UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q


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

For the quarterly period ended September ~~25, 2020~~24, 2021


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

For the transition period from _________ to _________

Commission file number: 001-35249

THE CHEFS’ WAREHOUSE, INC.

(Exact name of registrant as specified in its charter)

Delaware

20-3031526

(State or other jurisdiction of
incorporation or organization)

(I.R.S. Employer
Identification No.)

100 East Ridge Road

Ridgefield, Connecticut 06877

(Address of principal executive offices)

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

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


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

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

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

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

Large accelerated filer

☒☐

Accelerated filer

☐☒

Non-accelerated filer

☐

Smaller reporting company

☐

Emerging growth company

☐

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

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

Number of shares of common stock, par value $.01 per share, outstanding at October ~~23, 2020: 37,769,724~~25, 2021: 37,884,249

THE CHEFS’ WAREHOUSE, INC.

FORM 10-Q

Table of Contents


		Page
PART I. FINANCIAL INFORMATION

Item 1.	Consolidated Financial Statements (unaudited):	4

	Consolidated Balance Sheets	4

	Consolidated Statements of Operations and Comprehensive Income (Loss) ~~Income~~	5

	Consolidated Statements of Changes in Stockholders’ Equity	6

	Consolidated Statements of Cash Flows	7

	Notes to Consolidated Financial Statements	8

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	2017

Item 3.	Quantitative and Qualitative Disclosures about Market Risk	2623

Item 4.	Controls and Procedures	2623

PART II. OTHER INFORMATION

Item 1.	Legal Proceedings	2724

Item 1A.	Risk Factors	2724

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	2824

Item 3.	Defaults Upon Senior Securities	2824

Item 4.	Mine Safety Disclosures	2824

Item 5.	Other Information	2824

Item 6.	Exhibits	2925

	Signatures	3026

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” that involve risks and uncertainties and are based on current expectations and management estimates; actual results may differ materially. Words such as “anticipates”, “expects”, “intends”, “plans”, “believes”, “seeks”, “estimates” and variations of these words and similar expressions are intended to identify forward-looking statements. These statements are not guarantees of future performance and are subject to risks, uncertainties and other factors, some of which are beyond our control, are difficult to predict and/or could cause actual results to differ materially from those expressed or forecasted in the forward-looking statements. The risks and uncertainties which could impact these statements include, but are not limited to the following: our sensitivity to general economic conditions, including disposable income levels and changes in consumer discretionary spending; our ability to expand our operations in our existing markets and to penetrate new markets through acquisitions; we may not achieve the benefits expected from our acquisitions, which could adversely impact our business and operating results; we may have difficulty managing and facilitating our future growth; conditions beyond our control could materially affect the cost and/or availability of our specialty food products or center-of-the-plate products and/or interrupt our distribution network; our increased distribution of center-of-the-plate products, like meat, poultry and seafood, involves increased exposure to price volatility experienced by those products; our business is a low-margin business and our profit margins may be sensitive to inflationary and deflationary pressures; because our foodservice distribution operations are concentrated in certain culinary markets, we are susceptible to economic and other developments, including adverse weather conditions, in these areas; fuel cost volatility may have a material adverse effect on our business, financial condition or results of operations; our ability to raise capital in the future may be limited; we may be unable to obtain debt or other financing, including financing necessary to execute on our acquisition strategy, on favorable terms or at all; interest charged on our outstanding debt may be adversely affected by changes in the method of determining London Interbank Offered Rate (LIBOR), or the replacement of 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 pandemics, including the COVID-19 pandemic, may adversely affect our business, results of operations and financial condition. Any forward-looking statements are made pursuant to the Private Securities Litigation Reform Act of 1995, Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, and, as such, speak only as of the date made. A more detailed description of these and other risk factors is contained in the Company’s most recent Annual Report on Form 10-K filed with the Securities and Exchange Commission (“SEC”) on February ~~24, 2020~~23, 2021 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 25, 2020 (unaudited)		December 27, 2019			September 24, 2021 (unaudited)		December 25, 2020
ASSETS	ASSETS					ASSETS
Current assets:	Current assets:					Current assets:
Cash and cash equivalents	Cash and cash equivalents	$	208,545	$	140,233	Cash and cash equivalents	$	134,217	$	193,281
Accounts receivable, net of allowance of $24,091 in 2020 and $8,846 in 2019		100,576		175,044
Accounts receivable, net of allowance of $20,322 in 2021 and $24,027 in 2020						Accounts receivable, net of allowance of $20,322 in 2021 and $24,027 in 2020	151,720		96,383
Inventories, net	Inventories, net	98,185		124,056		Inventories, net	132,802		82,519

Prepaid expenses and other current assets	Prepaid expenses and other current assets	31,466		13,823		Prepaid expenses and other current assets	37,759		33,479
Total current assets	Total current assets	438,772		453,156		Total current assets	456,498		405,662

Equipment, leasehold improvements and software, net	Equipment, leasehold improvements and software, net	116,964		92,846		Equipment, leasehold improvements and software, net	118,143		115,448
Operating lease right-of-use assets	Operating lease right-of-use assets	118,677		127,649		Operating lease right-of-use assets	115,182		115,224
Goodwill	Goodwill	214,581		197,743		Goodwill	220,376		214,864
Intangible assets, net	Intangible assets, net	138,993		138,751		Intangible assets, net	105,696		111,717

Deferred taxes, net						Deferred taxes, net	12,390		7,535
Other assets	Other assets	3,789		3,534		Other assets	3,727		3,875
Total assets	Total assets	$	1,031,776	$	1,013,679	Total assets	$	1,032,012	$	974,325
LIABILITIES AND STOCKHOLDERS’ EQUITY	LIABILITIES AND STOCKHOLDERS’ EQUITY					LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:	Current liabilities:					Current liabilities:
Accounts payable	Accounts payable	$	73,969	$	94,097	Accounts payable	$	108,972	$	57,515
Accrued liabilities	Accrued liabilities	26,891		29,847		Accrued liabilities	33,746		27,924
Short-term operating lease liabilities	Short-term operating lease liabilities	17,472		17,453		Short-term operating lease liabilities	16,936		17,167
Accrued compensation	Accrued compensation	10,907		8,033		Accrued compensation	18,624		9,401
Current portion of long-term debt	Current portion of long-term debt	5,904		721		Current portion of long-term debt	5,624		6,095
Total current liabilities	Total current liabilities	135,143		150,151		Total current liabilities	183,902		118,102
Long-term debt, net of current portion	Long-term debt, net of current portion	396,636		386,106		Long-term debt, net of current portion	394,979		398,084
Operating lease liabilities	Operating lease liabilities	112,192		120,572		Operating lease liabilities	109,827		109,133
Deferred taxes, net		4,357		10,883

Other liabilities and deferred credits	Other liabilities and deferred credits	5,440		10,034		Other liabilities and deferred credits	4,238		4,416
Total liabilities	Total liabilities	653,768		677,746		Total liabilities	692,946		629,735
Commitments and contingencies	Commitments and contingencies					Commitments and contingencies	0		0
Stockholders’ equity:	Stockholders’ equity:					Stockholders’ equity:
Preferred Stock - $0.01 par value, 5,000,000 shares authorized, 0 shares issued and outstanding at September 25, 2020 and December 27, 2019		0		0
Common Stock, - $0.01 par value, 100,000,000 shares authorized, 37,772,640 and 30,341,941 shares issued and outstanding at September 25, 2020 and December 27, 2019, respectively		378		304
Preferred Stock - $0.01 par value, 5,000,000 shares authorized, no shares issued and outstanding at September 24, 2021 and December 25, 2020						Preferred Stock - $0.01 par value, 5,000,000 shares authorized, no shares issued and outstanding at September 24, 2021 and December 25, 2020	—		—
Common Stock, - $0.01 par value, 100,000,000 shares authorized, 37,884,249 and 37,274,768 shares issued and outstanding at September 24, 2021 and December 25, 2020, respectively						Common Stock, - $0.01 par value, 100,000,000 shares authorized, 37,884,249 and 37,274,768 shares issued and outstanding at September 24, 2021 and December 25, 2020, respectively	380		373
Additional paid in capital	Additional paid in capital	300,255		212,240		Additional paid in capital	311,503		303,734
Accumulated other comprehensive loss	Accumulated other comprehensive loss	(2,216)		(2,048)		Accumulated other comprehensive loss	(1,984)		(2,051)
Retained earnings	Retained earnings	79,591		125,437		Retained earnings	29,167		42,534
Total stockholders’ equity	Total stockholders’ equity	378,008		335,933		Total stockholders’ equity	339,066		344,590
Total liabilities and stockholders’ equity	Total liabilities and stockholders’ equity	$	1,031,776	$	1,013,679	Total liabilities and stockholders’ equity	$	1,032,012	$	974,325

See accompanying notes to the consolidated financial statements.

THE CHEFS’ WAREHOUSE, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS) ~~INCOME~~

(Unaudited)

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


		Thirteen Weeks Ended				Thirty-Nine Weeks Ended					Thirteen Weeks Ended				Thirty-Nine Weeks Ended
		September 25, 2020		September 27, 2019		September 25, 2020		September 27, 2019			September 24, 2021		September 25, 2020		September 24, 2021		September 25, 2020
Net sales	Net sales	$	254,030	$	396,880	$	829,957	$	1,165,327	Net sales	$	484,321	$	254,030	$	1,187,506	$	829,957
Cost of sales	Cost of sales	193,393		299,660		639,687		880,359		Cost of sales	374,346		193,668		922,710		640,681
Gross profit	Gross profit	60,637		97,220		190,270		284,968		Gross profit	109,975		60,362		264,796		189,276
Selling, general and administrative expenses	Selling, general and administrative expenses	76,708		83,960		254,474		247,017		Selling, general and administrative expenses	99,431		76,433		270,034		253,480
Other operating (income) expenses		(4,146)		2,636		(9,812)		5,681
Operating (loss) income		(11,925)		10,624		(54,392)		32,270
Other operating (income) expenses, net										Other operating (income) expenses, net	105		(4,146)		(208)		(9,812)
Operating income (loss)										Operating income (loss)	10,439		(11,925)		(5,030)		(54,392)
Interest expense	Interest expense	4,706		4,517		15,602		13,913		Interest expense	4,191		4,706		13,362		15,602

(Loss) income before income taxes		(16,631)		6,107		(69,994)		18,357
Provision for income tax (benefit) expense		(5,204)		1,682		(24,148)		5,052
Net (loss) income		$	(11,427)	$	4,425	$	(45,846)	$	13,305
Other comprehensive (loss) income:
Income (loss) before income taxes										Income (loss) before income taxes	6,248		(16,631)		(18,392)		(69,994)
Provision for income tax expense (benefit)										Provision for income tax expense (benefit)	2,792		(5,204)		(5,025)		(24,148)
Net income (loss)										Net income (loss)	$	3,456	$	(11,427)	$	(13,367)	$	(45,846)
Other comprehensive income (loss):										Other comprehensive income (loss):
Foreign currency translation adjustments	Foreign currency translation adjustments	93		(71)		(168)		102		Foreign currency translation adjustments	(90)		93		67		(168)
Comprehensive (loss) income		$	(11,334)	$	4,354	$	(46,014)	$	13,407
Net (loss) income per share:
Comprehensive income (loss)										Comprehensive income (loss)	$	3,366	$	(11,334)	$	(13,300)	$	(46,014)
Net income (loss) per share:										Net income (loss) per share:
Basic	Basic	$	(0.31)	$	0.15	$	(1.39)	$	0.45	Basic	$	0.09	$	(0.31)	$	(0.36)	$	(1.39)
Diluted	Diluted	$	(0.31)	$	0.15	$	(1.39)	$	0.45	Diluted	$	0.09	$	(0.31)	$	(0.36)	$	(1.39)
Weighted average common shares outstanding:	Weighted average common shares outstanding:									Weighted average common shares outstanding:
Basic	Basic	36,283,883		29,549,308		32,868,162		29,511,143		Basic	36,875,784		36,283,883		36,701,927		32,868,162
Diluted	Diluted	36,283,883		29,954,837		32,868,162		29,723,609		Diluted	37,105,746		36,283,883		36,701,927		32,868,162

See accompanying notes to the consolidated financial statements.

