NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(Amounts in thousands, except share and per share amounts)
Note 1 - Operations and Basis of Presentation
Description of Business and Basis of Presentation
The financial statements include the condensed consolidated accounts of The Chefs’ Warehouse, Inc. (the “Company”), and its wholly-owned subsidiaries. The Company’s quarterly periods end on the thirteenth Friday of each quarter. Every six to seven years, the Company will add a fourteenth week to its fourth quarter to more closely align its year-end to the calendar year. Fiscal 2022 contained a fourteenth week in the fourth quarter. The Company’s business consists of three operating segments: East, Midwest and West that aggregate into one reportable segment, foodservice distribution, which is concentrated primarily in the United States. The Company’s customer base consists primarily of menu-driven independent restaurants, fine dining establishments, country clubs, hotels, caterers, culinary schools, bakeries, patisseries, chocolateries, cruise lines, casinos, specialty food stores, grocers and warehouse clubs.
Consolidation
The condensed consolidated financial statements include all the accounts of the Company and its direct and indirect wholly-owned subsidiaries. All significant intercompany accounts and transactions have been eliminated.
Unaudited Interim Financial Statements
The accompanying unaudited condensed consolidated financial statements and the related interim information contained within the notes to such unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) and the applicable rules of the Securities and Exchange Commission (“SEC”) for interim information and quarterly reports on Form 10-Q. Accordingly, they do not include all the information and disclosures required by GAAP for complete financial statements. These unaudited condensed consolidated financial statements and related notes should be read in conjunction with the Company’s audited consolidated financial statements and notes thereto for the fiscal year ended December 30, 2022 filed as part of the Company’s Annual Report on Form 10-K, as filed with the SEC on February 28, 2023.
The unaudited condensed consolidated financial statements appearing in this Form 10-Q have been prepared on the same basis as the audited consolidated financial statements included in the Company’s Annual Report on Form 10-K, as filed with the SEC on February 28, 2023, and in the opinion of management, include all normal recurring adjustments that are necessary for the fair statement of the Company’s interim period results. The year-end consolidated balance sheet data was derived from the audited financial statements but does not include all disclosures required by GAAP. Due to seasonal fluctuations and other factors, the results of operations for the thirteen weeks ended March 31, 2023 are not necessarily indicative of the results to be expected for the full year.
The preparation of financial statements in conformity with GAAP requires management to make significant estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting periods. Actual results could differ from management’s estimates.
Note 2 – Summary of Significant Accounting Policies
Revenue Recognition
Revenues from product sales are recognized at the point at which control of each product is transferred to the customer. The Company’s contracts contain performance obligations which are satisfied when customers have physical possession of each product. The majority of customer orders are fulfilled within a day and customer payment terms are typically 14 to 60 days from delivery. Shipping and handling activities are costs to fulfill the Company’s performance obligations. These costs are expensed as incurred and presented within selling, general and administrative expenses on the condensed consolidated statements of operations. The Company offers certain sales incentives to customers in the form of rebates or discounts. These sales incentives are accounted as variable consideration. The Company estimates these amounts based on the expected amount to be provided to customers and records a corresponding reduction in revenue. The Company does not expect a significant
reversal in the amount of cumulative revenue recognized. Sales tax billed to customers is not included in revenue but rather recorded as a liability owed to the respective taxing authorities at the time the sale is recognized.
