NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(Amounts in thousands, except share and per share amounts)
Note 1 - Operations and Basis of Presentation
Description of Business and Basis of Presentation
The financial statements include the consolidated accounts of The Chefs’ Warehouse, Inc. (the “Company”), and its wholly-owned subsidiaries. The Company’s quarterly periods end on the thirteenth Friday of each quarter. Every six to seven years, the Company will add a fourteenth week to its fourth quarter to more closely align its year-end to the calendar year. Fiscal 2022 will include a fourteenth week in the fourth quarter. The Company’s business consists of three operating segments: East Coast, Midwest and West Coast that aggregate into one reportable segment, foodservice distribution, which is concentrated primarily in the United States. The Company’s customer base consists primarily of menu-driven independent restaurants, fine dining establishments, country clubs, hotels, caterers, culinary schools, bakeries, patisseries, chocolateries, cruise lines, casinos, specialty food stores, grocers and warehouse clubs.
Consolidation
The consolidated financial statements include all the accounts of the Company and its direct and indirect wholly-owned subsidiaries. All significant intercompany accounts and transactions have been eliminated.
Unaudited Interim Financial Statements
The accompanying unaudited consolidated financial statements and the related interim information contained within the notes to such unaudited consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) and the applicable rules of the Securities and Exchange Commission (“SEC”) for interim information and quarterly reports on Form 10-Q. Accordingly, they do not include all the information and disclosures required by GAAP for complete financial statements. These unaudited consolidated financial statements and related notes should be read in conjunction with the Company’s audited consolidated financial statements and notes thereto for the fiscal year ended December 24, 2021 filed as part of the Company’s Annual Report on Form 10-K, as filed with the SEC on February 22, 2022.
The unaudited consolidated financial statements appearing in this Form 10-Q have been prepared on the same basis as the audited consolidated financial statements included in the Company’s Annual Report on Form 10-K, as filed with the SEC on February 22, 2022, 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, the COVID-19 pandemic and other factors, the results of operations for the thirteen and thirty-nine weeks ended September 23, 2022 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 consolidated statements of operations. The Company offers certain sales incentives to customers in the form of rebates or discounts. These sales incentives are accounted as variable consideration. The Company estimates these amounts based on the expected amount to be provided to customers and records a corresponding reduction in revenue. The Company does not expect a significant reversal in the amount
of cumulative revenue recognized. Sales tax billed to customers is not included in revenue but rather recorded as a liability owed to the respective taxing authorities at the time the sale is recognized.
The following table presents the Company’s net sales disaggregated by principal product category:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Thirteen Weeks Ended | | Thirty-Nine Weeks Ended |
| September 23, 2022 | | September 24, 2021 | | September 23, 2022 | | September 24, 2021 |
Center-of-the-Plate | $ | 280,272 | | | 42.3 | % | | $ | 238,783 | | | 49.3 | % | | $ | 803,334 | | | 44.1 | % | | $ | 593,717 | | | 50.0 | % |
Dry Goods | 108,908 | | | 16.5 | % | | 66,455 | | | 13.7 | % | | 291,020 | | | 16.0 | % | | 163,352 | | | 13.8 | % |
Pastry | 79,899 | | | 12.1 | % | | 48,842 | | | 10.1 | % | | 213,970 | | | 11.7 | % | | 118,952 | | | 10.0 | % |
Cheese and Charcuterie | 61,123 | | | 9.2 | % | | 40,403 | | | 8.3 | % | | 163,720 | | | 9.0 | % | | 97,805 | | | 8.2 | % |
Produce | 39,302 | | | 5.9 | % | | 35,900 | | | 7.4 | % | | 104,413 | | | 5.7 | % | | 87,049 | | | 7.3 | % |
Dairy and Eggs | 41,780 | | | 6.3 | % | | 21,922 | | | 4.5 | % | | 111,046 | | | 6.1 | % | | 53,405 | | | 4.5 | % |
Oils and Vinegars | 33,437 | | | 5.1 | % | | 21,855 | | | 4.5 | % | | 89,041 | | | 4.9 | % | | 48,210 | | | 4.1 | % |
Kitchen Supplies | 17,135 | | | 2.6 | % | | 10,161 | | | 2.2 | % | | 45,519 | | | 2.5 | % | | 25,016 | | | 2.1 | % |
Total | $ | 661,856 | | | 100 | % | | $ | 484,321 | | | 100 | % | | $ | 1,822,063 | | | 100 | % | | $ | 1,187,506 | | | 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 $10,089 and $7,524 for the thirteen weeks ended September 23, 2022 and September 24, 2021, respectively, and $28,523 and $19,599 for the thirty-nine weeks ended September 23, 2022 and September 24, 2021, respectively.
