, we have agreed to comply with the rehabilitation plan adopted by the trustees of this plan that has required annual increases in contribution rates. The rehabilitation plan may be insufficient to remove the plan from critical status and contribution increases greater than those set forth in the rehabilitation plan may be required in the future. Factors that could result in increased contribution levels under this plan in the future include the outcome of collective bargaining with the unions, government regulations, actions taken by trustees who manage this plan, the investment return on plan assets, interest rates, mortality tables and the impact of any withdrawals from the plan by other participating employers.

We face significant potential liability on a withdrawal from the multiemployer pension plan for employees represented by United Food and Commercial Workers, District Union Local One.

We are contingently liable for withdrawal liability to the extent we withdraw, either completely or partially, from the Local One pension plan. Although we do not intend to withdraw from the Local One plan, if we were to withdraw, either completely or partially, we would incur withdrawal liability with respect to our share of the Local One plan’s unfunded vested benefits. Any withdrawal liability assessed against us in connection with a complete or partial withdrawal would generally be payable to the Local One plan over an amortization schedule under which our aggregate annual payments would be capped based on a formula that takes into account our highest contribution rates in the last ten years. These withdrawal liability payments would be in addition to pension contributions to any new pension plan adopted or contributed to by us to replace the Local One plan.

- 6 -

Although we have no intention to withdraw from the Local One plan, if we did withdraw, there is a risk that our complete withdrawal could be considered a mass withdrawal, in which case our aggregate withdrawal liability obligations could be even higher. Adverse changes to pension laws and regulations could exacerbate the risks associated with our participation in the Local One plan.

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.

On December 22, 2013, Tops Markets acquired all of the membership interests of Erie Logistics and certain other assets from C&S. Erie Logistics operates the Company’s warehouse distribution facilities located in Lancaster and West Seneca, New York and employs the warehouse and driver personnel at such facilities, all of whom are represented by Teamsters Local 264. Under prior supply agreements with Tops Markets, C&S, through Erie Logistics, had operated the facilities since 2002.

In late January 2014, the Company received notice that the Fund had suspended Erie Logistics as a participating employer 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 10-K, 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 to date. During Fiscal 2016 and Fiscal 2015, these rejected contributions totaled $4.9 million and $4.8 million, respectively. On May 27, 2014, the Fund provided Erie Logistics and C&S with its determination that Erie Logistics incurred employer withdrawal liability as a result of the acquisition. The notice provides that Erie Logistics owes withdrawal liability of $183.7 million, payable in a lump sum or in monthly installments, calculated to give effect to a limit on total withdrawal liability imposed by ERISA, of $641,514 for 240 months.

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

The Company has not recorded any reserve for this matter as a loss is not considered probable. If it were ultimately determined that Erie Logistics has incurred a withdrawal liability to the Fund, the Company would bear financial responsibility for the 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. 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. The monthly conditional payments of withdrawal liability 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.

Assuming that we are successful in our pending arbitration regarding the Fund’s withdrawal determination, based on information provided to us, the Fund would still be in critical status. Any rehabilitation plan that may be adopted may be insufficient to remove the Fund from critical status, and increases in the amount of the Company’s contributions to the Fund may be required in the future. Factors that could result in increased contribution levels to the Fund in the future include the outcome of collective bargaining with the unions, government regulations, actions taken by trustees who manage the Fund, the investment return on plan assets, interest rates, mortality tables and the impact of any withdrawals from the Fund by other participating employers.

On July 28, 2014, Teamsters Local 264 filed a grievance charging a violation of its collective bargaining agreements by reason of the Company’s failure to participate in the Fund. On July 4, 2016, the arbitrator denied this grievance. Following the arbitrator’s decision, Teamsters Local 264 has taken the position that its collective bargaining agreements with Erie Logistics expired in August 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 have subsequently negotiated short-term standstill agreements while they attempt to resolve the matter. The parties are currently attempting to reach resolution through mediation under the auspices of an independent mediation professional. The current standstill agreement runs through April 29, 2017.

On January 5, 2017, Erie Logistics also filed a charge with the National Labor Relations Board (“NLRB”) as a result of Teamsters Local 264’s refusal to recognize the extension of the collective bargaining agreements to August 2019. This charge still remains under investigation by the NLRB.

- 7 -

If Erie Logistics and Teamsters Local 264 are unable to resolve the matter or to negotiate 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.

Our substantial indebtedness could materially adversely affect our financial health and our business flexibility.

As of December 31, 2016, we had $862.1 million of indebtedness outstanding (inclusive of $149.7 million of capital lease obligations), and $39.5 million of unused availability under our current asset-based revolving credit facility (“2021 ABL Facility”), after giving effect to $22.8 million of letters of credit outstanding thereunder. Our substantial indebtedness has important consequences for our business. For example, it could:

•

limit our ability to borrow additional funds, or to sell assets to raise funds, if needed, for working capital, capital expenditures, acquisitions or other purposes;

•

increase our vulnerability to adverse economic and industry conditions;

•

limit our flexibility in planning for, or reacting to, changes in the business and industry in which we operate;

•

make it difficult to service our indebtedness;

•

place us at a competitive disadvantage compared to less leveraged competitors; and

•

prevent us from raising the funds necessary to repurchase any of our outstanding notes tendered to us upon the occurrence of certain changes of control, which would constitute a default under the terms of these outstanding notes.

Subject to restrictions in the indentures governing our senior notes and in the credit agreement for our 2021 ABL Facility, we may incur additional indebtedness, which could increase the risks associated with our already substantial indebtedness.

Our ability to generate cash depends on many factors beyond our control, and we may not be able to generate the cash required to service our indebtedness.

Our ability to make payments on and refinance our indebtedness and fund our operations depends on our ability to generate cash in the future. Our historical financial results have been, and our future financial results are expected to be, dependent upon general economic conditions and financial, competitive, legislative, regulatory and other factors that are beyond our control. If we are unable to meet our debt service obligations or fund our other liquidity needs, we may need to refinance all or a portion of our debt before maturity, seek additional equity capital, reduce or delay scheduled expansions and capital expenditures or sell material assets or operations. We may not be able to pay our debt or refinance it on commercially reasonable terms, or at all, or to fund our liquidity needs.

If for any reason we are unable to meet our debt service obligations, we would be in default under the terms of the agreements governing our outstanding debt. If such a default were to occur, the lenders under the 2021 ABL Facility and holders of our 2018 Notes and 2022 Notes, as applicable, could elect to declare all amounts outstanding under the 2021 ABL Facility and the 2018 Notes and 2022 Notes, as applicable, immediately due and payable, and the lenders would not be obligated to continue to advance funds under the 2021 ABL Facility. If the amounts outstanding under the 2021 ABL Facility and the 2018 Notes and 2022 Notes, as applicable, were accelerated, our assets may not be sufficient to repay in full the amounts owed to our debt holders.

Various aspects of our business are subject to federal, state and local laws and regulations. The impact of these regulations and our compliance with them may require additional capital expenditures and could materially adversely affect our business.

We are subject to federal, state and local laws and regulations relating to zoning, land use, environmental protection, food safety, work place safety, public health, community right-to-know, alcoholic beverage sales, tobacco sales and pharmaceutical sales. New York, Pennsylvania, Vermont and Massachusetts and several local jurisdictions regulate some of the products and services offered within our supermarkets, including alcoholic beverages. The production and sale of milk, including the price of raw milk, is regulated through federal market orders and price support programs. We are also subject to laws governing our relationship with employees, including minimum wage requirements, overtime, working conditions, health care, disabled access and work permit requirements. A number of federal, state and local laws impose requirements or restrictions on business owners with respect to access by disabled persons. Compliance with, or changes in, these laws or new laws could require significant capital expenditures, impact our remodel plans and otherwise materially adversely affect our business.

- 8 -

Our pharmacy business is subject to certain government laws and regulations, including those administered and enforced by Medicare, Medicaid, the Drug Enforcement Administration, the Consumer Product Safety Commission, the FTC, the U.S. Food and Drug Administration and local regulators in the states in which we operate. In order to dispense pharmaceutical products, including controlled substances, we are required to register or license our pharmacies and pharmacists and to comply with security, recordkeeping, inventory control and labeling standards. Changes in these regulations may require operational changes or otherwise adversely affect our business. Our pharmacy sales may be reduced if various prescription drugs are converted to over-the-counter medications or if the rate at which new prescription drugs become available slows or prescription drugs are withdrawn from the market. Changes in third-party reimbursement levels for prescription drugs, including changes in Medicare or state Medicaid programs, could have an adverse effect on our business. Changing political, economic and regulatory influences may significantly affect health care financing and pharmacy reimbursement practices. In particular, changes to the Patient Protection and Affordable Care Act may not affect our grocery business directly, but they could indirectly impact the scope and profitability of our pharmacy business. In addition, our pharmacy business is subject to state and federal prohibitions against certain payments intended to induce referrals of patients or other health care business. Failure to properly adhere to these and other applicable regulations could result in the imposition of civil, administrative and criminal penalties including: suspension of payments from government programs; loss of required government certifications; loss of authorizations to participate in, or exclusion from, government reimbursement programs such as Medicare and Medicaid; loss of licenses; significant fines or monetary penalties for anti-kickback law violations, submission of false claims or other failures to meet reimbursement program requirements. Our pharmacy business is also subject to the Health Insurance Portability and Accountability Act, including its obligations to protect the confidentiality of certain patient information and other obligations. Failure to properly adhere to these requirements could result in the imposition of civil as well as criminal penalties. Ultimately, compliance with each of these regulations could impact our operations and any non-compliance could materially adversely affect our business.

