SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549



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



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

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)~~

~~(Zip Code)~~

Large accelerated filer

☐☒

Accelerated filer

☒☐

Non-accelerated filer

☐

~~(Do not check if a smaller reporting company)~~

Smaller reporting company

☐

Emerging growth company

☐

If an emerging growth company, indicate by check mark if 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 ~~November 6, 2017: 26,564,078~~

July 24, 2020: 37,797,548

~~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 ~~Company’s ability to successfully deploy its operational initiatives to achieve synergies from~~following: our ~~acquisitions; the Company’s and its customers current economic environment, changes in disposable income levels and consumer discretionary spending on food-away-from-home purchases; the Company’s~~ sensitivity to general economic conditions, including ~~vulnerability~~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 ~~geographic markets~~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; interest charged on our outstanding debt may be adversely affected by changes in ~~which it operates;~~ the ~~risks~~method of ~~supply chain interruptions due to lack~~determining London Interbank Offered Rate (LIBOR), or the replacement of ~~long-term contracts, severe weather~~LIBOR with an alternative rate; our business operations and future development could be significantly disrupted if we lose key members of our management team; and significant public health epidemics or ~~more prolonged climate change, work stoppages or otherwise; the risk~~pandemics, including COVID-19, may adversely affect our business, results of ~~loss of customers due~~operations and financial condition. Any forward-looking statements are made pursuant to the ~~fact~~Private Securities Litigation Reform Act of 1995, Section 27A of the ~~Company does not customarily have long-term contracts with its customers;~~Securities Act of 1933, as amended, and Section 21E of the ~~risks~~Securities Exchange Act of ~~loss~~1934, as amended, and, as such, speak only as of ~~revenue or reductions in operating margins~~the date made. A more detailed description of these and other risk factors is contained in the Company’s protein business as a result of competitive pressures within this reporting unit of the Company’s business; changes in the availability or cost of the Company’s specialty food products; the ability to effectively price the Company’s specialty food products and reduce the Company’s expenses; the relatively low margins of the foodservice distribution industry and the Company’s sensitivity to inflationary and deflationary pressures; the Company’s ability to successfully identify, obtain financing for and complete acquisitions of other foodservice distributors and to integrate and realize expected synergies from those acquisitions; the Company’s ability to service customers from its Chicago, San Francisco and Las Vegas distribution centers and the expenses associated therewith; increased fuel cost volatility and expectations regarding the use of fuel surcharges; fluctuations in the wholesale prices of beef, poultry and seafood, including increases in these prices as a result of increases in the cost of feeding and caring for livestock; the loss of key members of the Company’s management team and the Company’s ability to replace such personnel; the strain on the Company’s infrastructure and resources caused by its growth; and other risks and uncertainties included under the heading Risk Factors in ourmost recent Annual Report on Form 10-K filed ~~on March 10, 2017~~ with the Securities and Exchange Commission ~~(the “SEC”~~(“SEC”).

on February 24, 2020 and other reports, including this Quarterly Report on Form 10-Q, filed by the Company with the SEC since that date. The Company is not undertaking to update any information in the foregoing report until the effective date of its future reports required by applicable laws.

PART I FINANCIAL INFORMATION

ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS

THE CHEFS’ WAREHOUSE, INC.

CONSOLIDATED BALANCE SHEETS

(Amounts in thousands, except share data)


	September 29, 2017 (unaudited)			December 30, 2016				June 26, 2020 (unaudited)		December 27, 2019
ASSETS							ASSETS
Current assets:							Current assets:
Cash and cash equivalents	$	4,071		$	32,862		Cash and cash equivalents	$	201,824	$	140,233
Accounts receivable, net of allowance of $7,950 in 2017 and $6,091 in 2016	135,398			128,030
Accounts receivable, net of allowance of $26,129 in 2020 and $8,846 in 2019							Accounts receivable, net of allowance of $26,129 in 2020 and $8,846 in 2019	105,125		175,044
Inventories, net	109,862			87,498			Inventories, net	96,627		124,056

Prepaid expenses and other current assets	11,564			16,101			Prepaid expenses and other current assets	27,711		13,823
Total current assets	260,895			264,491			Total current assets	431,287		453,156
Equipment and leasehold improvements, net	69,041			62,183
Software costs, net	5,114			5,927

Equipment, leasehold improvements and software, net							Equipment, leasehold improvements and software, net	121,175		92,846
Operating lease right-of-use assets							Operating lease right-of-use assets	122,881		127,649
Goodwill	172,943			163,784			Goodwill	214,561		197,743
Intangible assets, net	143,533			131,131			Intangible assets, net	142,355		138,751

Other assets	3,024			6,022			Other assets	3,141		3,534
Total assets	$	654,550		$	633,538		Total assets	$	1,035,400	$	1,013,679
LIABILITIES AND STOCKHOLDERS’ EQUITY							LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:							Current liabilities:
Accounts payable	$	83,067		$	65,514		Accounts payable	$	60,878	$	94,097
Accrued liabilities	16,871			17,546			Accrued liabilities	28,368		29,847
Short-term operating lease liabilities							Short-term operating lease liabilities	17,968		17,453
Accrued compensation	11,156			9,519			Accrued compensation	8,550		8,033
Current portion of long-term debt	4,224			14,795			Current portion of long-term debt	5,905		721
Total current liabilities	115,318			107,374			Total current liabilities	121,669		150,151
Long-term debt, net of current portion	315,115			317,725			Long-term debt, net of current portion	397,818		386,106
Operating lease liabilities							Operating lease liabilities	115,757		120,572
Deferred taxes, net	9,113			6,958			Deferred taxes, net	5,069		10,883
Other liabilities and deferred credits	10,528			7,721			Other liabilities and deferred credits	7,770		10,034
Total liabilities	450,074			439,778			Total liabilities	648,083		677,746
Commitments and contingencies	—			—			Commitments and contingencies
Stockholders’ equity:							Stockholders’ equity:
Preferred Stock, $0.01 par value, 5,000,000 shares authorized, no shares issued and outstanding September 29, 2017 and December 30, 2016	—			—
Common Stock, $0.01 par value, 100,000,000 shares authorized, 26,564,168 and 26,280,469 shares issued and outstanding at September 29, 2017 and December 30, 2016, respectively	266			263
Additional paid-in capital	132,405			127,180
Preferred Stock - $0.01 par value, 5,000,000 shares authorized, 0 shares issued and outstanding at June 26, 2020 and December 27, 2019							Preferred Stock - $0.01 par value, 5,000,000 shares authorized, 0 shares issued and outstanding at June 26, 2020 and December 27, 2019	—		—
Common Stock, - $0.01 par value, 100,000,000 shares authorized, 37,798,548 and 30,341,941 shares issued and outstanding at June 26, 2020 and December 27, 2019, respectively							Common Stock, - $0.01 par value, 100,000,000 shares authorized, 37,798,548 and 30,341,941 shares issued and outstanding at June 26, 2020 and December 27, 2019, respectively	378		304
Additional paid in capital							Additional paid in capital	298,230		212,240
Accumulated other comprehensive loss	(1,581		)	(2,186		)	Accumulated other comprehensive loss	(2,309)		(2,048)
Retained earnings	73,386			68,503			Retained earnings	91,018		125,437
Stockholders’ equity	204,476			193,760
Total stockholders’ equity							Total stockholders’ equity	387,317		335,933
Total liabilities and stockholders’ equity	$	654,550		$	633,538		Total liabilities and stockholders’ equity	$	1,035,400	$	1,013,679

See accompanying notes to the consolidated financial statements.


	Thirteen Weeks Ended						Twenty-Six Weeks Ended
	June 26, 2020		June 28, 2019		June 26, 2020		June 28, 2019
Net sales	$	200,496	$	411,420	$	575,927	$	768,447
Cost of sales	153,057		304,945		437,587		571,783
Gross profit	47,439		106,475		138,340		196,664
Operating expenses	72,847		90,939		180,764		174,978
Operating (loss) income	(25,408)		15,536		(42,424)		21,686
Interest expense	5,772		4,845		10,896		9,396
Loss on asset disposal	1		6		43		40
(Loss) income before income taxes	(31,181)		10,685		(53,363)		12,250
Provision for income tax (benefit) expense	(10,847)		2,939		(18,944)		3,370
Net (loss) income	$	(20,334)	$	7,746	$	(34,419)	$	8,880
Other comprehensive (loss) income:
Foreign currency translation adjustments	117		118		(261)		173
Comprehensive (loss) income	$	(20,217)	$	7,864	$	(34,680)	$	9,053
Net (loss) income per share:
Basic	$	(0.57)	$	0.26	$	(1.05)	$	0.30
Diluted	$	(0.57)	$	0.26	$	(1.05)	$	0.30
Weighted average common shares outstanding:
Basic	35,759,193		29,527,167		32,672,876		29,492,138
Diluted	35,759,193		29,848,285		32,672,876		29,844,614

Thirteen Weeks Ended
September 29, 2017 September 23, 2016
Net sales $ 325,076
$ 297,917
Cost of sales 244,171
223,525
Gross profit 80,905
74,392
Operating expenses 70,411
66,106
Operating income 10,494
8,286
Interest expense 5,593
5,947
Loss on asset disposal 10
40
Income before income taxes 4,891
2,299
Provision for income tax expense 2,040
956
Net income $ 2,851
$ 1,343
Other comprehensive income (loss):

Foreign currency translation adjustments 369
(72 )
Comprehensive income $ 3,220
$ 1,271
Net income per share:

Basic $ 0.11
$ 0.05
Diluted $ 0.11
$ 0.05
Weighted average common shares outstanding:

Basic 26,092,387
25,936,832
Diluted 27,387,619
25,977,171

See accompanying notes to the consolidated financial statements.

THE CHEFS’ WAREHOUSE, INC.

