UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q



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

For the quarterly period ended ~~September~~March 27, ~~2019~~2020



☐	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: 001-35249

THE CHEFS’ WAREHOUSE, INC.

(Exact name of registrant as specified in its charter)



Delaware				20-3031526
(State or other jurisdiction of incorporation or organization)				(I.R.S. Employer Identification No.)

100 East Ridge Road

Ridgefield, Connecticut 06877

(Address of principal executive offices)

Registrant’s telephone number, including area code: (203) 894-1345

Securities registered pursuant to Section 12(b) of the Act:



Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Common Stock, par value $0.01	CHEF	~~Nasdaq~~The NASDAQ Stock Market LLC
Preferred Stock Purchase Rights	CHEF	The NASDAQ Stock Market LLC

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 every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

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



Large accelerated filer	☐☒	Accelerated filer	☒☐
Non-accelerated filer	☐	Smaller reporting company	☐
		Emerging growth company	☐

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

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

Number of shares of common stock, par value $.01 per share, outstanding at ~~October 29, 2019:~~May 4, 2020: ~~30,333,387~~31,031,894

THE CHEFS’ WAREHOUSE, INC.

FORM 10-Q

Table of Contents



		Page
PART I. FINANCIAL INFORMATION

Item 1.	Consolidated Financial Statements (unaudited):	4

	Consolidated Balance Sheets	4

	Consolidated Statements of Operations and Comprehensive (Loss) Income	5

	Consolidated Statements of Changes in Stockholders’ Equity	6

	Consolidated Statements of Cash Flows	7

	Notes to Consolidated Financial Statements	8

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	1917

Item 3.	Quantitative and Qualitative Disclosures about Market Risk	2522

Item 4.	Controls and Procedures	2522

PART II. OTHER INFORMATION

Item 1.	Legal Proceedings	2623

Item 1A.	Risk Factors	2623

Item 2.	~~Issuer Purchases~~Unregistered Sales of Equity Securities and Use of Proceeds	2623

Item 3.	Defaults Upon Senior Securities	2624

Item 4.	Mine Safety Disclosures	2624

Item 5.	Other Information	2624

Item 6.	Exhibits	2725

	Signatures	2826

~~CAUTION CONCERNING~~CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS

Statements in this report regarding the business of The Chefs’ Warehouse, Inc. (the “Company”) that are not historical facts are “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act, Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, that involve risks and uncertainties and are based on current expectations and management estimates; actual results may differ materially. Words such as “anticipates”, “expects”, “intends”, “plans”, “believes”, “seeks”, “estimates” and variations of these words and similar expressions are intended to identify forward-looking statements. These statements are not guarantees of future performance and are subject to risks, uncertainties and other factors, some of which are beyond our control, are difficult to predict and/or could cause actual results to differ materially from those expressed or forecasted in the forward-looking statements. The risks and uncertainties which could impact these statements include, but are not limited to the following: our sensitivity to general economic conditions, including disposable income levels and changes in consumer discretionary spending; our ability to expand our operations in our existing markets and to penetrate new markets through acquisitions; we may not achieve the benefits expected from our acquisitions, which could adversely impact our business and operating results; we may have difficulty managing and facilitating our future growth; conditions beyond our control could materially affect the cost and/or availability of our specialty food products or center-of-the-plate products and/or interrupt our distribution network; our increased distribution of center-of-the-plate products, like meat, poultry and seafood, involves increased exposure to price volatility experienced by those products; our business is a low-margin business and our profit margins may be sensitive to inflationary and deflationary pressures; because our foodservice distribution operations are concentrated in certain culinary markets, we are susceptible to economic and other developments, including adverse weather conditions, in these areas; fuel cost volatility may have a material adverse effect on our business, financial condition or results of operations; our ability to raise capital in the future may be limited; we may be unable to obtain debt or other financing, including financing necessary to execute on our acquisition strategy, on favorable terms or at all; our business operations and future development could be significantly disrupted if we lose key members of our management team; significant public health epidemics or pandemics, including COVID-19, may adversely affect our business, results of operations and financial condition; and other risks and uncertainties included under the heading Risk Factors in our Annual Report on Form 10-K filed on ~~March 1, 2019~~February 24, 2020 with the Securities and Exchange Commission (the “SEC”). and in this Quarterly Report on Form 10-Q.

PART I FINANCIAL INFORMATION

ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS

THE CHEFS’ WAREHOUSE, INC.

CONSOLIDATED BALANCE SHEETS

(Amounts in thousands, except share data)


	September 27, 2019 (unaudited)			December 28, 2018			March 27, 2020 (unaudited)			December 27, 2019
ASSETS
Current assets:
Cash and cash equivalents	$	21,479		$	42,410		$	193,517		$	140,233
Accounts receivable, net of allowance of $8,397 in 2019 and $7,460 in 2018	164,562			161,758
Accounts receivable, net of allowance of $25,618 in 2020 and $8,846 in 2019							144,263			175,044
Inventories, net	122,225			112,614			129,999			124,056
Prepaid expenses and other current assets	17,172			11,953			24,914			13,823
Total current assets	325,438			328,735			492,693			453,156
Equipment, leasehold improvements and software, net	90,531			85,276			125,635			92,846
Operating lease right-of-use assets	131,675			—			127,255			127,649
Goodwill	197,731			184,280			212,510			197,743
Intangible assets, net	141,910			130,033			145,752			138,751
Other assets	3,614			4,074			3,069			3,534
Total assets	$	890,899		$	732,398		$	1,106,914		$	1,013,679
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable	$	79,904		$	87,799		$	92,621		$	94,097
Accrued liabilities	28,196			24,810			29,477			29,847
Short-term operating lease liabilities	17,834			—			18,091			17,453
Accrued compensation	12,088			12,872			8,172			8,033
Current portion of long-term debt	328			61			4,069			721
Total current liabilities	138,350			125,542			152,430			150,151
Long-term debt, net of current portion	282,041			278,169			495,860			386,106
Operating lease liabilities	123,961			—			119,786			120,572
Deferred taxes, net	10,824			9,601			8,983			10,883
Other liabilities and deferred credits	13,122			10,410			10,238			10,034
Total liabilities	568,298			423,722			787,297			677,746
Commitments and contingencies
Stockholders’ equity:
Preferred Stock - $0.01 par value, 5,000,000 shares authorized, no shares issued and outstanding at September 27, 2019 and December 28, 2018	—			—
Common Stock, - $0.01 par value, 100,000,000 shares authorized, 30,288,630 and 29,968,483 shares issued and outstanding at September 27, 2019 and December 28, 2018, respectively	303			300
Preferred Stock - $0.01 par value, 5,000,000 shares authorized, no shares issued and outstanding at March 27, 2020 and December 27, 2019							—			—
Common Stock, - $0.01 par value, 100,000,000 shares authorized, 30,989,742 and 30,341,941 shares issued and outstanding at March 27, 2020 and December 27, 2019, respectively							310			304
Additional paid in capital	209,868			207,326			210,381			212,240
Accumulated other comprehensive loss	(2,119		)	(2,221		)	(2,426		)	(2,048		)
Retained earnings	114,549			103,271			111,352			125,437
Total stockholders’ equity	322,601			308,676			319,617			335,933
Total liabilities and stockholders’ equity	$	890,899		$	732,398		$	1,106,914		$	1,013,679

See accompanying notes to the consolidated financial statements.

THE CHEFS’ WAREHOUSE, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE (LOSS) INCOME

(Unaudited)

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


	Thirteen Weeks Ended						Thirty-Nine Weeks Ended					Thirteen Weeks Ended
	September 27, 2019			September 28, 2018			September 27, 2019		September 28, 2018			March 27, 2020			March 29, 2019
Net sales	$	396,880		$	361,496		$	1,165,327	$	1,050,553		$	375,431		$	357,027
Cost of sales	294,887			269,503			866,670		785,798			284,530			266,838
Gross profit	101,993			91,993			298,657		264,755			90,901			90,189
Operating expenses	91,345			81,725			266,323		233,799			107,917			84,039
Operating income	10,648			10,268			32,334		30,956
Operating (loss) income												(17,016		)	6,150
Interest expense	4,517			4,676			13,913		15,036			5,124			4,551
Loss on asset disposal	24			—			64		30			42			34
Income before income taxes	6,107			5,592			18,357		15,890
(Loss) income before income taxes												(22,182		)	1,565
Provision for income taxes	1,682			1,435			5,052		4,370			(8,097		)	431
Net income	$	4,425		$	4,157		$	13,305	$	11,520
Other comprehensive income (loss):
Net (loss) income												$	(14,085	)	$	1,134
Other comprehensive (loss) income:
Foreign currency translation adjustments	(71		)	(96		)	102		(1,299		)	(378		)	55
Comprehensive income	$	4,354		$	4,061		$	13,407	$	10,221
Net income per share:
Comprehensive (loss) income												$	(14,463	)	$	1,189
Net (loss) income per share:
Basic	$	0.15		$	0.14		$	0.45	$	0.40		$	(0.48	)	$	0.04
Diluted	$	0.15		$	0.14		$	0.45	$	0.40		$	(0.48	)	$	0.04
Weighted average common shares outstanding:
Basic	29,549,308			29,080,929			29,511,143		28,458,972			29,621,433			29,457,257
Diluted	29,954,837			29,743,851			29,723,609		29,619,703			29,621,433			29,840,979

See accompanying notes to the consolidated financial statements.

THE CHEFS’ WAREHOUSE, INC.

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY

(Unaudited)

(Amounts in thousands, except share amounts)

Common Stock
Additional
Paid in
Capital

Accumulated
Other
Comprehensive
Loss

Retained
Earnings
Total
Shares Amount
Balance December 28, 2018 29,968,483
$ 300
$ 207,326
$ (2,221 ) $ 103,271
$ 308,676
Cumulative effect adjustment due to adoption of new accounting standard —
—
—
—
(2,027 ) (2,027 )
Net income —
—
—
—
1,134
1,134
Stock compensation (23,680 ) —
915
—
—
915
Exercise of stock options 20,383
—
412
—
—
412
Cumulative translation adjustment —
—
—
55
—
55
Shares surrendered to pay tax withholding (24,002 ) —
(742 ) —
—
(742 )
Balance March 29, 2019 29,941,184
$ 300
$ 207,911
$ (2,166 ) $ 102,378
$ 308,423
Net income —
—
—
—
7,746
7,746
Stock compensation 346,915
3
1,085
—
—
1,088
Exercise of stock options 7,193
—
146
—
—
146
Cumulative translation adjustment —
—
—
118
—
118
Shares surrendered to pay tax withholding (3,928 ) —
(126 ) —
—
(126 )
Balance June 28, 2019 30,291,364
$ 303
$ 209,016
$ (2,048 ) $ 110,124
$ 317,395
Net income —
—
—
—
4,425
4,425
Stock compensation (3,045 ) —
908
—
—
908
Exercise of stock options 3,836
—
77
—
—
77
Cumulative translation adjustment —
—
—
(71 ) —
(71 )
Shares surrendered to pay tax withholding (3,525 ) —
(133 ) —
—
(133 )
Balance September 27, 2019 30,288,630
$ 303
$ 209,868
$ (2,119 ) $ 114,549
$ 322,601



	Common Stock					Additional Paid in Capital			Accumulated Other Comprehensive Loss			Retained Earnings			Total
	Shares		Amount			Additional Paid in Capital			Accumulated Other Comprehensive Loss			Retained Earnings			Total
Balance December 27, 2019	30,341,941		$	304		$	212,240		$	(2,048	)	$	125,437		$	335,933
Net loss	—		—			—			—			(14,085		)	(14,085		)
Stock compensation	807,433		8			843			—			—			851
Cumulative translation adjustment	—		—			—			(378		)	—			(378		)
Shares surrendered to pay tax withholding	(159,632	)	(2		)	(2,702		)	—			—			(2,704		)
Balance March 27, 2020	30,989,742		$	310		$	210,381		$	(2,426	)	$	111,352		$	319,617


Balance December 29, 2017	28,442,208		$	284	$	166,997		$	(1,549	)	$	82,869	$	248,601
Balance December 28, 2018																29,968,483		$	300	$	207,326		$	(2,221	)	$	103,271		$	308,676
Cumulative effect adjustment due to adoption of new accounting standard																—		—		—			—			(2,027		)	(2,027		)
Net income	—		—		—			—			544		544			—		—		—			—			1,134			1,134
Stock compensation	284,618		3		834			—			—		837			(23,680	)	—		915			—			—			915
Exercise of stock options																20,383		—		412			—			—			412
Cumulative translation adjustment	—		—		—			(922		)	—		(922		)	—		—		—			55			—			55
Shares surrendered to pay tax withholding	(20,100	)	—		(472		)	—			—		(472		)	(24,002	)	—		(742		)	—			—			(742		)
Balance March 30, 2018	28,706,726		$	287	$	167,359		$	(2,471	)	$	83,413	$	248,588
Net income	—		—		—			—			6,819		6,819
Stock compensation	23,547		—		1,072			—			—		1,072
Cumulative translation adjustment	—		—		—			(281		)	—		(281		)
Shares surrendered to pay tax withholding	(4,200	)	—		(99		)	—			—		(99		)
Balance June 29, 2018	28,726,073		$	287	$	168,332		$	(2,752	)	$	90,232	$	256,099
Net income	—		—		—			—			4,157		4,157
Stock compensation	2,000		—		1,090			—			—		1,090
Conversion of subordinated notes	1,246,272		13		37,002			—			—		37,015
Cumulative translation adjustment	—		—		—			(96		)	—		(96		)
Shares surrendered to pay tax withholding	(4,147	)	—		(120		)	—			—		(120		)
Balance September 28, 2018	29,970,198		$	300	$	206,304		$	(2,848	)	$	94,389	$	298,145
Balance March 29, 2019																29,941,184		$	300	$	207,911		$	(2,166	)	$	102,378		$	308,423

See accompanying notes to the consolidated financial statements.