Certain risks are inherent in providing pharmacy services, and insurance may not be adequate or available to cover any claims against us.

Pharmacies are exposed to risks inherent in the packaging and distribution of pharmaceuticals and other health care products, such as risks of liability for products that cause harm to consumers. Although our general liability policies cover pharmacy professional liability, the coverage limits under our insurance programs may not be adequate to protect us against future claims, and we may not be able to maintain this insurance on acceptable terms in the future, or at all. Our business may be materially adversely affected if in the future our insurance coverage proves to be inadequate or unavailable, or there is an increase in the liability for which we self-insure, or we suffer harm to our reputation as a result of an error or omission.

If the number or severity of claims for which we are self-insured increases, or we are required to accrue or pay additional amounts because the claims prove to be more severe than our recorded liabilities, we may be materially adversely affected.

We use a combination of insurance and self-insurance to cover potential liabilities for claims related to workers’ compensation, automobile and general liability, property loss or damage and employee health care benefits. We estimate the liabilities associated with the risks retained by us, in part, by considering historical claims experience, demographic and severity factors and other actuarial assumptions that, by their nature, are subject to a degree of variability. Among the causes of this variability are unpredictable external factors affecting future inflation rates, discount rates, litigation trends, legal interpretations, benefit level changes and actual claim settlement patterns.

Some of the many sources of uncertainty in our reserve estimates include changes in benefit levels, medical fee schedules, medical utilization guidelines, vocation rehabilitation and apportionment. If the number or severity of claims for which we are self-insured increases, or we are required to accrue or pay additional amounts because the claims prove to be more severe than our original estimates, our business may be materially adversely affected.

Compliance with and potential liability under environmental laws could have a material adverse effect on us. The storage and sale of petroleum products could cause disruptions and expose us to potentially significant liabilities.

Our operations, including our fuel station activities, are subject to various laws and regulations relating to the protection of the environment, including those governing the storage, management, disposal and cleanup of hazardous materials. Some environmental laws, such as CERCLA and similar state statutes, impose strict, and under certain circumstances joint and several, liability for costs to remediate a contaminated site, and also impose liability for damages to natural resources. Third-party claims in connection with releases of or exposure to hazardous materials relating to our current or former properties or third-party waste disposal sites can also arise. In addition, the presence of contamination at any of our properties could impair our ability to sell or lease the contaminated properties or to borrow money using any of these properties as collateral. The costs and liabilities associated with any such contamination could be substantial, and could have a material adverse effect on our business.

- 9 -

Refined petroleum products are stored in underground storage tanks at our Lancaster, New York warehouse and at some of our retail locations. Compressed natural gas facilities have also been installed at our Lancaster, New York facility. Our operations are subject to hazards and risks related to this storage, including fires, explosion, spills, clean-up obligations, personal injury or wrongful death claims, property damage and potential fines and penalties. To the extent insurance is available and maintained, there is no assurance it will be adequate to fully compensate us for any liability incurred. The occurrence of a significant event that is not fully insured could have a material adverse effect on our business.

Compliance with environmental laws may require us to make significant capital expenditures in the future. We may not have identified all of the environmental liabilities at our current and former locations, material environmental conditions not known to us may exist, and future laws or regulations may impose material environmental liability or compliance costs. Furthermore, new laws, new interpretations or new administration of existing laws or other developments could require us to make additional capital expenditures or incur additional liabilities. If we are not able to effectively manage these integrations, or if any significant business activities are interrupted as a result of these integrations, our business could be adversely affected.

We could be adversely affected if our new store construction and remodeling programs are unsuccessful.

We have spent, and intend to continue to spend, significant capital and management resources on the development and implementation of our store remodel and new construction programs. These programs, even if fully implemented, may not be successful and may not improve operating results. The anticipated level of sales and profit margins and return on capital may not be achieved depending on factors such as prevailing competition, development cost and our market position in the area served.

We may be subject to risks in connection with acquisitions.

We have made and will continue to make acquisitions that we believe fit within our overall strategy. We believe these acquisitions have provided and will provide strategic growth opportunities. Achieving the anticipated benefits of these acquisitions will depend in part upon our ability to integrate the acquired companies and/or stores in an efficient and effective manner. Our acquisitions may involve risks including:

•

diversion of our management’s attention to evaluating, negotiating and integrating acquired assets;

•

the challenge and cost of integrating acquired operations, distribution and inventory systems, information management and other technology systems and business cultures with those of ours while carrying on our ongoing business;

•

the potential incurrence of unexpected material liabilities;

•

difficulties associated with coordinating geographically separate organizations or facilities; and

•

the challenge of attracting and retaining personnel associated with acquired operations.

Difficulties with our information technology systems could significantly disrupt our business.

We have large, complex information technology systems that are critical to our business operations. We could encounter difficulties developing new systems or maintaining and upgrading existing systems. These difficulties could lead to significant disruption in our business operations.

We have outsourced our information technology services to Hewlett Packard Enterprise Company (“HPE”). Any disruption in our relationship with HPE or its ability to perform services, including by reason of financial distress, adverse weather conditions, legal actions affecting HPE or other factors, could result in significant disruption to our business.

- 10 -

If we experience a data security breach and confidential customer information is disclosed, we may be subject to penalties and experience negative publicity, which could affect our customer relationships and have an adverse effect on our business.

We and our customers could suffer harm if customer information is accessed by third parties due to a security failure in our systems or the systems of our outsourced service providers. The processing of transactions in our supermarkets requires us to receive and store a large amount of personally identifiable data. This type of data is subject to legislation and regulation in various jurisdictions. Data security breaches suffered by well-known companies and institutions have attracted a substantial amount of media attention, prompting state and federal legislative action addressing data privacy and security. As a result, we may be subject to more extensive requirements in the future to protect the customer information that we process in connection with the purchases of products at our supermarkets. We may also become exposed to potential liabilities, including fines and penalties, with respect to the data that we or our outsourced service providers collect, manage and process, and may incur legal costs if our information security policies and procedures are not effective or if we are required to defend our methods of collection, processing and storage of personal data. Investigations, lawsuits or adverse publicity relating to our methods of handling personal data could result in increased costs and loss of customers.

Food and drug safety concerns and related unfavorable publicity may materially adversely affect us.

We could be materially adversely affected if consumers lose confidence in the safety and quality of the food supply chain. Adverse publicity about these concerns, whether or not ultimately based on fact, and whether or not involving products sold at our supermarkets, could discourage consumers from buying our products. The real or perceived sale of contaminated food products by us or our suppliers could result in a loss of consumer confidence and result in product liability claims. To the extent that we are unable to maintain appropriate sanitation and quality standards in our supermarkets and distribution facilities, food safety and quality issues could involve expense and damage to our brand. Additionally, concerns about the safety or effectiveness of certain drugs or negative publicity surrounding certain categories of drugs may have a negative impact on our pharmacy sales.

We are heavily dependent on our key personnel.

Our success is largely dependent on the efforts and skills of our senior management team and other key managers. The loss of the services of one or more of these persons could have a material adverse effect on our business. In addition, we compete with other potential employers for employees, and we may not succeed in hiring or retaining the executives and other employees that we need. Our inability to hire or retain key personnel could also have a material adverse effect on our business.

Litigation may materially adversely affect our businesses.

Our operations are characterized by a high volume of customer traffic and by transactions involving a wide variety of products. These operations carry a higher exposure to consumer litigation risk when compared to the operations of companies in many other industries. Consequently, we may be a party to individual personal injury, bad fuel, food safety, products liability and other legal actions in the ordinary course of our business, including litigation arising from food-related illness. The outcome of litigation, particularly class action lawsuits and regulatory actions, is difficult to assess or quantify. Plaintiffs in these types of lawsuits may seek recovery of very large or indeterminate amounts, and the magnitude of the potential loss relating to such lawsuits may remain unknown for substantial periods of time. The cost to defend litigation may be significant. There may also be adverse publicity associated with litigation that may decrease consumer confidence in our business, regardless of whether the allegations are valid or whether we are ultimately found liable.

ITEM 1B. UNRESOLVED STAFF COMMENTS

None.

ITEM 2. PROPERTIES

As of December 31, 2016, the Company operated 172 supermarkets with an additional five supermarkets operated by franchisees. The Company leased 165 and owned seven of the operated supermarkets.

OWNED PROPERTIES

As of December 31, 2016, the Company owned four supermarkets in New York and three supermarkets in Pennsylvania. Refer to Note 8 to the consolidated financial statements contained in Item 8 of this 10-K for information regarding major encumbrances on the Company’s owned properties.

- 11 -

LEASED PROPERTIES

The Company leases most of its supermarkets, which is typical of companies in the retail industry. The Company believes its longstanding presence in many of its locations provides it with the advantage of relatively low rents. The average remaining term on the Company’s leases, including options to renew, is 28 years.

