CHEFS’ WAREHOUSE, INC. MANAGEMENT REPORT AND ANALYSIS OF FINANCIAL POSITION AND OPERATING RESULTS (Form 10-K)

The following discussion should be read in conjunction with information included
in Item 8 of this report. Unless otherwise indicated, the terms "Company",
"Chefs' Warehouse", "we", "us", and "our" refer to The Chefs' Warehouse, Inc.
and its subsidiaries.

Overview and recent developments

Overview

We are a premier distributor of specialty foods in the leading culinary markets
in the United States. We offer more than 50,000 SKUs, ranging from high-quality
specialty foods and ingredients to basic ingredients and staples, produce and
center-of-the-plate proteins. We serve more than 35,000 core customer locations,
primarily located in our nineteen geographic markets across the United States
and Canada, and the majority of our customers are independent restaurants and
fine dining establishments. Our Allen Brothers subsidiary sells certain of our
center-of-the-plate products directly to consumers. We expanded our
direct-to-consumer product offerings in fiscal 2020 by launching our "Shop Like
a Chef" online home delivery platform in several of the markets we serve.

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

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

Effect of the COVID-19 pandemic on our business and operations

The COVID-19 pandemic ("Pandemic") has had and continues to have an adverse
impact on numerous aspects of our business and those of our customers including,
but not limited to, demand for our products, cost inflation and labor shortages.
Despite these challenges, we continued to provide our core customers with high
touch service, executed on our cost control measures and returned to
profitability during the second quarter of fiscal 2021. Furthermore, as of
December 24, 2021, we had $157.8 million of working capital, including $115.2
million of cash and cash equivalents, on our balance sheet and $109.5 million of
availability on our asset-based loan facility. Our liquidity position, puts us
in a strategic position to invest in growth and take advantage of business
development opportunities as we continue to recover from the Pandemic.

The extent to which the Pandemic will impact our financial condition or results
of operations is uncertain and will depend on future developments including new
information that may emerge on the severity or transmissibility of the disease,
new variants, government responses, trends in infection rates, development and
distribution of effective medical treatments and vaccines, and future consumer
spending behavior, among others.

Recent significant acquisitions

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 ("Sid Wainer"), 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.

On February 3, 2020, we entered into an asset purchase agreement to acquire
substantially all of the assets of Cambridge Packing Co, Inc. ("Cambridge"), a
specialty center-of-the-plate producer and distributor in New England. The cash
purchase price was approximately $16.4 million, inclusive of a $0.6 million
working capital true-up. We are required to pay additional
                                       32
--------------------------------------------------------------------------------

contingent consideration, if won, of up to $3.0 million over a two-year period after achieving certain gross margin targets.

On February 25, 2019, pursuant to an asset purchase agreement, we acquired
substantially all of the assets of Bassian Farms, Inc. and related entities
("Bassian"), a specialty center-of-the-plate distributor based in northern
California. The aggregate purchase price for the transaction was approximately
$31.8 million, consisting of $28.0 million in cash paid at closing and the
issuance of a $4.0 million unsecured convertible note, partially offset by the
settlement of a net working capital true-up. We are also required to pay
additional contingent consideration, if earned, which could total $9.0 million
over a four-year period. The payment of the earn-out liability is subject to the
successful achievement of certain gross profit targets.

Trademark Transition

During the second quarter of fiscal 2021, we committed to a plan to shift our
brand strategy to leverage our Allen Brothers brand in our New England market
and determined our Cambridge trademark did not fit our long-term strategic
objectives. As a result, we recognized a $0.6 million impairment charge, $0.4
million net of tax, to fully write-down the net book value of our Cambridge
trademark.

During the fourth quarter of fiscal 2020, we committed to a plan to shift our
brand strategy to leverage our Allen Brothers brand in our west coast region and
determined that our Del Monte, Ports Seafood and Bassian Farms trademarks did
not fit our long-term strategic objectives. This brand transition began in the
second quarter of fiscal 2021. As a result, we recorded a $24.2 million
impairment charge, $17.5 million net of tax, to write-down the value of our Del
Monte and Bassian Farms trademarks.