The following table presents the Company’s net sales disaggregated by principal product category:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Thirteen Weeks Ended | | |
| March 31, 2023 | | March 25, 2022 | | | | |
Center-of-the-Plate | $ | 306,305 | | | 42.6 | % | | $ | 238,776 | | | 46.6 | % | | | | | | | | |
Dry Goods | 122,934 | | | 17.1 | % | | 68,796 | | | 13.4 | % | | | | | | | | |
Pastry | 89,162 | | | 12.4 | % | | 50,395 | | | 9.8 | % | | | | | | | | |
Cheese and Charcuterie | 55,141 | | | 7.7 | % | | 38,388 | | | 7.5 | % | | | | | | | | |
Produce | 52,999 | | | 7.4 | % | | 57,154 | | | 11.2 | % | | | | | | | | |
Dairy and Eggs | 49,078 | | | 6.8 | % | | 26,951 | | | 5.3 | % | | | | | | | | |
Oils and Vinegars | 28,878 | | | 4.0 | % | | 21,025 | | | 4.1 | % | | | | | | | | |
Kitchen Supplies | 15,148 | | | 2.0 | % | | 10,618 | | | 2.1 | % | | | | | | | | |
Total | $ | 719,645 | | | 100 | % | | $ | 512,103 | | | 100 | % | | | | | | | | |
The Company determines its product category classification based on how the Company currently markets its products to its customers. The Company’s definition of its principal product categories may differ from the way in which other companies present similar information.
Food Processing Costs
Food processing costs include but are not limited to direct labor and benefits, applicable overhead and depreciation of equipment and facilities used in food processing activities. Food processing costs included in cost of sales were $11,674 and $9,036 for the thirteen weeks ended March 31, 2023 and March 25, 2022, respectively.
Immaterial Correction of Prior Period Disclosures
Subsequent to the issuance of the fiscal year 2022 consolidated financial statements, immaterial errors were identified in the weighted average remaining amortization period of intangible assets, the intangible asset amortization schedule and the debt maturity schedule. The weighted average remaining amortization period for customer relationships, non-compete agreements and trademarks were previously disclosed as 232 months, 73 months and 250 months instead of 117 months, 25 months and 165 months, respectively. This had a corresponding immaterial impact on the intangible asset amortization schedule.
In addition, the debt maturity schedule previously included the $40,000 due upon maturity of the asset-based loan facility in the thereafter total instead of in the 2027 total. Further, the Company omitted that the asset-based loan facility and term loan are classified as Level 2 within the fair value hierarchy. These immaterial errors and omissions have been corrected in Note 4 “Fair Value Measurements”, Note 8 “Goodwill and Other Intangible Assets” and Note 9 “Debt Obligations”, within these condensed consolidated financial statements.
Note 3 – Net Income per Share
The following table sets forth the computation of basic and diluted net income per common share:
| | | | | | | | | | | | | | | |
| Thirteen Weeks Ended | | |
| March 31, 2023 | | March 25, 2022 | | | | |
Net income per share: | | | | | | | |
Basic | $ | 0.04 | | | $ | 0.04 | | | | | |
Diluted | $ | 0.04 | | | $ | 0.04 | | | | | |
Weighted average common shares: | | | | | | | |
Basic | 37,507,093 | | | 36,935,717 | | | | | |
Diluted | 38,161,269 | | | 37,307,478 | | | | | |
Reconciliation of net income per common share:
| | | | | | | | | | | | | | | |
| Thirteen Weeks Ended | | |
| March 31, 2023 | | March 25, 2022 | | | | |
Numerator: | | | | | | | |
Net income | $ | 1,401 | | | $ | 1,385 | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
Denominator: | | | | | | | |
Weighted average basic common shares outstanding | 37,507,093 | | | 36,935,717 | | | | | |
Dilutive effect of unvested common shares | 577,557 | | | 330,415 | | | | | |
Dilutive effect of stock options and warrants | 76,619 | | | 41,346 | | | | | |
| | | | | | | |
Weighted average diluted common shares outstanding | 38,161,269 | | | 37,307,478 | | | | | |
Potentially dilutive securities that have been excluded from the calculation of diluted net income per common share because the effect is anti-dilutive are as follows:
| | | | | | | | | | | | | | | |
| Thirteen Weeks Ended | | |
| March 31, 2023 | | March 25, 2022 | | | | |
Restricted share awards (“RSAs”) | — | | | 113,061 | | | | | |
Stock options and warrants | — | | | 293,407 | | | | | |
Convertible notes | 7,483,870 | | | 4,616,033 | | | | | |
Note 4 – Fair Value Measurements
Assets and Liabilities Measured at Fair Value
The Company’s contingent earn-out liabilities are measured at fair value. These liabilities were estimated using Level 3 inputs. Long-term earn-out liabilities were $6,790 and $10,483 as of March 31, 2023 and December 30, 2022, respectively, and are reflected as other liabilities and deferred credits on the condensed consolidated balance sheets. The remaining short-term earn-out liabilities are reflected as accrued liabilities on the condensed consolidated balance sheets. The fair value of contingent consideration was determined based on a probability-based approach which includes projected results, percentage probability of occurrence and the application of a discount rate to present value the payments. A significant change in projected results, discount rate, or probabilities of occurrence could result in a significantly higher or lower fair value measurement. Changes in the fair value of contingent earn-out liabilities are reflected in other operating expenses, net on the condensed consolidated statements of operations.