THE CHEFS’ WAREHOUSE, INC.

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY

(Unaudited)

(Amounts in thousands, except share amounts)


		Common Stock			Additional Paid in Capital				Accumulated Other Comprehensive Loss			Retained Earnings				Total				Common Stock					Additional Paid in Capital			Accumulated Other Comprehensive Loss			Retained Earnings			Total
		Shares	Amount								Shares								Amount
Balance December 27, 2019		30,341,941	$	304			$	212,240						$	(2,048)			$	125,437		$	335,933
Balance December 25, 2020																			Balance December 25, 2020	37,274,768			$	373		$	303,734		$	(2,051)		$	42,534		$	344,590

Net loss	Net loss	—	—		—				—			(14,085)				(14,085)			Net loss	—			—		—			—			(17,921)			(17,921)
Stock compensation	Stock compensation	807,433	8		843				—			—				851			Stock compensation	673,430			6		2,452			—			—			2,458

Cumulative translation adjustment	Cumulative translation adjustment	—	—		—				(378)			—				(378)			Cumulative translation adjustment	—			—		—			81			—			81
Shares surrendered to pay tax withholding	Shares surrendered to pay tax withholding	(159,632)	(2)		(2,702)				—			—				(2,704)			Shares surrendered to pay tax withholding	(38,503)			—		(1,192)			—			—			(1,192)
Balance March 27, 2020		30,989,742	$	310	$	210,381			$	(2,426)		$	111,352			$	319,617
Balance March 26, 2021																			Balance March 26, 2021	37,909,695			$	379	$	304,994		$	(1,970)		$	24,613		$	328,016

Net loss		—	—		—				—			(20,334)				(20,334)
Net income																			Net income	—			—		—			—			1,098			1,098
Stock compensation	Stock compensation	176,037	2		1,997				—			—				1,999			Stock compensation	69,245			1		3,279			—			—			3,280

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

Warrants issued for acquisitions																			Warrants issued for acquisitions	—			—		1,120			—			—			1,120

Cumulative translation adjustment	Cumulative translation adjustment	—	—		—				117			—				117			Cumulative translation adjustment	—			—		—			76			—			76
Shares surrendered to pay tax withholding	Shares surrendered to pay tax withholding	(1,846)	—		(23)				—			—				(23)			Shares surrendered to pay tax withholding	(17,077)			—		(541)			—			—			(541)
Balance June 26, 2020		37,798,548	$	378	$	298,230			$	(2,309)		$	91,018			$	387,317
Balance June 25, 2021																			Balance June 25, 2021	37,961,863			$	380	$	308,852		$	(1,894)		$	25,711		$	333,049

Net loss		—	—		—				—			(11,427)				(11,427)
Net income																			Net income	—			—		—			—			3,456			3,456
Stock compensation	Stock compensation	(22,477)	—		2,075				—			—				2,075			Stock compensation	(75,597)			—		2,710			—			—			2,710

Cumulative translation adjustment	Cumulative translation adjustment	—	—		—				93			—				93			Cumulative translation adjustment	—			—		—			(90)			—			(90)
Shares surrendered to pay tax withholding	Shares surrendered to pay tax withholding	(3,431)	—		(50)				—			—				(50)			Shares surrendered to pay tax withholding	(2,017)			—		(59)			—			—			(59)
Balance September 25, 2020		37,772,640	$	378	$	300,255			$	(2,216)		$	79,591			$	378,008
Balance September 24, 2021																			Balance September 24, 2021	37,884,249			$	380	$	311,503		$	(1,984)		$	29,167		$	339,066

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


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

Net loss	—	—		—		—		(11,427)		(11,427)
Stock compensation	(22,477)	—		2,075		—		—		2,075




Cumulative translation adjustment	—	—		—		93		—		93
Shares surrendered to pay tax withholding	(3,431)	—		(50)		—		—		(50)
Balance September 25, 2020	37,772,640	$	378	$	300,255	$	(2,216)	$	79,591	$	378,008

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					Thirty-Nine Weeks Ended
		September 25, 2020		September 27, 2019			September 24, 2021		September 25, 2020
Cash flows from operating activities:	Cash flows from operating activities:					Cash flows from operating activities:
Net (loss) income		$	(45,846)	$	13,305
Adjustments to reconcile net (loss) income to net cash provided by operating activities:
Net loss						Net loss	$	(13,367)	$	(45,846)
Adjustments to reconcile net loss to net cash (used in) provided by operating activities:						Adjustments to reconcile net loss to net cash (used in) provided by operating activities:
Depreciation and amortization	Depreciation and amortization	14,714		9,539		Depreciation and amortization	16,270		14,714
Amortization of intangible assets	Amortization of intangible assets	10,111		9,485		Amortization of intangible assets	9,778		10,111
Provision for allowance for doubtful accounts		20,447		3,277
(Benefit) provision for allowance for doubtful accounts						(Benefit) provision for allowance for doubtful accounts	(744)		20,447
Non-cash operating lease expense	Non-cash operating lease expense	604		1,790		Non-cash operating lease expense	505		604
(Benefit) provision for deferred income taxes		(6,527)		2,003
Benefit for deferred income taxes						Benefit for deferred income taxes	(4,855)		(6,527)
Amortization of deferred financing fees	Amortization of deferred financing fees	2,152		1,566		Amortization of deferred financing fees	1,832		2,152

Stock compensation	Stock compensation	4,925		2,911		Stock compensation	8,448		4,925
Change in fair value of contingent earn-out liabilities	Change in fair value of contingent earn-out liabilities	(11,219)		5,331		Change in fair value of contingent earn-out liabilities	(1,359)		(11,219)
Intangible asset impairment						Intangible asset impairment	597		—
Loss on asset disposal	Loss on asset disposal	52		64		Loss on asset disposal	257		52
Changes in assets and liabilities, net of acquisitions:	Changes in assets and liabilities, net of acquisitions:					Changes in assets and liabilities, net of acquisitions:
Accounts receivable	Accounts receivable	74,236		(1,069)		Accounts receivable	(51,582)		74,236
Inventories	Inventories	33,285		(7,588)		Inventories	(49,148)		33,285
Prepaid expenses and other current assets	Prepaid expenses and other current assets	(16,227)		(5,163)		Prepaid expenses and other current assets	(3,304)		(16,227)
Accounts payable, accrued liabilities and accrued compensation	Accounts payable, accrued liabilities and accrued compensation	(29,455)		(9,185)		Accounts payable, accrued liabilities and accrued compensation	60,443		(29,455)

Other assets and liabilities	Other assets and liabilities	2,617		(2,721)		Other assets and liabilities	(101)		2,617
Net cash provided by operating activities		53,869		23,545
Net cash (used in) provided by operating activities						Net cash (used in) provided by operating activities	(26,330)		53,869

Cash flows from investing activities:	Cash flows from investing activities:					Cash flows from investing activities:
Capital expenditures	Capital expenditures	(5,409)		(12,302)		Capital expenditures	(17,872)		(5,409)
Cash paid for acquisitions, net of cash received	Cash paid for acquisitions, net of cash received	(60,437)		(28,077)		Cash paid for acquisitions, net of cash received	(7,280)		(60,437)

Net cash used in investing activities	Net cash used in investing activities	(65,846)		(40,379)		Net cash used in investing activities	(25,152)		(65,846)

Cash flows from financing activities:	Cash flows from financing activities:					Cash flows from financing activities:

Payment of debt, finance lease and other financing obligations	Payment of debt, finance lease and other financing obligations	(38,924)		(1,793)		Payment of debt, finance lease and other financing obligations	(35,918)		(38,924)
Proceeds from the issuance of common stock, net of issuance costs	Proceeds from the issuance of common stock, net of issuance costs	85,941		0		Proceeds from the issuance of common stock, net of issuance costs	—		85,941

Proceeds from debt issuance						Proceeds from debt issuance	51,750		—

Payment of deferred financing fees	Payment of deferred financing fees	(856)		0		Payment of deferred financing fees	(1,450)		(856)
Proceeds from exercise of stock options		0		635

Surrender of shares to pay withholding taxes	Surrender of shares to pay withholding taxes	(2,777)		(1,001)		Surrender of shares to pay withholding taxes	(1,792)		(2,777)
Cash paid for contingent earn-out liability	Cash paid for contingent earn-out liability	(2,927)		(967)		Cash paid for contingent earn-out liability	(83)		(2,927)
Borrowings under asset-based loan facility	Borrowings under asset-based loan facility	100,000		0		Borrowings under asset-based loan facility	—		100,000
Payments under asset based loan facility		(60,000)		(960)
Payments under asset-based loan facility						Payments under asset-based loan facility	(20,000)		(60,000)

Net cash provided by (used in) financing activities		80,457		(4,086)
Net cash (used in) provided by financing activities						Net cash (used in) provided by financing activities	(7,493)		80,457

Effect of foreign currency on cash and cash equivalents	Effect of foreign currency on cash and cash equivalents	(168)		(11)		Effect of foreign currency on cash and cash equivalents	(89)		(168)
Net change in cash and cash equivalents	Net change in cash and cash equivalents	68,312		(20,931)		Net change in cash and cash equivalents	(59,064)		68,312
Cash and cash equivalents-beginning of period	Cash and cash equivalents-beginning of period	140,233		42,410		Cash and cash equivalents-beginning of period	193,281		140,233
Cash and cash equivalents-end of period	Cash and cash equivalents-end of period	$	208,545	$	21,479	Cash and cash equivalents-end of period	$	134,217	$	208,545

See accompanying notes to the consolidated financial statements.

THE CHEFS’ WAREHOUSE, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

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

Note 1 - Operations and Basis of Presentation

Description of Business and Basis of Presentation

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

The COVID-19 Pandemic

~~The~~Many of the Company’s customers have been adversely impacted by the COVID-19 pandemic ~~(“COVID-19”~~(the “Pandemic”), however there has ~~had a material~~been sequential improvement in the Company’s business starting in the second quarter of fiscal 2021 and continuing throughout the third quarter of fiscal 2021 which has contributed to organic sales growth of $213,719 compared to the prior year quarter.

The future impact of the Pandemic on the Company’s business, ~~and~~ operations and ~~those of its customers. In an effort~~liquidity is difficult to ~~limit the spread of the virus, federal, state~~predict at this time 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 key markets were not eased until early June. As of September 25, 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 and 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 highly dependent on future developments ~~regarding the pandemic~~ including new information ~~about~~that may emerge on the severity of the disease, the extent of outbreaks, federal, state and local government responses, trends in infection rates, ~~and~~ development of effective medical treatments for the disease, the pace of vaccination programs and future consumer spending behavior, 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 $9,800 related to incremental inventory obsolescence during the thirty-nine weeks ended September 25, 2020. The adverse impact to the Company’s customer base and market capitalization at the onset of COVID-19 were considered 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 ~~27, 2019~~25, 2020 filed as part of the Company’s Annual Report on Form 10-K, as filed with the SEC on February ~~24, 2020.~~23, 2021.

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 February ~~24, 2020,~~23, 2021, 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~~the Pandemic and other factors, the results of operations for the thirteen and thirty-nine weeks ended September ~~25, 2020~~24, 2021 are not necessarily indicative of the results to be expected for the full year.

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

~~Guidance Adopted in Fiscal 2020~~

~~Measurement of Credit Losses on Financial Instruments:~~ In June 2016 and as further amended in November 2018, the Financial Accounting Standards Board (the “FASB”) issued guidance which requires entities to use a forward-looking expected loss model to estimate credit losses. It also requires additional disclosure related to credit quality of trade and other receivables, including information related to management’s estimate of credit allowances. The Company adopted this guidance 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 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 food-away-from-home industry and/or its customers, and specifically, beginning in the first quarter of fiscal 2020, the impact of COVID-19. Adoption of this guidance did not have a material effect on the Company’s consolidated financial statements.

~~Leases:~~ In April 2020, the FASB issued guidance describing 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 recognize such rent deferrals as accrued expenses. The Company continues to recognize expense during the deferral period.