CONSOLIDATED STATEMENTS OF ~~OPERATIONS AND COMPREHENSIVE INCOME (LOSS)~~CHANGES IN STOCKHOLDERS’ EQUITY

(Unaudited)

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


	Common Stock					Additional Paid in Capital		Accumulated Other Comprehensive Loss		Retained Earnings		Total
	Shares	Amount
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

Net loss	—	—		—		—		(20,334)		(20,334)
Stock compensation	176,037	2		1,997		—		—		1,999

Public offering of common stock	6,634,615	66		85,875		—		—		85,941


Cumulative translation adjustment	—	—		—		117		—		117
Shares surrendered to pay tax withholding	(1,846)	—		(23)		—		—		(23)
Balance June 26, 2020	37,798,548	$	378	$	298,230	$	(2,309)	$	91,018	$	387,317

Thirty-nine Weeks Ended
September 29, 2017 September 23, 2016
Net sales $ 944,422
$ 849,962
Cost of sales 707,017
637,809
Gross profit 237,405
212,153
Operating expenses 211,627
187,318
Operating income 25,778
24,835
Interest expense 17,406
35,271
Loss on asset disposal 10
43
Income (loss) before income taxes 8,362
(10,479 )
Provision for income tax expense (benefit) 3,479
(4,360 )
Net income (loss) $ 4,883
$ (6,119 )
Other comprehensive income:

Foreign currency translation adjustments 605
1,034
Comprehensive income (loss) $ 5,488
$ (5,085 )
Net income (loss) per share:

Basic $ 0.19
$ (0.24 )
Diluted $ 0.19
$ (0.24 )
Weighted average common shares outstanding:

Basic 26,011,913
25,911,278
Diluted 26,063,655
25,911,278


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

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							Twenty-Six Weeks Ended
	September 29, 2017			September 23, 2016				June 26, 2020		June 28, 2019
Cash flows from operating activities:							Cash flows from operating activities:
Net income (loss)	$	4,883		$	(6,119	)
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
Depreciation	6,322			4,966
Amortization	8,712			8,704
Net (loss) income							Net (loss) income	$	(34,419)	$	8,880
Adjustments to reconcile net (loss) income to net cash provided by operating activities:							Adjustments to reconcile net (loss) income to net cash provided by operating activities:
Depreciation and amortization							Depreciation and amortization	9,675		6,055
Amortization of intangible assets							Amortization of intangible assets	6,720		6,184
Provision for allowance for doubtful accounts	2,841			2,674			Provision for allowance for doubtful accounts	19,611		1,914
Deferred rent	254			1,340
Non-cash operating lease expense							Non-cash operating lease expense	463		1,151
Deferred taxes	1,755			1,169			Deferred taxes	(5,814)		1,332
Amortization of deferred financing fees	1,574			1,209			Amortization of deferred financing fees	1,478		1,044
Loss on debt extinguishment	—			22,310

Stock compensation	2,384			1,909			Stock compensation	2,850		2,003
Change in fair value of contingent earn-out liability	72			(1,601		)
Loss on sale of assets	10			43
Change in fair value of contingent earn-out liabilities							Change in fair value of contingent earn-out liabilities	(6,649)		2,795
Loss on asset disposal							Loss on asset disposal	43		40
Changes in assets and liabilities, net of acquisitions:							Changes in assets and liabilities, net of acquisitions:
Accounts receivable	(5,760		)	4,627			Accounts receivable	70,483		7,424
Inventories	(19,731		)	5,638			Inventories	34,877		(7,965)
Prepaid expenses and other current assets	1,668			(15,612		)	Prepaid expenses and other current assets	(9,460)		(640)
Accounts payable, accrued liabilities and accrued compensation	20,430			(8,424		)	Accounts payable, accrued liabilities and accrued compensation	(43,398)		(5,482)
Other liabilities	(1,997		)	(1,186		)
Other assets	(214		)	(439		)

Other assets and liabilities							Other assets and liabilities	1,119		(2,845)
Net cash provided by operating activities	23,203			21,208			Net cash provided by operating activities	47,579		21,890

Cash flows from investing activities:							Cash flows from investing activities:
Capital expenditures	(9,860		)	(11,532		)	Capital expenditures	(4,400)		(8,549)
Cash paid for acquisitions, net of cash received	(29,722		)	(19,742		)	Cash paid for acquisitions, net of cash received	(63,450)		(28,292)

Net cash used in investing activities	(39,582		)	(31,274		)	Net cash used in investing activities	(67,850)		(36,841)

Cash flows from financing activities:							Cash flows from financing activities:
Payment of debt	(11,641		)	(156,655		)
Proceeds from issuance of debt	—			315,810
Debt prepayment penalty and other fees	—			(21,219		)
Cash paid for deferred financing fees	—			(7,691		)

Payment of debt, finance lease and other financing obligations							Payment of debt, finance lease and other financing obligations	(37,439)		(1,716)
Proceeds from the issuance of common stock, net of issuance costs							Proceeds from the issuance of common stock, net of issuance costs	85,941		—

Payment of deferred financing fees							Payment of deferred financing fees	(856)		—
Proceeds from exercise of stock options							Proceeds from exercise of stock options	—		558
Surrender of shares to pay withholding taxes	(455		)	(552		)	Surrender of shares to pay withholding taxes	(2,727)		(868)
Cash paid for contingent earn-out liability	(500		)	(2,660		)	Cash paid for contingent earn-out liability	(2,927)		(200)
Borrowings under revolving credit facility	—			33,200
Payments under revolving credit facility	—			(126,582		)
Net cash (used in) provided by financing activities	(12,596		)	33,651
Effect of foreign currency translation on cash and cash equivalents	184			152
Net (decrease) increase in cash and cash equivalents	(28,791		)	23,737
Borrowings under asset-based loan facility							Borrowings under asset-based loan facility	100,000		—
Payments under asset based loan facility							Payments under asset based loan facility	(60,000)		(960)

Net cash provided by (used in) financing activities							Net cash provided by (used in) financing activities	81,992		(3,186)

Effect of foreign currency on cash and cash equivalents							Effect of foreign currency on cash and cash equivalents	(130)		21
Net change in cash and cash equivalents							Net change in cash and cash equivalents	61,591		(18,116)
Cash and cash equivalents-beginning of period	32,862			2,454			Cash and cash equivalents-beginning of period	140,233		42,410
Cash and cash equivalents-end of period	$	4,071		$	26,191		Cash and cash equivalents-end of period	$	201,824	$	24,294

See accompanying notes to the consolidated financial statements.

THE CHEFS’ WAREHOUSE, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

(Amounts in thousands, except share ~~amounts~~ and per share ~~data)~~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~~year-end to the calendar year. The ~~fiscal year ended December 30, 2016 consisted~~Company’s business consists of ~~53 weeks. The Company operates in one~~3 operating segments: East Coast, Midwest and West Coast that aggregate into 1 reportable segment, ~~food product~~foodservice distribution, which is concentrated primarily ~~on the East and West Coasts of~~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.~~stores, grocers and warehouse clubs.

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. State and local governments began to ease these restrictions in mid-May however, restrictions in certain of key markets were not eased until early June. As of June 26, 2020, the majority of state and local governments with jurisdiction over markets in which the Company operates allow the Company’s customers to operate outdoor dining service and in certain markets, indoor dining service while adhering to specified social distancing and capacity restrictions. The duration and extent of restrictions imposed on the Company’s customers by federal, state and local governments is dependent on future developments regarding the pandemic including new information about the severity of the disease, trends in infection rates, and development of effective medical treatments for the disease, among others. Due to COVID-19, the Company incurred estimated non-cash charges of approximately $15,800 related to incremental bad debt expense and approximately $8,800 related to incremental inventory obsolescence during the twenty-six weeks ended June 26, 2020. 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 during the first quarter of 2020 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 ~~30, 2016~~27, 2019 filed as part of the Company’s Annual Report on Form 10-K, as filed with the SEC on ~~March 10, 2017.~~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 10, 2017,~~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~~twenty-six weeks ended ~~September 29, 2017~~June 26, 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.

~~Note 2 Recently Issued Accounting Pronouncements~~

Guidance Adopted in ~~2017~~Fiscal 2020

~~Subsequent~~ Measurement of ~~Inventory:~~Credit Losses on Financial Instruments: In ~~July 2015,~~June 2016 and as further amended in November 2018, the Financial Accounting Standards Board ~~(“FASB”~~(the “FASB”) issued guidance which requires entities to ~~simplify the subsequent measurement~~use a forward-looking expected loss model to estimate credit losses. It also requires additional disclosure related to credit quality of ~~inventory. This guidance requires that inventory be measured at the lower~~trade and other receivables, including information related to management’s estimate of ~~cost or net realizable value.~~credit allowances. The Company adopted this guidance ~~prospectively. Adoption~~on December 28, 2019. The Company analyzes customer creditworthiness, accounts receivable balances, payment history, payment terms and historical bad debt levels when evaluating the adequacy of ~~this guidance did not~~its 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. 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 ~~Company's consolidated financial statements.~~

~~Improvements to Employee Share-Based Payment Accounting:~~ ~~In March 2016, the FASB issued guidance to simplify the accounting for employee share-based payments. The main provisions are to recognize excess tax benefits~~food-away-from-home industry and/or its customers, and specifically, beginning in the ~~income statement rather than to additional paid-in capital, allow an entity to account for forfeitures as they occur, allow an entity to~~

~~withhold employee shares up to~~first quarter of fiscal 2020, the ~~individual's maximum statutory tax rate without triggering liability classification~~impact of the award, present excess tax benefits as an operating cash flow and to present cash payments for employee tax withholding on vested stock awards as a financing cash flow. The guidance also requires that any unrecognized tax benefits that were not previously recognized be recorded through a cumulative-effect adjustment to retained earnings in the period in which the guidance is adopted. Upon adoption, the Company made an accounting policy election to account for forfeitures as they occur and there were no unrecognized tax benefits.COVID-19. Adoption of this guidance did not have a material ~~impact~~effect on the ~~Company's~~Company’s consolidated financial statements.

