Chefs' Warehouse, Inc ARS, filed Mar 27, 2024
Chefs' Warehouse, Inc. (CHEF)
ARS
2024-03-27
For: 2023-12-29
View Original
Added on
October 19, 2026
Dear Stockholders,
During 2023, we made significant progress towards achieving our medium and long-term strategic and financial goals. Our total revenue for fiscal 2023 increased approximately 31% to approximately $3.4 billion from approximately $2.6 billion in fiscal 2022 and we reported approximately $193 million of adjusted EBITDA for fiscal year 2023. During 2023, we continued to invest in distribution capacity expansion, including the completion of our new state-of-the-art distribution center in Opa-Locka Florida, and made progress on additional expansion in Northern California, the Pacific Northwest, and the Middle East. Additionally, during 2023, we added key acquisitions in high growth markets including Texas and Northern California.
For 2024 and beyond, we expect to leverage our investments in expanding infrastructure to drive industry leading organic growth, further integrate recent acquisitions while strengthening the balance sheet, focusing on free cash flow generation, and delivering our 2-year capital allocation plan.
As we grow, we will continue to enhance our business model as a family of Brands and Companies – representing and partnering with artisan food producers globally, and laser focused on continuing to execute our unmatched hybrid sell and service model. As we enter this next phase of our growth, we expect Chefs’ Warehouse to remain rooted in our DNA as the leading Specialty Food Marketer and Distributor to the up-scale casual and higher-en
dining establishments in the markets we serve.
Christopher Pappas
Chairman & Chief Executive Officer
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
☒ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 29, 2023
or
☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ____________ to ____________
Commission file number: 001-35249
THE CHEFS’ WAREHOUSE, INC.
(Exact name of registrant as specified in its charter)
| Delaware | 20-3031526 | |||||||
| (State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification No.) | |||||||
100 East Ridge Road
Ridgefield, Connecticut, 06877
(Address of principal executive offices)
Registrant’s telephone number, including area code: (203) 894-1345
Securities registered pursuant to Section 12(b) of the Act:
| Title of each class | Trading Symbol(s) | Name of each exchange on which registered | ||||||
| Common Stock, par value $0.01 | CHEF | The NASDAQ Stock Market LLC | ||||||
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ☒ No ☐
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Exchange Act. Yes ☐ No ☒
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
| Large accelerated filer | ☒ | Accelerated filer | ☐ | |||||||||||
| Non-accelerated filer | ☐ | Smaller reporting company | ☐ | |||||||||||
| Emerging growth company | ☐ | |||||||||||||
If an emerging growth company, indicate by check mark if registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant has filed a report on and attestation to its management's assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report.Yes ☒ No ☐
If securities are registered pursuant to Section 12(b) of the Act, indicate by check mark whether the financial statements of the registrant included in the filing reflect
the correction of an error to previously issued financial statements. Yes ☐ No ☒
Indicate by check mark whether any of those error corrections are restatements that required a recovery analysis of incentive-based compensation received by any of
the registrant’s executive officers during the relevant recovery period pursuant to Yes ☐ No ☒
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒
The aggregate market value of the registrant’s common stock held by non-affiliates computed by reference to the price at which the common equity was last sold as of the last business day of the registrant’s most recently completed second quarter (June 30, 2023): $1,041,670,956
Indicate the number of shares outstanding of each of the registrant’s classes of common stock, as of the latest practicable date.
| Class | Outstanding at February 12, 2024 | |||||||
| Common Stock, $.01 par value per share | 39,673,787 shares | |||||||
DOCUMENTS INCORPORATED BY REFERENCE
| Document | Parts Into Which Incorporated | |||||||
| Proxy Statement for the Annual Meeting of Stockholders expected to be held on May 10, 2024 (“Proxy Statement”) | Part III | |||||||
Total number of pages: 83
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THE CHEFS’ WAREHOUSE, INC.
INDEX
| Description | Page Number | |||||||||||||
| Part I | ||||||||||||||
| Part II | ||||||||||||||
| Part III | ||||||||||||||
| Part IV | ||||||||||||||
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CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS
This Annual Report on Form 10-K of The Chefs’ Warehouse, Inc. contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. Forward-looking statements provide our current expectations or forecasts of future events and are not statements of historical fact. These forward-looking statements include information about possible or assumed future events, including, among other things, discussion and analysis of our future financial condition, results of operations, our strategic plans and objectives, cost management, liquidity and ability to refinance our indebtedness as it matures, anticipated capital expenditures (and access to capital) required to complete projects, amounts of cash distributions to our stockholders in the future, if any, and other matters. Words such as “anticipates,” “expects,” “predicts,” “contemplates,” “projects,” “forecasts,’ “intends,” “plans,” “believes,” “seeks,” “estimates,” “could,” “should,” “will,” “may,” “would” and variations of these words and similar expressions are intended to identify forward-looking statements. These statements are not guarantees of future performance and are subject to risks, uncertainties and other factors, some of which are beyond our control, are difficult to predict and/or could cause actual results to differ materially from those expressed or forecasted in the forward-looking statements.
Forward-looking statements involve inherent uncertainty and may ultimately prove to be incorrect or false. Investors in our common stock are cautioned not to place undue reliance on forward-looking statements. Except as otherwise may be required by law, we undertake no obligation to update or revise forward-looking statements to reflect changed assumptions, the occurrence of unanticipated events or actual operating results. Our actual results could differ materially from those anticipated in these forward-looking statements as a result of various factors, including, but not limited to, the following:
•our success depends to a significant extent upon general economic conditions, including disposable income levels and changes in consumer discretionary spending;
•the relatively low margins of our business, which are sensitive to inflationary and deflationary pressures and intense competition;
•the effects of rising costs for and/or decreases in supply of commodities, ingredients, packaging, other raw materials, distribution and labor;
•crude oil prices and their impact on distribution, packaging and energy costs;
•our continued ability to promote our brand successfully, to anticipate and respond to new customer demands, and to develop new products and markets to compete effectively;
•our ability and the ability of our supply chain partners to continue to operate distribution centers and other work locations without material disruption, and to procure ingredients, packaging and other raw materials when needed despite disruptions in the supply chain or labor shortages;
•risks associated with the expansion of our business;
•our possible inability to identify new acquisitions or to integrate recent or future acquisitions, or our failure to realize anticipated revenue enhancements, cost savings or other synergies from recent or future acquisitions;
•other factors that affect the food industry generally, including:
◦recalls if products become adulterated or misbranded, liability if product consumption causes injury, ingredient disclosure and labeling laws and regulations and the possibility that customers could lose confidence in the safety and quality of certain food products;
◦new information or attitudes regarding diet and health or adverse opinions about the health effects of the products we distribute;
◦changes in disposable income levels and consumer purchasing habits;
◦competitors’ pricing practices and promotional spending levels;
◦fluctuations in the level of our customers’ inventories and credit and other related business risks; and
◦the risks associated with third-party suppliers, including the risk that any failure by one or more of our third-party suppliers to comply with food safety or other laws and regulations may disrupt our supply of raw materials or certain products or injure our reputation;
•our ability to recruit and retain senior management and a highly skilled and diverse workforce;
•unanticipated expenses, including, without limitation, litigation or legal settlement expenses;
•the cost and adequacy of our insurance policies;
•the impact and effects of public health crises, pandemics and epidemics, such as the outbreak of COVID-19, and the adverse impact thereof on our business, financial condition, and results of operations;
•significant governmental regulation and any potential failure to comply with such regulations;
•federal, state, provincial and local tax rules in the United States and the foreign countries in which we operate, including tax reform and legislation;
•risks relating to our substantial indebtedness;
•our ability to raise additional capital and/or obtain debt or other financing, on commercially reasonable terms or at all;
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•our ability to meet future cash requirements, including the ability to access financial markets effectively and maintain sufficient liquidity;
•the effects of currency movements in the jurisdictions in which we operate as compared to the U.S. dollar;
•the effects of international trade disputes, tariffs, quotas and other import or export restrictions on our international procurement, sales and operations;
•other factors discussed elsewhere in this report, including Part I, Item 1A of this Form-10K and in our other public filings with the SEC.
This list of risks and uncertainties, however, is only a summary of some of the most important factors and is not intended to be exhaustive.
Unless this Form 10-K indicates otherwise or the context otherwise requires, the terms “The Chefs’ Warehouse,” “we,” “our,” “our Company,” “the Company” or “us” as used in this Form 10-K refer to The Chefs’ Warehouse, Inc. and its subsidiaries.
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Item 1. BUSINESS
We are a premier distributor of specialty food and center-of-the-plate products in the United States, the Middle East, and Canada. We are focused on serving the specific needs of chefs who own and/or operate some of the leading menu-driven independent restaurants, fine dining establishments, country clubs, hotels, caterers, culinary schools, bakeries, patisseries, chocolateries, cruise lines, casinos and specialty food stores in the United States, the Middle East, and Canada (collectively, our “Core Customers”). We believe that we have a distinct competitive advantage in serving these customers as a result of our extensive selection of distinctive and hard-to-find specialty and center-of-the-plate food products, our product knowledge and our customer service.
We define specialty food products as gourmet foods and ingredients that are of the highest grade, quality or style as measured by their uniqueness, exotic origin or particular processing method. Our product portfolio includes over 70,000 stock-keeping units (“SKUs”) from more than 3,000 different suppliers and is comprised primarily of imported and domestic specialty food products, such as artisan charcuterie, specialty cheeses, unique oils and vinegars, truffles, caviar, chocolate and pastry products. We also offer an extensive line of center-of-the-plate products, including custom cut beef, seafood and hormone-free poultry, as well as produce and broadline food products, such as cooking oils, butter, eggs, milk and flour. When marketing our products to our customers, we focus our efforts on chefs, and we believe that, by offering a wide selection of both distinctive and hard-to-find products, together with center-of-the-plate proteins and staple broadline food products, we are able to differentiate ourselves from larger, traditional broadline foodservice distributors, while simultaneously enabling our customers to utilize us as their primary foodservice distributor. Additionally, we market certain of our center-of-the-plate products directly to consumers through our Allen Brothers, Inc. (“Allen Brothers”) mail and e-commerce platform.
Since our formation in 1985, we have expanded our distribution network, product selection and customer base both organically and through acquisitions. Our net revenues have increased from approximately $1.6 billion for the fiscal year ended December 27, 2019 to $3.4 billion for the fiscal year ended December 29, 2023. Our historical sales growth and our ability to manage through the material adverse impacts of the Covid-19 Pandemic (“Pandemic”) on our business are the result of an increase in the breadth and depth of our product portfolio, our commitment to customer service, the efforts of our experienced and sophisticated sales professionals, the increased use of technology in the operations and management of our business and our ongoing consolidation of the fragmented specialty foodservice distribution industry. Since December 27, 2019, we have completed nineteen acquisitions which have increased our penetration in existing markets, expanded our footprint into new markets and/or enhanced our product capabilities. The up-front cash purchase prices for these nineteen acquisitions resulted in aggregate up-front cash consideration of more than $387.2 million, which we funded with cash generated from our operations, borrowings under our then existing credit facilities and proceeds of our common stock offerings.
Excluding our direct-to-consumer businesses, we currently serve more than 44,000 core customer locations in our twenty-three primary geographic markets across the United States, the Middle East, and Canada. We maintain collaborative relationships with thousands of chefs while also acting as a critical marketing arm and route-to-market for many of our suppliers by leveraging an experienced and sophisticated sales force of approximately 960 sales and customer service professionals. We operate 52 distribution centers and provide service six days a week in many of our service areas, utilizing our fleet of delivery trucks to fill our customers’ orders.
Competitive Strengths
We believe that, during our over 35-year history, we have achieved, developed and/or refined the following strengths which provide us with a distinct competitive position in the foodservice distribution industry and also the opportunity to achieve superior margins relative to most large broadline foodservice distributors:
Leading Distributor of Specialty Food Products in Many of the Key Culinary Markets. Based on our management’s industry knowledge and experience, we believe we are the largest distributor of specialty food products, as measured by net sales, in the New York, Washington, D.C., San Francisco and Los Angeles metropolitan markets. We believe these markets, along with a number of other markets we serve, including Las Vegas, Miami, New England, Portland, Columbus, Cincinnati, Chicago, Vancouver, Edmonton, Toronto, Seattle, Sacramento, Texas, Dubai, Abu Dhabi, and Qatar create and set the culinary trends for the rest of the United States, the Middle East, and Canada and provide us with valuable insight into the latest culinary and menu practices. Furthermore, we believe our established relationships with many of the top chefs, culinary schools and dining establishments in these key culinary markets have benefited us when we entered into new markets where we believe that chefs at our potential customers were generally knowledgeable of our brand and commitment to quality and excellence from their experience working in other markets which we serve or through their personal relationships throughout the culinary industry.
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Expansive Product Offering. We offer an extensive portfolio of high-quality specialty food products, ranging from basic ingredients and staples, such as milk and flour, to custom-cut steaks, seafood, produce and pastries, as well as delicacies and specialty ingredients sourced from North America, Europe, Asia, Australia, and South America, which we believe helps our customers distinguish their menu offerings. We carry more than 70,000 SKUs and we constantly evaluate our portfolio and introduce new products to address regional trends and preferences and ensure that we are on the leading edge of broader culinary trends. Through our importing division, we provide our customers with access to a portfolio of exclusive items, including regional olive oils, truffles and charcuterie from Italy, Spain, France and other Mediterranean countries. In addition, and as evidence of our commitment to aid our customers in creating unique and innovative menu items, we regularly utilize our sourcing relationships and industry insights to procure additional products that we do not regularly carry but that our customers specifically request. We believe that the breadth and depth of our product portfolio facilitates our customers’ ability to distinguish and enhance their menu offerings and differentiates us from larger traditional broadline foodservice distributors.
Critical Route-to-Market for Specialty Food Suppliers. We currently distribute products from more than 3,000 different suppliers. Our suppliers are located throughout North America, Europe, Asia, Australia, and South America and include numerous small, family-owned entities and artisanal food producers. We are the largest customer for many of our suppliers. As a result, our experienced and sophisticated sales professionals, customer relationships and distribution platform are important to these suppliers’ route-to-market, which enables us to offer a wide range of products on an exclusive basis.
Expanding Base of Premier Customer Relationships. Our breadth and depth of product offerings coupled with our highly regarded customer service has allowed us to develop and retain a loyal customer base that is comprised of chefs who own or work at more than 44,000 of the nation’s leading menu-driven independent restaurants, fine dining establishments, country clubs, hotels, caterers, culinary schools, bakeries, patisseries, chocolateries, cruise lines, casinos and specialty food stores. Our focus on product selection, product knowledge and customer service has rewarded us with a number of long-term customer relationships, which often begin when chefs are introduced to us while attending the nation’s leading culinary schools. Based on our management’s industry experience and our relationships and dealings with our customers, we believe we are the primary distributor of specialty food products to the majority of our Core Customers.
Collaborative Professional and Educational Relationships with our Customers. We employ a sophisticated and experienced sales force of approximately 960 sales and customer service professionals, a significant number of whom have formal culinary training, degrees in the culinary arts or prior experience working in the culinary industry. Equipped with advanced culinary and industry knowledge, our sales professionals seek to establish a rapport with our customers’ chefs, so that they can more fully understand and anticipate the needs of and offer cost-effective food product solutions to the chefs who own or operate these businesses. We believe that the specialized knowledge base of our sales professionals enables us to take a more collaborative and educational approach to selling our gourmet foods and ingredients and to further differentiate ourselves from our traditional broadline competitors.
Expertise in Logistics and Distribution. We have built a first-class, scalable inventory management and logistics platform that enables us to efficiently fill our customers’ orders and to profitably meet our customers’ needs for varying drop sizes, high service levels and timely delivery. With 52 distribution centers located throughout the United States, Middle East and Canada, we are able to leverage our geographic footprint and reduce our inbound freight costs. This scale enables us to maintain a portfolio of more than 70,000 SKUs, and through the operation of our sophisticated information technology, inventory management and logistics systems, we believe we provide our customers with some of the highest levels of customer service and responsiveness in our industry.
Experienced and Proven Management Team. Our senior management team has demonstrated the ability to grow the business through various economic environments. With collective experience of more than 90 years at The Chefs’ Warehouse and other foodservice distribution companies, our founders and senior management are experienced operators and are passionate about our future. Our senior management team is comprised of our founders, as well as experienced professionals with expertise in the foodservice distribution industry and in a wide range of functional areas, including finance and accounting, sales and marketing, operations, information technology, legal and human resources.
Our Growth Strategies
We believe substantial organic growth opportunities exist in our current markets through increased penetration of our existing customers and the addition of new customers, and we have identified new markets that we believe also present opportunities for future expansion. Key elements of our growth strategy include the following:
Increase Penetration with Existing Customers. We intend to sell more products to our existing customers by increasing the breadth and depth of our product selection and increasing the efficiency of our sales professionals, while at the same time
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continuing to provide excellent customer service. We are a data-driven and goal-oriented organization, and our management and sales professionals are highly focused on our weekly sales and gross profit contribution from each of our Core Customers and increasing the number of unique products we distribute to such customers. We believe our acquisition activity reflects this focus, as we have sought to complement our existing product offerings and enhance our product capabilities through the acquisition of wholesale specialty food and produce distributors and high quality center-of-the-plate protein suppliers, manufacturers and distributors.
Expand our Customer Base Within our Existing Markets. We serve more than 44,000 Core Customer locations, excluding our direct-to-consumer business, in the United States, Middle East, and Canada. We plan to expand our market share in the fragmented specialty food distribution industry by cultivating new customer relationships within our existing markets through the continued penetration of menu-driven independent restaurants, fine dining establishments, country clubs, hotels, caterers, culinary schools, bakeries, patisseries, chocolateries, cruise lines, casinos and specialty food stores. We believe we have the opportunity to continue to gain market share in our existing markets by offering an extensive selection of specialty food products, as well as center-of-the-plate proteins, produce and traditional broadline staple food products through our unique, collaborative and educational sales efforts and efficient, scalable distribution solution.
Improve our Operating Margins. As we continue to grow, we believe that the investments we are making in our facilities and information technology platforms, along with improved efficiencies that we are working to achieve in our general and administrative functions, should yield both improved customer service and increased profitability. Utilizing our fleet of delivery trucks, we usually fill customer orders within 12-24 hours of order placement. We intend to continue to offer our customers this high level of customer service, while maintaining our focus on realizing efficiencies and economies of scale in purchasing, warehousing, distribution and general and administrative functions which, when combined with incremental fixed-cost leverage, we believe will lead to continued improvements in our operating margin over time.
Pursue Selective Acquisitions. Throughout our over 35-year history, we have successfully identified, consummated and integrated multiple strategic acquisitions, which were designed to increase our penetration in existing markets, expand our footprint into new markets and/or enhance our product capabilities. We believe that, over time, we will be able to improve the operations and overall profitability of each acquired company by leveraging our sourcing relationships to provide an expanded product portfolio, implementing our tested sales force training techniques and metrics and installing improved warehouse management and information systems. We believe we have the opportunity to capitalize on our existing infrastructure and expertise by continuing to selectively pursue opportunistic acquisitions in order to expand the breadth of our distribution network, increase our operating efficiency and add additional products and capabilities. Since our initial public offering (“IPO”), we have completed thirty-six acquisitions, which have increased our penetration in existing markets, expanded our footprint into new markets and enhanced our product capabilities.
Our Markets and the Customers that We Serve
We distribute our specialty food products to over 44,000 distinct Core Customer locations from distribution centers located in our primary markets, which include New York, Washington, D.C., Los Angeles, San Francisco, New England, Las Vegas, Miami, Portland, Columbus, Cincinnati, Chicago, Vancouver, Edmonton, Toronto, Seattle, Sacramento, Philadelphia, Texas, Denver, Dubai, Abu Dhabi, Oman and Qatar. We believe that many of these markets set the culinary trends for the rest of the United States, Middle East and Canada and provide us with valuable insight into the latest culinary and menu trends. We have established collaborative professional and educational relationships with some of the United States’ and Canada’s most demanding chefs, which allows us to anticipate the needs of, and offer cost-effective food product solutions to, our customers while allowing our customers to locate ingredients that will enable them to create unique and differentiated menu items. Our target customers include menu-driven independent restaurants, fine dining establishments, country clubs, hotels, caterers, culinary schools, bakeries, patisseries, chocolateries, cruise lines, casinos and specialty food stores. We have no meaningful customer concentration as our top ten customers accounted for less than 6.1% of total net sales for our 2023 fiscal year. Our Allen Brothers subsidiary markets certain of our center-of-the-plate proteins directly to consumers through a mail and e-commerce platform.
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Set forth below is a breakdown of the primary geographic markets we serve and the year we entered each market:
| Market Name | Geographies Served | Year Entered | ||||||||||||
| New York | New York to Atlantic City | 1985 | ||||||||||||
| Washington, D.C. | Baltimore to Richmond | 1999 | ||||||||||||
| Los Angeles | Santa Barbara to San Diego and Phoenix | 2005 | ||||||||||||
| San Francisco | Napa Valley to Monterey Bay | 2005 | ||||||||||||
| Las Vegas | Las Vegas | 2005 | ||||||||||||
| Miami | Orlando to Miami | 2010 | ||||||||||||
| Portland | Portland | 2011 | ||||||||||||
| Columbus | Midwest | 2012 | ||||||||||||
| Cincinnati | Dayton to Lexington | 2013 | ||||||||||||
| Chicago | Chicago | 2013 | ||||||||||||
| Vancouver | Vancouver and Western Canada | 2013 | ||||||||||||
| Edmonton | Edmonton and Calgary | 2013 | ||||||||||||
| Toronto | Toronto | 2013 | ||||||||||||
| Seattle | Seattle | 2013 | ||||||||||||
| Sacramento | Sacramento | 2015 | ||||||||||||
| Philadelphia | Philadelphia | 2018 | ||||||||||||
| Texas | Texas | 2018 | ||||||||||||
| New England | New England | 2020 | ||||||||||||
| Denver | Denver | 2021 | ||||||||||||
| Middle East | Dubai, Abu Dhabi, Qatar, and Oman | 2022 | ||||||||||||
We extend credit to virtually all of our Core Customers on varying terms. Most of our customers have payment terms from 14 to 60 days. We complete a formal credit assessment of all significant new Core Customers, and our Credit and Collections Department regularly evaluates credit terms for each such customer based upon several factors, including order frequency, average order size, the types of products purchased and the length of the relationship. We believe that we are skilled at managing customer credit.
Our Gourmet Food Products
We strive to be the primary food source solution for our customers, and, to this end, we offer our customers a comprehensive product portfolio that ranges from basic ingredients and staples, such as milk and flour, to custom-cut steaks, seafood, produce and pastries, as well as delicacies and specialty ingredients sourced from North America, Europe, Asia, Australia, and South America. We carry more than 70,000 SKUs and we are fully committed to utilizing our sourcing relationships and industry insights to procure products that we do not regularly carry but that our customers specifically request as they seek to create unique and innovative menu offerings.
We continuously evaluate potential additions to our product portfolio based on both existing and anticipated trends in the culinary industry. Our buyers have numerous contacts with suppliers throughout North America, Europe, Asia and South America and are always looking for new and interesting products that will aid our customers as they seek to keep up with the latest developments in the culinary industry. Our ability to successfully distribute a significant portion of the total production of smaller, regional and artisanal specialty food producers allows us the opportunity to be these producers’ primary route-to-market in our markets without requiring us to make contractual commitments regarding guaranteed volume. We are also able to leverage our scale and successful track record of distributing products sourced from outside the United States and Canada to minimize importing costs.
We seek to differentiate ourselves from our competitors by offering a more extensive depth and breadth of specialty products. We carry a wide range of high-quality specialty food products, including artisan charcuterie, specialty cheeses, unique oils and vinegars, truffles, caviar, chocolate and pastry products across each of our markets, but we also offer a number of items in each of our respective markets that are tailored to meet the unique preferences of the individual chefs in that market. We regularly rotate our inventory to identify and bring to market new products that will continue to support our value proposition.
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Within our product offerings, we carry numerous gourmet brands, and at the same time, we seek to maximize product contribution through the sale of our proprietary brands, which we offer in a number of staple products, including bulk olive oil, Italian grating cheeses and butter. We believe that our ability to offer simultaneously high-quality specialty foods and ingredients, center-of-the-plate products, produce and more traditional broadline staple food products provides our customers with foodservice distribution solutions that are efficient and cost effective.
Our Sophisticated and Experienced Sales Professionals
We employ a sophisticated and experienced sales force of approximately 960 sales and customer service professionals focused on meeting our customers’ goals and objectives, while concurrently educating them regarding our latest products and broader culinary trends. Our sales force is composed of the following three distinct groups which are all focused on providing outstanding service to our customers:
•Outside Sales Associates: Responsible for identifying sales opportunities, educating customers and acting as our public representatives.
•Inside Sales Associates: Responsible for processing customer orders and arranging for delivery and payment.
•Product Specialists: Responsible for maintaining specialized product knowledge and educating our outside sales associates and customers regarding new products and general developments in several specific categories, including meat, seafood, pastry and cheese.
A significant number of our sales professionals have formal culinary training, degrees in the culinary arts and/or prior experience working in the culinary industry. We strive to harness this culinary knowledge and passion for food and to concurrently promote an entrepreneurial working environment. Utilizing advanced pricing optimization software available to them on a real-time basis, our sales professionals are afforded flexibility to determine the pricing of individual items for our customers within a range of pricing options. The majority of our outside sales professionals are compensated on a commission basis, and their performance is measured primarily upon their gross profit dollars obtained. We have historically experienced low turnover among our seasoned sales professionals.
Because we are highly focused on collaborating with our customers and educating them regarding our latest products and broader culinary trends, we view the ongoing education and training of our sales force as crucial to our continued success. To ensure that our sales professionals remain on the forefront of new culinary products and trends, we regularly hold “vendor shows” at our distribution centers, where our sales force is able to interact with vendors and learn more about the vendors’ latest product offerings and the performance of these products relative to competitive offerings.
Our Suppliers
We are committed to providing our customers with an unrivaled portfolio of specialty food products, as well as a comprehensive broadline product offering, produce and center-of-the-plate products. To fulfill this commitment, we maintain strong sourcing relationships with numerous producers of high-quality artisan and regional specialty food products, as well as a wide range of broadline product suppliers, produce and protein vendors. Our importing arm also provides us with access to exclusive items such as regional olive oils, truffles and charcuterie sourced from Italy, Spain, France and other Mediterranean countries.
We constantly seek out and evaluate new products in order to satisfy our customers’ desire to be at the forefront of the latest culinary and menu trends, and, as evidence of our commitment to aid our customers in creating unique and innovative menu items, we regularly utilize our sourcing relationships and industry insights to procure other products that we do not regularly carry but that our customers specifically request.
We currently distribute products from more than 3,000 different suppliers. We carry multiple products and utilize multiple suppliers in all of our product categories, thereby eliminating our dependence upon any single supplier. Additionally, we seek to limit commodity risk by utilizing sophisticated forecasting and inventory management systems to minimize the inventory carrying time of commodity-oriented products and by leveraging the specialized product knowledge of our product specialists to manage purchasing and inventory levels when appropriate.
Our Operations and Distribution Centers
Operating out of 52 distribution centers of varying size and providing service six days a week in many areas, we utilize our fleet of delivery trucks to fill customer orders, usually within 12-24 hours of order placement. We have invested significantly in sophisticated warehousing, inventory control and distribution systems, as described in more detail below.
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We have implemented pick-to-voice technology in each of our distribution facilities, which enables our warehouse employees to fill orders with greater speed and accuracy and are implementing inventory scanning platforms in an effort to reduce damages and returns.
Products are delivered to our distribution centers primarily by contract carriers, the suppliers themselves and our fleet of trucks. Our trucks are either owned or leased from national leasing companies and regional firms that offer competitive services. Customer orders are assembled in our distribution centers and then sorted, placed on pallets and loaded onto trucks and trailers in delivery sequence. The majority of our trucks and delivery trailers have multiple, temperature-controlled compartments that ensure all product is delivered to the customer at its optimal temperature.
We employ advanced routing and logistics planning software, which maximizes the number of daily deliveries that each of our trucks can make, while also enabling us to typically make deliveries within each customer’s preferred two to three hour time window. We’ve deployed truck scanning across most of our fleet which allows us to monitor the delivery of product to our customers on a real-time basis. For our direct-to-consumer business, we ship through nationally recognized couriers. We also use GPS and vehicle monitoring technology, including on-board camera technology, to regularly evaluate the condition of our delivery trucks and monitor the performance of our drivers, by tracking their progress relative to their delivery schedule and providing information regarding hard braking, idling and fast starts. Our use of this technology allows us to conduct proactive fleet maintenance, provide timely customer service and improve our risk management.
Our Technology Systems
We maintain an advanced information technology platform that enables us to manage our operations across our various markets, as we seek to drive our growth and profitability and ensure that the needs of our customers are met in an accurate and efficient manner. Over recent years, we have made significant investments in distribution, sales, information and warehouse management systems and are in the process of implementing a fully-integrated Enterprise Resource Planning system. Our systems improvements include the implementation of route optimization software, a warehouse management system at all specialty warehouses that integrates with pick-to-voice and directed put-away systems. We are driving increasing sales volume through our e-commerce platforms and a new mobile ordering tool which we believe will enable a much more seamless online customer experience. We also leverage a reporting and analytics platform that provides our sales team and management with the information required to drive efficiency and growth. We believe that our current systems are scalable and can be leveraged together with targeted investments in new technology to provide the fuel to drive profitable growth.
Intellectual Property
We have registered and/or applied to register a variety of trademarks and serve marks used throughout our business, as well as domain names, and rely on a combination of copyrights, patents, trademarks, trade names, licenses, franchises and concessions. We are not aware of any facts that could materially impact the continuing use of any of our intellectual property.
Competition
The foodservice distribution industry is highly competitive. We compete with numerous smaller distributors on a local level, as well as with a limited number of national broadline foodservice distributors. Certain of these distributors have greater financial and other resources than we do. Bidding for contracts or arrangements with customers, particularly larger hotels and caterers, is highly competitive and distributors may market their services to a particular customer over a long period of time before they are invited to bid. We believe that most purchasing decisions in the foodservice distribution industry are based upon the quality and price of the product distributed and the distributor’s ability to completely and accurately fill orders and deliver them in a timely manner.
Human Capital Management
As of December 29, 2023, we had 4,873 full-time employees, 207 of whom (approximately 4%) are currently represented by unions and operate under collective bargaining agreements, which expire at various times between fiscal 2024 and 2025. We offer attractive compensation and benefit packages, and we believe our relationship with our employees is satisfactory.
Environmental, Social and Governance
We are committed to upholding ethical, socially responsible and environmentally conscious business practices, consistent with our corporate values, to promote long-term and sustainable change. In 2022, our board of directors formed an Environmental, Social and Governance Committee (the “ESG Committee”) to oversee our environmental, social and governance activities and
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practices. Among other things, the ESG Committee reviews and evaluates: our progress towards meeting our diversity goals and compliance with our responsibilities as an equal opportunity employer; our workplace safety, employee health and wellness, inclusion, employee training and skill improvement and other human capital management initiatives; and our programs and activities relating to environmental sustainability, product quality and quality assurance, social and community relations (including labor relations) and other related economic and regulatory compliance requirements.
