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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
OR
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 classTrading Symbol(s)Name of each exchange on which registered
Common Stock, par value $0.01CHEFThe NASDAQ Stock Market LLC
Preferred Stock Purchase RightsCHEFThe 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 filerSmaller 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
1


THE CHEFS’ WAREHOUSE, INC.
FORM 10-Q
Table of Contents
  Page
PART I. FINANCIAL INFORMATION 
   
Item 1.
   
 
   
 
   
   
 
   
Item 2.
   
Item 3.
   
Item 4.
   
PART II. OTHER INFORMATION 
   
Item 1.
   
Item 1A.
   
Item 2.
   
Item 3.
   
Item 4.
   
Item 5.
   
Item 6.
   
 
 

2


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 COVID-19, 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 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.


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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
ASSETS  
Current assets:  
Cash and cash equivalents$208,545 $140,233 
Accounts receivable, net of allowance of $24,091 in 2020 and $8,846 in 2019
100,576 175,044 
Inventories, net98,185 124,056 
Prepaid expenses and other current assets31,466 13,823 
Total current assets438,772 453,156 
Equipment, leasehold improvements and software, net116,964 92,846 
Operating lease right-of-use assets118,677 127,649 
Goodwill214,581 197,743 
Intangible assets, net138,993 138,751 
Other assets3,789 3,534 
Total assets$1,031,776 $1,013,679 
LIABILITIES AND STOCKHOLDERS’ EQUITY  
Current liabilities:  
Accounts payable$73,969 $94,097 
Accrued liabilities26,891 29,847 
Short-term operating lease liabilities17,472 17,453 
Accrued compensation10,907 8,033 
Current portion of long-term debt5,904 721 
Total current liabilities135,143 150,151 
Long-term debt, net of current portion396,636 386,106 
Operating lease liabilities112,192 120,572 
Deferred taxes, net4,357 10,883 
Other liabilities and deferred credits5,440 10,034 
Total liabilities653,768 677,746 
Commitments and contingencies
Stockholders’ equity:  
Preferred Stock - $0.01 par value, 5,000,000 shares authorized, no shares issued and outstanding at September 25, 2020 and December 27, 2019
  
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 
Additional paid in capital300,255 212,240 
Accumulated other comprehensive loss(2,216)(2,048)
Retained earnings79,591 125,437 
Total stockholders’ equity378,008 335,933 
Total liabilities and stockholders’ equity$1,031,776 $1,013,679 
 
See accompanying notes to the consolidated financial statements.
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THE CHEFS’ WAREHOUSE, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE (LOSS) INCOME
(Unaudited)
(Amounts in thousands, except share and per share amounts)
Thirteen Weeks EndedThirty-Nine Weeks Ended
September 25,
2020
September 27,
2019
September 25,
2020
September 27,
2019
Net sales$254,030 $396,880 $829,957 $1,165,327 
Cost of sales193,393 299,660 639,687 880,359 
Gross profit60,637 97,220 190,270 284,968 
Selling, general and administrative expenses76,708 83,960 254,474 247,017 
Other operating (income) expenses(4,146)2,636 (9,812)5,681 
Operating (loss) income(11,925)10,624 (54,392)32,270 
Interest expense4,706 4,517 15,602 13,913 
(Loss) income before income taxes(16,631)6,107 (69,994)18,357 
Provision for income tax (benefit) expense(5,204)1,682 (24,148)5,052 
Net (loss) income$(11,427)$4,425 $(45,846)$13,305 
Other comprehensive (loss) income:  
Foreign currency translation adjustments93 (71)(168)102 
Comprehensive (loss) income$(11,334)$4,354 $(46,014)$13,407 
Net (loss) income per share:   
Basic$(0.31)$0.15 $(1.39)$0.45 
Diluted$(0.31)$0.15 $(1.39)$0.45 
Weighted average common shares outstanding:  
Basic36,283,883 29,549,308 32,868,162 29,511,143 
Diluted36,283,883 29,954,837 32,868,162 29,723,609 
 
See accompanying notes to the consolidated financial statements.
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THE CHEFS’ WAREHOUSE, INC.
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY
(Unaudited)
(Amounts in thousands, except share amounts)
 Common StockAdditional
Paid in
Capital
Accumulated
Other
Comprehensive
Loss
 