The following table presents the changes in Level 3 contingent earn-out liabilities:
| | | | | | | | | | | | | | | | | |
| | | | | | | | | | | Total |
| | | | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
Balance December 30, 2022 | | | | | | | | | | | $ | 17,294 | |
Acquisition value | | | | | | | | | | | 7,800 | |
| | | | | | | | | | | |
Cash payments | | | | | | | | | | | — | |
Changes in fair value | | | | | | | | | | | 372 | |
Balance March 31, 2023 | | | | | | | | | | | $ | 25,466 | |
Fair Value of Financial Instruments
The carrying amounts reported in the Company’s condensed consolidated balance sheets for accounts receivable and accounts payable approximate fair value due to the immediate to short-term nature of these financial instruments. The fair values of the asset based loan facility and term loan approximated their book values as of March 31, 2023 and December 30, 2022 as these instruments had variable interest rates that reflected current market rates available to the Company and are classified as Level 2 fair value measurements.
The following table presents the carrying value and fair value of the Company’s convertible notes. The fair value of the Company’s 2029 Convertible Senior Notes was based on Level 1 inputs. In estimating the fair value of its 2024 Convertible Senior Notes and Convertible Unsecured Note, the Company utilized Level 3 inputs including prevailing market interest rates to estimate the debt portion of the instrument and a Black Scholes valuation model to estimate the fair value of the conversion option. The Black Scholes model utilizes the market price of the Company’s common stock, estimates of the stock’s volatility and the prevailing risk-free interest rate in calculating the fair value estimate.
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | March 31, 2023 | | December 30, 2022 |
| Fair Value Hierarchy | Carrying Value | | Fair Value | | Carrying Value | | Fair Value |
2028 Convertible Senior Notes | Level 1 | $ | 287,500 | | | $ | 291,813 | | | $ | 287,500 | | | $ | 292,531 | |
2024 Convertible Senior Notes | Level 3 | $ | 39,684 | | | $ | 40,695 | | | $ | 41,684 | | | $ | 43,723 | |
Convertible Unsecured Note | Level 3 | $ | 4,000 | | | $ | 4,120 | | | $ | 4,000 | | | $ | 4,345 | |
Note 5 – Acquisitions
Hardie’s Fresh Foods
On March 20, 2023, pursuant to an asset purchase agreement, the Company acquired substantially all of the assets of Hardie’s F&V, LLC (“Hardie’s Fresh Foods”), a specialty produce distributor with operations in Texas. The purchase price was approximately $38,000, paid in cash at closing. The Company will also pay additional contingent consideration, if earned, in the form of an earn-out amount which could total $10,000 over a two-year period. The payment of the earn-out liability is subject to the successful achievement of certain gross profit targets. The Company estimated the fair value of this contingent earn-out liability to be $6,500 as of March 20, 2023 and March 31, 2023. The Company is in the process of finalizing a valuation of tangible and intangible assets of Hardie’s Fresh Foods as of the acquisition date. When applicable, these valuations require the use of Level 3 inputs. Goodwill for the Hardie’s Fresh Foods acquisition will be amortized over 15 years for tax purposes. The goodwill recorded primarily reflects the value of acquiring an established specialty produce distributor to leverage the Company’s existing products in the markets served by Hardie’s Fresh Foods and any intangible assets that do not qualify for separate recognition.