THE CHEFS’ WAREHOUSE, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

(Amounts in thousands)


	Thirty-Nine Weeks Ended						Thirteen Weeks Ended
	September 27, 2019			September 28, 2018			March 27, 2020			March 29, 2019
Cash flows from operating activities:
Net income	$	13,305		$	11,520
Adjustments to reconcile net income to net cash provided by operating activities:
Net (loss) income							$	(14,085	)	$	1,134
Adjustments to reconcile net (loss) income to net cash provided by operating activities:
Depreciation and amortization	9,539			7,234			4,762			2,881
Amortization of intangible assets	9,485			8,949			3,298			2,877
Provision for allowance for doubtful accounts	3,277			2,811			18,431			851
Non-cash operating lease expense	1,790			454			244			537
Deferred taxes	2,003			561			(1,900		)	1,131
Amortization of deferred financing fees	1,566			1,657			762			522
Stock compensation	2,911			2,999			851			915
Change in fair value of contingent earn-out liabilities	5,331			2,026			(6,812		)	107
Loss on asset disposal	64			30			42			34
Changes in assets and liabilities, net of acquisitions:
Accounts receivable	(1,069		)	(4,302		)	33,141			13,778
Inventories	(7,588		)	(4,336		)	2,501			677
Prepaid expenses and other current assets	(5,163		)	(148		)	(8,855		)	(207		)
Accounts payable, accrued liabilities and accrued compensation	(9,185		)	7,163			(14,311		)	(18,010		)
Other assets and liabilities	(2,721		)	(3,112		)	3,916			164
Net cash provided by operating activities	23,545			33,506			21,985			7,391

Cash flows from investing activities:
Capital expenditures	(12,302		)	(9,407		)	(3,093		)	(4,125		)
Cash paid for acquisitions, net of cash received	(28,077		)	(11,899		)	(63,450		)	(27,990		)
Proceeds from asset disposals	—			30
Net cash used in investing activities	(40,379		)	(21,276		)	(66,543		)	(32,115		)

Cash flows from financing activities:
Payment of debt, finance lease and other financing obligations	(1,793		)	(49,359		)	(687		)	(37		)
Payment of deferred financing fees	—			(877		)
Proceeds from exercise of stock options	635			—			—			412
Surrender of shares to pay withholding taxes	(1,001		)	(691		)	(838		)	(742		)
Cash paid for contingent earn-out liability	(967		)	—			(500		)	—
Borrowings under asset based loan facility	—			47,100
Payments under asset based loan facility	(960		)	—
Net cash used in financing activities	(4,086		)	(3,827		)
Borrowings under asset-based loan facility							100,000			—
Net cash provided by (used in) financing activities							97,975			(367		)

Effect of foreign currency on cash and cash equivalents	(11		)	(50		)	(133		)	(2		)
Net change in cash and cash equivalents	(20,931		)	8,353			53,284			(25,093		)
Cash and cash equivalents-beginning of period	42,410			41,504			140,233			42,410
Cash and cash equivalents-end of period	$	21,479		$	49,857		$	193,517		$	17,317

See accompanying notes to the consolidated financial statements.

THE CHEFS’ WAREHOUSE, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

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

Note 1 - Operations and Basis of Presentation

Description of Business and Basis of Presentation

The financial statements include the consolidated accounts of The Chefs’ Warehouse, Inc. (the “Company”), and its wholly-owned subsidiaries. The Company’s quarterly periods end on the thirteenth Friday of each quarter. Every six to seven years, the Company will add a fourteenth week to its fourth quarter to more closely align its year-end to the calendar year. The Company’s business consists of 3 operating segments: East Coast, Midwest and West Coast that aggregate into 1 reportable segment, foodservice distribution, which is concentrated primarily in the United States. The Company’s customer base consists primarily of menu-driven independent restaurants, fine dining establishments, country clubs, hotels, caterers, culinary schools, bakeries, patisseries, ~~chocolatiers,~~chocolateries, cruise lines, casinos and specialty food stores.

The COVID-19 Pandemic

The COVID-19 pandemic (“COVID-19”) has had a material impact on the Company’s business and operations and those of its customers. In an effort to limit the spread of the virus, federal, state and local governments have implemented measures that have resulted in the closure of non-essential businesses in many of the markets the Company serves, which has forced its customers in those markets to either transition their establishments to take-out service, delivery service or temporarily cease operations. Due to COVID-19, the Company incurred estimated non-cash charges of approximately $15,800 related to incremental bad debt expense and approximately $3,300 related to incremental inventory obsolescence. The adverse impact to the Company’s customer base and its market capitalization were triggering events and, accordingly, the Company performed interim goodwill and long-lived asset quantitative impairment tests as described in Note 8 to these financial statements.

Consolidation

The consolidated financial statements include all the accounts of the Company and its direct and indirect wholly-owned subsidiaries. All significant intercompany accounts and transactions have been eliminated.

Unaudited Interim Financial Statements

The accompanying unaudited consolidated financial statements and the related interim information contained within the notes to such unaudited consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) and the applicable rules of the Securities and Exchange Commission (“SEC”) for interim information and quarterly reports on Form 10-Q. Accordingly, they do not include all the information and disclosures required by GAAP for complete financial statements. These unaudited consolidated financial statements and related notes should be read in conjunction with the Company’s audited consolidated financial statements and notes thereto for the fiscal year ended December ~~28, 2018~~27, 2019 filed as part of the Company’s Annual Report on Form 10-K, as filed with the SEC on ~~March 1, 2019.~~February 24, 2020.

The unaudited consolidated financial statements appearing in this Form 10-Q have been prepared on the same basis as the audited consolidated financial statements included in the Company’s Annual Report on Form 10-K, as filed with the SEC on ~~March 1, 2019,~~February 24, 2020, and in the opinion of management, include all normal recurring adjustments that are necessary for the fair statement of the Company’s interim period results. The year-end consolidated balance sheet data was derived from the audited financial statements but does not include all disclosures required by GAAP. Due to seasonal fluctuations, COVID-19 and other factors, the results of operations for the thirteen ~~and thirty-nine~~ weeks ended ~~September~~weeks ended March 27, ~~2019~~2020 are not necessarily indicative of the results to be expected for the full year.

The preparation of financial statements in conformity with GAAP requires management to make significant estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting periods. Actual results could differ from management’s estimates.

~~Guidance Adopted in 2019~~

~~Leases:~~ In February 2016, the Financial Accounting Standard Board (“FASB”) issued guidance (“ASC 842”) to increase the transparency and comparability among organizations by recognizing right-of-use assets (“ROU assets”) and lease liabilities on the balance sheet and disclosing key information about leasing arrangements. The Company adopted ASC 842 on December 29, 2018, using an optional transition method that allows entities to initially apply the new lease standard at the adoption date. Under this approach, comparative periods are not restated. The Company adopted a package of practical expedients that allowed the Company to:

~~apply hindsight in determining the lease term of its leases;~~

~~not reassess whether any expired or existing contracts are or contain leases;~~

~~not reassess the lease classification of any expired or existing leases; and~~

~~not reassess initial direct costs for any existing leases.~~

The use of hindsight in assessing lease term resulted in a $2,027 cumulative effect adjustment to opening retained earnings. Adoption had a material impact on the Company’s consolidated balance sheet as a result of recognizing ROU assets and lease liabilities for its operating leases of $118,031 and $126,309, respectively, but it did not materially impact the Company’s consolidated statements of operations or debt covenants. There has been no significant change to the accounting for finance leases.

~~Comprehensive Income:~~ In February 2018, the FASB issued guidance that permits a Company to reclassify the stranded tax effects in accumulated other comprehensive income resulting from the enactment of H.R. 1, originally known as the Tax Cuts and Jobs Act (the “Tax Act”), to retained earnings. The Company elected to not reclassify such amounts to retained earnings. The Company releases disproportionate tax effects from accumulated other comprehensive income as individual items are liquidated. The Company adopted this guidance on December 29, 2018 and adoption did not have a material impact on the Company’s consolidated financial statements.

~~Implementation Costs Incurred in a Cloud Computing Arrangement Service Contract:~~ In August 2018, the FASB issued guidance that aligns the requirements for capitalizing implementation costs incurred in a cloud computing arrangement service contract with the requirements for capitalizing implementation costs incurred to obtain or develop internal-use software. The Company adopted this guidance prospectively on December 29, 2018 and adoption did not have a material impact on the Company’s consolidated financial statements.

Guidance ~~Not Yet~~ Adopted in Fiscal 2020

Measurement of Credit Losses on Financial Instruments: In June 2016 and as further amended in November 2018, the ~~FASB~~Financial Accounting Standards Board (the “FASB”) issued guidance which requires entities to use a forward-looking expected loss model to estimate credit losses. It also requires additional disclosure related to credit quality of trade and other receivables, including information related to management’s estimate of credit allowances. The Company adopted this guidance ~~is effective for fiscal years beginning after~~on December ~~15,~~28, 2019. The Company ~~expects~~analyzes customer creditworthiness, accounts receivable balances, payment history, payment terms and historical bad debt levels when evaluating the adequacy of its allowance for doubtful accounts. In instances where a reserve has been recorded for a particular customer, future sales to ~~adopt~~the customer are either conducted using cash-on-delivery terms or the account is closely monitored so that agreed-upon payments are received prior to orders being released. A failure to pay results in held or cancelled orders. The Company also estimates receivables that will ultimately be uncollectible based upon historical write-off experience. Management incorporates current macro-economic factors in existence as of the balance sheet date that may impact the food-away-from-home industry and/or its customers, and specifically in the first quarter of fiscal 2020, the impact of COVID-19. Adoption of this guidance ~~when effective and adoption is~~did not ~~expected to~~ have a material effect on the Company’s consolidated financial statements.

Guidance Not Yet Adopted

Simplifying the Accounting for Income Taxes: In December 2019, the FASB issued guidance that eliminates certain exceptions related to the approach for intraperiod tax allocations, the methodology for calculating income taxes in an interim period and other simplifications and clarifications. The guidance will be effective for fiscal years beginning after December 15, 2020. Early adoption is permitted. The Company expects to adopt this guidance when effective and is evaluating the impact of adoption on its consolidated financial statements.

Note 2 – ~~Summary of Significant Accounting Policies~~

Revenue Recognition

Revenues from product sales are recognized at the point at which control of each product is transferred to the customer. The Company’s contracts contain performance obligations which are satisfied when customers have physical possession of each product. The majority of customer orders are fulfilled within a day and customer payment terms are typically 20 to 60 days from delivery. Shipping and handling activities are costs to fulfill the Company’s performance obligations. These costs are expensed as incurred and presented within operating expenses on the consolidated statements of operations. The Company offers certain sales incentives to customers in the form of rebates or discounts. These sales incentives are accounted as variable consideration. The Company estimates these amounts based on the expected amount to be provided to customers and records a corresponding reduction in revenue. The Company does not expect a significant reversal in the amount of cumulative revenue recognized. Sales tax billed to customers is not included in revenue but rather recorded as a liability owed to the respective taxing authorities at the time the sale is recognized.

The following table presents the Company’s net sales disaggregated by principal product category:


	Thirteen Weeks Ended								Thirty-Nine Weeks Ended								Thirteen Weeks Ended
	September 27, 2019				September 28, 2018				September 27, 2019				September 28, 2018				March 27, 2020				March 29, 2019
Center-of-the-Plate	$	176,777	44.5	%	$	152,805	42.3	%	$	516,906	44.4	%	$	454,674	43.3	%	$	163,820	43.6	%	$	156,616	43.9	%
Dry Goods	70,255		17.7	%	65,269		18.1	%	206,773		17.7	%	185,244		17.6	%	67,654		18.0	%	63,754		17.9	%
Pastry	53,579		13.5	%	49,219		13.6	%	160,316		13.8	%	144,379		13.7	%	54,904		14.6	%	50,205		14.1	%
Cheese and Charcuterie	40,500		10.2	%	39,481		10.9	%	117,073		10.0	%	111,497		10.6	%	38,130		10.2	%	35,355		9.9	%
Dairy and Eggs	27,480		6.9	%	27,511		7.6	%	81,765		7.0	%	77,778		7.4	%	24,716		6.6	%	25,614		7.2	%
Oils and Vinegars	20,487		5.2	%	19,808		5.5	%	60,117		5.2	%	56,325		5.4	%	18,190		4.8	%	18,693		5.2	%
Kitchen Supplies	7,802		2.0	%	7,403		2.0	%	22,377		1.9	%	20,656		2.0	%	8,017		2.2	%	6,790		1.8	%
Total	$	396,880	100	%	$	361,496	100	%	$	1,165,327	100	%	$	1,050,553	100	%	$	375,431	100	%	$	357,027	100	%

The Company determines its product category classification based on how the Company currently markets its products to its customers. The Company’s definition of its principal product categories may differ from the way in which other companies present similar information.