Guidance ~~Not Yet~~ Adopted in Fiscal 2021

Simplifying the Accounting for Income Taxes: In December 2019, the ~~FASB~~Financial Accounting Standards Board (the “FASB”) issued guidance that eliminates certain exceptions related to the approach for intraperiod tax allocations, the methodology for calculating income taxes in an interim period and other simplifications and clarifications. ~~The~~As a result of the new guidance, ~~will be effective for fiscal years beginning after~~the Company may recognize additional income tax benefits during interim periods in which interim losses exceed full year projections due to provisions in the guidance that remove loss limitation rules. This guidance was adopted on December ~~15, 2020. Early adoption is permitted. The Company expects to adopt this guidance when effective~~26, 2020 and adoption ~~will have~~had an immaterial impact on ~~its~~the Company’s consolidated financial statements.

Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity:In August 2020, the FASB issued guidance that simplifies the accounting models for financial instruments with characteristics of debt and equity. The amendments in the guidance result in fewer instances in which an embedded conversion feature must be accounted for separately from its host contract. This guidance will be effective for fiscal years beginning after December 15, 2021. ~~Early adoption is permitted, but no earlier than fiscal years beginning after December 15, 2020. The Company expects to adopt this~~This guidance was adopted on December 26, 2020 and adoption isdid not ~~expected to have a material~~ impact ~~on its~~the Company’s consolidated financial statements.

~~Note 2 – Reclassifications~~

On September 1, 2020, the Company received a comment letter from the staff of the SEC’s Division of Corporation Finance (“SEC”) with respect to the Company’s annual report on Form 10-K for the year ended December 27, 2019, requesting information regarding the Company’s presentation of food processing costs and separate presentation of selling, general and administrative expenses from other operating expenses.

~~Food Processing Costs~~

The Company’s food processing costs represent the costs to cut and package produce and protein products, primarily beef products, for sale to the Company’s customer base. The costs associated with food processing are normally incurred immediately prior to shipment and thus, historically, the Company treated these costs as handling expenses and presented them within operating expenses on its consolidated statements of operations. The Company has also separately disclosed its food processing costs, excluding depreciation expense, in the notes to its annual consolidated financial statements. Upon further consideration and discussions with the SEC, the Company concluded that food processing costs are more fairly presented as cost of sales and such costs should include depreciation expense associated with equipment and facilities used in food processing activities. Accordingly, the Company has reclassified its food processing costs from operating expenses to cost of

sales. In accordance with Staff Accounting Bulletin (“SAB”) No. 99 “Materiality,” and SAB No. 108, “Considering the Effects of Prior Year Misstatements when Quantifying Misstatements in Current Year Financial Statements”, the Company evaluated the impact of the reclassification and determined that the impact was not material to its consolidated financial statements for any prior annual or interim period. See Note 3 “Summary of Significant Accounting Policies” for a full description of the components of costs of sales and food processing costs.

~~Selling, General and Administrative Expenses~~

In response to the SEC’s comment, the Company revised its presentation of total operating expenses such that selling, general and administrative expenses are presented separately from other operating expenses. Furthermore, management has reclassified gain/loss from asset disposal, which was previously presented as a non-operating expense, to other operating expenses. See Note 3 “Summary of Significant Accounting Policies” for a full description of the components of selling, general and administrative expenses and other expenses.

~~The aggregate impact of the above reclassifications on prior periods are as follows:~~

Thirteen Weeks Ended Thirty-Nine Weeks Ended
September 27, 2019 September 27, 2019
As Reported Reclass As Restated As Reported Reclass As Restated
Net sales $ 396,880 $ 0 $ 396,880 $ 1,165,327 $ 0 $ 1,165,327
Cost of sales 294,887 4,773 299,660 866,670 13,689 880,359
Gross profit 101,993 (4,773) 97,220 298,657 (13,689) 284,968
Selling, general and administrative expenses 91,345 (7,385) 83,960 266,323 (19,306) 247,017
Other operating expenses 0 2,636 2,636 0 5,681 5,681
Total operating expenses 91,345 (4,749) 86,596 266,323 (13,625) 252,698
Operating income 10,648 (24) 10,624 32,334 (64) 32,270
Interest expense 4,517 0 4,517 13,913 0 13,913
Loss on asset disposal 24 (24) — 64 (64) —
Income before income taxes 6,107 0 6,107 18,357 0 18,357
Provision for income tax expense 1,682 0 1,682 5,052 0 5,052
Net income $ 4,425 $ 0 $ 4,425 $ 13,305 $ 0 $ 13,305

Note 32 – Summary of Significant Accounting Policies

Revenue Recognition

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

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


		Thirteen Weeks Ended								Thirty-Nine Weeks Ended									Thirteen Weeks Ended								Thirty-Nine Weeks Ended
		September 25, 2020				September 27, 2019				September 25, 2020				September 27, 2019					September 24, 2021				September 25, 2020				September 24, 2021				September 25, 2020
Center-of-the-Plate	Center-of-the-Plate	$	115,570	45.5	%	$	176,778	44.5	%	$	395,224	47.6	%	$	516,907	44.4	%	Center-of-the-Plate	$	238,783	49.3	%	$	115,570	45.5	%	$	593,717	50.0	%	$	395,224	47.6	%
Dry Goods	Dry Goods	31,495		12.4	%	65,379		16.5	%	113,480		13.7	%	193,518		16.6	%	Dry Goods	66,455		13.7	%	31,495		12.4	%	163,352		13.8	%	113,480		13.7	%
Pastry	Pastry	27,618		10.9	%	53,579		13.5	%	92,427		11.1	%	160,316		13.8	%	Pastry	48,842		10.1	%	27,618		10.9	%	118,952		10.0	%	92,427		11.1	%
Cheese and Charcuterie	Cheese and Charcuterie	33,329		13.1	%	40,500		10.2	%	83,996		10.1	%	117,073		10.0	%	Cheese and Charcuterie	40,403		8.3	%	33,329		13.1	%	97,805		8.2	%	83,996		10.1	%
Produce	Produce	24,172		9.5	%	4,875		1.2	%	60,240		7.3	%	13,255		1.1	%	Produce	35,900		7.4	%	24,172		9.5	%	87,049		7.3	%	60,240		7.3	%
Dairy and Eggs	Dairy and Eggs	6,301		2.5	%	27,480		6.9	%	35,942		4.3	%	81,765		7.0	%	Dairy and Eggs	21,922		4.5	%	6,301		2.5	%	53,405		4.5	%	35,942		4.3	%
Oils and Vinegars	Oils and Vinegars	9,487		3.7	%	20,487		5.2	%	31,082		3.7	%	60,117		5.2	%	Oils and Vinegars	21,855		4.5	%	9,487		3.7	%	48,210		4.1	%	31,082		3.7	%
Kitchen Supplies	Kitchen Supplies	6,058		2.4	%	7,802		2.0	%	17,566		2.2	%	22,376		1.9	%	Kitchen Supplies	10,161		2.2	%	6,058		2.4	%	25,016		2.1	%	17,566		2.2	%
Total	Total	$	254,030	100	%	$	396,880	100	%	$	829,957	100	%	$	1,165,327	100	%	Total	$	484,321	100	%	$	254,030	100	%	$	1,187,506	100	%	$	829,957	100	%

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

~~Deferred Revenue~~

Certain customer arrangements in the Company’s direct-to-consumer business, prepaid gift plans and gift card purchases, result in deferred revenues when cash payments are received in advance of performance. The Company recognizes revenue on its prepaid gift plans when control of each product is transferred to the customer. Performance obligations under the Company’s prepaid gift plans are satisfied within a period of twelve months or less. Gift cards issued by the Company do not have expiration dates. The Company records a liability for unredeemed gift cards at the time gift cards are sold and the liability is relieved when the card is redeemed, the value of the card is escheated to the appropriate government agency, or through breakage. Gift card breakage is estimated based on the Company’s historical redemption experience and expected trends in redemption patterns. Amounts recognized through breakage represent the portion of the gift card liability that is not subject to unclaimed property laws and for which the likelihood of redemption is remote. The Company recorded deferred revenues, reflected as ~~accrued liabilities~~ ~~on the Company’s consolidated balance sheets, of $993 and $1,345 as of September 25, 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 $208 and $314 as of September 25, 2020 and December 27, 2019, respectively. Refund liabilities are reflected as ~~accrued liabilities~~ on the consolidated balance sheets. The Company recognized a corresponding asset of $128 and $194 as of September 25, 2020 and December 27, 2019, respectively, for its right to recover products from customers on settling its refund liabilities. This asset is reflected as ~~inventories, net~~ ~~on the consolidated balance sheets.~~

~~Contract~~Food Processing Costs

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

~~Cost of Sales~~

The Company records cost of sales based upon the net purchase price paid for a product, including applicable freight charges incurred to deliver the product to the Company’s warehouse, and food processing costs. Food processing costs include but are not limited to direct labor and benefits, applicable overhead and depreciation of equipment and facilities used in food processing activities. Food processing costs included in cost of sales were ~~$4,001~~$7,524 and ~~$4,773~~$4,276 for the thirteen weeks ended September 24, 2021 and September 25, 2020, ~~and September 27, 2019,~~ respectively, and ~~$12,708~~$19,599 and ~~$13,689~~$13,702 for the thirty-nine weeks ended September ~~25, 2020~~24, 2021 and September ~~27, 2019,~~25, 2020, respectively.

~~Selling, General and Administrative Expenses~~

~~Selling, general and administrative expenses include facilities costs, product shipping and handling costs, warehouse costs, and other selling, general and administrative costs.~~

~~Other Operating Expenses~~

Other operating expenses includes expenses primarily related to changes in the fair value of the Company’s earn-out liabilities, gains and losses on asset disposals, asset impairments and certain third-party deal costs incurred in connection with business acquisitions or financing arrangements.

Note 43 – Net Income (Loss) ~~Income~~ per Share

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


		Thirteen Weeks Ended				Thirty-Nine Weeks Ended					Thirteen Weeks Ended				Thirty-Nine Weeks Ended
		September 25, 2020		September 27, 2019		September 25, 2020		September 27, 2019			September 24, 2021		September 25, 2020		September 24, 2021		September 25, 2020
Net (loss) income per share:
Net income (loss) per share:										Net income (loss) per share:
Basic	Basic	$	(0.31)	$	0.15	$	(1.39)	$	0.45	Basic	$	0.09	$	(0.31)	$	(0.36)	$	(1.39)
Diluted	Diluted	$	(0.31)	$	0.15	$	(1.39)	$	0.45	Diluted	$	0.09	$	(0.31)	$	(0.36)	$	(1.39)
Weighted average common shares:	Weighted average common shares:									Weighted average common shares:
Basic	Basic	36,283,883		29,549,308		32,868,162		29,511,143		Basic	36,875,784		36,283,883		36,701,927		32,868,162
Diluted	Diluted	36,283,883		29,954,837		32,868,162		29,723,609		Diluted	37,105,746		36,283,883		36,701,927		32,868,162

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


		Thirteen Weeks Ended				Thirty-Nine Weeks Ended					Thirteen Weeks Ended				Thirty-Nine Weeks Ended
		September 25, 2020		September 27, 2019		September 25, 2020		September 27, 2019			September 24, 2021		September 25, 2020		September 24, 2021		September 25, 2020
Numerator:	Numerator:									Numerator:
Net (loss) income		$	(11,427)	$	4,425	$	(45,846)	$	13,305
Net income (loss)										Net income (loss)	$	3,456	$	(11,427)	$	(13,367)	$	(45,846)

Denominator:	Denominator:									Denominator:
Weighted average basic common shares outstanding	Weighted average basic common shares outstanding	36,283,883		29,549,308		32,868,162		29,511,143		Weighted average basic common shares outstanding	36,875,784		36,283,883		36,701,927		32,868,162
Dilutive effect of stock options and unvested common shares	Dilutive effect of stock options and unvested common shares	0		405,529		0		212,466		Dilutive effect of stock options and unvested common shares	229,962		—		—		—

Weighted average diluted common shares outstanding	Weighted average diluted common shares outstanding	36,283,883		29,954,837		32,868,162		29,723,609		Weighted average diluted common shares outstanding	37,105,746		36,283,883		36,701,927		32,868,162

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

Thirteen Weeks Ended Thirty-Nine Weeks Ended
September 25, 2020 September 27, 2019 September 25, 2020 September 27, 2019
Restricted share awards (“RSAs”) 389,163 330,696 393,905 122,876
Stock options 115,639 0 115,639 0
Convertible notes 3,484,788 91,053 3,484,788 91,053

During August 2020, management identified an unintentional error in the calculation of the Company’s basic and diluted weighted average common shares outstanding for the thirteen and twenty-six weeks ended June 26, 2020. The error stemmed from the improper weighting of the 6,634,615 common shares issued during the quarter ended June 26, 2020. As a result, basic and diluted net loss per common share as previously reported for the thirteen and twenty-six weeks ended June 26, 2020 were understated. In accordance with SAB No. 99 “Materiality,” and SAB No. 108, “Considering the Effects of Prior Year

Misstatements when Quantifying Misstatements in Current Year Financial Statements”, the Company evaluated the error and determined that the impact was not material to its consolidated financial statements for any prior annual or interim period.