Workforce Health and Safety
The safety and health of our employees is a top priority for us. Our safety culture is maintained and strengthened by periodic trainings for employees and senior management, as well as labor, health, anti-discrimination and anti-harassment policies, and we are committed to maintaining a safe and healthy work environment in all aspects of our business. In this effort, we provide and require various trainings to ensure a wide understanding of standards, expectations, and best practices. Additionally, all of our fleet drivers are taught the Smith System for road safety. This system provides our drivers with tools and knowledge to make smart decisions behind the wheel, reducing the risk of accidents and injuries while ensuring timely deliveries to our customers. Managers who oversee drivers also complete safety leadership training through the Federal Motor Carrier Safety Administration’s Compliance, Safety, Accountability program. By implementing such trainings at every level of our operations, we are able to provide our customers with the exceptional service they expect without compromising the safety and comfort of our employees.
Professional Development
Providing career development opportunities for our employees is a top priority. As an investment in the professional growth of our employees, professional learning and development courses are provided for all employees. Our employees can readily choose to take courses in categories such as safety, leadership, management, sales and business acumen, and courses may also be assigned to our employees based on job function.
Diversity, Equity and Inclusion
We believe that a diverse workforce creates a healthier, stronger and more sustainable company. As a foundation of diversity and inclusion, we focus on increasing underrepresented populations across our business. In 2023, more than two-thirds of our employees, and more than 20% of our management, were diverse. We have diversity equity & inclusion monthly programming that celebrates the wide variety of diverse employees and topics that impact our employees. Each year, we conduct mandatory training on diversity equity & inclusion topics and provide managers with practical tools to operate in today’s global environment and develop their skill sets, awareness and business acumen in this on-going matter of being diverse and inclusive.
Social and Environmental Responsibility
Our corporate policies, overseen by the ESG Committee, are intended to further strengthen and promote our commitment to social and environmental responsibility with our directors, employees, leaders and business partners. Our policy on salient human rights risks identifies key human rights issues related to our business activities and business relationships, including promoting a safe and healthy work environment, providing a fair and inclusive work environment and combating forced and underage labor. Our Human Rights Policy details our commitment to upholding fundamental human rights, and our Code of Conduct for Suppliers reflects our commitment to extending ethical business practices throughout our supply chain. Our Environmental, Health and Safety Policy promotes and protects the health and safety of our employees and reinforces our commitment to environmental stewardship, such as through our endorsement of the United Nations Global Compact CEO Water Mandate.
Regulation
As a distributor of specialty food products and meat and seafood in the United States and Canada, we are subject to regulation by numerous international, federal, state, provincial and local regulatory agencies. For example, at the U.S. federal level, we are subject to the Federal Food, Drug and Cosmetic Act, the Bioterrorism Act and regulations promulgated by the U.S. Food and Drug Administration (“FDA”). The FDA regulates manufacturing and holding requirements for foods, specifies the standards of identity for certain foods and prescribes the format and content of certain information required to appear on food product labels, among other responsibilities. For certain product lines, we are also subject to the Federal Meat Inspection Act, the Poultry Products Inspection Act, the Perishable Agricultural Commodities Act, the Country of Origin Labeling Act and regulations promulgated thereunder by the U.S. Department of Agriculture (“USDA”). The USDA imposes standards for product quality and sanitation, including the inspection and labeling of meat and poultry products and the grading and
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commercial acceptance of produce shipments from vendors. The products we distribute in Canada are subject to regulation and inspection by Health Canada and the Canadian Food Inspection Agency. Our distribution operations in the Middle East are subject to regulation by municipal and local regulatory agencies including the Abu Dhabi Food Control Authority, the Ministry of Health in Qatar, the Centre for Food and Safety and Quality in Oman, and the Department of Food Safety in Dubai. Our suppliers are also subject to similar regulatory requirements and oversight. The failure to comply with applicable regulatory requirements could result in civil or criminal fines or penalties, product recalls, closure of facilities or operations, the loss or revocation of existing licenses, permits or approvals or the failure to obtain additional licenses, permits or approvals in new jurisdictions where we intend to do business.
We are also subject to state and local regulation through such measures as the licensing of our facilities, enforcement by state and local health agencies of state and local standards for our products and facilities and regulation of our trade practices in connection with the sale of products. Our facilities are generally inspected at least annually by federal and/or state authorities. These facilities are also subject to inspections and regulations issued pursuant to the Occupational Safety and Health Act by the U.S. Department of Labor, which require us to comply with certain manufacturing, health and safety standards to protect our employees from accidents and to establish hazard communication programs to transmit information about the hazards of certain chemicals present in certain products that we distribute. Our Canadian distribution facilities, repackaging activities and other operations also are subject to regulation and inspection by the Canadian Food Inspection Agency and provincial health authorities.
Our trucking operations are regulated by the Surface Transportation Board, the Federal Highway Administration, Transport Canada and Canadian provincial transportation authorities. We are also regulated by the Dubai Road and Transport Authority, Abu Dhabi Transport Authority and the Ministry of Transport in Qatar and Oman. In addition, interstate motor carrier operations are subject to safety requirements prescribed by the U.S. Department of Transportation and other relevant federal and state agencies. Such matters as weight and dimension of equipment are also subject to federal and state regulations. We believe that we are in compliance with applicable regulatory requirements relating to our motor carrier operations. Our failure to comply with the applicable motor carrier regulations could result in substantial fines or revocation of our operating permits.
Our operations are subject to a broad range of federal, state, provincial and local environmental health and safety laws and regulations, including those governing discharges to air, soil and water, the handling and disposal of hazardous substances and the investigation and remediation of contamination resulting from releases of petroleum products and other hazardous substances.
We believe that we are in material compliance with all international, federal, state, provincial and local regulations applicable to our operations, and management is unaware of any related issues that may have a material adverse effect upon our business, financial condition or results of operations.
Litigation and Insurance
We may be subject to lawsuits, claims and assessments in the normal course of business. Our management does not believe that there are any suits, claims or unasserted claims or assessments pending which would have a material adverse effect on our operations or financial condition.
We maintain comprehensive insurance packages with respect to our facilities, equipment, product liability, directors and officers, workers’ compensation and employee matters in amounts which management believes to be prudent and customary within the foodservice distribution industry.
Seasonality
Excluding our direct-to-consumer business, we generally do not experience any material seasonality. However, our sales and operating results may vary from quarter to quarter due to factors such as changes in our operating expenses, management’s ability to execute our operating and growth strategies, personnel changes, demand for our products, supply shortages, weather patterns and general economic conditions.
Our Allen Brothers direct-to-consumer business is subject to seasonal fluctuations, with direct-to-consumer center-of-the-plate protein sales typically higher during the holiday season in our fourth quarter; accordingly, a disproportionate amount of operating cash flows from this portion of our business is generated in the fourth quarter. Despite a significant portion of these sales occurring in the fourth quarter, there are operating expenses, principally advertising and promotional expenses, throughout the year.
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Inflation
Our profitability is dependent, among other things, on our ability to anticipate and react to changes in the costs of key operating resources, including food and other raw materials, labor, energy and other supplies and services. Substantial increases in costs and expenses could impact our operating results to the extent that such increases cannot be passed along to our customers. The impact of inflation on food, labor, energy and occupancy costs can significantly affect the profitability of our operations.
Available Information
Our principal executive office is located at 100 East Ridge Road, Ridgefield, Connecticut 06877, and our telephone number is (203) 894-1345. Our annual report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and all amendments to those reports will be made available free of charge through the Investors section of our website (http://www.chefswarehouse.com) as soon as practicable after such material is electronically filed with, or furnished to, the Securities and Exchange Commission (“SEC”). Material contained on our website is not incorporated by reference into this report.
We have also adopted a Code of Business Conduct and Ethics (“Code of Ethics”) that applies to all of our employees, including our principal executive officer, principal financial officer and principal accounting officer. Our Code of Ethics is publicly available on the Investor Relations section of our website (http://www.chefswarehouse.com) and is available free of charge by writing to The Chefs’ Warehouse, Inc., 100 East Ridge Road, Ridgefield, Connecticut 06877, Attn: Investor Relations. If we make any substantive amendments to the Code of Ethics or grant any waiver, including any implicit waiver, from a provision of the Code of Ethics to our principal executive officer, principal financial officer or principal accounting officer, or persons performing similar functions, we intend to make any legally required disclosures regarding such amendments or waivers on the Investors section of our website (http://www.chefswarehouse.com).
The SEC also maintains an Internet website that contains reports, proxy and information statements and other information regarding issuers, including us, that file electronically with the SEC located at http://www.sec.gov.
Information about our Executive Officers
Name & Position | Age | Business Experience | ||||||||||||
Christopher Pappas President, Chief Executive Officer and Chairman of the Board of Directors | 64 | Christopher Pappas is our founder and has served as our Chief Executive Officer since 1985 and has been our chairman since March 1, 2011. He has been our President since April 11, 2009 and before that was our President from our formation to January 1, 2007. Prior to founding our company, Mr. Pappas played basketball professionally in Europe for several years following his graduation from Adelphi University in 1981 with a Bachelor of Arts degree in Business Administration. Mr. Pappas currently oversees all of our business activities, with a focus on product procurement, sales, marketing and strategy development. Mr. Pappas's qualifications to serve on our board of directors include his extensive knowledge of our company and the specialty food products distribution business and his years of leadership at the Company. | ||||||||||||
John Pappas Vice Chairman and Director | 60 | John Pappas is a founder of our company and currently serves as our Vice Chairman, a position he has held since March 1, 2011, and Chief Operating Officer, a position he held from our founding in 1985 to March 1, 2011, and again on February 24, 2022 to the present. He has 25 years of experience in logistics, facility management and global procurement and oversees our network of distribution centers nationwide. Mr. Pappas is also active in the development of our corporate strategy. Mr. Pappas's qualifications to serve on our board of directors include his extensive knowledge of our company and the specialty food products distribution industry and his years of leadership at the Company. | ||||||||||||
James Leddy Chief Financial Officer | 60 | James “Jim” Leddy is our Chief Financial Officer and assistant secretary, positions he has held since his appointment as of November 11, 2017. Prior to his appointment, Mr. Leddy served as our Executive Vice President of Finance since joining the Company in September 2017. Mr. Leddy previously served as interim Chief Financial Officer at JetBlue Airways from November 2016 to February 2017 and served as Senior Vice President and Treasurer from 2012 to November 2016. Prior to joining JetBlue, Mr. Leddy served as Senior Vice President, Treasury and Cash Management at NBCUniversal from 2008 until 2012, and as a Senior Technical Advisor at General Electric from 2003 until 2008. Previously, Mr. Leddy held corporate risk and treasury management positions at First Union National Bank and Dai-ichi Kangyo Bank. Mr. Leddy holds an M.B.A. in Finance and Management of Technology from the University of Connecticut and a B.A. in Economics from Fordham University. | ||||||||||||
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Name & Position | Age | Business Experience | ||||||||||||
Alexandros Aldous General Counsel, Corporate Secretary & Chief Government Relations Officer | 43 | Alexandros Aldous is our General Counsel, Corporate Secretary, Chief Government Relations Officer & Chief Administrative Officer, positions he has held since joining us in March 2011, our IPO on July 27, 2011, March 8, 2017, and September 16, 2021, respectively. Mr. Aldous is also an adjunct Professor of Law at the Washington College of Law, American University. Mr. Aldous's prior work experience includes working as an attorney with Barclays Capital, the investment banking division of Barclays Bank PLC, in London, where he focused primarily on mergers and acquisitions and capital markets, and prior to that, working as an attorney with Shearman & Sterling LLP, in New York, where he focused primarily on mergers and acquisitions. Mr. Aldous is a member of both the Government Relations Leadership Committee and General Counsel Committee of the International Foodservice Distributors Association; a member of the Board of Directors of World Trade Center Miami, including chairperson of its Government Relations Committee; a member of the Board of Trustees of the American College of Greece, including a member of both its Audit Committee and Pierce College Committee; co-chairperson of the Global Alumni Advisory Board of the American College of Greece; and a member of the Board of Advisors of American University's School of International Service. Mr. Aldous earned a B.A. in Classics and Government from Colby College, a Juris Doctor and M.A. from American University and an LL.M. from the London School of Economics and Political Science. Mr. Aldous is licensed to practice law in the State of New York, District of Columbia, and England and Wales. | ||||||||||||
Timothy McCauley Chief Accounting Officer | 59 | Timothy McCauley has served as our Chief Accounting Officer, since his appointment on February 16, 2018 and previously served as our Controller since joining the Company in May 2015. Mr. McCauley has over 30 years of experience in accounting and finance roles across a variety of industries. Mr. McCauley’s prior work experience includes serving as Vice President – Finance at MacDermid Inc., Corporate Controller at Northern Tier Energy LP, Director of Financial Reporting and Investor Relations at Presstek, Inc. and Finance Director at Eastman Kodak Company. Prior to joining Eastman Kodak Company, Mr. McCauley worked with PricewaterhouseCoopers for eleven years in their assurance and business advisory practice. Mr. McCauley holds a Bachelor of Science degree in Business - Accounting from the University of Connecticut and is a registered certified public accountant in the state of Connecticut. | ||||||||||||
Christina Polychroni Chief Human Resources Officer | 44 | Christina Polychroni is our Chief Human Resources Officer since December 31, 2022. Prior to this appointment, Ms. Polychroni served as the company’s Chief Talent Officer from November 1, 2021 through December 30, 2022. Ms. Polychroni is a management executive with a track record in multinational companies and a strong knowledge of the luxury and food industries in wholesale, retail and digital channels. Ms. Polychroni’s prior work experience includes her tenure as Chief Marketing and E-Commerce Officer at L’Occitane USA, Chief Marketing Officer at Jack Rogers USA, as well as senior marketing roles in KORRES USA and the Unilever Ice Cream and Nutrition divisions. Ms. Polychroni holds a B.A. in Marketing and MBA from the Athens University of Economics and Business, a Human Resources Management Certificate from Cornell University, and a PhD in Management from the School of Business at the Stevens Institute of Technology. | ||||||||||||
Item 1A. RISK FACTORS
Our business, financial condition and results of operations are subject to various risks and uncertainties, including those described below and elsewhere in this Annual Report on Form 10-K. This section discusses factors that, individually or in the aggregate, we think could cause our actual results to differ materially from our expected and historical results. Our business, financial condition or results of operations could be materially adversely affected by any of these risks. This information should be read in conjunction with Management’s Discussion and Analysis of Financial Condition and Results of Operations and the consolidated financial statements and related notes contained in this report. The following discussion of risks is not all inclusive, but is designed to highlight what we believe are the most significant factors to consider when evaluating our business.
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Business and Macroeconomic Risk
Our success depends to a significant extent upon general economic conditions, including disposable income levels and changes in consumer discretionary spending.
Our business is exposed to reductions in consumer discretionary spending because our target customers operate in the food-away-from-home industry. Consumer discretionary spending may be affected by many factors outside of our control, including general economic conditions, inflation, disposable income levels, consumer confidence levels, heightened volatility in the financial markets, and uncertain political environment and supply chain disruptions. In uncertain economic environments, consumers may choose to spend discretionary dollars less frequently, which could result in a decline in consumers’ food-away-from-home purchases, particularly in more expensive restaurants, and, consequently, adversely impact the businesses of our customers by, among other things, reducing the frequency with which our customers’ customers choose to dine out or the amount they spend on meals while dining out. If our customers’ sales decrease, our profitability could decline as we spread fixed costs across lower sales volume. Also, similar economic conditions could lead to consumers purchasing less from our direct-to-consumer platforms. Moreover, if a prolonged downturn or uncertain outlook in the economy were to occur, consumers might ultimately make long-lasting changes to their discretionary spending behavior, including dining out less frequently on a permanent basis or purchasing less on our direct-to-consumer platforms. Accordingly, any such effects could harm our business, financial condition or results of operations. Our continued success will depend in part upon our ability to anticipate, identify and respond to changing economic and other conditions and the impact that those conditions may have on discretionary consumer spending.
Our business is a low-margin business, and our profit margins may be sensitive to inflationary and deflationary pressures.
We operate within a segment of the foodservice distribution industry, which is an industry characterized by a high volume of sales with relatively low profit margins. Although our profit margins are typically higher than more traditional broadline foodservice distributors, they are still relatively low compared to other industries’ profit margins. Volatile food costs may have a direct impact upon our profitability. Prolonged periods of product cost inflation may have a negative impact on our profit margins and results of operations to the extent we are unable to pass on all or a portion of such product cost increases to our customers. In addition, product cost inflation may negatively impact consumer discretionary spending decisions within our customers’ establishments, which could adversely impact our sales. Conversely, our profit levels may be negatively impacted during periods of product cost deflation even though our gross profit as a percentage of sales may remain relatively constant. However, some of our products, particularly certain of our center-of-the-plate protein items, are priced on a “cost plus” markup, which helps mitigate the negative impact of deflation. If our product mix changes, we may face increased risks of margin compression, as we may be unable to achieve the same level of profit margins as we are able to capture on our traditional specialty products. Our inability to effectively price our specialty food products, produce or center-of-the-plate products, to quickly respond to inflationary and deflationary cost pressures and to reduce our expenses could have a material adverse impact on our business, financial condition or results of operations.
We have significant competition from a variety of sources, and we may not be able to compete successfully.
The foodservice distribution industry is highly fragmented and competitive, with national, multi-regional, regional and local distributors and specialty competitors. Regional and local companies may align themselves with other smaller distributors through group purchasing organizations, with the goal of enhancing their geographic reach, private label offerings, overall purchasing power, cost efficiencies, and ability to meet customer distribution requirements. These distributors may also rely on local presence as a source of competitive advantage, and they may have a lower cost to serve and other competitive advantages due to geographic proximity. Additionally, adjacent competition, such as other cash-and-carry operations, commercial wholesale outlets, warehouse clubs and grocery stores, continue to serve the commercial foodservice market. We also experience competition from online direct food wholesalers and other retailers. We generally do not have exclusive distribution agreements with our customers, and they may switch to other distributors that offer lower prices or differentiated products or customer service. The cost of switching distributors is very low, as are the barriers to entry into the U.S. foodservice distribution industry. Such changes may occur particularly during periods of economic uncertainty or significant inflation.
Moreover, some of our customers, including a majority of our hotel customers, purchase their products from us through such group purchasing organizations. If group purchasing organizations are able to add a significant number of our customers as members, we may be forced to lower the prices we charge these customers in order to retain the business, which would negatively affect our business, financial condition or results of operations. Additionally, if we were unable or unwilling to lower the prices we charge for our products to a level that was satisfactory to the group purchasing organization, we may lose the business of those of our customers that are members of these organizations, which could have a material adverse impact on our business, financial condition or results of operations.
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Our future success will be largely dependent upon our ability to profitably meet our customers’ needs for certain gourmet foods and ingredients, varying drop sizes, high service levels and timely delivery. We compete with numerous smaller distributors on a local level, as well as with a limited number of larger, traditional broadline foodservice distributors. We cannot assure investors that our current or potential competitors will not provide specialty food products and ingredients, produce, center-of-the-plate protein items or services that are comparable or superior to those provided by us at prices that are lower than the prices we charge or adapt more quickly than we do to evolving culinary trends or changing market requirements. Accordingly, we cannot assure investors that we will be able to compete effectively against current and future competitors, and increased competition may result in price reductions, reduced gross margins and loss of market share, any of which could have a material adverse effect on our business, financial condition or results of operations.
We rely on third-party suppliers, and our business may be affected by interruption of supplies or increases in product costs.
We obtain a significant portion of our specialty food products, produce and center-of-the-plate products from local, regional, national and international third-party suppliers. Our profitability and operating margins are dependent upon, among other things, our ability to anticipate and react to any interruptions in our distribution network and changes to food costs and availability. We generally do not enter into long-term contracts with our suppliers, whereby they would be committed to provide products to us for any appreciable duration of time. Although our purchasing volume can provide leverage when dealing with suppliers, particularly smaller suppliers for whom we may be their largest customer, suppliers may not provide or may be unable to provide the specialty food products, produce or center-of-the-plate products we need in the quantities and at the times and prices we request. Failure to identify an alternate source of supply for these items or comparable products that meet our customers’ expectations may result in significant cost increases. Moreover, we do not currently use financial instruments to hedge our risk exposure to market fluctuations in the price of food products. Similarly, our suppliers may also be affected by higher costs to source or produce and transport food products, as well as by other related expenses that they pass through to their customers, which could result in higher costs for the specialty food products or center-of-the-plate products they supply to us. Our inability to anticipate and react to changing food costs through our sourcing and purchasing practices in the future could therefore negatively impact our business, financial condition or results of operations.
Because we do not control the actual production of most of the products we sell, we are also subject to material supply chain interruptions, delays caused by interruption in production, and increases in product costs, including those resulting from product recalls or a need to find alternate materials or suppliers, based on conditions outside our control. These conditions include labor shortages, work slowdowns, work interruptions, strikes or other adverse employment actions by employees of ours or our suppliers, government shutdowns, weather conditions or more prolonged climate change, crop conditions, product recalls, product or raw material scarcity, water shortages, transportation interruptions within our distribution channels, unavailability of fuel or increases in fuel costs, competitive demands, contamination with mold, bacteria or other contaminants, pandemics (such as the Pandemic), natural disasters or other catastrophic events, including the outbreak of e. coli or similar food borne illnesses or bioterrorism in the United States, international hostilities, civil insurrection, and social unrest. For example, weather patterns in recent years have resulted in lower than normal or, conversely, higher than normal levels of rainfall and snowfall in key agricultural states such as California, impacting the price of water and the corresponding prices of food products grown in states affected by such weather. Additionally, the route-to-market for some of the products we sell, such as baking chocolate, depends upon the stability of political climates and a stable labor force in developing nations, such as the Ivory Coast. In such countries, political and social unrest may cause the prices for these products to rise to levels beyond those that our customers are willing to pay, if the product is available at all. If we are unable to obtain these products, our customers may seek a different supplier for these or other products which could negatively impact our business, financial condition or results of operations.
Accordingly, if we are unable to obtain the specialty food products, produce, meat, poultry or seafood that comprise a significant percentage of our product portfolio in a timely manner and in the quantities and at the prices we request as a result of any of the foregoing factors or otherwise, we may be unable to fulfill our obligations to customers who may, as a result of any such failure, resort to other distributors for their food product needs or change the types of products they buy from us to products that are less profitable for us.
Increases in our labor costs, including as a result of labor shortages, the unionization of some of our associates, the price or unavailability of insurance and changes in government regulation could slow our growth or harm our business.
As of December 29, 2023, we had 4,873 full-time employees, 207 of whom (approximately 4%) are represented by unions and are operating under collective bargaining agreements which expire at various times between fiscal 2024 and 2025. Although we have not experienced any significant labor disputes or work stoppages in recent history, and we believe we have satisfactory relationships with our employees, including those who are union members, increased unionization or a work stoppage because of our inability to renegotiate union contracts could have a material adverse effect on us. Further, potential changes in labor
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legislation and case law could result in current non-union portions of our workforce, including warehouse and delivery personnel, being subjected to greater organized labor influence. As we increase our employee base and broaden our distribution operations to new geographic markets, our increased visibility could result in increased or expanded union-organizing efforts. New contracts with existing unions could have substantially less favorable terms than those negotiated prior to such expanded union-organizing efforts
We are subject to a wide range of labor costs. Because our labor costs (particularly those in our center-of-the-plate category) are, as a percentage of revenues, higher than other industries, we may be significantly harmed by labor cost increases. In addition, labor is a significant cost for many of our customers in the U.S. food-away-from-home industry, as well as for our distributors and suppliers. Any increase in labor costs, including any increases in costs as a result of increases in minimum wage requirements, wage inflation and/or increased overtime payments as a result of labor shortages, work slowdowns, work interruptions, strikes, or other job actions by employees of customers, distributors and suppliers could reduce the profitability of our customers and reduce demand for our products.
Our operations are dependent upon our experienced and sophisticated sales professionals, warehouse personnel and drivers, and, in our center-of-the plate facilities, the experienced butchers we employ. Qualified individuals have historically been in short supply and an inability to attract and retain them may limit our ability to expand our operations in existing markets, as well as our ability to penetrate new markets. Additionally, the cost of attracting and retaining qualified individuals may be higher than we currently anticipate, and as a result, our profitability could decline. Despite our efforts to control costs while still providing competitive healthcare benefits to our staff members, significant increases in healthcare costs continue to occur, and we can provide no assurance that our cost containment efforts in this area will be effective.
Fuel cost volatility may have a material adverse effect on our business, financial condition or results of operations.
The high cost of fuel can negatively affect consumer confidence and discretionary spending and, as a result, reduce the frequency and amount spent by consumers within our customers’ establishments for food away from home. The high price of fuel and other transportation related costs, such as tolls, fuel taxes, and license and registration fees, can also increase the price we pay for products as well as the costs incurred by us to deliver products to our customers. Furthermore, both the price and supply of fuel are unpredictable and fluctuate based on events outside our control, including geopolitical developments (such as the war in Ukraine and the hostilities in the Middle East), supply and demand for oil and gas, actions by the Organization of Petroleum Exporting Countries and other oil and gas producers, war and unrest in oil producing countries and regions, regional production patterns, and environmental concerns. These factors, if occurring over an extended period of time, could have a material adverse effect on our sales, margins, operating expenses, or results of operations.
A significant portion of our future growth is dependent upon our ability to expand our operations in our existing markets and to penetrate new markets either through organic growth or through acquisitions.
We have expanded, and intend to continue expanding, our presence in our existing and new markets by adding to our customer base through the expansion of our product portfolio and the increase in the volume and/or number of purchase orders from our customers. Competitive circumstances and consumer characteristics in new segments of existing markets may differ substantially from those in the segments in which we have substantial experience.
We also regularly evaluate opportunities to acquire other companies. A significant portion of our past growth has been achieved through acquisitions of, or mergers with, other distributors of specialty food products and center-of-the-plate protein items. Our ability to achieve expected benefits of acquisitions depends on, among other things, our ability to effectively execute on our business strategies, integrate and manage the combined operations, retain customers and supplier on terms similar to those in place with the acquired businesses, achieve desired operating efficiencies and sales growth, optimize delivery routes, coordinate administrative, distribution and finance functions, integrate management information systems, expand into new markets to include markets of the acquired business, retain and assimilate the acquired businesses’ employees, comply with additional foreign laws and regulations and maintain our financial and internal controls and systems as we expand our operations.
These risks may be exacerbated in international markets where we have less operational experience. We have an integration team which is dedicated to onboarding new acquisitions and integrating information technology systems as quickly and efficiently as possible. If the integration team does not improve our integration process, the integration of acquisitions could divert the attention of management, and any difficulties or problems encountered in the integration process could have a material adverse effect on our business, financial condition or results of operations.
In connection with our acquisition of businesses in the future, if any, we may decide to consolidate the operations of any acquired business with our existing operations or make other changes with respect to the acquired business, which could result
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in special charges or other expenses. Our results of operations also may be adversely affected by expenses we incur in making acquisitions, by amortization of acquisition-related intangible assets with definite lives and by additional depreciation attributable to acquired assets. Any of the businesses we acquire may also have liabilities or adverse operating issues, including some that we fail to discover before the acquisition, and our indemnity for such liabilities typically has been limited and may, with respect to future acquisitions, also be limited. Additionally, our ability to make any future acquisitions may depend upon obtaining additional financing or the consents of our lenders. We may not be able to obtain this additional financing or these consents on acceptable terms or at all. Moreover, we may need to finance our acquisition activity with the issuance of equity or debt securities, which may have rights and preferences superior to those of our common stock and, in the case of common equity securities, may be issued at such prices and in such amounts as may cause significant dilution to our then-existing common stockholders. To the extent we seek to acquire other businesses in exchange for our common stock, fluctuations in our stock price could have a material adverse effect on our ability to complete acquisitions.
In addition, although we enter into acquisition agreements with each company or business we acquire that contain customary representations, warranties, covenants and indemnities, there is no guarantee that we will recover all of our losses that may result from a breach of such agreements. For example, most acquisition agreements contain baskets or deductibles and caps and limitations on damages and on periods in which we may bring a claim. In addition, there can be no guarantee that we will be successful on the merits of any claim that we bring arising out of a breach of an acquisition agreement or that if we are successful on the merits in bringing a claim that the sellers of the businesses we acquire will be able to pay us for our losses. Moreover, the costs that we incur to investigate a potential matter may not be fully recoverable. Additionally, as a result of an acquisition, we may enter into a new business or market or offer products that differ from our core business. Any such new business or market or the sale and distribution of new products may present new challenges for us, and we may not be able to overcome such challenges. Additionally, we may seek to distribute a different set of products than the business that we acquire, which may cause a loss of customers of those businesses if we can no longer carry the products they desire or charge more for those products than was charged before we acquired the business.
Our failure to realize the benefits expected from our acquisitions could result in a reduction in the price of our common stock as well as in increased costs, decreases in the amount of expected revenues and diversion of management’s time and energy and could materially and adversely impact our business, financial condition or results of operations.
We may have difficulty managing and facilitating our future growth.
At times since our inception, we have rapidly expanded our operations through organic growth, acquisitions or otherwise. This growth has placed and will continue to place significant demands upon our administrative, operational and financial resources. This growth, however, may not continue. To the extent that our customer base and our distribution networks continue to grow, this future growth may be limited by our inability to acquire new distribution facilities or expand our existing distribution facilities, make acquisitions, successfully integrate acquired entities, implement information systems initiatives or adequately manage our personnel.
Moreover, our future growth may be limited in part by the size and location of our distribution centers. As we near maximum utilization of a given facility, our operations may be constrained and inefficiencies may be created, which could adversely affect our results of operations unless the facility is expanded, volume is shifted to another facility or additional processing capacity is added. Conversely, as we add additional facilities or expand existing operations or facilities, excess capacity may be created. Any excess capacity may also create inefficiencies and adversely affect our results of operations. We cannot assure investors that we will be able to successfully expand our existing distribution facilities or open new distribution facilities in new or existing markets as needed to facilitate growth.
Even if we are able to expand our distribution network, our ability to compete effectively and to manage future growth, if any, will depend on our ability to continue to implement and improve operational, financial and management information systems on a timely basis and to expand, train, motivate and manage our employees. We cannot assure investors that our existing personnel, systems, procedures and controls will be adequate to support the future growth of our operations. Accordingly, our inability to manage our growth effectively could have a material adverse effect on our business, financial condition or results of operations.
Our customers are generally not obligated to continue purchasing products from us.
Most of our customers buy from us pursuant to individual purchase orders, as we generally do not enter into long-term agreements with our customers for the purchase of our products. Because our customers are generally not obligated to continue purchasing products from us, we cannot assure investors that the volume and/or number of our customers’ purchase orders will remain constant or increase or that we will be able to maintain or add to our existing customer base. Significant decreases in the
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volume and/or number of our customers’ purchase orders or our inability to retain or grow our current customer base may have a material adverse effect on our business, financial condition or results of operations.
We have experienced losses due to our inability to collect accounts receivable in the past and could experience increases in such losses in the future if our customers are unable to pay their debts to us in a timely manner or at all.
Certain of our customers have experienced bankruptcy, insolvency and/or an inability to pay their debts to us as they come due. If our customers suffer significant financial difficulties or bankruptcies, they may be unable to pay their debts to us in a timely manner or at all. It is possible that our customers may contest their obligations to pay us under bankruptcy laws or otherwise. Even if our customers do not contest their obligations to pay us, if our customers are unable to pay their debts to us in a timely manner, it could adversely impact our ability to collect accounts receivable and may require that we take larger provisions for bad debt expense. Moreover, we may have to negotiate significant discounts and/or extended financing terms with these customers in such a situation in an attempt to secure payment for outstanding debts. Accordingly, if we are unable to collect upon our accounts receivable as they come due in an efficient and timely manner, our business, financial condition or results of operations may be materially and adversely affected. During periods of economic weakness, small to medium-sized businesses, like many of our independent restaurant and fine dining establishment customers, may be impacted more severely and more quickly than larger businesses. Consequently, the ability of such businesses to repay their obligations to us may deteriorate, and in some cases this deterioration may occur quickly, which could adversely impact our business, financial condition or results of operations.