Deferred Revenue

Certain customer arrangements in the Company’s direct-to-consumer business, prepaid gift plans and gift card purchases, result in deferred revenues when cash payments are received in advance of performance. The Company recognizes revenue on its prepaid gift plans when control of each product is transferred to the customer. Performance obligations under the Company’s prepaid gift plans are satisfied within a period of twelve months or less. Gift cards issued by the Company do not have expiration dates. The Company records a liability for unredeemed gift cards at the time gift cards are sold and the liability is relieved when the card is redeemed, the value of the card is escheated to the appropriate government agency, or through breakage. Gift card breakage is estimated based on the Company’s historical redemption experience and expected trends in redemption patterns. Amounts recognized through breakage represent the portion of the gift card liability that is not subject to unclaimed property laws and for which the likelihood of redemption is remote. The Company recorded deferred revenues, reflected as accrued liabilities on the Company’s consolidated balance sheets, of ~~$1,030~~$1,351 and ~~$1,496~~$1,345 as of ~~September~~March 27, ~~2019~~2020 and December ~~28, 2018,~~27, 2019, respectively.

Right of Return

The Company’s standard terms and conditions provide customers with a right of return if the goods received are not merchantable. Customers are either issued a replacement order at no cost, or are issued a credit for the returned goods. The Company recorded a refund liability of ~~$306~~$245 and ~~$303~~$314 as of ~~September~~March 27, ~~2019~~2020 and December ~~28, 2018,~~27, 2019, respectively. Refund liabilities are reflected as accrued liabilities on the consolidated balance sheets. The Company recognized a corresponding asset of ~~$189~~$151 and ~~$191~~$194 as of ~~September~~March 27, ~~2019~~2020 and December ~~28, 2018,~~27, 2019, respectively, for its right to recover products from customers on settling its refund liabilities. This asset is reflected as inventories, net on the consolidated balance sheets.

Contract Costs

Sales commissions are expensed when incurred because the amortization period is one year or less. These costs are presented within operating expenses on the Company’s consolidated statements of operations.

~~Leases~~

The Company leases various distribution centers, office facilities, vehicles and equipment. The Company determines if an arrangement contains a lease at contract inception. An arrangement is or contains a lease if the agreement identifies an asset, implicitly or explicitly, that the Company has the right to use over a period of time. If an arrangement contains a lease, the Company classifies the lease as either an operating lease or as a finance lease based on the five criteria defined in ASC 842.

Lease liabilities are recognized at commencement date based on the present value of the remaining lease payments over the lease term. The corresponding ROU asset is recognized for the same amount as the lease liability adjusted for any payments made at or before the commencement date, any lease incentives received, and any initial direct costs. The Company’s lease agreements may include options to renew, extend or terminate the lease. These clauses are included in the initial measurement of the lease liability when at lease commencement the Company is reasonably certain that it will exercise such options. The discount rate used is based on the Company’s incremental borrowing rate since the implicit rate in the Company’s leases is not readily determinable.

~~Operating lease expense is recognized on a straight-line basis over the lease term and presented within~~ ~~operating expenses~~ on the Company’s consolidated statements of operations. Finance lease ROU assets are amortized on a straight-line basis over the shorter of the useful life of the asset or the lease term. Interest expense on the finance lease liability is recognized using the effective interest rate method and is presented within ~~interest expense~~ on the Company’s consolidated statements of operations. Variable rent payments related to both operating and finance leases are expensed as incurred. The Company’s variable lease payments primarily consists of real estate taxes, maintenance and usage charges. The Company made an accounting policy election to combine lease and non-lease components (maintenance, taxes and insurance) when measuring lease liabilities for vehicle and equipment leases.

The Company has elected to exclude short-term leases from the recognition requirements of ASC 842. A lease is short-term if, at the commencement date, it has a term of less than or equal to one year. Lease expense related to short-term leases is recognized on a straight-line basis over the lease term.

Note 3 – Net (Loss) Income per Share

The following table sets forth the computation of basic and diluted net (loss) income per common share:


	Thirteen Weeks Ended				Thirty-Nine Weeks Ended				Thirteen Weeks Ended
	September 27, 2019		September 28, 2018		September 27, 2019		September 28, 2018		March 27, 2020			March 29, 2019
Net income per share:
Net (loss) income per share:
Basic	$	0.15	$	0.14	$	0.45	$	0.40	$	(0.48	)	$	0.04
Diluted	$	0.15	$	0.14	$	0.45	$	0.40	$	(0.48	)	$	0.04
Weighted average common shares:
Basic	29,549,308		29,080,929		29,511,143		28,458,972		29,621,433			29,457,257
Diluted	29,954,837		29,743,851		29,723,609		29,619,703		29,621,433			29,840,979

Reconciliation of net (loss) income per common share:

Thirteen Weeks Ended Thirty-Nine Weeks Ended
September 27, 2019 September 28, 2018 September 27, 2019 September 28, 2018
Numerator:

Net income $ 4,425
$ 4,157
$ 13,305
$ 11,520
Add effect of dilutive securities

Interest on convertible notes, net of tax —
26
—
358
Adjusted net income available to common shareholders $ 4,425
$ 4,183
$ 13,305
$ 11,878
Denominator:

Weighted average basic common shares outstanding 29,549,308
29,080,929
29,511,143
28,458,972
Dilutive effect of unvested common shares 405,529
313,229
212,466
221,411
Dilutive effect of convertible notes —
349,693
—
939,320
Weighted average diluted common shares outstanding 29,954,837
29,743,851
29,723,609
29,619,703



	Thirteen Weeks Ended
	March 27, 2020			March 29, 2019
Numerator:
Net (loss) income	$	(14,085	)	$	1,134
Denominator:
Weighted average basic common shares outstanding	29,621,433			29,457,257
Dilutive effect of stock options and unvested common shares	—			383,722
Weighted average diluted common shares outstanding	29,621,433			29,840,979

Potentially dilutive securities that have been excluded from the calculation of diluted net (loss) income per common share because the effect is anti-dilutive are as follows:


	Thirteen Weeks Ended		Thirty-Nine Weeks Ended		Thirteen Weeks Ended
	September 27, 2019	September 28, 2018	September 27, 2019	September 28, 2018	March 27, 2020	March 29, 2019
Restricted share awards (“RSAs”)	330,696	—	122,876	388	27,649	—
Convertible subordinated notes	91,053	—	91,053	—
Convertible notes					3,484,788	91,053

Note 4 – Fair Value Measurements

Assets and Liabilities Measured at Fair Value

The Company’s contingent earn-out liabilities are measured at fair value. These liabilities were estimated using Level 3 inputs. Long-term earn-out liabilities were ~~$11,007~~$7,478 and ~~$2,792~~$7,957 as of ~~September~~March 27, ~~2019~~2020 and December ~~28, 2018,~~27, 2019, respectively, and are reflected as other liabilities and deferred credits on the consolidated balance sheets. The remaining short-term earn-out liabilities are reflected as accrued liabilities on the consolidated balance sheets. The fair value of contingent consideration was determined based on a probability-based approach which includes projected results, percentage probability of occurrence and the application of a discount rate to present value the payments. A significant change in projected results, discount rate, or probabilities of occurrence could result in a significantly higher or lower fair value measurement. Changes in the fair value of

contingent earn-out liabilities are reflected in operating expenses on the consolidated statements of operations. ~~In May 2019, the Company fully settled its Del Monte earn-out liability for $200.~~

The following table presents the changes in Level 3 contingent earn-out liabilities:


	Del Monte			Fells Point		Bassian		Other Acquisitions			Total			Fells Point			Bassian			Sid Wainer			Other Acquisitions			Total
Balance December 28, 2018	—			3,649		—		1,441			5,090
Balance December 27, 2019														$	4,544		$	7,957		$	—		$	2,197		$	14,698
Acquisition value	—			—		7,450		479			7,929			—			—			2,081			1,383			3,464
Cash payments	(200		)	—		—		(1,000		)	(1,200		)	—			—			—			(500		)	(500		)
Changes in fair value	200			3,710		372		1,049			5,331			(2,583		)	(1,777		)	(1,602		)	(850		)	(6,812		)
Balance September 27, 2019	$	—		$	7,359	$	7,822	$	1,969		$	17,150
Balance March 27, 2020														$	1,961		$	6,180		$	479		$	2,230		$	10,850

Fair Value of Financial Instruments

The following table presents the carrying value and fair value of the Company’s convertible ~~unsecured note.~~notes. In estimating the fair value of the convertible ~~unsecured note,~~notes, the Company utilized Level 3 inputs including prevailing market interest rates to estimate the debt portion of the instrument and a Black Scholes valuation model to estimate the fair value of the conversion option. The Black Scholes model utilizes the market price of the Company’s common stock, estimates of the stock’s volatility and the prevailing risk-free interest rate in calculating the fair value estimate.

September 27, 2019
Carrying Value Fair Value
Convertible Unsecured Note $ 4,000
$ 4,273



	March 27, 2020				December 27, 2019
	Carrying Value		Fair Value		Carrying Value		Fair Value
Convertible Senior Notes	$	150,000	$	130,977	$	150,000	$	165,000
Convertible Unsecured Note	$	4,000	$	3,595	$	4,000	$	4,282

Note 5 – Acquisitions

~~Bassian~~Sid Wainer

On ~~February 25, 2019,~~January 27, 2020, pursuant to an asset purchase agreement, the Company acquired substantially all of the assets, including certain real-estate assets, of ~~Bassian Farms, Inc. and certain affiliated entities~~Sid Wainer & Son (“~~Bassian”~~Sid Wainer”), a specialty ~~center-of-the-plate~~food and produce distributor ~~based~~ in ~~northern California.~~New England. The ~~aggregate~~ purchase price ~~for the transaction~~ was approximately ~~$31,777, including $27,990~~$46,450 paid in cash at closing and ~~the issuance of~~is subject to a ~~$4,000 unsecured convertible note, partially offset by the settlement of a net~~customary working capital true-up. The Company will also pay additional contingent consideration, if earned, in the form of an earn-out amount which could total ~~$9,000~~$4,000 over a ~~four-year~~two-year period. The payment of the earn-out liability is subject to the successful achievement of certain gross profit targets. The Company estimated the fair value of this contingent earn-out liability to be ~~$7,822~~$2,081 and ~~$7,450~~$479 as of ~~September~~January 27, ~~2019~~2020 and ~~February 25, 2019,~~March 27, 2020, respectively. ~~Subsequent to its initial valuation, the~~

The Company ~~recorded measurement period adjustments that increased goodwill by $1,818 mainly due to a $3,370 increase~~is in the ~~fair value~~process of finalizing a valuation of the earn-out liability, and ~~a $1,441 increase in current liabilities, partially offset by a $3,085 increase in~~tangible and intangible assets of Sid Wainer as of the ~~fair value~~acquisition date. When applicable, these valuations require the use of ~~other intangible assets.~~

~~Customer relationships, non-compete agreements and trademarks are valued at fair value using~~ Level 3 ~~inputs and are being amortized over 15, 5 and 10 years, respectively.~~inputs. Goodwill for the ~~Bassian~~Sid Wainer acquisition will be amortized over 15 years for tax purposes. The goodwill recorded primarily reflects the value of acquiring an established ~~center-of-the-plate~~specialty food and produce distributor to ~~grow~~leverage the ~~Company's center-of-the-plate product category~~Company’s existing products in the ~~West Coast region, as well as~~markets served by Sid Wainer, to supply Sid Wainer’s produce offerings to our New York market and any intangible assets that do not qualify for separate recognition. The Company ~~recognized professional fees of $235 in~~ ~~operating expenses~~ ~~related to the Bassian acquisition. The Company~~ reflected net sales of ~~$14,850~~$25,751 and ~~$35,213~~an operating loss of $1,105 for ~~Bassian~~Sid Wainer in its consolidated statement of operations for the thirteen ~~and thirty-nine~~ weeks ended ~~September~~March 27, ~~2019, respectively.~~ 2020.

The ~~Company has determined that separate disclosure of Bassian earnings is impracticable due to the commencement of integration~~table below presents unaudited pro forma consolidated income statement information of the ~~Bassian~~Company as if the Sid Wainer acquisition had occurred on December 29, 2018. The pro forma results were prepared from financial information obtained from the sellers of the business, ~~into~~as well as information obtained during the ~~Company's~~due diligence process associated with the acquisition. The pro forma information is not necessarily indicative of the Company’s results of operations inhad the ~~San Francisco market.~~acquisition been completed on the above date, nor is it necessarily indicative of the Company’s future results. The pro forma information does not reflect any cost savings from operating efficiencies or synergies that could result from the acquisition, any incremental costs for Sid Wainer transitioning to become a public company, and also does not reflect additional revenue opportunities following the acquisition. The pro forma information reflects amortization and depreciation of the Sid Wainer acquisition at their respective fair values.



	Thirteen Weeks Ended
	March 27, 2020			—	March 29, 2019
Net sales	$	388,209			$	402,074
Loss before income taxes	(23,187		)		(439		)

Additionally, during the quarter ended March 27, 2020, the Company paid approximately $17,000 for a specialty center-of-the plate distributor in New England.