The changes to basic and diluted weighted average common shares outstanding and corresponding impacts to basic and diluted net loss per common share for the thirteen and twenty-six weeks ended June 26, 2020 were follows:

Thirteen Weeks Ended Twenty-Six Weeks Ended
June 26, 2020 June 26, 2020
As Reported As Restated As Reported As Restated
Net loss per share:
Basic $ (0.57) $ (0.62) $ (1.05) $ (1.10)
Diluted $ (0.57) $ (0.62) $ (1.05) $ (1.10)
Weighted average common shares:
Basic 35,759,193 32,698,295 32,672,876 31,150,883
Diluted 35,759,193 32,698,295 32,672,876 31,150,883


	Thirteen Weeks Ended		Thirty-Nine Weeks Ended
	September 24, 2021	September 25, 2020	September 24, 2021	September 25, 2020
Restricted share awards (“RSAs”)	50,412	742,692	297,978	689,907
Stock options	—	115,639	38,102	115,639
Warrants	126,359	—	84,854	—
Convertible notes	4,616,033	3,484,788	4,341,664	3,484,788

Note 54 – Fair Value Measurements

Assets and Liabilities Measured at Fair Value

The Company’s contingent earn-out liabilities are measured at fair value. These liabilities were estimated using Level 3 inputs. Long-term earn-out liabilities were ~~$2,815~~$2,339 and ~~$7,957~~$2,556 as of September ~~25, 2020~~24, 2021 and December ~~27, 2019,~~25, 2020, 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 other operating (income)expenses, net on the consolidated statements of operations.

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


		Fells Point		Bassian		Sid Wainer		Other Acquisitions		Total

													Fells Point		Bassian		Sid Wainer		Other Acquisitions		Total
Balance December 27, 2019	Balance December 27, 2019	$	4,544	$	7,957	$	0	$	2,197	$	14,698	Balance December 27, 2019	$	4,544	$	7,957	$	—	$	2,197	$	14,698
Acquisition value	Acquisition value	0		0		2,081		1,383		3,464		Acquisition value	—		—		2,081		1,383		3,464

Cash payments	Cash payments	0		(2,250)		0		(1,677)		(3,927)		Cash payments	—		(2,250)		—		(1,677)		(3,927)
Changes in fair value	Changes in fair value	(4,544)		(4,337)		(1,581)		(757)		(11,219)		Changes in fair value	(4,544)		(4,631)		(1,570)		(734)		(11,479)
Balance September 25, 2020		$	0	$	1,370	$	500	$	1,146	$	3,016
Balance December 25, 2020												Balance December 25, 2020	$	—	$	1,076	$	511	$	1,169	$	2,756
Acquisition value												Acquisition value	—		—		—		3,400		3,400

Cash payments												Cash payments	—		—		—		(83)		(83)
Changes in fair value												Changes in fair value	—		39		(511)		(887)		(1,359)
Balance September 24, 2021												Balance September 24, 2021	$	—	$	1,115	$	—	$	3,599	$	4,714

Fair Value of Financial Instruments

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


		September 25, 2020				December 27, 2019					September 24, 2021				December 25, 2020
		Carrying Value		Fair Value		Carrying Value		Fair Value			Carrying Value		Fair Value		Carrying Value		Fair Value
Convertible Senior Notes	Convertible Senior Notes	$	150,000	$	141,048	$	150,000	$	165,000	Convertible Senior Notes	$	200,000	$	199,592	$	150,000	$	163,204
Convertible Unsecured Note	Convertible Unsecured Note	$	4,000	$	3,711	$	4,000	$	4,282	Convertible Unsecured Note	$	4,000	$	3,901	$	4,000	$	4,290

Note 65 – Acquisitions

~~Sid Wainer~~

~~On January 27, 2020, pursuant to an asset purchase agreement,~~During the second quarter of fiscal 2021, the Company ~~acquired substantially all of the assets, including certain real-estate assets, of Sid Wainer & Son (“Sid Wainer”), a specialty food and produce distributor in New England. The final~~completed 2 acquisitions for an aggregate purchase price ~~was~~of approximately ~~$44,081,~~$8,400, consisting of ~~$46,450~~$7,280 paid in cash, ~~at closing, partially offset by a $2,369 net~~subject to customary working capital ~~true-up.~~adjustments, and common stock warrants of $1,120. The Company will also pay additional contingent consideration, if earned, in the form of an earn-out ~~amount~~amounts which could total ~~$4,000 over~~$4,230 in aggregate. The Company is in the process of finalizing a ~~two-year period. The payment~~valuation of the earn-out ~~liability is subject to the successful achievement of certain gross profit targets. The Company estimated the fair value of this contingent earn-out liability to be $2,081~~liabilities, and ~~$500~~tangible and intangible assets as of ~~January 27, 2020 and September 25, 2020, respectively.~~

~~Trademarks were valued at fair value using~~the acquisition date. When applicable, these valuations require the use of Level 3 ~~inputs and are being amortized over 15 years.~~inputs. Goodwill for ~~the Sid Wainer acquisition~~these acquisitions will be amortized over 15 years for tax purposes. The goodwill recorded primarily reflects the value of acquiring an established specialty food and produce distributor to leverage the Company’s existing products in the markets served by Sid Wainer, to supply Sid Wainer’s produce offerings to our metro New York market and any intangible assets that do not qualify for separate recognition.

The Company reflected net sales ~~of $27,831~~ and ~~$66,451 for the thirteen weeks and thirty-nine weeks ended September 25, 2020, respectively, and an operating~~ loss ~~of $1,177 and $5,646 for the thirteen weeks and thirty-nine weeks ended September 25, 2020, respectively,~~before taxes in its consolidated statement of operations related to the ~~Sid Wainer acquisition.~~fiscal 2021 acquisitions as follows:


	Thirteen Weeks Ended		Thirty-Nine Weeks Ended
	September 24, 2021			September 24, 2021
Net sales	$	16,052		$	25,090
Loss before income taxes	$	(285)		$	(379)

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

Thirteen Weeks Ended Thirty-Nine Weeks Ended
September 25, 2020 September 27, 2019 September 25, 2020 September 27, 2019
Net sales $ 254,030 $ 461,034 $ 842,735 $ 1,331,487
(Loss) income before income taxes (16,631) 8,613 (70,999) 19,404
operations.

~~Additionally, during fiscal 2020, the Company paid approximately $16,356 for a specialty center-of-the plate distributor in New England.~~

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

Sid Wainer Other Acquisitions
Current assets $ 22,960 $ 6,172
Customer relationships 0 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



Current assets	$	4,240
Customer relationships	2,431
Trademarks	1,890

Goodwill	5,496
Fixed assets	707


Right-of-use assets	761
Lease liabilities	(761)


Current liabilities	(2,964)
Earn-out liability	(3,400)

Issuance of warrants	(1,120)

Total cash consideration	$	7,280

The Company recognized professional fees of ~~$435~~$86 in ~~other~~ operating expenses related to ~~the~~ acquisitions in the ~~first~~second quarter of fiscal ~~2020.~~

2021.

Note 76 – Inventories

Inventories consist primarily of finished product and are reflected net of adjustments for shrinkage, excess and obsolescence totaling ~~$8,118~~$8,070 and ~~$1,937~~$9,013 at September 24, 2021 and December 25, 2020, ~~and December 27, 2019,~~ respectively. ~~The Company incurred estimated inventory charges of approximately $9,800 related to inventory obsolescence due to COVID-19 during fiscal 2020.~~

Note 87 – Equipment, Leasehold Improvements and Software

Equipment, leasehold improvements and software as of September ~~25, 2020~~24, 2021 and December ~~27, 2019~~25, 2020 consisted of the following:


		Useful Lives	September 25, 2020		December 27, 2019			Useful Lives	September 24, 2021		December 25, 2020
Land	Land	Indefinite	$	5,020	$	1,170	Land	Indefinite	$	5,020	$	5,020
Buildings	Buildings	20 years	15,685		1,360		Buildings	20 years	15,778		15,685
Machinery and equipment	Machinery and equipment	5 - 10 years	24,770		21,718		Machinery and equipment	5 - 10 years	25,969		24,900
Computers, data processing and other equipment	Computers, data processing and other equipment	3 - 7 years	14,111		12,686		Computers, data processing and other equipment	3 - 7 years	14,856		14,207
Software	Software	3 - 7 years	33,024		29,305		Software	3 - 7 years	39,834		33,063
Leasehold improvements	Leasehold improvements	1 - 40 years	71,531		70,903		Leasehold improvements	1 - 40 years	68,754		68,747
Furniture and fixtures	Furniture and fixtures	7 years	3,433		3,309		Furniture and fixtures	7 years	3,497		3,412
Vehicles	Vehicles	5 - 7 years	20,103		6,410		Vehicles	5 - 7 years	22,619		21,873
Other	Other	7 years	96		95		Other	7 years	88		88
Construction-in-process	Construction-in-process		9,132		9,200		Construction-in-process		16,837		8,115
			196,905		156,156				213,252		195,110
Less: accumulated depreciation and amortization	Less: accumulated depreciation and amortization		(79,941)		(63,310)		Less: accumulated depreciation and amortization		(95,109)		(79,662)
Equipment, leasehold improvements and software, net	Equipment, leasehold improvements and software, net		$	116,964	$	92,846	Equipment, leasehold improvements and software, net		$	118,143	$	115,448

Construction-in-process at September 24, 2021 related primarily to the build-outs of the Company’s Los Angeles and Miami distribution facilities. Construction-in-process at December 25, 2020 ~~and December 27, 2019~~ related primarily to the implementation of the Company’s Enterprise Resource Planning system. The net book value of equipment financed under finance leases at September 24, 2021 and December 25, 2020 was $12,489 and ~~December 27, 2019 was $14,623 and $3,905,~~$14,705, respectively.