Our growth strategies and outlook

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

• expansion of the sales and service territory; •operational excellence and high level of customer service; •expanded purchasing programs and improved purchasing power; •product innovation and the introduction of new product categories; •operational efficiency through system improvements; and •reduced operating costs by centralizing general and administrative functions.

Our growth has allowed us to improve upon our organization's infrastructure,
open new distribution facilities and pursue selective acquisitions. Over the
last several years, we have increased our distribution capacity to approximately
2.5 million square feet in 40 distribution facilities as of February 11, 2022.
From fiscal 2019 through the end of fiscal 2021, we have invested significantly
in acquisitions, infrastructure and management.

Key factors affecting our performance

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

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

                                       33
--------------------------------------------------------------------------------

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

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

Performance indicators

In addition to evaluating our operating profit, our management team analyzes our performance based on growth in net sales, gross profit and gross profit margin.

•Net sales growth. Our net sales growth is driven principally by changes in
volume and, to a lesser degree, changes in price related to the impact of
inflation in commodity prices and product mix. In particular, product cost
inflation and deflation impacts our results of operations and, depending on the
amount of inflation or deflation, such impact may be material. For example,
inflation may increase the dollar value of our sales, and deflation may cause
the dollar value of our sales to fall despite our unit sales remaining constant
or growing.
•Gross profit and gross profit margin. Our gross profit and gross profit as a
percentage of net sales, or gross profit margin, are driven principally by
changes in volume and fluctuations in food and commodity prices and our ability
to pass on any price increases to our customers in an inflationary environment
and maintain or increase gross profit margin when our costs decline. Our gross
profit margin is also a function of the product mix of our net sales in any
period. Given our wide selection of product categories, as well as the
continuous introduction of new products, we can experience shifts in product
sales mix that have an impact on net sales and gross profit margins. This mix
shift is most significantly impacted by the introduction of new categories of
products in markets that we have more recently entered, impact of product mix
from acquisitions, as well as the continued growth in item penetration on higher
velocity items such as dairy products.

Key financial definitions

•Net sales: Net sales consist primarily of sales of specialty products, produce,
center-of-the-plate proteins and other food products to independently-owned
restaurants and other high-end foodservice customers, which we report net of
certain group discounts and customer sales incentives. Net sales also include
direct-to-consumer sales on our e-commerce platforms.
•Cost of sales: Cost of sales include the net purchase price paid for products
sold, plus the cost of transportation necessary to bring the product to our
distribution facilities 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.
Our cost of sales may not be comparable to other similar companies within our
industry.
•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.
•Interest expense: Interest and other expense consists primarily of interest on
our outstanding indebtedness and, as applicable, the amortization or write-off
of deferred financing fees.











                                       34
--------------------------------------------------------------------------------
Results of Operations

                                                                          Fiscal Years Ended
                                               December 24, 2021           December 25, 2020           December 27, 2019
Net sales                                    $        1,745,757          $        1,111,631          $        1,591,834
Cost of sales                                         1,355,272                     863,480                   1,205,266
Gross profit                                            390,485                     248,151                     386,568
Selling, general and administrative expenses            379,252                     336,394                     329,542
Other operating expenses                                    422                      14,417                       6,359
Operating income (loss)                                  10,811                    (102,660)                     50,667
Interest and other expense, net                          17,587                      20,946                      18,264

(Loss) income before income taxes                        (6,776)                   (123,606)                     32,403
Provision for income tax (benefit) expense               (1,853)                    (40,703)                      8,210
Net (loss) income                            $           (4,923)         $          (82,903)         $           24,193



Fiscal Year Ended December 24, 2021 Compared to Fiscal Year Ended December 25,
2020