The table below sets forth the purchase price allocation of ~~the Bassian acquisition:~~these acquisitions:


	Bassian			Sid Wainer			Other Acquisitions
Current assets	$	6,657		$	24,735		$	6,790
Customer relationships	15,530			—			6,200
Trademarks	4,610			3,500			700
Non-compete agreements	1,000
Goodwill	13,065			9,645			5,131
Fixed assets	856			21,055			503
Other assets	10
Right-of-use assets				8,259			1,019
Lease liabilities				(8,259		)	(1,019		)
Current liabilities	(2,501		)	(10,404		)	(941		)
Earn-out liability	(7,450		)	(2,081		)	(1,383		)
Total consideration	$	31,777		$	46,450		$	17,000

The Company recognized professional fees of $435 in operating expenses related to the acquisitions in the first quarter of fiscal 2020.

Note 6 – Inventories

Inventories consist primarily of finished ~~product. Our different entities record inventories using a mixture of first-in, first-out~~product and ~~average cost, which we believe approximates first-in, first-out. Inventories~~ are reflected net of adjustments for shrinkage, excess and obsolescence totaling ~~$1,870~~$5,268 and ~~$1,921~~$1,937 at ~~September~~March 27, 2020 and December 27, 2019, ~~and December 28, 2018,~~ respectively. The Company incurred estimated inventory valuation adjustments of approximately $3,300 related to inventory obsolescence due to COVID-19.

Note 7 – Equipment, Leasehold Improvements and Software

Equipment, leasehold improvements and software as of ~~September~~March 27, ~~2019~~2020 and December ~~28, 2018~~27, 2019 consisted of the following:


	Useful Lives	September 27, 2019			December 28, 2018			Useful Lives	March 27, 2020			December 27, 2019
Land	Indefinite	$	1,170		$	1,170		Indefinite	$	5,020		$	1,170
Buildings	20 years	1,325			1,292			20 years	15,871			1,360
Machinery and equipment	5-10 years	20,651			17,837			5-10 years	25,881			21,718
Computers, data processing and other equipment	3-7 years	13,168			11,244			3-7 years	13,653			12,686
Software	3-7 years	29,345			22,779			3-7 years	29,331			29,305
Leasehold improvements	1-40 years	69,515			60,565			1-40 years	71,297			70,903
Furniture and fixtures	7 years	3,337			3,268			7 years	3,322			3,309
Vehicles	5-7 years	4,041			2,769			5-7 years	19,464			6,410
Other	7 years	95			95			7 years	95			95
Construction-in-process		8,314			15,757				9,772			9,200
		150,961			136,776				193,706			156,156
Less: accumulated depreciation and amortization		(60,430		)	(51,500		)		(68,071		)	(63,310		)
Equipment, leasehold improvements and software, net		$	90,531		$	85,276			$	125,635		$	92,846

Construction-in-process at ~~September~~March 27, 2020 and December 27, 2019 related primarily to the implementation of the Company’s ERP system and at December 28, 2018 related primarily to the implementation of the Company’s ERP system and the buildout of the Company’s headquarters in Ridgefield, CT. The buildout of the Company’s headquarters was completed during fiscal 2019. The rollout of its ERP system will continue through fiscal 2020.Enterprise Resource Planning system.

The components of depreciation and amortization expense were as follows:


	Thirteen Weeks Ended				Thirty-Nine Weeks Ended				Thirteen Weeks Ended
	September 27, 2019		September 28, 2018		September 27, 2019		September 28, 2018		March 27, 2020		March 29, 2019
Depreciation expense, excluding finance leases	$	2,473	$	1,710	$	6,595	$	5,245
Depreciation expense									$	3,568	$	1,973
Software amortization	$	926	$	1,008	$	2,746	$	1,941	$	1,194	$	908
									$	4,762	$	2,881

The net book value of equipment financed under finance leases at ~~September~~March 27, 2020 and December 27, 2019 was $16,337 and ~~December 28, 2018 was $1,633 and $52,~~$3,905, respectively.

Note 8 – Goodwill and Other Intangible Assets

COVID-19 has had a material impact on the Company’s customers. In an effort to limit the spread of the virus, federal, state and local governments have implemented measures that have resulted in the closure of non-essential businesses in many of the markets the Company serves, which has forced its customers in those markets to either transition their establishments to take-out service, delivery service or temporarily cease operations. These actions have led to a significant decrease in demand for the Company’s products. The adverse impact to the Company’s customer base and its market capitalization were triggering events and accordingly, the Company performed interim goodwill and long-lived asset quantitative impairment tests as of March 27, 2020.

Goodwill Impairment Test

The Company estimated the fair value of its reporting units using an income approach that incorporates the use of a discounted cash flow model that involves many management assumptions that are based upon future growth projections which include estimates of COVID-19’s impact on our business. Assumptions include estimates of future revenues, growth rates which take into account estimated inflation rates, estimates of future levels of gross profit and operating profit, projected capital expenditures and discount rates based upon industry and competitor analyses. On the basis of these assumptions, the Company determined that the fair values of its reporting units exceeded the net carry values of their assets and liabilities by approximately $400,000, $19,000 and $14,000 for the East Coast, Midwest and West Coast reporting units, respectively. As such, goodwill was not impaired.

Long-lived Impairment Test

Long-lived assets, including other intangible assets, were tested for recoverability at the asset group level. The Company estimated the net undiscounted cash flows expected to be generated from the asset group over the expected useful of the asset group’s primary asset. Key assumptions include future revenues, growth rates, estimates of future levels of gross profit and operating profit and projected capital expenditures necessary to maintain the operating capacity of each asset group. On the basis of these assumptions, the Company determined that the undiscounted cash flows for each of the Company’s asset groups exceeded their respective carry values and therefore long-lived assets were not impaired.

Although the interim quantitative goodwill and long-lived asset impairment tests indicated no impairment existed as of March 27, 2020, the impacts of COVID-19 on our business are uncertain and will depend on future developments, and as such, it is possible that another triggering event could occur that under certain circumstances could cause us to recognize an impairment charge in the future.

The changes in the carrying amount of goodwill are presented as follows:


Carrying amount as of December 28, 2018	$	184,280
Carrying amount as of December 27, 2019			$	197,743
Acquisitions	13,424		14,776
Foreign currency translation	27		(9		)
Carrying amount as of September 27, 2019	$	197,731
Carrying amount as of March 27, 2020			$	212,510

Other intangible assets consist of customer relationships being amortized over a period ranging from four to twenty years, trademarks being amortized over a period of one to forty years, and non-compete agreements being amortized over a period of two to six years.

Other intangible assets as of ~~September~~March 27, ~~2019~~2020 and December ~~28, 2018~~27, 2019 consisted of the following:

September 27, 2019 Gross Carrying Amount Accumulated Amortization Net Amount
Customer relationships $ 135,217
$ (43,174 ) $ 92,043
Non-compete agreements 8,579
(7,407 ) 1,172
Trademarks 64,495
(15,800 ) 48,695
Total $ 208,291
$ (66,381 ) $ 141,910

December 28, 2018

Customer relationships $ 119,488
$ (36,185 ) $ 83,303
Non-compete agreements 7,579
(7,251 ) 328
Trademarks 59,862
(13,460 ) 46,402
Total $ 186,929
$ (56,896 ) $ 130,033



March 27, 2020	Gross Carrying Amount		Accumulated Amortization			Net Amount
Customer relationships	$	141,384	$	(47,889	)	$	93,495
Non-compete agreements	8,579		(7,552		)	1,027
Trademarks	68,646		(17,416		)	51,230
Total	$	218,609	$	(72,857	)	$	145,752



December 27, 2019
Customer relationships	$	135,226	$	(45,454	)	$	89,772
Non-compete agreements	8,579		(7,479		)	1,100
Trademarks	64,505		(16,626		)	47,879
Total	$	208,310	$	(69,559	)	$	138,751

The Company occasionally makes small, tuck-in acquisitions that are immaterial, both individually and in the aggregate. Therefore, increases in goodwill and gross intangible assets per the above tables may not agree to the increases of these assets as shown for specific acquisitions in Note 5 “Acquisitions.”

Amortization expense for other ~~intangibles~~intangible assets was ~~$3,301~~$3,298 and ~~$2,966~~$2,877 for the thirteen weeks ended ~~September~~March 27, ~~2019~~2020 and ~~September 28, 2018, respectively, and $9,485 and $8,949 for the thirty-nine weeks ended September 27,~~March 29, 2019, ~~and September 28, 2018,~~ respectively.

Estimated amortization expense for other ~~intangibles~~intangible assets for the remainder of the fiscal year ending December ~~27, 2019~~25, 2020 and each of the next four fiscal years and thereafter is as follows:


2019	$	3,271
2020	12,847		$	9,956
2021	12,843		13,270
2022	12,063		12,490
2023	11,035		11,463
2024			11,119
Thereafter	89,851		87,454
Total	$	141,910	$	145,752

Note 9 – Debt Obligations

Debt obligations as of ~~September~~March 27, ~~2019~~2020 and December ~~28, 2018~~27, 2019 consisted of the following:


	September 27, 2019			December 28, 2018			March 27, 2020			December 27, 2019
Senior secured term loan	$	238,129		$	239,745		$	238,129		$	238,129
Asset based loan facility	43,225			44,185
Convertible senior notes							150,000			150,000
Asset-based loan facility							100,000			—
Convertible unsecured note	4,000			—			4,000			4,000
Finance lease and other financing obligations	1,645			193			16,337			3,905
Deferred finance fees and original issue discount	(4,630		)	(5,893		)	(8,537		)	(9,207		)
Total debt obligations	282,369			278,230			499,929			386,827
Less: current installments	(328		)	(61		)	(4,069		)	(721		)
Total debt obligations excluding current installments	$	282,041		$	278,169		$	495,860		$	386,106

~~Convertible Unsecured Note~~

On February 25, 2019, the Company issued a $4,000 convertible unsecured note (the “Note”), maturing on June 29, 2023, to Bassian Farms, Inc. (the “Holder”) as partial consideration in the Bassian acquisition. The interest rate charged on the Note is 4.5% per annum and increases to 5.0% after the two-year anniversary of the closing date. The Company may, in certain instances beginning eighteen months after issuance of the Note, redeem the Note in whole or in part for cash or convert the Note into shares of the Company’s common stock at the conversion price of $43.93 per share. After the two-year anniversary of the closing date, the Holder may convert the Note into shares of the Company’s common stock at the conversion price. Upon a change of control event, the Holder may convert the Note into shares of the Company’s common stock at the conversion price or redeem the Note for cash.

As of ~~September~~March 27, ~~2019,~~2020, the Company was in compliance with all debt covenants and the Company had reserved $16,641 of the ~~asset based~~asset-based loan facility (“ABL Facility”) for the issuance of letters of credit. As of ~~September~~March 27, ~~2019,~~2020, funds totaling ~~$90,135~~$33,359 were available for borrowing under the ABL Facility. The interest rates on the Company’s senior secured term loan and ABL Facility were ~~5.5%~~5.1% and ~~3.3%~~1.9%, respectively, at ~~September~~March 27, ~~2019.~~2020.

~~Note 10 – Leases~~

~~The components of net lease cost were as follows:~~

Thirteen Weeks Ended Thirty-Nine Weeks Ended
September 27, 2019 September 27, 2019
Operating lease cost $ 7,010
$ 20,450
Finance lease cost:
Amortization of right-of-use asset 85
198
Interest expense on lease liabilities 25
65
Total finance lease cost $ 110
$ 263
Short-term lease cost 531
1,428
Variable lease cost 794
2,105
Sublease income (119 ) (490 )
Total lease cost, net $ 8,326
$ 23,756

~~Supplemental balance sheet information related to finance leases was as follows:~~

Balance Sheet Location September 27, 2019
Short-term finance lease liabilities Current portion of long-term debt $ 317
Long-term finance lease liabilities Long-term debt, net of current portion $ 1,316

The maturities of the Company’s operating and finance lease liabilities for the remainder of the fiscal year ending December 27, 2019 and each of the next four fiscal years and thereafter were as follows:

Operating Leases Finance Leases
Related Party Real Estate Third Party Real Estate Vehicles and Equipment Total Vehicles and Equipment
2019 $ 125
$ 3,323
$ 3,235
$ 6,683
$ 102
2020 365
13,373
11,592
25,330
406
2021 —
13,049
9,322
22,371
402
2022 —
12,976
7,282
20,258
386
2023 —
12,147
4,787
16,934
323
Thereafter —
108,736
2,352
111,088
282
Total $ 490
$ 163,604
$ 38,570
$ 202,664
$ 1,901
Less interest (60,869 ) (268 )
Present value $ 141,795
$ 1,633

At September 27, 2019, the weighted-average lease term for operating and finance leases was 13.9 years and 5.0 years, respectively. At September 27, 2019, the weighted-average discount rate for operating and finance leases was 6.3% and 5.6%, respectively.

As of September 27, 2019, the Company is contractually obligated to make payments of approximately $5,800, related to several vehicle leases that have not commenced. Accordingly, the Company has not recognized ROU assets or lease liabilities associated with these leases.