The components of depreciation and amortization expense were as follows:


		Thirteen Weeks Ended				Thirty-Nine Weeks Ended					Thirteen Weeks Ended				Thirty-Nine Weeks Ended
		September 25, 2020		September 27, 2019		September 25, 2020		September 27, 2019			September 24, 2021		September 25, 2020		September 24, 2021		September 25, 2020
Depreciation expense	Depreciation expense	$	3,792	$	2,558	$	11,023	$	6,793	Depreciation expense	$	3,903	$	3,792	$	11,679	$	11,023
Software amortization	Software amortization	$	1,247	$	926	$	3,691	$	2,746	Software amortization	$	1,707	$	1,247	$	4,591	$	3,691
		$	5,039	$	3,484	$	14,714	$	9,539		$	5,610	$	5,039	$	16,270	$	14,714

Note 98 – 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 implemented measures that resulted in the closure of non-essential businesses in many of the markets the Company serves, which 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 market capitalization at the onset of COVID-19 were considered 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 0t impaired ~~as of March 27, 2020.~~ ~~Management determined that there were no triggering events during the second or third quarters 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 or third quarters 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~~25, 2020	$	~~197,743~~214,864

Acquisitions	~~16,862~~5,496
Foreign currency translation	~~(24)~~16
Carrying amount as of September ~~25, 2020~~24, 2021	$	~~214,581~~220,376

~~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 ~~25, 2020~~24, 2021 and December ~~27, 2019~~25, 2020 consisted of the following:


September 24, 2021	Weighted-Average Remaining Amortization Period	Gross Carrying Amount		Accumulated Amortization		Net Amount
Customer relationships	122 months	$	144,130	$	(62,570)	$	81,560
Non-compete agreements	29 months	8,579		(7,952)		627
Trademarks	181 months	45,826		(22,317)		23,509
Total		$	198,535	$	(92,839)	$	105,696

September 25, 2020 Gross Carrying Amount Accumulated Amortization Net Amount
Customer relationships $ 141,399 $ (52,720) $ 88,679
Non-compete agreements 8,579 (7,677) 902
Trademarks 68,685 (19,273) 49,412
Total $ 218,663 $ (79,670) $ 138,993


December 27, 2019
December 25, 2020								December 25, 2020	Weighted-Average Remaining Amortization Period	Gross Carrying Amount		Accumulated Amortization		Net Amount
Customer relationships	Customer relationships	$	135,226	$	(45,454)	$	89,772	Customer relationships	128 months	$	141,679	$	(55,135)	$	86,544
Non-compete agreements	Non-compete agreements	8,579		(7,479)		1,100		Non-compete agreements	37 months	8,579		(7,752)		827
Trademarks	Trademarks	64,505		(16,626)		47,879		Trademarks	209 months	44,520		(20,174)		24,346
Total	Total	$	208,310	$	(69,559)	$	138,751	Total		$	194,778	$	(83,061)	$	111,717

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

Amortization expense for other intangibles was ~~$3,391~~$3,135 and ~~$3,301~~$3,391 for the thirteen weeks ended September 24, 2021 and September 25, 2020, ~~and September 27, 2019,~~ respectively, and ~~$10,111~~$9,778 and ~~$9,485~~$10,111 for the thirty-nine weeks ended September 24, 2021 and September 25, 2020, respectively.

During the second quarter of fiscal 2021, the Company committed to a plan to shift its brand strategy to leverage its Allen Brothers brand in its New England region and ~~September 27, 2019, respectively.~~determined its Cambridge trademark did not fit the Company’s long-term strategic objectives. As a result, the Company recognized a $597 impairment charge to fully write-down the net book value of its Cambridge trademark.

1613

Estimated amortization expense for other intangible assets for the remainder of the fiscal year ending December ~~25, 2020~~24, 2021 and each of the next four fiscal years and thereafter is as follows:


2020		$	3,395
2021	2021	13,574		2021	$	3,136
2022	2022	12,794		2022	11,765
2023	2023	11,766		2023	10,736
2024	2024	11,423		2024	9,876
2025				2025	9,459
Thereafter	Thereafter	86,041		Thereafter	60,724
Total	Total	$	138,993	Total	$	105,696

Note 109 – Debt Obligations

Debt obligations as of September ~~25, 2020~~24, 2021 and December ~~27, 2019~~25, 2020 consisted of the following:


		September 25, 2020		December 27, 2019			September 24, 2021		December 25, 2020
Senior secured term loans	Senior secured term loans	$	201,981	$	238,129	Senior secured term loans	$	169,103	$	201,553
Convertible senior notes	Convertible senior notes	150,000		150,000		Convertible senior notes	200,000		150,000
Asset-based loan facility	Asset-based loan facility	40,000		0		Asset-based loan facility	20,000		40,000
Finance lease and other financing obligations						Finance lease and other financing obligations	14,350		15,798
Convertible unsecured note	Convertible unsecured note	4,000		4,000		Convertible unsecured note	4,000		4,000
Finance lease and other financing obligations		14,834		3,905

Deferred finance fees and original issue discount		(8,275)		(9,207)
Deferred finance fees and original issue premium (discount)						Deferred finance fees and original issue premium (discount)	(6,850)		(7,172)
Total debt obligations	Total debt obligations	402,540		386,827		Total debt obligations	400,603		404,179
Less: current installments	Less: current installments	(5,904)		(721)		Less: current installments	(5,624)		(6,095)
Total debt obligations excluding current installments	Total debt obligations excluding current installments	$	396,636	$	386,106	Total debt obligations excluding current installments	$	394,979	$	398,084

On ~~June 8, 2020,~~March 1, 2021, the Company ~~entered into~~issued $50,000 aggregate principal amount of 1.875% Convertible Senior Notes at a ~~sixth amendment (the “Sixth Amendment”)~~premium which were offered as an additional issuance and under the same terms of the Company’s $150,000 Convertible Senior Notes due 2024 initially issued on November 22, 2019. Net proceeds were used to ~~its~~repay all outstanding borrowings under the Company's 2022 tranche of senior secured term loans of $31,166 and repay a portion of borrowings outstanding under the Company’s asset-based loan facility (“ABL Facility”). The Company incurred transaction costs of approximately $1,350 which were capitalized as deferred financing fees to be amortized over the term of the Convertible Senior Notes due 2024. At September 24, 2021, the effective interest rate charged on the Company’s Convertible Senior Notes was approximately 2.3%.

The net carry value of the Company’s Convertible Senior Notes as of September 24, 2021 and December 25, 2020 was:


	September 24, 2021		December 25, 2020
Principal amount outstanding	$	200,000	$	150,000
Unamortized deferred financing fees and premium	3,366		4,999
Net carry value	$	203,366	$	154,999

The components of interest expense on the Company’s Convertible Senior Notes were as follows:


	Thirteen Weeks Ended				Thirty-Nine Weeks Ended
	September 24, 2021		September 25, 2020		September 24, 2021		September 25, 2020
Coupon interest	$	937	$	703	$	2,656	$	2,109
Amortization of deferred financing fees and premium	$	224	$	250	$	689	$	750
Total interest	$	1,161	$	953	$	3,345	$	2,859

The Company’s senior secured term loan credit agreement (the “Credit Agreement”). Upon the consent of the lenders, the Sixth Amendment converted a portion of the term loans then outstanding of $238,129 (the “Term Loans”) into a 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 prepayment of $35,719 on the 2025 Tranche immediately after it was established.

~~The following table summarizes the key terms of the Term Loans as of September 25, 2020:~~

~~Term Loans~~

~~Principal Outstanding~~

~~Interest Rate~~

~~Maturity Date~~

~~Scheduled Principal Payments~~

~~2022 Tranche~~

~~31,166~~

~~LIBOR + 3.5%~~

~~June 22, 2022~~

~~none~~

~~2025 Tranche~~

~~170,815~~

~~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 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.

~~The Sixth Amendment introduced a minimum liquidity covenant which~~ requires the Company to maintain at least $35,000 of liquidity as of the last day of any fiscal quarter where EBITDA, as defined in the Credit Agreement, is less than $10,000. The Company had minimum liquidity, as defined in the Credit Agreement, of ~~$250,392~~$250,638 as of September ~~25, 2020.~~24, 2021.

As of September ~~25, 2020,~~24, 2021, the Company was in compliance with all debt covenants and the Company had reserved ~~$20,141~~$20,541 of the ~~asset-based loan facility (“~~ABL ~~Facility”)~~Facility for the issuance of letters of credit. As of September ~~25, 2020,~~24, 2021, funds totaling ~~$44,275~~$109,459 were available for borrowing under the ABL Facility. At September ~~25, 2020,~~24, 2021, the ~~weighted average~~ interest rate charged on the Company’s senior secured term loan was approximately ~~5.3%~~5.6% and the interest rate charged on the Company’s ABL Facility was approximately ~~1.9%~~1.3%.

Note 1110 – Stockholders’ Equity

~~Preferred Stock Purchase Rights~~Warrants

~~On March 22, 2020,~~In connection with an acquisition during the ~~Company’s board~~second quarter of ~~directors approved~~fiscal 2021, the Company issued warrants with a ~~limited duration Preferred Stock Purchase Rights Agreement (the “Rights Agreement”). Under the Rights Agreement, the board~~fair value of ~~directors approved a dividend of one preferred share~~$1,120 to purchase ~~right (a “Right”) for each share outstanding share~~up to 150,000 shares of the Company’s common stock ~~to purchase one one-thousandth of a share of Series A Preferred Stock of the Company~~ at aan exercise price of ~~$40.00~~$31.96 per ~~Unit of Preferred Stock, subject to adjustment as provided in the Rights Agreement. The Rights will~~share. These warrants expire on ~~March 21, 2021, unless the Rights are earlier redeemed or exchanged by the Company or upon the occurrence of certain transactions.~~

~~Public Common Stock Offering~~

On May 14, 2020, the Company completed a public offering of 5,769,231 shares of its common stock at a price of $13.00 per share to the underwriters, to be reoffered by the underwriters at variable prices per share, which resulted in net proceeds of approximately $74,691 after deducting underwriters’ fees, commissions and transaction expenses. In addition, the Company granted a 30-day option to purchase up to an additional 865,384 shares of its common stock at a price of $13.00 per share to the underwriters, to be reoffered by the underwriters at variable prices per share. The option was fully exercised on June 2, 2020 and resulted in additional proceeds of $11,250.April 22, 2024.

Equity Awards

The following table reflects the activity of RSAs during the thirty-nine weeks ended September ~~25, 2020:~~24, 2021:


		Shares	Weighted Average Grant Date Fair Value			Time-based			Performance-based			Market-based
						Shares	Weighted Average Grant Date Fair Value		Shares	Weighted Average Grant Date Fair Value		Shares	Weighted Average Grant Date Fair Value

Unvested at December 27, 2019		740,609	$	27.68

Unvested at December 25, 2020					Unvested at December 25, 2020	901,318	$	16.14	—	$	—	26,952	$	30.16
Granted	Granted	1,003,671	17.51		Granted	356,956	31.72		199,231	32.00		199,241	31.44
Vested	Vested	(215,367)	24.22		Vested	(588,535)	12.09		—	—		—	—
Forfeited	Forfeited	(42,678)	24.45		Forfeited	(61,306)	27.41		(12,536)	32.00		(14,508)	31.24
Unvested at September 25, 2020		1,486,235	$	21.49
Unvested at September 24, 2021					Unvested at September 24, 2021	608,433	$	28.04	186,695	$	32.00	211,685	$	31.29

The Company granted ~~1,003,671~~755,428 RSAs to its employees and directors at a weighted average grant date fair value of ~~$17.51~~$31.72 during the thirty-nine weeks ended September ~~25, 2020.~~24, 2021. These awards are a mix of time-, market- and performance-based grants that generally vest over a range of periods up to ~~four~~five years. The Company recognized expense totaling ~~$2,075~~$2,710 and ~~$908~~$2,075 on its RSAs during the thirteen weeks ended September 24, 2021 and September 25, 2020, ~~and September 27, 2019,~~ respectively, and ~~$4,925~~$8,448 and ~~$2,797~~$4,925 during the thirty-nine weeks ended September ~~25, 2020~~24, 2021 and September ~~27, 2019,~~25, 2020, respectively.

At September ~~25, 2020,~~24, 2021, the total unrecognized compensation cost for unvested RSAs was ~~$13,275~~$20,830 and the weighted-average remaining period was approximately ~~2.0~~2.2 years. Of this total, ~~$11,048~~$12,531 related to RSAs with time-based vesting provisions and ~~$2,227~~$8,299 related to RSAs with performance-based vesting provisions. At September ~~25, 2020,~~24, 2021, the weighted-average remaining period for time-based vesting and performance-based vesting RSAs were approximately ~~2.0~~2.1 years and ~~2.2~~2.4 years, respectively.

The Company’s stock options fully vested during the first quarter of fiscal 2019. The Company recognized expense of 0 and $114 on stock options during the thirteen weeks and thirty-nine weeks ended September 27, 2019, respectively. NaNNo share-based compensation expense related to the Company’s RSAs or stock options has been capitalized. As of September ~~25, 2020,~~24, 2021, there were ~~1,254,514~~895,646 shares available for grant under the 2019 Omnibus Equity Incentive Plan.