~~Restricted Cash:~~ Leases: In ~~November 2016,~~April 2020, the FASB issued guidance ~~which includes~~describing appropriate approaches entities should follow when accounting for lease concessions negotiated due to the effects of COVID-19. The Company has negotiated rent deferrals with certain lessors that do not materially modify the amount of consideration due under the original contract terms. Consistent with the guidance, the Company elected to ~~clarify how companies present and classify restricted cash or restricted cash equivalents in the statement of cash flows.~~recognize such rent deferrals as accrued expenses. The ~~guidance requires that a statement of cash flows explain the change~~Company will continue to recognize expense during the period in the total of cash, cash equivalents and amounts generally described as restricted cash or restricted cash equivalents. Adoption of this guidance did not impact the consolidated financial statements as the Company does not have restricted cash.deferral period.

~~Simplifying the Test for Goodwill Impairment:~~ In January 2017, the FASB issued guidance which simplifies goodwill impairment testing by removing Step 2 from the goodwill impairment test which required companies to assign the fair value of a reporting unit to its underlying assets and liabilities. Instead, an entity should recognize an impairment charge for the amount by which the carry amount of a reporting unit exceeds its fair value. Adoption of this guidance did not impact the Company's consolidated financial statements.

~~Scope of Modification Accounting:~~ In May 2017, the FASB issued guidance which clarifies when to account for a change to the terms or conditions of a share-based payment award as a modification. Under the new guidance, modification accounting is required only if the fair value, the vesting conditions, or the classification of the award (as equity or liability) changes as a result of the change in terms or conditions. Adoption of this guidance did not impact the consolidated financial statements as the Company did not have any share-based payment award modifications.

Guidance Not Yet Adopted

Simplifying the Accounting for Income Taxes: In ~~May 2014,~~December 2019, the FASB issued guidance that eliminates certain exceptions related to ~~clarify~~ the ~~principles~~approach for ~~recognizing revenue. This guidance includes~~intraperiod tax allocations, the ~~required steps to achieve the core principle that an entity should recognize revenue to depict the transfer of promised goods or services to customers~~methodology for calculating income taxes in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. On August 12, 2015, the FASB voted to defer the effective date by one year to December 15, 2017 for interim period and ~~annual reporting periods beginning after that date. Early adoption is permitted but not before the original effective date (annual periods beginning after December 15, 2016).~~

other simplifications and clarifications. The ~~Company has performed a preliminary analysis on the impact this~~ guidance ~~has on its customer contracts, sales incentive programs, gift card programs, information systems, business processes, and financial statement disclosures. The analysis~~ will be finalized during the fourth quarter. The new revenue recognition model provides guidance on the identification of multiple performance obligations embedded within customer contracts. Based on the preliminary analysis, the Company's customer contracts appear to include one performance obligation which is satisfied once each product is delivered to the customer. Thus revenues will be recognized at a point in time. Under the new standard such performance obligations are satisfied at the point at which the Company transfers control to the customer. This is consistent with the Company's current practice of recognizing revenue upon delivery to the customer, with the exception of the Company's current practice of recognizing revenue at shipping point on direct-to-consumer sales. The Company is in the process of quantifying the impact that the change in revenue recognition timing of its direct-to-consumer sales will have on its financial statements.

The new standard includes the concept of variable consideration and requires companies to include variable consideration in the transaction price to the extent it is probable that there will not be a significant reversal in the amount of cumulative revenue recognized when the uncertainty is resolved. Although the Company's sales incentive programs fall under the scope of this new guidance, it is not expected to have a significant impact on the amount or timing of revenue recognition.

The new standard addresses current diversity in practice in regards to the derecognition of unredeemed gift card liabilities that are not subject to unclaimed property laws. The new guidance requires companies to recognize revenue on such liabilities through breakage or when the likelihood of customer redemption becomes remote. This is consistent with the Company's existing method of recognizing breakage revenue on these liabilities.

The Company expects to adopt this guidance when effective using the modified retrospective approach. Under this approach, prior financial statements would not be restated and a cumulative effect adjustment, if any, will be recorded as an adjustment to

~~retained earnings. Adoption will result in expanded disclosures on revenue recognition policies, disaggregated revenues and contract liabilities.~~

In February 2016, the FASB issued guidance to increase the transparency and comparability among organizations by recognizing right-of-use assets and lease liabilities on the balance sheet and disclosing key information about leasing arrangements. Current GAAP does not require lessees to recognize assets and liabilities arising from operating leases on the balance sheet. This new guidance is effective for fiscal years beginning after December 15, ~~2018.~~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 – 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 ~~early stages~~form of ~~implementation. Adoption will have a material impact~~rebates or discounts. These sales incentives are accounted as variable consideration. The Company estimates these amounts based on the ~~Company's~~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														Twenty-Six Weeks Ended
	June 26, 2020						June 28, 2019						June 26, 2020				June 28, 2019
Center-of-the-Plate	$	115,834	57.8	%	$	183,513	44.6	%	$	279,654	48.6	%	$	340,129	44.3	%
Dry Goods	24,099		12.0	%	68,106		16.6	%	81,985		14.2	%	128,139		16.7	%
Pastry	15,548		7.8	%	56,532		13.7	%	64,809		11.3	%	106,737		13.9	%
Cheese and Charcuterie	15,594		7.8	%	41,218		10.0	%	50,667		8.8	%	76,573		10.0	%
Produce	12,048		6.0	%	4,659		1.1	%	36,068		6.3	%	8,380		1.1	%
Dairy and Eggs	7,495		3.7	%	28,671		7.0	%	29,641		5.1	%	54,285		7.1	%
Oils and Vinegars	5,436		2.7	%	20,937		5.1	%	21,595		3.7	%	39,630		5.2	%
Kitchen Supplies	4,442		2.2	%	7,784		1.9	%	11,508		2.0	%	14,574		1.7	%
Total	$	200,496	100	%	$	411,420	100	%	$	575,927	100	%	$	768,447	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 ~~financial statements, primarily to~~balance sheets, of $1,276 and $1,345 as of June 26, 2020 and December 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 $145 and $314 as of June 26, 2020 and December 27, 2019, respectively. Refund liabilities are reflected as accrued liabilities on the consolidated balance ~~sheets and related disclosures.~~

In January 2017, the FASB issued guidance which clarifies whether transactions should be accounted for as acquisitions of assets or businesses. The guidance requires an entity to determine if substantially all of the fair value of the assets acquired is concentrated in a single identifiable asset or a group of similar identifiable assets. If this criterion is met, the new guidance would define this as an asset acquisition. Furthermore, the guidance requires a business to include, at a minimum, an input and substantive process that together significantly contribute to the ability to create outputs. The guidance is effective for fiscal years beginning after December 15, 2017.sheets. The Company ~~expects~~recognized a corresponding asset of $90 and $194 as of June 26, 2020 and December 27, 2019, respectively, for its right to ~~adopt this guidance~~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 ~~effective and adoption~~incurred because the amortization period is ~~not expected to have a material effect~~one year or less. These costs are presented within operating expenses on ~~its financial statements.~~the Company’s consolidated statements of operations.

Note 3 ~~Earnings~~– Net (Loss) ~~Per~~Income per Share

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


	Thirteen Weeks Ended						Twenty-Six Weeks Ended
	June 26, 2020		June 28, 2019		June 26, 2020		June 28, 2019
Net (loss) income per share:
Basic	$	(0.57)	$	0.26	$	(1.05)	$	0.30
Diluted	$	(0.57)	$	0.26	$	(1.05)	$	0.30
Weighted average common shares:
Basic	35,759,193		29,527,167		32,672,876		29,492,138
Diluted	35,759,193		29,848,285		32,672,876		29,844,614

Thirteen Weeks Ended Thirty-nine Weeks Ended
September 29, 2017 September 23, 2016 September 29, 2017 September 23, 2016
Net income (loss) per share:
Basic $ 0.11
$ 0.05
$ 0.19
$ (0.24 )
Diluted $ 0.11
$ 0.05
$ 0.19
$ (0.24 )
Weighted average common shares:

Basic 26,092,387
25,936,832
26,011,913
25,911,278
Diluted 27,387,619
25,977,171
26,063,655
25,911,278

Reconciliation of net (loss) income ~~(loss)~~ per common share:

Thirteen Weeks Ended Thirty-nine Weeks Ended
September 29, 2017 September 23, 2016 September 29, 2017 September 23, 2016
Numerator:
Net income (loss) $ 2,851
$ 1,343
$ 4,883
$ (6,119 )
Add effect of dilutive securities:

Interest on convertible notes, net of tax 134
—
—
—
Adjusted net income (loss) $ 2,985
$ 1,343
$ 4,883
$ (6,119 )
Denominator:

Weighted average basic common shares outstanding 26,092,387
25,936,832
26,011,913
25,911,278
Dilutive effect of unvested common shares 57,858
40,339
51,742
—
Dilutive effect of convertible notes 1,237,374
—
—
—
Weighted average diluted common shares outstanding 27,387,619
25,977,171
26,063,655
25,911,278


	Thirteen Weeks Ended						Twenty-Six Weeks Ended
	June 26, 2020		June 28, 2019		June 26, 2020		June 28, 2019
Numerator:
Net (loss) income	$	(20,334)	$	7,746	$	(34,419)	$	8,880



Denominator:
Weighted average basic common shares outstanding	35,759,193		29,527,167		32,672,876		29,492,138
Dilutive effect of stock options and unvested common shares	—		321,118		—		352,476

Weighted average diluted common shares outstanding	35,759,193		29,848,285		32,672,876		29,844,614

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


	Thirteen Weeks Ended			Twenty-Six Weeks Ended
	June 26, 2020	June 28, 2019	June 26, 2020	June 28, 2019
Restricted share awards (“RSAs”)	534,172	148,793	393,905	74,291

Convertible notes	3,484,788	91,053	3,484,788	91,053

Thirteen Weeks Ended Thirty-nine Weeks Ended
September 29, 2017 September 23, 2016 September 29, 2017 September 23, 2016
Restricted Share Awards (RSAs) 104,053
158,539
134,139
309,922
Stock options 201,878
209,071
203,617
209,071
Convertible subordinated notes —
1,237,374
1,237,374
1,237,374

Note 4 – Fair Value ~~Measurements; Fair Value of Financial Instruments~~Measurements

Assets and Liabilities Measured at Fair Value

~~As of September 29, 2017, the~~The Company’s ~~only assets or~~contingent earn-out liabilities are measured at fair value were the contingent earn-out liabilities from the acquisition of Del Monte Capitol Meat Co. and certain related entities (“Del Monte”) and Fells Point Wholesale Meats Inc. (“Fells Point”).value. These liabilities were estimated using Level 3 ~~inputs~~inputs. Long-term earn-out liabilities were $5,192 and ~~had a fair value~~$7,957 as of ~~$5,934~~June 26, 2020 and December 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.

