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

Reconciliation of net income (loss) per common share:

Assets and Liabilities Measured at Fair Value

Fair Value of Financial Instruments

The following table presents the carrying value and fair value of the Company’s convertible subordinated notes.unsecured note. In estimating the fair value of these convertible secured notes,the Note, 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 freerisk-free interest rate in calculating the fair value estimate.

On AugustFebruary 25, 2017, the Company entered into2019, pursuant to an asset purchase agreement, to acquirethe Company acquired substantially all of the assets of Fells Point Wholesale Meats,Bassian Farms, Inc. and certain affiliated entities (“Fells Point”Bassian”), a specialty protein manufacturer and distributor based in the metro Baltimore and Washington DC area.northern California. The finalaggregate purchase price for the transaction at acquisition date was approximately $34,124, including $29,722 paid in cash at closing, $3,300 consisting of 185,442 shares of the Company’s common stock$31,990 and $1,102 payable upon settlement ofis subject to a netcustomary working capital true-up. The acquisition was funded with $27,990 in cash and the issuance of a $4,000 unsecured convertible note.

Inventories consistsconsist primarily of finished product. Our different entities record inventoryinventories using a mixture of first-in, first-out and average cost, which we believe approximates first-in, first-out. Inventory isInventories are reflected net of reservesadjustments for shrinkage, excess and obsolescence totaling $2,140$2,044 and $1,934$1,921 at March 30, 201829, 2019 and December 29, 2017,28, 2018, respectively.

Equipment, and leasehold improvements and software as of March 30, 201829, 2019 and December 29, 201728, 2018 consisted of the following:

Construction-in-process at March 30, 201829, 2019 and December 29, 201728, 2018 related primarily to the implementation of the Company’s Enterprise Resource Planning (“ERP”)ERP system and the buildout of the Company’s headquarters in Ridgefield, CT and distribution center in Union City CA.Dallas, TX. The buildout of the Company’s Union Cityheadquarters and distribution center wasis expected to be completed during the first quarter of fiscal 2018.2019. The rollout of its ERP system will continue through fiscal 2019.2020.

AtThe net book value of equipment financed under finance leases at March 30, 201829, 2019 and December 29, 2017, the Company had $530 of equipment28, 2018 was $910 and vehicles financed by capital leases.$52, respectively. The Company recorded depreciation on equipment under capital leases of $16$43 and $15$16 on these assets during the thirteen weeks ended March 29, 2019 and March 30, 2018, and March 31, 2017, respectively.

Depreciation expense, excluding capitalfinance leases, was $1,827$1,930 and $1,732$1,827 for the thirteen weeks ended March 29, 2019 and March 30, 2018, and March 31, 2017, respectively.

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

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 March 30, 201829, 2019 and December 29, 201728, 2018 consisted of the following:

Estimated amortization expense for other intangibles for the remainder of the fiscal year ending December 28, 201827, 2019 and each of the next fivefour fiscal years and thereafter is as follows:

 

As of March 30, 2018,29, 2019, the Company was in compliance with all debt covenants and the Company had reserved $11,495$15,800 of the asset based loan facility (“ABL facilityFacility”) for the issuance of letters of credit. As of March 30, 2018,29, 2019, funds totaling $63,505$90,015 were available for borrowing under the ABL facility.Facility. The interest raterates on the Company’s senior secured term loan was 5.88%and ABL Facility were 6.0% and 4.0%, respectively, at March 30, 2018.29, 2019.

The Company granted 285,624 RSAs to its employees and directors at a weighted average grant date fair value of $23.24 each during the thirteen weeks ended March 30, 2018. These awards are a mix of time and performance based grants which will vest over periods of 3 months to 4 years. The Company recognized expense totaling $687$801 and $604$687 on its RSAs during the thirteen weeks ended March 30, 201829, 2019 and March 31, 2017,30, 2018, respectively.

At March 30, 2018,29, 2019, the total unrecognized compensation cost for unvested RSAs was $7,218$3,993 and the weighted-average remaining useful life was approximately 2.61.8 years. Of this total, $3,755$2,059 related to RSAs with time-based vesting provisions and $3,463$1,934 related to RSAs with performance-based vesting provisions. At March 30, 2018,29, 2019, the weighted-average remaining useful lives for time-based vesting and performance-based vesting RSAs were approximately 2.51.9 years and 2.61.7 years, respectively.