The Company entered into an arrangement with the Town of Lancaster Industrial Development Agency (the “IDA”), relating to the Company’s warehouse and distribution facility in Lancaster, New York, to effectively maintain its ownership of this facility in a tax efficient manner. Under this arrangement, the facility was conveyed to the IDA and leased back to the Company pursuant to a lease agreement, which was recently extended to December 31, 2022. The lease agreement provides that, upon its termination for any reason, title to the facility will be conveyed back to the Company in exchange for $1.00 plus any outstanding amounts due and payable under the lease agreement. The lease agreement requires the Company to make a series of payments to the IDA, which are payments in lieu of taxes (also known as PILOT payments) and essentially become rent payments. The facility consists of a food distribution warehouse with refrigerated areas and ancillary buildings and comprises 906,600 square feet.

The Company leases its corporate offices, freezer warehouse facility and centralized mail distribution center. Its corporate offices are located in Williamsville, New York. The Company believes it has adequate facilities and space for its current and future activities. The Company’s mail center is located in Depew, New York and is the central depository for all mail to the corporate offices and store facilities.

LOCATIONS

Substantially all Tops supermarkets are either freestanding or located in neighborhood shopping centers where it is the marquee tenant. The Company believes that its stores are strategically positioned and clustered in an efficient and targeted manner, focusing on key regions of Upstate New York and Northern Pennsylvania. See “Business – Store Profile and Location” in Item 1 of this 10-K for more information on the locations of the Company’s stores.

ITEM 3. LEGAL PROCEEDINGS

The disclosure contained under the heading “Retirement Plans” in Note 13 to the consolidated financial statements contained in Item 8 of this 10-K is hereby incorporated by reference.

The Company is subject to various claims and legal proceedings that 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 4. MINE SAFETY DISCLOSURES

Not applicable.

- 12 -

PART II

ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES

There is currently no established public trading market for the Company’s common stock. The number of record holders of the Company’s common stock is six.

Refer to the discussion in Notes 8 and 12 of the consolidated financial statements in Item 8 of this 10-K for information regarding cash dividends declared on the Company’s common stock and restrictions on the Company’s ability to pay these dividends.

ITEM 6. SELECTED FINANCIAL DATA

As more fully discussed in “Company Overview” in Item 7, Management’s Discussion and Analysis of Financial Condition and Results of Operations, certain members of our management and directors acquired and now beneficially own approximately 81% of the outstanding equity interests of Tops Holding II Corporation (“Holding II”). The acquisition was accounted for as a purchase and “push down accounting” was required to be applied, with the result that purchase accounting adjustments were reflected in the Company’s financial statements. The application of push down purchase accounting resulted in a new basis of accounting in which the total cost of the acquisition of Holding II was allocated to the assets and liabilities using estimates of fair values. Accordingly, these financial statements refer to the Company in the period prior to the acquisition as the “Predecessor Period” and in the period subsequent to the acquisition as the “Successor Period.”

The following table sets forth our selected historical consolidated financial and operating data. The selected historical consolidated financial and operating data as of December 31, 2016 and January 2, 2016 and for Fiscal 2016, the period from December 28, 2014 to January 2, 2016 (“Fiscal 2015”) and the period from December 29, 2013 to December 27, 2014 (“Fiscal 2014”) has been derived from our audited consolidated financial statements prepared in accordance with GAAP that are included in Item 8 of Part II of this 10-K. The selected historical consolidated financial and operating data as of December 27, 2014, December 28, 2013 and December 29, 2012 and for the Fiscal 2013 Successor Period, the Fiscal 2013 Predecessor Period and Fiscal 2012 has been derived from our audited consolidated financial statements prepared in accordance with GAAP that are not included in this 10-K. The historical results of Tops Holding LLC and its subsidiaries have been consolidated with those of Holding II as if Holding II were in existence for all periods presented.

- 13 -

The information set forth below should be read in conjunction with “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and our audited consolidated financial statements and related notes included elsewhere in this 10-K.

(Dollars in thousands, except average weekly same store sales per supermarket)

	Successor Period												Predecessor Period
	Fiscal			Fiscal			Fiscal			Fiscal			Fiscal			Fiscal
	2016			2015			2014			2013			2013			2012
	(52 weeks)			(53 weeks)			(52 weeks)			(4 weeks)			(48 weeks)			(52 weeks)
Statements of Comprehensive (Loss) Income Data:
Inside sales	$	2,324,397		$	2,314,012		$	2,283,973		$	180,890		$	2,080,938		$	2,146,524
Fuel sales		132,370			157,937			224,342			16,433			202,578			218,815
Net sales		2,456,767			2,471,949			2,508,315			197,323			2,283,516			2,365,339
Operating income		38,538			58,369			60,754			3,378			39,512			68,556
Net loss		(44,563	)		(62,243	)		(14,667	)		(1,882	)		(26,579	)		(22,950	)
Balance Sheet Data:
Total assets	$	1,026,878		$	1,029,654		$	1,033,894		$	1,046,036		N/A			$	661,093
Long-term liabilities; including obligations under capital lease lease and financing obligations		948,449			912,868			864,930			838,455		N/A				674,537
Total shareholders’ (deficit) equity		(118,377	)		(72,424	)		(9,767	)		19,027		N/A				(183,272	)
Supermarket Operating Data:
Number of supermarkets at end of fiscal period		172			163			158			155			155			149
Average weekly same store sales per supermarket ^{(1) (3)}	$	266,843		$	274,403		$	282,983		$	300,665		$	317,949		$	325,897
Same store sales decrease ^{(1) (2)}		(1.8	)%		(0.3	)%		(0.3	)%		(0.5	)%		(0.7	)%		(0.7	)%
Number of fuel stations at end of fiscal period		52			52			51			47			46			43
Motor fuel gallons sold (in thousands)		69,046			71,797			69,495			5,222			60,743			63,438
Other Financial Data:
Net cash provided by (used in):
Operating activities	$	32,471		$	54,594		$	38,127		$	(379	)	$	60,049		$	87,007
Investing activities		(51,536	)		(29,983	)		(38,910	)		(6,234	)		(53,932	)		(67,054	)
Financing activities		8,502			(15,370	)		(2,814	)		11,377			(13,390	)		(6,712	)
Total depreciation and amortization		76,723			76,315			69,177			5,010			64,975			67,802
Capital expenditures		34,569			37,680			38,910			6,234			47,937			37,565
Dividends to shareholders		2,015			—			—			—			141,920			100,000

(1)	We define “same store sales” as inside sales (net sales excluding fuel sales), excluding franchise revenue, for “same stores.” We include a supermarket in “same stores” after its thirteenth full four-week period of operation.

(2)

To calculate the same store sales change for Fiscal 2016 and Fiscal 2015, we have used the most comparable 52-week periods. When comparing Fiscal 2016 to Fiscal 2015, we have excluded the first week of Fiscal 2015. When comparing Fiscal 2015 to Fiscal 2014, we have excluded the 53rd week of Fiscal 2015.

(3)

The decrease in average weekly same store sales per supermarket in Fiscal 2015 is due to new supermarkets that became same stores during Fiscal 2015, which were generally smaller in size and have lower average sales volumes. The decrease in average weekly same store sales per supermarket in Fiscal 2014 and the Fiscal 2013 Successor and Predecessor periods is due to supermarkets acquired in October 2012 from GU Markets LLC, which are generally much smaller in size and have lower average sales volumes. These supermarkets became same stores late during the Fiscal 2013 Predecessor Period.

- 14 -

ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following discussion should be read in conjunction with our audited consolidated financial statements and related notes and other financial information appearing elsewhere in this 10-K.

COMPANY OVERVIEW

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 December 31, 2016, 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.

On November 14, 2013, Morgan Stanley Private Equity and other stockholders of Holding II, Tops MBO Corporation (“Tops MBO Co”) and Holding II signed a Purchase and Sale Agreement pursuant to which Tops MBO Co agreed to purchase substantially all of the common stock of Holding II (the “Management Purchase”). Tops MBO Co is substantially owned and controlled by members of our management and our directors. The Management Purchase closed effective December 1, 2013. Prior to the Management Purchase, members of management owned approximately 7% of the outstanding equity interests in Holding II. As a result of the Management Purchase, members of our management and our directors beneficially own approximately 81% of the outstanding equity interests of Holding II.

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.

As a result of the Management Purchase, through their ownership of Tops MBO Co and through direct ownership of four shares of Holding II, members of our management and our directors beneficially own approximately 81% of the outstanding equity interests of Holding II. This acquisition was accounted for as a purchase and “push down accounting” was required to be applied, with the result that purchase accounting adjustments were reflected in the Company’s financial statements. The application of push down purchase accounting resulted in a new basis of accounting in which the total cost of the purchase of Holding II was allocated to the assets and liabilities using estimates of fair values based on an allocation of the Tops MBO Co purchase price.

The period from January 3, 2016 to December 31, 2016 (“Fiscal 2016”) included 52 weeks. The period from December 28, 2014 to January 2, 2016 (“Fiscal 2015”) included 53 weeks. The period from December 29, 2013 to December 27, 2014 (“Fiscal 2014”) included 52 weeks.

RECENT EVENTS AFFECTING OUR RESULTS OF OPERATIONS AND THE COMPARABILITY OF REPORTED RESULTS OF OPERATIONS

2014 Dividends

On March 31, 2014 and June 30, 2014, we paid dividends of $2.4 million and $2.3 million, respectively, to Tops MBO Co to fund the quarterly principal and interest payments under the $12.3 million term loan that Tops MBO Co entered into on November 29, 2013 (“MBO Co Loan”). On September 25, 2014, we paid a dividend of $7.9 million to Tops MBO Co to fund the repayment of the remaining principal balance and accrued and unpaid interest on the MBO Co Loan.