Note 3 – Net Income (Loss) per Share
The following table sets forth the computation of basic and diluted net income (loss) per common share:
| | | | | | | | | | | | | | | | | | | | | | | |
| Thirteen Weeks Ended | | Thirty-Nine Weeks Ended |
| September 23, 2022 | | September 24, 2021 | | September 23, 2022 | | September 24, 2021 |
Net income (loss) per share: | | | | | | | |
Basic | $ | 0.22 | | | $ | 0.09 | | | $ | 0.72 | | | $ | (0.36) | |
Diluted | $ | 0.21 | | | $ | 0.09 | | | $ | 0.68 | | | $ | (0.36) | |
Weighted average common shares: | | | | | | | |
Basic | 37,120,926 | | | 36,875,784 | | | 37,047,653 | | | 36,701,927 | |
Diluted | 42,044,053 | | | 37,105,746 | | | 41,942,676 | | | 36,701,927 | |
Reconciliation of net income (loss) per common share:
| | | | | | | | | | | | | | | | | | | | | | | |
| Thirteen Weeks Ended | | Thirty-Nine Weeks Ended |
| September 23, 2022 | | September 24, 2021 | | September 23, 2022 | | September 24, 2021 |
Numerator: | | | | | | | |
Net income (loss) | $ | 8,277 | | | $ | 3,456 | | | $ | 26,577 | | | $ | (13,367) | |
Add effect of dilutive securities | | | | | | | |
Interest on convertible notes, net of tax | 683 | | | — | | | 2,048 | | | — | |
Net income (loss) available to common shareholders | $ | 8,960 | | | $ | 3,456 | | | $ | 28,625 | | | $ | (13,367) | |
Denominator: | | | | | | | |
Weighted average basic common shares outstanding | 37,120,926 | | | 36,875,784 | | | 37,047,653 | | | 36,701,927 | |
Dilutive effect of unvested common shares | 316,358 | | | 229,962 | | | 304,391 | | | — | |
Dilutive effect of stock options and warrants | 81,789 | | | — | | | 65,652 | | | — | |
Dilutive effect of convertible notes | 4,524,980 | | | — | | | 4,524,980 | | | — | |
Weighted average diluted common shares outstanding | 42,044,053 | | | 37,105,746 | | | 41,942,676 | | | 36,701,927 | |
Potentially dilutive securities that have been excluded from the calculation of diluted net income (loss) per common share because the effect is anti-dilutive are as follows:
| | | | | | | | | | | | | | | | | | | | | | | |
| Thirteen Weeks Ended | | Thirty-Nine Weeks Ended |
| September 23, 2022 | | September 24, 2021 | | September 23, 2022 | | September 24, 2021 |
Restricted share awards (“RSAs”) | 80,844 | | | 50,412 | | | 68,784 | | | 297,978 | |
Stock options and warrants | — | | | 126,359 | | | — | | | 122,956 | |
Convertible notes | 91,053 | | | 4,616,033 | | | 91,053 | | | 4,341,664 | |
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 $4,130 and $3,252 as of September 23, 2022 and December 24, 2021, respectively, and are reflected as other liabilities and deferred credits on the consolidated balance sheets. The remaining short-term earn-out liabilities are reflected as accrued liabilities on the consolidated balance sheets. The fair value of contingent consideration was determined based on a probability-based approach which includes projected results, percentage probability of occurrence and the application of a discount rate to present value the payments. A significant change in projected results, discount rate, or probabilities of occurrence could result in a significantly higher or lower fair value measurement. Changes in the fair value of contingent earn-out liabilities are reflected in other operating expenses (income), net on the consolidated statements of operations.