Retained
Earnings
Total
 SharesAmount
Balance December 27, 201930,341,941 $304 $212,240 $(2,048)$125,437 $335,933 
Net loss— — — — (14,085)(14,085)
Stock compensation807,433 8 843 — — 851 
Cumulative translation adjustment— — — (378)— (378)
Shares surrendered to pay tax withholding(159,632)(2)(2,702)— — (2,704)
Balance March 27, 202030,989,742 $310 $210,381 $(2,426)$111,352 $319,617 
Net loss— — — — (20,334)(20,334)
Stock compensation176,037 2 1,997 — — 1,999 
Public offering of common stock6,634,615 66 85,875 — — 85,941 
Cumulative translation adjustment— — — 117 — 117 
Shares surrendered to pay tax withholding(1,846)— (23)— — (23)
Balance June 26, 202037,798,548 $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, 202037,772,640 $378 $300,255 $(2,216)$79,591 $378,008 

Balance December 28, 201829,968,483 $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 options20,383 — 412 — — 412 
Cumulative translation adjustment— — — 55 — 55 
Shares surrendered to pay tax withholding(24,002)— (742)— — (742)
Balance March 29, 201929,941,184 $300 $207,911 $(2,166)$102,378 $308,423 
Net income— — — — 7,746 7,746 
Stock compensation346,915 3 1,085 — — 1,088 
Exercise of stock options7,193 — 146 — — 146 
Cumulative translation adjustment— — — 118 — 118 
Shares surrendered to pay tax withholding(3,928)— (126)— — (126)
Balance June 28, 201930,291,364 $303 $209,016 $(2,048)$110,124 $317,395 
Net income— — — — 4,425 4,425 
Stock compensation(3,045)— 908 — — 908 
Exercise of stock options3,836 — 77 — — 77 
Cumulative translation adjustment— — — (71)— (71)
Shares surrendered to pay tax withholding(3,525)— (133)— — (133)
Balance September 27, 201930,288,630 $303 $209,868 $(2,119)$114,549 $322,601 

See accompanying notes to the consolidated financial statements.
6


THE CHEFS’ WAREHOUSE, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(Amounts in thousands)
Thirty-Nine Weeks Ended
September 25, 2020September 27, 2019
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:  
Depreciation and amortization14,714 9,539 
Amortization of intangible assets10,111 9,485 
Provision for allowance for doubtful accounts20,447 3,277 
Non-cash operating lease expense604 1,790 
(Benefit) provision for deferred income taxes(6,527)2,003 
Amortization of deferred financing fees2,152 1,566 
Stock compensation4,925 2,911 
Change in fair value of contingent earn-out liabilities(11,219)5,331 
Loss on asset disposal52 64 
Changes in assets and liabilities, net of acquisitions:  
Accounts receivable74,236 (1,069)
Inventories33,285 (7,588)
Prepaid expenses and other current assets(16,227)(5,163)
Accounts payable, accrued liabilities and accrued compensation(29,455)(9,185)
Other assets and liabilities2,617 (2,721)
Net cash provided by operating activities53,869 23,545 
Cash flows from investing activities:  
Capital expenditures(5,409)(12,302)
Cash paid for acquisitions, net of cash received(60,437)(28,077)
Net cash used in investing activities(65,846)(40,379)
Cash flows from financing activities:  
Payment of debt, finance lease and other financing obligations(38,924)(1,793)
Proceeds from the issuance of common stock, net of issuance costs85,941  
Payment of deferred financing fees(856) 
Proceeds from exercise of stock options 635 
Surrender of shares to pay withholding taxes(2,777)(1,001)
Cash paid for contingent earn-out liability(2,927)(967)
Borrowings under asset-based loan facility100,000  
Payments under asset based loan facility(60,000)(960)
Net cash provided by (used in) financing activities80,457 (4,086)
Effect of foreign currency on cash and cash equivalents(168)(11)
Net change in cash and cash equivalents68,312 (20,931)
Cash and cash equivalents-beginning of period140,233 42,410 
Cash and cash equivalents-end of period$208,545 $21,479 