Other Fiscal 2023 Acquisitions
During the thirteen weeks ended March 31, 2023, the Company completed two other acquisitions for an aggregate purchase price of approximately $14,436, consisting of $12,221 paid in cash at closing, subject to customary working capital adjustments, and $2,215 of deferred payments. The Company will also pay additional contingent consideration, if earned, in the form of earn-out amount which could total $2,000 in the aggregate. The Company estimated the fair value of the contingent earn-out liability to be $1,300 as of March 31, 2023. The Company is in the process of finalizing a valuation of the tangible and intangible assets as of the acquisition date. When applicable, these valuations require the use of Level 3 inputs. Goodwill of $4,596 will be amortized over 15 years for tax purposes.
The Company reflected net sales and income before income taxes in its condensed consolidated statement of operations related to the fiscal 2023 acquisitions as follows:
| | | | | | | | | | | |
| Thirteen Weeks Ended | | |
| March 31, 2023 | | | | | | |
Net sales | $ | 20,207 | | | | | | | |
Income before income taxes | $ | 1,760 | | | | | | | |
Chef Middle East
On November 1, 2022, pursuant to a share sale and purchase agreement, the Company acquired substantially all of the shares of Chef Middle East LLC (“CME”), a specialty food distributor with operations in the United Arab Emirates, Qatar and Oman. The purchase price was approximately $108,915, consisting of $108,749 paid in cash at closing and $166 paid upon settlement of a net working capital true-up. The measurement period adjustments recorded during the first quarter of fiscal 2023 resulted in a goodwill increase of $866, a decrease in inventories of $735 and a decrease in deferred tax liabilities of $35. The Company will also pay additional contingent consideration, if earned, in the form of an earn-out amount which could total $10,000 over
a two-year period. The payment of the earn-out liability is subject to the successful achievement of certain gross profit targets. The Company estimated the fair value of this contingent earn-out liability to be $7,500 as of March 31, 2023 and December 30, 2022. The Company is in the process of finalizing a valuation of tangible and intangible assets of CME as of the acquisition date. When applicable, these valuations require the use of Level 3 inputs. The goodwill recorded primarily reflects the value of acquiring an established specialty seafood and produce distributor and any intangible assets that do not qualify for separate recognition.
The table below presents unaudited pro forma condensed consolidated income statement information of the Company as if the Hardie’s Fresh Foods and CME acquisitions had occurred on December 25, 2021. The pro forma results were prepared from financial information obtained from the sellers of the business, as well as information obtained during the due diligence process associated with the acquisitions. The pro forma information is not necessarily indicative of the Company’s results of operations had the acquisitions been completed on the above date, nor is it necessarily indicative of the Company’s future results. The pro forma information does not reflect any cost savings from operating efficiencies or synergies that could result from the acquisitions, any incremental costs for transitioning to become a public company, and also does not reflect additional revenue opportunities following the acquisitions. The pro forma information reflects amortization and depreciation of the acquisitions at their respective fair value. CME did not have a proforma impact during the thirteen weeks ended March 31, 2023 as it was included in the condensed consolidated results of operations for the entire period.