The Company’s future minimum lease payments as of December 28, 2018, in accordance with legacy lease accounting standards, under non-cancelable operating and finance lease agreements were as follows:

Operating Leases Finance Leases
2019 $ 24,666
$ 56
2020 23,047
55
2021 19,918
50
2022 17,838
42
2023 14,876
4
Thereafter 47,330
—
Total minimum lease payments $ 147,675
207
Less interest (49 )
Present value of capital lease obligations $ 158

Note 1110 – Stockholders’ Equity

~~Equity Incentive Plan~~Preferred Stock Purchase Rights

On ~~May 17, 2019,~~March 22, 2020, the Company’s ~~stockholders~~board of directors approved ~~the 2019 Omnibus Equity Incentive Plan~~a limited duration Preferred Stock Purchase Rights Agreement (the ~~“2019 Plan”~~“Rights Agreement”). ~~Concurrently,~~Under the ~~2011 Omnibus Equity Incentive Plan (the “2011 Plan”~~Rights Agreement, the board of directors approved a dividend of one preferred share purchase right (a “Right”) ~~was terminated and any shares remaining available~~ for ~~new grants under the 2011 Plan~~each share ~~reserve were extinguished. The purpose~~outstanding share of the ~~2019 Plan is~~Company’s common stock to ~~promote the interests~~purchase one one-thousandth of a share of Series A Preferred Stock of the Company ~~and its stockholders~~at a price of $40.00 per Unit of Preferred Stock, subject to adjustment as provided in the Rights Agreement. The Rights will expire on March 21, 2021, unless the Rights are earlier redeemed or exchanged by ~~(i) attracting and retaining key officers, employees and directors of, and consultants to,~~ the Company ~~and its Subsidiaries and Affiliates; (ii) motivating such individuals by means~~or upon the occurrence of performance-related incentives to achieve long-range performance goals; (iii) enabling such individuals to participate in the long-term growth and financial success of the Company; (iv) encouraging ownership of stock in the Company by such individuals; and (v) linking their compensation to the long-term interests of the Company and its stockholders.certain transactions.

The 2019 Plan is administered by the Compensation and Human Capital Committee (the “Committee”) of the Board of Directors and allows for the issuance of stock options, stock appreciation rights (“SARs”), RSAs, restricted share units, performance awards, or other stock-based awards. Stock option exercise prices are fixed by the Committee but shall not be less

than the fair market value of a common share on the date of the grant of the option, except in the case of substitute awards. Similarly, the grant price of an SAR may not be less than the fair market value of a common share on the date of the grant. The Committee will determine the expiration date of each stock option and SAR, but in no case shall the stock option or SAR be exercisable after the expiration of ten years from the date of the grant. The 2019 Plan provides for 2,600,000 shares available for grant.Equity Awards

The following table reflects the activity of RSAs during the ~~thirty-nine~~thirteen weeks ended ~~September~~March 27, ~~2019:~~2020:


	Shares		Weighted Average Grant Date Fair Value		Shares		Weighted Average Grant Date Fair Value
Unvested at December 28, 2018	526,730		$	20.60
Unvested at December 27, 2019					740,609		$	27.68
Granted	375,383		34.43		822,134		18.57
Vested	(113,423	)	21.44		(192,357	)	23.89
Forfeited	(55,193	)	20.46		(14,701	)	22.06
Unvested at September 27, 2019	733,497		$	27.56
Unvested at March 27, 2020					1,355,685		$	22.76

The Company granted ~~375,383~~822,134 RSAs to its employees ~~and directors~~ at a weighted average grant date fair value of ~~$34.43~~$18.57 during the ~~thirty-nine~~thirteen weeks ended ~~September~~March 27, ~~2019.~~2020. These awards are a mix of ~~time~~time-, market- and performance-based grants that generally vest over a ~~one-~~range of periods up to ~~five-year period.~~three years. The Company recognized expense totaling ~~$908~~$851 and ~~$940~~$801 on its RSAs during the thirteen weeks ended ~~September~~March 27, ~~2019~~2020 and ~~September 28, 2018, respectively, and $2,797 and $2,548 during the thirty-nine weeks ended September 27,~~March 29, 2019, ~~and September 28, 2018,~~ respectively.

At ~~September~~March 27, ~~2019,~~2020, the total unrecognized compensation cost for unvested RSAs was ~~$10,784~~$19,556 and the weighted-average remaining period was approximately ~~2.5~~2.8 years. Of this total, ~~$6,778~~$12,869 related to RSAs with time-based vesting provisions and ~~$4,006~~$6,687 related to RSAs with performance-based vesting provisions. At ~~September~~March 27, ~~2019,~~2020, the weighted-average remaining period for time-based vesting and performance-based vesting RSAs were approximately ~~2.7~~2.8 years and ~~2.1~~3.0 years, respectively.

The ~~following table summarizes stock option activity during the thirty-nine weeks ended September 27, 2019:~~

Shares Weighted
Average
Exercise Price Aggregate
Intrinsic
Value Weighted Average
Remaining Contractual
Term (in years)
Outstanding December 28, 2018 191,808
$ 20.23
$ 2,129
7.2
Granted —
—

Exercised (31,412 ) 20.23

Canceled/Forfeited —
—

Outstanding and vested at September 27, 2019 160,396
$ 20.23
$ 3,134
6.5
Exercisable at September 27, 2019 160,396
$ 20.23
$ 3,134
6.5

~~The~~Company’s stock options fully vested during the first quarter of fiscal 2019. The Company recognized expense ~~of $0 and $150~~$114 on stock options during the thirteen weeks ended ~~September 27, 2019 and September 28, 2018, respectively, and $114 and $451 during the thirty-nine weeks ended September 27, 2019 and September 28, 2018, respectively.~~

~~As of September 27, 2019, there were 2,231,236 shares available for grant under the 2019 Plan.~~March 29, 2019. NaN share-based compensation expense related to the Company’s RSAs or stock options has been capitalized.

As of March 27, 2020, there were 1,414,655 shares available for grant under the 2019 Omnibus Equity Incentive Plan.

Note 11 – Income Taxes

In response to the COVID-19 pandemic, the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”) was signed into law on March 27, 2020. The legislation provides temporary changes to the extent to which companies can carryback net operating losses, changes to interest expense deduction limitations and other tax relief provisions.

The Company’s effective income tax rate was 36.5% and 27.5% for the thirteen weeks ended March 27, 2020 and March 29, 2019, respectively. The higher effective tax rate in the current period is primarily related to the Company’s current net loss forecast for fiscal 2020 which, under the CARES Act, allows the Company to claim tax refunds against taxes paid in fiscal 2015 and 2017, both of which were at statutory tax rates of 35%. The Company recorded an income tax refund receivable of $8,762 as of March 27, 2020 which is reflected in prepaid expenses and other current assets on the Company’s consolidated balance sheet.

Note 12 – Related Parties

The Company follows the guidance in Accounting Standards Codification Topic ASC 850, “Related Party Disclosure”, which requires the disclosure of material related party transactions other than compensation arrangements, expense allowances, or other similar items that occur in the ordinary course of business.

The Chefs’ Warehouse Mid-Atlantic, LLC, a subsidiary of the Company, leases a distribution facility that is 100% owned by entities controlled by Christopher Pappas, the Company’s chairman, president and chief executive officer, and John Pappas, the Company’s vice chairman and one of its directors, and are deemed to be affiliates of these individuals. Expense related to this facility totaled ~~$108~~$118 and ~~$134~~$108 during the thirteen weeks ended ~~September~~March 27, ~~2019~~2020 and ~~September 28, 2018, respectively,~~

~~and $325 and $400 during the thirty-nine weeks ended September 27,~~March 29, 2019, ~~and September 28, 2018,~~ respectively. This lease was amended during the first quarter of fiscal ~~2019~~2020 and expires on September 30, ~~2020.~~2023.

Note 13 – Supplemental Disclosures of Cash Flow Information


	Thirty-Nine Weeks Ended				Thirteen Weeks Ended
	September 27, 2019		September 28, 2018		March 27, 2020		March 29, 2019
Supplemental cash flow disclosures:
Cash paid for income taxes, net of cash received	$	6,045	$	3,905	$	334	$	964
Cash paid for interest, net of cash received	$	12,477	$	13,928	$	2,883	$	5,271
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows from operating expenses	$	18,575	$	—
Operating cash flows from operating leases					$	6,700	$	5,890
Operating cash flows from finance leases	$	65	$	—	$	111	$	17
ROU assets obtained in exchange for lease liabilities:
Operating leases	$	154,330	$	—	$	4,989	$	131,819
Finance leases	$	1,820	$	—	$	13,208	$	854
Other non-cash investing and financing activities:
Convertible notes issued for acquisitions	$	4,000	$	37,015	$	—	$	4,000
Contingent earn-out liabilities for acquisitions	$	7,929	$	767	$	3,464	$	4,080

Note 14 – Subsequent Events

On ~~October 25, 2019,~~April 27, 2020, the Company paid ~~$3,000~~$2,250 to the former owners of ~~Fells Point~~Bassian related to their successful attainment of the ~~targeted EBITDA~~gross profit targets in their earn-out agreement.

On April 16, 2020, the White House Coronavirus Task Force released guidelines for a three-phased approach to reopening the U.S. economy. The guidelines were issued to help state and local governments plan for a responsible reopening of their economies along with certain health and safety precautions. Certain state governors, including those of Florida, Ohio and Texas, markets in which we operate, announced phased reopenings of their economies in May 2020. The timing of a broad reopening of the U.S. economy cannot be predicted at this time nor can COVID-19’s impact on future consumer spending behavior. The Company continues to support its customer base as they serve their communities while managing its liquidity effectively during this time of demand uncertainty. As of April 30, 2020, the Company had cash and cash equivalents of approximately $200,000 and availability on its asset-based loan facility of $33,359.

ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND

RESULTS OF OPERATIONS

Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”) is provided as a supplement to the accompanying consolidated financial statements and footnotes to help provide an understanding of our financial condition, changes in our financial condition and results of operations. The following discussion should be read in conjunction with information included in our Annual Report on Form 10-K filed with the Securities and Exchange Commission (“SEC”) on ~~March 1, 2019.~~February 24, 2020. Unless otherwise indicated, the terms “Company”, “Chefs’ Warehouse”, “we”, “us” and “our” refer to The Chefs’ Warehouse, Inc. and its subsidiaries.

~~OVERVIEW~~Business Overview

We are a premier distributor of specialty foods in ~~eight~~nine of the leading culinary markets in the United States. We offer more than 55,000 ~~SKUs,~~stock-keeping units (“SKUs”), ranging from high-quality specialty foods and ingredients to basic ingredients and staples and center-of-the-plate proteins. We serve more than 34,000 customer locations, primarily located in our 16sixteen geographic markets across the United States and Canada, and the majority of our customers are independent restaurants and fine dining establishments. As a result of our acquisition of Allen Brothers, Inc. (“Allen Brothers”), we also sell certain of our center-of-the-plate products directly to consumers.

~~We believe several key differentiating factors~~Effect of the COVID-19 Pandemic on our Business and Operations

The COVID-19 pandemic (“COVID-19”) has had a material impact on our business and operations and those of our ~~business model~~customers. In an effort to limit the spread of the virus, federal, state and local governments have ~~enabled us~~implemented measures that have resulted in the closure of non-essential businesses in many of the markets we serve, which has forced our customers in those markets to ~~execute~~either transition their establishments to take-out service, delivery service or temporarily cease operations. These developments have resulted in a $23.5 million decline in organic sales compared to the prior year quarter. Due to COVID-19, we incurred estimated non-cash charges of $15.8 million related to incremental bad debt expense and approximately $3.3 million related to estimated inventory obsolescence.

Our management team is responding rapidly to the changing landscape and pursuing alternate sources of revenue to mitigate the extent of sales declines in our ~~strategy consistently and profitably across our expanding~~core customer base. ~~These factors consist of a portfolio of distinctive and hard-to-find specialty food products, an extensive selection of center-of-the-plate proteins, a highly trained and motivated~~Our sales force ~~strong sourcing capabilities,~~is working closely with our core customers and developing solutions to help them fulfill the demand in their communities whilst complying with health and safety restrictions. We are actively entering into new business relationships with retail food outlets as they experience a ~~fully integrated warehouse management system, a highly sophisticated distribution~~sharp increase in demand. As we develop these new sales channels, we are negotiating favorable credit terms given the nature of the underlying customer base and ~~logistics platform and a focused, seasoned management team.~~the current market environment. In addition, our purchasing teams have worked diligently to shift our product purchases to SKUs that are in high demand. Thus far, we have not experienced difficulties in procuring products from our suppliers.

In ~~recent years,~~response to the pandemic, we expanded our direct-to-consumer product offerings by launching our “Shop Like a Chef” online home delivery platform in several of the markets we serve. We now offer products directly to consumers through our Allen Brothers and “Shop Like a Chef” online platforms.

We have implemented cost control measures during this time of demand volatility. Our variable cost structure naturally decreases as our sales decrease, however, we are also reducing our fixed cost structure. Among other actions, we have postponed planned capital expenditures, returned certain equipment on short-term rental agreements, and reduced compensation expense through salary reductions, furloughs and lay-offs as we right-size our organization to ~~existing and new customers have increased through the continued growth in demand for specialty food products and center-of-the-plate products in general; increased market share driven by~~current levels of demand.

