What changed in this filing

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Item 7. Management’s Discussion and Analysis

2021-02-23 compared with 2020-02-24 · 179 added, 126 removed, 196 unchanged (61% of the section changed)

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We are a premier distributor of specialty foods in nine of the leading culinary markets in the United States.

We offer more than 55,000 SKUs, ranging from high-quality specialty foods and ingredients to basic ingredients and staples and center-of-the-plate proteins.

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 34,000 customer locations, primarily located in our sixteen geographic markets across the United States and Canada, and the majority of our customers are independent restaurants and fine dining establishments.

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.

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the expansion of our existing distribution centers;

our entry into new distribution centers, including the construction of new distribution centers in Chicago, San Francisco, Toronto and Dallas;

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.

We believe that as a result of these efforts, we have increased sales from $1.30 billion in fiscal 2017 to $1.59 billion in fiscal 2019 .

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

The COVID-19 pandemic (“Pandemic”) has had a material impact on our business and operations and those of our customers.

In an effort to limit the spread of the virus, federal, state and local governments began implementing various restrictions beginning in late March that resulted in the closure of non-essential businesses in many of the markets we serve, which forced our customers in those markets to either transition their establishments to take-out service, delivery service or temporarily cease operations.

State and local governments began to ease these restrictions in mid-May, however, restrictions in certain of our key markets were not eased until early June.

As of December 25, 2020, the majority of state and local governments with jurisdiction over markets in which the Company operates allow the Company’s customers to operate outdoor dining and indoor dining service while adhering to specified social distancing and capacity restrictions.

The duration and extent of restrictions imposed on our customers by federal, state and local governments is dependent on future developments regarding the Pandemic, including new information about the severity of the disease, trends in infection rates, and development of effective medical treatments for the disease, among others.

The adverse impact of the Pandemic on our customers during the fifty-two weeks ended December 25, 2020 resulted in a $616.7 million decline in our organic sales compared to the prior year.

Due to the Pandemic, we incurred estimated non-cash charges of $15.8 million related to incremental bad debt expense and approximately $14.6 million related to estimated inventory obsolescence during the fifty-two weeks ended December 25, 2020.

Our management team is responding rapidly to the changing landscape and pursuing alternate sources of revenue to mitigate the extent of sales declines in our core customer base.

Our sales force is working closely with our core customers and developing solutions to help them fulfill the demand in their communities while complying with health and safety restrictions.

We are actively entering into new business relationships which include retail food outlets as they have experienced increases in consumer demand and shortages in their traditional supply chains due to the Pandemic.

As we develop these new sales channels, we are negotiating favorable credit terms given the nature of the underlying customer base and the current market

In addition, our purchasing teams have worked diligently to shift our product purchases to SKUs that are in high demand.

Thus far, we have not experienced difficulties in procuring products from our suppliers.

In response to the Pandemic, we expanded our direct-to-consumer product offerings by launching our “Shop Like a Chef” online home delivery platform in several of the markets we serve.

We now offer products directly to consumers through both our Allen Brothers and “Shop Like a Chef” online platforms.

We have implemented cost control measures during this time of demand volatility.

Our variable cost structure naturally decreases as our sales decrease, however, we are also reducing our fixed cost structure.

Among other actions, we have postponed planned capital expenditures, returned certain equipment on short-term rental agreements, and reduced compensation expense through salary reductions, furloughs and lay-offs as we right-size our organization to current levels of demand.

Management determined the Pandemic’s adverse impact on our operations and our market capitalization were triggering events that required us to test goodwill and long-lived assets for impairment as of March 27, 2020.

No impairments were identified as a result of these tests.

Although there were no additional triggering events during the remainder of fiscal 2020, the impacts of the Pandemic on our business are uncertain and will depend on future developments, and as such, it is possible that another triggering event could occur that under certain circumstances could cause us to recognize an impairment charge in the future.