The following table presents the changes in Level 3 contingent earn-out liabilities:
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| | | | | | | | | | | Total |
| | | | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
Balance December 24, 2021 | | | | | | | | | | | $ | 6,877 | |
Acquisition value | | | | | | | | | | | 1,200 | |
| | | | | | | | | | | |
Cash payments | | | | | | | | | | | (2,538) | |
Changes in fair value | | | | | | | | | | | 8,358 | |
Balance September 23, 2022 | | | | | | | | | | | $ | 13,897 | |
Fair Value of Financial Instruments
The following table presents the carrying value and fair value of the Company’s convertible notes. In estimating the fair value of the convertible notes, the Company utilized Level 3 inputs including prevailing market interest rates to estimate the debt portion of the instrument and a Black Scholes valuation model to estimate the fair value of the conversion option. The Black Scholes model utilizes the market price of the Company’s common stock, estimates of the stock’s volatility and the prevailing risk-free interest rate in calculating the fair value estimate.
| | | | | | | | | | | | | | | | | | | | | | | |
| September 23, 2022 | | December 24, 2021 |
| Carrying Value | | Fair Value | | Carrying Value | | Fair Value |
Convertible Senior Notes | $ | 200,000 | | | $ | 204,340 | | | $ | 200,000 | | | $ | 206,182 | |
Convertible Unsecured Note | $ | 4,000 | | | $ | 4,221 | | | $ | 4,000 | | | $ | 4,102 | |
Note 5 – Acquisitions
Capital Seaboard
On December 28, 2021, pursuant to an asset purchase agreement, the Company acquired substantially all of the assets of CGC Holdings, Inc. (“Capital Seaboard”), a specialty seafood and produce distributor in Maryland. The purchase price was approximately $31,036, consisting of $28,000 paid in cash at closing, common stock warrants valued at $1,701, and $1,335 paid upon settlement of a net working capital true-up. The Company is in the process of finalizing a valuation of tangible and intangible assets of Capital Seaboard as of the acquisition date. When applicable, these valuations require the use of Level 3 inputs. Goodwill for the Capital Seaboard acquisition will be amortized over 15 years for tax purposes. The goodwill recorded primarily reflects the value of acquiring an established specialty seafood and produce distributor to leverage the Company’s existing products in the markets served by Capital Seaboard, to supply Capital Seaboard’s product offerings to our East Coast markets and any intangible assets that do not qualify for separate recognition.
Other Acquisitions
During the thirty-nine weeks ended September 23, 2022 , the Company completed three other acquisitions for an aggregate purchase price of approximately $32,500, paid in cash, subject to customary working capital adjustments. The Company will also pay additional contingent consideration, if earned, in the form of earn-out amounts which could total $2,000 in the aggregate. 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 $16,252 will be amortized over 15 years for tax purposes.
The Company reflected net sales and income before income taxes in its consolidated statement of operations related to the acquisitions follows:
| | | | | | | | | | | | | | | | | |
| Thirteen Weeks Ended | | Thirty-Nine Weeks Ended |
| September 23, 2022 | | | | September 23, 2022 | | |
Net sales | $ | 58,466 | | | | | $ | 135,260 | | | |
Income before income taxes | $ | 4,970 | | | | | $ | 8,892 | | | |
The table below presents unaudited pro forma consolidated income statement information of the Company as if the acquisitions had occurred on December 26, 2020. 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 values.
| | | | | | | | | | | | | | | | | | | | | | | |
| Thirteen Weeks Ended | | Thirty-Nine Weeks Ended |
| September 23, 2022 | | September 24, 2021 | | September 23, 2022 | | September 24, 2021 |
Net sales | $ | 698,650 | | | $ | 544,562 | | | $ | 1,871,994 | | | $ | 1,357,312 | |
Income (loss) before income taxes | $ | 11,699 | | | $ | 7,875 | | | $ | 37,152 | | | $ | (16,040) | |
The table below sets forth the preliminary purchase price allocation for these acquisitions:
| | | | | | | | | | |
| | | Capital Seaboard | Other Acquisitions |
Current assets | | | $ | 10,130 | | $ | 11,498 | |
Customer relationships | | | 7,250 | | 11,100 | |
Trademarks | | | 2,280 | | 1,000 | |
| | | | |
Goodwill | | | 8,334 | | 16,252 | |
Fixed assets | | | 9,552 | | 633 | |
Other assets | | | 122 | | 18 | |
| | | | |
| | | | |
| | | | |
| | | | |
| | | | |
Current liabilities | | | (6,632) | | (6,801) | |
Earn-out liability | | | — | | (1,200) | |
| | | | |
| | | | |
| | | | |
Total consideration | | | $ | 31,036 | | $ | 32,500 | |
The Company recognized professional fees of $728 and $1,747 in operating expenses related to acquisition related activities during the thirteen and thirty-nine weeks ended September 23, 2022, respectively.