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


	Fells Point		Bassian		Sid Wainer		Other Acquisitions		Total





Balance December 27, 2019	$	4,544	$	7,957	$	—	$	2,197	$	14,698
Acquisition value	—		—		2,081		1,383		3,464

Cash payments	—		(2,250)		—		(677)		(2,927)
Changes in fair value	(2,540)		(1,677)		(1,591)		(841)		(6,649)
Balance June 26, 2020	$	2,004	$	4,030	$	490	$	2,062	$	8,586

Del Monte MT Food Fells Point Total
Balance December 30, 2016 $ 1,362
$ 500
$ —
$ 1,862
Acquisition —
—
4,500
4,500
Cash payments —
(500 ) —
(500 )
Changes in fair value 72
—
—
72
Balance September 29, 2017 $ 1,434
$ —
$ 4,500
$ 5,934

Fair Value of Financial Instruments

The carrying amounts reported in the Company’s consolidated balance sheets for accounts receivable and accounts payable approximate fair value, due to the immediate to short-term nature of these financial instruments. The fair values of the revolving credit facility and term loans approximated their book values as of September 29, 2017 and December 30, 2016, as these instruments had variable interest rates that reflected current market rates available to the Company. The fair value of these debt instruments were estimated using Level 3 inputs.

The following table presents the carrying value and fair value of the Company’s convertible ~~subordinated notes (more fully described in Note 9).~~notes. In estimating the fair value of ~~these~~the convertible ~~secured~~ 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~~risk-free interest rate in calculating the fair value estimate.


	June 26, 2020						December 27, 2019
	Carrying Value		Fair Value		Carrying Value		Fair Value
Convertible Senior Notes	$	150,000	$	137,083	$	150,000	$	165,000
Convertible Unsecured Note	$	4,000	$	3,790	$	4,000	$	4,282

September 29, 2017 December 30, 2016
Carrying Value Fair Value Carrying Value Fair Value
Convertible Secured Notes $ 36,750
$ 37,632
$ 36,750
$ 35,557

Note 5 – Acquisitions

~~Fells Point~~Sid Wainer

On ~~August 25, 2017, the Company entered into~~January 27, 2020, pursuant to an asset purchase agreement, ~~to acquire~~the Company acquired substantially all of the assets, including certain real-estate assets, of ~~Fells Point,~~Sid Wainer & Son (“Sid Wainer”), a specialty ~~protein manufacturer~~food and produce distributor ~~based~~ in ~~the metro Baltimore and Washington DC area.~~New England. The ~~aggregate~~final purchase price ~~for the transaction at acquisition date~~ was approximately ~~$33,022, including the impact~~$44,081, consisting of ~~an initial net working capital adjustment which is subject to a post-closing working capital adjustment true up. Approximately $29,722 was~~$46,450 paid in cash at closing, ~~and the remaining $3,300 consisted of 185,442 shares of the Company's common stock.~~

partially offset by $2,369 net working capital true-up receivable. The Company will also pay additional contingent consideration, if earned, in the form of an earn-out amount which could total ~~approximately $12,000.~~$4,000 over a two-year period. The payment of the earn-out liability is subject to the successful achievement of ~~annual Adjusted EBITDA targets for the Fells Point business over a period of four years following closing. At September 29, 2017 and August 25, 2017, the~~certain gross profit targets. The Company estimated the fair value of this contingent earn-out liability to be ~~$4,500.~~ $2,081 and $490 as of January 27, 2020 and June 26, 2020, respectively.

The Company is in the process of finalizing a valuation of the earn-out liability, and tangible and intangible assets of ~~Fells Point~~Sid Wainer as of the acquisition date. ~~These assets will be valued at fair value using~~When applicable, these valuations require the use of Level 3 inputs. ~~Customer lists, trademarks, and non-compete agreements are expected to be amortized over 15, 20 and 6 years, respectively.~~ Goodwill for the ~~Fells Point~~Sid Wainer acquisition will be amortized over 15 years for tax purposes. The goodwill recorded primarily reflects the value of acquiring an established ~~meat processor~~specialty food and produce distributor to ~~grow~~leverage the ~~Company's protein business~~Company’s existing products in the ~~Northeast~~markets served by Sid Wainer, to supply Sid Wainer’s produce offerings to our metro New York market and ~~Mid Atlantic regions, as well as~~ any intangible assets that do not qualify for separate recognition. ~~On August 25, 2017, the Company entered into a five-year lease for a warehouse facility located in Baltimore, MD that is owned by the former owners of Fells Point, some of whom are current employees.~~ The ~~Company paid rent of $22 during the thirteen weeks ended September 29, 2017. For the thirty-nine weeks ended September 29, 2017, the~~ Company reflected net sales of $12,869 and ~~income before taxes~~$38,620 for the thirteen weeks and twenty-six weeks ended June 26, 2020, respectively, and an operating loss of ~~$5,815~~$4,044 and ~~$380,~~$5,149 for the thirteen weeks and twenty-six weeks ended June 26, 2020, respectively, ~~for Fells Point~~ in its consolidated statement of operations.

The table below presents unaudited pro forma consolidated income statement information of the Company ~~for the thirteen and thirty-nine weeks ended September 29, 2017 and September 23, 2016~~ as if ~~Fells Point~~the Sid Wainer acquisition had occurred ~~at the beginning of each year presented.~~on December 29, 2018. The pro forma results were prepared from financial information obtained from the sellers of the business, as well as information obtained during the due diligence process associated with the acquisition. The pro forma information is not necessarily indicative of the Company’s results of operations had the ~~Fells Point~~ acquisition been completed on the above ~~dates,~~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 ~~Fells Point~~ acquisition, any incremental costs for ~~Fells Point~~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 ~~Fells Point~~Sid Wainer acquisition at their respective fair ~~values based on available information and~~values.


	Thirteen Weeks Ended							Twenty-Six Weeks Ended
	June 26, 2020		—	June 28, 2019		June 26, 2020		June 28, 2019
Net sales	$	213,274		$	468,379	$	588,705	$	870,453
(Loss) income before income taxes	(32,186)			11,230		(54,368)		10,791

Additionally, during the ~~estimated change in the fair value of the earn-out liability due to accretion.~~

Thirteen Weeks Ended Thirty-nine Weeks Ended
September 29, 2017 September 23, 2016 September 29, 2017 September 23, 2016
Net sales $ 334,007
$ 307,060
$ 983,722
$ 888,742
Income before income taxes 5,447
2,753
10,084
(8,132 )

~~MT Food~~

~~On June~~quarter ended March 27, ~~2016,~~2020, the Company ~~acquired substantially all of the assets of M.T. Food Service, Inc. (“MT Food”), based~~paid approximately $16,356 for a specialty center-of-the plate distributor in Chicago, Illinois. Founded in the mid 1990's, MT Food was a wholesale distributor of dairy, produce, specialty and grocery items in the metro Chicago area. The aggregate purchase price for the transaction at acquisition date was $22,000, including an additional $500 payable eighteen months after the closing date and an earn-out of $500 paid during the second quarter of fiscal 2017. The aggregate purchase price paid by the Company was paid through cash-on-hand and the proceeds from a draw down on its delayed draw term loan facility.New England.

During the second quarter of 2017, the Company obtained additional information related to the fair value of intangible assets, deferred taxes, inventories, accounts receivable acquired and liabilities owed. As a result, the Company recorded a measurement period adjustment resulting in a net increase in goodwill of $3,418 and a decrease in customer relationships of $2,700. The Company has finalized a valuation of the tangible and intangible assets of MT Food as of the acquisition date. These assets are valued at fair value using Level 3 inputs. Customer relationships are to be amortized over 15 years. Goodwill will be amortized over 15 years for tax purposes. The goodwill recorded primarily reflects the value of acquiring an established distributor to leverage the Company’s existing products and distribution center in the markets served by MT Food, as well as any intangible assets that do not qualify for separate recognition.

The table below sets forth the ~~cash~~ purchase price allocation of ~~the Fells Point and MT Food~~these acquisitions:


	Sid Wainer		Other Acquisitions
Current assets	$	22,960	$	6,172
Customer relationships	—		6,200
Trademarks	3,500		700

Goodwill	11,571		5,291
Fixed assets	19,425		308


Right-of-use assets	8,259		1,019
Lease liabilities	(8,259)		(1,019)


Current liabilities	(11,294)		(932)
Earn-out liability	(2,081)		(1,383)



Total consideration	$	44,081	$	16,356

MT Food
Fells Point
Current assets (includes cash acquired) $ 6,132
$ 6,971
Customer relationships 7,600
14,700
Trademarks —
8,100
Non-compete agreement —
900
Goodwill 11,976
5,687
Fixed assets 261
2,459
Current liabilities (3,969 ) (1,295 )
Earn-out liability (500 ) (4,500 )
Other long-term liabilities (500 ) —
Issuance of common shares

(3,300 )
Cash purchase price $ 21,000
$ 29,722

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

Note 6 ~~Inventory~~– Inventories

~~Inventory consists~~Inventories consist primarily of finished ~~product. Our different entities record inventory using a mixture of first-in, first-out~~product and ~~average cost, which we believe approximates first-in, first-out. Inventory is~~are reflected net of ~~reserves~~adjustments for shrinkage, excess and obsolescence totaling ~~$1,930~~$7,541 and ~~$2,122~~$1,937 at ~~September 29, 2017~~June 26, 2020 and December ~~30, 2016,~~27, 2019, respectively. The Company incurred estimated inventory charges of approximately $8,800 related to inventory obsolescence due to COVID-19 during fiscal 2020.