Adverse publicity about us, lack of confidence in our products or services and other risks could negatively affect our
reputation and our business.
We believe that we have built a strong reputation for the breadth and depth of our product portfolio and the brands we carry and that we must protect and grow their value to be successful in the future. Any incident that erodes consumer confidence in or affinity for our specialty food, produce or center-of-the-plate products or brands, whether or not justified, could significantly reduce their respective values and damage our business. If our customers perceive or experience a reduction in the quality or selection of our products and brands or our customer service, or in any way believe that we failed to deliver a consistently positive experience, our business, financial condition or results of operations may be affected in a materially adverse manner.
We may need to recall our products if they become adulterated. If patrons of our restaurant customers become ill from food-borne illnesses, our customers could be forced to temporarily close restaurant locations and our sales would be correspondingly decreased. A specialty foods distribution business such as ours can be adversely affected by negative publicity or news reports, whether or not accurate, regarding food quality issues, public health concerns, illness, safety, injury or government or industry findings concerning our products or others across the food distribution industry. In addition, a widespread health epidemic (such as the Pandemic) or food-borne illness, whether or not related to the use of our products, as well as terrorist events may cause consumers to avoid public gathering places, like restaurants, or otherwise change their eating behaviors. Although we have taken steps to mitigate food quality, public health and other foodservice-related risks, these types of health concerns or negative publicity cannot be completely eliminated or mitigated and may harm our results of operations and damage the reputation of, or result in a lack of acceptance of, our products or the brands we carry.
New information or attitudes regarding diet and health or adverse opinions about the health effects of the products we distribute could result in changes in consumer eating habits, which could have a material adverse effect on our business, financial condition or results of operations.
Consumer eating habits may impact our business as a result of changes in attitudes regarding diet and health or new information regarding the health effects of consuming the products we distribute. If consumer eating habits change significantly, we may be required to modify or discontinue sales of certain items in our product portfolio, and we may experience higher costs associated with the implementation of those changes. Additionally, changes in consumer eating habits may result in the enactment of laws and regulations that impact the ingredients and nutritional content of our products or require us to disclose the nutritional content of products. Compliance with these laws and regulations, as well as others regarding the ingredients and nutritional content of our products, may be costly and time consuming. We cannot assure investors that we will be able to effectively respond to changes in consumer health perceptions or resulting new laws or regulations or to adapt our product offerings to trends in eating habits.
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Our business operations and future development could be significantly disrupted if we lose key members of our management team.
The success of our business significantly depends upon the continued contributions of our founders and key employees, both individually and as a group. Our future performance will substantially depend upon our ability to motivate and retain our founders Christopher Pappas, our chairman, president and chief executive officer, and John Pappas, our vice chairman, as well as certain other senior key employees. The loss of the services of either of our founders or any of our key employees, including key employees of the businesses we have acquired, could have a material adverse effect on our business, financial condition or results of operations. We have no reason to believe that we will lose the services of these individuals in the foreseeable future; however, we currently have no effective replacement for these individuals due to their experience, reputation in the foodservice distribution industry and special role in our operations.
Our insurance policies and claims expenses could significantly reduce our profitability.
We believe that our insurance coverage is customary for businesses of our size and type. In addition, the cost of workers’ compensation insurance, auto liability insurance, general liability insurance and directors’ and officers’ liability insurance fluctuates based upon our historical trends, market conditions and availability. Because our operations principally are centered in large, metropolitan areas, our insurance costs are higher than if our operations and facilities were based in more rural markets. Additionally, health insurance costs in general have risen significantly over the past few years. These increases, as well as federal legislation requiring employers to provide specified levels of health insurance to all employees, could have a negative impact upon our business, financial condition or results of operations, and we cannot assure investors that we will be able to successfully offset the effect of such increases with plan modifications and cost control measures, additional operating efficiencies or the pass-through of such increased costs to our customers.
We maintain a self-insured group medical program. The program contains individual stop loss thresholds of $300,000 per incident and aggregate stop loss thresholds based upon the average number of employees enrolled in the program throughout the year. The amount in excess of the self-insured levels is fully insured by third party insurers. We record a liability for medical claims during the period in which they occur, as well as an estimate of incurred but not reported claims. Management determines the adequacy of these accruals based on a monthly evaluation of our historical claims experience and medical cost trends. Projections of future loss expenses are inherently uncertain because of the random nature of insurance claims occurrences and could be significantly affected if future occurrences and claims differ from these assumptions and historical trends. If we suffer a substantial loss that is not covered by our self- insurance reserves, the loss and attendant expenses could harm our business and operating results.
We are self-insured for workers’ compensation and automobile liability to deductibles or self-insured retentions of $500,000 per occurrence. The amounts in excess of our deductibles are fully insured by third party insurers. Liabilities associated with this program are estimated in part by considering historical claims experience and cost trends. Projections of future loss expenses are inherently uncertain because of the random nature of insurance claims occurrences and could be significantly affected if future occurrences and claims differ from these assumptions and historical trends.
Although we believe our aggregate insurance limits should be sufficient to cover reasonably expected claims costs, it is possible that the amount of one or more claims could exceed our aggregate coverage limits. Insurance carriers have raised premiums for many businesses in our industry, including ours, and our insurance and claims expense could continue to increase in the future. Our results of operations and financial condition could be materially and adversely affected if (1) total claims costs significantly exceed our coverage limits, (2) we experience a claim in excess of our coverage limits, (3) our insurance carriers fail to pay on our insurance claims, (4) we experience a claim for which coverage is not provided, or (5) a large number of claims cause our cost under our deductibles to differ from historic averages.
Impairment charges for goodwill or long-lived assets could adversely affect our financial condition and results of operations.
We monitor the recoverability of our long-lived assets, such as buildings, equipment and leased assets, and evaluate their carrying value for impairment whenever events or changes in circumstances indicate that the carrying amount of such assets may not be fully recoverable. The testing of long-lived assets and goodwill for impairment requires us to make estimates that are subject to significant assumptions and to apply judgment to estimate economic factors and the profitability of future operations. Changes in these estimates, or changes in actual performance compared with these estimates, may affect the fair value of long-lived assets, which may result in an impairment charge.
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We cannot accurately predict the amount or timing of any impairment. Should the value of long-lived assets become impaired, our financial condition and results of operations may be adversely affected. For more information on the goodwill assessment, see “Management’s Discussion and Financial Condition and Results of Operations—Critical Accounting Estimates—Valuation of Goodwill and Intangible Assets” and Note 8, Goodwill and Other Intangible Assets, to our consolidated financial statements.
Geographic and Global Risk
Significant public health epidemics or pandemics may adversely affect our business, results of operations and financial condition.
A public health epidemic or pandemic, such as the Pandemic, can significantly impact our business or those of our Core Customers or suppliers, particularly if located in geographies in which we have significant operations. Such events could significantly impact the food-away-from-home industry and other industries that are sensitive to changes in consumer discretionary spending habits. In addition, our operations could be disrupted if we were required to quarantine employees that work at our various distribution centers and processing facilities.
For instance, the outbreak of the COVID-19 pandemic had an adverse impact on numerous aspects of our business, financial condition and results of operations including, but not limited to, our growth, product costs, supply chain disruptions, labor shortages, logistics constraints, customer demand for our products and industry demand generally, consumer spending, our liquidity, the price of our securities and trading markets with respect thereto, our ability to access capital markets, and the global economy and financial markets generally. The Pandemic may also have exacerbated many of the other risks described in this section or may have the potential to do so in the future. The extent to which any public health epidemic or pandemic may impact our financial condition or results of operations is uncertain and will depend on future developments including new information that may emerge on the severity or transmissibility of the disease, new variants, government responses, trends in infection rates, development and distribution of effective medical treatments and vaccines, and future consumer spending behavior, among others.
Because our foodservice distribution operations are concentrated in certain culinary markets, we are susceptible to economic and other developments, or events, including adverse weather conditions, in these areas.
Our financial condition and results of operations are highly dependent upon the local economies of the culinary markets in which we distribute our products. In recent years, certain of these markets have been more resilient to economic downturns than others. Moreover, sales in our New York market, which we define as our operations spanning from New York to Atlantic City, accounted for approximately 16.6% of our net sales for fiscal year 2023. We are therefore particularly exposed to downturns in this regional economy. We also have significant operations in the San Francisco Bay Area, Los Angeles, California, New England and Middle East. Deterioration in the economic conditions of our key markets generally, or in the local economy of the New York metropolitan area, San Francisco Bay or Los Angeles, California, New England and Middle East areas, specifically, could affect our business, financial condition or results of operations in a materially adverse manner.
In addition, given our geographic concentrations, and recent international expansion, other regional occurrences such as adverse weather conditions, terrorist attacks and other catastrophic events could have a material adverse effect on our business, financial condition or results of operations. Adverse weather conditions can significantly impact the business of our customers and our ability to profitably and efficiently conduct our operations and, in severe cases, could result in our trucks being unable to make deliveries or cause the temporary closure or the destruction of one or more of our distribution centers. Our operations and/or distribution centers which are located in (i) New York City, New England, Ohio, Washington D.C., Chicago and Canada are particularly susceptible to significant amounts of snowfall and ice, (ii) Miami and Orlando are particularly susceptible to hurricanes and flooding, and (iii) Los Angeles and San Francisco are particularly susceptible to earthquakes, mudslides and wildfires, among other locally occurring adverse weather conditions. In addition, our restaurant customers, many of which are independently owned with operations limited to one or two markets, may be less able to withstand the impact on their business from adverse weather conditions than national chain restaurants because they are unable to spread the risks of such events across numerous locations. In some cases, these customers may not be able to re-open their restaurants, and consequently make payment to us for products previously provided, if the weather event or other catastrophic event is severe, particularly if they lacked sufficient insurance or their insurance claims are not processed quickly.
Due to their prominence as, among other characteristics, densely-populated major metropolitan cities and as international hubs for intermodal transportation, a majority of our markets are potential targets for terrorist activity and are susceptible to other catastrophic events and could be subject to transportation disruption.
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Our markets outside the United States may also be impacted by political protests or instability. Moreover, our business, including our global supply chain, may be affected by geopolitical issues, such as the Russian invasion of Ukraine and related sanctions as well as the ongoing conflict in Israel, which have resulted in increased global tensions and contributed to rising input costs. Sustained or worsening global economic conditions and geopolitical issues may disrupt or increase our cost of doing business and otherwise disrupt and delay our supply chain operations. If our or our customers’ operations are significantly disrupted or if any one or more of our distribution centers is temporarily closed or destroyed for any of the foregoing reasons, our business, financial condition or results of operations may be materially adversely affected.
Information Technology, Intellectual Property and Data Risk
Information technology system failures, cybersecurity incidents or other disruptions to our use of technology and networks could interrupt our operations and adversely affect our business.
We rely upon information technology solutions including enterprise networks and software to process, transmit and store data related to virtually all our business processes and activities. Our business involves the storage and transmission of many types of sensitive or confidential information, including customers’ and suppliers’ personal information, private information about employees, and financial and strategic information about us and our operations. We leverage a suite of integrated hardware and software that relies on the availability of private and public networks to facilitate collaboration among all stakeholders. Likewise, we use mobile networks, web social media and other online applications to conduct business with suppliers and customers. Our operations depend upon our ability to protect our computer equipment and systems against damage from physical theft, fire, power loss, telecommunications failure or other catastrophic events, as well as from internal and external cybersecurity breaches, viruses, worms and other disruptive problems. We are continuously improving our information technology solutions, resulting in a larger technological presence and corresponding increase in exposure to cybersecurity risk. We and our third-party suppliers may experience cybersecurity incidents of varying degrees from time-to-time, such as ransomware and phishing attacks, as well as distributed denial of service attacks and the theft of data. Cyber threats are constantly evolving, are becoming more sophisticated and are being made by groups and individuals with a wide range of expertise and motives, and this increases the difficulty of detecting and successfully defending against them.
Any damage or failure of our computer systems or network infrastructure that causes an interruption in our operations, due to theft, destruction, loss, corruption, misappropriation, or unauthorized release of sensitive and/or confidential information or intellectual property (including personal information in violation of one or more privacy laws), or interference with our information technology systems or the technology systems of third parties on which we rely, could result in business disruption, disruption to our systems, loss of revenue, negative publicity, reputational and brand damage, violation of privacy laws, loss of customers, potential liability, (including litigation or other legal actions against us or the imposition by governmental authorities of penalties, fines, fees or liabilities, which, in turn, could cause us to incur significantly increased cybersecurity protection and remediation costs), and competitive disadvantage, which in turn could adversely affect our business and results of operations. In addition, if our suppliers or customers experience such a breach or unauthorized disclosure or system failure, their businesses could be disrupted or otherwise negatively affected. This may result in a disruption in our supply chain or reduced customer orders, which would adversely affect our business operations.
We have also outsourced several information technology support services and administrative functions to third-party service providers, including cloud-based service providers, and may outsource other functions in the future to achieve cost savings and efficiencies. If these service providers do not perform effectively due to breach or system failure, we may not be able to achieve the expected benefits and our business may be disrupted.
Further, as we pursue our strategy to grow through acquisitions and to pursue new initiatives that improve our operations and cost structure, we are also expanding and improving our information technologies, resulting in a larger technological presence and corresponding exposure to cybersecurity risk. Failure to adequately assess and identify cybersecurity risks associated with acquisitions and new initiatives could increase our vulnerability to such risks.
While we have implemented cybersecurity solutions, conducted employee awareness campaigns, employed both internal resources and external consultants to conduct auditing and testing for weaknesses in our systems, controls, firewalls and encryption and intend to maintain and upgrade our security technology and operational procedures to prevent such damage, breaches, attacks, or other disruptive problems, such efforts may be unsuccessful which in turn could. Additionally, information technology systems continue to evolve and, in order to remain competitive, we must implement new technologies in a timely and efficient manner. Our failure to implement timely and/or successfully new technologies may adversely affect our business and competitiveness and, consequently, our results of operations.
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Our investments in information technology may not produce the benefits that we anticipate.
In an attempt to reduce our operating expenses, increase our operational efficiencies, boost our operating margins and more closely track the movement of our inventory in our center-of-the-plate category, we have aggressively invested in the development and implementation of new information technology. We may not be able to implement these technological changes in the time frame we have planned, and any delays in implementation could negatively impact our business, financial condition or results of operations. In addition, the costs to make these changes may exceed our estimates and will likely exceed any benefits that we realize during the early stages of implementation. Even if we are able to implement the changes as planned, and within our cost estimates, we may not be able achieve the expected efficiencies, cost savings and operational enhancements from these investments which could have an adverse effect on our business, financial condition or results of operations.
Our failure to comply with data privacy regulations could adversely affect our business.
There are new and emerging data privacy laws, as well as frequent updates and changes to existing data privacy laws, in most jurisdictions in which we operate. Given the complexity of these laws and the often-onerous requirements they place on businesses regarding the collection, storage, handling, use, disclosure, transfer, and security of personal data, it is important for us to understand their impact and respond accordingly. Failure to comply with data privacy laws can result in substantial fines or penalties, legal liability and/or reputational damage.
The California Consumer Privacy Act of 2018 (the “CCPA”), which went into effect on January 1, 2020, imposes additional obligations on companies regarding the handling of personal information and provides certain individual privacy rights to persons whose information is collected. For example, the California Privacy Rights Act (the “CPRA”), which was approved by California voters as a ballot initiative in November 2020, modifies the CCPA significantly, further enhancing and extending an individual’s rights over their personal data and the obligations placed on companies that handle this data. The resulting new regulations became effective on January 1, 2023. Most notably, employee and business data were brought into scope, which raises the compliance requirements for us significantly, in terms of internal controls, processes and governance requirements.
Furthermore, since 2020, several other U.S. states have enacted (and additional U.S. states are considering enacting) stringent consumer privacy laws, which may impose varying standards and requirements on our data collection, use and processing activities. Continued state by state introduction of privacy laws can be expected to lead to significantly greater complexity in our compliance requirements globally, which could result in complaints from data subjects and/or action from regulators. If we do not provide sufficient resources to ensure we are able to respond, adapt and implement the necessary requirements to respond to the various forthcoming changes, which could include federal data privacy requirements in the U.S., while continuing to maintain our compliance with global data privacy laws, this could adversely impact our reputation and we could face exposure to fines levied by regulators, which could have a significant financial impact on our business.
We may not be able to adequately protect our intellectual property, which, in turn, could harm the value of our brands and adversely affect our business.
Our ability to implement our business plan successfully depends in part upon our ability to further build brand recognition, including for our proprietary products, using our trademarks, service marks and other proprietary intellectual property, including our names and logos. We have registered or applied to register a number of our trademarks. We cannot assure investors that our trademark applications will be approved. Third parties may also oppose our trademark applications, or otherwise challenge our use of the trademarks. In the event that our trademarks are successfully challenged, we could be forced to rebrand our goods and services, which could result in loss of brand recognition and could require us to devote resources to advertising and marketing new brands. If our efforts to register, maintain and protect our intellectual property are inadequate, or if any third party misappropriates, dilutes or infringes upon our intellectual property, the value of our brands may be harmed, which could have a material adverse effect on our business, financial condition or results of operations and might prevent our brands from achieving or maintaining market acceptance.
We may also face the risk of claims that we have infringed third parties’ intellectual property rights. If third parties claim that we have infringed or are infringing upon their intellectual property rights, our operating profits could be affected in a materially adverse manner. Any claims of intellectual property infringement, even those without merit, could be expensive and time consuming to defend, require us to rebrand our services, if feasible, divert management’s attention and resources or require us to enter into royalty or licensing agreements in order to obtain the right to use a third party’s intellectual property. Any royalty or licensing agreements, if required, may not be available to us on acceptable terms or at all. A successful claim of infringement against us could result in our being required to pay significant damages, enter into costly license or royalty agreements, or stop the sale of certain products or services, any of which could have a negative impact on our business, financial condition or results of operations and could harm our future prospects.
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Legal and Regulatory Risk
Product liability claims could have a material adverse effect on our business, financial condition or results of operations.
Like any other distributor of food products, we face an inherent risk of exposure to product liability claims if the products we sell cause injury or illness. We may be subject to liability, which could be substantial, because of actual or alleged contamination in products sold by us, including products sold by companies before we acquired them. We have, and the companies we have acquired have had, liability insurance with respect to product liability claims. This insurance may not continue to be available at a reasonable cost or at all, and it may not be adequate to cover product liability claims against us or against any of the companies we have acquired. We generally seek contractual indemnification from manufacturers or suppliers of the product, but any such indemnification is limited, as a practical matter, to the creditworthiness of the indemnifying party. If we or any of our acquired companies do not have adequate insurance or contractual indemnification available, product liability claims and costs associated with product recalls, including a loss of business, could have a material adverse effect on our business, financial condition or results of operations.
If the products we distribute are alleged to cause injury or illness or fail to comply with governmental regulations, we may
need to recall our products.
Meat, poultry and seafood products that we distribute may be subject to product recalls, including voluntary recalls or withdrawals, if they are alleged to cause injury or illness (including food-borne illness such as E. coli, bovine spongiform, encephalopathy, hepatitis A, trichinosis, listeria, or salmonella) or if they are alleged to have been mislabeled, misbranded, or adulterated or to otherwise be in violation of governmental regulations. These pathogens are generally found in the environment and can be introduced as a result of improper handling in our facilities or at the consumer level. These risks may be controlled, although not eliminated, by adherence to good manufacturing practices and finished product testing. We have little, if any, control over proper handling before we receive the product or once the product has been shipped to our customers. Outbreaks of diseases, or the perception by the public that an outbreak has occurred, or other concerns regarding diseases, can lead to inadequate supply, cancellation of orders by customers and adverse publicity, any of which can have a significant negative impact on consumer demand and, as a result, on our business, financial condition or results of operations.
We may also voluntarily recall or withdraw products that we consider not to meet our quality standards, whether for taste, appearance, or otherwise, in order to protect our brand and reputation. If there is any future product withdrawal that results in substantial and unexpected expenditures, destruction of product inventory, damage to our reputation, or lost sales because of the unavailability of the product
We are subject to significant governmental regulation, and failure to comply could subject us to enforcement actions, recalls or other penalties, which could have a material adverse effect on our business, financial condition or results of operations.
Our business is highly regulated at the federal, state and local levels, and our specialty food products, meat, poultry and seafood products and distribution operations require various licenses, permits and approvals. For example:
•the products we distribute in the United States are subject to regulation and inspection by the FDA and the USDA, the products we distribute in the Middle East are subject to regulation and inspection by the Abu Dhabi Food Control Authority, Ministry of Health, and Centre for Food Safety and Quality, and the products we distribute in Canada are subject to regulation by Health Canada and the Canadian Food Inspection Agency;
•our warehouse, distribution facilities, repackaging activities and other operations also are subject to regulation and inspection, as applicable, by the FDA, the USDA, Health Canada, the Canadian Food Inspection Agency, Abu Dhabi Food Control Authority, Ministry of Health, Centre for Food Safety and Quality, and state, and provincial health authorities; and
•our U.S., Canadian, and Middle Eastern trucking operations are subject to regulation by, as applicable, the U.S. Department of Transportation, the U.S. Federal Highway Administration, Transport Canada, the Surface Transportation Board, Dubai Road and Transport Authority, Abu Dhabi Transport Authority, Ministry of Transport, and provincial transportation authorities.
The failure to comply with applicable legal and regulatory requirements could result in investigations, litigation or other legal proceedings, administrative, civil or criminal fines or penalties, mandatory or voluntary product recalls, cease and desist orders against operations that are in non compliance, closure of facilities or operations, the loss, modification or revocation of any existing licenses, permits or approvals or the failure to obtain additional licenses, permits or approvals in new jurisdictions where we intend to do business. Our suppliers are also subject to similar regulatory requirements and oversight.
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As a result of our global operations, we are required to comply with laws and regulations governing ethical, anti-bribery and similar business practices. In our foreign operations, we are subject to the risk that one or more of our employees, contractors or agents could engage in business practices prohibited by U.S. laws and regulations that are applicable to us, such as the Foreign Corrupt Practices Act, including those based in or from countries where practices that violate U.S. laws and regulations or the laws and regulations of other countries may be customary, or will engage in business practices that are prohibited by the Company’s policies or circumvent its compliance programs. Any of these violations could adversely affect our business, financial condition and operating results. Further, foreign currency exchange rates and fluctuations may have an effect on our future costs or on future cash flows from our foreign operations and could adversely affect our financial condition and operating results.
Climate change, or the legal, regulatory or market measures being implemented to address climate change, may have an adverse impact on our business.
The effects of climate change may create financial and operational risks to our business, both directly and indirectly. There is an increased focus around the world by regulatory and legislative bodies at all levels towards policies relating to climate change and the impact of global warming, including the regulation of greenhouse gas (“GHG”) emissions, energy usage and sustainability efforts. Increased compliance costs and expenses due to the impacts of climate change on our business, as well as additional legal or regulatory requirements regarding climate change or designed to reduce or mitigate the effects of carbon dioxide and other GHG emissions on the environment, may cause disruptions in, or an increase in the costs associated with, the running of our business, particularly with regard to our distribution and supply chain operations. Moreover, compliance with any such legal or regulatory requirements may require that we implement changes to our business operations and strategy, which would require us to devote substantial time and attention to these matters and cause us to incur additional costs. The effects of climate change, and legal or regulatory initiatives to address climate change, could have a long-term adverse impact on our business and results of operations.
For example, on October 7, 2023, California Governor Gavin Newsom signed into law SB 261 (“SB 261”), Greenhouse Gases: Climate-Related Financial Risk, and SB 253, the Climate Corporate Data Accountability Act, which significantly expand climate-related disclosure requirements for companies doing business in California. As a company with operations in California, we may fall under the jurisdiction of these new laws. Commencing on January 1, 2026, and biennially thereafter, SB 261 mandates that we publicly disclose our climate-related financial risks, including disclosing strategies we have adopted to mitigate and adapt to these risks. Non-compliance with the requirements of SB 261 could expose us to a fine of up to $50,000 per reporting year, and we may also be required to pay an annual filing fee. Additionally, California recently enacted Assembly Bill 1305 (“AB 1305”). AB 1305, which became effective January 1, 2024, creates new annual disclosure requirements regarding substantiation of certain climate-related statements, and may increase our compliance costs.
Compliance with these climate-related disclosure rules will require additional time and attention of management and financial resources. We must develop robust systems, processes, and controls for assessing and reporting our climate-related financial risks, as well as ensuring transparency and accuracy in our disclosures. Furthermore, if our competitors’ climate change or sustainability performance is perceived to be better than ours, potential or current investors may elect to invest with our competitors instead. In addition, in the event that we communicate certain initiatives or goals regarding greenhouse gas emission reductions, we could fail, or be perceived to fail, in our achievement of such initiatives or goals, or we could be criticized for the scope of such initiatives or goals. If we fail to satisfy the expectations of investors, customers, employees and other stakeholders or our initiatives are not executed as planned, our business, financial condition or results of operations could be adversely affected.
Adverse judgments or settlements resulting from legal proceedings in which we may be involved in the ordinary course of our business could reduce our profits or limit our ability to operate our business.
In the ordinary course of our business, we may become involved in various legal proceedings. The outcome of these proceedings cannot be predicted. If any of these proceedings were to be determined adversely to us or a settlement involving a payment of a material sum of money were to occur, it could materially and adversely affect our profits or ability to operate our business. Additionally, we could become the subject of future claims by third parties, including our employees; suppliers, customers, and other counterparties; our investors; or regulators. For example, we are subject to the risk of employment-related litigation, which we believe increased as a result of our large workforce in California and New York, at both the state and federal levels, including claims styled as class action lawsuits, which are more costly to defend. Also, some employment-related claims in the area of wage and hour disputes are not insurable risks. Any significant adverse judgments or settlements could reduce our profits and could limit our ability to operate our business. Further, we may incur costs related to claims for which we have appropriate third-party indemnity, but such third parties may fail to fulfill their contractual obligations.
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Changes in applicable federal, state, provincial and local tax laws and regulations in the United States, Canada and the Middle East, and the resolution of tax disputes, may adversely impact our business, financial condition or results of operations.
We are subject to federal, state, provincial and local tax laws and regulations in the United States, Canada and Middle East and changes in tax laws or regulations or tax rulings may have an adverse impact on our effective tax rate. The U.S. and many state and local jurisdictions where we do business from time to time enact changes in relevant tax, accounting and other laws, regulations and interpretations. Given the unpredictability of possible changes to U.S. federal and state and local tax laws and regulations, it is very difficult to predict their cumulative effect on our results of operations and cash flows, but new and changed laws and regulations could adversely impact our results of operations. Although we believe that our tax estimates are reasonable, if the Internal Revenue Service (“IRS”) or any other taxing authority disagrees with the positions we have taken on our tax returns, we could face additional tax liability, including interest and penalties. If material, payment of such additional amounts upon final adjudication of any disputes could have a material impact on our business, financial condition or results of operations.
Many jurisdictions and intergovernmental organizations have been discussing or are in the process of implementing proposals that may change various aspects of the existing framework under which our tax obligations are determined in future periods. For example, the Organization for Economic Co-operation and Development (the “OECD”), an international association comprised of 38 countries, including the United States, has issued proposals that change long-standing tax principles including on a global minimum tax initiative. On December 12, 2022, the European Union member states agreed to implement the OECD’s Base Erosion and Profit Shifting (“BEPS”) 2.0 Pillar Two global corporate minimum tax rate of 15% on companies with revenues of at least €750 million, which would go into effect in 2024. The Company will continue to monitor regulatory developments to assess potential impacts to the Company.
Complying with new tax rules, laws or regulations could impact our business, financial condition or results of operations, and increases to federal, provincial or state statutory tax rates and other changes in tax laws, rules or regulations may increase our effective tax rate. Any increase in our effective tax rate could have a material impact on our business, financial condition or results of operations.
We estimate our ability to recover deferred tax assets within the jurisdiction from which they arise. A valuation allowance is recognized if, based on the available positive and negative evidence, it is more likely than not that some or all of a deferred tax asset is not recoverable. This evaluation considers several factors, including recent results of operations, future taxable income, scheduled reversal of deferred tax liabilities, and tax planning strategies. Our financial condition and results of operations could be adversely impacted if our valuation allowances increase due to an unfavorable change in our estimate of the recoverability of our deferred tax assets or changes in laws or regulations that limit our ability to recover them.
Financial Risk
Our substantial indebtedness may limit our ability to invest in the ongoing needs of our business.
As of December 29, 2023, we had approximately $735.3 million of total indebtedness, consisting of $276.3 million of loans outstanding on our senior secured term loan facility (“Term Loan”), $327.2 million of convertible debt, $100.0 million of borrowings outstanding under our asset-based loan facility (“ABL”) and $31.9 million of finance leases and other financing obligations. See Note 9 “Debt Obligations” to our consolidated financial statements for a full description of our debt instruments.
Our indebtedness could have important consequences for us and our investors. For example, our indebtedness:
•requires us to utilize a substantial portion of our cash flows from operations to make payments on our indebtedness, reducing the availability of our cash flows to fund working capital, capital expenditures, development activity and other general corporate purposes;
•increases our vulnerability to adverse general economic or industry conditions;
•limits our flexibility in planning for, or reacting to, changes in our business or the industries in which we operate;
•makes us more vulnerable to increases in interest rates, as borrowings under our Term Loan and ABL (together the “Credit Facilities”) are at variable rates;
•in the case of our convertible debt, could result in the issuance of additional shares of our common stock that would result in the dilution of our then-existing stockholders;
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•limits our ability to obtain additional financing in the future for working capital or other purposes, including to finance acquisitions; and
•places us at a competitive disadvantage compared to our competitors with less indebtedness.
If our earnings are insufficient to fund our operations, including our acquisition growth strategy, we will need to raise additional capital or issue additional debt, including longer-term, fixed-rate debt, to pay our indebtedness as it comes due or as our availability under our ABL is exhausted. If we are unable to obtain funds necessary to make required payments or if we fail to comply with the various requirements of our Credit Facilities and convertible debt agreements, we would be in default, which would permit the holders of our indebtedness to accelerate the maturity of the indebtedness and could cause defaults under any indebtedness we may incur in the future. Any default under our indebtedness requiring the repayment of outstanding borrowings would have a material adverse effect on our business, financial condition and results of operations. If we are unable to refinance or repay our indebtedness as it becomes due, we may become insolvent and be unable to continue operations.
Although the agreements governing the Credit Facilities contain restrictions on the incurrence of additional indebtedness, these restrictions are subject to a number of qualifications and exceptions, and the indebtedness incurred in compliance with these restrictions could be substantial. Also, these restrictions do not prevent us from incurring obligations that do not constitute indebtedness.
The agreements governing the Credit Facilities require us to maintain fixed charge coverage ratios and leverage ratios. Our ability to comply with these ratios in the future may be affected by events beyond our control, and our inability to comply with the required financial ratios could result in a default under the Credit Facilities. In the event of events of default, the lenders under the Credit Facilities could elect to terminate lending commitments and declare all borrowings outstanding, together with accrued and unpaid interest and other fees, to be immediately due and payable. See “Management’s Discussion and Financial Condition and Results of Operations—Liquidity and Capital Resources.”
Our ability to raise capital in the future may be limited.