We closed the fiscal year with total cash and cash equivalents of $193.3 million, and approximately $50.3 million of remaining availability under our asset-based loan facility as of December 25, 2020.

The future impact of the Pandemic on our business, operations and liquidity is difficult to predict at this time and is highly dependent on future developments including new information that may emerge on the severity of the disease, the extent of the outbreak, federal, state and local government responses, trends in infection rates, development of effective medical treatments for the disease, and future consumer spending behavior, among others.

Recent Significant Acquisitions

On February 3, 2020 , we entered into an asset purchase agreement to acquire substantially all of the assets of Cambridge Packing Co, Inc., a specialty center-of-plate producer and distributor in New England.

The purchase price was approximately $17.0 million paid in cash at closing and is subject to a customary working capital true-up.

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 contingent consideration, if earned, of up to $3.0 million over a two-year period upon successful attainment of certain gross profit targets.

On January 27, 2020 , we entered into an asset purchase agreement to acquire substantially all of the assets, including certain real-estate assets, of Sid Wainer & Son, a specialty food and produce distributor in New England.

The purchase price was approximately $46.5 million paid in cash at closing and is subject to a customary working capital true-up.

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 25, 2019 , pursuant to an asset purchase agreement, we acquired substantially all of the assets of Bassian, a specialty center-of-the-plate distributor based in northern California.

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 will also pay additional contingent consideration, if earned, which could total $9.0 million over a four -year period.

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.

On August 25, 2017, we entered into an asset purchase agreement to acquire substantially all of the assets of Fells Point, a specialty center-of-the-plate manufacturer and distributor based in the metro Baltimore and Washington DC area.

The final purchase price for the transaction was approximately $34.1 million, including $29.7 million paid in cash at closing, $3.3 million consisting of 185,442 shares of our common stock and $1.1 million paid upon settlement of a net working capital true-up.

We are also required to pay additional contingent consideration, if earned, in the form of an earn-out amount which could total approximately $12.0 million.

The payment of the earn-out liability is subject to the successful achievement of annual

Adjusted EBITDA targets for the Fells Point business over a period of four years following closing.

We paid $3.0 million during both fiscal 2018 and fiscal 2019 to the former owners of Fells Point related to the successful attainment of the targeted EBITDA in the first two years of their earn-out agreement.

Transition of Trademarks

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 is planned to begin 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

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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.

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.

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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.

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.

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Net sales consist primarily of sales of specialty products, 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 sales by our Allen Brothers subsidiary that are direct-to-consumers.

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.

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.

Operating expenses.

Our operating expenses include warehousing, protein processing and distribution expenses (which include salaries and wages, employee benefits, facility and distribution fleet rental costs and other expenses related to warehousing, processing and delivery) and selling, general and administrative expenses (which include selling, insurance, administrative, wage and benefit expenses, share-based compensation expense and changes in the fair value of our contingent earn-out liabilities).

Interest and other expense.

Interest and other expense expense consists primarily of interest on our outstanding indebtedness and, as applicable, the amortization or write-off of deferred financing fees.

• 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.

Reclassifications

In response to a comment letter from the staff of the SEC’s Division of Corporation Finance, we have reclassified our food processing costs, previously included in operating expenses, to cost of sales and have split our historical presentation of operating expenses between selling, general and administrative expenses and other operating expenses .

These reclassifications have no impact on the Company’s operating income, net income or cash flows.

Furthermore, management has reclassified gain/loss from asset disposal, which was previously presented as a non-operating expense, to other operating expenses.

See Note 2 “Reclassifications” to our consolidated financial statements for a full description of these reclassifications.