Note 6 – Inventories
Inventories consist primarily of finished product and are reflected net of adjustments for shrinkage, excess and obsolescence totaling $9,616 and $8,312 at September 23, 2022 and December 24, 2021, respectively.
Note 7 – Property, Plant and Equipment
Equipment, leasehold improvements and software as of September 23, 2022 and December 24, 2021 consisted of the following:
| | | | | | | | | | | | | | | | | | | | |
| | | | |
| | Useful Lives | | September 23, 2022 | | December 24, 2021 |
Land | | Indefinite | | $ | 5,542 | | | $ | 5,020 | |
Buildings | | 20 years | | 23,552 | | | 18,406 | |
Machinery and equipment | | 5 - 10 years | | 30,845 | | | 28,099 | |
Computers, data processing and other equipment | | 3 - 7 years | | 16,986 | | | 15,480 | |
Software | | 3 - 7 years | | 42,399 | | | 39,799 | |
Leasehold improvements | | 1 - 40 years | | 92,517 | | | 69,105 | |
Furniture and fixtures | | 7 years | | 3,671 | | | 3,582 | |
Vehicles | | 5 - 10 years | | 28,395 | | | 29,632 | |
| | | | | | |
Construction-in-process | | | | 27,870 | | | 24,355 | |
| | | | 271,777 | | | 233,478 | |
Less: accumulated depreciation and amortization | | | | (113,208) | | | (99,856) | |
Equipment, leasehold improvements and software, net | | | | $ | 158,569 | | | $ | 133,622 | |
Construction-in-process at September 23, 2022 related primarily to the implementation of the Company’s Enterprise Resource Planning (“ERP”) system and the build-out of the Company’s Miami distribution facility and at December 24, 2021 related primarily to the build-outs of the Company’s Miami and Los Angeles distribution facilities. The net book value of equipment financed under finance leases at September 23, 2022 and December 24, 2021 was $9,302 and $10,874, respectively.
The components of depreciation and amortization expense were as follows:
| | | | | | | | | | | | | | | | | | | | | | | |
| Thirteen Weeks Ended | | Thirty-Nine Weeks Ended |
| September 23, 2022 | | September 24, 2021 | | September 23, 2022 | | September 24, 2021 |
Depreciation expense | $ | 4,455 | | | $ | 3,903 | | | $ | 13,255 | | | $ | 11,679 | |
Software amortization | $ | 1,457 | | | $ | 1,707 | | | $ | 4,412 | | | $ | 4,591 | |
| $ | 5,912 | | | $ | 5,610 | | | $ | 17,667 | | | $ | 16,270 | |
Note 8 – Goodwill and Other Intangible Assets
The changes in the carrying amount of goodwill are presented as follows:
| | | | | |
| |
| |
| |
| |
Carrying amount as of December 24, 2021 | $ | 221,775 | |
Goodwill adjustments (1) | (792) | |
Acquisitions | 24,586 | |
Foreign currency translation | (141) | |
Carrying amount as of September 23, 2022 | $ | 245,428 | |
(1) The goodwill adjustments represent measurement period adjustments related to certain acquisitions completed in the prior year.