Our business and operations may consume resources, including availability under our ABL, faster than we currently anticipate. In the future, we may need to raise additional funds through the issuance of new equity securities, debt, including longer-term, fixed-rate debt, or a combination of both. Additional financing may not be available on favorable terms or at all. If adequate funds are not available on acceptable terms, we may be unable to fund our capital requirements or grow our business through acquisitions, or otherwise. If we issue new debt securities, the debt holders may have rights senior to those of our common stockholders to make claims on our assets, and the terms of any debt could restrict our operations, including our ability to pay dividends on our common stock. If we issue additional equity securities or convertible debt, existing stockholders will experience dilution, and the new equity securities could have rights senior to those of our common stock. Because our decision to issue securities in any future offering will depend upon market conditions and other factors beyond our control, we cannot predict or estimate the amount, timing or nature of our future offerings. Thus, our stockholders bear the risk of our future securities offerings reducing the market price of our common stock and diluting their interest.
We may be unable to obtain debt or other financing, including financing necessary to execute on our acquisition strategy, on favorable terms or at all.
There are inherent risks in our ability to borrow debt capital. Lenders, including those participating in the Credit Facilities, may become insolvent or tighten their lending standards, which could make it more difficult for us to borrow under our ABL, refinance our existing indebtedness or obtain other financing on favorable terms or at all. Our access to funds under the Credit Facilities is dependent upon the ability of our lenders to meet their funding commitments. Our financial condition and results of operations would be adversely affected in a material manner if we were unable to draw funds under the ABL because of a lender default or if we had to obtain other cost-effective financing. Longer term disruptions in the capital and credit markets as a result of uncertainty, changing or increased regulation, reduced alternatives or failures of significant financial institutions could adversely affect our access to liquidity needed for our business. Any disruption could require us to take measures to conserve cash until the markets stabilize or until alternative credit arrangements or other funding for our business can be arranged. Such measures could include deferring capital expenditures (including our entry into new markets, including through acquisitions) and reducing or eliminating other discretionary uses of cash.
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Risks Relating to Ownership of our Common Stock
Concentration of ownership among our existing executive officers, directors and their affiliates may prevent new investors from influencing significant corporate decisions.
As of February 12, 2024, our executive officers, directors and their affiliates beneficially owned, in the aggregate, approximately 12.6% of our outstanding shares of common stock. In particular, Christopher Pappas, our president and chief executive officer, and John Pappas, our vice chairman and chief operating officer, beneficially owned approximately 10.8% of our outstanding shares of common stock as of February 12, 2024. As a result of their significant individual ownership levels, these stockholders will be able to exercise a significant level of control over all matters requiring stockholder approval, including the election of directors, amendment of our certificate of incorporation and approval of significant corporate transactions. This control could have the effect of delaying or preventing a change of control of our company or changes in management and will make the approval of certain transactions difficult or impossible without the support of these stockholders.
Item 1B. UNRESOLVED STAFF COMMENTS
None.
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Item 1C. CYBERSECURITY
Cybersecurity Risk Management and Strategy
As part of our cybersecurity process, we engage external auditors and consultants to assess our cybersecurity program and compliance with applicable practices and standards. To identify and manage the material risks of cybersecurity threats to our business, operations and control environments, we have made significant investments in our technology and have implemented policies, programs and controls, with a focus on cybersecurity incident prevention and mitigation. Identifying and assessing cybersecurity risk is integrated into our overall risk management systems and processes. Cybersecurity risks related to our business, technical operations, privacy and compliance issues are identified and addressed by third-party auditors and consultants, as well as our internal Information Technology and Legal teams, to ensure compliance with applicable practices and standards.
We mitigate risks from cybersecurity incidents using a multi-faceted approach that includes, but is not limited to: establishing information security policies and standards, implementing information protection processes and technologies, assessing cybersecurity risk through vulnerability assessments and audits on an annual basis, reviewing newly developed cybersecurity standards or legislation, implementing cybersecurity training, monitoring our information technology systems for cybersecurity threats and collaborating with public and private organizations on best practices. .
We did not experience a material cybersecurity incident during the fiscal year ended December 29, 2023. For more information on risks from cybersecurity threats, including as a result of any previous cybersecurity incidents, have materially affected or are reasonably likely to materially affect us, including our business strategy, results of operations, or financial condition, see “Information technology system failures, cybersecurity incidents or other disruptions to our use of technology and networks could interrupt our operations and adversely affect our business” included as part of our risk factor disclosures at Item 1A of this Annual Report on Form 10-K.
Cybersecurity Governance
Cybersecurity is an important part of our risk management processes and an area of focus for our Board and management. Our board of directors is engaged in overseeing and reviewing the Company’s strategic direction and objectives, including the Company’s risk profile and exposures as they relate to cybersecurity, conducting reviews of policies regarding risk assessment and risk management and major risk exposures, as well as evaluations of risks from potential or actual cybersecurity threats. Our Chief Information Officer, Vice President of Infrastructure, and Security Administrator have responsibility of cybersecurity oversight of the Company and each have 12, 15, and 6 years of cybersecurity experience, respectively. The Security Administrator reports to the Vice President of Infrastructure, who in turn reports to the Chief Information Officer. Members of the Board receive regular quarterly cybersecurity updates from our Chief Information Officer, including updates on existing and new cybersecurity risks, cybersecurity and data privacy incidents (if any) and status on key information security initiatives.
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Item 2. PROPERTIES
We operate 52 distributions centers located in the United States, Canada, Qatar, Oman, and United Arab Emirates, totaling approximately 3.0 million square feet. We own two distribution facilities in Massachusetts with a combined 241,000 square feet, two distribution centers in Ohio with a combined 120,397 square feet, and a 10,000 square foot protein processing facility and distribution center in Chicago, Illinois. All of our other properties are leased. The following table sets forth our significant distribution, protein processing, corporate and other support facilities by state or country and their approximate aggregate square footage as of February 14, 2024.
| State / Country | Number of Facilities | Total Square Footage | ||||||||||||
| California | 12 | 922,400 | ||||||||||||
| Texas | 6 | 370,900 | ||||||||||||
| Maryland | 4 | 324,500 | ||||||||||||
| United Arab Emirates | 2 | 299,300 | ||||||||||||
| Massachusetts | 5 | 287,300 | ||||||||||||
| New York | 2 | 246,100 | ||||||||||||
Florida (2) | 4 | 235,000 | ||||||||||||
| Oregon | 3 | 211,300 | ||||||||||||
| New Jersey | 2 | 206,900 | ||||||||||||
| Illinois | 3 | 144,200 | ||||||||||||
| Ohio | 2 | 120,400 | ||||||||||||
| Nevada | 3 | 117,600 | ||||||||||||
| Canada | 4 | 99,400 | ||||||||||||
| Washington | 2 | 94,000 | ||||||||||||
| Arizona | 2 | 60,800 | ||||||||||||
| Qatar | 1 | 43,200 | ||||||||||||
| Tennessee | 1 | 32,800 | ||||||||||||
Connecticut (1) | 1 | 29,200 | ||||||||||||
| Michigan | 1 | 14,900 | ||||||||||||
| Oman | 3 | 11,800 | ||||||||||||
| Colorado | 1 | 3,600 | ||||||||||||
| Total | 64 | 3,875,600 | ||||||||||||
(1)Represents our corporate headquarters in Ridgefield, Connecticut.
(2)Includes a corporate office in Miami, Florida.
We consider our properties to be in good condition generally and believe our facilities are adequate for our operations and provide sufficient capacity to meet our anticipated requirements.
Item 3. LEGAL PROCEEDINGS
From time to time, we are subject to various legal proceedings that arise from the normal course of business activities. If an unfavorable ruling were to occur, there exists the possibility of a material adverse impact on our results of operations, prospects, cash flows, financial position and brand. We are not currently aware of any pending or threatened legal proceeding against us that could have a material adverse effect on our business, operating results or financial condition.
Item 4. MINE SAFETY DISCLOSURES
Not applicable.
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PART II
Item 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES
The Chefs’ Warehouse, Inc. Common Stock
Our common stock is publicly traded under the symbol “CHEF” on the NASDAQ Global Select Market. As of December 29, 2023, there were 213 holders of record of our common stock. This does not include the number of persons whose stock is in nominee or “street” name accounts through brokers.
We have never paid a cash dividend on our common stock and do not anticipate paying any cash dividends on our common stock in the foreseeable future. Further, our ability to pay dividends is limited by the terms and conditions of our senior secured credit agreements, which require compliance with certain baskets and ratio tests and certain excess availability tests.
Performance Graph
The following graph compares the cumulative total stockholder return on our common stock during the period from December 28, 2018 through December 29, 2023 with the cumulative total return on the NASDAQ Composite and the S&P Smallcap Food Distributor Index. The comparison assumes that $100 was invested on December 28, 2018 in our common stock and in each of the foregoing indices and assumes reinvestment of dividends, if any.
The following performance graph and related information shall not be deemed “soliciting material” or to be “filed” with the Securities and Exchange Commission, nor shall such information be incorporated by reference into any future filing under the Securities Act of 1933 or the Securities Exchange Act of 1934, each as amended, except to the extent that we specifically incorporate such information by reference into such filing.
COMPARISON OF 5 YEAR CUMULATIVE TOTAL RETURN
AMONG THE CHEFS’ WAREHOUSE, INC.
NASDAQ COMPOSITE INDEX AND THE S&P SMALLCAP FOOD DISTRIBUTOR INDEX
ASSUMES $100 INVESTED ON DECEMBER 28, 2018
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| December 28, 2018 | December 27, 2019 | December 25, 2020 | December 24, 2021 | December 30, 2022 | December 29, 2023 | |||||||||||||||||||||||||||||||||
| The Chefs’ Warehouse, Inc. | $ | 100.00 | $ | 121.19 | $ | 76.25 | $ | 103.96 | $ | 106.22 | $ | 93.94 | ||||||||||||||||||||||||||
| NASDAQ Composite Index | $ | 100.00 | $ | 136.78 | $ | 194.47 | $ | 237.73 | $ | 158.96 | $ | 227.98 | ||||||||||||||||||||||||||
| S&P Smallcap Food Distributor Index | $ | 100.00 | $ | 93.64 | $ | 99.92 | $ | 193.62 | $ | 177.82 | $ | 145.61 | ||||||||||||||||||||||||||
ISSUER PURCHASES OF EQUITY SECURITIES
Total Number of Shares Repurchased(1) | Average Price Paid Per Share | Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs | Maximum Number (or Approximate Dollar Value) of Shares That May Yet Be Purchased Under the Plans or Programs | |||||||||||||||||||||||
| September 30, 2023 to October 29, 2023 | — | $ | — | — | — | |||||||||||||||||||||
| October 30, 2023 to November 24, 2023 | 1,025 | 23.46 | — | — | ||||||||||||||||||||||
| November 25, 2023 to December 29, 2023 | 344 | 28.70 | — | — | ||||||||||||||||||||||
| Total | 1,369 | $ | 24.77 | — | — | |||||||||||||||||||||
(1)During the thirteen weeks ended December 29, 2023, we withheld 1,369 shares of our common stock to satisfy tax withholding requirements upon the vesting of restricted shares of our common stock awarded to certain of our officers and key employees.
Share Repurchase Program
On November 1, 2023, we announced a two-year share repurchase program in an amount up to $100.0 million targeting $25.0 million to $100.0 million of share repurchases by the end of fiscal 2025.
Shares Issued for Acquisitions
On May 1, 2023, the Company issued 75,008 shares of their common stock in connection with an acquisition, with an approximate value of $2,496 based on the trading price of the Company’s common stock on the date of acquisition. The shares were issued pursuant to Section 4(a)(2) of the Securities Act of 1933, as amended, to the sellers as partial consideration.
Equity Compensation Plan Information
See Part III, Item 12 for information regarding securities authorized for issuance under our equity compensation plans.
Item 6. RESERVED
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Item 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion should be read in conjunction with information included in Item 8 of this report. Unless otherwise indicated, the terms “Company”, “Chefs’ Warehouse”, “we”, “us”, and “our” refer to The Chefs’ Warehouse, Inc. and its subsidiaries.
Overview and Recent Developments
Overview
We are a premier distributor of specialty foods in the leading culinary markets in the United States, the Middle East and Canada. We offer more than 70,000 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 44,000 Core Customer locations, primarily located in our twenty-three geographic markets across the United States, the Middle East 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 believe several key differentiating factors of our business model have enabled us to execute our strategy consistently and profitably across our expanding customer base. These factors consist of a portfolio of distinctive and hard-to-find specialty food products, an extensive selection of center-of-the-plate proteins, a highly trained and motivated sales force, strong sourcing capabilities, a fully integrated warehouse management system, a highly sophisticated distribution and logistics platform and a focused, seasoned management team.
In recent years, our sales to existing and new customers have increased through the continued growth in demand for specialty food and center-of-the-plate products in general; increased market share driven by our large percentage of sophisticated and experienced sales professionals, our high-quality customer service and our extensive breadth and depth of product offerings, including, as a result of our acquisitions; the expansion of our existing distribution centers; our entry into new distribution centers, including the construction of new distribution centers in San Francisco, Toronto, Dallas, Los Angeles and Miami; and the import and sale of our proprietary brands. Through these efforts, we believe that we have been able to expand our customer base, enhance and diversify our product selections, broaden our geographic penetration and increase our market share.
Recent Major Acquisitions
On May 1, 2023, we acquired substantially all of the equity interests of Oakville Produce Partners, LLC (“GreenLeaf”), a leading produce and specialty food distributor in Northern California. The final purchase price was $88.2 million consisting of $72.2 million paid in cash at closing, $3.5 million paid upon settlement of a net working capital true-up, the issuance of a $10.0 million unsecured note and 75,008 shares of the Company’s common stock with an approximate value of $2.5 million based on the trading price of the Company’s common stock on the date of acquisition.
On March 20, 2023, we acquired substantially all of the assets of Hardie’s F&V, LLC (“Hardie’s”), a specialty produce distributor with operations in Texas. The final purchase price was approximately $41.4 million, consisting of $38.0 million paid in cash at closing, $0.6 million received upon settlement of a net working capital true-up and an earn-out liability valued at approximately $4.0 million as of the acquisition date. If earned, the earn-out liability could total up to $10.0 million over a two-year period.
On November 1, 2022, we 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 final purchase price was approximately $116.5 million, consisting of $108.7 million paid in cash at closing, $0.2 million paid upon settlement of a net working capital true-up, and an earn-out liability valued at $7.6 million as of the date of acquisition. The earn-out liability was earned and paid in full during the fourth quarter of fiscal 2023 for a total of $10.0 million.
Our Growth Strategies and Outlook
We continue to invest in our people, facilities and technology in an effort to achieve the following objectives and maintain our premier position within the specialty foodservice distribution market:
•sales and service territory expansion;
•operational excellence and high customer service levels;
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•expanded purchasing programs and improved buying power;
•product innovation and new product category introduction;
•operational efficiencies through system enhancements; and
•operating expense reduction through the centralization of general and administrative functions.
Our growth has allowed us to improve upon our organization’s infrastructure, open new distribution facilities and pursue selective acquisitions. Over the last several years, we have increased our distribution capacity to approximately 3.0 million square feet in 52 distribution facilities as of February 14, 2024. Over the period from fiscal 2021 through fiscal 2023, we have invested significantly in acquisitions, infrastructure and management.
Key Factors Affecting Our Performance
Due to our focus on menu-driven independent restaurants, fine dining establishments, country clubs, hotels, caterers, culinary schools, bakeries, patisseries, chocolateries, cruise lines, casinos and specialty food stores, our results of operations are materially impacted by the success of the food-away-from-home industry in the United States, Middle East and Canada, which is materially impacted by general economic conditions, weather, discretionary spending levels and consumer confidence. When economic conditions deteriorate, our customers’ businesses are negatively impacted as fewer people eat away-from-home and those who do spend less money. As economic conditions begin to improve, our customers’ businesses historically have likewise improved, which contributes to improvements in our business. Similarly, the direct-to-consumer business of our Allen Brothers subsidiary is significantly dependent on consumers’ discretionary spending habits, and weakness or uncertainty in the economy could lead to consumers buying less from Allen Brothers.
Volatile food costs may have a direct impact upon our profitability. Prolonged periods of product cost inflation may have a negative impact on our profit margins and results of operations to the extent we are unable to pass on all or a portion of such product cost increases to our customers. In addition, product cost inflation may negatively impact consumer discretionary spending decisions within our customers’ establishments, which could adversely impact our sales. Conversely, our profit levels may be negatively impacted during periods of product cost deflation even though our gross profit as a percentage of sales may remain relatively constant. However, some of our products, particularly certain of our center-of-the-plate protein items, are priced on a “cost plus” markup, which helps mitigate the negative impact of deflation.
Given our wide selection of product categories, as well as the continuous introduction of new products, we can experience shifts in product sales mix that have an impact on net sales and gross profit margins. This mix shift is most significantly impacted by the introduction of new categories of products in markets that we have more recently entered, the shift in product mix resulting from acquisitions, as well as the continued growth in item penetration on higher velocity items such as dairy products.
The foodservice distribution industry is fragmented but consolidating, and we have supplemented our internal growth through selective strategic acquisitions. We believe that the consolidation trends in the foodservice distribution industry will continue to present acquisition opportunities for us, which may allow us to grow our business at a faster pace than we would otherwise be able to grow the business organically.
Performance Indicators
In addition to evaluating our income from operations, our management team analyzes our performance based on net sales growth, gross profit and gross profit margin.
•Net sales growth. Our net sales growth is driven principally by changes in volume and, to a lesser degree, changes in price related to the impact of inflation in commodity prices and product mix. In particular, product cost inflation and deflation impacts our results of operations and, depending on the amount of inflation or deflation, such impact may be material. For example, inflation may increase the dollar value of our sales, and deflation may cause the dollar value of our sales to fall despite our unit sales remaining constant or growing.
•Gross profit and gross profit margin. Our gross profit and gross profit as a percentage of net sales, or gross profit margin, are driven principally by changes in volume and fluctuations in food and commodity prices and our ability to pass on any price increases to our customers in an inflationary environment and maintain or increase gross profit margin when our costs decline. Our gross profit margin is also a function of the product mix of our net sales in any period. Given our wide selection of product categories, as well as the continuous introduction of new products, we can experience shifts in product sales mix that have an impact on net sales and gross profit margins. This mix shift is most significantly impacted by the introduction of new categories of products in markets that we have more recently entered, impact of
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product mix from acquisitions, as well as the continued growth in item penetration on higher velocity items such as dairy products.
Key Financial Definitions
•Net sales: Net sales consist primarily of sales of specialty products, produce, center-of-the-plate proteins and other food products to independently-owned restaurants and other high-end foodservice customers, which we report net of certain group discounts and customer sales incentives. Net sales also include direct-to-consumer sales on our e-commerce platforms.
•Cost of sales: Cost of sales include the net purchase price paid for products sold, plus the cost of transportation necessary to bring the product to our distribution facilities and food processing costs. Food processing costs include, but are not limited, to direct labor and benefits, applicable overhead and depreciation of equipment and facilities used in food processing activities. Our cost of sales may not be comparable to other similar companies within our industry.
•Selling, general and administrative expenses: Selling, general and administrative expenses include facilities costs, product shipping and handling costs, warehouse costs, and other selling, general and administrative costs.
•Other operating expenses: Other operating expenses includes expenses primarily related to changes in the fair value of the Company’s contingent 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.
Results of Operations
This discussion focuses on our fiscal 2023 results, compared with fiscal 2022 results. The discussion of our fiscal 2022 results, compared with fiscal 2021 results, can be found in Management’s Discussion and Analysis of Financial Condition and Results of Operations in Part II, Item 7 of our Annual Report on Form 10-K for the fiscal year ended December 30, 2022.
| Fiscal Years Ended | |||||||||||||||||
| (in thousands) | December 29, 2023 | December 30, 2022 | December 24, 2021 | ||||||||||||||
| Net sales | $ | 3,433,763 | $ | 2,613,399 | $ | 1,745,757 | |||||||||||
| Cost of sales | 2,619,289 | 1,994,763 | 1,355,272 | ||||||||||||||
| Gross profit | 814,474 | 618,636 | 390,485 | ||||||||||||||
| Selling, general and administrative expenses | 704,758 | 518,219 | 379,252 | ||||||||||||||
| Other operating expenses | 8,773 | 14,679 | 422 | ||||||||||||||
| Operating income | 100,943 | 85,738 | 10,811 | ||||||||||||||
| Interest and other expense, net | 45,474 | 43,849 | 17,587 | ||||||||||||||
| Income (loss) before income taxes | 55,469 | 41,889 | (6,776) | ||||||||||||||
| Provision for income tax expense (benefit) | 20,879 | 14,139 | (1,853) | ||||||||||||||
| Net income (loss) | $ | 34,590 | $ | 27,750 | $ | (4,923) | |||||||||||
Fiscal Year Ended December 29, 2023 Compared to Fiscal Year Ended December 30, 2022
The fiscal year ended December 29, 2023 consisted of 52 weeks as compared to the fiscal year ended December 30, 2022, which consisted of 53 weeks.
Net Sales
| 2023 | 2022 | $ Change | % Change | ||||||||||||||||||||
| Net sales | $ | 3,433,763 | $ | 2,613,399 | $ | 820,364 | 31.4 | % | |||||||||||||||
Organic growth contributed $214.6 million, or 8.2%, to sales growth. The remaining growth of $605.7 million, or 23.2%, resulted from acquisitions. The incremental 53rd week of the fiscal year ended December 30, 2022 contributed approximately 2.0% to fiscal 2022. Organic case count increased approximately 9.5% in our specialty category. In addition, specialty unique customers and placements increased 12.9% and 12.1%, respectively, compared to the prior year. Pounds sold in our center-of-
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the-plate category increased 6.3% compared to the prior year. Estimated inflation was 3.0% in our specialty category and 2.7% in our center-of-the-plate category compared to fiscal 2022.
Gross Profit
| 2023 | 2022 | $ Change | % Change | ||||||||||||||||||||
| Gross profit | $ | 814,474 | $ | 618,636 | $ | 195,838 | 31.7 | % | |||||||||||||||
| Gross profit margin | 23.7 | % | 23.7 | % | |||||||||||||||||||
Gross profit increased primarily due to increased sales volumes. Gross profit margin increased approximately 7 basis points based on the volume mix between specialty and center-of-the-plate category sales. Gross profit margins decreased 57 basis points in the Company’s specialty category and decreased 57 basis points in the Company’s center-of-the-plate category compared to the prior year period. Overall, our gross margins were relatively consistent with the prior year period.
Selling, General and Administrative Expenses
| 2023 | 2022 | $ Change | % Change | ||||||||||||||||||||
| Selling, general and administrative expenses | $ | 704,758 | $ | 518,219 | $ | 186,539 | 36.0 | % | |||||||||||||||
| Percentage of net sales | 20.5 | % | 19.8 | % | |||||||||||||||||||
The increase in selling, general and administrative expenses was primarily due to higher depreciation and amortization and higher costs associated with compensation, including benefits and facilities costs to support sales growth. Our ratio of selling, general and administrative expenses to net sales increased by 70 basis points due to increased near-term costs associated with our investments in facilities and acquisitions.
Other Operating Expenses, Net
| 2023 | 2022 | $ Change | % Change | ||||||||||||||||||||
| Other operating expenses | $ | 8,773 | $ | 14,679 | $ | (5,906) | (40.2) | % | |||||||||||||||
The decrease in other operating expenses relates primarily to non-cash charges of $3.1 million for changes in the fair value of our contingent earn-out liabilities in fiscal 2023 compared to non-cash charges of $8.5 million in the prior year period and a year over year decrease of $2.3 million primarily related to third-party deal costs incurred in connection with business acquisitions and financing arrangements. The decrease was partially offset by an impairment on customer relationship intangible assets of $1.8 million related to the loss of a significant Hardie’s customer post acquisition.
Interest Expense
| 2023 | 2022 | $ Change | % Change | ||||||||||||||||||||
| Interest expense | $ | 45,474 | $ | 43,849 | $ | 1,625 | 3.7 | % | |||||||||||||||
Interest expense increased primarily due to higher principal amounts of outstanding debt due to our 2028 convertible notes issued on December 13, 2022, our term loan refinancing on August 23, 2022, an increase in amounts drawn on our asset-based loan facility and higher rates of interest charged on the variable rate portion of our outstanding debt.
Provision for Income Tax Expense
| 2023 | 2022 | $ Change | % Change | ||||||||||||||||||||
| Provision for income tax expense | $ | 20,879 | $ | 14,139 | $ | 6,740 | 47.7 | % | |||||||||||||||
| Effective tax rate | 37.6 | % | 33.8 | % | |||||||||||||||||||
The effective tax rate in the current period increased primarily driven by current period for return-to-provision adjustments of approximately $2.1 million identified in the completion of our fiscal 2022 tax return and the impact of those adjustments on the fiscal 2023 annual effective tax rate.
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Liquidity and Capital Resources
We finance our day-to-day operations and growth primarily with cash flows from operations, borrowings under our senior secured credit facilities and other indebtedness, operating leases, trade payables and equity financing.
Indebtedness
The following table presents selected financial information on our indebtedness (in thousands):
| December 29, 2023 | December 30, 2022 | December 24, 2021 | |||||||||||||||
| Senior secured term loan | $ | 276,250 | $ | 299,250 | $ | 168,675 | |||||||||||
| Total convertible debt | $ | 327,184 | $ | 333,184 | $ | 204,000 | |||||||||||
| Borrowings outstanding on asset-based loan facility | $ | 100,000 | $ | 40,000 | $ | 20,000 | |||||||||||
| Finance leases and other financing obligations | $ | 31,892 | $ | 13,548 | $ | 11,602 | |||||||||||
As of December 29, 2023, we have various floating- and fixed-rate debt instruments with varying maturities for an aggregate principal amount of $713.4 million. We had outstanding letters of credit of approximately $30.1 million and $25.8 million at December 29, 2023 and December 30, 2022, respectively. Substantially all of our assets are pledged as collateral to secure our borrowings under our credit facilities. See Note 9 “Debt Obligations” to our consolidated financial statements for a full description of our debt instruments.
Recent Significant Financing Transactions
On November 1, 2023, we announced a two-year share repurchase program in an amount up to $100.0 million targeting $25.0 million to $100.0 million of share repurchases by the end of fiscal 2025.
On July 7, 2023, we increased the aggregate commitments on our asset-based loan facility to $300.0 million.
On December 13, 2022, we issued $287.5 million aggregate principal amount of 2.375% Convertible Senior Notes (the “2028 Convertible Notes”). Concurrently with the issuance of the 2028 Convertible Notes, we exchanged or repurchased approximately $158.3 million principal amount of 1.875% Convertible Senior Notes ( the“2024 Convertible Notes”) for an aggregate consideration consisting of approximately $159.7 million in cash, which includes accrued interest on the 2024 Convertible Notes, and approximately 324,066 shares of the Company’s common stock. We incurred transaction costs of approximately $7.0 million which were capitalized as deferred financing fees to be amortized over the term of the 2028 Senior Notes.
On August 23, 2022, we refinanced our senior secured term loans in an aggregate principal amount of $300.0 million maturing in August 2029, comprising of a refinancing of the then existing term loans balance of $167.4 million and an incremental borrowing of $132.6 million. We deferred lender and third-party fees of $10.9 million as debt issuance costs to be amortized over the term of the term loan. Arrangement and third-party transaction costs of $4.5 million were expensed as incurred.
On March 1, 2021, we issued $50.0 million aggregate principal amount of our 2024 Convertible Senior Notes at a premium which were offered as an additional issuance of our $150.0 million Convertible Senior Notes due 2024 issued on November 22, 2019. Net proceeds were used to repay all outstanding borrowings under our 2022 tranche of senior secured term loans of $31.2 million and repay a portion of borrowings outstanding under our asset-based loan facility. We incurred transaction costs of approximately $1.4 million which were capitalized as deferred financing fees to be amortized over the term of the underlying debt.
Liquidity
The following table presents selected financial information on liquidity (in thousands):
| December 29, 2023 | December 30, 2022 | December 24, 2021 | |||||||||||||||
| Cash and cash equivalents | $ | 49,878 | $ | 158,800 | $ | 115,155 | |||||||||||
Working capital,(1) excluding cash and cash equivalents | $ | 295,288 | $ | 278,315 | $ | 157,787 | |||||||||||
| Availability under asset-based loan facility | $ | 172,030 | $ | 135,827 | $ | 109,459 | |||||||||||
(1)We define working capital as current assets less current liabilities.
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We believe our existing balances of cash and cash equivalents, working capital and the availability under our asset-based loan facility, are sufficient to satisfy our working capital needs, capital expenditures, debt service and other liquidity requirements associated with our current operations over the next twelve months.
Our capital expenditures, excluding cash paid for acquisitions, were approximately $57.4 million for fiscal 2023. We believe our capital expenditures, excluding cash paid for acquisitions, for fiscal 2024 will be approximately $35.0 million to $45.0 million.
Our long-term cash requirements include:
•Debt obligations: See Note 9 “Debt Obligations” to our consolidated financial statements for a full description of our debt instruments and the timing of expected future payments.
•Leases: See Note 11 “Leases” to our consolidated financial statements for details on our various lease arrangements and the timing of expected future payments.
•Self-insurance liabilities: We are self-insured for medical, auto and workers’ compensation claims. Claims in excess of certain levels are insured by external parties. See Note 16 “Commitments and Contingencies” to our consolidated financial statements for further detail.
•Contingent earn-out liabilities: Certain acquisitions involve contingent consideration, typically payable if certain financial performance targets are obtained. See Note 4 “Fair Value Measurements” to our consolidated financial statements for details on our contingent earn-out liabilities outstanding as of December 29, 2023.
Cash Flows
| Fiscal Years Ended | |||||||||||||||||
| (in thousands) | December 29, 2023 | December 30, 2022 | December 24, 2021 | ||||||||||||||
| Cash provided by (used in) operating activities | $ | 61,639 | $ | 23,134 | $ | (19,899) | |||||||||||
| Cash used in investing activities | $ | (179,311) | $ | (232,023) | $ | (48,991) | |||||||||||
| Cash provided by (used in) financing activities | $ | 9,010 | $ | 253,215 | $ | (9,222) | |||||||||||
Our cash provided by operating activities is predominately driven by net sales to our customers. Our cash used in operating activities is primarily driven by our payments to suppliers for our inventory, employee compensation, payments to support our facilities, our distribution network, interest on our indebtedness, payments to tax authorities and other general corporate expenditures. Net cash provided by operations was $61.6 million for the fiscal year ended December 29, 2023 compared to $23.1 million for the fiscal year ended December 30, 2022. The increase in cash provided by operating activities was primarily due to a reduction in working capital requirements as we returned to more moderate growth in fiscal 2023 compared to fiscal 2022. Fiscal 2022 working capital investment was unusually high due to the rapid recovery from the pandemic.
Net cash used in investing activities was $179.3 million in fiscal 2023 driven by $121.9 million in cash to fund acquisitions and $57.4 million in capital expenditures.
Net cash provided by financing activities was $9.0 million for fiscal 2023 driven primarily by $60.0 million of incremental borrowing on our asset-based loan facility, partially offset by payments made on debt obligations of $31.2 million, earn-out payments of $11.6 million, finance lease payments of $4.3 million, $2.1 million of shares surrendered to pay withholding taxes and $1.7 million of deferred financing costs.
Off-Balance Sheet Arrangements
As of December 29, 2023, we did not have any off-balance sheet arrangements.
Critical Accounting Estimates
The preparation of our consolidated financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities. The SEC has defined critical accounting policies as those that are both most important to the portrayal of our financial condition and results and require our most difficult, complex or subjective judgments or estimates. Based on this definition, we believe our critical accounting policies include the following: (i) determining our allowance for doubtful accounts, (ii) inventory valuation, with regard to determining inventory balance adjustments for excess and obsolete inventory, (iii) business combinations, (iv) valuing
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goodwill and intangible assets and (v) accounting for income taxes. For all financial statement periods presented, there have been no material modifications to the application of these critical accounting policies.