Results of Operations

Fiscal Years Ended

December 27, 2019

December 28, 2018

December 29, 2017

December 25, 2020 December 27, 2019 December 28, 2018

Net sales $ 1,111,631 $ 1,591,834 $ 1,444,609

Cost of sales 863,480 1,205,266 1,095,693

Operating expenses

Operating income

Interest and other expense

Income before income taxes

Provision for income taxes

Gross profit 248,151 386,568 348,916

Selling, general and administrative expenses 336,394 329,542 298,102

Other operating expenses 14,417 6,359 2,225

Operating (loss) income (102,660) 50,667 48,589

Interest expense 20,946 18,264 20,745

(Loss) income before income taxes (123,606) 32,403 27,844

Provision for income tax (benefit) expense (40,703) 8,210 7,442

Net (loss) income $ (82,903) $ 24,193 $ 20,402

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

Organic growth contributed $65.0 million , or 4.5% , to sales growth in the year.

The remaining sales growth of $82.2 million , or 5.7% , resulted from acquisitions.

Organic case count grew approximately 5.2% in our specialty category.

In addition, growth in specialty unique customers and placements grew 4.5% and 3.0% , respectively, compared to the prior year.

Pounds sold in our center-of-the-plate category increased 0.7% compared to the prior year.

Estimated inflation was 2.4% in our specialty category and 2.6% in our center-of-the-plate category compared to fiscal 2018 .

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.

2020 2019 $ Change % Change

Gross profit $ 248,151 $ 386,568 $ (138,417) (35.8) %

Gross profit margin 22.3 % 24.3 %

Gross profit increased primarily due to increased sales volumes.

Gross profit margin increased approximately 12 basis points.

Gross profit margins increased 19 basis points in the Company’s specialty category and increased 18 basis points in the Company’s center-of-the-plate category compared to the prior year period

Operating Expenses

Operating expenses

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.

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 operating expenses relates primarily to increased sales volumes and non-cash charges for the change in the fair value of the our earn-out liabilities of $5.9 million and $1.4 million for fiscal 2019 and 2018 , respectively.

Operating expenses as a percentage of net sales increased 30 basis points.

The primary drivers of the increase in the ratio of operating expenses to sales were the earn-out adjustments and a 27 basis point increase in warehouse costs, primarily related to our investments in Texas and our new facility in Los Angeles, partially offset by a 22 basis point reduction in general and administrative compensation costs as a percentage of sales.

Interest and Other Expense

Interest and other expense

Interest and other expense decreased primarily due to a $1.1 million write-off of deferred financing fees in fiscal 2018 associated with the re-pricing of our Term Loan and lower effective interest charged on our outstanding debt in fiscal 2019.

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

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 Taxes

2020 2019 $ Change % Change

Provision for taxes (40,703) 8,210 $ (48,913) (595.8) %

Effective tax rate 32.9 % 25.3 %

The lower effective tax rate in fiscal 2019 is due to certain permanent tax differences related to stock compensation.

The higher effective tax rate is primarily related to our net 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%.

Fiscal Year Ended December 27, 2019 Compared to Fiscal Year Ended December 28, 2018

2019 2018 $ Change % Change

Net sales $ 1,591,834 $ 1,444,609 $ 147,225 10.2 %

Organic growth contributed $65.0 million, or 4.5%, to sales growth in the year.

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Pounds sold in our center-of-the-plate category increased 0.7% compared to the prior year.

Estimated inflation was 1.9% in our specialty category and estimated deflation was 0.7% in our center-of-the-plate category compared to the prior year period.

Estimated inflation was 2.4% in our specialty category and 2.6% in our center-of-the-plate category compared to fiscal 2018.

2019 2018 $ Change % Change

Gross profit 386,568 348,916 $ 37,652 10.8 %

Gross profit margin 24.3 % 24.2 %

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Gross profit margin increased approximately 13 basis points.

This increase in gross profit margin related to the approximately 71 basis points increase in the Company’s center-of-the plate category margin, partially offset by an approximate 50 basis points decrease in the Company’s specialty category margin compared to margins in the fifty-two weeks ended December 29, 2017.