Note ~~12 – Income Taxes~~

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

The Company’s effective income tax rate was 34.5% and 27.5% for the thirty-nine weeks ended September 25, 2020 and September 27, 2019, respectively. The higher effective tax rate in the current fiscal year is primarily related to the Company’s current net loss forecast for fiscal 2020 which, under the CARES Act, allows the Company to claim Federal tax refunds against prior year taxes paid, including taxes paid in fiscal 2015 and 2017, both of which were at statutory tax rates of 35%. The

~~Company’s income tax provision reflects the impact of an expected income tax refund receivable of $20,973 as of September 25, 2020 which is reflected in~~ ~~prepaid expenses and other current assets~~ ~~on the Company’s consolidated balance sheet.~~

~~Note 13~~11 – Related Parties

The Chefs’ Warehouse Mid-Atlantic, LLC, a subsidiary of the Company, leases a distribution facility that is 100% owned by entities controlled by Christopher Pappas, the Company’s chairman, president and chief executive officer, and John Pappas, the Company’s vice chairman and one of its directors, and are deemed to be affiliates of these individuals. Expense related to this facility totaled $124 and ~~$108~~$124 during the thirteen weeks ended September 24, 2021 and September 25, 2020, ~~and September 27, 2019,~~ respectively, and ~~$365~~$370 and ~~$325~~$365 during the thirty-nine weeks ended September 24, 2021 and September 25, 2020, ~~and September 27, 2019,~~ respectively. ~~This lease was amended during the first quarter of fiscal 2020 and expires on September 30, 2023.~~

Note 1412 – Supplemental Disclosures of Cash Flow Information


		Thirty-Nine Weeks Ended					Thirty-Nine Weeks Ended
		September 25, 2020		September 27, 2019			September 24, 2021		September 25, 2020
Supplemental cash flow disclosures:	Supplemental cash flow disclosures:					Supplemental cash flow disclosures:
Cash paid for income taxes, net of cash received	Cash paid for income taxes, net of cash received	$	308	$	6,045	Cash paid for income taxes, net of cash received	$	(194)	$	308
Cash paid for interest, net of cash received	Cash paid for interest, net of cash received	$	12,741	$	12,477	Cash paid for interest, net of cash received	$	10,690	$	12,741
Cash paid for amounts included in the measurement of lease liabilities:	Cash paid for amounts included in the measurement of lease liabilities:					Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows from operating leases	Operating cash flows from operating leases	$	20,206	$	18,575	Operating cash flows from operating leases	$	18,965	$	20,206
Operating cash flows from finance leases	Operating cash flows from finance leases	$	411	$	65	Operating cash flows from finance leases	$	411	$	411
ROU assets obtained in exchange for lease liabilities:	ROU assets obtained in exchange for lease liabilities:					ROU assets obtained in exchange for lease liabilities:
Operating leases	Operating leases	$	5,800	$	154,330	Operating leases	$	13,308	$	5,800
Finance leases	Finance leases	$	14,017	$	1,820	Finance leases	$	536	$	14,017
Other non-cash investing and financing activities:	Other non-cash investing and financing activities:					Other non-cash investing and financing activities:
Warrants issued for acquisitions						Warrants issued for acquisitions	$	1,120	$	—

Convertible notes issued for acquisitions		$	0	$	4,000
Contingent earn-out liabilities for acquisitions	Contingent earn-out liabilities for acquisitions	$	3,464	$	7,929	Contingent earn-out liabilities for acquisitions	$	3,400	$	3,464

Note 13 – Coronavirus Aid, Relief, and Economic Security Act

In response to the Pandemic, the Coronavirus Aid, Relief, and Economic Security Act was signed into law on March 27, 2020. Among other provisions it allows for a refundable Employee Retention Tax Credit (“ETRC”) to eligible employers equal to 50% of qualified wages paid to employees from March 12, 2020 to December 31, 2020, capped at $10 per employee. In December 2020, the Consolidated Appropriations Act of 2021 was passed, which expands the ETRC by increasing the credit to 70% of qualified wages paid from January 1, 2021 through June 30, 2021, capped at $10 per employee per quarter. During the second quarter of fiscal 2021, the Company recognized a receivable of $1,418 related to the ETRC which is presented within prepaid expenses and other current assets on the consolidated balance sheet and the related expense reduction is presented within selling, general and administrative expenses on the consolidated statements of operations

Note 14 – Subsequent Events

On October 5, 2021, the Company acquired substantially all of the assets of a specialty center-of-plate producer and distributor in Las Vegas, Nevada. The purchase price was approximately $3,025 paid in cash at closing and is subject to a customary working capital true-up. The Company is required to pay additional contingent consideration, if earned, of up to $5,000 over a four-year period upon successful attainment of certain performance targets.

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

RESULTS OF OPERATIONS

Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”) is provided as a supplement to the accompanying consolidated financial statements and footnotes to help provide an understanding of our financial condition, changes in our financial condition and results of operations. The following discussion should be read in conjunction with information included in our Annual Report on Form 10-K filed with the Securities and Exchange Commission (“SEC”) on February ~~24, 2020.~~23, 2021. Unless otherwise indicated, the terms “Company”, “Chefs’ Warehouse”, “we”, “us” and “our” refer to The Chefs’ Warehouse, Inc. and its subsidiaries.

Business Overview

We are a premier distributor of specialty foods in nine of the leading culinary markets in the United States. We offer more than ~~55,000~~50,000 stock-keeping units (“SKUs”), ranging from high-quality specialty foods and ingredients to basic ingredients and staples and center-of-the-plate proteins. We serve more than 34,000 customer locations, primarily located in our sixteen 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”) and our “Shop Like a Chef” online platform, we also sell certain of our products directly to consumers.

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

~~The COVID-19 pandemic (“COVID-19”) has had a material impact on our business and operations and those~~Many of our customers. In an effort to limit the spread of the virus, federal, state and local governments began implementing various restrictions beginning in late March that resulted in the closure of non-essential businesses in many of the markets we serve, which forced our 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 our key markets were not eased until early June. As of September 25, 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 and indoor dining service while adhering to specified social distancing and capacity restrictions. The duration and extent of restrictions imposed on our 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.

~~Our customers continued to be~~have been adversely impacted by the COVID-19 pandemic (the “Pandemic”), however we have seen sequential improvement in our business throughout fiscal 2021 which has contributed to organic sales growth of $213.7 million during the third quarter ~~ended September 25, 2020 which has resulted in a $178.1 million decline in our organic sales~~of fiscal 2021 compared to the prior year quarter. Due to COVID-19, we incurred estimated non-cash charges of $15.8 million related to incremental bad debt expense and approximately $9.8 million related to estimated inventory obsolescence during the thirty-nine weeks ended September 25, 2020.

Our management team is responding rapidly to the changing landscape and pursuing alternate sources of revenue to mitigate the extent of sales declines in our core customer base. Our sales force is working closely with our core customers and developing solutions to help them fulfill the demand in their communities while complying with health and safety restrictions. We are actively entering into new business relationships which include retail food outlets as they have experienced increases in consumer demand and shortages in their traditional supply chains due to COVID-19. As we develop these new sales channels, we are negotiating favorable credit terms given the nature of the underlying customer base and the current market environment. In addition, our purchasing teams have worked diligently to shift our product purchases to SKUs that are in high demand. Thus far, we have not experienced difficulties in procuring products from our suppliers.

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

We have implemented cost control measures during this time of demand volatility. Our variable cost structure naturally decreases as our sales decrease, however, we are also reducing our fixed cost structure. Among other actions, we have postponed planned capital expenditures, returned certain equipment on short-term rental agreements, and reduced compensation expense through salary reductions, furloughs and lay-offs as we right-size our organization to current levels of demand.

Management determined COVID-19’s adverse impact on our operations and our market capitalization were triggering events that required us to test goodwill and long-lived assets for impairment as of March 27, 2020. No impairments were recorded as a result of these tests. Although there were no additional triggering events during the second or third quarter of 2020, the impacts

of COVID-19 on our business are uncertain and will depend on future developments, and as such, it is possible that another triggering event could occur that under certain circumstances could cause us to recognize an impairment charge in the future.

On March 18, 2020, we drew $100.0 million on our 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 total of 6,634,615 shares of our common stock which resulted in net proceeds of approximately $85.9 million. See Note 10 “Stockholders’ Equity” to our consolidated financial statements for a full description.

On June 8, 2020, we amended our senior secured credit agreement which converted $207.0 million of the term loans then outstanding into a 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 Company made a prepayment of $35.7 million on the 2025 Tranche immediately after it was established. See Note 9 “Debt Obligations” to our consolidated financial statements for a full description.

We closed the quarter with total cash and cash equivalents of ~~$208.5~~$134.2 million, and approximately ~~$44.3~~$109.5 million of remaining availability under our asset-based loan facility as of September ~~25, 2020.~~24, 2021.

The future impact of ~~COVID-19~~the Pandemic on our business, operations and liquidity is difficult to predict at this time and is highly dependent ~~upon decisions made by~~on future developments including new information that may emerge on the severity of the disease, the extent of outbreaks, federal, state and local ~~governments~~government responses, trends in infection rates, development of effective medical treatments for the disease, the pace of vaccination programs and future consumer spending ~~behavior.~~behavior, among others.

~~Reclassifications~~

In response to a comment letter from the staff of the SEC’s Division of Corporation Finance, we have reclassified our food processing costs, previously included in operating expenses, to cost of sales and have split our historical presentation of operating expenses between selling, general and administrative expenses and other operating expenses. These reclassifications have no impact on the Company’s operating income, net income or cash flows. Furthermore, management has reclassified gain/loss from asset disposal, which was previously presented as a non-operating expense, to other operating expenses. See Note 2 “Reclassifications” to our consolidated financial statements for a full description of these reclassifications.

Recent Acquisitions

~~On February 3, 2020,~~During the second quarter of fiscal 2021, we ~~entered into~~completed two acquisitions for an ~~asset purchase agreement to acquire substantially all of the assets of Cambridge Packing Co, Inc., a specialty center-of-the-plate producer and distributor in New England. The cash~~aggregate purchase price ~~was~~of approximately ~~$16.4~~$8.4 million, ~~inclusive~~consisting of ~~a $0.6~~$7.3 million paid in cash at closing, subject to customary working capital ~~true-up.~~adjustments, and common stock warrants valued at approximately $1.1 million. We ~~are required to~~will also pay additional contingent consideration, if earned, in the form of ~~up to $3.0~~earn-out amounts which could total $4.2 million ~~over a two-year period upon successful attainment of certain gross profit targets.~~in aggregate.

On January 27, 2020, we entered into an asset purchase agreement to acquire substantially all of the assets, including certain real-estate assets, of Sid Wainer & Son, a specialty food and produce distributor in New England. The cash purchase price was approximately $44.1 million, inclusive of a $2.4 million working capital true-up. We are required to pay additional contingent consideration, if earned, of up to $4.0 million over a two-year period upon successful attainment of certain gross profit targets.