Allowance for Doubtful Accounts
We analyze customer creditworthiness, accounts receivable balances, payment history, payment terms and historical bad debt levels when evaluating the adequacy of our allowance for doubtful accounts. In instances where a reserve has been recorded for a particular customer, future sales to the customer are either conducted using cash-on-delivery terms or the account is closely monitored so that agreed-upon payments are received prior to orders being released. A failure to pay results in held or cancelled orders. We also estimate receivables that will ultimately be uncollectible based upon historical write-off experience. Management incorporates current macro-economic factors in existence as of the balance sheet date that may impact the food-away-from-home industry and/or its customers, and specifically, beginning in the first quarter of fiscal 2020, the impact of the Pandemic. We may be required to increase or decrease our allowance for doubtful accounts due to various factors, including the overall economic environment and particular circumstances of individual customers. Our accounts receivable balance was $334.0 million and $260.2 million, net of the allowance for doubtful accounts of $21.4 million and $20.7 million, as of December 29, 2023 and December 30, 2022, respectively.
Inventory Valuation
We adjust our inventory balances for excess and obsolete inventories. These adjustments are primarily based upon customer demand, inventory age, specifically identified inventory items and overall economic conditions. A sudden and unexpected change in consumer preferences or change in overall economic conditions could result in a significant change to these adjustments that could require a corresponding charge to earnings. We actively manage our inventory levels as we seek to minimize the risk of loss and have consistently achieved a relatively high level of inventory turnover.
Business Combinations
We account for acquisitions in accordance with Accounting Standards Codification Topic 805 “Business Combinations.” Assets acquired and liabilities assumed are recorded at their estimated fair values, as of the acquisition date. The judgments made in determining the estimated fair value of assets acquired and liabilities assumed, including estimated useful life, may have a material impact on our consolidated balance sheet and may materially impact the amount of depreciation and amortization expense recognized in periods subsequent to the acquisition. We determine the fair value of intangible assets using an income approach and, when appropriate, we engage a third party valuation firm. Generally, we utilize the multi-period excess earnings method to determine the fair value of customer relationships and the relief from royalty method to determine the fair value of trade names. These valuation methods contain significant assumptions and estimates including forecasts of expected future cash flows and discount rates. Determining the useful life of an intangible asset also requires judgment, as different types of intangible assets will have different useful lives. The excess of the purchase price over the fair values of identifiable assets and liabilities is recorded as goodwill.
We account for contingent consideration relating to business combinations as a liability and an increase to goodwill at the date of the acquisition and continually remeasure the liability at each balance sheet date by recording changes in the fair value through our consolidated statements of operations. We determine the fair value of contingent consideration based on future operating projections under various potential scenarios, including the use of Monte Carlo simulation models, and weight the probability of these outcomes. The ultimate settlement of contingent earn-out liabilities relating to business combinations may be for amounts which are materially different from the amounts initially recorded and may cause volatility in our results of operations.
Valuation of Goodwill and Intangible Assets
We are required to test goodwill for impairment at each of our reporting units annually, or more frequently when circumstances indicate an impairment may have occurred. We have elected to perform our annual tests for indications of goodwill impairment during the fourth quarter of each fiscal year.
Goodwill is tested at the reporting unit level, which is an operating segment or a component of an operating segment. When analyzing whether to aggregate components into single reporting units, management considers whether each component has similar economic characteristics. We have evaluated the economic characteristics of our different geographic markets, including our recently acquired businesses, along with the similarity of the operations and margins, nature of the products, type of customer and methods of distribution of products and the regulatory environment in which we operate. As of December 29, 2023 we maintain four reporting units.
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In testing goodwill for impairment, we may elect to perform a qualitative assessment to evaluate whether it is more likely than not that the fair value of each reporting unit is less than its carrying amount. The qualitative analysis considers various factors including macroeconomic conditions, market conditions, industry trends, cost factors and financial performance, among others. If our qualitative assessment indicates that goodwill impairment is more likely than not, we proceed to perform a quantitative assessment to determine the fair value of the reporting unit.
When a quantitative analysis is required, we estimate the fair value of our reporting units using an income approach that incorporates the use of a discounted cash flow model that involves many management assumptions that are based upon future growth projections. Assumptions include estimates of future revenue based upon budget projections and growth rates. We develop estimates of future levels of gross and operating profits and projected capital expenditures. This methodology includes the use of estimated discount rates based upon industry and competitor analysis as well as other factors. A goodwill impairment loss, if any, would be recognized for the amount by which a reporting unit’s carrying value exceeds its fair value.
For the fiscal years ended December 29, 2023 and December 30, 2022, 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. Total goodwill as of December 29, 2023 and December 30, 2022 was $356.0 million and $287.1 million, respectively.
Intangible assets with finite lives are tested for impairment whenever events or changes in circumstances indicate that the carrying value may not be recoverable. Cash flows expected to be generated by the related assets are estimated over the assets useful lives based on updated projections. 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.
During fiscal 2023, we incurred a customer relationships intangible asset impairment charge of $1.8 million, $1.3 million net of tax, related to the loss of a significant Hardie’s Fresh Foods customer post acquisition.
During fiscal 2021, we committed to a plan to shift our brand strategy to leverage the Allen Brothers brand in our New England region and determined the Cambridge trademark did not fit our long-term strategic objectives. As a result, we recognized a $0.6 million impairment charge, $0.4 million net of tax, to fully write-down the net book value of our Cambridge trademark.
There have been no other events or changes in circumstances during fiscal 2023 or 2022 indicating that the carrying value of our finite-lived intangible assets are not recoverable. Total finite-lived intangible assets as of December 29, 2023 and December 30, 2022 were $184.9 million and $155.7 million, respectively.
The assessment of the recoverability of goodwill and intangible assets contain uncertainties requiring management to make assumptions and to apply judgment to estimate economic factors and the profitability of future operations. Actual results could differ from these assumptions and projections, resulting in us revising our assumptions and, if required, recognizing an impairment loss.
Income Taxes
The determination of our provision for income taxes requires significant judgment, the use of estimates and the interpretation and application of complex tax laws. Our provision for income taxes primarily reflects a combination of income earned and taxed in the various U.S. federal, state, and Middle East jurisdictions. 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 29, 2023 and December 30, 2022, we had valuation allowances of $2.1 million and $1.6 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.
Management has discussed the development and selection of these critical accounting policies with our board of directors, and the board of directors has reviewed the above disclosure. Our consolidated financial statements contain other items that require estimation, but are not as critical as those discussed above. These other items include our calculations for bonus accruals, depreciation and amortization. Changes in estimates and assumptions used in these and other items could have an effect on our consolidated financial statements.
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Recent Accounting Pronouncements
See Note 1 “Operations and Basis of Presentation” to our consolidated financial statements for a full description of recent accounting pronouncements including the respective expected dates of adoption and expected effects on our consolidated financial statements.
Item 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Interest Rate Risk
Our exposure to interest rate market risk relates primarily to our long-term debt. The Company has various floating- and fixed-rate debt instruments as described in Note 9 “Debt Obligations” to our consolidated financial statements. As of December 29, 2023, we had an aggregate $376.3 million of floating-rate indebtedness. A 100 basis point increase in market interest rates would decrease our after tax earnings by approximately $2.7 million per annum, holding other variables constant.
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Item 8. CONSOLIDATED FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
| Index to the Consolidated Financial Statements | Page | ||||
42
Report of Independent Registered Public Accounting Firm
Stockholders and Board of Directors
The Chefs’ Warehouse, Inc.
Ridgefield, Connecticut
Opinion on the Consolidated Financial Statements
We have audited the accompanying consolidated balance sheets of The Chefs’ Warehouse, Inc. (the “Company”) as of December 29, 2023 and December 30, 2022, the related consolidated statements of operations and comprehensive income (loss), stockholders’ equity, and cash flows for each of the three fiscal years in the period ended December 29, 2023, and the related notes (collectively referred to as the “consolidated financial statements”). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company at December 29, 2023 and December 30, 2022, and the results of its operations and its cash flows for each of the three fiscal years in the period ended December 29, 2023, in conformity with accounting principles generally accepted in the United States of America.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (“PCAOB”), the Company's internal control over financial reporting as of December 29, 2023, based on criteria established in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”) and our report dated February 27, 2024 expressed an unqualified opinion thereon.
Basis for Opinion
These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s consolidated financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud.
Our audits included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that our audits provide a reasonable basis for our opinion.
Critical Audit Matter
The critical audit matter communicated below is a matter arising from the current period audit of the consolidated financial statements that was communicated or required to be communicated to the audit committee and that (i) relates to accounts or disclosures that are material to the consolidated financial statements and (ii) involved our especially challenging, subjective, or complex judgments. The communication of the critical audit matter does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.
Revenue Recognition
As described in Note 2 to the consolidated financial statements, the Company recognizes revenue from product sales at the point at which control of each product is transferred to the customer. The Company’s total net sales were $3.4 billion for the fiscal year ended December 29, 2023.
We identified the accuracy and existence of revenue transactions as a critical audit matter. The principal consideration for our determination was the significant audit effort in performing procedures related to the accuracy and existence of revenue transactions given the significance of net sales and the large volume of transactions.
The primary procedures we performed to address this critical audit matter included:
•Testing the operating effectiveness of controls, where applicable, relating to accuracy and existence of revenue transactions.
•Evaluating the accuracy and existence of revenue transactions, on a sample basis, by obtaining and inspecting invoices, customer purchase orders, shipping documents, and cash receipts from customers, where applicable.
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•Recalculating sales prices on a sample basis, where applicable, based on the terms and conditions of underlying signed contracts.
/s/ BDO USA, P.C.
We have served as the Company’s auditor since 2006.
Stamford, Connecticut
February 27, 2024
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THE CHEFS’ WAREHOUSE, INC.
CONSOLIDATED BALANCE SHEETS
(Amounts in thousands, except share data)
| December 29, 2023 | December 30, 2022 | ||||||||||
| ASSETS | |||||||||||
| Current assets: | |||||||||||
| Cash and cash equivalents | $ | 49,878 | $ | 158,800 | |||||||
Accounts receivable, net of allowance of $21,423 in 2023 and $20,733 in 2022 | 334,015 | 260,167 | |||||||||
| Inventories | 284,528 | 245,693 | |||||||||
| Prepaid expenses and other current assets | 62,522 | 56,200 | |||||||||
| Total current assets | 730,943 | 720,860 | |||||||||
| Property and equipment, net | 234,793 | 185,728 | |||||||||
| Operating lease right-of-use assets | 192,307 | 156,629 | |||||||||
| Goodwill | 356,021 | 287,120 | |||||||||
| Intangible assets, net | 184,863 | 155,703 | |||||||||
| Other assets | 6,379 | 3,256 | |||||||||
| Total assets | $ | 1,705,306 | $ | 1,509,296 | |||||||
| LIABILITIES AND STOCKHOLDERS’ EQUITY | |||||||||||
| Current liabilities: | |||||||||||
| Accounts payable | $ | 200,547 | $ | 163,397 | |||||||
| Accrued liabilities | 70,728 | 54,325 | |||||||||
| Short-term operating lease liabilities | 24,246 | 19,428 | |||||||||
| Accrued compensation | 37,071 | 34,167 | |||||||||
| Current portion of long-term debt | 53,185 | 12,428 | |||||||||
| Total current liabilities | 385,777 | 283,745 | |||||||||
| Long-term debt, net of current portion | 664,802 | 653,504 | |||||||||
| Operating lease liabilities | 184,034 | 151,406 | |||||||||
| Deferred taxes, net | 14,418 | 6,098 | |||||||||
| Other liabilities | 1,603 | 13,034 | |||||||||
| Total liabilities | 1,250,634 | 1,107,787 | |||||||||
| Commitments and contingencies (Note 16) | |||||||||||
| Stockholders’ equity: | |||||||||||
Preferred Stock - $0.01 par value, 5,000,000 shares authorized, no shares issued and outstanding at December 29, 2023 and December 30, 2022, respectively | — | — | |||||||||
Common Stock - $0.01 par value, 100,000,000 shares authorized, 39,665,796 and 38,599,390 shares issued and outstanding at December 29, 2023 and December 30, 2022, respectively | 396 | 386 | |||||||||
| Additional paid in capital | 356,157 | 337,947 | |||||||||
| Accumulated other comprehensive loss | (1,832) | (2,185) | |||||||||
| Retained earnings | 99,951 | 65,361 | |||||||||
| Total stockholders’ equity | 454,672 | 401,509 | |||||||||
| Total liabilities and stockholders’ equity | $ | 1,705,306 | $ | 1,509,296 | |||||||
See accompanying notes to the consolidated financial statements.
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THE CHEFS’ WAREHOUSE, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS)
(Amounts in thousands, except share and per share amounts)
| Fiscal Years Ended | |||||||||||||||||
| December 29, 2023 | December 30, 2022 | December 24, 2021 | |||||||||||||||
| Net sales | $ | 3,433,763 | $ | 2,613,399 | $ | 1,745,757 | |||||||||||
| Cost of sales | 2,619,289 | 1,994,763 | 1,355,272 | ||||||||||||||
| Gross profit | 814,474 | 618,636 | 390,485 | ||||||||||||||
| Selling, general and administrative expenses | 704,758 | 518,219 | 379,252 | ||||||||||||||
| Other operating expenses, net | 8,773 | 14,679 | 422 | ||||||||||||||
| Operating income | 100,943 | 85,738 | 10,811 | ||||||||||||||
| Interest expense | 45,474 | 43,849 | 17,587 | ||||||||||||||
| Income (loss) before income taxes | 55,469 | 41,889 | (6,776) | ||||||||||||||
| Provision for income tax expense (benefit) | 20,879 | 14,139 | (1,853) | ||||||||||||||
| Net income (loss) | $ | 34,590 | $ | 27,750 | $ | (4,923) | |||||||||||
| Other comprehensive income (loss): | |||||||||||||||||
| Foreign currency translation adjustments | 353 | (163) | 29 | ||||||||||||||
| Comprehensive income (loss) | $ | 34,943 | $ | 27,587 | $ | (4,894) | |||||||||||
| Net income (loss) per share: | |||||||||||||||||
| Basic | $ | 0.92 | $ | 0.75 | $ | (0.13) | |||||||||||
| Diluted | $ | 0.88 | $ | 0.73 | $ | (0.13) | |||||||||||
| Weighted average common shares outstanding: | |||||||||||||||||
| Basic | 37,633,672 | 37,094,220 | 36,744,304 | ||||||||||||||
| Diluted | 45,639,220 | 38,742,328 | 36,744,304 | ||||||||||||||
See accompanying notes to the consolidated financial statements.
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THE CHEFS’ WAREHOUSE, INC.
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY
For the Fiscal Years Ended December 29, 2023, December 30, 2022, and December 24, 2021
(Amounts in thousands, except share amounts)
| Common Stock | Additional Paid in Capital | Accumulated Other Comprehensive Loss | Retained Earnings | Total | |||||||||||||||||||||||||||||||
| Shares | Amount | ||||||||||||||||||||||||||||||||||
| Balance December 25, 2020 | 37,274,768 | $ | 373 | $ | 303,734 | $ | (2,051) | $ | 42,534 | $ | 344,590 | ||||||||||||||||||||||||
| Net loss | — | — | — | — | (4,923) | (4,923) | |||||||||||||||||||||||||||||
| Stock compensation | 679,330 | 7 | 11,472 | — | — | 11,479 | |||||||||||||||||||||||||||||
| Shares issued for acquisition | — | — | 1,120 | — | — | 1,120 | |||||||||||||||||||||||||||||
| Cumulative translation adjustment | — | — | — | 29 | — | 29 | |||||||||||||||||||||||||||||
| Shares surrendered to pay withholding taxes | (66,423) | — | (2,084) | — | — | (2,084) | |||||||||||||||||||||||||||||
| Balance December 24, 2021 | 37,887,675 | $ | 380 | $ | 314,242 | $ | (2,022) | $ | 37,611 | $ | 350,211 | ||||||||||||||||||||||||
| Net income | — | — | — | — | 27,750 | 27,750 | |||||||||||||||||||||||||||||
| Stock compensation | 466,820 | 4 | 13,236 | — | — | 13,240 | |||||||||||||||||||||||||||||
| Conversion of debt to common stock | 324,066 | 3 | 11,372 | — | — | 11,375 | |||||||||||||||||||||||||||||
| Warrants issued for acquisition | — | — | 1,701 | — | — | 1,701 | |||||||||||||||||||||||||||||
| Option exercises | 3,407 | — | 69 | — | — | 69 | |||||||||||||||||||||||||||||
| Cumulative translation adjustment | — | — | — | (163) | — | (163) | |||||||||||||||||||||||||||||
| Shares surrendered to pay withholding taxes | (82,578) | (1) | (2,673) | — | — | (2,674) | |||||||||||||||||||||||||||||
| Balance December 30, 2022 | 38,599,390 | $ | 386 | $ | 337,947 | $ | (2,185) | $ | 65,361 | $ | 401,509 | ||||||||||||||||||||||||
| Net income | — | — | — | — | 34,590 | 34,590 | |||||||||||||||||||||||||||||
| Stock compensation | 1,053,256 | 10 | 17,813 | — | — | 17,823 | |||||||||||||||||||||||||||||
| Shares issued for acquisitions | 75,008 | 1 | 2,494 | — | — | 2,495 | |||||||||||||||||||||||||||||
| Option exercises | 2,705 | — | 55 | — | — | 55 | |||||||||||||||||||||||||||||
| Cumulative translation adjustment | — | — | — | 353 | — | 353 | |||||||||||||||||||||||||||||
| Shares surrendered to pay withholding taxes | (64,563) | (1) | (2,152) | — | — | (2,153) | |||||||||||||||||||||||||||||
| Balance December 29, 2023 | 39,665,796 | $ | 396 | $ | 356,157 | $ | (1,832) | $ | 99,951 | $ | 454,672 | ||||||||||||||||||||||||
See accompanying notes to the consolidated financial statements.
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THE CHEFS’ WAREHOUSE, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Amounts in thousands)
| Fiscal Years Ended | |||||||||||||||||
| December 29, 2023 | December 30, 2022 | December 24, 2021 | |||||||||||||||
| Cash flows from operating activities: | |||||||||||||||||
| Net income (loss) | $ | 34,590 | $ | 27,750 | $ | (4,923) | |||||||||||
| Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities: | |||||||||||||||||
| Depreciation and amortization | 32,887 | 24,332 | 21,998 | ||||||||||||||
| Amortization of intangible assets | 22,719 | 13,913 | 12,967 | ||||||||||||||
| Provision for allowance for doubtful accounts | 8,078 | 6,048 | (422) | ||||||||||||||
| Provision (benefit) for deferred income taxes | 8,114 | 9,601 | (1,845) | ||||||||||||||
| Loss on debt extinguishment | — | 14,287 | — | ||||||||||||||
| Stock compensation | 20,042 | 13,602 | 11,479 | ||||||||||||||
| Change in fair value of contingent earn-out liabilities | 3,081 | 8,505 | (1,296) | ||||||||||||||
| Intangible asset impairment | 1,838 | — | 597 | ||||||||||||||
| Non-cash interest and other operating activities | 5,456 | 3,037 | 3,894 | ||||||||||||||
| Changes in assets and liabilities, net of acquisitions: | |||||||||||||||||
| Accounts receivable | (48,813) | (48,229) | (70,777) | ||||||||||||||
| Inventories | (28,759) | (49,931) | (60,799) | ||||||||||||||
| Prepaid expenses and other current assets | (7,234) | (17,603) | (2,183) | ||||||||||||||
| Accounts payable, accrued liabilities and accrued compensation | 19,598 | 19,163 | 71,519 | ||||||||||||||
| Other assets and liabilities | (9,958) | (1,341) | (108) | ||||||||||||||
| Net cash provided by (used in) operating activities | 61,639 | 23,134 | (19,899) | ||||||||||||||
| Cash flows from investing activities: | |||||||||||||||||
| Capital expenditures | (57,427) | (45,848) | (38,801) | ||||||||||||||
| Cash paid for acquisitions, net | (121,884) | (186,175) | (10,190) | ||||||||||||||
| Net cash used in investing activities | (179,311) | (232,023) | (48,991) | ||||||||||||||
| Cash flows from financing activities: | |||||||||||||||||
| Payment of debt and other financing obligations | (29,000) | (327,741) | (32,879) | ||||||||||||||
| Payment of finance leases | (4,327) | (3,332) | (4,731) | ||||||||||||||
| Proceeds from debt issuance | — | 587,500 | 51,750 | ||||||||||||||
| Payment of deferred financing fees | (1,739) | (19,039) | (1,450) | ||||||||||||||
| Proceeds from exercise of stock options | 55 | 69 | — | ||||||||||||||
| Surrender of shares to pay withholding taxes | (2,134) | (2,674) | (1,829) | ||||||||||||||
| Cash paid for contingent earn-out liabilities | (11,625) | (3,788) | (83) | ||||||||||||||
| Borrowings under asset-based loan facility and revolving credit facilities | 60,000 | 42,220 | — | ||||||||||||||
| Payments under asset-based loan facility | (2,220) | (20,000) | (20,000) | ||||||||||||||
| Net cash provided by (used in) financing activities | 9,010 | 253,215 | (9,222) | ||||||||||||||
| Effect of foreign currency on cash and cash equivalents | (260) | (681) | (14) | ||||||||||||||
| Net change in cash and cash equivalents | (108,922) | 43,645 | (78,126) | ||||||||||||||
| Cash and cash equivalents at beginning of year | 158,800 | 115,155 | 193,281 | ||||||||||||||
| Cash and cash equivalents at end of year | $ | 49,878 | $ | 158,800 | $ | 115,155 | |||||||||||
See accompanying notes to the consolidated financial statements.
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THE CHEFS’ WAREHOUSE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in thousands, except share and per share amounts)
Note 1 - Operations and Basis of Presentation
Description of Business and Basis of Presentation
The financial statements include the consolidated accounts of The Chefs’ Warehouse, Inc. (the “Company”), and its wholly-owned subsidiaries. The Company’s quarterly periods end on the thirteenth Friday of each quarter. Every six to seven years the Company will add a fourteenth week to its fourth quarter to more closely align its year end to the calendar year. The consolidated statement of operations for the fiscal year ended December 30, 2022 contained a 53rd week while all other years presented contain 52 weeks. The Company’s business consists of three operating segments: East, Midwest and West that aggregate into one reportable segment, food product 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 and specialty food stores.
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.
Guidance Not Yet Adopted
Improvements to Income Tax Disclosures: In December 2023, the FASB issued guidance designed to improve the transparency and usefulness of income tax disclosures. The amendments include provisions to address the consistency of the income tax rate reconciliation and requirement to disaggregate income taxes paid by jurisdiction. The guidance is effective for fiscal years beginning after December 15, 2024. Early adoption is permitted. The Company expects to adopt this guidance when effective and is evaluating the impact of adoption on its consolidated financial statements, which is limited to financial statement disclosures.
Improvements to Reportable Segment Disclosures: In November 2023, the Financial Accounting Standards Board (“FASB”) issued guidance which requires entities, including those with one reportable segment, to enhance reportable segment disclosures requirements particularly with respect to significant expenses. The guidance is effective for fiscal years beginning after December 15, 2023, and interim periods within fiscal years beginning after December 15, 2024 on a retrospective basis. Early adoption is permitted. The Company expects to adopt this guidance when effective and is evaluating the impact of adoption on its consolidated financial statements, which is limited to financial statement disclosures.
Use of Estimates
The preparation of the Company’s consolidated financial statements in conformity with generally accepted accounting principles requires it to make estimates and assumptions that affect reported amounts of assets, liabilities, revenues, expenses and disclosure of contingent assets and liabilities. Estimates are used in determining, among other items, the allowance for doubtful accounts, inventory valuation adjustments, self-insurance reserves for group medical insurance, workers’ compensation insurance and automobile liability insurance, future cash flows associated with impairment testing for intangible assets (including goodwill) and long-lived assets, useful lives for intangible assets, stock-based compensation, contingent earn-out liabilities and tax reserves. Actual results could differ from 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
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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:
| Fiscal Years Ended | |||||||||||||||||||||||||||||||||||
| December 29, 2023 | December 30, 2022 | December 24, 2021 | |||||||||||||||||||||||||||||||||
| Center-of-the-plate | $ | 1,352,230 | 39.4 | % | $ | 1,126,227 | 43.1 | % | $ | 877,060 | 50.2 | % | |||||||||||||||||||||||
| Specialty: | |||||||||||||||||||||||||||||||||||
| Dry goods | 545,451 | 15.9 | % | 379,802 | 14.5 | % | 238,758 | 13.7 | % | ||||||||||||||||||||||||||
| Pastry | 410,604 | 12.0 | % | 286,035 | 10.9 | % | 178,352 | 10.2 | % | ||||||||||||||||||||||||||
| Cheeses and charcuterie | 253,343 | 7.4 | % | 216,173 | 8.3 | % | 143,048 | 8.2 | % | ||||||||||||||||||||||||||
| Produce | 444,749 | 13.0 | % | 279,097 | 10.7 | % | 120,759 | 6.9 | % | ||||||||||||||||||||||||||
| Dairy and eggs | 228,582 | 6.7 | % | 153,334 | 5.9 | % | 79,512 | 4.6 | % | ||||||||||||||||||||||||||
| Oils and vinegars | 129,194 | 3.8 | % | 113,386 | 4.3 | % | 71,369 | 4.1 | % | ||||||||||||||||||||||||||
| Kitchen supplies | 69,610 | 1.8 | % | 59,345 | 2.3 | % | 36,899 | 2.1 | % | ||||||||||||||||||||||||||
| Total specialty | $ | 2,081,533 | 60.6 | % | $ | 1,487,172 | 56.9 | % | $ | 868,697 | 49.8 | % | |||||||||||||||||||||||
| Total net sales | $ | 3,433,763 | 100 | % | $ | 2,613,399 | 100 | % | $ | 1,745,757 | 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. Net sales by product category includes estimates of product mix for certain locations that are not yet fully integrated into the Company’s information technology systems as of the reporting date.
Deferred Revenue
Certain customer arrangements in the Company’s direct-to-consumer business, prepaid gift plans and gift card purchases, result in deferred revenues when cash payments are received in advance of performance. The Company recognizes revenue on its prepaid gift plans when control of each product is transferred to the customer. Performance obligations under the Company’s prepaid gift plans are satisfied within a period of twelve months or less. Gift cards issued by the Company do not have expiration dates. The Company records a liability for unredeemed gift cards at the time gift cards are sold and the liability is reduced when the card is redeemed, the value of the card is escheated to the appropriate government agency, or through breakage. Gift card breakage is estimated based on the Company’s historical redemption experience and expected trends in redemption patterns. Amounts recognized through breakage represent the portion of the gift card liability that is not subject to unclaimed property laws and for which the likelihood of redemption is remote. The Company recorded deferred revenues, reflected within accrued liabilities on the Company’s consolidated balance sheets, of $2,459 and $2,206 as of December 29, 2023 and December 30, 2022, respectively.
Right of Return
The Company’s standard terms and conditions provide customers with a right of return if the goods received are not merchantable. Customers are either issued a replacement order at no cost, or are issued a credit for the returned goods. The Company recorded a refund liability of $811 and $713 as of December 29, 2023 and December 30, 2022, respectively. Refund liabilities are reflected within accrued liabilities on the Company’s consolidated balance sheets. The Company recognized a corresponding asset of $493 and $442 as of December 29, 2023 and December 30, 2022, respectively, for its right to recover products from customers on settling its refund liabilities. This asset is reflected within inventories on the Company’s consolidated balance sheets.
Contract Costs
Sales commissions are expensed when incurred because the amortization period is one year or less. These costs are presented within selling, general and administrative expenses on the Company’s consolidated statements of operations.
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Cost of Sales
The Company records cost of sales based upon the net purchase price paid for a product, including applicable freight charges incurred to deliver the product to the Company’s warehouse, and food processing costs. Food processing costs include but are not limited to direct labor and benefits, applicable overhead and depreciation of equipment and facilities used in food processing activities. Food processing costs included in cost of sales were $68,294, $40,185 and $28,374 for fiscal 2023, 2022 and 2021, respectively.
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. Shipping and handling costs included in selling, general and administrative expenses were $181,298, $143,435 and $98,697 for fiscal 2023, 2022 and 2021, respectively.
Other Operating Expenses
Other operating expenses includes expenses primarily related to changes in the fair value of the Company’s contingent earn-out liabilities, gains and losses on asset disposals, asset impairments, certain third-party deal costs incurred in connection with business acquisitions or financing arrangements and certain other costs.
Cash and Cash Equivalents
The Company considers all highly liquid investments with an original maturity of less than three months to be cash equivalents. The Company periodically maintains balances at financial institutions which may exceed Federal Deposit Insurance Corporation insured limits. The Company has not experienced any losses in such accounts and believes it is not exposed to any significant risks on its cash in bank accounts.
Accounts Receivable
Accounts receivable consist of trade receivables from customers and are recorded net of an allowance for doubtful accounts. The allowance for doubtful accounts is determined based upon a number of specific criteria, such as whether a customer has filed for or been placed into bankruptcy, has had accounts referred to outside parties for collections or has had accounts significantly past due. The allowance also covers short paid invoices the Company deems to be uncollectible as well as a portion of trade accounts receivable balances projected to become uncollectible based upon historic patterns and macro-economic factors in existence as of the balance sheet date that may impact the food-away-from-home industry and/or its customers.
Inventories
Inventories consist primarily of finished goods, food and related food products held for resale and are valued at the lower of cost or net realizable value. Our different entities record inventory using a mixture of first-in, first-out and average cost, which we believe approximates first-in, first-out. The Company adjusts inventory balances for excess and obsolete inventories to approximate their net realizable value.
Vendor Rebates and Other Promotional Incentives
The Company receives consideration and product purchase credits from certain vendors that the Company accounts for as a reduction of cost of sales. There are several types of cash consideration received from vendors. The purchase incentive is primarily in the form of a specified amount per pound or per case, or an amount for year-over-year growth. Recorded purchase incentives totaled approximately $48,026, $30,805 and $20,296 for fiscal 2023, 2022 and 2021, respectively.
Concentrations of Credit Risks
Financial instruments that subject the Company to concentrations of credit risk consist of cash, temporary cash investments and trade receivables. The Company’s policy is to deposit its cash and temporary cash investments with major financial institutions. The Company distributes its food and related products to a customer base that consists primarily of leading menu-driven independent restaurants, fine dining establishments, country clubs, hotels, caterers, culinary schools, bakeries, patisseries, chocolateries, cruise lines, casinos and specialty food stores. To reduce credit risk, the Company performs ongoing credit evaluations of its customers’ financial conditions. The Company generally does not require collateral. However, the Company,
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in certain instances, has obtained personal guarantees from certain customers. There is no significant balance with any individual customer.
Property and Equipment
Property and equipment are recorded at cost and are depreciated on a straight-line basis over the shorter of the estimated useful life of the asset or the lease term. Property and equipment are reviewed for impairment in accordance with Accounting Standards Codification (“ASC”) 360-10-35-15, “Impairment or Disposal of Long-Lived Assets” which only requires testing whenever events or changes in circumstances indicate that the carrying amount of the assets may not be recoverable. If any indicators are present, a recoverability test is performed by comparing the carrying amount of the asset to the net undiscounted cash flows expected to be generated from the asset. If the net undiscounted cash flows do not exceed the carrying amount (i.e., the asset is not recoverable), an additional step is performed that determines the fair value of the asset and the Company records an impairment, if any. The Company has not recorded any impairment of equipment and leasehold improvements in fiscal 2023, 2022 or 2021.