The Company recognized expense of $150$114 and $140$150 on stock options during the thirteen weeks ended March 30, 201829, 2019 and March 31, 2017, respectively. At March 30, 2018, the total unrecognized compensation cost for these options was $565 to be recognized over a weighted-average period of approximately 0.9 years.respectively.

As of March 30, 2018,29, 2019, there were 269,090266,937 shares available for grant under the Company’s 2011 Omnibus Equity Incentive Plan. No share-based compensation expense has been capitalized.

Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”) is provided as a supplement to the accompanying consolidated financial statements and footnotes to help provide an understanding of our financial condition, changes in our financial condition and results of operations. The following discussion should be read in conjunction with information included in our Annual Report on Form 10-K filed with the Securities and Exchange Commission (“SEC”) on March 9, 2018.1, 2019. Unless otherwise indicated, the terms Company, Chefs’ Warehouse, we, us“Company”, “Chefs’ Warehouse”, “we”, “us” and our“our” refer to The Chefs’ Warehouse, Inc. and its subsidiaries.

OVERVIEW

We are a premier distributor of specialty foods in eight of the leading culinary markets in the United States. We offer more than 48,00055,000 SKUs, ranging from high-quality specialty foods and ingredients to basic ingredients and staples and center-of-the-plate proteins. We serve more than 30,00034,000 customer locations, primarily located in our 1516 geographic markets across the United States and Canada, and the majority of our customers are independent restaurants and fine dining establishments. As a result of our acquisition of Allen Brothers, Inc. (“Allen Brothers”) we also sell certain of our center-of-the-plate products directly to consumers.

We believe several key differentiating factors of our business model have enabled us to execute our strategy consistently and profitably across our expanding customer base. These factors consist of a portfolio of distinctive and hard-to-find specialty food products, an extensive selection of center-of-the-plate proteins, a highly trained and motivated sales force, strong sourcing capabilities, a fully integrated warehouse management system, a highly sophisticated distribution and logistics platform and a focused, seasoned management team.

In recent years, our sales to existing and new customers have increased through the continued growth in demand for specialty food products and center-of-the-plate products in general; increased market share driven by our large percentage of sophisticated and experienced sales professionals, our high-quality customer service and our extensive breadth and depth of product offerings; the acquisition of other specialty food and center-of-the-plate distributors; the expansion of our existing distribution centers; our entry into new distribution centers; and the import and sale of our proprietary brands. Through these efforts, we believe that we have been able to expand our customer base, enhance and diversify our product selections, broaden our geographic penetration and increase our market share.

RECENT ACQUISITIONS

On AugustFebruary 25, 2017, the Company entered into2019, pursuant to an asset purchase agreement, to acquirewe acquired substantially all of the assets of Fells Point,Bassian Farms, Inc. and certain affiliated entities (“Bassian”), a specialty protein manufacturer and distributor based in the metro Baltimore and Washington DC area.northern California. The finalaggregate purchase price for the transaction at acquisition date was approximately $34.1$32.0 million including $29.7and is subject to a customary working capital true-up. The acquisition was funded with $28.0 million paid in cash at closing, $3.3 million consisting of 185,442 shares ofand the Company’s common stock and $1.1 million payable upon settlementissuance of a net working capital true-up.$4.0 million unsecured convertible note.

Our Growth Strategies and Outlook

We continue to invest in our people, facilities and technology in an effort to achieve the following objectives and maintain our premier position within the specialty foodservice distribution market:

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 1.21.6 million square feet in 2329 distribution facilities at March 30, 201829, 2019 and have invested significantly in acquisitions, infrastructure and management.

Key Factors Affecting Our Performance

Due to our focus on menu-driven independent restaurants, fine dining establishments, country clubs, hotels, caterers, culinary schools, bakeries, patisseries, chocolatiers, cruise lines, casinos and specialty food stores, our results of operations are materially impacted by the success of the food-away-from-home industry in the United States and Canada, which is materially impacted by general economic conditions, weather, discretionary spending levels and consumer confidence. When economic conditions deteriorate, our customerscustomers’ businesses are negatively impacted as fewer people eat away-from-home and those who do spend less money. As economic conditions begin to improve, our customers’ businesses historically have likewise improved, which contributes to improvements in our business. Likewise, the direct-to-consumer business of our Allen Brothers subsidiary is significantly dependent on consumers’ discretionary spending habits, and weakness or uncertainty in the economy could lead to consumers buying less from Allen Brothers.