Net Sales

                                2021             2020          $ Change       % Change
                Net sales   $ 1,745,757      $ 1,111,631      $ 634,126         57.0  %



Organic growth contributed $574.2 million, or 51.6%, to sales growth in the year
primarily driven by our recovery from the Pandemic. The remaining growth of
$59.9 million, or 5.4%, resulted from acquisitions. Organic case count increased
approximately 33.8% in our specialty category. In addition, specialty unique
customers and placements increased 26.1% and 31.6%, respectively, compared to
the prior year. Pounds sold in our center-of-the-plate category
increased 28.2% compared to the prior year. Estimated inflation was 9.6% in our
specialty category and 18.1% in our center-of-the-plate category compared to
fiscal 2020.

Gross Profit

                                       2021            2020         $ Change       % Change
           Gross profit            $ 390,485       $ 248,151       $ 142,334         57.4  %
           Gross profit margin          22.4  %         22.3  %



Gross profit increased primarily due to increased sales volumes. Gross profit
margin increased approximately 4 basis points. Gross profit
margins increased 379 basis points in the Company's specialty category
and decreased 350 basis points in the Company's center-of-the-plate category
compared to the prior year period. Our prior year gross profit results include a
charge of approximately $14.6 million related to estimated inventory losses from
obsolescence due to the Pandemic's impact on our customers' purchasing behavior.

Selling, general and administrative expenses

                                                       2021                     2020                  $ Change               % Change
Selling, general and administrative expenses            379,252                  336,394               42,858                      12.7  %
Percentage of net sales                                    21.7  %                  30.3  %



The increase in selling, general and administrative expense relates primarily to
increased sales volumes and acquisitions. Our prior year results include an
estimated non-cash charge of approximately $15.8 million to bad debt expense
incurred during the first quarter of fiscal 2020 at the onset of the Pandemic.
Our ratio of selling, general and administrative expenses to net sales was lower
as a result of sales growth.




                                       35
--------------------------------------------------------------------------------

Other operating expenses, net

                                        2021        2020         $ Change        % Change
            Other operating expenses    422        14,417       (13,995)          (97.1) %



The decrease in net other operating expenses relates primarily to a $24.2
million impairment charge for Del Monte and Bassian trademarks as a result of a
shift in brand strategy to leverage our Allen Brothers brand in our west coast
region during the fourth quarter of fiscal 2020 and non-cash credits of $1.3
million for changes in the fair value of our contingent earn-out liabilities in
the fiscal 2021 period compared to non-cash credits of $11.5 million in the
prior year period.

Interest Expense

                                       2021          2020        $ Change      % Change
               Interest expense       17,587        20,946      $ (3,359)       (16.0) %



Interest expense 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 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 tax benefit

                                              2021          2020         $ 

Change % Change

Provision for tax benefit (1,853) (40,703) $38,850 (95.4)%

       Effective tax rate                     27.3  %        32.9  %



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

Fiscal Year Ended December 25, 2020 Compared to Fiscal Year Ended December 27,
2019

Net Sales

                               2020             2019           $ Change       % Change
               Net sales   $ 1,111,631      $ 1,591,834      $ (480,203)       (30.2) %



Sales growth from acquisitions contributed $136.5 million, or 8.6%, to sales
growth. Organic sales declined $616.7 million, or 38.8%, versus the prior year
primarily due to impacts of the Pandemic. Organic case count declined
approximately 43.5% in our specialty category. In addition, specialty unique
customers and placements declined 30.4% and 43.6%, respectively, compared to the
prior year. Pounds sold in our center-of-the-plate category decreased 38.0%
compared to the prior year. Estimated deflation was 0.3% in our specialty
category and inflation of 3.5% in our center-of-the-plate category compared to
fiscal 2019.