Operating Expenses

Operating expenses

Gross profit margins increased 19 basis points in the Company’s specialty category and increased 27 basis points in the Company’s center-of-the-plate category compared to the prior year period

Selling, General and Administrative Expenses

2019 2018 $ Change % Change

Selling, general and administrative expenses 329,542 298,102 31,440 10.5 %

Percentage of net sales 20.7 % 20.6 %

The increase in operating expenses relates primarily to the increased sales volumes and includes a $1.4 million non-cash charge for the change in the fair value of the Company’s earn-out liabilities.

The decrease in our operating expense as a percentage of sales is attributable to our continuing operating expense leverage, partially offset by the impact of changes in the fair value of the Company’s earn-out liabilities which were $1.4 million in fiscal 2018 versus a credit of $0.6 million in fiscal 2017.

Interest and Other Expense

Interest and other expense

Interest and other expense decreased primarily due to lower effective interest rates charged on the Company’s outstanding debt and the conversion of the convertible subordinated notes on July 25, 2018, partially offset by a $1.1 million write-off of deferred financing fees in fiscal 2018.

The increase in selling, general and administrative expenses relates primarily to increased sales volumes.

Selling, general and administrative expenses as a percentage of net sales increased 7 basis points.

The primary drivers of the increase in the ratio of selling, general and administrative expenses to sales were a 27 basis point increase in warehouse costs, primarily related to our investments in Texas and our new facility in Los Angeles, partially offset by a 22 basis point reduction in general and administrative compensation costs as a percentage of sales.

Other Operating Expenses

2019 2018 $ Change % Change

Other operating expenses 6,359 2,225 4,134 185.8 %

The increase in other operating expenses relates primarily to non-cash charges of $5.9 million for changes in the fair value of our contingent earn-out liabilities compared to non-cash charges of $1.4 million in the prior year period.

Interest Expense

2019 2018 $ Change % Change

Interest expense 18,264 20,745 $ (2,481) (12.0) %

Provision for Income Taxes

2019 2018 $ Change % Change

Provision for taxes 8,210 7,442 $ 768 10.3 %

Effective tax rate 25.3 % 26.7 %

The lower effective tax rate in fiscal 2017 is due primarily to the enactment of H.R.

1, originally known as the Tax Cuts and Jobs Act (the “Tax Act”) which created a one-time income tax benefit of $3.6 million from the remeasurement of the Company’s deferred tax assets and liabilities in the fourth quarter of fiscal 2017.

Among other changes to the U.S.

Internal Revenue Code, the Tax Act reduced the U.S.

federal corporate top tax rate from 35.0% to 21.0%.

The lower effective tax rate in fiscal 2019 is due to certain permanent tax differences related to stock compensation.

Liquidity and Capital Resources

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

Fiscal Year Ended

December 27, 2019

December 28, 2018

December 29, 2017

December 25, 2020 December 27, 2019 December 28, 2018

Senior secured term loan $ 201,553 $ 238,129 $ 239,745

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See Note 10 “Debt Obligations” to our consolidated financial statements for a full description of our debt instruments.

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 10 “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 $60.0 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 outstanding borrowings then outstanding under our ABL and we intend to use the remainder for working capital and general corporate purposes, which may include future acquisitions.

On July 25, 2018 , the holders of the $36.8 million principal amount of convertible subordinated notes that were issued in connection with our acquisition of Del Monte converted these notes and related accrued interest of $0.3 million into 1,246,272 shares of the Company’s common stock.

On June 29, 2018, we entered into an asset-based loan facility (“ABL”) that increased our borrowing capacity from $75.0 million to $150.0 million.

Approximately $43.2 million of the net proceeds were used to repay all borrowings then outstanding under our ABL and we intend to use the remainder for working capital and general corporate purposes, which may include future acquisitions.