RESULTS OF OPERATIONS

Thirteen Weeks Ended Thirty-Nine Weeks Ended
September 25, 2020 September 27, 2019 September 25, 2020 September 27, 2019
Net sales $ 254,030 $ 396,880 $ 829,957 $ 1,165,327
Cost of sales 193,393 299,660 639,687 880,359
Gross profit 60,637 97,220 190,270 284,968
Selling, general and administrative expenses 76,708 83,960 254,474 247,017
Other operating (income) expenses (4,146) 2,636 (9,812) 5,681
Operating (loss) income (11,925) 10,624 (54,392) 32,270
Interest expense 4,706 4,517 15,602 13,913
(Loss) income before income taxes (16,631) 6,107 (69,994) 18,357
Provision for income tax (benefit) expense (5,204) 1,682 (24,148) 5,052
Net (loss) income $ (11,427) $ 4,425 $ (45,846) $ 13,305


	Thirteen Weeks Ended				Thirty-Nine Weeks Ended
	September 24, 2021		September 25, 2020		September 24, 2021		September 25, 2020
Net sales	$	484,321	$	254,030	$	1,187,506	$	829,957
Cost of sales	374,346		193,668		922,710		640,681
Gross profit	109,975		60,362		264,796		189,276
Selling, general and administrative expenses	99,431		76,433		270,034		253,480
Other operating (income) expenses, net	105		(4,146)		(208)		(9,812)
Operating income (loss)	10,439		(11,925)		(5,030)		(54,392)


Interest expense	4,191		4,706		13,362		15,602
Income (loss) before income taxes	6,248		(16,631)		(18,392)		(69,994)
Provision for income tax expense (benefit)	2,792		(5,204)		(5,025)		(24,148)
Net income (loss)	$	3,456	$	(11,427)	$	(13,367)	$	(45,846)

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

Thirteen Weeks Ended September ~~25, 2020~~24, 2021 Compared to Thirteen Weeks Ended September ~~27, 2019~~25, 2020

Net Sales

2020 2019 $ Change % Change
Net sales $ 254,030 $ 396,880 $ (142,850) (36.0) %


	2021		2020		$ Change		% Change
Net sales	$	484,321	$	254,030	$	230,291	90.7	%

~~Sales~~Organic growth ~~from acquisitions~~ contributed ~~$35.3~~$213.7 million, or ~~8.9%~~84.2%, to sales ~~growth. Organic~~growth and the remaining sales ~~declined $178.1~~growth of $16.6 million, or ~~44.9%~~6.5%, ~~versus the prior year period primarily due to impacts of COVID-19.~~resulted from acquisitions. Organic case count ~~declined~~increased approximately ~~49.3%~~57.5% in our specialty category. In addition, specialty unique customers and placements ~~declined 32.2%~~increased 36.9% and ~~46.7%~~50.4%, respectively, compared to the prior year period. ~~Pounds~~Organic pounds sold in our center-of-the-plate category ~~decreased 45.4%~~increased 56.9% compared to the prior year. Estimated inflation was ~~1.6%~~10.9% in our specialty category and ~~was 2.7%~~28.0% in our center-of-the-plate category compared to the prior year period.

Gross Profit


		2020		2019		$ Change	% Change			2021		2020		$ Change	% Change
Gross profit	Gross profit	60,637		97,220		(36,583)	(37.6)	%	Gross profit	109,975		60,362		49,613	82.2	%
Gross profit margin	Gross profit margin	23.9	%	24.5	%				Gross profit margin	22.7	%	23.8	%

Gross profit ~~declined~~increased primarily as a result of ~~reduced sales due to the impacts of COVID-19.~~increased sales. Gross profit margin decreased approximately 63105 basis points. Gross profit margins ~~decreased 240~~increased 301 basis points in the Company’s specialty category ~~predominately~~ due to ~~unfavorable sales mix and~~ higher estimated inventory losses due to the impacts of ~~COVID-19.~~COVID-19 in the prior year quarter, partially offset by inflation. Gross profit margins ~~increased 142~~decreased 488 basis points in the Company’s center-of-the-plate category due to inflation and higher retail sales ~~volumes~~ in the ~~current period.~~prior year quarter.

Selling, General and Administrative Expenses


		2020		2019		$ Change	% Change			2021		2020		$ Change	% Change
Selling, general and administrative expenses	Selling, general and administrative expenses	76,708		83,960		(7,252)	(8.6)	%	Selling, general and administrative expenses	99,431		76,433		22,998	30.1	%
Percentage of net sales	Percentage of net sales	30.2	%	21.2	%				Percentage of net sales	20.5	%	30.1	%

The ~~decrease~~increase in selling, general and administrative expenses was primarily due to ~~lower~~higher costs associated with compensation and benefits ~~and lower general and administrative related costs in the quarter, partially offset by the impacts of recent acquisitions.~~to support sales growth. Our ratio of selling, general and administrative expenses to net sales ~~was higher as a result of adverse COVID-19 impacts~~decreased predominately due to ~~our~~ sales growth.

Other Operating (Income) Expenses, Net

2020 2019 $ Change % Change
Other operating (income) expenses (4,146) 2,636 (6,782) (257.3) %


	2021	2020	$ Change	% Change
Other operating (income) expenses, net	105	(4,146)	4,251	(102.5)	%

The ~~decrease~~increase in net other operating expenses was primarily due to non-cash ~~credits~~charges of ~~$4.6~~$0.1 million for changes in the fair value of our contingent earn-out liabilities compared to non-cash ~~charges~~credits of ~~$2.5~~$4.6 million in the prior year period.

Interest Expense

2020 2019 $ Change % Change
Interest expense 4,706 4,517 189 4.2 %


	2021	2020	$ Change	% Change
Interest expense	4,191	4,706	(515)	(10.9)	%

Interest expense ~~increased slightly as result of higher average long-term debt balances, offset by~~decreased primarily due to lower effective interest rates ~~charged~~ on our outstanding debt as a result of the $50.0 million aggregate principal amount of Convertible Senior Notes issued on March 1, 2021 which were used to repay higher interest rate debt.

Provision for Income Taxes


		2020		2019		$ Change	% Change			2021		2020		$ Change	% Change
Provision for income tax (benefit) expense		(5,204)		1,682		(6,886)	(409.4)	%
Provision for income tax expense (benefit)									Provision for income tax expense (benefit)	2,792		(5,204)		7,996	(153.7)	%
Effective tax rate	Effective tax rate	31.3	%	27.5	%				Effective tax rate	44.7	%	31.3	%

The effective tax rate in the current period is driven by various discrete items. The Company’s effective tax rate excluding these discrete items was approximately 29.2%. The higher effective tax rate in fiscal 2020 is primarily related to our ~~current~~ net loss forecast for fiscal 2020 which ~~allows~~allowed us to claim tax refunds against taxes paid in fiscal 2015 and 2017, both of which were at statutory tax rates of 35%.

Thirty-Nine Weeks Ended September ~~25, 2020~~24, 2021 Compared to Thirty-Nine Weeks Ended September ~~27, 2019~~25, 2020

Net Sales

2020 2019 $ Change % Change
Net sales $ 829,957 $ 1,165,327 $ (335,370) (28.8) %


	2021		2020		$ Change		% Change
Net sales	$	1,187,506	$	829,957	$	357,549	43.1	%

~~Sales~~Organic growth ~~from acquisitions~~ contributed ~~$103.9~~$322.1 million, or ~~8.9%~~38.8%, to sales ~~growth. Organic~~growth and the remaining sales ~~declined $439.2~~growth of $35.5 million, or ~~37.7%~~4.3%, ~~versus the prior year period primarily due to impacts of COVID-19.~~resulted from acquisitions. Organic case count ~~declined~~increased approximately ~~42.1%~~22.9% in our specialty category. In addition, specialty unique customers and placements ~~declined 30.8%~~increased 23.0% and ~~42.8%~~23.8%, respectively, compared to the prior year period. ~~Pounds~~Organic pounds sold in our center-of-the-plate category ~~decreased 36.9%~~increased 21.2% compared to the prior year. Estimated ~~deflation~~inflation was ~~0.2%~~8.7% in our specialty category and ~~inflation was 4.2%~~14.2% in our center-of-the-plate category compared to the prior year period.

Gross Profit


		2020		2019		$ Change	% Change			2021		2020		$ Change	% Change
Gross profit	Gross profit	190,270		284,968		(94,698)	(33.2)	%	Gross profit	264,796		189,276		75,520	39.9	%
Gross profit margin	Gross profit margin	22.9	%	24.5	%				Gross profit margin	22.3	%	22.8	%

Gross profit ~~declined~~increased primarily as a result of ~~reduced~~ sales ~~due to the impacts of COVID-19.~~growth. Gross profit margin decreased approximately ~~153~~51 basis points. Gross profit margins ~~decreased 372~~increased 292 basis points in the Company’s specialty category ~~predominately~~ due to ~~unfavorable sales mix and~~ higher estimated inventory losses due to the impacts of ~~COVID-19.~~COVID-19 in the prior year quarter, partially offset by inflation. Gross profit margins ~~increased 134~~decreased 376 basis points in the Company’s center-of-the-plate category due to ~~higher retail sales volumes in the current period.~~inflation. Our prior year gross profit results include a charge of approximately $9.8 million related to estimated inventory losses from obsolescence ~~due to impacts~~at the onset of ~~COVID-19.~~the Pandemic.

Selling, General and Administrative Expenses


		2020		2019		$ Change	% Change			2021		2020		$ Change	% Change
Selling, general and administrative expenses	Selling, general and administrative expenses	254,474		247,017		7,457	3.0	%	Selling, general and administrative expenses	270,034		253,480		16,554	6.5	%
Percentage of net sales	Percentage of net sales	30.7	%	21.2	%				Percentage of net sales	22.7	%	30.5	%

The increase in selling, general and administrative expense relates primarily to ~~our recent acquisitions and~~higher operating expenses in fiscal 2021 to support sales growth, partially offset by an estimated non-cash charge of approximately $15.8 million recorded in the prior year related to incremental bad debt ~~expense as a result of COVID-19.~~expense. Our ratio of selling, general and administrative expenses to net sales was ~~higher~~lower as a result of sales growth and of the Pandemic’s adverse ~~COVID-19~~ impacts to our sales growth and a ~~218~~104 basis point ~~increase~~decrease in non-cash charges related to bad debt expense.

Other Operating (Income ) Expenses, Net

2020 2019 $ Change % Change
Other operating (income) expenses (9,812) 5,681 (15,493) (272.7) %


	2021	2020	$ Change	% Change
Other operating income, net	(208)	(9,812)	9,604	(97.9)	%

The decrease in net other operating ~~expenses~~income relates primarily to non-cash credits of ~~$11.2~~$1.4 million for changes in the fair value of our contingent earn-out liabilities in the fiscal 2021 period compared to non-cash ~~charges~~credits of ~~$5.3~~$11.2 million in the prior year ~~period.~~period and a $0.6 million impairment of Cambridge trademarks as a result of a shift in brand strategy to leverage our Allen Brothers brand in our New England region during the second quarter of fiscal 2021.

Interest Expense

2020 2019 $ Change % Change
Interest expense 15,602 13,913 1,689 12.1 %


	2021	2020	$ Change	% Change
Interest expense	13,362	15,602	(2,240)	(14.4)	%

Interest expense ~~increased~~decreased primarily due to $1.2 million in one-time third-party costs incurred during the second quarter of 2020 in connection with the extension of a majority of our senior secured term loans and ~~the~~lower effective interest rates charged on our outstanding debt as a result of the $50.0 million aggregate principal amount of Convertible Senior Notes issued on ~~November 22, 2019.~~March 1, 2021 which were used to repay higher interest rate debt.

Provision for Income Taxes


		2020		2019		$ Change	% Change			2021		2020		$ Change	% Change
Provision for income tax (benefit) expense		(24,148)		5,052		(29,200)	(578.0)	%
Provision for income tax benefit									Provision for income tax benefit	(5,025)		(24,148)		19,123	(79.2)	%
Effective tax rate	Effective tax rate	34.5	%	27.5	%				Effective tax rate	27.3	%	34.5	%

The higher effective tax rate in the prior period is primarily related to the carryback of a portion of our ~~current~~fiscal 2020 net loss ~~forecast for fiscal 2020~~ which ~~allows~~allowed us to claim tax refunds against taxes paid in fiscal 2015 and 2017, both of which were at statutory tax rates of 35%.

LIQUIDITY AND CAPITAL RESOURCES

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

Indebtedness

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


		September 25, 2020		December 27, 2019			September 24, 2021		December 25, 2020
Senior secured term loan	Senior secured term loan	$	201,981	$	238,129	Senior secured term loan	$	169,103	$	201,553
Total convertible debt	Total convertible debt	154,000		154,000		Total convertible debt	204,000		154,000
Borrowings outstanding on asset-based loan facility	Borrowings outstanding on asset-based loan facility	40,000		—		Borrowings outstanding on asset-based loan facility	20,000		40,000
Finance leases and other financing obligations	Finance leases and other financing obligations	14,834		3,905		Finance leases and other financing obligations	14,350		15,798
Total	Total	$	410,815	$	396,034	Total	$	407,453	$	411,351

As of September ~~25, 2020,~~24, 2021, we have various floating- and fixed-rate debt instruments with varying maturities for an aggregate principal amount of ~~$396.0~~$393.1 million.