Gross Profit

                                      2020           2019          $ Change       % Change
           Gross profit             248,151        386,568       $ (138,417)       (35.8) %
           Gross profit margin         22.3  %        24.3  %



Gross profit decreased primarily due to decreased sales volumes. Gross profit
margin decreased approximately 196 basis points. Gross profit margins decreased
441 basis points in the Company's specialty category and increased 117 basis
points in the Company's center-of-the-plate category compared to the prior year
period. Our gross profit results include a charge of approximately $14.6 million
related to estimated inventory losses from obsolescence due to the Pandemic's
impact on our customers' purchasing behavior.


                                       36
--------------------------------------------------------------------------------

Selling, general and administrative expenses

                                                       2020                     2019                 $ Change               % Change
Selling, general and administrative expenses            336,394                  329,542               6,852                       2.1  %
Percentage of net sales                                    30.3  %                  20.7  %



The increase in selling, general and administrative expense relates primarily to
our recent acquisitions and an estimated non-cash charge of approximately $15.8
million to bad debt expense incurred during the first quarter of fiscal 2020 at
the onset of the Pandemic, partially offset by cost measures implemented during
the year in response to the Pandemic's adverse impact on demand for our
products. Our ratio of selling, general and administrative expenses to net sales
was higher as a result of the Pandemic's adverse impacts on our sales growth and
a 161 basis point increase in non-cash charges related to bad debt expense.

Other operating expenses, net

                                          2020         2019       $ Change       % Change
            Other operating expenses     14,417       6,359       8,058           126.7  %



The increase in other operating expenses relates primarily to a $24.2 million
impairment charge on Del Monte and Bassian trademarks and non-cash credits of
$11.5 million for changes in the fair value of our contingent earn-out
liabilities compared to non-cash charges of $5.9 million in the prior year
period.

Interest Expense

                                       2020          2019        $ Change      % Change
               Interest expense       20,946        18,264      $  2,682         14.7  %



Interest and other expense increased 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 full year
impact of interest charged on our Convertible Senior Notes issued on November
22, 2019.

Provision for income tax (benefits)

                                                  2020          2019        

$ Change % Change

  Provision for income tax (benefit) expense    (40,703)       8,210       $ (48,913)      (595.8) %
  Effective tax rate                               32.9  %      25.3  %



The higher effective tax rate is primarily related to our net taxable loss for
fiscal 2020 which allows us to claim tax refunds against taxes paid in fiscal
2015 and 2017, both of which were at statutory tax rates of 35%.

Cash and capital resources

We fund our ongoing operations and growth primarily through operating cash flow, borrowings under our senior secured credit facilities and other indebtedness, operating leases, trade and equity financing.

Debt

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

                                            December 24, 2021           December 25, 2020           December 27, 2019
Senior secured term loan                  $          168,675          $          201,553          $          238,129
Total convertible debt                    $          204,000          $          154,000          $          154,000
Borrowings outstanding on asset-based
loan facility                             $           20,000          $           40,000          $                -
Finance leases and other financing
obligations                               $           11,602          $           15,798          $            3,905



                                       37
--------------------------------------------------------------------------------

As of December 24, 2021, we have various floating- and fixed-rate debt
instruments with varying maturities for an aggregate principal amount of $392.7
million. See Note 9 "Debt Obligations" to our consolidated financial statements
for a full description of our debt instruments.

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.

On June 8, 2020, we amended our senior secured credit agreement which converted
$238.1 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.

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 $80.0 million of the draw.

On November 22, 2019, we issued $150.0 million aggregate principal amount of
1.875% Convertible Senior Notes (the "Senior Notes"). Approximately $43.2
million of the net proceeds were used to repay all borrowings then outstanding
under our ABL and the remainder was used for working capital, general corporate
purposes and acquisitions.

A portion of the interest rate charged on our Term Loan is currently based on
LIBOR and, at our option, a component of the interest charged on the borrowings
outstanding on our ABL, if any, may bear interest rates based on LIBOR. LIBOR
has been the subject of reform and was expected to phase out by the end of
fiscal 2021, however, on November 30, 2020, the ICE Benchmark Administration
Limited ("ICE") announced plans to delay the phase out of LIBOR to June 30,
2023. The consequences of the discontinuation of LIBOR cannot be entirely
predicted but could impact the interest expense we incur on these debt
instruments. We will negotiate alternatives to LIBOR with our lenders before
LIBOR ceases to be a widely available reference rate.