Note 7 – Equipment, ~~and~~ Leasehold Improvements and Software

Equipment, ~~and~~ leasehold improvements and software as of ~~September 29, 2017~~June 26, 2020 and December ~~30, 2016~~27, 2019 consisted of the following:



	Useful Lives	June 26, 2020		December 27, 2019
Land	Indefinite	$	5,020	$	1,170
Buildings	20 years	15,806		1,360
Machinery and equipment	5 - 10 years	24,687		21,718
Computers, data processing and other equipment	3 - 7 years	13,960		12,686
Software	3 - 7 years	29,883		29,305
Leasehold improvements	1 - 40 years	71,409		70,903
Furniture and fixtures	7 years	3,369		3,309
Vehicles	5 - 7 years	20,008		6,410
Other	7 years	96		95
Construction-in-process		9,890		9,200
		194,128		156,156
Less: accumulated depreciation and amortization		(72,953)		(63,310)
Equipment, leasehold improvements and software, net		$	121,175	$	92,846

Useful Lives September 29, 2017 December 30, 2016
Land Indefinite $ 1,170
$ 1,170
Buildings 20 years 1,292
1,292
Machinery and equipment 5-10 years 15,688
13,404
Computers, data processing and other equipment 3-7 years 9,883
9,367
Leasehold improvements 7-22 years 53,479
47,971
Furniture and fixtures 7 years 3,100
3,011
Vehicles 5-7 years 2,570
2,445
Other 7 years 95
95
Construction-in-process 14,711
11,359
101,988
90,114
Less: accumulated depreciation and amortization (32,947 ) (27,931 )
Equipment and leasehold improvements, net $ 69,041
$ 62,183

Construction-in-process at ~~September 29, 2017~~June 26, 2020 and December ~~30, 2016~~27, 2019 related primarily to the implementation of the Company’s Enterprise Resource Planning ~~(“ERP”)~~ system.

The ~~rollout~~components of ~~its ERP system will continue throughout fiscal 2017~~depreciation and ~~2018.~~amortization expense were as follows:


	Thirteen Weeks Ended						Twenty-Six Weeks Ended
	June 26, 2020		June 28, 2019		June 26, 2020		June 28, 2019
Depreciation expense	$	3,663	$	2,262	$	7,231	$	4,235
Software amortization	$	1,250	$	912	$	2,444	$	1,820
	$	4,913	$	3,174	$	9,675	$	6,055

~~At September 29, 2017~~

The net book value of equipment financed under finance leases at June 26, 2020 and December ~~30, 2016, the Company had $506 of equipment~~27, 2019 was $15,934 and vehicles financed by capital leases. The Company recorded depreciation on equipment under capital leases of $15 and $15 on these assets during the thirteen weeks ended September 29, 2017 and September 23, 2016, respectively, and $45 and $58 during the thirty-nine weeks ended September 29, 2017 and September 23, 2016,$3,905, respectively.

Depreciation expense, excluding capital leases, was $1,678 and $1,577 for the thirteen weeks ended September 29, 2017 and September 23, 2016, respectively, and $4,970 and $3,753 during the thirty-nine weeks ended September 29, 2017 and September 23, 2016, respectively.

Capitalized software has an estimated useful life of three to seven years. Amortization expense on software was $402 and $437 for the thirteen weeks ended September 29, 2017 and September 23, 2016, respectively, and $1,307 and $1,155 during the thirty-nine weeks ended September 29, 2017 and September 23, 2016, 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. Beginning in mid-March these actions 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 during the first quarter of fiscal 2020 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 as of March 27, 2020. Management determined that there were no triggering events during the second quarter of fiscal 2020 that would require additional goodwill impairment testing.

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 as of March 27, 2020. Management determined that there were no triggering events during the second quarter of fiscal 2020 that would require additional testing.

Although the Company’s interim goodwill and long-lived asset impairment tests indicated no impairment existed, 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 27, 2019	$	197,743

Acquisitions	16,862
Foreign currency translation	(44)
Carrying amount as of June 26, 2020	$	214,561

Carrying amount as of December 30, 2016 $ 163,784
Goodwill adjustments 3,418
Fells Point acquisition 5,687
Foreign currency translation 54
Carrying amount as of September 29, 2017 $ 172,943

~~The goodwill adjustments relate to the MT Food acquisition (see Note 5).~~

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 29, 2017~~June 26, 2020 and December ~~30, 2016~~27, 2019 consisted of the following:


June 26, 2020	Gross Carrying Amount		Accumulated Amortization		Net Amount
Customer relationships	$	141,387	$	(50,285)	$	91,102
Non-compete agreements	8,579		(7,617)		962
Trademarks	68,668		(18,377)		50,291
Total	$	218,634	$	(76,279)	$	142,355


September 29, 2017:	Gross Carrying Amount		Accumulated Amortization			Net Amount
December 27, 2019								December 27, 2019
Customer relationships	$	116,381	$	(25,465	)	$	90,916	Customer relationships	$	135,226	$	(45,454)	$	89,772
Non-compete agreements	8,066		(6,605		)	1,461		Non-compete agreements	8,579		(7,479)		1,100
Trademarks	60,674		(9,518		)	51,156		Trademarks	64,505		(16,626)		47,879
Total	$	185,121	$	(41,588	)	$	143,533	Total	$	208,310	$	(69,559)	$	138,751


2020	$	6,788
2021	13,572
2022	12,792
2023	11,764
2024	11,421
Thereafter	86,018
Total	$	142,355

2017 $ 3,187
2018 11,669
2019 11,392
2020 11,119
2021 11,119
2022 10,391
Thereafter 84,656
Total $ 143,533

Note 9 – Debt Obligations


	June 26, 2020		December 27, 2019
Senior secured term loans	$	202,410	$	238,129
Convertible senior notes	150,000		150,000
Asset-based loan facility	40,000		—
Convertible unsecured note	4,000		4,000
Finance lease and other financing obligations	16,092		3,905


Deferred finance fees and original issue discount	(8,779)		(9,207)
Total debt obligations	403,723		386,827
Less: current installments	(5,905)		(721)
Total debt obligations excluding current installments	$	397,818	$	386,106

September 29, 2017 December 30, 2016
Senior secured term loan $ 289,229
$ 291,613
Convertible subordinated notes 36,750
36,750
New Markets Tax Credit loan —
11,000
Capital leases and financed software 1,042
2,136
Deferred finance fees and original issue discount (7,682 ) (8,979 )
Total debt obligations 319,339
332,520
Less: current installments (4,224 ) (14,795 )
Total debt obligations excluding current installments $ 315,115
$ 317,725

On ~~April 26, 2012, Dairyland HP LLC (“DHP”), an indirectly wholly-owned subsidiary of~~June 8, 2020, the ~~Company's,~~Company entered into a ~~financing arrangement under~~sixth amendment (the “Sixth Amendment”) to its senior secured term loan credit agreement (the “Credit Agreement”). Upon the New Markets Tax Credit (“NMTC”) program under the Internal Revenue Code of 1986, as amended, pursuant to which a subsidiary of Chase, provided to DHP an $11,000 construction loan (the “NMTC Loan” ) with an interest rate of 1.00% per annum to help fund DHP’s expansion and build-outconsent of the ~~Bronx, New York facility and~~lenders, the ~~rail shed located at that facility. Borrowings under~~Sixth Amendment converted a portion of the ~~NMTC Loan were secured by~~term loans then outstanding of $238,129 (the “Term Loans”) into a ~~first priority secured lien on DHPs leasehold interest in the Bronx, New York facility, including all improvements made on the premises, as well as,~~new tranche of term loans (the “2025 Tranche”) which among other things extended the maturity date by three years and increased the fixed-rate portion of interest charged by 200 basis

points. The portion of the Term Loans that did not convert (the “2022 Tranche”) retained the maturity date and interest rate in effect prior to the Sixth Amendment.The Company made a ~~lien~~prepayment of $35,719 on ~~all fixtures incorporated into~~ the ~~project improvements.~~ 2025 Tranche immediately after it was established.

The ~~loan matured~~following table summarizes the key terms of the Term Loans:

Term Loans

Principal Outstanding

Interest Rate

Maturity Date⁽¹⁾

Scheduled Principal Payments

2022 Tranche

31,166

LIBOR + 3.5%

June 22, 2022

none

2025 Tranche

171,244

LIBOR + 5.5%

June 22, 2025

0.25% per quarter

The 2025 Tranche has a springing maturity date of June 22, 2024 if, as of that date, the Company’s 1.875% convertible senior notes maturing on ~~April~~December 1, 2024 have not been repaid or refinanced by debt having a maturity date on or after December 23, 2025. The Sixth Amendment was accounted for as a debt modification. The Company incurred lender fees of $856 which were capitalized as debt issuance costs. Third-party transaction costs of $1,233 were expensed as incurred.

Note 10 ~~Stockholders'~~– Stockholders’ Equity

Preferred Stock Purchase Rights

Public Common Stock Offering


	Shares	Weighted Average Grant Date Fair Value




Unvested at December 27, 2019	740,609	$	27.68
Granted	998,671	17.54
Vested	(205,779)	24.55
Forfeited	(15,201)	22.00
Unvested at June 26, 2020	1,518,300	$	21.49

Shares Weighted Average
Grant Date Fair Value
Unvested at December 30, 2016 334,053
18.69
Granted 206,081
14.79
Vested (109,442 ) 18.55
Forfeited (74,262 ) 18.39
Unvested at September 29, 2017 356,430
16.57

The Company granted ~~206,081~~998,671 RSAs to its employees and directors at a weighted average grant date fair value of ~~$14.79 each~~$17.54 during the ~~thirty-nine~~twenty-six weeks ended ~~September 29, 2017.~~June 26, 2020. These awards are a mix of ~~time~~time-, market- and ~~performance based~~performance-based grants ~~which will~~that generally vest over a range of periods ~~of one~~up to four years. The Company recognized expense totaling ~~$612~~$1,999 and ~~$420~~$1,088 on its RSAs during the thirteen weeks ended ~~September 29, 2017~~June 26, 2020 and ~~September 23, 2016,~~June 28, 2019, respectively, and ~~$1,928~~$2,850 and ~~$1,517~~$1,889 during the ~~thirty-nine~~twenty-six weeks ended ~~September 29, 2017~~June 26, 2020 and ~~September 23, 2016,~~June 28, 2019, respectively.