| | | | | | | | | | | | | | | |
| Thirteen Weeks Ended | | |
| March 31, 2023 | | March 25, 2022 | | | | |
Net sales | $ | 773,547 | | | $ | 621,761 | | | | | |
Income before income taxes | $ | 1,159 | | | $ | 7,139 | | | | | |
The table below sets forth the preliminary purchase price allocation for the Company’s acquisitions:
| | | | | | | | | | | | | | | | | | |
| Chef Middle East | | Hardie’s Fresh Foods | | | Other Acquisitions |
Current assets | $ | 84,076 | | | $ | 27,479 | | | | $ | 9,787 | |
Customer relationships | 25,800 | | | 11,200 | | | | 1,531 | |
Trademarks | 11,400 | | | 1,900 | | | | 2,600 | |
Non-compete agreements | 320 | | | — | | | | — | |
Goodwill | 24,680 | | | 14,720 | | | | 4,596 | |
Fixed assets | 16,953 | | | 5,582 | | | | 117 | |
Other assets | 941 | | | 854 | | | | 15 | |
Deferred tax liability | (3,600) | | | — | | | | — | |
Right-of-use assets | 5,321 | | | 13,303 | | | | 3,258 | |
| | | | | | |
Lease liabilities | (5,321) | | | (13,303) | | | | (3,258) | |
| | | | | | |
Current liabilities | (44,155) | | | (17,235) | | | | (2,880) | |
Earn-out liability | (7,500) | | | (6,500) | | | | (1,300) | |
| | | | | | |
| | | | | | |
| | | | | | |
Total consideration | $ | 108,915 | | | $ | 38,000 | | | | $ | 14,436 | |
The Company recognized professional fees of $1,243 and $659 in operating expenses related to acquisition related activities during the thirteen weeks ended weeks ended March 31, 2023 and March 25, 2022, respectively.
Note 6 – Inventories
Inventories consist primarily of finished product and are reflected net of adjustments for shrinkage, excess and obsolescence to approximate their net realizable value totaling $10,127 and $9,198 at March 31, 2023 and December 30, 2022, respectively.
Note 7 – Property and Equipment
Property and equipment as of March 31, 2023 and December 30, 2022 consisted of the following:
| | | | | | | | | | | | | | | | | | | | |
| | | | |
| | Useful Lives | | March 31, 2023 | | December 30, 2022 |
Land | | Indefinite | | $ | 5,542 | | | $ | 5,542 | |
Buildings | | 20 years | | 40,591 | | | 39,893 | |
Machinery and equipment | | 5 - 10 years | | 38,214 | | | 32,107 | |
Computers, data processing and other equipment | | 3 - 7 years | | 19,667 | | | 18,475 | |
Software | | 3 - 7 years | | 48,541 | | | 42,609 | |
Leasehold improvements | | 1 - 40 years | | 119,213 | | | 94,245 | |
Furniture and fixtures | | 7 years | | 2,949 | | | 3,825 | |
Vehicles | | 5 - 10 years | | 31,421 | | | 31,462 | |
| | | | | | |
Construction-in-process | | | | 11,333 | | | 36,583 | |
| | | | 317,471 | | | 304,741 | |
Less: accumulated depreciation and amortization | | | | (121,215) | | | (119,013) | |
Property and equipment, net | | | | $ | 196,256 | | | $ | 185,728 | |
Construction-in-process at March 31, 2023 related primarily to the build-out of the Company’s Miami, Richmond, CA and Gibbstown, NJ distribution facilities and at December 30, 2022 related primarily to the build-out of the Company’s Miami, Dallas and Richmond, CA distribution facilities and the implementation of the Company’s Enterprise Resource Planning system. The net book value of equipment financed under finance leases at March 31, 2023 and December 30, 2022 was $10,036 and $11,579, respectively.