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 consolidated statement of comprehensive loss during Fiscal 2015.

- 15 -

June 2015 Refinancing

On June 10, 2015, Tops Holding LLC (“Holding I”) and Tops Markets II Corporation issued $560.0 million in aggregate principal amount of senior secured notes due 2022 (the “2022 Notes”), bearing annual interest at a rate of 8.00%. The proceeds from the 2022 Notes were used to fund a tender offer for, and redeem the balance of, the previously outstanding $460.0 million of 8.875% senior secured notes due 2017 (the “2017 Notes”) and to fund a partial tender offer for $60.0 million of the $150.0 million outstanding 8.750%/9.500% senior notes due 2018 (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 consolidated statement of comprehensive loss during Fiscal 2015. 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.

August 2016 Acquisition

In August 2016, we 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 North Central Massachusetts. The six acquired supermarkets contributed net sales and operating loss of $47.4 million and $2.9 million, respectively, during Fiscal 2016.

RESULTS OF OPERATIONS

Fiscal 2016 Compared with Fiscal 2015

Summary

The results of operations during Fiscal 2016 compared with Fiscal 2015 were impacted by the $94.6 million incremental inside sales contribution from 14 acquired and new supermarkets opened since May 2015, offset by the additional week (a 53^rd week) in Fiscal 2015, and a same store sales decrease of 1.8% resulting in part from food cost deflation and lower traffic. Fuel sales decreased $25.6 million during Fiscal 2016, primarily as a result of a decrease in fuel retail prices. Our operating expenses were impacted by $3.3 million of costs related to the acquisition and integration of the six acquired stores in Eastern New York and North Central Massachusetts, $1.7 million of costs incurred in connection with a potential acquisition and $1.3 million of incremental legal and professional fees during Fiscal 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 Fiscal 2016 and Fiscal 2015.

(Dollars in thousands)

	Fiscal 2016		Fiscal 2015
	(52 weeks)		(53 weeks)		$ Change			% Change
Inside sales	$	2,324,397	$	2,314,012	$	10,385			0.4	%
Fuel sales		132,370		157,937		(25,567	)		(16.2	)%
Net sales	$	2,456,767	$	2,471,949	$	(15,182	)		(0.6	)%

Inside sales increased due to the $94.6 million incremental contribution from 14 acquired and new supermarkets opened since May 2015. This increase was partially offset by $42.9 million of sales related to the additional week in Fiscal 2015, combined with a $2.4 million reduction in pharmacy sales attributable to the closure of 27 in-store pharmacies during January 2015. Same store sales decreased 1.8% 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. Additionally, a decline in federal funding for the Supplemental Nutritional Assistance Program (“SNAP”) had an estimated negative impact of 50 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 52-week period ended January 2, 2016, as this represents the most comparable period to the 52-week period ended December 31, 2016.

Fuel sales decreased during Fiscal 2016 compared with Fiscal 2015 due to a 12.8% decrease in the average retail price per gallon, net of applicable discounts, and a 3.8% decrease in gallons sold, primarily due to the additional week in Fiscal 2015.

- 16 -

Gross Profit

The following table includes a comparison of cost of goods sold, distribution costs and gross profit for Fiscal 2016 and Fiscal 2015.

(Dollars in thousands)

	Fiscal 2016			% of			Fiscal 2015			% of
	(52 weeks)			Net Sales			(53 weeks)			Net Sales			$ Change			% Change
Cost of goods sold	$	(1,685,799	)		68.6	%	$	(1,698,813	)		68.7	%	$	13,014			(0.8	)%
Distribution costs		(44,975	)		1.8	%		(44,847	)		1.8	%		(128	)		0.3	%
Gross profit	$	725,993			29.6	%	$	728,289			29.5	%	$	(2,296	)		(0.3	)%

As a percentage of net sales, the decrease in cost of goods sold was due to a shift in product mix given the smaller proportion of relatively lower margin fuel sales. Non-cash LIFO inventory valuation income increased $0.3 million from $0.2 million during the Fiscal 2015 to $0.5 million during Fiscal 2016. Excluding the impact of LIFO adjustments, cost of goods sold as a percentage of inside sales was 67.6% and 67.4%, respectively, during Fiscal 2016 and Fiscal 2015.

The increase in distribution costs was due to new stores, $1.4 million of costs associated with our August 2016 relocation to a new freezer warehouse facility, combined with a $0.6 million increase in self-insured workers’ compensation claims expense. These increases were partially offset by $2.5 million of incremental savings associated with the amendment of certain operating terms of our agreement with C&S, which became effective April 1, 2015. This amount recorded in distribution costs is in addition to $0.6 million of savings classified in cost of goods sold related to the amended terms.

Operating Expenses

The following table includes a comparison of operating expenses for Fiscal 2016 and Fiscal 2015.

(Dollars in thousands)

	Fiscal 2016		% of			Fiscal 2015			% of
	(52 weeks)		Net Sales			(53 weeks)			Net Sales			$ Change			% Change
Wages, salaries and benefits	$	364,837		14.9	%	$	361,024			14.6	%	$	3,813			1.1	%
Selling and general expenses		119,985		4.9	%		120,651			4.9	%		(666	)		(0.6	)%
Administrative expenses		83,142		3.4	%		82,763			3.3	%		379			0.5	%
Rent expense, net		29,711		1.2	%		27,631			1.1	%		2,080			7.5	%
Depreciation and amortization		64,422		2.6	%		63,870			2.6	%		552			0.9	%
Advertising		23,282		0.9	%		22,781			0.9	%		501			2.2	%
Impairment		2,076		0.1	%		2,214			0.1	%		(138	)		(6.2	)%
Gain on sale of assets		—		—			(11,014	)		(0.4	)%		11,014			(100.0	)%
Total	$	687,455		28.0	%	$	669,920			27.1	%	$	17,535			2.6	%

Wages, Salaries and Benefits

The increase in wages, salaries and benefits as a percentage of net sales during Fiscal 2016 compared with Fiscal 2015 is largely attributable to the lower proportion of less labor intensive fuel sales driven by the reduction of retail fuel prices previously discussed. As a percentage of inside sales, wages, salaries and benefits increased nine basis points due to a $3.1 million increase in self-insured workers’ compensation claims expense and general wage increases, partially offset by a $3.3 million decrease in bonus expense based upon performance against budget metrics.

Selling and General Expenses

The decrease in selling and general expenses in Fiscal 2016 compared with Fiscal 2015 is primarily due to a $1.2 million decrease in self-insured general liability claims expense.

- 17 -

Administrative Expenses

The increase in administrative expenses during Fiscal 2016 was largely due to $1.6 million of costs related to the acquisition and integration of the six acquired stores in Eastern New York and North Central Massachusetts and $1.7 million of costs incurred in connection with a potential acquisition. Additionally, $1.3 million of incremental legal and professional fees were incurred during Fiscal 2016 related to the ongoing dispute and associated arbitration proceeding with the New York State Teamsters Conference Pension and Retirement Fund discussed in Note 13 to our consolidated financial statements contained in Item 8 of this 10-K. These increases in administrative expenses were partially offset by a $3.9 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 is due to new supermarket openings since May 2015.

Depreciation and Amortization

As a percentage of net sales, depreciation and amortization expense remained relatively consistent during Fiscal 2016 compared with Fiscal 2015.

Advertising

As a percentage of net sales, advertising remained relatively consistent during Fiscal 2016 compared with Fiscal 2015.

Impairment

During Fiscal 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 consolidated statement of comprehensive loss.

During Fiscal 2015, we 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 corresponding non-cash impairment charge of $2.2 million was recognized in the 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 consolidated statement of comprehensive loss for Fiscal 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 Fiscal 2015. See Note 8 to our consolidated financial statements in Item 8 of this 10-K for further details.

Interest Expense, Net

Interest related to our long-term debt decreased $2.7 million due primarily to a lower average borrowing rate on long-term debt as a result of our June 2015 refinancing activities.

- 18 -

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 Fiscal 2016 and Fiscal 2015.

The income tax expense recognized during Fiscal 2016 and Fiscal 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 impact of the valuation allowance resulted in effective tax rates of (5.2)% and (3.3)% during Fiscal 2016 and Fiscal 2015, respectively.

Net Loss

Our net loss decreased $17.7 million during Fiscal 2016 compared with Fiscal 2015 for the reasons described above.

RESULTS OF OPERATIONS

Fiscal 2015 Compared with Fiscal 2014

Summary

The results of operations during Fiscal 2015 compared with Fiscal 2014 were impacted by the January 2015 sale of inventory and pharmacy scripts related to 27 in-store pharmacies and closure of these pharmacies, and the additional week (a 53^rd week) in Fiscal 2015. Despite a 31.9% decrease in the average retail price of fuel, related profitability improved. In addition, we benefited from $5.6 million of savings associated with the amendment of certain operating terms of our agreement with C&S, which was effective April 1, 2015. Our operating expenses were impacted by higher labor costs reflecting an increase in the New York State minimum wage rate, an increase in bonus expense due to improved performance against bonus metrics and $4.6 million of legal and professional fees during Fiscal 2015 related to the arbitration with the New York State Teamsters Conference Pension and Retirement Fund. These operating expense increases were partially offset by a decline in utility commodity rates. The sale of pharmacy scripts in January 2015 resulted in an $11.0 million gain, partially offset by $1.0 million of non-recurring severance costs associated with the pharmacy closures.