Management determined COVID-19’s adverse impact on our ~~large percentage of sophisticated and experienced sales professionals, our high-quality customer service~~operations and our ~~extensive breadth~~market capitalization were triggering events that required us to test goodwill and ~~depth~~long-lived assets for impairment as of ~~product offerings;~~March 27, 2020. No impairments were recorded as a result of these tests. However, the ~~acquisition~~impacts of ~~other specialty food~~COVID-19 on our business are uncertain and ~~center-of-the-plate distributors;~~will depend on future developments, and as such, it is possible that another triggering event could occur that under certain circumstances could cause us to recognize an impairment charge in the ~~expansion~~future.

We closed the quarter with total cash and cash equivalents of $193.5 million, inclusive of a $100.0 million draw on our ~~existing distribution centers;~~asset-based loan facility on March 18, 2020. Subsequent to this draw, we had approximately $33.4 million of remaining availability under our ~~entry into new distribution centers;~~asset-based loan facility as of March 27, 2020. We are actively monitoring our working capital to effectively manage our liquidity during this time of uncertainty and expect to use the ~~import~~proceeds of the draw, if any, to rescale our business when demand returns.

The future impact of COVID-19 on our business, operations and ~~sale of our proprietary brands. Through these efforts, we believe that we have been able~~liquidity is difficult to ~~expand our customer base, enhance~~predict at this time and ~~diversify our product selections, broaden our geographic penetration~~is highly dependent upon decisions made by federal, state and ~~increase our market share.~~local governments and future consumer spending behavior.

~~RECENT ACQUISITIONS~~Recent Acquisitions

On February ~~25, 2019, pursuant to~~3, 2020, the Company entered into an asset purchase agreement ~~we acquired~~to acquire substantially all of the assets of ~~Bassian Farms,~~Cambridge Packing Co, Inc. ~~and certain affiliated entities (“Bassian”)~~, a specialty center-of-the-plate producer and distributor ~~based~~ in ~~northern California.~~New England. The ~~aggregate~~ purchase price ~~for the transaction~~ was approximately ~~$31.8~~$17.0 million ~~consisting of $28.0 million~~paid in cash ~~paid~~ at closing and ~~the issuance of~~is subject to a ~~$4.0 million unsecured convertible note, partially offset by the settlement of a net~~customary working capital true-up. The Company ~~will also~~is required to pay additional contingent consideration, if earned, ~~in the form~~ of ~~an earn-out amount which could total $9.0~~up to $3.0 million over a ~~four-year period.~~two-year period upon successful attainment of certain gross profit targets.

~~Our Growth Strategies and Outlook~~

~~We continue~~On January 27, 2020, the Company entered into an asset purchase agreement to ~~invest in our people, facilities and technology in an effort to achieve~~acquire substantially all of the ~~following objectives and maintain our premier position within the specialty foodservice distribution market:~~

~~sales and service territory expansion;~~

~~operational excellence and high customer service levels;~~

~~expanded purchasing programs and improved buying power;~~

~~product innovation and new product category introduction;~~

~~operational efficiencies through system enhancements; and~~

~~operating expense reduction through the centralization~~assets, including certain real-estate assets, of ~~general and administrative functions.~~

Our growth has allowed us to improve upon our organization’s infrastructure, open new distribution facilities and pursue selective acquisitions. Over the last several years, we have increased our distribution capacity to approximately 1.7 million square feet in 29 distribution facilities at September 27, 2019 and have invested significantly in acquisitions, infrastructure and management.

~~Key Factors Affecting Our Performance~~

~~Due to our focus on menu-driven independent restaurants, fine dining establishments, country clubs, hotels, caterers, culinary schools, bakeries, patisseries, chocolatiers, cruise lines, casinos and~~Sid Wainer & Son, a specialty food ~~stores, our results~~and produce distributor in New England. The purchase price was approximately $46.5 million paid in cash at closing and is subject to a customary working capital true-up. The Company is required to pay additional contingent consideration, if earned, of ~~operations are materially impacted by the success~~up to $4.0 million over a two-year period upon successful attainment of the food-away-from-home industry in the United States and Canada, which is materially impacted by general economic conditions, weather, discretionary spending levels and consumer confidence. When economic conditions deteriorate, our customers’ businesses are negatively impacted as fewer people eat away-from-home and those who do spend less money. As economic conditions begin to improve, our customers’ businesses historically have likewise improved, which contributes to improvements in our business. Likewise, the direct-to-consumer business of our Allen Brothers subsidiary is significantly dependent on consumers’ discretionary spending habits, and weakness or uncertainty in the economy could lead to consumers buying less from Allen Brothers.

Volatile food costs may have a direct impact upon our profitability. Prolonged periods of product cost inflation may have a negative impact on our profit margins and results of operations to the extent we are unable to pass on all or a portion of such product cost increases to our customers. In addition, product cost inflation may negatively impact consumer discretionary spending decisions within our customers’ establishments, which could adversely impact our sales. Conversely, our profit levels may be negatively impacted during periods of product cost deflation even though ourcertain gross profit as a percentage of sales may remain relatively constant. However, some of our products, particularly certain of our center-of-the-plate items, are priced on a “cost plus” markup, which helps mitigate the negative impact of deflation.

Given our wide selection of product categories, as well as the continuous introduction of new products, we can experience shifts in product sales mix that have an impact on net sales and gross profit margins. This mix shift is most significantly impacted by the introduction of new categories of products in markets that we have more recently entered, the shift in product mix resulting from acquisitions, as well as the continued growth in item penetration on higher velocity items such as dairy products.

The foodservice distribution industry is fragmented but consolidating, and we have supplemented our internal growth through selective strategic acquisitions. We believe that the consolidation trends in the foodservice distribution industry will continue to present acquisition opportunities for us, which may allow us to grow our business at a faster pace than we would otherwise be able to grow the business organically.targets.

RESULTS OF OPERATIONS

~~The following table presents, for the periods indicated, certain income and expense items expressed as a percentage of net sales:~~


	Thirteen Weeks Ended				Thirty-Nine Weeks Ended				Thirteen Weeks Ended
	September 27, 2019		September 28, 2018		September 27, 2019		September 28, 2018		March 27, 2020			March 29, 2019
Net sales	100.0	%	100.0	%	100.0	%	100.0	%	$	375,431		$	357,027
Cost of sales	74.3	%	74.6	%	74.4	%	74.8	%	284,530			266,838
Gross profit	25.7	%	25.4	%	25.6	%	25.2	%	90,901			90,189
Operating expenses	23.0	%	22.6	%	22.9	%	22.3	%	107,917			84,039
Operating income	2.7	%	2.8	%	2.7	%	2.9	%
Other expense (income):
Operating (loss) income									(17,016		)	6,150
Interest and other expense	1.1	%	1.3	%	1.2	%	1.4	%	5,166			4,585
Income before income taxes	1.6	%	1.5	%	1.5	%	1.5	%
(Loss) income before income taxes									(22,182		)	1,565
Provision for income taxes	0.4	%	0.4	%	0.4	%	0.4	%	(8,097		)	431
Net income	1.2	%	1.1	%	1.1	%	1.1	%
Net (loss) income									$	(14,085	)	$	1,134

Management evaluates the results of operations and cash flows using a variety of key performance indicators, including net sales compared to prior periods and internal forecasts, costs of our products and results of our cost-control initiatives, and use of operating cash. These indicators are discussed throughout the “Results of Operations” and “Liquidity and Capital Resources” sections of this MD&A.

Thirteen Weeks Ended ~~September~~March 27, ~~2019~~2020 Compared to Thirteen Weeks Ended ~~September 28, 2018~~March 29, 2019

Net Sales



	2020		2019		$ Change		% Change
Net sales	$	375,431	$	357,027	$	18,404	5.2	%

~~Net sales for the thirteen weeks ended September 27, 2019 increased approximately 9.8%, or $35.4 million, to $396.9 million~~Sales growth from ~~$361.5 million for the thirteen weeks ended September 28, 2018. Organic growth~~acquisitions contributed ~~$16.2~~$41.9 million, or ~~4.5%~~11.8%, to sales ~~growth in the quarter. The remaining~~growth. Organic sales ~~growth of $19.2~~declined $23.5 million, or ~~5.3%~~6.6%, ~~resulted from acquisitions.~~versus the prior year period primarily due to impacts of COVID-19. Organic case count ~~grew~~declined approximately 3.2% in our specialty category with unique customers and placements growth at 3.9% and 3.1%, respectively, compared to the prior year quarter. Pounds sold in our center-of-the-plate category increased approximately 0.9% compared to the prior year quarter. Estimated inflation was 2.5% in our specialty category and 1.5% in our center-of-the-plate category compared to the prior year quarter.

~~Gross Profit~~

Gross profit increased approximately 10.9%, or $10.0 million, to $102.0 million for the thirteen weeks ended September 27, 2019 from $92.0 million for the thirteen weeks ended September 28, 2018. Gross profit margin increased approximately 25 basis points to 25.7% from 25.4%. Gross margins increased 24 basis points in the Company’s specialty category and increased 54 basis points in the Company’s center-of-the-plate category compared to the prior year quarter.

~~Operating Expenses~~

Total operating expenses increased by approximately 11.8%, or $9.6 million, to $91.3 million for the thirteen weeks ended September 27, 2019 from $81.7 million for the thirteen weeks ended September 28, 2018. Total operating expenses includes charges for changes in the fair value of certain contingent earn-out liabilities of $2.5 million and $1.8 million for the thirteen weeks ended September 27, 2019 and September 28, 2018, respectively. As a percentage of net sales, operating expenses were 23.0% in the third quarter of 2019 compared to 22.6% in the third quarter of 2018, an increase of 40 basis points. The primary drivers of the increase in the ratio of operating expenses to sales were the earn-out adjustments and a 42 basis point increase in warehouse costs, primarily related to our investment in Texas and our new facility in Los Angeles, partially offset by lower distribution expenses as a percentage of sales versus the third quarter of 2018.

~~Operating Income~~

Operating income for the thirteen weeks ended September 27, 2019 was $10.6 million compared to $10.3 million for the thirteen weeks ended September 28, 2018. The increase in operating income was driven primarily by increased gross profit, offset in part by higher operating expenses, as discussed above. As a percentage of net sales, operating income was 2.7% in the third quarter of 2019 compared to 2.8% in the third quarter of 2018.

~~Interest and Other Expense~~

Interest and other expense decreased to $4.5 million for the thirteen weeks ended September 27, 2019 compared to $4.7 million for the thirteen weeks ended September 28, 2018 due to lower effective interest rates charged on the Company’s outstanding debt.

~~Provision for Income Taxes~~

~~For the thirteen weeks ended September 27, 2019, we recorded an effective income tax rate of 27.5%. For the thirteen weeks ended September 28, 2018, our effective income tax rate was 25.7%.~~

~~Net Income~~

Reflecting the factors described above, net income was $4.4 million for the thirteen weeks ended September 27, 2019, compared to net income of $4.2 million for the thirteen weeks ended September 28, 2018.

~~Thirty-Nine Weeks Ended September 27, 2019 Compared to Thirty-Nine Weeks Ended September 28, 2018~~

~~Net Sales~~

Net sales for the thirty-nine weeks ended September 27, 2019 increased approximately 10.9%, or $114.8 million, to $1,165.3 million from $1,050.6 million for the thirty-nine weeks ended September 28, 2018. Organic growth contributed $48.8 million or 4.6% to sales growth in the period. The remaining sales growth of $66.0 million, or 6.3% resulted from acquisitions. Organic case count grew approximately 3.5%,5.0% in our specialty category. In addition, ~~growth in~~specialty unique customers and placements ~~grew 4.8%~~declined 1.9% and ~~3.8%~~9.6%, respectively, compared to the prior year period. Pounds sold in our center-of-the-plate category ~~increased 1.6%~~decreased 10.0% compared to the prior ~~year period.~~year. Estimated ~~inflation~~deflation was ~~2.2%~~2.1% in our specialty category and ~~1.6%~~inflation was 3.1% in our center-of-the-plate category compared to the prior year period.

Gross Profit



	2020			2019			$ Change		% Change
Gross profit	$	90,901		$	90,189		$	712	0.8	%
Gross profit margin	24.2		%	25.3		%

Gross profit ~~increased approximately 12.8%, or $33.9 million, to $298.7 million for~~was relatively unchanged versus the ~~thirty-nine weeks ended September 27, 2019, from $264.8 million for~~prior year quarter despite the ~~thirty-nine weeks ended September 28, 2018.~~increase in net sales. Gross profit margin ~~increased~~decreased approximately 43105 basis ~~points to 25.6% from 25.2%.~~points. Gross profit margins ~~increased 12~~decreased 311 basis points in the Company’s specialty category and increased 95157 basis points in the Company’s center-of-the-plate category compared to the prior year period. Our specialty category gross profit results include a charge of approximately $3.3 million related to estimated inventory losses from obsolescence due to impacts of COVID-19. Center-of-the-plate category gross profit was favorably impacted by a greater mix of retail sales in the current year period.