The components of depreciation and amortization expense were as follows:
| | | | | | | | | | | | | | | |
| Thirteen Weeks Ended | | |
| March 31, 2023 | | March 25, 2022 | | | | |
Depreciation expense | $ | 5,542 | | | $ | 4,415 | | | | | |
Software amortization | $ | 1,469 | | | $ | 1,474 | | | | | |
| $ | 7,011 | | | $ | 5,889 | | | | | |
Note 8 – Goodwill and Other Intangible Assets
The changes in the carrying amount of goodwill are presented as follows:
| | | | | |
| |
| |
| |
| |
Carrying amount as of December 30, 2022 | $ | 287,120 | |
Goodwill adjustments (1) | 1,342 | |
Acquisitions | 19,316 | |
Foreign currency translation | (5) | |
Carrying amount as of March 31, 2023 | $ | 307,773 | |
(1) Reflect measurement period adjustments primarily related to net working capital true-ups of prior year acquisitions.
Other intangible assets as of March 31, 2023 and December 30, 2022 consisted of the following:
| | | | | | | | | | | | | | | | | | | | | | | | | | |
March 31, 2023 | | Weighted-Average Remaining Amortization Period | | Gross Carrying Amount | | Accumulated Amortization | | Net Amount |
Customer relationships | | 113 months | | $ | 220,531 | | | $ | (89,038) | | | $ | 131,493 | |
Trademarks | | 159 months | | 53,031 | | | (17,213) | | | 35,818 | |
Non-compete agreements | | 23 months | | 8,899 | | | (8,387) | | | 512 | |
Total | | | | $ | 282,461 | | | $ | (114,638) | | | $ | 167,823 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | |
December 30, 2022 | | Weighted-Average Remaining Amortization Period | | Gross Carrying Amount | | Accumulated Amortization | | Net Amount |
Customer relationships | | 117 months | | $ | 205,608 | | | $ | (85,447) | | | $ | 120,161 | |
Trademarks | | 165 months | | 51,137 | | | (16,201) | | | 34,936 | |
Non-compete agreements | | 25 months | | 8,899 | | | (8,293) | | | 606 | |
Total | | | | $ | 265,644 | | | $ | (109,941) | | | $ | 155,703 | |
Amortization expense for other intangibles was $4,697 and $3,356 for the thirteen weeks ended March 31, 2023 and March 25, 2022, respectively.
Estimated amortization expense for other intangible assets for the remainder of the fiscal year ending December 29, 2023 and each of the next four fiscal years and thereafter is as follows:
| | | | | |
2023 | $ | 18,713 | |
2024 | 18,045 | |
2025 | 17,901 | |
2026 | 17,701 | |
2027 | 17,196 | |
Thereafter | 78,267 | |
Total | $ | 167,823 | |
Note 9 – Debt Obligations
Debt obligations as of March 31, 2023 and December 30, 2022 consisted of the following:
| | | | | | | | | | | | | | | | | | | | | | | |
| Weighted Average Effective Interest Rate at March 31, 2023 | | Maturity | | March 31, 2023 | | December 30, 2022 |
Senior secured term loans | 10.32 | % | | August 2029 | | $ | 298,500 | | | $ | 299,250 | |
2028 Convertible senior notes | 2.77 | % | | December 2028 | | 287,500 | | | 287,500 | |
2024 Convertible senior notes | 2.34 | % | | December 2024 | | 39,684 | | | 41,684 | |
Asset-based loan facility | 7.12 | % | | March 2027 | | 40,000 | | | 40,000 | |
Finance leases | 5.61 | % | | Various | | 14,913 | | | 11,331 | |
Convertible unsecured note | 5.00 | % | | June 2023 | | 4,000 | | | 4,000 | |
Other revolving credit facilities | 7.72 | % | | April 2023 | | 2,217 | | | 2,217 | |
| | | | | | | |
Unamortized deferred costs and premium | | | | | (19,198) | | | (20,050) | |
Total debt obligations | | | | | 667,616 | | | 665,932 | |
Less: current installments | | | | | (13,199) | | | (12,428) | |
Total debt obligations excluding current installments | | | | | $ | 654,417 | | | $ | 653,504 | |
Maturities of the Company’s debt, excluding finance leases, for the remainder of the fiscal year ending December 29, 2023 and each of the next four fiscal years and thereafter is as follows:
| | | | | |
2023 | $ | 8,467 | |
2024 | 42,684 | |
2025 | 3,000 | |
2026 | 3,000 | |
2027 | 43,000 | |
Thereafter | 571,750 | |
Total | $ | 671,901 | |
The net carry value of the Company’s convertible notes as of March 31, 2023 and December 30, 2022 was:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | March 31, 2023 | | December 30, 2022 |
| | Principal Amount | | Unamortized Deferred Costs and Premium | | Net Amount | | Principal Amount | | Unamortized Deferred Costs and Premium | | Net Amount |
2028 Convertible Senior Notes | | $ | 287,500 | | | $ | (6,589) | | | $ | 280,911 | | | $ | 287,500 | | | $ | (6,876) | | | $ | 280,624 | |
2024 Convertible Senior Notes | | 39,684 | | | (325) | | | 39,359 | | | 41,684 | | | (373) | | | 41,311 | |
Convertible Unsecured Note | | 4,000 | | | — | | | 4,000 | | | 4,000 | | | — | | | 4,000 | |
Total | | $ | 331,184 | | | $ | (6,914) | | | $ | 324,270 | | | $ | 333,184 | | | $ | (7,249) | | | $ | 325,935 | |
The components of interest expense on the Company’s convertible notes were as follows:
| | | | | | | | | | | | | | | |
| Thirteen Weeks Ended | | |
| March 31, 2023 | | March 25, 2022 | | | | |
Coupon interest | $ | 1,899 | | | $ | 938 | | | | | |
Amortization of deferred costs and premium | 335 | | | 224 | | | | | |
| | | | | | | |
Total interest | $ | 2,234 | | | $ | 1,162 | | | | | |
As of March 31, 2023, the Company had reserved $24,170 of the asset-based loan facility for the issuance of letters of credit and funds totaling $135,830 were available for borrowing.
Note 10 – Stockholders’ Equity
Equity Awards
The following table reflects the activity of RSAs during the thirteen weeks ended March 31, 2023:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Time-based | | Performance-based | | Market-based |
| | Shares | | Weighted Average Grant Date Fair Value | | Shares | | Weighted Average Grant Date Fair Value | | Shares | | Weighted Average Grant Date Fair Value |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
Unvested at December 30, 2022 | | 464,972 | | | $ | 31.74 | | | 335,425 | | | $ | 32.25 | | | 333,114 | | | $ | 30.30 | |
Granted | | 197,345 | | | 32.55 | | | 713,490 | | | 33.16 | | | 87,942 | | | 28.84 | |
Vested | | (161,555) | | | 31.82 | | | — | | | — | | | — | | | — | |
Forfeited | | — | | | — | | | — | | | — | | | — | | | — | |
Unvested at March 31, 2023 | | 500,762 | | | $ | 32.03 | | | 1,048,915 | | | $ | 32.87 | | | 421,056 | | | $ | 30.00 | |
The Company granted 998,777 RSAs to its employees at a weighted average grant date fair value of $32.66 during the thirteen weeks ended March 31, 2023. These awards are a mix of time-, market- and performance-based grants that generally vest over a range of periods up to five years. The Company recognized expense totaling $4,790 and $3,043 on its RSAs during the thirteen weeks ended March 31, 2023 and March 25, 2022, respectively.
At March 31, 2023, the total unrecognized compensation cost for unvested RSAs was $37,653 and the weighted-average remaining period was approximately 2.9 years. Of this total, $13,865 related to RSAs with time-based vesting provisions and $23,788 related to RSAs with performance- and market-based vesting provisions. At March 31, 2023, the weighted-average remaining period for time-based vesting and performance-based vesting RSAs were approximately 2.6 years and 3.0 years, respectively.
No share-based compensation expense related to the Company’s RSAs or stock options has been capitalized. As of March 31, 2023, there were 1,542,375 shares available for grant under the 2019 Omnibus Equity Incentive Plan.