On March 1, 2021, the we issued $50.0 million aggregate principal amount of 1.875% Convertible Senior Notes at a premium which were offered as an additional issuance of our $150.0 million Convertible Senior Notes due 2024 issued on November 22, 2019. Net proceeds were used to repay all outstanding borrowings under the our 2022 tranche of senior secured term loans of $31.2 million and repay a portion of borrowings outstanding under our asset-based loan facility. We incurred transaction costs of approximately $1.4 million which were capitalized as deferred financing fees to be amortized over the term of the underlying debt.

Liquidity

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


		September 25, 2020		December 27, 2019			September 24, 2021		December 25, 2020
Cash and cash equivalents	Cash and cash equivalents	$	208,545	$	140,233	Cash and cash equivalents	$	134,217	$	193,281
Working capital, excluding cash and cash equivalents	Working capital, excluding cash and cash equivalents	95,084		162,772		Working capital, excluding cash and cash equivalents	138,379		94,279
Availability under asset-based loan facility	Availability under asset-based loan facility	44,275		133,359		Availability under asset-based loan facility	109,459		50,282
Total	Total	$	347,904	$	436,364	Total	$	382,055	$	337,842

We ~~anticipate~~are not providing guidance on our capital expenditures ~~excluding cash paid for acquisitions,~~ for fiscal ~~2020 will be in the range of $8.0 million to $10.0 million which is down from our original estimate of $38.0 million to $42.0 million. The decrease is a result of us postponing certain investments~~2021 due to ~~COVID-19.~~the continued uncertainty with regards to the pace of the economic recovery and the duration of the Pandemic related restrictions on our customers. We believe our existing balances of cash and cash equivalents, working capital and the availability under our asset-based loan facility, are sufficient to satisfy our working capital needs, capital expenditures, debt service and other liquidity requirements associated with our current operations over the next 12 months.

Cash Flows

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


		Thirty-Nine Weeks Ended					Thirty-Nine Weeks Ended
		September 25, 2020		September 27, 2019			September 24, 2021		September 25, 2020
Net (loss) income		$	(45,846)	$	13,305
Net loss						Net loss	$	(13,367)	$	(45,846)
Non-cash charges	Non-cash charges	$	35,259	$	35,966	Non-cash charges	$	30,729	$	35,259
Changes in working capital	Changes in working capital	$	64,456	$	(25,726)	Changes in working capital	$	(43,692)	$	64,456
Cash provided by operating activities		$	53,869	$	23,545
Cash (used in) provided by operating activities						Cash (used in) provided by operating activities	$	(26,330)	$	53,869
Cash used in investing activities	Cash used in investing activities	$	(65,846)	$	(40,379)	Cash used in investing activities	$	(25,152)	$	(65,846)
Cash provided by (used in) financing activities		$	80,457	$	(4,086)
Cash (used in) provided by financing activities						Cash (used in) provided by financing activities	$	(7,493)	$	80,457

Net cash ~~provided by~~used in operations was ~~$53.9~~$26.3 million for the thirty-nine weeks ended September ~~25, 2020~~24, 2021 consisting of a net loss of ~~$45.8~~$13.4 million offset by ~~$35.3~~$30.7 million of non-cash charges and ~~cash generated from~~investments in working capital growth of ~~$64.5~~$43.7 million. Non-cash charges ~~were relatively unchanged period~~decreased $4.5 million primarily due to ~~period.~~a $15.8 million charge incurred in the prior year related to incremental bad debt expense due to the onset of the Pandemic, partially offset by changes in the fair value of earn-out liabilities. The cash ~~generated from~~used for working capital ~~increase~~growth of ~~$90.2~~$108.1 million is primarily driven by the ~~impacts of reduced demand due~~Company’s reinvestment in working capital to ~~COVID-19.~~support sales growth.

Net cash used in investing activities was ~~$65.8~~$25.2 million for the thirty-nine weeks ended September ~~25, 2020,~~24, 2021, driven by ~~$60.4~~capital expenditures of $17.9 million which included the build-outs of our Los Angeles, New England and Miami distribution facilities and $7.3 million in cash ~~used to fund acquisitions and $5.4 million in capital expenditures which included implementations of our Enterprise Resource Planning system.~~paid for acquisitions.

Net cash ~~provided by~~used in financing activities was ~~$80.5~~$7.5 million for the thirty-nine weeks ended September ~~25, 2020,~~24, 2021, driven by ~~$85.9 million net proceeds from our common stock offering and $40.0~~$35.9 million of ~~net draws~~payments made on senior term loans and finance lease obligations and a $20.0 million payment on our asset-based loan facility, partially offset by ~~payments~~$51.8 million of ~~debt and finance lease obligations~~proceeds from the issuance of ~~$38.9 million.~~additional convertible senior notes.

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.

The Pandemic has had a material impact on our business and operations and those of our customers. Our net sales were most significantly impacted during the second quarter of fiscal 2020 when, in an effort to limit the spread of the virus, federal, state and local governments began implementing various restrictions that resulted in the closure of non-essential businesses in many of the markets we serve, which forced our customers in those markets to either transition their establishments to take-out service, delivery service or temporarily cease operations.

Inflation

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

Off-Balance Sheet Arrangements

As of September ~~25, 2020,~~24, 2021, we did not have any off-balance sheet arrangements, as defined in Item 303(a)(4)(ii) of Regulation S-K.

Critical Accounting Policies and Estimates

The preparation of the Company’s consolidated financial statements requires it to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities. The SEC has defined critical accounting policies as those that are both most important to the portrayal of the Company’s financial

condition and results and require its most difficult, complex or subjective judgments or estimates. Based on this definition, we believe our critical accounting policies include the following: (i) determining our allowance for doubtful accounts, (ii) inventory valuation, with regard to determining inventory balance adjustments for excess and obsolete inventory, (iii) business combinations, (iv) valuing goodwill and intangible assets, (v) ~~vendor rebates and other promotional incentives, (vi)~~ self-insurance reserves, ~~(vii)~~(vi) accounting for income taxes and ~~(viii)~~(vii) contingent earn-out liabilities. Our critical accounting policies and estimates are described in the Form 10-K filed with the SEC on 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:~~23, 2021.

~~Allowance for Doubtful Accounts~~

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

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Interest Rate Risk

As of September ~~25, 2020,~~24, 2021, we had an aggregate ~~$242.0~~$189.1 million of indebtedness outstanding under the Term Loan and ABL Facility that bore interest at variable rates. A 100 basis point increase in market interest rates would decrease our after tax earnings by approximately ~~$1.6~~$2.4 million per annum, holding other variables constant.

ITEM 4. CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures

The Company, under the supervision and with the participation of its management, including the Chief Executive Officer and the Chief Financial Officer, evaluated the effectiveness of the design and operation of the Company’s “disclosure controls and procedures” (as defined in Rule 13a-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”) as of the end of the period covered by this report. Based on that evaluation, the Chief Executive Officer and the Chief Financial Officer concluded that the Company's disclosure controls and procedures were effective as of September ~~25, 2020.~~24, 2021.

Changes in Internal Control over Financial Reporting

There were no changes in our internal control over financial reporting during the quarter ended September ~~25, 2020~~24, 2021 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

2623

PART II. OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

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

ITEM 1A. RISK FACTORS

Except as stated below, there have been no material changes to our risk factors as previously disclosed in Part I, Item 1A. included in our Annual Report on Form 10-K for the year ended December ~~27, 2019~~25, 2020 filed with the SEC on February ~~24, 2020.~~23, 2021. In addition to the information contained herein, you should consider the risk factors disclosed in our Annual Report on Form 10-K.

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

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

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

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

Total Number
of Shares
Repurchased(1)
Average
Price
Paid Per Share Total
Number of Shares
Purchased as Part
of Publicly
Announced Plans
or Programs Maximum
Number (or
Approximate
Dollar Value) of
Shares That May
Yet Be Purchased
Under the Plans
or Programs
June 27, 2020 to July 24, 2020 — $ — — —
July 25, 2020 to August 21, 2020 3,199 13.62 — —
August 22, 2020 to September 25, 2020 232 16.60 — —
Total 3,431 $ 13.82 — —


	Total Number of Shares Repurchased(1)	Average Price Paid Per Share		Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs	Maximum Number (or Approximate Dollar Value) of Shares That May Yet Be Purchased Under the Plans or Programs
June 26, 2021 to July 23, 2021	—	$	—	—	—
July 24, 2021 to August 20, 2021	1,732	29.62		—	—
August 21, 2021 to September 24, 2021	285	27.42		—	—
Total	2,017	$	29.31	—	—

(1)During the thirteen weeks ended September ~~25, 2020,~~24, 2021, we withheld ~~3,431~~2,017 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

None.

ITEM 4. MINE SAFETY DISCLOSURES

None.

ITEM 5. OTHER INFORMATION

None.

2824

ITEM 6. EXHIBITS


Exhibit No.						Description



















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

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

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

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

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

101.SCH						XBRL Taxonomy Extension Schema Document

101.CAL						XBRL Taxonomy Extension Calculation Linkbase Document

101.DEF						XBRL Taxonomy Extension Definition Linkbase Document

101.LAB						XBRL Taxonomy Extension Label Linkbase Document

101.PRE						XBRL Taxonomy Extension Presentation Linkbase Document

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

* Management Contract or Compensatory Plan or Arrangement

2925

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized on October ~~28, 2020.~~27, 2021.


									THE CHEFS’ WAREHOUSE, INC.
									(Registrant)

Date: October ~~28, 2020~~27, 2021									/s/ James Leddy
									James Leddy
									Chief Financial Officer
									(Principal Financial Officer)

Date: October ~~28, 2020~~27, 2021									/s/ Timothy McCauley
									Timothy McCauley
									Chief Accounting Officer
									(Principal Accounting Officer)

3026


Balance December 28, 2018	29,968,483	$	300	$	207,326	$	(2,221)	$	103,271	$	308,676
Cumulative effect adjustment due to adoption of new accounting standard	—	—		—		—		(2,027)		(2,027)
Net income	—	—		—		—		1,134		1,134
Stock compensation	(23,680)	—		915		—		—		915



Exercise of stock options	20,383	—		412		—		—		412
Cumulative translation adjustment	—	—		—		55		—		55
Shares surrendered to pay tax withholding	(24,002)	—		(742)		—		—		(742)
Balance March 29, 2019	29,941,184	$	300	$	207,911	$	(2,166)	$	102,378	$	308,423

Net income	—	—		—		—		7,746		7,746
Stock compensation	346,915	3		1,085		—		—		1,088



Exercise of stock options	7,193	—		146		—		—		146
Cumulative translation adjustment	—	—		—		118		—		118
Shares surrendered to pay tax withholding	(3,928)	—		(126)		—		—		(126)
Balance June 28, 2019	30,291,364	$	303	$	209,016	$	(2,048)	$	110,124	$	317,395

Net income	—	—		—		—		4,425		4,425
Stock compensation	(3,045)	—		908		—		—		908



Exercise of stock options	3,836	—		77		—		—		77
Cumulative translation adjustment	—	—		—		(71)		—		(71)
Shares surrendered to pay tax withholding	(3,525)	—		(133)		—		—		(133)
Balance September 27, 2019	30,288,630	$	303	$	209,868	$	(2,119)	$	114,549	$	322,601


	Thirteen Weeks Ended				Twenty-Six Weeks Ended
	June 26, 2020				June 26, 2020
	As Reported		As Restated		As Reported		As Restated
Net loss per share:
Basic	$	(0.57)	$	(0.62)	$	(1.05)	$	(1.10)
Diluted	$	(0.57)	$	(0.62)	$	(1.05)	$	(1.10)
Weighted average common shares:
Basic	35,759,193		32,698,295		32,672,876		31,150,883
Diluted	35,759,193		32,698,295		32,672,876		31,150,883