Operating Expenses



	2020		2019		$ Change		% Change
Operating expenses	107,917		84,039		$	23,878	28.4	%
Percentage of net sales	28.7	%	23.5	%

~~Total~~The increase in operating expenses ~~increased~~relates primarily to our recent acquisitions and an estimated non-cash charge of approximately $15.8 million related to incremental bad debt expense as a result COVID-19, partially offset by approximately 13.9%, or $32.5 million, to $266.3 million for the thirty-nine weeks ended September 27, 2019 from $233.8 million for the thirty-nine weeks ended September 28, 2018. Total operating expenses are inclusive ofa decrease in non-cash charges ~~for~~due to changes in the fair value of ~~certain~~our contingent earn-out liabilities. Total operating expenses for the thirteen weeks ended March 27, 2020 includes a $6.8 million credit due to a reduction in the fair value of our contingent earn-out liabilities compared to a charge of ~~$5.3 million and $2.0~~$0.1 million for the ~~thirty-nine~~thirteen weeks ended ~~September 27, 2019 and September 28, 2018, respectively. As a percentage~~March 29, 2019. Our ratio of operating expenses to net sales ~~operating expenses were 22.9% in the current period compared~~was higher as a result of adverse COVID-19 impacts to ~~22.3% in the prior year period. The 60~~our sales growth and a 467 basis point increase in ~~the Company’s operating~~non-cash charges related to bad debt expense, ~~ratio is primarily driven~~partially offset by ~~the earn-out adjustments and~~ a 25184 basis point ~~increase~~decrease in ~~warehouse costs, primarily~~non-cash charges related to changes in the fair value of our ~~investment in Texas and our new facility in Los Angeles .~~

~~Operating Income~~

Operating income for the thirty-nine weeks ended September 27, 2019 was $32.3 million compared to $31.0 million for the thirty-nine weeks ended September 28, 2018. The increase in operating income was driven primarily by increased gross profit, offset in part by higher operating expenses, as discussed above. As a percentage of net sales, operating income was 2.7% for the thirty-nine weeks ended September 27, 2019 compared to 2.9% for the thirty-nine weeks ended September 28, 2018.contingent earn-out liabilities.

Interest and Other Expense



	2020	2019	$ Change		% Change
Interest and other expense	5,166	4,585	$	581	12.7	%

Interest and other expense ~~decreased~~increased primarily due to ~~$14.0~~the interest charged on our Convertible Senior Notes issued on November 22, 2019 and the $100.0 million ~~for the thirty-nine weeks ended September 27, 2019 compared to $15.1 million for the thirty-nine weeks ended September 28, 2018 due to~~draw on our asset-based loan facility on March 18, 2020, partially offset by lower effective interest rates charged on ~~the Company’s~~our outstanding ~~debt and the conversion of the $36.8 million of convertible subordinated notes during the third quarter of 2018.~~debt.

Provision for Income Taxes



	2020		2019		$ Change			% Change
Provision for income taxes	(8,097	)	431		$	(8,528	)	(1,978.7	)%
Effective tax rate	36.5	%	27.5	%

~~For the thirty-nine weeks ended September 27, 2019 and September 28, 2018, we recorded an~~The higher effective ~~income~~ tax rate is primarily related to our current net loss forecast for fiscal 2020 which allows us to claim tax refunds against taxes paid in fiscal 2015 and 2017, both of ~~27.5%.~~

~~Net Income~~

~~Reflecting the factors described above, net income was $13.3 million for the thirty-nine weeks ended September 27, 2019, compared to net income~~which were at statutory tax rates of ~~$11.5 million for the thirty-nine weeks ended September 28, 2018.~~35%.

LIQUIDITY AND CAPITAL RESOURCES

We finance our day-to-day operations and growth primarily with cash flows from operations, borrowings under our senior secured credit facilities and other indebtedness, ~~equity financing,~~ operating leases, trade payables and ~~trade payables.~~equity financing.

~~Senior Secured Term Loan Credit Facility~~Indebtedness

~~On June 22, 2016, Chefs’ Warehouse Parent, LLC (“CW Parent”)~~The following table presents selected financial information on our indebtedness (in thousands):



	March 27, 2020		December 27, 2019
Senior secured term loan	$	238,129	$	238,129
Total convertible debt	$	154,000	$	154,000
Borrowings outstanding on asset-based loan facility	$	100,000	$	—
Finance leases and other financing obligations	$	16,337	$	3,905

As of March 27, 2020, we have various floating- and Dairyland USA Corporation (“Dairyland”), as co-borrowers, and The Chefs’ Warehouse, Inc. (the “Company”) and certain other subsidiaries of the Company, as guarantors, entered into a credit agreement (the “Term Loan Credit Agreement”)fixed-rate debt instruments with ~~a group of lenders~~varying maturities for which Jefferies Finance LLC (“Jefferies”) acts as administrative agent and collateral agent. The Term Loan Credit Agreement provides for a senior secured term loan B facility (the “Term Loan Facility”) in an aggregate amount of $305.0 million with a $50.0 million six-month delayed draw term loan facility (the “DDTL”; the loans outstanding under the Term Loan Facility (including the DDTL), the “Term Loans”). On June 27, 2016, the Company drew $14.0 million from the DDTL to help pay fund the acquisition of M.T. Food Service, Inc. On September 14, 2016, the Company entered into an amendment to the Term Loan Credit Agreement under which the remaining portion of the DDTL was terminated, the Company’s interest rate schedule was modified and the Company repaid $25.0 million of the outstanding balance of the Term Loans. Additionally, the Term Loan Facility includes an accordion which permits the Company to request that the lenders extend additional Term Loans in an aggregate principal amount of up to $50.0 million (less the aggregate amount of certain indebtedness incurred to finance acquisitions) plus an unlimited amount subject to the Company’s consolidated Total Leverage Ratio not exceeding 4.90:1.00 on a pro forma basis. Borrowings under the Term Loan Facility were used to repay the Company’s senior secured notes, as well as the prior term loan and revolving credit facility. Remaining funds will be used for capital expenditures, permitted acquisitions, working capital and general corporate purposes of the Company.

On December 13, 2017, the Company completed a repricing of the Term Loan Facility to reduce the Applicable Rate (as defined in the Term Loan Credit Agreement) from 475 basis points to 400 basis points over LIBOR. In connection with the repricing, the Company paid debt financing costs of $0.8 million which were capitalized as deferred financing charges. On July 6, 2018, the Company made a $47.1 million prepayment and is no longer required to make quarterly amortization payments on the Term Loan Facility. On November 16, 2018, the Company completed a repricing of the Term Loan Facility to reduce the Applicable Rate from 400 basis points to 350 basis points over LIBOR. In connection with the repricing, the Company paid debt financing costs of $0.6 million which were capitalized as deferred financing charges. The Company wrote off unamortized deferred financing fees of $1.1 million as a result of this repricing.

The interest rates per annum applicable to Term Loans, will be, at the co-borrowers’ option, equal to either a base rate or an adjusted LIBOR rate for one, two, three, six or (if consented to by the lenders) twelve-month interest periods chosen by the Company, in each case plus an applicable margin percentage. The interest rate on this facility at September 27, 2019 was 5.9% and the final maturity of the Term Loan Facility is June 22, 2022.

The Term Loan Facility contains customary affirmative covenants, negative covenants (including restrictions, subject to customary exceptions, on incurring debt or liens, paying dividends, repaying subordinated and junior lien debt, disposing assets, and making investments and acquisitions), and events of default for a term loan B facility of this type, as more particularly described in the Term Loan Credit Agreement. As of September 27, 2019, the Company was in compliance with all debt covenants under the Term Loan Facility.

~~Asset Based Loan Facility~~

On June 29, 2018, the Company entered into a credit agreement (the “ABL Credit Agreement”) with a group of lenders for which BMO Harris Bank, N.A. acts as administrative agent. The ABL Credit Agreement provides for an asset based loan facility (the “ABL Facility”) in the aggregate amount of up to $150.0$492.1 million. Availability under the ABL Facility will be limited to a borrowing base equal to the lesser of: (i) the aggregate amount of commitments or (ii) the sum of specified percentages of eligible receivables and eligible inventory, minus certain availability reserves. The co-borrowers under the ABL Facility are entitled on one or more occasions, subject to the satisfaction of certain conditions, to request an increase in the commitments under the ABL Facility in an aggregate principal amount of up to $25.0 million. The ABL Facility matures on the earlier of June 29, 2023 and 90 days prior to the maturity date of the Company’s Term Loan Facility.

The interest rates per annum applicable to loans, other than swingline loans, under the ABL Facility will be, at the co-borrowers’ option, equal to either a base rate or an adjusted LIBOR rate for one, two, three, six or (if consented to by the lenders) twelve-month, interest periods chosen by the Company, in each case plus an applicable margin percentage. The Company will pay certain recurring fees with respect to the ABL Facility, including fees on the unused commitments of the

lenders. The ABL Facility contains customary affirmative covenants, negative covenants and events of default as more particularly described in the ABL Credit Agreement. The ABL Facility will require compliance with a minimum consolidated fixed charge coverage ratio of 1:1 if the amount of availability under the ABL Facility falls below the greater of $10.0 million or 10% of the borrowing base. Borrowings under the ABL Facility will be used, and are expected to be used, for capital expenditures, permitted acquisitions, working capital and general corporate purposes of the Company. On July 6, 2018, the Company borrowed $47.1 million under the ABL Facility and made an equivalent prepayment on its senior secured term loan. There was $43.2 million outstanding under the ABL Facility as of September 27, 2019, bearing an interest rate of 3.3%.

As of September 27, 2019, the Company was in compliance with all debt covenants under the ABL Facility and the Company had reserved $16.6 million of the ABL Facility for the issuance of letters of credit. As of September 27, 2019, funds totaling $90.1 million were available for borrowing under the ABL Facility.

~~Convertible Unsecured Note~~

On February 25, 2019, the Company issued a $4.0 million convertible unsecured note (the “Note”), maturing on June 29, 2023, to Bassian Farms, Inc. (the “Holder”) as partial consideration in the Bassian acquisition. The interest rate charged on the Note is 4.5% per annum and increases to 5.0% after the two-year anniversary of the closing date. The Company may, in certain instances beginning eighteen months after issuance of the Note, redeem the Note in whole or in part for cash or convert the Note into shares of the Company’s common stock at the conversion price of $43.93 per share. After the two-year anniversary of the closing date, the Holder may convert the Note into shares of the Company’s common stock at the conversion price. Upon a change of control event, the Holder may convert the Note into shares of the Company’s common stock at the conversion price or redeem the Note for cash.

Liquidity

The following table presents selected financial information on liquidity (in thousands):



	March 27, 2020		December 27, 2019
Cash and cash equivalents	$	193,517	$	140,233
Working capital,excluding cash and cash equivalents	$	146,746	$	162,772
Availability under asset-based loan facility	$	33,359	$	133,359

We anticipate capital expenditures, excluding cash paid for acquisitions, for fiscal ~~2019~~2020 will be in the range of ~~$18.0~~$10.0 million to ~~$20.0~~$12.0 million which is down from our original estimate of ~~$24.0~~$38.0 million to ~~$26.0 million~~$42.0 million. The decrease is a result of us postponing certain investments due to ~~changes in~~COVID-19. We believe our existing balances of cash and cash equivalents, working capital and the ~~timing of certain planned expansions of~~availability under our ~~distribution facilities. Recurring~~asset-based loan facility, are sufficient to satisfy our working capital needs, capital expenditures, ~~will be financed~~debt service and other liquidity requirements associated with ~~cash generated from~~our current operations and borrowings under our ABL Facility. Our planned capital projects will provide both new and expanded facilities and improvements to our technology that we believe will produce increased efficiency andover the capacity to continue to support the growth of our customer base. Future investments and acquisitions will be financed through either internally generated cash flow, borrowings under our senior secured credit facilities in place at the time of the potential investment or acquisition or through the issuance of equity or debt securities, including, but not limited to, longer-term, fixed-rate debt securities and shares of our common stock.next 12 months.

Cash Flows



	Thirteen Weeks Ended
	March 27, 2020			March 29, 2019
Net (loss) income	$	(14,085	)	$	1,134
Non-cash charges	$	19,678		$	9,855
Changes in working capital	$	16,392		$	(3,598	)
Cash provided by operating activities	$	21,985		$	7,391
Cash used in investing activities	$	(66,543	)	$	(32,115	)
Cash provided by (used in) financing activities	$	97,975		$	(367	)

Net cash provided by operations was ~~$23.5~~$22.0 million for the ~~thirty-nine~~thirteen weeks ended ~~September~~March 27, ~~2019,~~2020 consisting of a ~~decrease~~net loss of ~~$10.0~~$14.1 million ~~from the $33.5~~offset by $19.7 million ~~provided by operations for the thirty-nine weeks ended September 28, 2018. The primary reasons for the decrease was a decrease in~~of non-cash charges and cash generated from working capital ~~changes, partially offset by increased cash generated from net income.~~of $16.4 million. The ~~decrease~~increase in ~~cash provided by changes in working capital was~~non-cash charges of $9.8 million is primarily ~~due to a decrease in cash from~~ ~~accounts payable~~ ~~changes,~~ ~~prepaid expense and other current assets~~ ~~changes and~~ ~~inventories~~ ~~changes of $16.3 million, $5.0 million and $3.3 million, respectively, partially offset~~driven by an increase in ~~cash from~~ ~~accounts receivable~~ ~~changes~~non-cash bad debt expense due to COVID-19, partially offset by a $6.8 million credit due to the reduction in the fair value of ~~$3.2 million.~~our contingent earn-out liabilities. The ~~primary cause for the increase in~~ cash generated from ~~net income was as an~~working capital increase ~~in operating income and lower interest expense.~~of $20.0 million is primarily driven by a $19.4 million increase from accounts receivable.