Other intangible assets as of September 23, 2022 and December 24, 2021 consisted of the following:
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September 23, 2022 | | Weighted-Average Remaining Amortization Period | | Gross Carrying Amount | | Accumulated Amortization | | Net Amount |
Customer relationships | | 120 months | | $ | 174,105 | | | $ | (82,688) | | | $ | 91,417 | |
Non-compete agreements | | 17 months | | 8,579 | | | (8,218) | | | 361 | |
Trademarks | | 144 months | | 39,745 | | | (15,411) | | | 24,334 | |
Total | | | | $ | 222,429 | | | $ | (106,317) | | | $ | 116,112 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | |
December 24, 2021 | | Weighted-Average Remaining Amortization Period | | Gross Carrying Amount | | Accumulated Amortization | | Net Amount |
Customer relationships | | 120 months | | $ | 155,678 | | | $ | (74,644) | | | $ | 81,034 | |
Non-compete agreements | | 26 months | | 8,579 | | | (8,018) | | | 561 | |
Trademarks | | 179 months | | 36,514 | | | (13,366) | | | 23,148 | |
Total | | | | $ | 200,771 | | | $ | (96,028) | | | $ | 104,743 | |
Amortization expense for other intangibles was $3,470 and $3,135 for the thirteen weeks ended September 23, 2022 and September 24, 2021, respectively, and $10,289 and $9,778 for the thirty-nine weeks ended September 23, 2022 and September 24, 2021, respectively.
Estimated amortization expense for other intangible assets for the remainder of the fiscal year ending December 30, 2022 and each of the next four fiscal years and thereafter is as follows:
| | | | | |
2022 | $ | 3,274 | |
2023 | 12,796 | |
2024 | 11,943 | |
2025 | 11,529 | |
2026 | 11,529 | |
Thereafter | 65,041 | |
Total | $ | 116,112 | |
Note 9 – Debt Obligations
Debt obligations as of September 23, 2022 and December 24, 2021 consisted of the following:
| | | | | | | | | | | | | | |
| | September 23, 2022 | | December 24, 2021 |
Senior secured term loans | | $ | 300,000 | | | $ | 168,675 | |
Convertible senior notes | | 200,000 | | | 200,000 | |
Asset-based loan facility | | — | | | 20,000 | |
Finance lease and other financing obligations | | 9,732 | | | 11,602 | |
Convertible unsecured note | | 4,000 | | | 4,000 | |
| | | | |
| | | | |
Deferred finance fees and original issue premium (discount) | | (14,517) | | | (4,976) | |
Total debt obligations | | 499,215 | | | 399,301 | |
Less: current installments | | (6,067) | | | (5,141) | |
Total debt obligations excluding current installments | | $ | 493,148 | | | $ | 394,160 | |
On August 23, 2022, the Company entered into an eighth amendment (“Eight Amendment”) to its senior secured term loan credit agreement (“Term Credit Agreement”). The Company borrowed $300,000 maturing on August 23, 2029 (“2029 Term Loans”), comprising of a refinancing of the then existing term loans balance under the Term Credit Agreement of $167,391 and an incremental borrowing of $132,609. The incremental funds are to be used for capital expenditures, permitted acquisitions, working capital, and general corporate purposes of the Company. Additionally, the Term Credit Agreement includes an accordion which permits the Company to request that the lenders extend additional Term Loans based on certain performance, leverage ratio and other restrictions. The Eight Amendment includes a springing maturity of June 22, 2024 if, by June 22, 2024, more than $40,000 in principal remains outstanding on the Company’s Convertible Senior Notes has not been repaid, repurchased, redeemed or refinanced with permitted indebtedness having a maturity date not earlier than six months after August 23, 2029.
The interest charged on the 2029 Term Loans is equal to, at the Company’s option, either the Alternate Base Rate (as defined in the Eight Amendment) plus 375 basis points or the secured overnight financing rate (“SOFR”) for one, two, three or six-month interest periods chosen by the Company plus 475 basis points. The interest rate on the 2029 Term Loans at September 23, 2022 was 7.9%.
The Eight Amendment involved multiple members of a loan syndicate. The Company performed an analysis for each lender in accordance with ASC 470 “Debt” to determine whether the Eighth Amendment resulted in a substantial change to the remaining cash flows which is defined as a change in present value of remaining cash flows of 10% or more. As a result of the analysis, the Company incurred a loss on debt extinguishment of $142 which represents the portion of unamortized deferred financing fees attributable to lenders that exited the loan syndicate. The transaction was accounted for as a modification for existing lenders that participated in the 2029 Term Loans. The Company deferred lender and third-party fees of $10,852 as debt issuance costs, presented in other assets in the Company’s consolidated balance sheet, to be amortized over the term of the term loan. Arrangement and third-party transaction costs of $4,498 were expensed as incurred.