Share offering

At May 14 and June 2, 2020we completed public offerings for a total of 6,634,615 common shares, which generated net proceeds of approximately $85.9 million. See Note 10 “Equity” to our consolidated financial statements for a complete description.

Liquidity

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

                                             December 24, 2021           December 25, 2020           December 27, 2019
Cash and cash equivalents                  $          115,155          $          193,281          $          140,233
Working capital,(1) excluding cash and
cash equivalents                           $          157,787          $           94,279          $          162,772
Availability under asset-based loan
facility                                   $          109,459          $           50,282          $           90,015


(1) We define working capital as current assets less current liabilities.

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
twelve months.

Our capital expenditures, excluding cash paid for acquisitions, were approximately $38.8 million for fiscal 2021. We estimate that our capital expenditures, excluding cash paid for acquisitions, for fiscal 2022 will be approximately $35.0 million for $45.0 million.





                                       38
--------------------------------------------------------------------------------
Cash Flows

                                                                       Fiscal Year Ended
                                           December 24, 2021           December 25, 2020           December 27, 2019
Net (loss) income                        $           (4,923)         $          (82,903)         $           24,193
Non-cash charges                         $           47,372          $           62,509          $           47,625
Changes in working capital               $          (62,348)         $           63,275          $          (26,811)
Cash (used in) provided by operating
activities                               $          (19,899)         $           42,881          $           45,007

Cash flows used in investing activities $ (48,991) $

     (67,968)         $          (44,154)
Cash (used in) provided by financing
activities                               $           (9,222)         $           78,056          $           96,947



Fiscal Year 2021 Cash Flows

Net cash used in operations was $19.9 million for fiscal 2021 consisting of a
$4.9 million net loss and and investments in working capital of $62.3 million,
partially offset by $47.4 million of non-cash charges. Non-cash charges
decreased predominately due to the $24.2 million write down of Del Monte and
Bassian trademarks in fiscal 2020. The cash used in working capital of $62.3
million is primarily driven by reinvestment in working capital to support
growth.

Net cash used in investing activities was $49.0 million in fiscal 2021 driven by
$38.8 million in capital expenditures which included the build-outs of our Los
Angeles, New England and Miami distribution facilities. We used $10.2 million in
cash to fund several acquisitions.

Net cash used in financing activities was $9.2 million for fiscal 2021 driven by
$37.6 million of 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 $51.8 million of proceeds from the issuance of additional
convertible senior notes.

Fiscal Year 2020 Cash Flows

Net cash provided by operations was $42.9 million for fiscal 2020 consisting of
a $82.9 million net loss, offset by $62.5 million of non-cash charges and an
increase in working capital of $63.3 million. Non-cash charges increased
predominately due to the $24.2 million write down of Del Monte and Bassian
trademarks. The increase in working capital of $63.3 million is primarily driven
by negotiating favorable credit terms with our customers and suppliers and
maintaining lower inventory balances as a result of reduced demand due to the
Pandemic.

Net cash used in investing activities was $68.0 million in fiscal 2020 driven by
$7.0 million in capital expenditures which included implementations of our
Enterprise Resource Planning ("ERP") system. We used $60.9 million in cash to
fund acquisitions, the most significant of which were Sid Wainer and Cambridge.

Net cash provided by financing activities was $78.1 million for the 2020 financial year carried by $85.9 million net proceeds from our common stock offering and $40.0 million net drawdowns on our asset-backed loan facility, partially offset by debt repayments and finance lease obligations of $40.4 million.