Leases
The Company leases various distribution centers, office facilities, vehicles and equipment. The Company determines if an arrangement contains a lease at contract inception. An arrangement is or contains a lease if the agreement identifies an asset, implicitly or explicitly, that the Company has the right to use over a period of time. If an arrangement contains a lease, the Company classifies the lease as either an operating lease or as a finance lease based on the five criteria defined in ASC 842, “Leases”.
Lease liabilities are recognized at commencement date based on the present value of the remaining lease payments over the lease term. The corresponding right-of-use (“ROU”) asset is recognized for the same amount as the lease liability adjusted for any payments made at or before the commencement date, any lease incentives received, and any initial direct costs. The Company’s lease agreements may include options to renew, extend or terminate the lease. These clauses are included in the initial measurement of the lease liability when at lease commencement the Company is reasonably certain that it will exercise such options. The discount rate used is based on the Company’s incremental borrowing rate since the implicit rate in the Company’s leases is not readily determinable.
Operating lease expense is recognized on a straight-line basis over the lease term and presented within selling, general and administrative expenses on the Company’s consolidated statements of operations. Finance lease ROU assets are amortized on a straight-line basis over the shorter of the useful life of the asset or the lease term. Interest expense on the finance lease liability is recognized using the effective interest rate method and is presented within interest expense on the Company’s consolidated statements of operations. Variable rent payments related to both operating and finance leases are expensed as incurred. The Company’s variable lease payments primarily consist of real estate taxes, maintenance and usage charges. The Company made an accounting policy election to combine lease and non-lease components (maintenance, taxes and insurance) when measuring lease liabilities for vehicle and equipment leases.
The Company has elected to exclude short-term leases from the recognition requirements of ASC 842. A lease is short-term if, at the commencement date, it has a term of less than or equal to one year. Lease expense related to short-term leases is recognized on a straight-line basis over the lease term.
Software Costs
The Company capitalizes certain computer software licenses and software implementation costs that are included in software costs in its consolidated balance sheets. These costs were incurred in connection with developing or obtaining computer software for internal use if it has a useful life in excess of one year, in accordance with ASC 350-40 “Internal-Use Software.” Subsequent additions, modifications or upgrades to internal-use software are capitalized only to the extent that they allow the software to perform a task that it previously did not perform. Internal use software is amortized on a straight-line basis over a three to seven year period. Capitalized costs include direct acquisitions as well as software and software development acquired under capitalized leases and internal labor where appropriate. Capitalized software purchases and related development costs, net of accumulated amortization, were $12,046 at December 29, 2023 and $11,805 at December 30, 2022.
Convertible Debt
The Company evaluates debt instruments with embedded conversion features in accordance with ASC 815 “Derivatives and Hedging” and ASC 470 “Debt” both of which provide several criteria that determine whether a conversion feature must be
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bifurcated from its debt host and accounted as a separate financial instrument. An entity is not required to bifurcate if the conversion feature is indexed to its own stock, meets all equity classification criteria and does not contain a beneficial conversion feature. The Company determined that bifurcation of its convertible debt instruments was not required and recognized the principal amount of these instruments as debt in its consolidated balance sheets.
Debt Issuance Costs
Certain up-front costs associated with the Company’s asset-based loan facility are capitalized and included in other non-current assets in the Company’s consolidated balance sheets. The Company had $598 and $448 of such unamortized costs as of December 29, 2023 and December 30, 2022, respectively. Costs associated with the issuance of other debt instruments are capitalized and presented as a direct deduction from the carrying amount of the underlying debt liability. The Company had $17,451 and $20,050 of such unamortized costs as of December 29, 2023 and December 30, 2022, respectively. These costs are amortized over the terms of the related debt instruments by the effective interest rate method. Amortization of debt issuance costs was $3,615, $1,290 and $2,299 fiscal 2023, 2022 and 2021, respectively.
Business Combinations
The Company accounts for acquisitions in accordance with ASC 805 “Business Combinations.” Assets acquired and liabilities assumed are recorded in the accompanying consolidated balance sheets at their estimated fair values, as of the acquisition date. The excess of the purchase price over the fair values of identifiable assets and liabilities is recorded as goodwill. Acquisition-related expenses are recognized separately from the business combination and are expensed as incurred and presented in other operating expenses in the Company’s consolidated statements of operations. Results of operations are included in the Company’s financial statements from the date of acquisition.
Intangible Assets
The intangible assets recorded by the Company consist of customer relationships, covenants not to compete and trademarks which are amortized over their useful lives on a schedule that approximates the pattern in which economic benefits of the intangible assets are consumed. Intangible assets with finite lives are tested for impairment whenever events or changes in circumstances indicate that the carrying value may not be recoverable. If any indicators are present, a recoverability test is performed by comparing the carrying amount of the asset to the net undiscounted cash flows expected to be generated from the asset. Undiscounted cash flows expected to be generated by the related assets are estimated over the assets’ useful lives based on updated projections. 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.
During fiscal 2023, the Company recognized a customer relationships intangible asset impairment charge of $1,838, $1,333 net of tax, related to the loss of a significant customer post-acquisition. During fiscal 2021, the Company recorded a $597 impairment charge, $433 net of tax, to fully write-down the net book value of a trademark. These impairment charges are presented within other operating expenses on the consolidated statements of operations. See Note 8 for more information.
There have been no other events or changes in circumstances during fiscal 2023, 2022 or 2021, indicating that the carrying value of the Company’s finite-lived intangible assets are not recoverable.
Goodwill
Goodwill is the excess of the acquisition cost of businesses over the fair value of identifiable net assets acquired in accordance with ASC 350, “Intangibles-Goodwill and Other.” The Company maintains four reporting units. The Company evaluates the recoverability of goodwill at each of its reporting units annually in the fourth quarter, or more frequently when circumstances indicate an impairment may have occurred. A goodwill impairment loss, if any, would be recognized for the amount by which a reporting unit’s carrying value exceeded its fair value. The Company has the option to evaluate goodwill impairment using a qualitative or quantitative analysis.
For the fiscal years ended December 29, 2023, December 30, 2022 and December 24, 2021, 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. The qualitative analysis considered various factors including macroeconomic conditions, market conditions, industry trends, cost factors and financial performance, among others.
There have been no events or changes in circumstances during fiscal 2023, 2022 or 2021, indicating that goodwill may be impaired.
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Income Taxes
The Company accounts for income taxes in accordance with ASC 740, “Income Taxes.” Deferred tax assets or liabilities are recorded to reflect the future tax consequences of temporary differences between the financial reporting basis of assets and liabilities and their tax basis at each year-end. These amounts are adjusted, as appropriate, to reflect enacted changes in tax rates expected to be in effect when the temporary differences reverse. The Company estimates its ability to recover deferred tax assets within the jurisdiction from which they arise. This evaluation considers several factors, including results of recent operations, future taxable income, scheduled reversal of deferred tax liabilities, and tax planning strategies. As of December 29, 2023 and December 30, 2022, the Company had valuation allowances of $2,119 and $1,641, 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.
ASC 740, “Income Taxes” established a single model to address accounting for uncertain tax positions and clarifies the accounting for income taxes by prescribing a minimum recognition threshold that a tax position is required to meet before being recognized in the financial statements. The Company evaluates uncertain tax positions, if any, by determining if it is more likely than not to be sustained upon examination by the tax authorities. The Company records uncertain tax positions when it is more likely than not that such liabilities have been incurred. The Company, when required, will accrue interest and penalties related to income tax matters in income tax expense. The Company releases disproportionate tax effects from accumulated other comprehensive income as individual items are liquidated.
Commitments and Contingencies
The Company is subject to various claims and contingencies related to lawsuits, taxes and environmental matters, as well as commitments under contractual and other commercial obligations. The Company recognizes liabilities for contingencies and commitments when a loss is probable and can be reasonably estimated.
Contingent Earn-out Liabilities
The Company accounts for contingent consideration relating to business combinations as a liability and an increase to goodwill at the date of the acquisition and continually remeasures the liability at each balance sheet date by recording changes in the fair value through the consolidated statements of operations. The Company determines the fair value of contingent consideration based on future operating projections under various potential scenarios, including the use of Monte Carlo simulation models, and weighs the probability of these outcomes. The ultimate settlement of contingent earn-out liabilities relating to business combinations may be for amounts which are materially different from the amounts initially recorded and may cause volatility in the Company’s results of operations.
Net Income per Share
Basic net income per share is calculated by dividing net income by the weighted average number of shares of common stock outstanding during the period. Diluted net income per share adjusts basic net income per share for all the potentially dilutive shares outstanding during the period. Potentially dilutive shares include unexercised stock options, unvested stock-based awards and shares related to warrants and convertible notes outstanding. The dilutive potential common shares for the Company’s stock-based awards and warrants were determined using the treasury stock method. The dilutive potential common shares for the Company’s convertible notes were determined using the if-converted method.
Stock-Based Compensation
The Company determines the accounting classification of stock awards as either a liability or equity in accordance with ASC 480 “Distinguishing Liabilities from Equity” and ASC 718 “Compensation - Stock Compensation.” Stock awards are classified as liabilities when, among other considerations, they require settlement by issuing a variable number of shares. Stock-based compensation for stock awards classified as liabilities is initially measured at the grant date based on the estimated fair value of the ultimate award liability and remeasured each reporting period until settlement, considering the estimable probable outcome at the end of the performance period. The Company measures stock-based compensation for stock awards classified as equity at the grant date based on the fair value of the award. Restricted stock awards (“RSAs”) and performance share units are valued based on the fair value of the stock on the grant date.
The related compensation expense is recognized over the service period on a straight-line basis and reduced by forfeitures when they occur. Stock-based compensation expense is presented within selling, general and administrative expenses on the Company’s consolidated statements of operations. Compensation expense on performance share units reflects the estimated
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probable outcome at the end of the performance period. The fair value of stock options and RSAs with market conditions is determined based on a Monte Carlo simulation model in order to simulate a range of possible future stock prices for the Company’s common stock. For awards subject to graded vesting, the Company ensures that the compensation expense recognized is at least equal to the vested portion of the award.
Self-Insurance Reserves
The Company maintains a self-insured group medical program. The program contains individual stop loss thresholds of $300 per incident and aggregate stop loss thresholds based upon the average number of employees enrolled in the program throughout the year. The amount in excess of the self-insured levels is fully insured by third party insurers. Liabilities associated with this program are estimated in part by considering historical claims experience and medical cost trends. Projections of future loss expenses are inherently uncertain because of the random nature of insurance claims occurrences and could be significantly affected if future occurrences and claims differ from these assumptions and historical trends.
The Company maintains an insurance program for its automobile liability and workers’ compensation insurance subject to deductibles or self-insured retentions of $500 per occurrence. The amounts in excess of the deductibles are fully insured by third party insurers. Liabilities associated with this program are estimated in part by considering historical claims experience and cost trends. Projections of future loss expenses are inherently uncertain because of the random nature of insurance claims occurrences and could be significantly affected if future occurrences and claims differ from these assumptions and historical trends.
Assets and Liabilities Measured at Fair Value
The Company accounts for certain assets and liabilities at fair value. Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The Company categorizes each of its fair value measurements in one of the following three levels based on the lowest level input that is significant to the fair value measurement in its entirety:
Level 1 - Inputs to the valuation methodology are unadjusted quoted prices in active markets for identical assets or liabilities.
Level 2 - Inputs to the valuation methodology are based upon quoted prices for similar instruments in active markets, quoted prices for identical or similar instruments in markets that are not active, inputs other than quoted prices that are observable for the asset and model-based valuation techniques for which all significant inputs are observable in the market or can be corroborated by observable market data for substantially the full term of the underlying assets or liabilities.
Level 3 - Inputs to the valuation methodology are unobservable (i.e., supported by little or no market activity) and significant to the fair value measure, generally using pricing models or other valuation techniques that reflect management’s judgment and estimates.
Note 3 – Net Income (Loss) per Share
The following table sets forth the computation of basic and diluted net income (loss) per common share:
| Fiscal Years Ended | |||||||||||||||||
| December 29, 2023 | December 30, 2022 | December 24, 2021 | |||||||||||||||
| Net income (loss) per share: | |||||||||||||||||
| Basic | $ | 0.92 | $ | 0.75 | $ | (0.13) | |||||||||||
| Diluted | $ | 0.88 | $ | 0.73 | $ | (0.13) | |||||||||||
| Weighted average common shares: | |||||||||||||||||
| Basic | 37,633,672 | 37,094,220 | 36,744,304 | ||||||||||||||
| Diluted | 45,639,220 | 38,742,328 | 36,744,304 | ||||||||||||||
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Reconciliation of net income (loss) per common share:
| Fiscal Years Ended | |||||||||||||||||
| December 29, 2023 | December 30, 2022 | December 24, 2021 | |||||||||||||||
| Numerator: | |||||||||||||||||
| Net income (loss) | $ | 34,590 | $ | 27,750 | $ | (4,923) | |||||||||||
| Add effect of dilutive securities: | |||||||||||||||||
| Interest on convertible notes, net of tax | 5,399 | 580 | — | ||||||||||||||
| Adjusted net income (loss) | $ | 39,989 | $ | 28,330 | $ | (4,923) | |||||||||||
| Denominator: | |||||||||||||||||
| Weighted average basic common shares outstanding | 37,633,672 | 37,094,220 | 36,744,304 | ||||||||||||||
| Dilutive effect of unvested common shares | 574,707 | 638,293 | — | ||||||||||||||
| Dilutive effect of stock options and warrants | 38,024 | 66,719 | — | ||||||||||||||
| Dilutive effect of convertible notes | 7,392,817 | 943,096 | — | ||||||||||||||
| Weighted average diluted common shares outstanding | 45,639,220 | 38,742,328 | 36,744,304 | ||||||||||||||
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:
| Fiscal Years Ended | |||||||||||||||||
| December 29, 2023 | December 30, 2022 | December 24, 2021 | |||||||||||||||
| Restricted share awards | 532,608 | 906 | 306,084 | ||||||||||||||
| Stock options and warrants | 300,000 | — | 139,198 | ||||||||||||||
| Convertible notes | — | 392,732 | 4,410,639 | ||||||||||||||
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. The fair value of contingent consideration are predominantly determined based on a probability-based approach which includes projected results, percentage probability of occurrence and the application of a discount rate to present value the payments. A significant change in projected results, discount rate, or probabilities of occurrence could result in a significantly higher or lower fair value measurement. Changes in the fair value of contingent earn-out liabilities are reflected in other operating expenses on the Company’s consolidated statements of operations.
The following table presents the changes in Level 3 contingent earn-out liabilities:
| Balance December 24, 2021 | $ | 6,877 | |||||||||||||||||||||||||||||||||||||||
| Acquisition value | 8,700 | ||||||||||||||||||||||||||||||||||||||||
| Cash payments | (6,788) | ||||||||||||||||||||||||||||||||||||||||
| Changes in fair value | 8,505 | ||||||||||||||||||||||||||||||||||||||||
| Balance December 30, 2022 | 17,294 | ||||||||||||||||||||||||||||||||||||||||
| Acquisition value | 5,765 | ||||||||||||||||||||||||||||||||||||||||
| Cash payments | (16,375) | ||||||||||||||||||||||||||||||||||||||||
| Changes in fair value | 3,081 | ||||||||||||||||||||||||||||||||||||||||
| Balance December 29, 2023 | $ | 9,765 | |||||||||||||||||||||||||||||||||||||||
The long-term portion of contingent earn-out liabilities was $50 and $10,483 as of December 29, 2023 and December 30, 2022, respectively, and are reflected as other liabilities on the Company’s consolidated balance sheets. The remaining short-term portion of earn-out liabilities are reflected as accrued liabilities on the Company’s consolidated balance sheets. Contingent earn-out liability payments in excess of the acquisition date fair value of the underlying contingent earn-out liability are
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classified as operating activities on the Company’s consolidated statements of cash flows and all other such payments are classified as financing activities.
Fair Value of Financial Instruments
The carrying amounts reported in the Company’s 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 December 29, 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 and GreenLeaf Note (more fully described in Note 9). The fair value of the Company’s 2028 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 options. 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. The fair value of the GreenLeaf Note was determined based upon observable market prices of similar debt instruments. The Convertible Unsecured Note matured in 2023 and was repaid in full.
| December 29, 2023 | December 30, 2022 | |||||||||||||||||||||||||
| Fair Value Hierarchy | Carrying Value | Fair Value | Carrying Value | Fair Value | ||||||||||||||||||||||
| 2028 Convertible Senior Notes | Level 1 | $ | 287,500 | $ | 277,354 | $ | 287,500 | $ | 292,531 | |||||||||||||||||
| 2024 Convertible Senior Notes | Level 3 | $ | 39,684 | $ | 38,609 | $ | 41,684 | $ | 43,723 | |||||||||||||||||
| GreenLeaf Note | Level 2 | $ | 10,000 | $ | 9,991 | $ | — | $ | — | |||||||||||||||||
| Convertible Unsecured Note | Level 3 | $ | — | $ | — | $ | 4,000 | $ | 4,345 | |||||||||||||||||
Note 5 – Acquisitions
GreenLeaf
On May 1, 2023, the Company entered into a stock purchase agreement to acquire substantially all of the equity interests of Oakville Produce Partners, LLC (“GreenLeaf”), a leading produce and specialty food distributor in Northern California. The final purchase price was $88,174 consisting of $72,157 paid in cash at closing, $3,521 paid upon settlement of a net working capital true-up, the issuance of a $10,000 unsecured note and 75,008 shares of the Company’s common stock with an approximate value of $2,496 based on the trading price of the Company’s common stock on the date of acquisition. The acquisition was partially funded by a $40,000 incremental draw on the Company’s asset-based loan facility. All of the goodwill recorded for the GreenLeaf acquisition is deductible for income 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 GreenLeaf and any intangible assets that do not qualify for separate recognition, including assembled workforce. The intangible assets acquired consisted of customer relationships, trademarks and non-compete agreements valued at $29,900, $1,500 and $400, respectively, as of the acquisition date. The customer relationships, trademarks and non-compete agreements are being amortized over a weighted average of 7.2 years, 5 years and 2 years, respectively. For the fiscal year ended December 29, 2023, the Company reflected net sales and income before income taxes of $82,917 and $7,039, respectively, for GreenLeaf in its consolidated statement of operations.
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”), a specialty produce distributor with operations in Texas. The final purchase price was approximately $41,361, consisting of $38,000 paid in cash at closing, $639 received upon settlement of a net working capital true-up and an earn-out liability valued at approximately $4,000 as of the acquisition date. If earned, the earn-out liability could total up to $10,000 over a two-year period. The payment of the earn-out liability is subject to the successful achievement of certain earnings before interest, taxes, depreciation and amortization (“EBITDA”) targets. All of the goodwill recorded for the Hardie’s acquisition is deductible for income 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 and any intangible assets that do not qualify for separate recognition, including assembled workforce. The intangible assets acquired consisted of
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customer relationships and trademarks valued at $14,000 and $3,600, respectively, as of the acquisition date. During fiscal 2023 the Company incurred a customer relationship impairment charge more fully described in Note 8 “Goodwill and Other Intangible Assets.” The remaining customer relationships and trademarks are being amortized over 10 and 5 years, respectively. For the fiscal year ended December 29, 2023, the Company reflected net sales and loss before income taxes of $194,776 and $1,116, respectively, for Hardie’s in its consolidated statement of operations.
Other Fiscal 2023 Acquisitions
During the fiscal year ended December 29, 2023, the Company completed three other acquisitions for an aggregate initial purchase price of approximately $17,744, consisting of $12,971 paid in cash at closing, $893 paid upon settlement of a net working capital adjustment, earn-out liabilities valued at approximately of $1,665 as of the dates of acquisition, and $2,215 of deferred payments. If earned, these earn-out liabilities could total up to $2,562 in the aggregate. The Company’s aggregate purchase price allocations are preliminary and are subject to revision pending the valuations of some elements of the goodwill and intangible assets acquired. These valuations are incomplete as of December 29, 2023 as the Company is currently in the process of completing its assessment of valuation inputs and assumptions as well as opening working capital. When applicable, these valuations require the use of Level 3 inputs. All of the goodwill recorded for these acquisitions of $8,218 is deductible for income tax purposes. The intangible assets acquired consisted of customer relationships valued at $4,276 as of the acquisition dates. The customer relationships are being amortized over 10 years. For the fiscal year ended December 29, 2023, the Company reflected net sales of approximately $63,369 in its consolidated statement of operations. The Company has determined that separate disclosure of income before income taxes is impracticable due to the integration of these businesses into the Company's existing operations.
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 final purchase price was approximately $116,515, consisting of $108,749 paid in cash at closing, $166 paid upon settlement of a net working capital true-up, and an earn-out liability valued at $7,600 as of the date of acquisition. The earn-out liability was earned and paid in full during the fourth quarter of fiscal 2023 for a total of $10,000. The measurement period adjustments recorded during fiscal 2023 resulted in a increase in goodwill of $734, a decrease in inventories of $735, decrease in accrued liabilities of $314, a decrease in other assets of $82, and a decrease in deferred tax liabilities of $35. The valuation of tangible and intangible assets acquired has been completed as of December 29, 2023. The intangible assets acquired consisted of customer relationships, trademarks and non-compete agreements valued at $25,800, $11,400 and $320, respectively, as of the acquisition date. The customer relationships, trademarks and non-compete agreements are being amortized over 10, 15 and 3 years, respectively. None of the goodwill recorded for the CME acquisition is deductible for income tax purposes. 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 sets forth the total assets acquired and liabilities assumed:
| Chef Middle East | Hardie’s | GreenLeaf | Other Fiscal 2023 Acquisitions | ||||||||||||||||||||
| Current assets | $ | 84,076 | $ | 26,366 | $ | 16,069 | $ | 8,632 | |||||||||||||||
| Customer relationships | 25,800 | 14,000 | 29,900 | 4,276 | |||||||||||||||||||
| Trademarks | 11,400 | 3,600 | 1,500 | — | |||||||||||||||||||
| Non-compete agreements | 320 | — | 400 | — | |||||||||||||||||||
| Goodwill | 24,548 | 11,516 | 47,205 | 8,218 | |||||||||||||||||||
| Fixed assets | 16,953 | 4,986 | 2,231 | 326 | |||||||||||||||||||
| Right-of-use assets | 5,321 | 13,303 | 2,026 | 3,258 | |||||||||||||||||||
| Other assets | 859 | 146 | 109 | 34 | |||||||||||||||||||
| Deferred tax liabilities | (3,600) | — | — | (236) | |||||||||||||||||||
| Lease liabilities | (5,321) | (13,303) | (2,026) | (3,258) | |||||||||||||||||||
| Current liabilities | (43,841) | (19,253) | (9,240) | (3,506) | |||||||||||||||||||
| Total | $ | 116,515 | $ | 41,361 | $ | 88,174 | $ | 17,744 | |||||||||||||||
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The Company recognized professional fees related to acquisition activities of $3,481, $4,357 and $450 for fiscal 2023, 2022 and 2021, respectively, presented within other operating expenses, net on the consolidated statements of operations.
Unaudited Pro forma Financial Information
The table below presents select unaudited pro forma consolidated income statement information of the Company as if the GreenLeaf and Hardie’s acquisitions had occurred on December 25, 2021, and the CME acquisition 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 value. The pro forma information also reflects additional interest expense that would have been incurred by the Company to finance the acquisitions. Pro forma interest expense was estimated based on the prevailing interest rates charged on the Company’s senior secured term loan during fiscal 2022. CME did not have a pro forma impact during the fiscal year ended December 29, 2023 as it was included in the consolidated results of operations for the entire period.
| Fiscal Years Ended | ||||||||||||||||||||
| December 29, 2023 | December 30, 2022 | |||||||||||||||||||
| Net sales | $ | 3,527,947 | $ | 3,150,426 | ||||||||||||||||
| Income before income taxes | $ | 58,041 | $ | 53,458 | ||||||||||||||||
Note 6 – Inventories
Inventories consist primarily of finished product. Inventory is reflected net of adjustments for shrinkage, excess and obsolescence to approximate their net realizable value totaling $11,205 and $9,198 at December 29, 2023 and December 30, 2022, respectively.
Note 7 – Property and Equipment
Property and equipment as of December 29, 2023 and December 30, 2022 consisted of the following:
| Useful Lives | December 29, 2023 | December 30, 2022 | ||||||||||||||||||
| Land | Indefinite | $ | 5,542 | $ | 5,542 | |||||||||||||||
| Buildings | 20 years | 41,979 | 39,893 | |||||||||||||||||
| Machinery and equipment | 5 - 10 years | 38,430 | 32,107 | |||||||||||||||||
| Computers, data processing and other equipment | 3 - 7 years | 20,271 | 18,475 | |||||||||||||||||
| Software | 3 - 7 years | 47,008 | 42,609 | |||||||||||||||||
| Leasehold improvements | 1- 40 years | 135,767 | 94,245 | |||||||||||||||||
| Furniture and fixtures | 7 years | 2,636 | 3,825 | |||||||||||||||||
| Vehicles | 5 - 10 years | 45,407 | 31,462 | |||||||||||||||||
| Construction-in-process | 34,761 | 36,583 | ||||||||||||||||||
| 371,801 | 304,741 | |||||||||||||||||||
| Less: accumulated depreciation and amortization | (137,008) | (119,013) | ||||||||||||||||||
Property and equipment, net | $ | 234,793 | $ | 185,728 | ||||||||||||||||
Construction-in-process at December 29, 2023 related primarily to the build-out of the Company’s Richmond, CA and CME distribution facilities. Construction-in-process at December 30, 2022 related primarily related primarily to the build-outs of the Company’s Miami, Dallas, and Richmond, CA distribution facilities and the implementation of the Company’s Enterprise Resource Planning System.
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The net book value of equipment financed under finance leases at December 29, 2023 and December 30, 2022 was $20,161 and $11,579, respectively. No interest expense was capitalized during the fiscal years ended December 29, 2023, December 30, 2022 and December 24, 2021.
The components of depreciation and amortization expense were as follows:
| Fiscal Years Ended | |||||||||||||||||
| December 29, 2023 | December 30, 2022 | December 24, 2021 | |||||||||||||||
| Depreciation expense | $ | 26,910 | $ | 18,572 | $ | 15,918 | |||||||||||
| Software amortization | $ | 5,977 | $ | 5,760 | $ | 6,080 | |||||||||||
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 | 66,249 | ||||
| Foreign currency translation | (112) | ||||
| Carrying amount as of December 30, 2022 | 287,120 | ||||
| Goodwill adjustments (1) | 1,859 | ||||
| Acquisitions | 66,940 | ||||
| Foreign currency translation | 102 | ||||
| Carrying amount as of December 29, 2023 | $ | 356,021 | |||
(1) Goodwill adjustments represent measurement period adjustments related to certain acquisitions completed in that fiscal year and prior years.
Other intangible assets as of December 29, 2023 and December 30, 2022 consisted of the following:
| Weighted Average Remaining Amortization Period | Gross Carrying Amount | Accumulated Amortization | Net Amount | |||||||||||||||||||||||
| December 29, 2023 | ||||||||||||||||||||||||||
| Customer relationships | 100 months | $ | 251,967 | $ | (103,042) | $ | 148,925 | |||||||||||||||||||
| Trademarks | 147 months | 56,257 | (20,857) | 35,400 | ||||||||||||||||||||||
| Non-compete agreements | 18 months | 9,299 | (8,761) | 538 | ||||||||||||||||||||||
| Total | $ | 317,523 | $ | (132,660) | $ | 184,863 | ||||||||||||||||||||
| December 30, 2022 | ||||||||||||||||||||||||||
| 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 | ||||||||||||||||||||
During fiscal 2023, the Company recognized a customer relationships intangible asset impairment charge of $1,838, $1,333 net of tax, related to the loss of a significant Hardie’s customer post acquisition. The Company’s valuation of the Hardie’s customer list intangible asset as of the acquisition date, a Level 3 measurement, was based on an income approach using the excess earnings method which requires significant assumptions including future sales forecasts and a discount rate. The impairment charge was measured by reducing its assumption of future sales for the significant customer lost post-acquisition to zero. During fiscal 2021, the Company recorded a $597 impairment charge, $433 net of tax, to fully write-down the net book value of its Cambridge trademark. These impairment charges are presented within other operating expenses on the consolidated statements of operations.
Amortization expense for other intangibles was $22,719, $13,913 and $12,967 for the fiscal years ended December 29, 2023, December 30, 2022 and December 24, 2021, respectively.
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As of December 29, 2023, estimated amortization expense for other intangible assets for each of the next five fiscal years and thereafter is as follows:
| 2024 | $ | 23,972 | |||
| 2025 | 23,431 | ||||
| 2026 | 23,235 | ||||
| 2027 | 22,666 | ||||
| 2028 | 19,898 | ||||
| Thereafter | 71,661 | ||||
| Total | $ | 184,863 | |||
Note 9 – Debt Obligations
Debt obligations as of December 29, 2023 and December 30, 2022 consisted of the following:
| Weighted Average Effective Interest Rate at December 29, 2023 | Maturity | December 29, 2023 | December 30, 2022 | ||||||||||||||||||||
| Senior secured term loan | 10.96 | % | August 2029 | $ | 276,250 | $ | 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 | 7.51 | % | March 2027 | 100,000 | 40,000 | ||||||||||||||||||
| Finance leases and other financing obligations | 6.51 | % | Various | 31,892 | 13,548 | ||||||||||||||||||
| Convertible unsecured note | — | % | June 2023 | — | 4,000 | ||||||||||||||||||
| Unamortized deferred costs and premium | (17,339) | (20,050) | |||||||||||||||||||||
| Total debt obligations | 717,987 | 665,932 | |||||||||||||||||||||
| Less: current installments | (53,185) | (12,428) | |||||||||||||||||||||
| Total long-term debt | $ | 664,802 | $ | 653,504 | |||||||||||||||||||
Maturities of the Company’s debt, excluding finance leases, for each of the next five years and thereafter at December 29, 2023 are as follows:
| 2024 | $ | 47,684 | |||
| 2025 | 8,000 | ||||
| 2026 | 3,000 | ||||
| 2027 | 103,000 | ||||
| 2028 | 290,500 | ||||
| Thereafter | 261,250 | ||||
| Total | $ | 713,434 | |||
Senior Secured Term Loan Credit Facility
On June 22, 2016, the Company entered into a credit agreement (the “Term Loan Credit Agreement”) with a group of lenders for which Jefferies Finance LLC acts as administrative agent and collateral agent. The Term Loan Credit Agreement provides for a senior secured term loan B facility (the “Term Loan Facility”). On August 23, 2022, the Company entered into an eighth amendment (“Eighth Amendment”) in an aggregate principal amount of $300,000 maturing on August 23, 2029 (“2029 Term Loans”), comprising of a refinancing of the then existing term loans balance under the Term Loan 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. Substantially all of the Company’s assets are pledged as collateral. On August 31, 2023, the Company made a voluntary prepayment of $20,000 towards the 2029 Term Loans. In connection with the prepayment, the Company wrote-off unamortized deferred financing fees of $770, which were
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included in interest expense within the Company’s consolidated statements of operations. On November 6, 2023, the Company entered into a tenth amendment (“Tenth Amendment”) to the Term Loan Credit Agreement which added a provision to allow share repurchases of the Company’s common stock subject to certain restrictive covenants.
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 Term Loan Credit Agreement includes a springing maturity of the earlier of August 23, 2029 and the date that is 181 days prior to the schedule maturity date of any individual trance of unsecured indebtedness of which a principal amount in excess of $40,000 remains outstanding on such date.