The Eight Amendment removed the minimum liquidity covenant which required the Company to maintain at least $35,000 of liquidity as of the last day of any fiscal quarter where EBITDA, as defined in the Term Credit Agreement, was less than $10,000.
The following table summarizes the key terms as of the Term Loans as of September 23, 2022:
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Term Loans | | Principal Outstanding | | Interest Rate | | Maturity Date | | Scheduled Principal Payments |
| | | | | | | | |
2029 Term Loans | | $ | 300,000 | | | SOFR + 4.75% | | August 23, 2029 | | 0.25% per quarter |
On March 11, 2022, the Company entered into a third amendment to its asset-based loan facility (“ABL Facility”) which increased the aggregate commitments from $150,000 to $200,000. The interest rate charged on borrowings under the ABL Facility is equal to a spread plus, at the Company’s option, either the Base Rate (as defined in the ABL Credit Agreement) or a forward-looking term rate based on the secured overnight financing rate term (except for swingline loans) for one-, three-, or six-month interest periods chosen by the Company. The ABL Facility matures on March 11, 2027 subject to a springing maturity date that occurs 90 days prior to the earliest maturity date under the Company’s senior secured term loan facility or
March 24, 2024 if the Company’s 1.875% Convertible Senior Notes due 2024 in an aggregate principal amount in excess of $40,000 remain outstanding that have not been repaid, repurchased, redeemed or refinanced having a maturity date not earlier than six months after March 11, 2027.
The ABL Credit Agreement contains customary affirmative covenants, negative covenants and events of default as more particularly described in the ABL Credit Agreement. The Company is required to comply with a minimum consolidated fixed charge coverage ratio of 1:1 if the amount of availability under the ABL Facility falls below the greater of $14,000 and 10%, of the lesser of the aggregate commitments and the borrowing base then in effect.
The third amendment was accounted for as a debt modification. The Company incurred transaction costs of $406 which were capitalized as deferred financing fees, presented in other assets on the Company’s consolidated balance sheets, to be amortized over the term of the ABL Facility.
On September 23, 2022, the Company fully paid all borrowings outstanding under the ABL and had reserved $23,181 of the ABL Facility for the issuance of letters of credit. As of September 23, 2022, funds totaling $176,820 were available for borrowing under the ABL Facility.
The net carry value of the Company’s Convertible Senior Notes as of September 23, 2022 and December 24, 2021 was:
| | | | | | | | | | | | | | |
| | September 23, 2022 | | December 24, 2021 |
Principal amount outstanding | | $ | 200,000 | | | $ | 200,000 | |
Unamortized deferred financing fees and premium | | (2,014) | | | (2,686) | |
Net carry value | | $ | 197,986 | | | $ | 197,314 | |
The components of interest expense on the Company’s Convertible Senior Notes were as follows:
| | | | | | | | | | | | | | | | | | | | | | | |
| Thirteen Weeks Ended | | Thirty-Nine Weeks Ended |
| September 23, 2022 | | September 24, 2021 | | September 23, 2022 | | September 24, 2021 |
Coupon interest | $ | 938 | | | $ | 938 | | | $ | 2,813 | | | $ | 2,656 | |
Amortization of deferred financing fees and premium | $ | 224 | | | $ | 224 | | | $ | 672 | | | $ | 689 | |
Total interest | $ | 1,162 | | | $ | 1,162 | | | $ | 3,485 | | | $ | 3,345 | |
Note 10 – Stockholders’ Equity
Equity Awards
The following table reflects the activity of RSAs during the thirty-nine weeks ended September 23, 2022:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | 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 24, 2021 | | 617,996 | | | $ | 28.33 | | | 187,437 | | | $ | 32.04 | | | 185,129 | | | $ | 31.44 | |
Granted | | 183,244 | | | 33.60 | | | 167,261 | | | 32.44 | | | 167,261 | | | 29.12 | |
Vested | | (315,722) | | | 26.43 | | | — | | | — | | | — | | | — | |
Forfeited | | (15,691) | | | 29.83 | | | (21,420) | | | 32.14 | | | (21,423) | | | 30.82 | |
Unvested at September 23, 2022 | | 469,827 | | | $ | 31.61 | | | 333,278 | | | $ | 32.23 | | | 330,967 | | | $ | 30.31 | |
The Company granted 517,766 RSAs to its employees at a weighted average grant date fair value of $31.41 during the thirty-nine weeks ended September 23, 2022. These awards are a mix of time-, market- and performance-based grants that generally vest over a range of periods up to four years. The Company recognized expense totaling $3,099 and $2,710 on its RSAs during the thirteen weeks ended September 23, 2022 and September 24, 2021, respectively and $9,081 and $8,448 during the thirty-nine weeks ended September 23, 2022 and September 24, 2021, respectively.