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

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

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

RESULTS OF OPERATIONS

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

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

Net Sales

Our net sales for the thirteen weeks ended March 30, 201829, 2019 increased approximately 10.7%12.1%, or $30.9$38.4 million, to $318.6$357.0 million from $287.7$318.6 million for the thirteen weeks ended March 31, 2017.30, 2018. Organic growth contributed $15.9$17.9 million, or 5.5%5.6% to sales growth in the quarter. The remaining sales growth of $15.0$20.5 million, or 5.2%6.5%, resulted from the acquisition of Fells Point on August 25, 2017.acquisitions. Organic case count grew approximately 4.5%5.2%, in our specialty category. In addition, growth incategory with unique customers and placements grew 3.5%growth at 6.2% and 3.1%5.2%, respectively, compared to the prior year quarter. Excluding the impact of the Fells Point acquisition, poundsPounds sold in our center-of-the-plate category increased 0.3%3.1% compared to the prior year quarter. Estimated inflation was 3.8% and 1.5%1.4% in our specialty category and 1.3% in our center-of-the-plate categories, respectively,category compared to the prior year quarter.

Gross Profit

Gross profit increased approximately 7.6%13.4%, or $5.6$10.7 million, to $90.2 million for the thirteen weeks ended March 29, 2019, from $79.5 million for the thirteen weeks ended March 30, 2018, from $73.9 million for the thirteen weeks ended March 31, 2017.2018. Gross profit margin decreasedincreased approximately 7330 basis points to 25.0%25.3% from 25.7%, due in large part to the impact of inflation in certain center-of-the-plate categories.25.0%. Gross margins in the Company’s specialty category decreased 239 basis points and decreased 146increased 106 basis points in the Company’s center-of-the-plate category compared to the prior year quarter.

Operating Expenses

Total operating expenses increased by approximately 4.2%13.9%, or $3.0$10.3 million, to $84.0 million for the thirteen weeks ended March 29, 2019 from $73.8 million for the thirteen weeks ended March 30, 2018 from $70.8 million for the thirteen weeks ended March 31, 2017.2018. The increase in operating expense relates primarily to certain corporate related costs and facilities costs as a result of growth. As a percentage of net sales, operating expenses were 23.5% in the first quarter of 2019 compared to 23.2% in the first quarter of 2018 compared to 24.6% in the first quarter of 2017. The 145 basis point decrease in the Company’s operating expense ratio is due largely to better utilization of the Company's warehouse facilities and selling organization, which decreased approximately 21 basis points and 10 basis points, respectively, lower year-on-year compensation and benefit costs related to our management infrastructure which improved by 82 basis points and depreciation and amortization expense, which improved by 8 basis points.2018.

Operating Income

Operating income for the thirteen weeks ended March 30, 201829, 2019 was $5.7$6.2 million compared to $3.1$5.7 million for the thirteen weeks ended March 31, 2017. As a percentage of net sales, operating income was 1.8% for the thirteen weeks ended March 30, 2018 compared to 1.1% for the thirteen weeks ended March 31, 2017.2018. The increase in operating income was driven primarily by increased gross profit, offset in part by higher operating expenses, as discussed above. As a percentage of net sales, operating income was 1.8% for the thirteen weeks ended March 29, 2019 and March 30, 2018.

Interest Expense and Other Expense

Total interestInterest and other expense decreased to $4.6 million for the thirteen weeks ended March 29, 2019 compared to $5.0 million for the thirteen weeks ended March 30, 2018 compared to $5.9 million for the thirteen weeks ended March 31, 2017 due to a reduction inlower effective interest rates charged on the Company’s outstanding debt.debt and the conversion of the $36.8 million of convertible subordinated notes during the third quarter of 2018.

Provision for Income Taxes

For the thirteen weeks ended March 30, 2018,29, 2019, we recorded an effective income tax rate of 28.5%27.5%. For the thirteen weeks ended March 31, 2017,30, 2018, our effective income tax rate was 41.6%28.5%. The reduction in effective tax rate is a result of the enactment H.R. 1, originally known as the Tax Cuts and Jobs Act (the “Tax Act”), on December 22, 2017. Among other changes to the U.S. Internal Revenue Code, the Tax Act reduced the U.S. federal corporate top tax rate from 35.0% to 21.0%. 