The interest charged on the 2029 Term Loans is equal to a spread plus, at the Company’s option, either the Alternate Base Rate or the secured overnight financing rate (“SOFR”) for one-, two-, three- or six -month interest periods chosen by the Company. The Company is required to make scheduled principal payments of 0.25% of the original principal amount per quarter.
The Eighth 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 to be amortized over the term of the loan. Arrangement and third-party transaction costs of $4,498 were expensed as incurred. A similar analysis was performed on the Tenth Amendment and as a result, the Company accounted for it as a modification and deferred lender fees of $1,385 as debt issuance costs to be amortized over the term of the loan and expensed third-party transaction costs of approximately $319.
The Term Loan Facility contains affirmative covenants, negative covenants and events of default customary for a term loan B facility of this type. Additionally, the Term Loan Facility includes covenants that restrict the Company’s ability to pay dividends subject to compliance with certain baskets and leverage ratio tests.
Asset-Based Loan Facility
On June 29, 2018, the Company entered into a credit agreement (the “ABL Credit Agreement”) with a group of lenders for which BMO Harris Bank, N.A. acts as administrative agent. The ABL Credit Agreement provides for an asset-based loan facility (the “ABL”) in the aggregate amount of up to $150,000. On March 11, 2022, the Company entered into a third amendment to the ABL Credit Agreement which increased the aggregate commitments to $200,000 maturing on March 11, 2027. On July 7, 2023, the Company entered into a sixth amendment to the ABL Credit Agreement which increased the aggregate commitments to $300,000 maturing on March 11, 2027. The sixth amendment to the ABL was accounted for as a debt modification. The Company incurred transaction costs of $354 which were capitalized as deferred financing fees to be amortized over the term of the ABL, presented in other non-current assets in the Company’s consolidated balance sheet.
Borrowings under the ABL have been used, and are expected to be used, for capital expenditures, permitted acquisitions, working capital and general corporate purposes of the Company. Availability under the ABL will be limited to a borrowing base equal to the lesser of: (i) the aggregate amount of commitments or (ii) the sum of specified percentages of eligible receivables and eligible inventory, minus certain availability reserves. The Company under the ABL is entitled on one or more occasions, subject to the satisfaction of certain conditions, to request an increase in the commitments under the ABL in an aggregate principal amount of up to $25,000. The ABL includes a springing maturity date that occurs 90 days prior to the earliest maturity under the Company’s senior secured term loan facility and the date that is 181 days prior to the scheduled maturity date of any individual tranche of unsecured indebtedness of which a principal amount in excess of $40,000 remains outstanding on such date and March 11, 2027.
The interest rate charged on borrowings under the ABL is equal to a spread plus, at the Company’s option, either the Base Rate or a forward-looking term rate based on SOFR for one-, three-, or six-month interest periods chosen by the Company. The Company will pay certain recurring fees with respect to the ABL, including fees on unused lender commitments.
The ABL Credit Agreement contains customary affirmative covenants, negative covenants and events of default as more particularly described in the ABL Credit Agreement. If the amount of availability under the ABL falls below $21,000 or 10% of the Line Cap, as defined as the lessor of the aggregate commitment and the borrowing base, the Company is required to comply with a minimum consolidated fixed charge coverage ratio of 1:1.
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As of December 29, 2023, the Company had reserved $27,970 of the ABL for the issuance of letters of credit and funds totaling $172,030 were available for borrowing under the ABL.
2028 Convertible Senior Notes
On December 13, 2022, the Company issued $287,500 aggregate principal amount of 2.375% Convertible Senior Notes (the “2028 Convertible Notes”). The 2028 Senior Notes were issued pursuant to an indenture, dated as of December 13, 2022 (the “2028 Indenture”), between the Company and The Bank of New York Mellon Trust Company, N.A., as trustee. Concurrently with the issuance of the 2028 Convertible Notes, the Company entered into separate, privately negotiated transactions (the “Exchange Transactions”) with a limited number of holders of its 1.875% Convertible Senior Notes ( the “2024 Convertible Notes) to exchange or repurchase approximately $158,316 principal amount of 2024 Convertible Notes for an aggregate consideration consisting of approximately $159,709 in cash, which includes accrued interest on the 2024 Convertible Notes, and approximately 324,066 shares of the Company’s common stock. Net proceeds were used for capital expenditures, permitted acquisitions, working capital and general corporate purposes of the Company.
The Company performed an analysis for each lender in accordance with ASC 470 “Debt” to determine whether the Exchange Transactions resulted in a substantial change to the remaining cash flows which is defined as a change in present value of remaining cash flows or a change in the fair value of the conversion option of more than 10%. As a result of the analysis, the Exchange Transaction was recorded as an extinguishment and the Company incurred a loss on debt extinguishment of $14,145 which is reflected in interest expense on the Company’s consolidated statements of operations in the fiscal year ended December 30, 2022. The Company incurred third party transaction costs of approximately $6,971 which were capitalized as deferred financing fees to be amortized over the term of the 2028 Senior Notes.
The 2028 Convertible Notes bear interest of 2.375% per annum payable semiannually in arrears on June 15 and December 15 of each year, beginning on June 15, 2023. The initial conversion price is approximately $44.27 per share together with cash in lieu of any fractional share. The conversion price is subject to adjustments upon the occurrence of certain events. The 2028 Convertible Notes will mature on December 15, 2028, unless earlier converted or repurchased in accordance with their terms.
Before September 15, 2028, holders of the 2028 Convertible Notes will have the right to convert only upon the occurrence of certain events. From and after September 15, 2028, holders may convert at any time at their election until the close of business on the scheduled trading day immediately before the maturity date. The Company will settle conversions by paying or delivering, as applicable, cash, shares of its common stock or a combination of cash and shares of its common stock, at the Company’s election.
In addition, if the Company undergoes a fundamental change, as described in the 2028 Indenture, holders may require the Company to repurchase for cash all or part of their 2028 Convertible Notes at a repurchase price equal to 100% of the principal amount of the 2028 Convertible Notes to be repurchased, plus accrued and unpaid interest up to, but excluding, the required repurchase date.
2024 Convertible Senior Notes
On November 22, 2019, the Company issued $150,000 aggregate principal amount of 2024 Convertible Notes pursuant to an indenture, dated as of November 22, 2019 (the “2024 Indenture”), between the Company and The Bank of New York Mellon Trust Company, N.A., as trustee. Approximately $43,225 of the net proceeds were used to repay all borrowings then outstanding under the ABL and the remainder was used for working capital, general corporate purposes and acquisitions. The Company incurred transaction costs of approximately $5,082 which were capitalized as deferred financing fees to be amortized over the term of the 2024 Convertible Notes.
On March 1, 2021, the Company issued $50,000 aggregate principal amount of 2024 Convertible Notes at a premium which were offered as an additional issuance and under the same terms as the 2024 Convertible Notes initially issued on November 22, 2019. Net proceeds were used to repay all outstanding borrowings under the Company's 2022 tranche of senior secured term loans of $31,166 and repay a portion of borrowings outstanding under the Company’s ABL. The Company incurred transaction costs of approximately $1,350 which were capitalized as deferred financing fees to be amortized over the term of the 2024 Senior Notes.
The 2024 Convertible Notes bear interest of 1.875% per annum payable semiannually in arrears on June 1 and December 1 of each year, beginning on June 1, 2020. At any time before the close of business on the scheduled trading day immediately before the maturity date, the 2024 Convertible Notes will be convertible at the option of holders into shares of the Company’s common stock, together with cash in lieu of any fractional share, at an initial conversion price of approximately $44.20 per share. The
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conversion price is subject to adjustments upon the occurrence of certain events. The 2024 Convertible Notes will mature on December 1, 2024, unless earlier converted or repurchased in accordance with their terms.
The Company may not redeem the 2024 Convertible Notes at its option prior to maturity. In addition, if the Company undergoes a fundamental change, as described in the 2024 Indenture, holders may require the Company to repurchase for cash all or part of their 2024 Convertible Notes at a repurchase price equal to 100% of the principal amount of the 2024 Convertible Notes to be repurchased, plus accrued and unpaid interest up to, but excluding, the required repurchase date.
GreenLeaf Unsecured Note
In connection with the GreenLeaf acquisition, the Company issued a $10,000 unsecured note bearing interest of 4.5%. The principal on the unsecured note is due in two equal installments on April 30, 2024 and 2025 and is presented under the caption “Finance leases and other financing obligations” in the table above.
Convertible Unsecured Note
On February 25, 2019, the Company issued a $4,000 convertible unsecured note (the “Unsecured Note”), maturing on June 29, 2023, to Bassian Farms, Inc. (the “Holder”) as partial consideration in the Bassian acquisition. The interest rate charged on the Unsecured Note was 4.5% per annum and increased to 5.0% after the two-year anniversary of the closing date. The Unsecured Note matured on June 29, 2023 and was repaid in full, including all accrued interest, for $4,049 in cash.
The net carry value of the Company’s convertible notes as of December 29, 2023 and December 30, 2022 was:
| December 29, 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 | $ | (5,730) | $ | 281,770 | $ | 287,500 | $ | (6,876) | $ | 280,624 | ||||||||||||||||||||||||||
| 2024 Convertible Senior Notes | 39,684 | (185) | 39,499 | 41,684 | (373) | 41,311 | ||||||||||||||||||||||||||||||||
| Convertible Unsecured Note | — | — | — | 4,000 | — | 4,000 | ||||||||||||||||||||||||||||||||
| Total | $ | 327,184 | $ | (5,915) | $ | 321,269 | $ | 333,184 | $ | (7,249) | $ | 325,935 | ||||||||||||||||||||||||||
The components of interest expense on the Company’s convertible notes were as follows:
| Fiscal Years Ended | |||||||||||||||||||||||||||||
| December 29, 2023 | December 30, 2022 | December 24, 2021 | |||||||||||||||||||||||||||
| Coupon interest | $ | 7,578 | $ | 4,272 | $ | 3,763 | |||||||||||||||||||||||
| Amortization of deferred costs and premium | 1,334 | 932 | 913 | ||||||||||||||||||||||||||
| Loss on extinguishment of debt | — | 14,145 | — | ||||||||||||||||||||||||||
| Total interest | $ | 8,912 | $ | 19,349 | $ | 4,676 | |||||||||||||||||||||||
Note 10 – Stockholders’ Equity
Warrants
In connection with an acquisition during fiscal 2021, the Company issued warrants with a fair value of $1,120 to purchase up to 150,000 shares of the Company’s common stock at an exercise price of $31.96 per share. These warrants expire on April 22, 2024.
In connection with an acquisition during fiscal 2022, the Company issued warrants with a fair value of $1,701 to purchase up to 150,000 shares of the Company’s common stock at an exercise price of $31.55 per share. These warrants expire on December 26, 2025.
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2023 Employee Stock Purchase Plan
On May 12, 2023, the Company’s stockholders adopted the Company’s Employee Stock Purchase Plan (the “ESPP”), which permits participants to purchase a total of 793,402 shares of the Company’s common stock through payroll deductions of up to 10% of eligible compensation. The purchase price of the shares will be 85% of the fair market value of the common stock on the date of purchase. The plan does not include any look-back or reset provisions. The first offering period is October 16, 2023 to December 31, 2023. Subsequent offering periods will run bi-annually from January 1st to June 30th and July 1st to December 31st. At December 29, 2023, there were 793,402 shares of common stock available for issuance under the ESPP. The ESPP did not have a material impact on the Company’s consolidated financial statements in fiscal year 2023.
Equity Incentive Plan
On May 17, 2019, the Company’s stockholders approved the 2019 Omnibus Equity Incentive Plan (the “2019 Plan”). Concurrently, the 2011 Omnibus Equity Incentive Plan (the “2011 Plan”) was terminated and any shares remaining available for new grants under the 2011 Plan share reserve were extinguished. The purpose of the 2019 Plan is to promote the interests of the Company and its stockholders by (i) attracting and retaining key officers, employees and directors of, and consultants to, the Company and its Subsidiaries and Affiliates; (ii) motivating such individuals by means of performance-related incentives to achieve long-range performance goals; (iii) enabling such individuals to participate in the long-term growth and financial success of the Company; (iv) encouraging ownership of stock in the Company by such individuals; and (v) linking their compensation to the long-term interests of the Company and its stockholders.
The 2019 Plan is administered by the Compensation and Human Capital Committee (the “Committee”) of the Board of Directors and allows for the issuance of stock options, stock appreciation rights (“SARs”), RSAs, restricted share units, performance awards, or other stock-based awards. Stock option exercise prices are fixed by the Committee but shall not be less than the fair market value of a common share on the date of the grant of the option, except in the case of substitute awards. Similarly, the grant price of an SAR may not be less than the fair market value of a common share on the date of the grant. The Committee will determine the expiration date of each stock option and SAR, but in no case shall the stock option or SAR be exercisable after the expiration of 10 years from the date of the grant. The 2019 Plan provides for 4,230,000 shares available for grant. As of December 29, 2023, there were 1,087,277 shares available for grant.
Stock compensation expense was $20,042, $13,602 and $11,479 for the fiscal years ended December 29, 2023, December 30, 2022 and December 24, 2021, respectively. The related tax expense (benefit) for stock-based compensation was $580, $(22) and $(49) for the fiscal years ended December 29, 2023, December 30, 2022 and December 24, 2021, respectively.
The following table reflects the activity of RSAs during the fiscal year ended December 29, 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 | 234,070 | 32.66 | 742,744 | 33.17 | 87,942 | 28.84 | ||||||||||||||||||||||||||||||||
| Vested | (225,693) | 31.77 | — | — | — | — | ||||||||||||||||||||||||||||||||
| Forfeited | (11,597) | 34.29 | — | — | — | — | ||||||||||||||||||||||||||||||||
| Unvested at December 29, 2023 | 461,752 | $ | 32.13 | 1,078,169 | $ | 32.88 | 421,056 | $ | 30.00 | |||||||||||||||||||||||||||||
The fair value of RSAs vested during the fiscal years ended December 29, 2023, December 30, 2022 and December 24, 2021, was $7,170, $8,719 and $7,848, respectively.
These awards are a mix of time-, market- and performance-based grants awarded to key employees and non-employee directors that generally vest over a range of periods up to five-years. The market- and performance-based RSAs generally cliff vest, if at all, after the conclusion of a three-year performance period and vesting is subject to the award recipient’s continued service to the Company as of the vesting date. The number of performance-based RSAs that ultimately vest is based on the Company’s attainment of certain profitability and return on invested capital targets.
At December 29, 2023, the total unrecognized compensation cost for the Company’s unvested RSAs was $18,895 to be recognized over a weighted-average period of approximately 1.6 years. Of this total, $9,016 related to RSAs with time-based
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vesting provisions to be recognized over a weighted average period of 1.5 years and $9,879 related to RSAs with performance- or market-based vesting provisions to be recognized over a weighted average period of 1.6 years.
The following table summarizes stock option activity during the fiscal year ended December 29, 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 | (2,705) | 20.23 | ||||||||||||||||||||||||
| Outstanding December 29, 2023 | 109,527 | $ | 20.23 | $ | 1,008 | 2.2 | ||||||||||||||||||||
| Exercisable at December 29, 2023 | 109,527 | 20.23 | $ | 1,008 | 2.2 | |||||||||||||||||||||
The total intrinsic value of options exercised during fiscal 2023 and 2022 was $22 and $63, respectively. There were no options exercised in fiscal 2021. The Company issues new shares upon the exercise of stock options. No stock option expense was recognized during the fiscal years ended December 29, 2023 and December 30, 2022. No compensation expense related to the Company’s RSAs or stock options has been capitalized.
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 $2,175 and $362 during the fiscal years ended December 29, 2023 and December 30, 2022, respectively. As of December 29, 2023 and December 30, 2022, the fair value of these awards was $2,537 and $362, respectively, and they are presented within accrued liabilities on the Company’s consolidated balance sheets.
Note 11 – Leases
The components of net lease cost were as follows:
| Fiscal Years Ended | |||||||||||||||||||||||
| December 29, 2023 | December 30, 2022 | December 24, 2021 | |||||||||||||||||||||
| Operating lease cost | $ | 40,523 | $ | 31,346 | $ | 26,531 | |||||||||||||||||
| Finance lease cost: | |||||||||||||||||||||||
| Amortization of right-of-use asset | 4,173 | 3,715 | 4,667 | ||||||||||||||||||||
| Interest expense on lease liabilities | 726 | 442 | 555 | ||||||||||||||||||||
| Total finance lease cost | $ | 4,899 | $ | 4,157 | $ | 5,222 | |||||||||||||||||
| Short-term lease cost | 12,535 | 5,481 | 3,491 | ||||||||||||||||||||
| Variable lease cost | 13,718 | 7,715 | 3,331 | ||||||||||||||||||||
| Sublease income | (1,970) | (1,344) | (430) | ||||||||||||||||||||
| Total lease cost, net | $ | 69,705 | $ | 47,355 | $ | 38,145 | |||||||||||||||||
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The maturities of the Company’s lease liabilities for each of the next five fiscal years and thereafter at December 29, 2023 were as follows:
| Operating Leases | Finance Leases | ||||||||||||||||||||||||||||
| Related Party Real Estate | Third Party Real Estate | Vehicles and Equipment | Total | Vehicles and Equipment | |||||||||||||||||||||||||
| 2024 | $ | 674 | $ | 30,715 | $ | 6,866 | $ | 38,255 | $ | 6,295 | |||||||||||||||||||
| 2025 | 699 | 27,239 | 4,614 | 32,552 | 5,659 | ||||||||||||||||||||||||
| 2026 | 725 | 25,135 | 2,666 | 28,526 | 4,211 | ||||||||||||||||||||||||
| 2027 | 752 | 23,236 | 1,928 | 25,916 | 3,031 | ||||||||||||||||||||||||
| 2028 | 580 | 21,504 | 1,407 | 23,491 | 2,671 | ||||||||||||||||||||||||
| Thereafter | — | 155,990 | 442 | 156,432 | 2,583 | ||||||||||||||||||||||||
| Total | $ | 3,430 | $ | 283,819 | $ | 17,923 | $ | 305,172 | $ | 24,450 | |||||||||||||||||||
| Less imputed interest | (96,892) | (2,558) | |||||||||||||||||||||||||||
| Present value of lease obligations | $ | 208,280 | $ | 21,892 | |||||||||||||||||||||||||
Supplemental balance sheet information related to finance leases was as follows:
| Balance Sheet Location | December 29, 2023 | December 30, 2022 | ||||||||||||
| Short-term finance lease liabilities | Current portion of long-term debt | $ | 5,389 | $ | 3,211 | |||||||||
| Long-term finance lease liabilities | Long-term debt, net of current portion | $ | 16,503 | $ | 8,120 | |||||||||
At December 29, 2023, the weighted-average lease term for operating and finance leases was 10.4 years and 4.7 years, respectively. At December 29, 2023, the weighted-average discount rate for operating and finance leases was 7.4% and 7.1%, respectively.
Note 12 – Income Taxes
The components of the Company’s income (loss) before income taxes consist of the following:
| Fiscal Years Ended | ||||||||||||||||||||
| December 29, 2023 | December 30, 2022 | December 24, 2021 | ||||||||||||||||||
| Domestic | $ | 40,171 | $ | 40,428 | $ | (4,356) | ||||||||||||||
| Foreign | 15,298 | 1,461 | (2,420) | |||||||||||||||||
| Total | $ | 55,469 | $ | 41,889 | $ | (6,776) | ||||||||||||||
The provision for income taxes consists of the following:
| Fiscal Years Ended | ||||||||||||||||||||
| December 29, 2023 | December 30, 2022 | December 24, 2021 | ||||||||||||||||||
| Current income tax expense (benefit): | ||||||||||||||||||||
| Federal | $ | 9,913 | $ | 1,665 | $ | (285) | ||||||||||||||
| Foreign | 838 | 208 | — | |||||||||||||||||
| State | 2,014 | 2,665 | 277 | |||||||||||||||||
| Total current income tax expense (benefit) | 12,765 | 4,538 | (8) | |||||||||||||||||
| Deferred income tax expense (benefit): | ||||||||||||||||||||
| Federal | 4,320 | 9,571 | (2,002) | |||||||||||||||||
| Foreign | (48) | (4) | (22) | |||||||||||||||||
| State | 3,842 | 34 | 179 | |||||||||||||||||
| Total deferred income tax expense (benefit) | 8,114 | 9,601 | (1,845) | |||||||||||||||||
| Total income tax expense (benefit) | $ | 20,879 | $ | 14,139 | $ | (1,853) | ||||||||||||||
The Company’s fiscal 2020 income tax provision reflects the impact of an expected income tax refund receivable of $22,966 and $21,250 which is reflected in prepaid expenses and other current assets on the Company’s consolidated balance sheets as
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of December 29, 2023 and December 30, 2022, respectively, as a result of the five year carryback allowed under the Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”).
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 refunds within one year, the exact timing of receipt is difficult to predict.
Income tax expense (benefit) differed from amounts computed using the statutory federal income tax rate due to the following reasons:
| Fiscal Years Ended | ||||||||||||||||||||
| December 29, 2023 | December 30, 2022 | December 24, 2021 | ||||||||||||||||||
| Statutory U.S. Federal tax | $ | 11,648 | $ | 8,797 | $ | (1,423) | ||||||||||||||
| Differences due to: | ||||||||||||||||||||
| State and local taxes, net of federal benefit | 3,497 | 3,251 | (396) | |||||||||||||||||
| Change in valuation allowance | 478 | (405) | (215) | |||||||||||||||||
| Foreign rate differential | (2,254) | (560) | — | |||||||||||||||||
| Loss on debt extinguishment | — | 2,982 | — | |||||||||||||||||
| Acquisition costs | 509 | 472 | — | |||||||||||||||||
| Compensation limitation | 4,504 | — | — | |||||||||||||||||
| US tax on international operations | 929 | 190 | — | |||||||||||||||||
| Stock compensation | 913 | (170) | (361) | |||||||||||||||||
| Other | 655 | (418) | 542 | |||||||||||||||||
| Income tax expense (benefit) | $ | 20,879 | $ | 14,139 | $ | (1,853) | ||||||||||||||
During the third quarter of fiscal 2023, immaterial errors were identified in the calculation of the provision for income tax expense (benefit) for fiscal 2022, 2021 and 2020. The Company recorded an out of period adjustment of $2,135 to the provision for income tax expense in fiscal 2023. The impact of these errors on prior periods would be to increase the provision for income tax expense by $1,308 for fiscal 2022 and to reduce the provision for income tax benefit by $719 and $108 for fiscal 2021 and 2020, respectively.
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Deferred tax assets and liabilities at December 29, 2023 and December 30, 2022 consist of the following:
| December 29, 2023 | December 30, 2022 | |||||||||||||
| Deferred tax assets: | ||||||||||||||
| Receivables and inventory | $ | 11,197 | $ | 10,574 | ||||||||||
| Self-insurance reserves | 3,730 | 2,846 | ||||||||||||
| Net operating loss carryforwards | 3,420 | 5,374 | ||||||||||||
| Interest expense carryforward | 12,855 | 7,671 | ||||||||||||
| Stock compensation | 5,122 | 4,629 | ||||||||||||
| Intangible assets | 525 | 2,796 | ||||||||||||
| Charitable contribution carryforward | 2,271 | 2,569 | ||||||||||||
| Operating lease liabilities | 55,319 | 44,495 | ||||||||||||
| Other | 930 | 527 | ||||||||||||
| Total deferred tax assets | 95,369 | 81,481 | ||||||||||||
| Deferred tax liabilities: | ||||||||||||||
| Property & equipment | (22,483) | (15,602) | ||||||||||||
| Goodwill | (27,660) | (25,539) | ||||||||||||
| Intangible assets | (3,292) | (3,439) | ||||||||||||
| Prepaid expenses and other | (3,391) | (907) | ||||||||||||
| Operating lease right-of-use assets | (50,842) | (40,451) | ||||||||||||
| Total deferred tax liabilities | (107,668) | (85,938) | ||||||||||||
| Valuation allowance | (2,119) | (1,641) | ||||||||||||
| Total net deferred tax liability | $ | (14,418) | $ | (6,098) | ||||||||||
The deferred tax provision results from the effects of net changes during the year in deferred tax assets and liabilities arising from temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. The Company files income tax returns in the U.S. Federal and various state and local jurisdictions as well as the Canadian Federal and provincial districts. For Federal income tax purposes, the 2020 through 2023 tax years remain open for examination by the tax authorities under the normal three-year statute of limitations and the fact that we have not yet filed our tax return for 2023. For state tax purposes, the 2019 through 2023 tax years remain open for examination by the tax authorities under a four-year statute of limitations. The Company records interest and penalties, if any, in income tax expense.
The Company considered all available positive and negative evidence to determine if based on the weight of such evidence, a valuation allowance is needed. At December 29, 2023, the Company had a valuation allowance of $2,119, which consisted of foreign net operating loss carryforwards as it is not expected to be fully realizable in the future.
The Company’s Canada net operating loss carryforward of $2,733 expires at various dates between fiscal 2036 and 2042. The Company’s state net operating loss carryforwards of $687 expire at various dates, the earliest of which expire in fiscal 2026 while others are indefinite-lived. The Company’s charitable contributions carry forward of $2,271 expire between fiscal 2025 and 2027.
The Company is permanently reinvesting the earnings of its foreign operations. The accumulated undistributed earnings of its foreign subsidiaries are immaterial, as a majority of such earnings have been taxed in the U.S.
As of December 29, 2023 and December 30, 2022, the Company did not have any material uncertain tax positions.
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Note 13 – Supplemental Disclosures of Cash Flow Information
| December 29, 2023 | December 30, 2022 | December 24, 2021 | ||||||||||||||||||
| Cash paid for income taxes, net of cash received | $ | 17,931 | $ | 4,275 | $ | (230) | ||||||||||||||
| Cash paid for interest | $ | 42,070 | $ | 27,225 | $ | 15,387 | ||||||||||||||
| Cash paid for amounts included in the measurement of lease liabilities: | ||||||||||||||||||||
| Operating cash flows from operating leases | $ | 38,471 | $ | 28,144 | $ | 25,111 | ||||||||||||||
| Operating cash flows from finance leases | $ | 730 | $ | 442 | $ | 555 | ||||||||||||||
| ROU assets obtained in exchange for lease liabilities: | ||||||||||||||||||||
| Operating leases | $ | 65,601 | $ | 49,643 | $ | 32,741 | ||||||||||||||
| Finance leases | $ | 13,431 | $ | 2,960 | $ | 536 | ||||||||||||||
| Non-cash investing and financing activities: | ||||||||||||||||||||
| Warrants issued for acquisition | $ | — | $ | 1,701 | $ | 1,120 | ||||||||||||||
| Conversion of debt into common stock | $ | — | $ | 11,375 | $ | — | ||||||||||||||
| Common stock issued for acquisitions | $ | 2,496 | $ | — | $ | — | ||||||||||||||
| Contingent earn-out liabilities for acquisitions | $ | 5,765 | $ | 8,700 | $ | 5,500 | ||||||||||||||
| Unsecured notes issued for acquisitions | $ | 10,000 | $ | — | $ | — | ||||||||||||||
Note 14 – Employee Benefit Plans
Employee Tax-Deferred Savings Plan
The Company sponsors a defined contribution plan covering substantially all full-time employees (the “401(k) Plan”) that provides for tax-deferred salary deductions for eligible employees. Employees choose to make voluntary contributions of their annual compensation to the 401(k) Plan, limited to an annual maximum amount as set periodically by the Internal Revenue Service. The Company provides discretionary matching contributions equal to 50 percent of the employee’s contribution amount, up to a maximum of six percent of the employee’s annual salary, or the annual compensation limit set by the Internal Revenue Service, whichever is lower. Matching contributions begin vesting after one year and are fully vested after five years. Employee contributions are fully vested when made. As a result of the Pandemic, the Company’s matching contributions were temporarily suspended from March 31, 2020 through August 31, 2021. Under the 401(k) Plan there is no option available to the employee to receive or purchase the Company’s common stock. Matching contributions under the 401(k) Plan were $3,500, $1,714 and $683, respectively, for fiscal 2023, 2022 and 2021.
Note 15 – 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 was $617 for fiscal 2023 and $493 for fiscal 2022 and 2021. This lease was amended during fiscal 2023 and expires on September 30, 2028.
Note 16 – Commitments and Contingencies
Legal Contingencies
The Company is involved in various legal proceedings. The Company establishes reserves for specific legal proceedings when it determines that the likelihood of an unfavorable outcome is probable and the amount of loss can be reasonably estimated. Management has also identified certain other legal matters where the Company believes an unfavorable outcome is reasonably possible and/or for which no estimate of possible losses can be made. The Company does not believe that there is a reasonable possibility of material loss or loss in excess of the amount that the Company has accrued. The Company recognizes legal fees related to any ongoing legal proceeding as incurred.
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Audits
The Company is involved in various matters, with respect to some of which the outcome is uncertain. These audits may result in the assessment of additional taxes or other costs that are subsequently resolved with authorities or potentially through the courts.
Risk Management Programs
The Company’s self-insurance reserves for its medical program totaled $2,050 and $2,310 at December 29, 2023 and December 30, 2022, respectively.
The Company’s self-insurance reserves for its automobile liability program totaled $5,554 and $3,830 at December 29, 2023 and December 30, 2022, respectively. Self-insurance reserves for workers’ compensation totaled $13,285 and $10,544 at December 29, 2023 and December 30, 2022, respectively.
Workforce
As of December 29, 2023, approximately 4.2% of the Company’s employees are represented by unions, all of whom are operating under collective bargaining agreements which expire at various times between fiscal 2024 and 2025. Approximately 0.8% of the Company’s employees are under a collective bargaining agreement that expires in fiscal 2024.
Note 17 – Valuation Reserves
The following tables summarize the activity in our valuation accounts during the fiscal years ended December 29, 2023, December 30, 2022 and December 24, 2021:
| Balance at Beginning of Period | Additions Charged to Expense | Deductions (1) | Balance at End of Period | |||||||||||||||||||||||
| Allowance for doubtful accounts | ||||||||||||||||||||||||||
| December 29, 2023 | $ | 20,733 | $ | 8,078 | $ | (7,388) | $ | 21,423 | ||||||||||||||||||
| December 30, 2022 | 20,260 | 6,048 | (5,575) | 20,733 | ||||||||||||||||||||||
| December 24, 2021 | 24,027 | (422) | (3,345) | 20,260 | ||||||||||||||||||||||
| Allowance for deferred tax assets | ||||||||||||||||||||||||||
| December 29, 2023 | $ | 1,641 | $ | 478 | $ | — | $ | 2,119 | ||||||||||||||||||
| December 30, 2022 | 2,046 | (405) | — | 1,641 | ||||||||||||||||||||||
| December 24, 2021 | 2,261 | (215) | — | 2,046 | ||||||||||||||||||||||
(1) With respect to the allowance for doubtful accounts, the deductions amount is primarily composed of write-offs, less recoveries which are not material.
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Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
Not applicable.
Item 9A. CONTROLS AND PROCEDURES
Disclosure Controls and Procedures.
The Company, under the supervision and with the participation of its management, including the Chief Executive Officer and the Chief Financial Officer, evaluated the effectiveness of the design and operation of the Company's "disclosure controls and procedures" (as defined in Rule 13a-15(e) under the Securities Exchange Act of 1934, as amended (the "Exchange Act")) as of the end of the period covered by this report. Based on that evaluation, the Chief Executive Officer and the Chief Financial Officer concluded that the Company's disclosure controls and procedures were effective as of December 29, 2023.