At September 23, 2022, the total unrecognized compensation cost for unvested RSAs was $21,353 and the weighted-average remaining period was approximately 2.1 years. Of this total, $11,051 related to RSAs with time-based vesting provisions and $10,302 related to RSAs with performance- and market-based vesting provisions. At September 23, 2022, the weighted-average remaining period for time-based vesting and performance-based vesting RSAs were approximately 2.2 years and 2.0 years, respectively.
No share-based compensation expense related to the Company’s RSAs or stock options has been capitalized. As of September 23, 2022, there were 2,053,840 shares available for grant under the 2019 Omnibus Equity Incentive Plan.
The following table summarizes stock option activity during the thirty-nine weeks ended September 23, 2022:
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| | Shares | | Weighted Average Exercise Price | | Aggregate Intrinsic Value | | Weighted Average Remaining Contractual Term (in years) |
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Outstanding December 24, 2021 | | 115,639 | | | $ | 20.23 | | | $ | 2,051 | | | 6.2 |
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Exercised | | (3,407) | | | 20.23 | | | | | |
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Outstanding September 23, 2022 | | 112,232 | | | $ | 20.23 | | | $ | 1,127 | | | 3.5 |
Exercisable at September 23, 2022 | | 112,232 | | | 20.23 | | | $ | 1,127 | | | 3.5 |
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 one of its directors, and are deemed to be affiliates of these individuals. Expense related to this facility totaled $123 during the thirteen weeks ended September 23, 2022 and September 24, 2021, and $369 during the thirty-nine weeks ended September 23, 2022 and September 24, 2021.
Note 12 – Income Taxes
The Company’s effective tax rate was 27.0% and 44.7% thirteen weeks ended September 23, 2022 and September 24, 2021 and 27.0% and 27.3% for the thirty-nine weeks ended September 23, 2022 and September 24, 2021. The effective tax rate varies from the 21% statutory rate primarily due to state taxes. The high effective tax rate for the thirteen weeks ended September 24, 2021 was driven by various discrete items.
As a result of the Coronavirus Aid, Relief, and Economic Security Act (“Cares Act”), the Company had carried back federal net operating losses resulting in a federal income tax refund receivable of $21,250, which is classified within prepaid expenses and other current assets on the Company’s consolidated balance sheets as of September 23, 2022 and December 24, 2021. The IRS is experiencing significant processing delays driven by an increase in net operating loss carryback requests as a result of the CARES Act, along with other factors. As a result, the processing and expected receipt of the federal income tax refund receivable has been significantly delayed. The Company is currently working with IRS Taxpayer’s Advocate Services and consultants to resolve the processing issue. While progress has been made with the IRS and the Company expects to receive the refund within one year, the exact timing of the receipt is difficult to predict.
Note 13 – Supplemental Disclosures of Cash Flow Information
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| Thirty-Nine Weeks Ended |
| September 23, 2022 | | September 24, 2021 |
Supplemental cash flow disclosures: | | | |
Cash paid (received) for income taxes | $ | 3,483 | | | $ | (194) | |
Cash paid for interest, net of cash received | $ | 17,636 | | | $ | 10,690 | |
Cash paid for amounts included in the measurement of lease liabilities: | | | |
Operating cash flows from operating leases | $ | 20,835 | | | $ | 18,965 | |
Operating cash flows from finance leases | $ | 325 | | | $ | 422 | |
ROU assets obtained in exchange for lease liabilities: | | | |
Operating leases | $ | 21,779 | | | $ | 13,308 | |
Finance leases | $ | 791 | | | $ | 536 | |
Other non-cash investing and financing activities: | | | |
Warrants issued for acquisitions | $ | 1,701 | | | $ | 1,120 | |
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Contingent earn-out liabilities for acquisitions | $ | 1,200 | | | $ | 3,400 | |