Net cash used in investing activities was ~~$40.4~~$66.5 million for the ~~thirty-nine~~thirteen weeks ended ~~September~~March 27, ~~2019, an increase of $19.1~~2020, driven by $63.5 million ~~from the net~~in cash used ~~in investing activities of $21.3 million for the thirty-nine weeks ended September 28, 2018. The increase in net cash used was primarily due~~ to ~~more cash paid for~~fund acquisitions and $3.1 million in capital ~~expenditures.~~expenditures which included implementations of our Enterprise Resource Planning system.

Net cash ~~used in~~provided by financing activities was ~~$4.1~~$98.0 million for the ~~thirty-nine~~thirteen weeks ended ~~September~~March 27, ~~2019, an increase of $0.3~~2020, driven by a $100.0 million from the $3.8 million used in financing activities for the thirty-nine weeks ended September 28, 2018. This increase was primarily due to the payment of contingent earn-out obligations during the third quarter of 2019, partially offset by lower principal paymentsdraw on our debt as a result of the $47.1 million prepayment we made in the third quarter of 2018, partially offset by the $1.0 million principal payment we made on the ABL Facility during the second quarter of 2019.asset-based loan facility.

Seasonality

Excluding our direct-to-consumer business, we generally do not experience any material seasonality. However, our sales and operating results may vary from quarter to quarter due to factors such as changes in our operating expenses, management’s

ability to execute our operating and growth strategies, personnel changes, demand for our products, supply shortages, weather patterns and general economic conditions.

Our direct-to-consumer business is subject to seasonal fluctuations, with direct-to-consumer center-of-the-plate protein sales typically higher during the holiday season in our fourth quarter; accordingly, a disproportionate amount of operating cash flows from this portion of our business is generated by our direct-to-consumer business in the fourth quarter of our fiscal year. Despite a significant portion of these sales occurring in the fourth quarter, there are operating expenses, principally advertising and promotional expenses, throughout the year.

Inflation

Our profitability is dependent on, among other things, our ability to anticipate and react to changes in the costs of key operating resources, including food and other raw materials, labor, energy and other supplies and services. Substantial increases in costs and expenses could impact our operating results to the extent that such increases cannot be passed along to our customers. The impact of inflation and deflation on food, labor, energy and occupancy costs can significantly affect the profitability of our operations.

Off-Balance Sheet Arrangements

As of ~~September~~March 27, ~~2019,~~2020, we did not have any off-balance sheet arrangements, as defined in Item 303(a)(4)(ii) of Regulation S-K.

Critical Accounting Policies and Estimates

The preparation of the Company’s consolidated financial statements requires it to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities. The SEC has defined critical accounting policies as those that are both most important to the portrayal of the Company’s financial condition and results and require its most difficult, complex or subjective judgments or estimates. Based on this definition, we believe our critical accounting policies include the following: (i) determining our allowance for doubtful accounts, (ii) inventory valuation, with regard to determining inventory balance adjustments for excess and obsolete inventory, (iii) business combinations, (iv) valuing goodwill and intangible assets, ~~(iv)~~(v) vendor rebates and other promotional incentives, ~~(v)~~(vi) self-insurance reserves, ~~and (vi)~~(vii) accounting for income taxes and ~~(vii)~~(viii) contingent earn-out liabilities. ~~There have been no material changes to our~~Our critical accounting policies and estimates ~~as compared to our critical accounting policies and estimates~~are described in the Form 10-K filed with the SEC on ~~March 1, 2019.~~February 24, 2020. Pursuant to our adoption of Accounting Standards Update 2016-13 Financial Instruments - Credit Losses: Measurement of Credit Losses on Financial Instruments on December 28, 2019, our accounting policy for determining our allowance for doubtful accounts has been changed as follows:

Allowance for Doubtful Accounts

We analyze customer creditworthiness, accounts receivable balances, payment history, payment terms and historical bad debt levels when evaluating the adequacy of our allowance for doubtful accounts. In instances where a reserve has been recorded for a particular customer, future sales to the customer are either conducted using cash-on-delivery terms or the account is closely monitored so that agreed-upon payments are received prior to orders being released. A failure to pay results in held or cancelled orders. We also estimate receivables that will ultimately be uncollectible based upon historical write-off experience. Management incorporates current macro-economic factors in existence as of the balance sheet date that may impact the food-away-from-home industry and/or its customers, and specifically in the first quarter of fiscal 2020 the impact of the COVID-19 pandemic. We may be required to increase or decrease our allowance for doubtful accounts due to various factors, including the overall economic environment and particular circumstances of individual customers.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Interest Rate Risk

As of ~~September~~March 27, ~~2019,~~2020, we had an aggregate ~~$281.4~~$338.1 million of indebtedness outstanding under the Term Loan and ABL Facility that bore interest at variable rates. A 100 basis point increase in market interest rates would decrease our after tax earnings by approximately ~~$2.0~~$2.1 million per annum, holding other variables constant.

ITEM 4. CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures

The Company, under the supervision and with the participation of its management, including the Chief Executive Officer and the Chief Financial Officer, evaluated the effectiveness of the design and operation of the ~~Company's "disclosure~~Company’s “disclosure controls and ~~procedures"~~procedures” (as defined in Rule 13a-15(e) under the Securities Exchange Act of 1934, as amended (the ~~"Exchange Act")~~“Exchange Act”) as of the end of the period covered by this report. Based on that evaluation, the Chief Executive Officer and the Chief Financial Officer concluded that the Company's disclosure controls and procedures were effective as of ~~September~~March 27, ~~2019.~~2020.

Changes in Internal Control over Financial Reporting

We have implemented new internal controls to ensure we adequately evaluated our contracts and properly assessed the impact of the new accounting standard related to leases on our financial statements as a result of its adoption~~on December 29, 2018.~~ There were no ~~other~~ changes in our internal control over financial reporting during the quarter ended ~~September~~March 27, ~~2019~~2020 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

PART II. OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

We are involved in legal proceedings, claims and litigation arising out of the ordinary conduct of our business. Although we cannot assure the outcome, management presently believes that the result of such legal proceedings, either individually or in the aggregate, will not have a material adverse effect on our consolidated financial statements, and no material amounts have been accrued in our consolidated financial statements with respect to these matters.

ITEM 1A. RISK FACTORS

~~There has~~Except as stated below, there have been no material changes to our risk factors as previously disclosed in Part I, Item 1A. included in our Annual Report on Form 10-K for the year ended December 27, 2019 filed with ~~respect~~the SEC on February 24, 2020. In addition to the information contained herein, you should consider the risk factors disclosed in our Annual Report on Form ~~10-K filed~~10-K.

Significant public health epidemics or pandemics, including COVID-19, may adversely affect our business, results of operations and financial condition.

A public health epidemic or pandemic can significantly impact our business or those of our core customers or suppliers, particularly if located in geographies in which we have significant operations. Such events could significantly impact the food-away-from-home industry and other industries that are sensitive to changes in consumer discretionary spending habits. In addition, our operations could be disrupted if we were required to quarantine employees that work at our various distribution centers and processing facilities.

For instance, the recent outbreak of COVID-19 and its development into a pandemic is resulting in governmental authorities in many locations where we operate, and in which our customers are present and suppliers operate, to impose mandatory closures, seek voluntary closures and impose restrictions on, or advisories with respect to, travel, business operations and public gatherings or interactions. Among other matters, these actions have required or strongly urged various venues where foodservice products are served, including restaurants and hotels, to reduce or discontinue operations, which has and will continue to adversely affect demand in the ~~SEC~~foodservice industry, including demand for our products and services. In addition, the perceived risk of infection and health risk associated with COVID-19, and the illness of many individuals across the globe, is resulting in many of the same effects intended by such governmental authorities to stop the spread of COVID-19. These events have had, and could continue to have, an adverse impact on ~~March 1, 2019.~~numerous aspects of our business, financial condition and results of operations including, but not limited to, our growth, product costs, supply chain disruptions, labor shortages, logistics constraints, customer demand for our products and industry demand generally, consumer spending, our liquidity, the price of our securities and trading markets with respect thereto, our ability to access capital markets, and the global economy and financial markets generally. The extent to which the COVID-19 pandemic impacts our financial condition or results of operations is uncertain and will depend on future developments including new information that may emerge on the severity of the disease, the extent of the outbreak, and federal, state and local government responses, among others.

ITEM 2. ~~ISSUER PURCHASES~~UNREGISTERD SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

Total Number
of Shares
Repurchased(1)

Average
Price
Paid Per Share

Total
Number of Shares
Purchased as Part
of Publicly
Announced Plans
or Programs

Maximum
Number (or
Approximate
Dollar Value) of
Shares That May
Yet Be Purchased
Under the Plans
or Programs
June 29, 2019 to July 26, 2019 —
$ —
—
—
July 27, 2019 to August 23, 2019 3,293
37.52
—
—
August 24, 2019 to September 27, 2019 232
31.97
—
—
Total 3,525
$ 37.73
—
—



	Total Number of Shares Repurchased(1)	Average Price Paid Per Share		Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs	Maximum Number (or Approximate Dollar Value) of Shares That May Yet Be Purchased Under the Plans or Programs
December 28, 2019 to January 24, 2020	—	$	—	—	—
January 25, 2020 to February 21, 2020	22,899	37.28		—	—
February 22, 2020 to March 27, 2020	136,733	13.50		—	—
Total	159,632	$	16.91	—	—

(1)

During the thirteen weeks ended ~~September~~March 27, ~~2019,~~2020, we withheld ~~3,525~~159,632 shares of our common stock to satisfy tax withholding requirements ~~upon the vesting of~~related to restricted shares of our common stock awarded to our officers and key ~~employees.~~employees resulting from either elections under 83(b) of the Internal Revenue Code of 1986, as amended, or upon vesting of such awards.

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

None.

ITEM 4. MINE SAFETY DISCLOSURES

None.

ITEM 5. OTHER INFORMATION

None.

ITEM 6. EXHIBITS



Exhibit No.		Description

3.1		Certificate of Designation of the Voting Powers, Designation, Preferences and Relative, Participating, Optional or Other Special Rights and Qualifications, Limitations and Restrictions of the Series A Preferred Stock of The Chefs’ Warehouse, Inc. (incorporated by reference to Exhibit 3.1 to the Company’s Form 8-K filed on March 23, 2020)

4.1		Rights Agreement, dated as of March 22, 2020, between The Chefs’ Warehouse, Inc. and American Stock Transfer & Trust Company, LLC, as Rights Agent (incorporated by reference to Exhibit 4.1 to the Company’s Form 8-K filed on March 23, 2020)

10.1		Form of Restricted Share Award Agreement under The Chefs’ Warehouse, Inc. 2019 Omnibus Equity Incentive Plan.Plan

10.2		The Chefs’ Warehouse, Inc. Executive Change in Control Plan*

10.3		Form of Executive Severance Agreement*

31.1		Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

31.2		Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

32.1		Certification of Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

32.2		Certification of Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

101.INS		XBRL Instance Document – the instance document does not appear on the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document

101.SCH		XBRL Taxonomy Extension Schema Document

101.CAL		XBRL Taxonomy Extension Calculation Linkbase Document

101.DEF		XBRL Taxonomy Extension Definition Linkbase Document

101.LAB		XBRL Taxonomy Extension Label Linkbase Document

101.PRE		XBRL Taxonomy Extension Presentation Linkbase Document

104		Cover Page Interactive Data File - the cover page XBRL tags are embedded within the Inline XBRL document.

* Compensatory Plan or Arrangement

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized on ~~October 30, 2019.~~May 6, 2020.



			THE CHEFS’ WAREHOUSE, INC.
			(Registrant)

Date: ~~October 30, 2019~~May 6, 2020			/s/ James Leddy
			James Leddy
			Chief Financial Officer
			(Principal Financial Officer)

Date: ~~October 30, 2019~~May 6, 2020			/s/ Timothy McCauley
			Timothy McCauley
			Chief Accounting Officer
			(Principal Accounting Officer)

2826



	Balance Sheet Location	September 27, 2019
Short-term finance lease liabilities	Current portion of long-term debt	$	317
Long-term finance lease liabilities	Long-term debt, net of current portion	$	1,316



	Operating Leases									Finance Leases
	Related Party Real Estate		Third Party Real Estate		Vehicles and Equipment		Total			Vehicles and Equipment
2019	$	125	$	3,323	$	3,235	$	6,683		$	102
2020	365		13,373		11,592		25,330			406
2021	—		13,049		9,322		22,371			402
2022	—		12,976		7,282		20,258			386
2023	—		12,147		4,787		16,934			323
Thereafter	—		108,736		2,352		111,088			282
Total	$	490	$	163,604	$	38,570	$	202,664		$	1,901
Less interest							(60,869		)	(268		)
Present value							$	141,795		$	1,633



	Shares		Weighted Average Exercise Price		Aggregate Intrinsic Value		Weighted Average Remaining Contractual Term (in years)
Outstanding December 28, 2018	191,808		$	20.23	$	2,129	7.2
Granted	—		—
Exercised	(31,412	)	20.23
Canceled/Forfeited	—		—
Outstanding and vested at September 27, 2019	160,396		$	20.23	$	3,134	6.5
Exercisable at September 27, 2019	160,396		$	20.23	$	3,134	6.5