~~Shares~~

~~Weighted~~
~~Average~~
~~Exercise Price~~

~~Aggregate Intrinsic Value~~

~~Weighted-Average Remaining Contractual Term (in years)~~

~~Outstanding at December 30, 2016~~

~~209,071~~

~~20.23~~

—

~~9.2~~

~~Granted~~

—

~~Exercised~~

—

~~Canceled/Forfeited~~

~~(7,193~~

)

~~20.23~~

~~Outstanding at September 29, 2017~~

~~201,878~~

~~20.23~~

—

~~8.4~~

~~Exercisable at September 29, 2017~~

—

~~0.0~~

first quarter of fiscal 2019. The Company recognized expense of ~~$158~~0 and ~~$120~~$114 on stock options during the thirteen weeks ~~ended September 29, 2017~~ and ~~September 23, 2016, respectively, and $456 and $392 during the thirty-nine~~twenty-six weeks ended ~~September 29, 2017 and September 23, 2016. At September 29, 2017,~~June 28, 2019, respectively. NaN share-based compensation expense related to the ~~total unrecognized compensation cost for these~~Company’s RSAs or stock options ~~was $911 to be recognized over a weighted-average period of approximately 17 months.~~

has been capitalized. As of ~~September 29, 2017,~~June 26, 2020, there were ~~523,969~~1,238,118 shares available for grant under the ~~Company’s 2011~~2019 Omnibus Equity Incentive Plan. ~~No share-based compensation expense has been capitalized.~~

Note 11 – Income Taxes

Note 12 – Related Parties

Each of Christopher Pappas, CEO, John Pappas, Vice Chairman and Dean Facatselis owns 8.33% of a New York City-based restaurant customer of the Company and its subsidiaries that purchased approximately $26 and $22, respectively, of products from the Companywas amended during the thirteen weeks ended September 29, 2017 and September 23, 2016 and $88 and $77, respectively, during the thirty-nine weeks ended September 29, 2017 and September 23, 2016. Messrs. Pappas and Facatselis have no other interest in the restaurant other than these equity interests and are not involved in the day-to-day operation or management of this restaurant.

The Company paid $29 and $67 to Architexture Studios, Inc. for interior decorating and design including the purchase of furniture and leasehold improvements primarily for its Las Vegas, San Francisco and Chicago facilities during the thirteen weeks ended September 29, 2017 and September 23, 2016, respectively, and paid $97 and $214, respectively, during the thirty-nine weeks ended September 29, 2017 and September 23, 2016. This entity is owned by Julie Hardridge, the sister-in-law of Christopher Pappas.

The Company purchases products from ConAgra Foods, Inc. of which Steve Goldstone, a Director of the Company, is the Chairman. Mr. Goldstone became a director of the Company on March 7, 2016. The Company purchased approximately $191 and $249 worth of products from ConAgra Foods, Inc. during the thirteen weeks ended September 29, 2017 and September 23, 2016, respectively, and $545 and $249, respectively, during the thirty-nine weeks ended September 29, 2017 and September 23, 2016.

With the acquisition of Del Monte, the Company acquired two warehouse facility leases that the Company leases from certain prior owners of Del Monte. Two of the owners are current employees, one of whom, John DeBenedetti, serves on the Company’s board of directors. The first property is located in American Canyon, CA and is owned by TJ Management Co. LLC, an entity owned 50% by John DeBenedetti. The Company paid rent on this facility totaling $54 and $53, respectively, for the thirteen weeks ended September 29, 2017 and September 23, 2016 and $161 and $158, respectively, during the thirty-nine

weeks ended September 29, 2017 and September 23, 2016. The second property is located in West Sacramento, CA and is owned by David DeBenedetti and Victoria DeBenedetti, the parents of John DeBenedetti. The Company paid rent on this facility totaling $58 and $57, respectively, for the thirteen weeks ended September 29, 2017 and September 23, 2016 and $172 and $169, respectively, during the thirty-nine weeks September 29, 2017 and September 23, 2016. John DeBenedetti and Victoria DeBenedetti are employees of a subsidiary of the Company.

John DeBenedetti, indirectly through TJ Investments, LLC, owns a 8.33% ownership interest in Old World Provisions, which supplies products to the Company since the Del Monte acquisition. The Company purchased approximately $208 and $169, respectively, of products during the thirteen weeks ended September 29, 2017 and September 23, 2016 and $636 and $306, respectively, during the thirty-nine weeks ended September 29, 2017 and September 23, 2016. Mr. J. DeBenedetti is not involved in the day-to-day management of Old World Provisions.

John Pappas’s brother-in-law, Constantine Papataros, is one of the Company’s employees. The Company paid him approximately $48 and $37 in total compensation, respectively, for the thirteen weeks ended September 29, 2017 and September 23, 2016 and $140 and $125, respectively, during the thirty-nine weeks ended September 29, 2017 and September 23, 2016. Christopher Pappas’s brother, John Pappas, is one of the Company’s employees and a member of the Company’s Board of Directors. The Company paid John Pappas approximately $99 and $99 in total compensation, respectively, for the thirteen weeks ended September 29, 2017 and September 23, 2016 and $494 and $454, respectively, during the thirty-nine weeks ended September 29, 2017 and September 23, 2016. John Pappas did not receive any compensation during the thirty-nine weeks ended September 29, 2017 or September 23, 2016 for his service on the Company’s Board of Directors. Tara Brennan, the domestic partner of John DeBennedetti, is an employee of the Company and was paid approximately $45 for the thirteen weeks ended September 29, 2017 and September 23, 2016 and $135 during the thirty-nine weeks ended September 29, 2017 and September 23, 2016.

An entity owned 50% by John Couri, a director of the Company, and of which Messrs. C. Pappas and S. Hanson (also directors of the Company) previously held ownership interests, owns an interest in an aircraft that the Company uses for business purposes in the course of its operations. Mr. Couri paid for his ownership interest in the aircraft himself and bears his share of all operating, personnel and maintenance costs associated with the operation of this aircraft. This related party relationship ended during the fourth quarter of fiscal ~~2016. The Company made no payments during the thirteen weeks ended~~2020 and expires on September 29, 2017 and September 23, 2016 and $36 during the thirty-nine weeks ended September 29, 2017 for use of such aircraft in the fourth quarter of fiscal 2016. The Company paid $7 during the thirty-nine weeks ended September 23, 2016 for the use of such aircraft.30, 2023.

Note 1213 – Supplemental Disclosures of Cash Flow Information


	Twenty-Six Weeks Ended
	June 26, 2020		June 28, 2019
Supplemental cash flow disclosures:
Cash paid for income taxes, net of cash received	$	334	$	3,690
Cash paid for interest, net of cash received	$	9,730	$	9,494
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows from operating leases	$	13,476	$	12,174
Operating cash flows from finance leases	$	264	$	40
ROU assets obtained in exchange for lease liabilities:
Operating leases	$	5,744	$	146,726
Finance leases	$	13,980	$	1,728
Other non-cash investing and financing activities:



Net working capital adjustment receivable	$	3,013	$	—


Convertible notes issued for acquisitions	$	—	$	4,000
Contingent earn-out liabilities for acquisitions	$	3,464	$	2,800

Thirty-nine Weeks Ended
September 29, 2017 September 23, 2016
Supplemental cash flow disclosures:

Cash paid for income taxes, net of cash received $ 500
$ 7,976
Cash paid for interest $ 14,664
$ 10,759
Non cash financing activities:
Sinking funds used to retire debt $ 2,939
$ —
Non-cash investing activity:

Contingent earn-out liabilities for acquisitions $ 4,500
$ 500
Acquisition purchase price payable $ —
$ 500
Common stock issued for acquisitions $ 3,300
$ —

~~Note 13 Commitments and Contingencies~~

Until February 29, 2016, the Company sublet a distribution facility from TCW (an entity controlled by the Company’s founders). TCW leases the distribution center from the New York City Industrial Development Agency. In connection with this sublease arrangement and TCW's obligations under a related mortgage to its mortgage lender, the Company, Dairyland and another of the Company’s subsidiaries initially were required to act as guarantors of TCW’s mortgage obligation on the

distribution center. The mortgage payoff date is December 2029 and the potential obligation under this guarantee totaled $5,120 at September 29, 2017. By agreement dated July 1, 2005, the lender released the Company and its subsidiaries from their guaranty obligations, provided the sublease between Dairyland and TCW remained in full force and effect. As of February 29, 2016, Dairyland exited the sublease arrangement with TCW, triggering the guarantee obligation. The Company believes that the fair value of the building securing the mortgage more than offsets any potential obligation. In addition, TCW is actively pursuing business strategies that upon completion will unconditionally and fully release the Company from any guaranty of TCW’s mortgage loan.

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

RESULTS OF OPERATIONS

~~We believe several key differentiating factors~~

Effect of the COVID-19 Pandemic on our Business and Operations

On March 18, 2020, we drew $100.0 million on our ~~expanding customer base. These factors consist~~asset-based loan facility to increase our cash on hand during the early stages of the pandemic’s impact to our business and have subsequently repaid $60.0 million of the draw.

On May 14 and June 2, 2020, we completed public offerings for a ~~portfolio~~total of distinctive and hard-to-find specialty food products, an extensive selection of center-of-the-plate proteins, a highly trained and motivated sales force, strong sourcing capabilities, a fully integrated warehouse management system, a highly sophisticated distribution and logistics platform and a focused, seasoned management team.

On June 8, 2020, we amended our senior secured credit agreement which converted $207.0 million of the term loans then outstanding into ~~new distribution centers, including the construction of~~ a new ~~distribution center~~tranche of term loans (the “2025 Tranche”), which, among other things, extended the maturity date by three years and increased the fixed-rate portion of interest charged by 200 basis points. The Company made a prepayment of $35.7 million on the 2025 Tranche immediately after it was established. See Note 9 “Debt Obligations” to our ~~acquisition~~consolidated financial statements for a full description.