See accompanying notes to the consolidated financial statements.
7


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 three operating segments: East Coast, Midwest and West Coast that aggregate into one 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 COVID-19 pandemic (“COVID-19”) has had a material impact on the Company’s business and operations and those of its customers. In an effort to limit the spread of the virus, federal, state and local governments have implemented measures that have resulted in the closure of non-essential businesses in many of the markets the Company serves, which has forced its customers in those markets to either transition their establishments to take-out service, delivery service or temporarily cease operations. State and local governments began to ease these restrictions in mid-May, however, restrictions in certain 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 dependent on future developments regarding the pandemic including new information about the severity of the disease, trends in infection rates, and development of effective medical treatments for the disease, among others. Due to COVID-19, the Company incurred estimated non-cash charges of approximately $15,800 related to incremental bad debt expense and approximately $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 filed as part of the Company’s Annual Report on Form 10-K, as filed with the SEC on February 24, 2020.

The unaudited consolidated financial statements appearing in this Form 10-Q have been prepared on the same basis as the audited consolidated financial statements included in the Company’s Annual Report on Form 10-K, as filed with the SEC on February 24, 2020, and in the opinion of management, include all normal recurring adjustments that are necessary for the fair statement of the Company’s interim period results. The year-end consolidated balance sheet data was derived from the audited financial statements but does not include all disclosures required by GAAP. Due to seasonal fluctuations, COVID-19 and other factors, the results of operations for the thirteen and thirty-nine weeks ended September 25, 2020 are not necessarily indicative of the results to be expected for the full year.
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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

Simplifying the Accounting for Income Taxes: In December 2019, the FASB issued guidance that eliminates certain exceptions related to the approach for intraperiod tax allocations, the methodology for calculating income taxes in an interim period and other simplifications and clarifications. The guidance will be effective for fiscal years beginning after December 15, 2020. Early adoption is permitted. The Company expects to adopt this guidance when effective and adoption will have an immaterial impact on its 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 guidance on December 26, 2020 and adoption is not expected to have a material impact on its 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
9


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 EndedThirty-Nine Weeks Ended
September 27, 2019September 27, 2019
As ReportedReclassAs RestatedAs ReportedReclassAs Restated
Net sales$396,880 $ $396,880 $1,165,327 $ $1,165,327 
Cost of sales294,887 4,773 299,660 866,670 13,689 880,359 
Gross profit101,993 (4,773)97,220 298,657 (13,689)284,968 
Selling, general and administrative expenses91,345 (7,385)83,960 266,323 (19,306)247,017 
Other operating expenses 2,636 2,636  5,681 5,681 
Total operating expenses91,345 (4,749)86,596 266,323 (13,625)252,698 
Operating income10,648 (24)10,624 32,334 (64)32,270 
Interest expense4,517  4,517 13,913  13,913 
Loss on asset disposal24 (24)— 64 (64)— 
Income before income taxes6,107  6,107 18,357  18,357 
Provision for income tax expense1,682  1,682 5,052  5,052 
Net income$4,425 $ $4,425 $13,305 $ $13,305 

Note 3 – 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.







10


The following table presents the Company’s net sales disaggregated by principal product category:
Thirteen Weeks EndedThirty-Nine Weeks Ended
September 25, 2020September 27, 2019September 25, 2020September 27, 2019
Center-of-the-Plate$115,570 45.5 %$176,778 44.5 %$395,224 47.6 %$516,907 44.4 %
Dry Goods31,495 12.4 %65,379 16.5 %113,480 13.7 %193,518 16.6 %
Pastry27,618 10.9 %53,579 13.5 %92,427 11.1 %160,316 13.8 %
Cheese and Charcuterie33,329 13.1 %40,500 10.2 %83,996 10.1 %117,073 10.0 %
Produce24,172 9.5 %4,875 1.2 %60,240 7.3 %13,255 1.1 %
Dairy and Eggs6,301 2.5 %27,480 6.9 %35,942 4.3 %81,765 7.0 %
Oils and Vinegars9,487 3.7 %20,487 5.2 %31,082 3.7 %60,117 5.2 %
Kitchen Supplies6,058 2.4 %7,802 2.0 %17,566 2.2 %22,376 1.9 %
Total$254,030 100 %$396,880 100 %$829,957 100 %$1,165,327 100 %

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 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 and $4,773 for the thirteen weeks ended September 25, 2020 and September 27, 2019, respectively, and $12,708 and $13,689 for the thirty-nine weeks ended September 25, 2020 and September 27, 2019, respectively.