Seasonality

Excluding our Allen Brothers 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 Allen Brothers 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 significant impact on our business and operations as well as those of our customers. Our net sales were most impacted during the second quarter of fiscal 2020 when, in an effort to limit the spread of the virus, federal, state,

                                       39
--------------------------------------------------------------------------------

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 on food, labor, energy and occupancy costs can significantly affect
the profitability of our operations.

Significant contractual commitments and obligations

The following table summarizes our contractual obligations and commercial commitments to December 24, 2021:

Payments due per period (1, 2)

                                                                      Less than One           1-3                4-5
                                                      Total               Year               Years              Years            Thereafter
                                                                                         (In thousands)

Indebtedness                                       $ 403,991          $    5,662          $ 234,790          $ 163,539          $        -
Finance lease obligations                          $  12,748          $    3,834          $   5,553          $   3,192          $      169
Pension exit liabilities                           $   1,861          $      170          $     375          $     428          $      888
Long-term operating leases                         $ 216,423          $   24,726          $  38,167          $  27,644          $  125,886

Total                                              $ 635,023          $   34,392          $ 278,885          $ 194,803          $  126,943



(1)Interest on our various outstanding debt instruments is included in the above
table, except for our Term Loans and ABL, which have floating interest rates. At
December 24, 2021, we had borrowings of $168.7 million under our Term Loans and
$20.0 million under our ABL. See Note 9 "Debt Obligations" to our consolidated
financial statements for further information on our debt instruments.
(2)The table above excludes $6.9 million of total contingent earn-out
liabilities related to certain acquisitions as of December 24, 2021 and
approximately $10.0 million of lease payments related leases for distribution
facilities that do not commence until fiscal 2022.

We had outstanding letters of credit of approximately $20.5 million and $20.1
million at December 24, 2021 and December 25, 2020, respectively. Substantially
all of our assets are pledged as collateral to secure our borrowings under our
credit facilities.

Off-balance sheet arrangements

From December 24, 2021we had no off-balance sheet arrangements, as defined in Section 303(a)(4)(ii) of Regulation SK.

Critical accounting policies

The preparation of our consolidated financial statements requires us 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 our financial condition and results and
require our 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) self-insurance reserves, (vi) accounting for income taxes
and (vii) contingent earn-out liabilities. For all financial statement periods
presented, there have been no material modifications to the application of these
critical accounting policies.

Allowance for doubtful accounts

We analyze customer creditworthiness, customer account balances, payment history, payment terms and bad debt history

                                       40
--------------------------------------------------------------------------------

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 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. Our accounts receivable balance was
$172.5 million and $96.4 million, net of the allowance for doubtful accounts of
$20.3 million and $24.0 million, as of December 24, 2021 and December 25, 2020,
respectively.

Inventory Valuation

We adjust our inventory balances for excess and obsolete inventories. These
adjustments are primarily based upon customer demand, inventory age,
specifically identified inventory items and overall economic conditions. A
sudden and unexpected change in consumer preferences or change in overall
economic conditions could result in a significant change to these adjustments
that could require a corresponding charge to earnings. We actively manage our
inventory levels as we seek to minimize the risk of loss and have consistently
achieved a relatively high level of inventory turnover. As a result of the
impacts of the Pandemic on our customer demand we incurred additional inventory
valuation charges of $14.6 million in fiscal 2020.

Business combinations

We account for acquisitions in accordance with Accounting Standards Codification
Topic 805 "Business Combinations." Assets acquired and liabilities assumed are
recorded at their estimated fair values, as of the acquisition date. The
judgments made in determining the estimated fair value of assets acquired and
liabilities assumed, including estimated useful life, may have a material impact
on our consolidated balance sheet and may materially impact the amount of
depreciation and amortization expense recognized in periods subsequent to the
acquisition. We determine the fair value of intangible assets using an income
approach and, when appropriate, we engage a third party valuation firm.
Generally, we utilize the multi-period excess earnings method to determine the
fair value of customer relationships and the relief from royalty method to
determine the fair value of tradenames. These valuation methods contain
significant assumptions and estimates including forecasts of expected future
cash flows and discount rates. Determining the useful life of an intangible
asset also requires judgment, as different types of intangible assets will have
different useful lives. The excess of the purchase price over the fair values of
identifiable assets and liabilities is recorded as goodwill.