Net Income

Reflecting the factors described above, net income was $1.1 million for the thirteen weeks ended March 29, 2019, compared to net income of $0.5 million for the thirteen weeks ended March 30, 2018, compared to net loss of $1.6 million for the thirteen weeks ended March 31, 2017.2018.

LIQUIDITY AND CAPITAL RESOURCES

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

Senior Secured Term Loan Credit Facility

On June 22, 2016, Chefs’ Warehouse Parent, LLC (“CW Parent”) and Dairyland USA Corporation (“Dairyland”), as co-borrowers, and The Chefs’ Warehouse, Inc. (the “Company”) and certain other subsidiaries of the Company, as guarantors, entered into a credit agreement (the “Term Loan Credit Agreement”) with a group of lenders for which Jefferies Finance LLC (“Jefferies”) acts as administrative agent and collateral agent. The Term Loan Credit Agreement provides for a senior secured term loan B facility (the “Term Loan Facility”) in an aggregate amount of $305.0 million with a $50.0 million six-month delayed draw term loan facility (the “DDTL”; the loans outstanding under the Term Loan Facility (including the DDTL), the “Term Loans”). On June 27, 2016, the Company drew $14.0 million from the DDTL to help pay fund the acquisition of M.T. Food Service, Inc. On September 14, 2016, the Company entered into an amendment to the Term Loan Credit Agreement under which the remaining portion of the DDTL was terminated, the Company’s interest rate schedule was modified and the Company repaid $25.0 million of the outstanding balance of the Term Loans. Additionally, the Term Loan Facility includes an accordion which permits the Company to request that the lenders extend additional Term Loans in an aggregate principal amount of up to $50.0 million (less the aggregate amount of certain indebtedness incurred to finance acquisitions) plus an unlimited amount subject to the Company'sCompany’s consolidated Total Leverage Ratio not exceeding 4.90:1.00 on a pro forma basis. Borrowings under the Term Loan Facility were used to repay the Company’s senior secured notes, as well as the prior term loan and revolving credit facility. Remaining funds will be used for capital expenditures, permitted acquisitions, working capital and general corporate purposes of the Company.

On December 13, 2017, the Company completed a repricing of the Term Loan Facility to reduce the Applicable Rate (as defined in the Term Loan Credit Agreement) from 475 basis points to 400 basis points over LIBOR. The interest rate on this facility at March 30, 2018 was 5.88%.

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 LIBOLIBOR rate for one, two, three, six or (if consented to by the lenders) twelve-month interest periods chosen by the Company, in each case plus an applicable margin percentage. The interest rate on this facility at March 29, 2019 was 6.0% and the final maturity of the Term Loan Facility is June 22, 2022.

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

Asset Based Loan Facility

On June 22, 2016,29, 2018, the Company entered into a credit agreement (the “ABL Credit Agreement”) with a group of lenders for which JPMorgan ChaseBMO Harris Bank, N.A., acts as administrative agent and collateral agent. The ABL Credit Agreement provides for an asset based loan facility (the “ABL Facility”) in the aggregate amount of up to $75.0$150.0 million. Availability under the ABL Facility will be limited to a borrowing base consisting of the difference of (a)equal to the lesser of: (i) the aggregate amount of commitments or (ii) the sum of specified percentages of eligible receivables and eligible inventory, minus certain availability reserves minus (b) outstanding borrowings.reserves. The co-borrowers under the ABL Facility are entitled on one or more occasions, subject to the satisfaction of certain conditions, to request an increase in the commitments under the ABL Facility in an aggregate principal amount of up to $25.0 million. The ABL Facility matures on the earlier of June 22, 2021.29, 2023 and 90 days prior to the maturity date of the Company’s Term Loan Facility.

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

lenders. The ABL Facility contains customary affirmative covenants, negative covenants and events of default as more particularly described in the ABL Credit Agreement. The ABL Facility will require compliance with a minimum consolidated fixed charge coverage ratio of 1:1 if the amount of availability under the ABL Facility falls below a specified dollar amountthe greater of $10.0 million or percentage10% of the borrowing base.