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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 4 – Net (Loss) Income per Share
 
The following table sets forth the computation of basic and diluted net (loss) income per common share:
 Thirteen Weeks EndedThirty-Nine Weeks Ended
 September 25, 2020September 27, 2019September 25, 2020September 27, 2019
Net (loss) income per share:   
Basic$(0.31)$0.15 $(1.39)$0.45 
Diluted$(0.31)$0.15 $(1.39)$0.45 
Weighted average common shares:   
Basic36,283,883 29,549,308 32,868,162 29,511,143 
Diluted36,283,883 29,954,837 32,868,162 29,723,609 

Reconciliation of net (loss) income per common share:
 Thirteen Weeks EndedThirty-Nine Weeks Ended
 September 25, 2020September 27, 2019September 25, 2020September 27, 2019
Numerator:   
Net (loss) income$(11,427)$4,425 $(45,846)$13,305 
Denominator:   
Weighted average basic common shares outstanding36,283,883 29,549,308 32,868,162 29,511,143 
Dilutive effect of stock options and unvested common shares 405,529  212,466 
Weighted average diluted common shares outstanding36,283,883 29,954,837 32,868,162 29,723,609 
 
Potentially dilutive securities that have been excluded from the calculation of diluted net (loss) income per common share because the effect is anti-dilutive are as follows:
 Thirteen Weeks EndedThirty-Nine Weeks Ended
 September 25, 2020September 27, 2019September 25, 2020September 27, 2019
Restricted share awards (“RSAs”)389,163 330,696 393,905 122,876 
Stock options115,639  115,639  
Convertible notes3,484,788 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
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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 EndedTwenty-Six Weeks Ended
 June 26, 2020June 26, 2020
As ReportedAs RestatedAs ReportedAs 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:   
Basic35,759,193 32,698,295 32,672,876 31,150,883 
Diluted35,759,193 32,698,295 32,672,876 31,150,883 

Note 5 – 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 and $7,957 as of September 25, 2020 and December 27, 2019, respectively, and are reflected as other liabilities and deferred credits on the consolidated balance sheets. The remaining short-term earn-out liabilities are reflected as accrued liabilities on the consolidated balance sheets. The fair value of contingent consideration was determined based on a probability-based approach which includes projected results, percentage probability of occurrence and the application of a discount rate to present value the payments. A significant change in projected results, discount rate, or probabilities of occurrence could result in a significantly higher or lower fair value measurement. Changes in the fair value of contingent earn-out liabilities are reflected in other operating expenses on the consolidated statements of operations.

The following table presents the changes in Level 3 contingent earn-out liabilities:
Fells PointBassianSid WainerOther AcquisitionsTotal
Balance December 27, 2019$4,544 $7,957 $ $2,197 $14,698 
Acquisition value  2,081 1,383 3,464 
Cash payments (2,250) (1,677)(3,927)
Changes in fair value(4,544)(4,337)(1,581)(757)(11,219)
Balance September 25, 2020$ $1,370 $500 $1,146 $3,016 

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, 2020December 27, 2019
Carrying ValueFair ValueCarrying ValueFair Value
Convertible Senior Notes$150,000 $141,048 $150,000 $165,000 
Convertible Unsecured Note$4,000 $3,711 $4,000 $4,282 
 



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Note 6 – Acquisitions
  
Sid Wainer

On January 27, 2020, pursuant to an asset purchase agreement, 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 purchase price was approximately $44,081, consisting of $46,450 paid in cash at closing, partially offset by a $2,369 net working capital true-up. The Company will also pay additional contingent consideration, if earned, in the form of an earn-out amount which could total $4,000 over a two-year period. The payment of the earn-out liability is subject to the successful achievement of certain gross profit targets. The Company estimated the fair value of this contingent earn-out liability to be $2,081 and $500 as of January 27, 2020 and September 25, 2020, respectively.

Trademarks were valued at fair value using Level 3 inputs and are being amortized over 15 years. Goodwill for the Sid Wainer acquisition 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, in its consolidated statement of operations related to the Sid Wainer acquisition.

The table below presents unaudited 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 the sellers of the business, as well as information obtained during the due diligence process associated with the acquisition. The pro forma information is not necessarily indicative of the Company’s results of operations had the acquisition bee