Net Sales

The following table includes the components of our net sales for Fiscal 2015 and Fiscal 2014.

(Dollars in thousands)

	Fiscal 2015		Fiscal 2014
	(53 weeks)		(52 weeks)		$ Change			% Change
Inside sales	$	2,314,012	$	2,283,973	$	30,039			1.3	%
Fuel sales		157,937		224,342		(66,405	)		(29.6	)%
Net sales	$	2,471,949	$	2,508,315	$	(36,366	)		(1.4	)%

Inside sales increased $30.0 million, or 1.3% during Fiscal 2015 compared with Fiscal 2014, due to $43.4 million of sales related to the additional week in Fiscal 2015, combined with the $28.3 million incremental contribution of eight acquired and new supermarkets opened since June 2014. This increase was partially offset by a $33.3 million reduction in pharmacy sales attributable to the closure of 27 in-store pharmacies during January 2015. Same store sales decreased 0.3%. 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 from both Fiscal 2015 and Fiscal 2014 for purposes of calculating same store sales.

Fuel sales decreased during Fiscal 2015 compared with Fiscal 2014 due to a 31.9% decrease in the average retail price per gallon, net of applicable discounts, slightly offset by a 3.3% increase in gallons sold, primarily due to the additional week in Fiscal 2015 and the addition of five new fuel stations since February 2014.

- 19 -

Gross Profit

The following table includes a comparison of cost of goods sold, distribution costs and gross profit for Fiscal 2015 and Fiscal 2014.

(Dollars in thousands)

	Fiscal 2015			% of			Fiscal 2014			% of
	(53 weeks)			Net Sales			(52 weeks)			Net Sales			$ Change		% Change
Cost of goods sold	$	(1,698,813	)		68.7	%	$	(1,751,793	)		69.8	%	$	52,980		(3.0	)%
Distribution costs		(44,847	)		1.8	%		(50,005	)		2.0	%		5,158		(10.3	)%
Gross profit	$	728,289			29.5	%	$	706,517			28.2	%	$	21,772		3.1	%

As a percentage of net sales, cost of goods sold decreased during Fiscal 2015 compared with Fiscal 2014 due to an improvement in profitability on fuel sales, combined with a shift in product mix given the smaller proportion of relatively lower margin fuel sales. Non-cash LIFO inventory valuation adjustments improved from $2.7 million of expense during Fiscal 2014 to income of $0.2 million during Fiscal 2015. Excluding the impact of non-cash LIFO adjustments, cost of goods sold as a percentage of inside sales was 67.4% and 67.5%, respectively, during Fiscal 2015 and Fiscal 2014.

Distribution costs were positively impacted by $4.5 million of savings associated with the amendment of certain operating terms of our agreement with C&S effective April 1, 2015. This amount recorded in distribution costs is in addition to $1.1 million of savings classified in cost of goods sold related to the amended terms. This decrease was partially offset by a $1.4 million increase in self-insured workers’ compensation expense related to our warehouse and distribution associates driven largely by assumption changes in the most recent actuarial valuation of claims reserves, including the estimated future costs to settle currently outstanding claims.

Operating Expenses

The following table includes a comparison of operating expenses for Fiscal 2015 and Fiscal 2014.

(Dollars in thousands)

	Fiscal 2015			% of			Fiscal 2014		% of
	(53 weeks)			Net Sales			(52 weeks)		Net Sales			$ Change			% Change
Wages, salaries and benefits	$	361,024			14.6	%	$	346,199		13.8	%	$	14,825			4.3	%
Selling and general expenses		120,651			4.9	%		124,925		5.0	%		(4,274	)		(3.4	)%
Administrative expenses		82,763			3.3	%		68,728		2.7	%		14,035			20.4	%
Rent expense, net		27,631			1.1	%		25,707		1.0	%		1,924			7.5	%
Depreciation and amortization		63,870			2.6	%		58,767		2.3	%		5,103			8.7	%
Advertising		22,781			0.9	%		21,437		0.9	%		1,344			6.3	%
Gain on sale of assets		(11,014	)		(0.4	)%		—	N/A				(11,014	)	N/A
Impairment		2,214			0.1	%		—	N/A				2,214		N/A
Total	$	669,920			27.1	%	$	645,763		25.7	%	$	24,157			3.7	%

Wages, Salaries and Benefits

The increase in wages, salaries and benefits as a percentage of net sales during Fiscal 2015 compared with Fiscal 2014 is largely attributable to the lower proportion of less labor intensive fuel sales driven by the reduction of retail fuel prices previously discussed. As a percentage of inside sales, wages, salaries and benefits increased 44 basis points. The wages, salaries and benefits costs for Fiscal 2015 reflect the $0.75 per hour minimum wage rate increase in New York State effective January 1, 2015. Additionally, we experienced a $3.3 million increase in bonus expense due to improved performance against bonus metrics. Medical costs associated with non-union supermarket associates increased $2.5 million, and our pension contributions for supermarket associates increased $2.1 million as prescribed by our collective bargaining agreements. Also, in connection with the January 2015 closure of 27 in-store pharmacies, we incurred $1.0 million of non-recurring severance costs.

Selling and General Expenses

The decrease in selling and general expenses in Fiscal 2015 compared with Fiscal 2014 is due to a $6.2 million decrease in utility costs attributable to lower commodity costs and usage. This decrease was partially offset by the impact of new supermarket and fuel location openings and the additional week in Fiscal 2015.

- 20 -

Administrative Expenses

Administrative expenses increased $14.0 million during Fiscal 2015 compared with Fiscal 2014 due to a $4.9 million increase in bonus expense reflecting improved performance against budget metrics. Additionally, we incurred $4.6 million of legal and professional fees during Fiscal 2015 related to the arbitration with the New York State Teamsters Conference Pension and Retirement Fund discussed in Note 13 to our consolidated financial statements contained in Item 8 of this 10-K. The increase also reflects normal wage adjustments, increased corporate associate healthcare costs and increased depreciation expense related to software for our new point of sale system.

Rent Expense, Net

Depreciation and Amortization

The increase in depreciation and amortization during Fiscal 2015 compared with Fiscal 2014 was due to incremental depreciation related to Fiscal 2014 and Fiscal 2015 capital expenditures, as well as the additional week in Fiscal 2015.

Advertising

As a percentage of net sales, advertising remained relatively consistent during Fiscal 2015 compared with Fiscal 2014.

Gain on Sale of Assets

Impairment

During Fiscal 2015, we determined that the expected future cash flows associated with one supermarket location were insufficient to recover that location’s net book value of long-lived assets. As a result, the net book values of property and equipment assets were written down to their estimated fair values. A corresponding non-cash impairment charge of $2.2 million was recognized in the consolidated statement of comprehensive loss.

No impairment was recognized during Fiscal 2014.

Loss on Debt Extinguishment

Interest Expense, Net

Interest related to our long-term debt decreased $0.5 million due to a lower average borrowing rate as a result of our June 2015 financing activities. This was offset by a $1.2 million increase in interest related to capital lease obligations due to the reset of repayment amortization schedules following the amendments of certain lease agreements and the impact of the additional week in Fiscal 2015.

- 21 -

Income Tax (Expense) Benefit

The income tax expense recognized during Fiscal 2015 primarily 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 an effective tax rate of (3.3)% during Fiscal 2015.

The income tax benefit of $7.5 million during Fiscal 2014 reflects our loss before income taxes. This benefit was partially offset by the establishment of additional valuation allowance against net deferred tax assets, excluding our deferred tax liability for the indefinite-lived tradename, and the impact of non-deductible expenses. The effective tax rate was 33.9% during Fiscal 2014. See Note 11 to our consolidated financial statements in Item 8 of this 10-K for additional details.

Net Loss

Our net loss increased $47.6 million during Fiscal 2015 compared with Fiscal 2014 for the reasons described above.

LIQUIDITY AND CAPITAL RESOURCES

Our primary sources of cash are cash flows generated from our operations and borrowings under our 2021 ABL Facility. Our 2021 ABL Facility allows a maximum borrowing capacity of $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, 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 revolving credit facility by up to, in the aggregate, an additional $50.0 million, to $190.0 million, if certain conditions are met. As of December 31, 2016, the unused availability under our 2021 ABL Facility was $39.5 million, after giving effect to the borrowing base calculation, $22.8 million of letters of credit outstanding and $72.9 million of borrowings outstanding. We expect that cash generated from operations and availability under our 2021 ABL Facility will permit us to fund our debt service requirements, investments in working capital, capital expenditures, acquisitions and other cash requirements for the next twelve months. 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 unforeseen, if faced with the need to increase liquidity, we could readily respond through the control of variable operating expenses (for example, by adjusting employment levels) and through the scale back of planned capital expenditure and acquisition activities.

During January 2015, we sold pharmacy scripts and inventory related to 27 of our in-store pharmacies for cash proceeds of $14.9 million. These pharmacies were then closed. See Note 9 to our consolidated financial statements in Item 8 of this 10-K.