On July 25, 2018, the holders of the $36.8 million principal amount of convertible subordinated notes, issued in connection with our acquisition of Del Monte, converted these notes and related accrued interest of $0.3 million into 1,246,272 shares of the Company’s common stock.

On June 29, 2018, we entered into a new asset-based loan facility (“ABL”) that increased our borrowing capacity from $75.0 million to $150.0 million.

Additionally, we reduced the fixed-rate portion of interest charged on our senior secured term loan (“Term Loan”) from 475 basis points to 350 basis points over Adjusted LIBOR as a result of repricings executed on December 14, 2017 and November 16, 2018.

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 is expected to phase out by the end of fiscal 2021.

The consequences of the discontinuation of LIBOR cannot be entirely predicted but could impact the interest expense we incur on these debt instruments.

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.

Equity Offering

On December 19, 2017 , we completed a public offering of 1,900,000 shares of our common stock which resulted in net proceeds of approximately $34,020 after deducting underwriters’ fees, commissions and transaction expenses.

The net proceeds were used for acquisitions, working capital and general corporate purposes.

On May 14 and June 2, 2020, we completed public offerings for a total of 6,634,615 shares of our common stock which resulted in net proceeds of approximately $85.9 million.

See Note 11 “Stockholders’ Equity” to our consolidated financial statements for a full description.

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

Fiscal Year Ended

December 27, 2019

December 28, 2018

December 29, 2017

December 25, 2020 December 27, 2019 December 28, 2018

Cash and cash equivalents $ 193,281 $ 140,233 $ 42,410

Working capital, (1) excluding cash and cash equivalents

$ 94,279 $ 162,772 $ 160,783

Availability under asset-based loan facility $ 50,282 $ 133,359 $ 90,015

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

Fiscal year 2019 includes the impact of recognizing operating lease right-of-use assets and liabilities as a result of our adoption of Accounting Standards Codification Topic 842, “Leases,” as of December 29, 2018.

We believe our existing balances of cash and cash equivalents, working capital and the availability under our asset-based loan facility, are sufficient to satisfy our working capital needs, capital expenditures, debt service and other liquidity requirements associated with our current operations over the next 12 months.

The fiscal 2020 and 2019 balances include the impact of recognizing operating lease right-of-use assets and liabilities as a result of our adoption of Accounting Standards Codification Topic 842, “Leases,” as of December 29, 2018.

Our capital expenditures, excluding cash paid for acquisitions, were approximately $7.0 million for fiscal 2020.

We believe our capital expenditures, excluding cash paid for acquisitions, for fiscal 2020 will be approximately $38.0 million to $42.0 million .

The increase in projected capital expenditures in fiscal 2020 as compared to fiscal 2019 is the result of planned expansions of several of our distribution facilities.

Our planned capital projects will provide both new and expanded facilities and improvements to our technology that we believe will produce increased efficiency and the capacity to continue to support the growth of our customer base.

We are not providing guidance on our capital expenditures for fiscal 2021 due to the continued uncertainty with regards to the pace of the economic recovery and the duration of the Pandemic related restrictions on our customers.

Fiscal Year Ended

December 27, 2019

December 28, 2018

December 29, 2017

December 25, 2020 December 27, 2019 December 28, 2018

Net income $ (82,903) $ 24,193 $ 20,402

Non-cash charges $ 62,509 $ 47,625 $ 38,186

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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.

The Company 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 fiscal 2020 driven by $85.9 million net proceeds from our common stock offering and $40.0 million of net draws on our asset-based loan facility, partially offset by payments of debt and finance lease obligations of $40.4 million.

Fiscal Year 2019 Cash Flows

Net cash provided by operations was $45.0 million for fiscal 2019 consisting of $24.2 million of net income and $47.6 million of non-cash charges, partially offset by an increase in working capital of $26.8 million.

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The increase in working capital of $26.8 million is a result of organic growth and acquisitions and includes $1.8 million of earn-out liability payments classified as operating activities.