We closed the quarter with total cash and cash equivalents of ~~MT Food in Chicago;~~$201.8 million, and ~~the import~~approximately $31.8 million of remaining availability under our asset-based loan facility as of June 26, 2020.

~~RECENT ACQUISITIONS~~

~~On June 27, 2016, the Company acquired substantially all the~~assets, including certain real-estate assets, of ~~MT Food,~~Sid Wainer & Son, a specialty food and produce distributor ~~based out of Chicago, IL.~~in New England. The ~~aggregate~~cash purchase price ~~for the transaction at acquisition date~~ was $22,000, including an additional $500 payable eighteen months after the closing date and an earn-out of $500, paid during the second quarter of fiscal 2017. The final aggregate purchase price is subject to the impactapproximately $44.1 million, inclusive of a ~~customary net~~$2.4 million working capital ~~true-up.~~

~~Our Growth Strategies and Outlook~~

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 1.3 million square feet in 25 distribution facilities at September 29, 2017. From the second half of fiscal 2013 through the third quarter of fiscal 2017, we have invested significantly in acquisitions, infrastructure and management.

~~Key Factors Affecting Our Performance~~

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.

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


	Thirteen Weeks Ended						Twenty-Six Weeks Ended
	June 26, 2020		June 28, 2019		June 26, 2020		June 28, 2019
Net sales	$	200,496	$	411,420	$	575,927	$	768,447
Cost of sales	153,057		304,945		437,587		571,783
Gross profit	47,439		106,475		138,340		196,664
Operating expenses	72,847		90,939		180,764		174,978
Operating (loss) income	(25,408)		15,536		(42,424)		21,686


Interest and other expense	5,773		4,851		10,939		9,436
(Loss) income before income taxes	(31,181)		10,685		(53,363)		12,250
Provision for income taxes	(10,847)		2,939		(18,944)		3,370
Net (loss) income	$	(20,334)	$	7,746	$	(34,419)	$	8,880

Thirteen Weeks Ended Thirty-nine Weeks Ended
September 29, 2017 September 23, 2016 September 29, 2017 September 23, 2016
Net sales 100.0 % 100.0 % 100.0 % 100.0 %
Cost of sales 75.1 % 75.0 % 74.9 % 75.0 %
Gross profit 24.9 % 25.0 % 25.1 % 25.0 %
Operating expenses 21.7 % 22.2 % 22.4 % 22.0 %
Operating income 3.2 % 2.8 % 2.7 % 3.0 %
Other expense 1.7 % 2.0 % 1.8 % 4.2 %
Income (loss) before income tax expense 1.5 % 0.8 % 0.9 % (1.2 )%
Provision for income taxes 0.6 % 0.3 % 0.4 % (0.5 )%
Net income (loss) 0.9 % 0.5 % 0.5 % (0.7 )%

~~Our net sales for the thirteen weeks ended September 29, 2017 increased approximately 9.1%,~~


	2020		2019		$ Change		% Change
Net sales	$	200,496	$	411,420	$	(210,924)	(51.3)	%

~~Gross profit increased approximately 8.8%, or $6,513, to $80,905 for the thirteen weeks ended September 29, 2017, from $74,392 for the thirteen weeks ended September 23, 2016.~~


	2020		2019		$ Change	% Change
Gross profit	47,439		106,475		(59,036)	(55.4)	%
Gross profit margin	23.7	%	25.9	%

~~Total~~


	2020		2019		$ Change	% Change
Operating expenses	72,847		90,939		(18,092)	(19.9)	%
Percentage of net sales	36.3	%	22.1	%

The decrease in operating expenses ~~increased by approximately 6.5%, or $4,305,~~was primarily due to ~~$70,411 for~~lower costs associated with compensation and benefits and lower distribution related costs in the ~~thirteen weeks ended September 29, 2017 from $66,106 for the thirteen weeks ended September 23, 2016. As a percentage~~quarter. Our ratio of operating expenses to net sales ~~operating expenses were 21.7%~~was higher as a result of adverse COVID-19 impacts to our sales growth.

Interest and Other Expense


	2020	2019	$ Change	% Change
Interest and other expense	5,773	4,851	922	19.0	%

~~Operating Income~~

~~Interest Expense~~

~~Total interest expense decreased to $5,593 for the thirteen weeks ended September 29, 2017 compared to $5,947 for the thirteen weeks ended September 23, 2016 due primarily to a reduction in~~lower effective interest rates charged on ~~the Company's~~our outstanding debt.

Provision for Income Taxes

~~For the thirteen weeks ended September 29, 2017, we recorded an~~


	2020		2019		$ Change	% Change
Provision for income taxes	(10,847)		2,939		(13,786)	(469.1)	%
Effective tax rate	34.8	%	27.5	%

~~Reflecting the factors described above, net income was $2,851 for the thirteen weeks ended September 29, 2017, compared to net income of $1,343 for the thirteen weeks ended September 23, 2016.~~

Twenty-Six Weeks Ended ~~September 29, 2017~~June 26, 2020 Compared to ~~Thirty-nine~~Twenty-Six Weeks Ended ~~September 23, 2016~~June 28, 2019

~~Our net sales for the thirty-nine weeks ended September 29, 2017 increased approximately 11.1%,~~


	2020		2019		$ Change		% Change
Net sales	$	575,927	$	768,447	$	(192,520)	(25.1)	%

~~Gross profit increased approximately 11.9%, or $25,252, to $237,405 for the thirty-nine weeks ended September 29, 2017, from $212,153 for the thirty-nine weeks ended September 23, 2016.~~


	2020		2019		$ Change	% Change
Gross profit	138,340		196,664		(58,324)	(29.7)	%
Gross profit margin	24.0	%	25.6	%

Total operating expenses increased by approximately 13.0%, or $24,309, to $211,627 for the thirty-nine weeks ended September 29, 2017 from $187,318 for the thirty-nine weeks ended September 23, 2016. As a percentage of net sales, operating expenses were 22.4% in the thirty-nine weeks ended September 29, 2017 compared to 22.0% in the thirty-nine weeks ended September 23, 2016. The increase in the Company’s operating expense ratio of 37 basis points is largely attributable to the impact of prior year gains upon the reduction of the Company’s earn-out liabilities, 22 basis points, and investments in additional management personnel, 36 basis points, partially offset by better utilization of the Company's warehouse facilities, 15 basis points.


	2020		2019		$ Change	% Change
Operating expenses	180,764		174,978		5,786	3.3	%
Percentage of net sales	31.4	%	22.8	%

~~Operating Income~~

~~Interest Expense~~

~~Total interest expense decreased to $17,406~~expenses for the ~~thirty-nine~~twenty-six weeks ended ~~September 29, 2017~~June 26, 2020 includes a $6.6 million credit due to a reduction in the fair value of our contingent earn-out liabilities compared to ~~$35,271~~a charge of $2.8 million for the ~~thirty-nine~~twenty-six weeks ended ~~September 23, 2016 due primarily~~June 28, 2019. Our ratio of operating expenses to ~~the prior year $22,310 prepayment penalty associated with the Company's~~net sales was higher as a result of adverse COVID-19 impacts to our sales growth and a 314 basis point increase in non-cash charges related to bad debt ~~refinancing in June 2016. This decrease was~~expense, partially offset by a 152 basis point decrease in non-cash charges related to changes in the fair value of our contingent earn-out liabilities.

Interest and Other Expense


	2020	2019	$ Change	% Change
Interest and other expense	10,939	9,436	1,503	15.9	%

Provision for Income Taxes

~~For the thirty-nine weeks ended September 29, 2017, we recorded an~~


	2020		2019		$ Change	% Change
Provision for income taxes	(18,944)		3,370		(22,314)	(662.1)	%
Effective tax rate	35.5	%	27.5	%

~~Net Income (Loss)~~

~~Reflecting the factors described above, net income was $4,883 for the thirty-nine weeks ended September 29, 2017, compared to~~current net loss forecast for fiscal 2020 which allows us to claim tax refunds against taxes paid in fiscal 2015 and 2017, both of ~~$(6,119) for the thirty-nine weeks ended September 23, 2016.~~which were at statutory tax rates of 35%.

~~Product Category Sales Mix~~

~~The sales mix for the principal product categories for thirteen weeks and thirty-nine weeks ended September 29, 2017 and September 23, 2016 is as follows (dollars in thousands):~~

Thirteen Weeks Ended Thirty-nine Weeks Ended
September 29, 2017 September 23, 2016 September 29, 2017 September 23, 2016
Center of the Plate $ 151,062
47 % $ 146,552
49 % $ 440,556
47 % $ 416,327
49 %
Dry Goods 56,442
17 % 49,488
17 % 164,023
17 % 142,961
17 %
Pastry 43,654
13 % 38,938
13 % 128,483
14 % 112,732
13 %
Cheese 25,796
8 % 23,838
8 % 74,544
8 % 66,774
8 %
Dairy 23,294
7 % 17,926
6 % 65,324
7 % 51,935
6 %
Oils and Vinegar 18,360
6 % 16,211
5 % 53,154
6 % 45,508
5 %
Kitchen Supplies 6,468
2 % 4,964
2 % 18,338
1 % 13,725
2 %
Total $ 325,076
100 % $ 297,917
100 % $ 944,422
100 % $ 849,962
100 %

~~Senior Secured Term Loan Credit Facility~~

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


	June 26, 2020		December 27, 2019
Senior secured term loan	$	202,410	$	238,129
Total convertible debt	$	154,000	$	154,000
Borrowings outstanding on asset-based loan facility	$	40,000	$	—
Finance leases and other financing obligations	$	16,092	$	3,905

The final maturity of the Term Loan Facility is June 22, 2022. Subject to adjustment for prepayments, the Company is required to make quarterly amortization payments on the Term Loans in an amount equal to 0.25% of the aggregate principal amount of the Term Loans.

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 LIBO 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. A commitment fee is payable in respect of the amount of the undrawn DDTL commitments during the period the DDTL is available, equal to a percentage equal to 50% of the interest rate with respect to Term Loans accruing interest based on the adjusted LIBO rate.