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, which have been recorded within loss on debt extinguishment in the consolidated statement of comprehensive loss during Fiscal 2015. 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 8 to our consolidated financial statements included in Item 8 of this 10-K.

On December 30, 2016, we amended and restated our 2017 ABL Facility, which among other changes, extended its maturity date to December 30, 2021 and increased the maximum borrowing capacity under the facility from $125.0 million to $150.0 million. See Note 8 to our consolidated financial statements included in Item 8 of this 10-K for discussion of the terms of our 2021 ABL Facility.

On June 15, 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.

- 22 -

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)

	Fiscal 2016			Fiscal 2015			Fiscal 2014
	(52 weeks)			(53 weeks)			(52 weeks)
Cash provided by (used in):
Operating activities	$	32,471		$	54,594		$	38,127
Investing activities		(51,536	)		(29,983	)		(38,910	)
Financing activities		8,502			(15,370	)		(2,814	)

Cash provided by operating activities during Fiscal 2016 decreased $22.1 million compared to Fiscal 2015 due to a decrease in earnings of $6.9 million, which includes $3.3 million of acquisition and integration costs related to seven supermarkets acquired in August 2016, $1.4 million of costs associated with our August 2016 relocation to a new freezer warehouse facility and $1.3 million of incremental legal and professional fees paid related to the ongoing dispute and associated arbitration proceeding with the New York State Teamsters Conference Pension and Retirement Fund. We expect these operating expenses to be non-recurring. Changes in operating assets and liabilities represented a use of cash of $7.1 million during Fiscal 2016 compared with a source of cash of $8.1 million during Fiscal 2015. This partially resulted from an $8.9 million increase in bonus payments during the 2016 period related to 2015 due to better performance against budget metrics in 2015 versus 2014. Additionally, inventory increased $6.9 million during Fiscal 2016 compared to a decrease of $8.8 million during Fiscal 2015 in part due to lower than normal inventory levels at 2015 year-end, which was largely caused by the 2015 fiscal year-end falling after the New Year’s Day holiday.

Cash provided by operating activities during Fiscal 2015 increased $16.5 million compared with Fiscal 2014. This increase was primarily attributable to $15.2 million of transaction fees related to the Management Purchase that were paid in Fiscal 2014. Largely offsetting were the negative working capital impact of the multiemployer pension withdrawal liability payments discussed in Note 13 to our consolidated financial statements contained in Item 8 of this 10-K and the positive impact of other working capital improvements.

Cash used in investing activities increased $21.6 million during Fiscal 2016 compared with Fiscal 2015 due to net cash proceeds of $11.3 million received from the sale of pharmacy scripts during January 2015, along with $17.4 million paid in connection with seven supermarkets acquired in August 2016. This increase was partially offset by a decrease in normal capital expenditure payments during Fiscal 2016. We expect to invest $20 million to $25 million in capital expenditures during Fiscal 2017, primarily related to maintenance activities and store remodels. We expect to fund these capital expenditures using cash on hand and available borrowings under the 2021 ABL Facility.

Cash used in investing activities decreased $8.9 million during Fiscal 2015 compared with Fiscal 2014, primarily due to net cash proceeds of $11.3 million from the sale of pharmacy scripts during January 2015.

Cash provided by (used in) financing activities changed $23.9 million during Fiscal 2016 compared with Fiscal 2015. The change reflects a change in net borrowings and repayments on our 2017 ABL Facility and 2021 ABL Facility of $31.5 million, from net repayments of $5.3 million during Fiscal 2015 to net borrowings of $26.2 million during Fiscal 2016. Partially offsetting this impact were cash flows related to our 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. During Fiscal 2016, we paid a dividend of $2.0 million to Tops MBO Co. During Fiscal 2016 and Fiscal 2015, we repurchased $1.2 million and $3.3 million, respectively, of our 2018 Notes.

Cash used in financing activities increased $12.6 million during Fiscal 2015 compared with Fiscal 2014 reflecting $25.4 million of cash proceeds from the sale of nine supermarket locations as part of sale-leaseback financing transactions and a $12.6 million dividend paid to Tops MBO Co, each of which occurred during Fiscal 2014.

- 23 -

Contractual Obligations

The following table sets forth a summary of our contractual obligations as of December 31, 2016:

(Dollars in thousands)

	Payments due by Period
	2017		2018		2019		2020		2021		Thereafter		Total
Long-term debt:
2022 Notes ⁽¹⁾	$	—	$	—	$	—	$	—	$	—	$	560,000	$	560,000
2018 Notes ⁽²⁾		—		85,514		—		—		—		—		85,514
Other long-term debt ⁽³⁾		3,120		929		609		39		72,941		322		77,960
Interest ⁽⁴⁾		74,195		67,994		62,132		59,209		56,887		86,239		406,656
Operating leases ⁽⁵⁾		38,131		39,034		39,188		39,417		37,296		209,026		402,092
Capital leases ⁽⁵⁾		10,490		9,689		9,319		8,190		7,186		41,512		86,386
Purchase obligations ⁽⁶⁾		16,670		14,427		14,335		14,157		14,198		30,287		104,074
Other liabilities ⁽⁷⁾		27,181		3,207		727		690		651		2,603		35,059
Total	$	169,787	$	220,794	$	126,310	$	121,702	$	189,159	$	929,989	$	1,757,741

(1)	No principal amounts are due on the 2022 Notes until June 15, 2022.

(2)	No principal amounts are due on the 2018 Notes until June 15, 2018.

(3)	Amount includes the outstanding balance under our 2021 ABL Facility.

(4)	Amount primarily includes contractual interest payments related to the 2022 Notes, 2018 Notes, capital leases and other long-term debt.

(5)

Amount primarily includes contractual rent payments on operating leases and principal payments on capital leases. Additionally, some of our lease agreements provide us with renewal options. We have not included renewal options in our future minimum lease amounts for renewals that are not reasonably assured. Our future operating lease obligations will change if we exercise these renewal options.

(6)

In addition to the purchase obligations reflected in the table above, we enter into supply contracts to purchase products for resale in the ordinary course of business. This category of contracts covers a broad spectrum of products and sometimes includes specific merchandising obligations relative to those products. These supply contracts typically include either a volume commitment or a fixed expiration date, pricing terms based on the vendor’s published list price, termination provisions and other standard contractual considerations. Our obligation related to these contracts is typically limited to return of unearned allowances, and therefore no amounts have been included above. Purchase obligations above represent the outsourcing of a major portion of our information system functions. Effective March 1, 2016, we extended our existing IT outsourcing agreement with HPE through February 29, 2024 to cover a range of information systems services. Under the agreement, HPE provides data center operations, mainframe processing, business applications and systems development to enhance our customer service and efficiency. The charges under this agreement with HPE are based upon the services requested at predetermined rates.

(7)

Other liabilities consist of health and welfare benefits and multiemployer pension plan contributions under collective bargaining agreements, as well as other pension and post-retirement benefits. This amount does not include any amount that may be due as a result of our incurrence of withdrawal liability under our multiemployer pension plans.

- 24 -

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, 2015, our withdrawal liability would have been approximately $379.2 million in the event of our complete withdrawal from the Local One plan during 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 Fiscal 2016, Fiscal 2015 and Fiscal 2014, we made contributions of $14.7 million, $12.6 million and $10.6 million, respectively, to this plan. We are required to increase our annual contributions to the Local One plan pursuant to our current collective bargaining agreements and the Local One plan’s current rehabilitation plan.

As a result of our acquisition of Erie Logistics from C&S in December 2013, we believe we assumed the obligation to participate in and contribute to the Fund. During Fiscal 2016, Fiscal 2015 and Fiscal 2014, we made contributions to the Fund of approximately $4.9 million, $4.8 million and $4.7 million, respectively.

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

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

The Notice provides that Erie Logistics owes withdrawal liability of $183.7 million, payable in a lump sum or in monthly installments, calculated to give effect to a limit on total withdrawal liability imposed by ERISA, of $641,514 for 240 months. If it were ultimately determined that Erie Logistics incurred a withdrawal liability to the Fund, the Company would bear financial responsibility for this liability. Under the terms of the purchase agreement for the acquisition of Erie Logistics from C&S, and as a continuation of our prior contractual obligations, the Company retains the obligation to indemnify C&S in the event withdrawal liability is imposed on Erie Logistics, the Company or C&S. Although we are vigorously contesting the withdrawal determination, during the pendency of the proceeding to contest such determination ERISA requires that conditional monthly payments of withdrawal liability be made, which began July 28, 2014. During both Fiscal 2016 and Fiscal 2015, the monthly conditional payments of withdrawal liability totaled $7.7 million. These monthly conditional payments are in addition to pension contributions the Company has tendered which the Fund has rejected and returned, as discussed above and in Note 13 to our consolidated financial statements included in Item 8 of this 10-K.

Off-Balance Sheet Arrangements

Our off-balance sheet arrangements at December 31, 2016 consisted of operating leases, disclosed in the contractual obligations table above, and any potential withdrawal liability obligations under our 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.

- 25 -

CRITICAL ACCOUNTING POLICIES

Our consolidated financial statements are prepared in accordance with accounting principles generally accepted in the United States of America, or 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. We have provided a description of all of our significant accounting policies in Note 1 to our consolidated financial statements in Item 8 of this 10-K. We believe that of these significant accounting policies, the following may involve a higher degree of judgment or complexity.