Net cash used in investing activities was $44.2 million in fiscal 2019 driven by $16.1 million in capital expenditures which included implementations of our Enterprise Resource Planning system and the buildouts of our headquarters in Ridgefield, CT and distribution center in Dallas, Texas.

Net cash used in investing activities was $44.2 million in fiscal 2019 driven by $16.1 million in capital expenditures which included implementations of our ERP system and the buildouts of our headquarters in Ridgefield, CT and distribution center in Dallas, Texas.

The Company used $28.1 million in cash to fund acquisitions, the most significant of which was Bassian.

Net cash provided by financing activities was $96.9 million for fiscal 2019 driven by $145.0 million of net proceeds received from the issuance of our Senior Notes, partially offset by $44.2 million to settle all borrowings outstanding on our ABL and $2.4 million of earn-out liability payments classified as financing activities.

Fiscal Year 2018 Cash Flows

Net cash provided by operations was $45.1 million for fiscal 2018 consisting of $20.4 million of net income and $38.2 million of non-cash charges, partially offset by a $13.5 million increase in working capital as a result of organic growth and acquisitions.

Net cash used in investing activities was $33.7 million for fiscal 2018 driven by $19.8 million in capital expenditures which included implementations of our Enterprise Resource Planning system and the buildout of our distribution centers in Portland, OR, Dallas, TX and Toronto, Canada.

The remaining cash used in investing activities of $13.9 million was mainly used to fund small strategic acquisitions.

Net cash used in financing activities was $10.4 million for fiscal 2018 .

During fiscal 2018, we entered into a new ABL which effectively doubled our borrowing capacity.

We drew $47.1 million from the ABL to make an equivalent prepayment on our term loan which lowered the effective interest rates charged on our outstanding indebtedness.

We also made additional principal payments of $5.2 million on our indebtedness, paid a $3.0 million earn-out related to our Fells Point acquisition, and made a $1.5 million payment for financing fees related to our new ABL.

Excluding our direct-to-consumer business, we generally do not experience any material 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 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;

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 material impact on our business and operations and those of our customers.

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

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.

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Payments Due by Period (1, 2, 3)

Less than One Year

Total Less than One Year 1-3

Years Thereafter

(In thousands)

Inventory purchase commitments

Indebtedness $ 405,889 $ 4,715 $ 84,516 $ 316,658 $ —

Finance lease obligations $ 17,259 $ 4,905 $ 6,756 $ 4,291 $ 1,307

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Long-term operating leases $ 177,740 $ 24,542 $ 40,787 $ 25,104 $ 87,307

Interest on our various outstanding debt instruments is included in the above table, except for our Term Loan and ABL, which have floating interest rates.

At December 27, 2019 , we had borrowings of $238.1 million under our Term Loan and zero under our ABL.

During the fiscal year ended December 27, 2019 , the weighted average interest rate on our Term Loan was approximately 5.8% and we incurred interest expense of approximately $13.9 million .

fiscal year ended December 27, 2019 , the weighted average interest rate on our ABL borrowings was approximately 3.7% and we incurred interest expense of approximately $1.6 million .

Total $ 602,908 $ 34,321 $ 132,410 $ 346,454 $ 89,723

(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 25, 2020, we had borrowings of $201.6 million under our Term Loans and $40.0 million under our ABL.

During the fiscal year ended December 25, 2020, the weighted average interest rate on our Term Loan and ABL borrowings were approximately 4.4% and 1.7%, respectively.

See Note 10 “Debt Obligations” to our consolidated financial statements for further information on our debt instruments.

The table above excludes cash to be paid for income taxes, $14.7 million of total contingent earn-out liabilities related to certain acquisitions as of December 27, 2019 and approximately $5.3 million of lease payments related to long-term leases for several vehicles and a distribution and processing facility that do not commence until fiscal 2020 .