Valuation of Good will and intangible assets

We are required to test goodwill for impairment at each of our reporting units
annually, or more frequently when circumstances indicate an impairment may have
occurred. We have elected to perform our annual tests for indications of
goodwill impairment during the fourth quarter of each fiscal year.

Goodwill is tested at the reporting unit level, which is an operating segment or
a component of an operating segment. When analyzing whether to aggregate
components into single reporting units, management considers whether each
component has similar economic characteristics. We have evaluated the economic
characteristics of our different geographic markets, including our recently
acquired businesses, along with the similarity of the operations and margins,
nature of the products, type of customer and methods of distribution of products
and the regulatory environment in which we operate and concluded that the
business consists of three operating segments: East Coast, Midwest and West
Coast and these operating segments represent our reporting units.

In testing goodwill for impairment, we may elect to perform a qualitative
assessment to evaluate whether it is more likely than not that the fair value of
each reporting unit is less than its carrying amount. The qualitative analysis
considers various factors including macroeconomic conditions, market conditions,
industry trends, cost factors and financial performance, among others. If our
qualitative assessment indicates that goodwill impairment is more likely than
not, we proceed to perform a quantitative assessment to determine the fair value
of the reporting unit.

When a quantitative analysis is required, we estimate the fair value of our
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. Assumptions include estimates of future
revenue based upon budget projections and growth rates which include estimates
for the duration of the Pandemic's impact on the Company's customers. We develop
estimates of future levels of gross and operating profits and projected capital
expenditures. This methodology includes the use of estimated discount rates
                                       41
--------------------------------------------------------------------------------

based upon industry and competitor analysis as well as other factors. A goodwill
impairment loss, if any, would be recognized for the amount by which a reporting
unit's carrying value exceeds its fair value.

For the year ended December 24, 2021the Company has assessed the recoverability of goodwill using qualitative analysis and has determined that it is more likely than not that the fair value of its reporting units will exceed their respective carrying values.

Due to the Pandemic's adverse impact on our business in fiscal 2020, we
performed an interim quantitative goodwill impairment test as of March 27, 2020
and concluded that goodwill was not impaired. We performed our annual goodwill
impairment test during the fourth quarter of fiscal 2020 using a quantitative
analysis, the results of which indicated that goodwill was not impaired. Total
goodwill as of December 24, 2021 and December 25, 2020 was $221.8 million and
$214.9 million, respectively.

Definite life intangible assets are tested for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. The cash flows expected to be generated by the related assets are estimated over the useful life of the assets based on discounted projections. If the assessment indicates that the carrying amount of the asset may not be recoverable, the potential impairment is assessed based on a discounted cash flow model.

During the second quarter of fiscal 2021, we committed to a plan to shift our
brand strategy to leverage the Allen Brothers brand in our New England region
and determined the Cambridge trademark did not fit our long-term strategic
objectives. As a result, we recognized a $0.6 million impairment charge, $0.4
million net of tax, to fully write-down the net book value of our Cambridge
trademark

During the fourth quarter of fiscal 2020, we committed to a plan to shift our
brand strategy to leverage our Allen Brothers brand in our west coast region and
determined our Del Monte, Ports Seafood and Bassian Farms trademarks did no fit
our long-term strategic objectives. This brand transition began in the second
quarter of fiscal 2021. The Company assessed these trademarks for impairment and
used the relief of royalty method to determine fair value. Significant
assumptions used include future sales forecasts, royalty rates and discount
rates. As a result, we recorded a $24.2 million impairment charge, $17.5 million
net of tax, to write-down the value of our Del Monte and Bassian Farms
trademarks.