~~Asset Based Loan Facility~~

~~Convertible Subordinated Notes~~

On April 6, 2015, the Company issued $36,750 principal amount of convertible subordinated notes with a six-year maturity bearing interest at 2.5% and a conversion price of $29.70 per share (the “Convertible Subordinated Notes”) to certain of the Del Monte entities as partial consideration in the Del Monte acquisition. The holders of the Convertible Subordinated Notes may, in certain instances beginning one year after issuance, redeem the Convertible Subordinated Notes for cash or shares of the Company’s common stock. Moreover, the Company may, at its discretion, pay the outstanding principal amount due and owing under the Convertible Subordinated Notes at maturity in either cash or shares of the Company’s common stock. Interest is payable annually in cash with the first interest payment due on April 6, 2016. The Convertible Subordinated Notes, which are subordinate to the Company’s and its subsidiaries’ senior debt, are convertible into shares of the Company’s common stock by the holders at any time at a conversion price of $29.70.

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



	June 26, 2020		December 27, 2019
Cash and cash equivalents	$	201,824	$	140,233
Working capital,excluding cash and cash equivalents	$	107,794	$	162,772
Availability under asset-based loan facility	$	31,828	$	133,359

The following table presents selected financial information on cash generated from 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 and 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.flows (in thousands):

On August 25, 2017, the Company entered into an asset purchase agreement to acquire substantially all of the assets of Fells Point, a specialty protein manufacturer and distributor based in the metro Baltimore and Washington DC area. The aggregate purchase price for the transaction at acquisition date was approximately $33,022, including the impact of an initial net working capital adjustment which is subject to a post-closing working capital adjustment true up. Approximately $29,722 was paid in cash at closing and the remaining $3,300 consisted of 185,442 shares of the Company's common stock.


	Twenty-Six Weeks Ended
	June 26, 2020		June 28, 2019
Net (loss) income	$	(34,419)	$	8,880
Non-cash charges	$	28,377	$	22,518
Changes in working capital	$	53,621	$	(9,508)
Cash provided by operating activities	$	47,579	$	21,890
Cash used in investing activities	$	(67,850)	$	(36,841)
Cash provided by (used in) financing activities	$	81,992	$	(3,186)

On June 27, 2016, the Company acquired substantially all the assets of MT Food, a specialty food distributor based out of Chicago, IL. The aggregate cash purchase price for the transaction at acquisition date was $21,000, exclusive of an additional $500 payable eighteen months after the closing date and an earn-out of $500, paid during the second quarter of fiscal 2017. The final aggregate purchase price was subject to the impact of a customary net working capital true-up. In October 2017, the Company settled the net working capital true-up with a payment of $447 to the former owners of MT Food. The acquisition was paid for with cash on hand and drawdown of our delayed draw term loan facility.

On April 26, 2017, the Company repaid its New Markets Tax Credit Loan in full, inclusive of accrued interest outstanding, for $11,009, of which, $8,070 was paid in cash and $2,939 was paid from the associated sinking fund.

Off-Balance Sheet Arrangements

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 ~~the~~our allowance for doubtful accounts, (ii) inventory valuation, with regard to determining ~~the reserve~~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, ~~(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 10, 2017.~~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

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

ITEM 4. CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures

Changes in Internal Control over Financial Reporting

PART II. OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

ITEM 1A. RISK FACTORS

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


	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
March, 28 2020 to April 24, 2020	—	$	—	—	—
April 25, 2020 to May 22, 2020	1,846	13.75		—	—
May 23, 2020 to June 26, 2020	—	—		—	—
Total	1,846	$	13.75	—	—

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
July 1, 2017 to July 28, 2017 7,006
$ 12.97
—
—
July 29, 2017 to August 25, 2017 2,782
$ 16.32
—
—
August 26, 2017 to September 29, 2017 —
$ —
—
—
Total 9,788
$ 13.93
—
—
(1)During the thirteen weeks ended June 26, 2020, we withheld 1,846 shares of our common stock to satisfy tax withholding requirements related to restricted shares of our common stock awarded to our officers and key 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

ITEM 4. MINE SAFETY DISCLOSURES

ITEM 5. OTHER INFORMATION



Exhibit No.		Description













10.1		Sixth Amendment ~~No. 1, dated as of September 1, 2017,~~ to ~~the~~ Credit Agreement, dated ~~as of~~ June ~~22, 2016, among Chefs’ Warehouse Parent, LLC~~8, 2020, by and Dairyland USA Corporation, as Borrowers, and The Chefs’ Warehouse, Inc., The Chefs’ Warehouse Mid-Atlantic, LLC, Bel Canto Foods, LLC, The Chefs’ Warehouse West Coast, LLC, The Chefs’ Warehouse Of Florida, LLC, Michael’s Finer Meats, LLC, Michael’s Finer Meats Holdings, LLC, The Chefs’ Warehouse Midwest, LLC, and other Loan Parties party thereto as Guarantors, the Lenders party thereto, JPMorgan Chase Bank, N.A., as Sole Lead Arranger and Sole Bookrunner, and Administrative Agent, and Wells Fargo Bank, N.A., Bank of America, N.A. and BMO Harris Bank N.A.as Co-Syndication Agents.

~~10.2~~	~~Amendment No. 2, dated as of September 1, 2017, to the Credit Agreement dated as of June 22, 2016,~~ among Dairyland USA Corporation and Chefs’ Warehouse Parent, LLC, as ~~Borrowers, and~~borrowers, The Chefs’ Warehouse, Inc. ~~and~~, certain other subsidiaries, as guarantors, the ~~other Loan Parties~~lenders party thereto ~~as Guarantors, the Lenders party thereto,~~and Jefferies Finance LLC, as ~~Joint Lead Arranger~~administrative agent and ~~Joint Bookrunner, Administrative Agent and Collateral Agent, and BMO Capital Markets Corp., JPMorgan Chase Bank, N.A. and Wells Fargo Securities, LLC, as Joint Lead Arrangers and Joint Bookrunners.~~collateral agent. (incorporated by reference to Exhibit 10.1 to the Company’s Form 8-K filed on June 8, 2020)

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

~~32.2~~3 2.2		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.

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 ~~November 8, 2017.~~

THE CHEFS’ WAREHOUSE, INC.

(Registrant)

~~November 8, 2017~~Date: July 29, 2020

/s/ ~~John D. Austin~~James Leddy

~~Date~~

~~John D. Austin~~

James Leddy

Chief Financial Officer

(Principal Financial ~~Officer and Principal~~Officer)

~~Accounting Officer)~~

Date: July 29, 2020

/s/ Timothy McCauley

Timothy McCauley

Chief Accounting Officer

(Principal Accounting Officer)


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



		Page
PART I. FINANCIAL INFORMATION

Item 1.	Consolidated Financial Statements (unaudited):	4

	Consolidated Balance Sheets ~~at September 29, 2017 and December 30, 2016~~	4

	Consolidated Statements of Operations and Comprehensive (Loss) Income ~~for the thirteen weeks ended September 29, 2017 and September 23, 2016~~	5

	Consolidated Statements of ~~Operations and Comprehensive Income (Loss) for the thirty-nine weeks ended September 29, 2017 and September 23, 2016~~Changes in Stockholders’ Equity	6

	Consolidated Statements of Cash Flows ~~for the thirty-nine weeks ended September 29, 2017 and September 23, 2016~~	7

	Notes to Consolidated Financial Statements	8

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	1918

Item 3.	Quantitative and Qualitative Disclosures about Market Risk	2624

Item 4.	Controls and Procedures	2624

PART II. OTHER INFORMATION

Item 1.	Legal Proceedings	2725

Item 1A.	Risk Factors	2725

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	2725

Item 3.	Defaults Upon Senior Securities	2726

Item 4.	Mine Safety Disclosures	2726

Item 5.	Other Information	2726

Item 6.	Exhibits	2826

	~~Signature~~Signatures	2827



December 30, 2016:
Customer relationships	$	104,381	$	(19,981	)	$	84,400
Non-compete agreements	7,166		(5,587		)	1,579
Trademarks	52,574		(7,422		)	45,152
Total	$	164,121	$	(32,990	)	$	131,131



	Del Monte		MT Food			Fells Point		Total
Balance December 30, 2016	$	1,362	$	500		$	—	$	1,862
Acquisition	—		—			4,500		4,500
Cash payments	—		(500		)	—		(500		)
Changes in fair value	72		—			—		72
Balance September 29, 2017	$	1,434	$	—		$	4,500	$	5,934



	MT Food			Fells Point
Current assets (includes cash acquired)	$	6,132		$	6,971
Customer relationships	7,600			14,700
Trademarks	—			8,100
Non-compete agreement	—			900
Goodwill	11,976			5,687
Fixed assets	261			2,459
Current liabilities	(3,969		)	(1,295		)
Earn-out liability	(500		)	(4,500		)
Other long-term liabilities	(500		)	—
Issuance of common shares				(3,300		)
Cash purchase price	$	21,000		$	29,722



Carrying amount as of December 30, 2016	$	163,784
Goodwill adjustments	3,418
Fells Point acquisition	5,687
Foreign currency translation	54
Carrying amount as of September 29, 2017	$	172,943



2017	$	3,187
2018	11,669
2019	11,392
2020	11,119
2021	11,119
2022	10,391
Thereafter	84,656
Total	$	143,533



	Shares		Weighted Average Grant Date Fair Value
Unvested at December 30, 2016	334,053		18.69
Granted	206,081		14.79
Vested	(109,442	)	18.55
Forfeited	(74,262	)	18.39
Unvested at September 29, 2017	356,430		16.57



	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
July 1, 2017 to July 28, 2017	7,006	$	12.97	—	—
July 29, 2017 to August 25, 2017	2,782	$	16.32	—	—
August 26, 2017 to September 29, 2017	—	$	—	—	—
Total	9,788	$	13.93	—	—


~~(1)~~	During the thirteen weeks ended September 29, 2017, we withheld 9,788 shares to satisfy tax withholding requirements upon the vesting of restricted shares of our common stock awarded to our officers and key employees.