(2) The table above excludes $2.8 million of total contingent earn-out liabilities related to certain acquisitions as of December 25, 2020 and approximately $30.2 million of lease payments related to a distribution facility that does not commence until fiscal 2021.

(3) The table above excludes our supplier purchase obligations as we do not have any material unconditional contractual obligations to purchase fixed or minimum quantities of goods or services from our suppliers.

We had outstanding letters of credit of approximately $20.1 million and $16.6 million at December 25, 2020 and December 27, 2019, respectively.

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Based on this definition, we believe our critical accounting policies include the following:

(i) determining our allowance for doubtful accounts, (ii) inventory valuation, with regard to determining inventory balance adjustments for excess and obsolete inventory, (iii) business combinations, (iv) valuing goodwill and intangible assets, (v) vendor rebates and other promotional incentives, (vi) self-insurance reserves, (vii) accounting for income taxes and (viii) contingent earn-out liabilities.

(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.

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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.

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We adjust our inventory balances for excess and obsolete inventories.

These adjustments are primarily based upon inventory age, specifically identified inventory items and overall economic conditions.

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.

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.

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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.

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.

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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 take into account estimated inflation rates.

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.

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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 fiscal year ended December 27, 2019 , the Company assessed the recoverability of goodwill using a qualitative analysis and determined that it is more likely than not that the fair value of its reporting units exceeded their respective carry values.

Due to the Pandemic’s adverse impact on our business, we performed an interim quantitative goodwill impairment test as of March 27, 2020 and concluded that goodwill was not impaired.

As required, we performed our annual goodwill impairment test during the fourth quarter of fiscal 2020 the results of which indicated that goodwill was not impaired.

Total goodwill as of December 25, 2020 and December 27, 2019 was $214.9 million and $197.7 million, respectively.

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If the evaluation indicates that the carrying amount of the asset may not be recoverable, the potential impairment is measured based on a projected discounted cash flow model.

There have been no events or changes in circumstances during fiscal 2019 or 2018 indicating that the carrying value of our finite-lived intangible assets are not recoverable.

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 is planned to begin 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 2020 or 2019 indicating that the carrying value of our finite-lived intangible assets are not recoverable.

Total finite-lived intangible assets as of December 25, 2020 and December 27, 2019 were $111.7 million and $138.8 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 the Company revising its assumptions and, if required, recognizing an impairment loss.

Vendor Rebates and Other Promotional Incentives

We participate in various rebate and promotional incentives with our suppliers, including volume and growth rebates, annual incentives and promotional programs.

In accounting for vendor rebates, we follow the guidance in Accounting Standards Codification Subtopic 705-20 “Costs of Sales and Services—Accounting for Consideration Received from a Vendor” and generally record consideration received under these incentives as a reduction of cost of sales;

however, in certain circumstances, we record marketing-related consideration as a reduction of marketing costs incurred.

We may receive consideration in the form of cash and/or invoice deductions.

We record consideration that we receive for volume and growth rebates and annual incentives as a reduction of cost of sales.

We systematically and rationally allocate the consideration for those incentives to each of the underlying transactions that

results in progress by us toward earning the incentives.

If the incentives are not probable and reasonably estimable, we record the incentives as the underlying objectives or milestones are achieved.

We record annual incentives when we earn them, generally over the agreement period.

We record consideration received to promote and sell the suppliers’ products as a reduction of our costs, as the consideration is typically a reimbursement of costs incurred by us.

If we received consideration from the suppliers in excess of our costs, we record any excess as a reduction of cost of sales.

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

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Jurisdictional tax law changes, increases or decreases in permanent differences between book and tax items, accruals or adjustments of accruals for unrecognized tax benefits, and our change in the mix of earnings from these taxing jurisdictions all affect the overall effective tax rate.

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 25, 2020 and December 27, 2019, we had valuation allowances of $2.3 million and $0.9 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.

Contingent Earn-out Liabilities

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Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 7. Management’s Discussion and Analysis