Vendor Allowances

We receive allowances from many of the vendors whose products we stock in our supermarkets. Allowances are received for a variety of merchandising activities, which consist of the inclusion of vendor products in our advertising, placement of vendor products in prominent locations in our supermarkets, introduction of new products, exclusivity rights in certain categories of products and temporary price reductions offered to customers on products held for sale. We also receive vendor allowances associated with buying activities such as volume purchase rebates and rebates for purchases made during specific periods.

We record a receivable for vendor allowances for which we have fulfilled our contractual commitments but have not received payment from the vendor. When payment for vendor allowances is received prior to fulfillment of contractual terms or before the programs necessary to earn such allowances are initiated, we record such amounts as deferred income or vendor allowances received in advance, respectively, which are classified within accrued expenses and other current liabilities and other long-term liabilities in our consolidated balance sheets. Once all contractual commitments have been met, we record vendor allowances as a reduction of the cost of inventory. Due to system constraints and the nature of certain allowances, it is sometimes not practicable to apply allowances to the item cost of inventory. In those instances, the allowances are applied as a reduction of merchandise costs using a rational and systematic methodology, which results in the recognition of these incentives when the inventory related to the vendor consideration received is sold based on an inventory turns calculation. Accordingly, when the inventory is sold, the vendor allowances are recognized as a reduction of the cost of goods sold. The amount and timing of recognition of vendor allowances, as well as the amount of vendor allowances remaining as deferred income or vendor allowances received in advance, requires management judgments and estimates. Management determines these amounts based on estimates of current year purchase volume using forecasted and historical data and review of average inventory turnover. These judgments and estimates impact our reported operating earnings and accrued deferred income.

Inventory Valuation

We value inventories at the lower of cost or market using the last-in, first-out, or LIFO, method. Our inventory balances consist primarily of finished goods. Inventory costs include the purchase price of the product and freight charges to deliver the product and are net of certain cash or non-cash consideration received from vendors.

Cost is determined using the retail method. Under the retail method, the valuation of inventories, and the resulting gross margins, is determined by applying a cost-to-retail ratio for various groupings of similar items to the retail value of inventories. Inherent in the retail inventory method calculations are certain management judgments and estimates which could impact the ending inventory valuation at cost, as well as the resulting gross margins. Our cost to retail ratios contain uncertainties as the calculation requires management to make assumptions and apply judgment regarding inventory mix, inventory spoilage and shrink. Because of the significance of the judgments and estimation processes, it is likely that materially different amounts could be recorded if we used different assumptions or if the underlying circumstances were to change.

Physical inventory counts are taken on a cycle basis. We record an estimated inventory shrinkage reserve for the period between each store's last physical inventory and the consolidated balance sheet date.

Valuation of Tradename

In accordance with the provisions of Accounting Standards Codification (“ASC”) 350, "Intangibles-Goodwill and Other,” or ASC 350, we do not amortize the Tops tradename, which is deemed to have an indefinite useful life.

The Tops tradename is tested for impairment whenever events or circumstances make it more likely than not that an impairment may have occurred, or at least annually, in accordance with ASC 350. We have identified December 1 as the impairment test date for the Tops tradename. Our impairment review is based on a relief from royalty method that requires significant judgment with respect to future volume, revenue growth assumptions, and the selection of the appropriate discount and royalty rates.

- 26 -

We use estimates based on expected trends in making these assumptions. An impairment loss, if necessary, is recorded as the excess of the carrying value over the net present value of estimated cash flows, which represents the estimated fair value of the asset. We did not recognize any impairment losses related to the Tops tradename during Fiscal 2016, Fiscal 2015 and Fiscal 2014. In connection with our December 1, 2016 impairment review, the fair value of the tradename was approximately 24% greater than the carrying value.

Valuation of Long-lived Assets

It is our policy to review our long-lived assets for possible impairment whenever events or circumstances indicate that the carrying amount of an asset may not be recoverable. Factors we consider important, and which could trigger an impairment review, include the following:

•

significant under-performance of a store in relation to expectations;

•

significant negative industry or economic trends;

•

competitive openings; and

•

significant changes or planned changes in our use of the assets.

We determine whether the carrying value of our long-lived assets, including property and equipment and finite-lived intangible assets may not be recoverable based upon the existence of one or more of the foregoing or other indicators of impairment. We determine if impairment exists relating to long-lived assets by comparing future undiscounted cash flows to the asset's carrying value. If the carrying value is greater than the undiscounted cash flows, we measure the impairment as the amount by which the carrying value of the assets exceeds the fair value of the assets. The projected cash flows for each asset group considers multiple factors including store sales over its remaining lease term, including sales trends, labor rates, commodity costs and other operating cost assumptions. Because of the significance of long-lived assets and finite-lived intangible assets and the judgments and estimates that go into the fair value analysis, we believe that our policies regarding impairment are critical. As discussed in Note 10 to the consolidated financial statements in Item 8 of this 10-K, the Company recorded impairments of $2.1 million and $2.2 million during Fiscal 2016 and Fiscal 2015, respectively. There were no impairment charges recorded during Fiscal 2014.

Goodwill

We review goodwill for impairment annually on December 1, and upon the occurrence of trigger events. Generally, fair value is determined using a multiple of earnings, or discounted projected future cash flows, and is compared to the carrying value of the Company for purposes of identifying potential impairment. Projected future cash flows are based on management’s knowledge of the current operating environment and expectations for the future. If potential for impairment is identified, our fair value is measured against the fair value of our underlying assets and liabilities, excluding goodwill, to estimate an implied fair value of our goodwill. Goodwill impairment is recognized for any excess of the carrying value of our goodwill over the implied fair value. In connection with our December 1, 2016 impairment review, the fair value of the Company’s one reporting unit was substantially in excess of its calculated carrying value.

As required under ASC 350, the Company performed qualitative analyses of its goodwill at December 1, 2016, 2015 and 2014 to evaluate whether there were adverse qualitative factors indicating that a goodwill impairment existed. A qualitative analysis includes a review of internal and external factors that could have an impact on a reporting unit’s fair value when compared to its carrying amount. These factors included a review of macroeconomic conditions, industry and market considerations, cost factors, overall financial performance, and company specific events. Based on the results of its quantitative and qualitative analyses performed, there was no goodwill impairment recorded during Fiscal 2016, Fiscal 2015 and Fiscal 2014.

Acquisition Accounting

We account for business combinations under the acquisition method of accounting in accordance with ASC 805, "Business Combinations" ("ASC 805"). As required by ASC 805, assets acquired and liabilities assumed in a business combination are recorded at their respective fair values as of the business combination date. The most difficult estimations of individual fair values are those involving long-lived assets, such as property, equipment and intangible assets. We use available information to make these fair value determinations and, when necessary, engage an independent valuation specialist to assist in the fair value determination of the acquired long-lived assets.

- 27 -

In connection with acquisition accounting for the four supermarkets acquired in August 2016 from The Stop & Shop Supermarket Company LLC, and two supermarkets acquired from Hannaford Bros. Co., LLC and Martin’s Foods of South Burlington, LLC, the fair value of inventory was determined based upon the Company’s estimated replacement cost. The fair value of equipment and leasehold improvements were determined using the cost approach. The fair value 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 the 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.

Leases

We lease buildings and equipment under operating and capital lease arrangements. In accordance with ASC 840, "Leases," we classify our leases as capital leases when the lease agreement transfers substantially all risks and rewards of ownership to us. For leases determined to be capital leases, the asset and liability are recognized at an amount equal either to the fair value of the leased asset or the present value of the minimum lease payments during the lease term, whichever is lower. Leases that do not qualify as capital leases are classified as operating leases, and the related lease payments are expensed on a straight-line basis (taking into account rent escalation clauses) over the lease term, including, as applicable, any rent-free period during which we have the right to use the asset. Determining whether a lease is a capital or an operating lease requires judgment on various aspects that include the fair value of the leased asset, the economic life of the leased asset, whether or not to include renewal options in the lease term and determining an appropriate discount rate to calculate the present value of the minimum lease payments.

Self-Insurance Programs

We are primarily self-insured for costs related to workers' compensation and general liability claims. As of December 31, 2016, our workers' compensation and general liability reserves were $19.7 million and $5.9 million, respectively. The liabilities represent our best estimates, using generally accepted actuarial reserving methods, of the ultimate obligations for reported claims plus those incurred but not reported for all claims incurred through the balance sheet date. We establish case reserves for reported claims using case-basis evaluation of the underlying claim data which is updated as new information becomes known.

For both workers' compensation and general liability claims, we have purchased stop-loss coverage to limit our exposure to any significant exposure on a per claim basis. We are insured for covered costs in excess of established per claim limits. We account for the liabilities for workers' compensation and general liability claims on a present value basis utilizing a risk-adjusted discount rate.

The assumptions underlying the ultimate costs of existing claim losses are subject to a high degree of unpredictability, which can affect the liability recorded for such claims. For example, variability in inflation rates of health care costs inherent in these claims can affect the amounts realized. Similarly, changes in legal trends and interpretations, as well as a change in the nature and method of how claims are settled, can affect ultimate costs. Our estimates of liabilities incurred do not anticipate significant changes in historical trends for these variables, and any changes could have a considerable effect on future claim costs and currently recorded liabilities.