There have been no other events or changes in circumstances during fiscal 2021
or 2020 indicating that the carrying value of our finite-lived intangible assets
are not recoverable. Total finite-lived intangible assets as of December 24,
2021 and December 25, 2020 were $104.7 million and $111.7 million, respectively.

The assessment of the recoverability of goodwill and intangible assets contain
uncertainties requiring management to make assumptions and to apply judgment to
estimate economic factors and the profitability of future operations. Actual
results could differ from these assumptions and projections, resulting in us
revising our assumptions and, if required, recognizing an impairment loss.

Self-insurance reserves

We maintain a self-insured group medical program. The program contains
individual stop loss thresholds of $300 thousand per incident and aggregate stop
loss thresholds based upon the average number of employees enrolled in the
program throughout the year. The amount in excess of the self-insured levels is
fully insured by third party insurers. Liabilities associated with this program
are estimated in part by considering historical claims experience and medical
cost trends. Projections of future loss expenses are inherently uncertain
because of the random nature of insurance claims occurrences and could be
significantly affected if future occurrences and claims differ from these
assumptions and historical trends.

We are self-insured for workers' compensation and automobile liability to
deductibles or self-insured retentions of $500 thousand per occurrence. The
amounts in excess of our deductibles are fully insured by third party insurers.
Liabilities associated with this program are estimated in part by considering
historical claims experience and cost trends. Projections of future loss
expenses are inherently uncertain because of the random nature of insurance
claims occurrences and could be significantly affected if future occurrences and
claims differ from these assumptions and historical trends.

Income taxes

The determination of our provision for income taxes requires significant
judgment, the use of estimates and the interpretation and application of complex
tax laws. Our provision for income taxes primarily reflects a combination of
income earned and taxed in the various U.S. federal and state jurisdictions.
Jurisdictional tax law changes, increases or decreases in permanent
                                       42
--------------------------------------------------------------------------------

differences between accounting and tax items, accruals or accrual adjustments for unrecognized tax benefits, and our change in the earnings mix of these tax jurisdictions all affect the effective tax rate global.

We estimate our ability to recover deferred tax assets within the jurisdiction
from which they arise. This evaluation considers several factors, including
recent results of operations, scheduled reversal of deferred tax liabilities,
future taxable income and tax planning strategies. As of December 24, 2021 and
December 25, 2020, we had valuation allowances of $2.0 million and $2.3 million,
respectively, relating to certain net operating losses that may not be
realizable in the future based on taxable income forecasts and certain state net
operating loss limitations.

Conditional commitments related to price supplements

We account for contingent consideration relating to business combinations as a
liability and an increase to goodwill at the date of the acquisition and
continually remeasure the liability at each balance sheet date by recording
changes in the fair value through our consolidated statements of operations. We
determine the fair value of contingent consideration based on future operating
projections under various potential scenarios, including the use of Monte Carlo
simulations, and weight the probability of these outcomes. The ultimate
settlement of contingent earn-out liabilities relating to business combinations
may be for amounts which are materially different from the amounts initially
recorded and may cause volatility in our results of operations.

Management has discussed the development and selection of these critical
accounting policies with our board of directors, and the board of directors has
reviewed the above disclosure. Our consolidated financial statements contain
other items that require estimation, but are not as critical as those discussed
above. These other items include our calculations for bonus accruals,
depreciation and amortization. Changes in estimates and assumptions used in
these and other items could have an effect on our consolidated financial
statements.

Recent accounting pronouncements

See Note 1 "Operations and Basis of Presentation" to our consolidated financial
statements for a full description of recent accounting pronouncements including
the respective expected dates of adoption and expected effects on our
consolidated financial statements.

                                       43

————————————————– ——————————

© Edgar Online, source Previews

About Joel Simmons

Check Also

Matterport: Still too early to hunt (NASDAQ:MTTR)

courtneyk/E+ via Getty Images Matterport (NASDAQ: MTTR) has a bright future in spatial data reshaping …