The following table summarizes stock option activity during the thirteen weeks ended March 31, 2023:
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Shares | | Weighted Average Exercise Price | | Aggregate Intrinsic Value | | Weighted Average Remaining Contractual Term (in years) |
| | | | | | | | |
| | | | | | | | |
| | | | | | | | |
| | | | | | | | |
Outstanding December 30, 2022 | | 112,232 | | | $ | 20.23 | | | $ | 1,465 | | | 3.2 |
| | | | | | | | |
Exercised | | — | | | — | | | | | |
| | | | | | | | |
Outstanding March 31, 2023 | | 112,232 | | | $ | 20.23 | | | $ | 1,551 | | | 2.9 |
Exercisable at March 31, 2023 | | 112,232 | | | 20.23 | | | $ | 1,551 | | | 2.9 |
In connection with the CME acquisition, the Company issued stock awards to certain members of the CME management team
which were classified as liabilities. These awards vest over a period of up to four years. Stock-based compensation expense for
these awards was $544 and $0 during the thirteen weeks ended March 31, 2023 and March 25, 2022, respectively. The fair value of these awards was $906 and $362 as of March 31, 2023 and December 30, 2022, respectively, and is presented within Other liabilities and deferred credits on the Company’s condensed consolidated balance sheets.
Note 11 – Related Parties
The Chefs’ Warehouse Mid-Atlantic, LLC, a subsidiary of the Company, leases a distribution facility that is 100% owned by entities controlled by Christopher Pappas, the Company’s Chairman, President and Chief Executive Officer, and John Pappas, the Company’s Vice Chairman and Chief Operating Officer, and are deemed to be affiliates of these individuals. Expense related to this facility totaled $123 during the thirteen weeks ended March 31, 2023 and March 25, 2022.
Note 12 – Income Taxes
The Company’s effective tax rate was 26.0% and 27.1% thirteen weeks ended March 31, 2023 and March 25, 2022. The effective tax rate varies from the 21% statutory rate primarily due to state taxes. The lower effective tax rate for the thirteen weeks ended March 31, 2023 was primarily driven by a greater mix of foreign earnings that are subject to tax rates below the US statutory rate of 21%.
Note 13 – Supplemental Disclosures of Cash Flow Information
| | | | | | | | | | | |
| Thirteen Weeks Ended |
| March 31, 2023 | | March 25, 2022 |
Supplemental cash flow disclosures: | | | |
Cash paid (received) for income taxes | $ | 2,539 | | | $ | (282) | |
Cash paid for interest, net of cash received | $ | 7,366 | | | $ | 3,011 | |
Cash paid for amounts included in the measurement of lease liabilities: | | | |
Operating cash flows from operating leases | $ | 9,001 | | | $ | 6,766 | |
Operating cash flows from finance leases | $ | 914 | | | $ | 1,028 | |
Other non-cash investing and financing activities | | | |
ROU assets obtained in exchange for lease liabilities: | | | |
Operating leases | $ | 32,615 | | | $ | 8,589 | |
Finance leases | $ | 2,697 | | | $ | — | |
| | | |
Warrants issued for acquisitions | $ | — | | | $ | 1,701 | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
Contingent earn-out liabilities for acquisitions | $ | 7,800 | | | $ | — | |
Note 14 – Subsequent Events
On May 1, 2023, the Company entered into a stock purchase agreement to acquire substantially all of the assets of Greenleaf Produce and Specialty Foods, a leading produce and specialty food distributor in Northern California. The initial purchase price was $80,000 consisting of $70,000 paid in cash at closing, subject to a customary working capital true-up, and the issuance of a $10,000 unsecured note. The unsecured note matures on April 30, 2025 and bears interest of 4.47%. The Company has not provided preliminary purchase price allocation for this acquisition as the initial accounting is incomplete. The acquisition was partially funded by a $40,000 incremental draw on the Company’s asset-based loan facility.