Income Taxes

We account for income taxes using the liability method in accordance with ASC 740, "Income Taxes.” Under this method, deferred tax assets and liabilities are determined based upon differences between the financial reporting and the tax basis of assets and liabilities, net operating loss carry forwards and federal tax credits, and are measured using the enacted tax rates expected to apply to taxable income in the periods in which the deferred tax assets or liabilities are expected to be realized or settled. The Company uses the provisions of ASC 740 to assess and record income tax uncertainties. In relation to recording the provision for income taxes, management must estimate the future tax rates applicable to the reversal of temporary differences, make certain assumptions regarding whether book/tax differences are permanent or temporary, and if temporary, the related timing of expected reversal. Also, estimates are made as to whether taxable operating income in future periods will be sufficient to fully recognize any gross deferred tax assets. If recovery is not more likely than not, we must increase our provision for taxes by recording a valuation allowance against the deferred tax assets. Alternatively, we may make estimates about the potential usage of deferred tax assets that decrease our valuation allowances. The calculation of our tax liabilities involves dealing with uncertainties in the application of complex tax regulations. Significant judgment is required in evaluating our tax positions and determining our provision for income taxes. During the ordinary course of business, there are many transactions and calculations for which the ultimate tax determination is uncertain. We establish reserves for uncertain tax positions when we believe that such tax positions do not meet the more likely than not threshold. We adjust these reserves in light of changing facts and circumstances, such as the outcome of a tax audit or the lapse of the statute of limitations. The provision for income taxes includes the impact of reserve provisions and changes to the reserves that are considered appropriate.

- 28 -

Recent Accounting Pronouncements

Recent accounting pronouncements are included in Note 1 to the consolidated financial statements in Item 8 of this 10-K.

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

The table below provides information about our outstanding debt as of December 31, 2016. The amounts shown for each year represent the contractual maturities of long-term debt, excluding capital lease obligations. Interest rates reflect the weighted average rates for the outstanding instruments by expected maturity date. The Fair Value column includes the fair value of our debt instruments as of December 31, 2016. Refer to Note 1 of our consolidated financial statements in Item 8 of this 10-K for information about our accounting policy for financial instruments.

(Dollars in thousands)

	Expected Fiscal Year of Maturity
	2017			2018			2019			2020			2021			Thereafter			Fair Value
Long-term debt, including amounts due within one year
Fixed rate	$	3,120		$	86,443		$	609		$	39		$	41		$	560,322		$	569,929
Average interest rate		6.6	%		8.7	%		9.1	%		4.0	%		4.0	%		8.0	%
Variable rate	$	—		$	—		$	—		$	—		$	72,900		$	—		$	72,900
Average interest rate	N/A			N/A			N/A			N/A				2.5	%	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.

- 29 -

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

The following are set forth below:

Report of Independent Registered Public Accounting Firm		31

Consolidated Balance Sheets as of December 31, 2016 and January 2, 2016		32

Consolidated Statements of Comprehensive Loss for the years ended December 31, 2016, January 2, 2016 and December 27, 2014		33

Consolidated Statements of Changes in Shareholders’ Deficit for the years ended December 31, 2016, January 2, 2016 and December 27, 2014		34

Consolidated Statements of Cash Flows for the years ended December 31, 2016, January 2, 2016 and December 27, 2014		35

Notes to Consolidated Financial Statements		37

- 30 -

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors and Shareholders of
Tops Holding II Corporation & subsidiary
Williamsville, New York

We have audited the accompanying consolidated balance sheets of Tops Holding II Corporation and subsidiary (the “Company”) as of December 31, 2016 and January 2, 2016, and the related consolidated statements of comprehensive loss, changes in shareholders’ deficit, and cash flows for the fiscal years ended December 31, 2016, January 2, 2016, and December 27, 2014. Our audits also included the consolidated financial statement schedules listed in the Index at Item 15(a)(2). These consolidated financial statements and consolidated financial statement schedules are the responsibility of the Company’s management. Our responsibility is to express an opinion on the consolidated financial statements and financial statement schedules based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, such consolidated financial statements present fairly, in all material respects, the financial position of Tops Holding II Corporation and subsidiary as of December 31, 2016 and January 2, 2016 and the results of their operations and their cash flows for the fiscal years ended December 31, 2016, January 2, 2016, and December 27, 2014 in conformity with accounting principles generally accepted in the United States of America. Also, in our opinion, such consolidated financial statement schedules, when considered in relation to the basic consolidated financial statements taken as a whole, present fairly in all material respects the information set forth therein.

/s/ Deloitte & Touche LLP

Williamsville, New York
March 30, 2017

- 31 -

TOPS HOLDING II CORPORATION

CONSOLIDATED BALANCE SHEETS

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

	December 31, 2016			January 2, 2016
Assets
Current assets:
Cash and cash equivalents	$	24,994		$	35,557
Accounts receivable, net (Note 3)		76,874			68,198
Inventory, net		153,306			141,223
Prepaid expenses and other current assets		15,889			16,857
Total current assets		271,063			261,835
Property and equipment, net (Note 4)		348,299			369,446
Goodwill (Note 5)		219,886			213,096
Intangible assets, net (Note 5)		168,385			173,730
Other assets (Note 13)		19,245			11,547
Total assets	$	1,026,878		$	1,029,654
Liabilities and Shareholders’ Deficit
Current liabilities:
Accounts payable	$	76,930		$	81,812
Accrued expenses and other current liabilities (Note 6)		106,266			96,757
Current portion of capital lease obligations (Note 7)		10,490			8,566
Current portion of long-term debt (Note 8)		3,120			2,075
Total current liabilities		196,806			189,210
Capital lease obligations (Note 7)		139,240			143,122
Long-term debt, net (Note 8)		709,206			681,372
Other long-term liabilities		54,494			44,680
Deferred tax liabilities, net (Note 11)		45,509			43,694
Total liabilities		1,145,255			1,102,078
Commitments and contingencies (Note 14)
Common stock ($0.001 par value; 300,000 authorized shares, 126,560 shares issued and 126,559 shares outstanding as of December 31, 2016 and January 2, 2016)		—			—
Treasury stock (at cost; 1 share as of December 31, 2016 and January 2, 2016)		(1	)		(1	)
Paid-in capital		6,381			7,974
Accumulated deficit		(123,355	)		(78,792	)
Accumulated other comprehensive loss, net of tax		(1,402	)		(1,605	)
Total shareholders’ deficit		(118,377	)		(72,424	)
Total liabilities and shareholders’ deficit	$	1,026,878		$	1,029,654

See notes to consolidated financial statements.

- 32 -

TOPS HOLDING II CORPORATION

CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS

(Dollars in thousands)

	Fiscal 2016			Fiscal 2015			Fiscal 2014
	(52 weeks)			(53 weeks)			(52 weeks)
Net sales	$	2,456,767		$	2,471,949		$	2,508,315
Cost of goods sold		(1,685,799	)		(1,698,813	)		(1,751,793	)
Distribution costs		(44,975	)		(44,847	)		(50,005	)
Gross profit		725,993			728,289			706,517
Operating expenses:
Wages, salaries and benefits		(364,837	)		(361,024	)		(346,199	)
Selling and general expenses		(119,985	)		(120,651	)		(124,925	)
Administrative expenses (inclusive of share-based compensation expense of $102, $248 and $165)		(83,142	)		(82,763	)		(68,728	)
Rent expense, net		(29,711	)		(27,631	)		(25,707	)
Depreciation and amortization		(64,422	)		(63,870	)		(58,767	)
Advertising		(23,282	)		(22,781	)		(21,437	)
Impairment (Note 10)		(2,076	)		(2,214	)		—
Gain on sale of assets (Note 9)		—			11,014			—
Total operating expenses		(687,455	)		(669,920	)		(645,763	)
Operating income		38,538			58,369			60,754
Loss on debt extinguishment		—			(34,581	)		—
Other income		—			—			435
Interest expense, net		(80,889	)		(84,053	)		(83,379	)
Loss before income taxes		(42,351	)		(60,265	)		(22,190	)
Income tax (expense) benefit		(2,212	)		(1,978	)		7,523
Net loss		(44,563	)		(62,243	)		(14,667	)
Changes in post retirement benefit obligations (Note 13)		203			67			(1,721	)
Comprehensive loss	$	(44,360	)	$	(62,176	)	$	(16,388	)

See notes to consolidated financial statements.

- 33 -

TOPS HOLDING II CORPORATION

CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ DEFICIT

(Dollars in thousands, except share amounts)

													Accumulated
													Other			Total
	Common Stock				Treasury		Paid-In			Accumulated			Comprehensive			Shareholders’
	Shares		Amount		Stock		Capital			Deficit			Loss			Deficit
Balance at December 28, 2013		126,560	$	—	$	—	$	20,860		$	(1,882	)	$	49		$	19,027
Dividends to Tops MBO Corporation (Note 12)		—		—		—		(12,571	)		—			—			(12,571	)
Net loss		—		—		—		—			(14,667	)		—			(14,667	)
Retirement obligations adjustments (Note 13)		—		—		—		—			—			(1,721	)		(1,721	)
Share-based compensation		—		—		—		165			—			—			165
Balance at December 27, 2014		126,560		—		—		8,454			(16,549	)		(1,672	)		(9,767	)
Net loss		—		—		—		—			(62,243	)		—			(62,243	)
Dividends to Tops MBO Corporation		—

TOPS HOLDING II CORP 10-K