As of March 30, 2018,29, 2019, the Company was in compliance with all debt covenants under the ABL Facility and the Company had reserved $11.5$15.8 million of the ABL facilityFacility for the issuance of letters of credit. As of March 30, 2018,29, 2019, funds totaling $63.5$90.0 million were available for borrowing under the ABL facility.Facility.

Convertible Subordinated NotesUnsecured Note

On April 6, 2015,February 25, 2019, the Company issued $36.8a $4.0 million principal amount of convertible subordinated notes with a six-year maturity bearing interest at 2.5% and a conversion price of $29.70 per shareunsecured note (the “Convertible Subordinated Notes”“Note”), maturing on June 29, 2023, to certain of the Del Monte entitiesBassian Farms, Inc. (the “Holder”) as partial consideration in the Del MonteBassian acquisition. The holdersinterest rate charged on the Note is 4.5% per annum and increases to 5.0% after the two-year anniversary of the Convertible Subordinated Notesclosing date. The Company may, in certain instances beginning one yeareighteen months after issuance of the Note, redeem the Convertible Subordinated NotesNote in whole or in part for cash or shares ofconvert 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 convertibleNote into shares of the Company’s common stock byat the holders at any time at a conversion price of $29.70.$43.93 per share. After the two-year anniversary of the closing date, the Holder may convert the Note into shares of the Company’s common stock at the conversion price. Upon a change of control event, the Holder may convert the Note into shares of the Company’s common stock at the conversion price or redeem the Note for cash.

We believe our capital expenditures, excluding cash paid for acquisitions, for fiscal 20182019 will be in the range of $14.0$24.0 million to $16.0$26.0 million. The increase in projected capital expenditures in fiscal 20182019 as compared to fiscal 20172018 is the result of planned expansions of several of our distribution facilities and renovations to our corporate headquarters. Recurring capital expenditures will be financed with 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

Seasonality

Excluding our direct-to-consumer business, we generally do not experience any material seasonality. However, our sales and operating results may vary from quarter to quarter due to factors such as changes in our operating expenses, management’s ability to execute our operating and growth strategies, personnel changes, demand for our products, supply shortages, weather patterns and general economic conditions.

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

Inflation

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

Off-Balance Sheet Arrangements

As of March 30, 2018,29, 2019, we did not have any off-balance sheet arrangements, as defined in Item 303(a)(4)(ii) of Regulation S-K.

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 theour allowance for doubtful accounts, (ii) inventory valuation, with regard to determining the reserveinventory balance adjustments for excess and obsolete inventory, (iii) valuing goodwill and intangible assets, (iv) vendor rebates and other promotional incentives, (v) self-insurance reserves, and (vi) accounting for income taxes and (vii) contingent earn-out liabilities. There have been no material changes to our critical accounting policies and estimates as compared to our critical accounting policies and estimates described in the Form 10-K filed with the SEC on March 9, 2018.1, 2019.

Interest Rate Risk

As of March 30, 2018,29, 2019, we had $287.6an aggregate of $283.9 million of indebtedness outstanding under the Senior Secured Term Loan and $0.3 million outstanding under a software financing agreementABL Facility that bore interest at variable rates. A 100 basis point increase in market interest rates would decrease our after tax earnings by approximately $2.1 million per annum, holding other variables constant.

Evaluation of Disclosure Controls and Procedures

Our management,The Company, under the supervision and with the participation of our chief executive officerits management, including the Chief Executive Officer and chief financial officer,the Chief Financial Officer, evaluated the effectiveness of our disclosurethe design and operation of the Company's "disclosure controls and procedures pursuant toprocedures" (as defined in Rule 13a-1513a-15(e) under the Securities Exchange Act of 1934, as amended (the Exchange Act),"Exchange Act")) as of the end of the period covered by this Form 10-Q. The evaluation included certain internal control areas in which we have made and are continuing to make changes to improve and enhance controls. In designing and evaluating the disclosure controls and procedures, management recognized that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives. In addition, the design of disclosure controls and procedures must reflect the fact that there are resource constraints and that management is required to apply its judgment in evaluating the benefits of possible controls and procedures relative to their costs.

Changes in Internal Control over Financial Reporting

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

There has been no material changes with respect to the risk factors disclosed in our Annual Report on Form 10-K filed with the SEC on March 9, 2018.1, 2019.

None.

None.

None.