Management’s Annual Report on Internal Control Over Financial Reporting.
The Company’s management is responsible for establishing and maintaining adequate internal control over financial reporting as defined in Rules 13a–15(f) and 15d–15(f) under the Exchange Act. The Company’s internal control over financial reporting is designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with GAAP. The Company’s internal control over financial reporting includes those policies and procedures that: (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the Company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with GAAP, and that receipts and expenditures of the Company are being made only in accordance with authorizations of management and directors of the Company; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the Company’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
Under the supervision of our Chief Executive Officer and Chief Financial Officer, our management assessed the effectiveness of the Company’s internal control over financial reporting as of December 29, 2023. In making this assessment, management used the criteria set forth in Internal Control—Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”). Management omitted the internal controls of Hardie’s F&V, LLC (“Hardie’s”) and Oakville Produce Partners, LLC (“GreenLeaf”) from its assessment as permitted by the Securities and Exchange Commission due to the timing of the acquisitions. GreenLeaf constituted 6% of consolidated total assets as of December 29, 2023, and 2% of consolidated net sales for the fiscal year then ended. Hardie’s constituted 4% of consolidated total assets as of December 29, 2023, and 6% of consolidated net sales for the fiscal year then ended. Based on this assessment, our Chief Executive Officer and Chief Financial Officer have concluded that the Company’s internal control over financial reporting was effective as of December 29, 2023.
The Company’s financial statements included in this Annual Report on Form 10-K have been audited by BDO USA, P.C., an independent registered public accounting firm, as indicated in the report appearing on page 43 of this Form 10-K. BDO USA, P.C. has also provided an attestation report on the Company’s internal control over financial reporting.
Changes In Internal Control Over Financial Reporting.
There were no changes in our internal controls over financial reporting that occurred during the quarter ended December 29, 2023 that materially affected, or are reasonably likely to materially affect, our internal control over financial reporting. The Company is currently integrating Hardie’s and GreenLeaf into its overall system of internal control over financial reporting and, if necessary, will make appropriate changes as it integrates Hardie’s and GreenLeaf into the Company's overall internal control over financial reporting process.
72
Report of Independent Registered Public Accounting Firm
Stockholders and Board of Directors
The Chefs’ Warehouse, Inc.
Ridgefield, Connecticut
Opinion on Internal Control over Financial Reporting
We have audited The Chefs’ Warehouse, Inc.’s (the “Company’s”) internal control over financial reporting as of December 29, 2023, based on criteria established in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (the “COSO criteria”). In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 29, 2023, based on the COSO criteria.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (“PCAOB”), the consolidated balance sheets of the Company as of December 29, 2023 and December 30 2022, the related consolidated statements of operations and comprehensive income (loss), stockholders’ equity, and cash flows for each of the three fiscal years in the period ended December 29, 2023, and the related notes and our report dated February 27, 2024 expressed an unqualified opinion thereon.
Basis for Opinion
The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying “Item 9A, Management’s Annual Report on Internal Control over Financial Reporting”. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audit of internal control over financial reporting in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audit also included performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.
As indicated in the accompanying “Item 9A, Management’s Annual Report on Internal Control over Financial Reporting”, management’s assessment of and conclusion on the effectiveness of internal control over financial reporting did not include the internal controls of Oakville Produce Partners, LLC (“GreenLeaf”) and Hardie’s F&V, LLC (“Hardie’s”), which were acquired on May 1, 2023 and March 20, 2023, respectively, and which are included in the consolidated balance sheet of the Company as of December 29, 2023, and the related consolidated statements of operations and comprehensive income (loss), stockholders’ equity, and cash flow for the fiscal year then ended. GreenLeaf constituted 6% of consolidated total assets as of December 29, 2023, and 2% of consolidated net sales for the fiscal year then ended. Hardie’s constituted 4% of consolidated total assets as of December 29, 2023, and 6% of consolidated net sales for the fiscal year then ended. Management did not assess the effectiveness of internal control over financial reporting of GreenLeaf and Hardie’s because of the timing of the acquisitions which were completed on May 1, 2023 and March 20, 2023, respectively. Our audit of internal control over financial reporting of the Company also did not include an evaluation of the internal control over financial reporting of GreenLeaf and Hardie’s.
Definition and Limitations of Internal Control over Financial Reporting
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.
73
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
/s/ BDO USA, P.C.
Stamford, Connecticut
February 27, 2024
74
Item 9B. OTHER INFORMATION
Rule 10b5-1 and Non-Rule 10b5-1 Trading Arrangements
During the three months ended December 29, 2023, none of the Company’s directors or executive officers adopted, modified or terminated any contract, instruction or written plan for the purchase or sale of the Company’s common stock that was intended to satisfy the affirmative defense conditions of Exchange Act Rule 10b5-1(c) or any “non-Rule 10b5-1 trading arrangement.”
Amended and Restated Severance Agreements
On February 27, 2024, the Company entered into an Amended and Restated Severance Agreement with each of its executive officers other than Mr. McCauley to provide for an indefinite term and lump sum severance payment (instead of a renewable annual term and payment of severance over a specified severance period), subject to the terms and conditions of the Amended and Restated Severance Agreements. The severance formulas under the agreements were unchanged by the amendment and
restatement of the agreements and are the same as those described in the Company’s Definitive Proxy Statement filed with the
SEC on March 29, 2023.
The above description of the Amended and Restated Severance Agreements is a summary, and the full text of the agreements is filed wih the Annual Report on Form 10-K and is incorporated by reference herein.
Item 9C. DISCLOSURE REGARDING FOREIGN JURISDICTIONS THAT PREVENT INSPECTIONS
None.
75
PART III
Item 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
The information set forth under the captions “Corporate Governance,” “Proposal 1 - Election of Directors” and “Section 16(a) Beneficial Ownership Reporting Compliance” in our definitive Proxy Statement for our 2024 Annual Meeting of Stockholders to be held on May 10, 2024, which we intend to file within 120 days after our fiscal year-end, is incorporated herein by reference. As provided in General Instruction G(3) to Form 10-K and Instruction 3 to Item 401(b) of Regulation S-K, information regarding executive officers of our Company is provided in Part I of this Annual Report on Form 10-K under the caption, “Information about our Executive Officers.”
Item 11. EXECUTIVE COMPENSATION
The information set forth under the caption “Executive Compensation” in our definitive Proxy Statement for our 2024 Annual Meeting of Stockholders to be held on May 10, 2024, which we intend to file within 120 days after our fiscal year-end, is incorporated herein by reference.
Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS
The information set forth under the caption “Stock Ownership of Certain Beneficial Owners and Management” in our definitive Proxy Statement for our 2024 Annual Meeting of Stockholders to be held on May 10, 2024, which we intend to file within 120 days after our fiscal year-end, is incorporated herein by reference.
The following table provides certain information with respect to equity awards under our equity compensation plans as of December 29, 2023:
| Plan Category | Number of securities to be issued upon exercise of outstanding options, warrants and rights | Weighted-average exercise price of outstanding options, warrants and rights | Number of securities remaining available for future issuance under equity compensation plans (excluding securities reflected in the second column) | ||||||||||||||
| Plans approved by stockholders | 109,527 | $ | 20.23 | 977,750 | |||||||||||||
| Plans not approved by stockholders | — | — | — | ||||||||||||||
| Total | 109,527 | $ | 20.23 | 977,750 | |||||||||||||
Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE
The information set forth under the captions “Corporate Governance – Director Independence” and “Corporate Governance – Certain Relationships and Related Transactions” in our definitive Proxy Statement for our 2024 Annual Meeting of Stockholders to be held on May 10, 2024, which we intend to file within 120 days after our fiscal year-end, is incorporated herein by reference.
Item 14. PRINCIPAL ACCOUNTING FEES AND SERVICES
The information set forth under the captions “Proposal 2 – Ratification of Independent Registered Public Accounting Firm – Fees Paid to BDO USA, P.C.” and “Proposal 2 – Ratification of Independent Registered Public Accounting Firm – Policy on Audit Committee Pre-Approval of Audit and Permissible Non-Audit Services” in our definitive Proxy Statement for our 2024 Annual Meeting of Stockholders to be held on May 10, 2024, which we intend to file within 120 days after our fiscal year-end, is incorporated herein by reference.
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PART IV
Item 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULE
The following documents are filed as part of this report:
1.Financial Statements – See Index to the Consolidated Financial Statements at Item 8 of this Annual Report on Form 10-K.
2.Financial Statement Schedules - Supplemental schedules are not provided because of the absence of conditions under which they are required or because the required information is given in the financial statements or notes thereto.
3.Exhibits – The exhibits listed in the accompanying Index of Exhibits are filed as part of, or incorporated by reference into, this Annual Report on Form 10-K.
Item 16. FORM 10-K SUMMARY
None.
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INDEX OF EXHIBITS
| Exhibit No. | Description | |||||||
| 2.1 | Asset Purchase Agreement, dated as of January 11, 2015, by and among The Chefs’ Warehouse, Inc., a Delaware corporation, Del Monte Capitol Meat Company, LLC, a Delaware limited liability company, T.J. Foodservice Co., Inc., a California corporation, TJ Seafood, LLC, a California limited liability company, John DeBenedetti, Victoria DeBenedetti, Theresa Lincoln, and John DeBenedetti, as the Sellers’ Representative (incorporated by reference to Exhibit 10.1 to the Company’s Form 8-K filed on January 15, 2015) (Pursuant to Item 601(b)(2) of Regulation S-K, the schedules and exhibits to this agreement are omitted, but will be provided supplementally to the Securities and Exchange Commission upon request). | |||||||
| 2.2 | Merger Agreement, dated as of January 11, 2015, by and among The Chefs’ Warehouse, Inc., a Delaware corporation, Del Monte Merger Sub, LLC, a Delaware limited liability company, Del Monte Capitol Meat Co., Inc., a California corporation, David DeBenedetti, Victoria DeBenedetti, DeBenedetti/Del Monte Trust, and John DeBenedetti, as the Sellers’ Representative (incorporated by reference to Exhibit 10.2 to the Company’s Form 8-K filed on January 15, 2015) (Pursuant to Item 601(b)(2) of Regulation S-K, the schedules and exhibits to this agreement are omitted, but will be provided supplementally to the Securities and Exchange Commission upon request). | |||||||
| 2.3 | Earn-Out Agreement, dated April 6, 2015 by and among The Chefs' Warehouse, Inc., Del Monte Capitol Meat Company, LLC, T.J. Foodservice Co., Inc., TJ Seafood, LLC, and John DeBenedetti, as the Sellers' Representative (incorporated by reference to Exhibit 2.1 to the Company's 8-K filed on April 9, 2015)(Pursuant to Item 601(b)(2) of Regulation S-K, the schedules and exhibits to this agreement are omitted, but will be provided supplementally to the Securities and Exchange Commission upon request). | |||||||
| 2.4 | Indemnification Agreement, dated April 6, 2015, by and among Del Monte Merger Sub, LLC, The Chefs' Warehouse, Inc., Del Monte Capitol Meat Company, LLC, DeBenedetti/Del Monte Trust, Victoria DeBenedetti, David DeBenedetti, Del Monte Capitol Meat Co., Inc., T.J. Foodservice Co., Inc., TJ Seafood, LLC, John DeBenedetti, Theresa Lincoln and John DeBenedetti, as the Selling Parties' Representative (incorporated by reference to Exhibit 2.2 to the Company's 8-K filed on April 9, 2015) (Pursuant to Item 601(b)(2) of Regulation S-K, the schedules and exhibits to this agreement are omitted, but will be provided supplementally to the Securities and Exchange Commission upon request). | |||||||
| 2.5 | Earn-Out Agreement, dated August 25, 2017 by and among Fells Point, LLC, Fells Point Wholesale Meats, Inc., Erik M. Oosterwijk and Leendert H. Pruissen (incorporated by reference to Exhibit 2.1 to the Company’s 8-K filed on August 25, 2017). | |||||||
| 2.6 | Asset Purchase Agreement dated as of August 25, 2017, by and among Fells Point, LLC, a Delaware limited liability company, Fells Point Wholesale Meats, Inc., a Maryland close corporation, Erik M. Oosterwijk, and Leendert H. Pruissen (incorporated by reference to Exhibit 10.1 to the Company’s 8-K filed on August 25, 2017) (Pursuant to Item 601(b)(2) of Regulation S-K, the schedules and exhibits to this agreement are omitted, but will be provided supplementally to the Securities and Exchange Commission upon request). | |||||||
| 3.1 | Certificate of Incorporation of the Company, dated as of July 27, 2011 (incorporated by reference to Exhibit 3.1 to the Company’s Form 8-K filed on August 2, 2011). | |||||||
| 3.2 | Bylaws of the Company, dated as of January 30, 2017 (incorporated by reference to Exhibit 3.1 to the Company’s Form 8-K filed on January 31, 2017). | |||||||
| 3.3 | Amended Bylaws of the Company, dated as of August 3, 2021 (incorporated by reference to Exhibit 3.1 to the Company’s Form 8-K filed on August 4, 2021). | |||||||
| 3.4 | Certificate of Designation of the Voting Powers, Designation, Preferences and Relative, Participating, Optional or Other Special Rights and Qualifications, Limitations and Restrictions of the Series A Preferred Stock of The Chefs’ Warehouse, Inc. (incorporated by reference to Exhibit 3.1 to the Company’s Form 8-K filed on March 23, 2020). | |||||||
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| Exhibit No. | Description | |||||||
| 4.0 | Description of Securities (incorporated by reference to Exhibit 4.0 to the Company's From 10-K filed on February 24, 2020). | |||||||
| 4.1 | Form of Common Stock Certificate (incorporated by reference to Exhibit 4.1 to the Company’s S-1/A filed on July 1, 2011). | |||||||
| 4.2 | Indenture, dated as of November 22, 2019, between The Chefs’ Warehouse, Inc. and The Bank of New York Mellon Trust Company, N.A., as trustee (incorporated by reference to Exhibit 4.1 to the Company’s Form 8-K filed on November 22, 2019). | |||||||
| 4.3 | Form of 1.875% Convertible Senior Note due 2024 (incorporated by reference to Exhibit 4.2 to the Company’s Form8-K filed on November 22, 2019) | |||||||
| 4.4 | Rights Agreement, dated as of March 22, 2020, between The Chefs’ Warehouse, Inc. and American Stock Transfer & Trust Company, LLC, as Rights Agent (incorporated by reference to Exhibit 4.1 to the Company’s Form 8-K filed on March 23, 2020). | |||||||
| 4.5 | Indenture, dated as of December 13, 2022, between The Chefs’ Warehouse, Inc. and The Bank of New York Mellon Trust Company, N.A., as trustee (incorporated by reference to Exhibit 4.1 to the Company’s Form 8-K filed on December 13, 2022). | |||||||
| 4.6 | Form of 2.375% Convertible Senior Note due 2028 (incorporated by reference to Exhibit 4.2 to the Company’s Form 8-K filed on December 13, 2022). | |||||||
| 10.1 | Joint and Several Guaranty of Payment, dated as of April 26, 2012, among The Chefs’ Warehouse, Inc., Chefs’ Warehouse Parent, LLC, Dairyland USA Corporation, The Chefs’ Warehouse Mid-Atlantic, LLC, Bel Canto Foods, LLC, The Chefs’ Warehouse West Coast, LLC, and The Chefs’ Warehouse of Florida, LLC (incorporated by reference to Exhibit 10.4 to the Company’s Form 8-K filed on April 30, 2012). | |||||||
| 10.2 | Lease between The Chefs’ Warehouse Leasing Co., LLC and Dairyland USA Corporation, dated as of December 29, 2004 (incorporated by reference to Exhibit 10.2 to the Company’s Form S-1/A filed on June 8, 2011). | |||||||
| 10.3 | First Amendment of Lease dated as of January 1, 2015 between Dairyland USA Corporation and TCW Leasing Co., LLC, f/k/a The Chefs' Warehouse Leasing Co., LLC (incorporated by reference to Exhibit 10.12 to the Company's Form 10-Q filed on August 5, 2015). | |||||||
| 10.4 | Lease Agreement, dated as of June 30, 2015, between CW LV Real Estate, LLC, The Chefs' Warehouse, Inc., Chefs' Warehouse Parent, LLC and The Chefs' Warehouse West Coast, LLC, jointly and severally as the Tenant, and CW Nevada Landlord, LLC, as the Landlord (incorporated by reference to Exhibit 10.3 to the Company's Form 8-K filed on July 7, 2015). | |||||||
| 10.5* | Employment Agreement between Christopher Pappas and The Chefs’ Warehouse, Inc., together with its subsidiaries, dated as of August 2, 2011 (incorporated by reference to Exhibit 10.1 to the Company’s Form 8-K filed on August 2, 2011). | |||||||
| 10.6* | Amended and Restated Employment Agreement between John Pappas and The Chefs’ Warehouse, Inc., together with its subsidiaries, dated as of January 12, 2012 (incorporated by reference to Exhibit 10.1 to the Company’s Form 8-K filed on January 19, 2012). | |||||||
| 10.7* | Offer letter between Chefs’ Warehouse Holdings, LLC and Alexandros Aldous, dated as of February 18, 2011 (incorporated by reference to Exhibit 10.17 to the Company’s Form 10-K filed on March 13, 2013). | |||||||
79
| Exhibit No. | Description | |||||||
| 10.8* | The Chefs’ Warehouse, Inc. 2011 Omnibus Equity Incentive Plan (incorporated by reference to Exhibit 10.13 to the Company’s Form S-1/A filed on July 1, 2011). | |||||||
| 10.9* | Form of Non-Qualified Stock Option Agreement under The Chefs’ Warehouse, Inc. 2011 Omnibus Equity Incentive Plan (Officers and Employees) (incorporated by reference to Exhibit 10.21 to the Company’s Form 10-K filed on March 10, 2017). | |||||||
| 10.10* | The Chefs’ Warehouse, Inc. Executive Change in Control Plan (incorporated by reference to Exhibit 10.2 to the Company’s Form 10-Q filed on May 6, 2020). | |||||||
| 10.11 | Credit Agreement, dated as of June 22, 2016, by and among Dairyland USA Corporation and Chefs’ Warehouse Parent, LLC, as Borrowers, and The Chefs’ Warehouse, Inc. and the other Loan Parties party thereto, as Guarantors, the Lenders party thereto and Jefferies Finance LLC, as administrative agent and collateral agent (the “Term Loan Facility”) (incorporated by reference to Exhibit 10.2 to the Company’s Form 8-K filed on June 22, 2016). | |||||||
| 10.12 | Amendment No. 1, dated as of September 14, 2016, to the Term Loan Facility (incorporated by reference to Exhibit 10.1 to the Company’s Form 8-K filed on September 15, 2016). | |||||||
| 10.13 | Amendment No. 2, dated as of September 1, 2017, to the Term Loan Facility (incorporated by reference to Exhibit 10.2 to the Company’s Form 10-Q filed on November 8, 2017). | |||||||
| 10.14 | Amendment No. 3, dated as of December 13, 2017, to the Term Loan Facility (incorporated by reference to Exhibit 10.25 to the Company’s Form 10-K filed on March 1, 2019). | |||||||
| 10.15 | Amendment No. 4, dated as of November 16, 2018, to the Term Loan Facility (incorporated by reference to Exhibit 10.1 to the Company’s Form 8-K filed on November 19, 2018). | |||||||
| 10.16 | Amendment No. 5, dated as of November 28, 2019, to the Term Loan Facility (incorporated by reference to Exhibit 10.25 to the Company's Form 10-K filed on February 24, 2020). | |||||||
| 10.17 | Amendment No. 6, dated June 8, 2020, to the Term Loan Facility (incorporated by reference to Exhibit 10.1 to the Company’s Form 8-K filed on June 8, 2020). | |||||||
| 10.18 | Amendment No. 7, dated February 24, 2021, to the Term Loan Facility (incorporated by reference to Exhibit 10.18 to the Company’s Form 10-K filed on February 28, 2023). | |||||||
| 10.19 | Amendment No. 8, dated as of August 23, 2022, to the Term Loan Facility (incorporated by reference to Exhibit 10.3 to the Company's Form 10-Q filed on October 26, 2022). | |||||||
| 10.20 | Amendment No. 9, dated as of December 7, 2022, to the Term Loan Facility (incorporated by reference to Exhibit 10.20 to the Company's Form 10-K filed on February 28, 2023). | |||||||
| 10.21† | Amendment No. 10, dated as of November 6, 2023, to the Term Loan Facility. | |||||||
| 10.22 | Credit Agreement, dated as of June 29, 2018, by and among Chefs’ Warehouse Parent, LLC and Dairyland USA Corporation, as Borrowers, and The Chefs’ Warehouse, Inc., The Chefs’ Warehouse Mid-Atlantic, LLC, Bel Canto Foods, LLC, The Chefs’ Warehouse West Coast, LLC, The Chefs’ Warehouse Of Florida, LLC, Michael’s Finer Meats, LLC, Michael’s Finer Meats Holdings, LLC, The Chefs’ Warehouse Midwest, LLC, Fells Point Holdings, LLC and other Loan Parties party thereto as Guarantors, the Lenders party thereto and BMO Harris Bank N.A., as Administrative Agent and Swing Line Lender (the “ABL Facility”) (incorporated by reference to Exhibit 10.1 to the Company’s Form 8-K filed on July 2, 2018). | |||||||
80
| Exhibit No. | Description | |||||||
| 10.23 | Amendment No. 1, dated as of November 28, 2019, to the ABL Facility (incorporated by reference to Exhibit 10.27 to the Company's Form 10-K filed on February 24, 2020). | |||||||
| 10.24 | Amendment No. 2, dated as of February 24, 2021, to the ABL Facility (incorporated by reference to Exhibit 10.23 to the Company's Form 10-K filed on February 28, 2023). | |||||||
| 10.25 | Amendment No. 3, dated as of March 11, 2022, to the ABL Facility (incorporated by reference to Exhibit 10.1 to the Company’s Form 10-Q filed on April 27, 2022). | |||||||
| 10.26 | Amendment No. 4, dated as of August 23, 2022 to the ABL Facility (incorporated by reference to Exhibit 10.1 to the Company's Form 10-Q filed on October 26, 2022). | |||||||
| 10.27 | Amendment No. 5, dated as of December 7, 2022 to the ABL Facility (incorporated by reference to Exhibit 10.26 to the Company's Form 10-K filed on February 28, 2023). | |||||||
| 10.28 | Amendment No. 6, dated as of July 7, 2023, to the ABL Facility (incorporated by reference to Exhibit 10.1 to the Company's Form 10-Q filed on August 2, 2023). | |||||||
| 10.29* | Offer Letter, dated October 17, 2017, by and between The Chefs’ Warehouse, Inc. and James Leddy (incorporated by reference to Exhibit 99.2 to the Company’s Form 8-K filed on October 17, 2017). | |||||||
| 10.30* | Offer Letter, dated February 19, 2018, by and between The Chefs’ Warehouse Inc. and Tim McCauley (incorporated by reference to Exhibit 99.2 to the Company’s Form 8-K filed on February 20, 2018). | |||||||
| 10.31 | Cooperation Agreement dated January 15, 2018, among The Chefs’ Warehouse, Inc., Legion Partners, L.P. I, Legion Partners, L.P. II, Legion Partners Special Opportunities, L.P. VII, Legion Partners, LLC, Legion Partners Asset Management, LLC, Legion Partners Holdings, LLC, Christopher S. Kiper, and Raymond White (incorporated by reference to Exhibit 10.1 to the Company’s Form 8-K filed on January 16, 2018). | |||||||
| 10.32* | Form of Indemnification Agreement by and between The Chefs’ Warehouse, Inc. and its directors and executive officers (incorporated by reference to Exhibit 10.24 to the Company’s Form S-1/A filed on July 14, 2011). | |||||||
| 10.33* | The Chefs’ Warehouse, Inc. Amended and Restated 2019 Omnibus Equity Incentive Plan (incorporated by reference to Exhibit 99.1 to the Company’s Form S-8 filed on May 26, 2022). | |||||||
| 10.34* | Form of Restricted Share Award Agreement under The Chefs’ Warehouse, Inc. 2019 Omnibus Equity Incentive Plan (incorporated by reference to Exhibit 10.2 to the Company’s Form 10-Q filed on July 31, 2019). | |||||||
| 10.35* | Form of Performance Restricted Share Award Agreement under The Chefs’ Warehouse, Inc. 2019 Omnibus Equity Incentive Plan (incorporated by reference to Exhibit 10.3 to the Company’s Form 10-Q filed on July 31, 2019). | |||||||
| 10.36* | Form of Non-Qualified Stock Option Agreement under The Chefs’ Warehouse, Inc. 2019 Omnibus Equity Incentive Plan (incorporated by reference to Exhibit 10.4 to the Company’s Form 10-Q filed on July 31, 2019). | |||||||
| 10.37* | Form of Restricted Share Award Agreement under The Chefs’ Warehouse, Inc. 2019 Omnibus Equity Incentive Plan (incorporated by reference to Exhibit 10.1 to the Company’s Form 10-Q filed on May 6, 2020. | |||||||
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| Exhibit No. | Description | |||||||
| 10.38* | Form of Executive Severance Agreement (incorporated by reference to Exhibit 10.3 to the Company’s Form 10-Q filed on May 6, 2020). | |||||||
| 10.39* | The Chefs’ Warehouse, Inc 2020 Cash Incentive Plan (incorporated by reference to Exhibit 10.41 to the Company’s Form 10-K filed on February 23, 2021). | |||||||
| 10.40* | 2021 Form of Restricted Share Unit Award Agreement - Directors (incorporated by reference to Exhibit 10.1 to the Company’s Form 10-Q filed on July 28, 2021). | |||||||
| 10.41* | 2021 Non-Employee Director Deferral Plan (incorporated by reference to Exhibit 10.2 to the Company’s Form 10-Q filed on July 28, 2021). | |||||||
| 10.42 | The Chefs’ Warehouse, Inc. Seventh Amended and Restated Compensation and Human Capital Committee Charter as adopted by the Board of Directors, November 1, 2022 (incorporated by reference to Exhibit 10.40 to the Company's Form 10-K filed on February 28, 2023). | |||||||
| 10.43* | The Chefs’ Warehouse, Inc. Employee Stock Purchase Plan (incorporated by reference to Exhibit 99.1 to the Company’s Form S-8 filed on August 11, 2023). | |||||||
| 10.44*† | Form of Amended and Restated Executive Severance Agreement. | |||||||
| 14.1 | The Chefs’ Warehouse, Inc. Code of Business Conduct and Ethics (incorporated by reference to Exhibit 14.1 to the Company’s Form 10-Q filed on August 6, 2013). | |||||||
| 21† | Subsidiaries of the Company. | |||||||
| 23.1† | Consent of the Independent Registered Public Accounting Firm. | |||||||
| 31.1† | Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. | |||||||
| 31.2† | Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. | |||||||
| 32.1† | Certification of Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. | |||||||
| 32.2† | Certification of Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. | |||||||
| 101.INS† | XBRL Instance Document – the instance document does not appear on the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document | |||||||
| 101.SCH† | XBRL Schema Document | |||||||
| 101.CAL† | XBRL Calculation Linkbase Document | |||||||
| 101.DEF† | XBRL Definition Linkbase Document | |||||||
| 101.LAB† | XBRL Label Linkbase Document | |||||||
| 101.PRE† | XBRL Presentation Linkbase Document | |||||||
| 104 | Cover Page Interactive Data File - the cover page XBRL tags are embedded within the Inline XBRL document. | |||||||
| * | Management Contract or Compensatory Plan or Arrangement | |||||||
| † | Filed herewith | |||||||
82
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized on February 27, 2024.
| THE CHEFS’ WAREHOUSE, INC. | |||||
| February 27, 2024 | /s/ Christopher Pappas | ||||
| Christopher Pappas | |||||
| Chairman, President and Chief Executive Officer | |||||
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.
| Signature | Capacity | Date | |||||||||||||||||||||
| /s/ Christopher Pappas | Chairman, President and | February 27, 2024 | |||||||||||||||||||||
| Christopher Pappas | Chief Executive Officer (Principal Executive Officer) | ||||||||||||||||||||||
| /s/ James Leddy | Chief Financial Officer | February 27, 2024 | |||||||||||||||||||||
| James Leddy | (Principal Financial Officer) | ||||||||||||||||||||||
| /s/ Timothy McCauley | Chief Accounting Officer | February 27, 2024 | |||||||||||||||||||||
| Timothy McCauley | (Principal Accounting Officer) | ||||||||||||||||||||||
| /s/ John Pappas | Director and Vice Chairman | February 27, 2024 | |||||||||||||||||||||
| John Pappas | |||||||||||||||||||||||
| /s/ Alan Guarino | Director | February 27, 2024 | |||||||||||||||||||||
| Alan Guarino | |||||||||||||||||||||||
| /s/ Dominick C. Cerbone | Director | February 27, 2024 | |||||||||||||||||||||
| Dominick C. Cerbone | |||||||||||||||||||||||
| /s/ Joseph Cugine | Director | February 27, 2024 | |||||||||||||||||||||
| Joseph Cugine | |||||||||||||||||||||||
| /s/ Stephen Hanson | Director | February 27, 2024 | |||||||||||||||||||||
| Stephen Hanson | |||||||||||||||||||||||
| /s/ Katherine Oliver | Director | February 27, 2024 | |||||||||||||||||||||
| Katherine Oliver | |||||||||||||||||||||||
| /s/ Steven F. Goldstone | Director | February 27, 2024 | |||||||||||||||||||||
| Steven F. Goldstone | |||||||||||||||||||||||
| /s/ Ivy Brown | Director | February 27, 2024 | |||||||||||||||||||||
| Ivy Brown | |||||||||||||||||||||||
| /s/ Aylwin Lewis | Director | February 27, 2024 | |||||||||||||||||||||
| Aylwin Lewis | |||||||||||||||||||||||
| /s/ Debra Walton-Ruskin | Director | February 27, 2024 | |||||||||||||||||||||
| Debra Walton-Ruskin | |||||||||||||||||||||||
83
BOARD OF DIRECTORS | ||||||||
Christopher Pappas | Founder, Chairman, President and Chief Executive Officer, The Chefs’ Warehouse, Inc. | |||||||
John Pappas | Founder, Vice Chairman and Chief Operating Officer, The Chefs’ Warehouse, Inc. | |||||||
| Alan Guarino | Vice Chairman of Global Financial Markets, Korn Ferry International | |||||||
| Dominick C. Cerbone | Former Partner, Ernst & Young LLP | |||||||
| Joseph Cugine | Former President, BarFresh Food Group Inc. | |||||||
| Stephen Hanson | Former President, B.R. Guest Restaurants | |||||||
| Katherine Oliver | Principal, Bloomberg Associates | |||||||
| Steven F. Goldstone | Former Non-Executive Chairman, ConAgra Foods, Inc. | |||||||
| Ivy Brown | Former President of the United Parcel Service, Inc., Northeast District | |||||||
| Aylwin Lewis | Former Chairman, Chief Executive Officer and President of Potbelly Corporation | |||||||
| Debra Walton-Ruskin | Former Chief Revenue Officer at the London Stock Exchange Group | |||||||
| Lester Owens | Former Senior Executive Vice President at Wells Fargo & Company, | |||||||
| Richard N. Peretz | Former Venture Partner at Playground Global, LLC | |||||||
| Wendy M. Weinstein | Chief Marketing Officer at W2K Consulting | |||||||
MANAGEMENT TEAM | ||||||||
Christopher Pappas | Founder, Chairman, President and Chief Executive Officer | |||||||
John Pappas | Founder, Vice Chairman and Chief Operating Officer | |||||||
James Leddy | Chief Financial Officer and Assistant Corporate Secretary | |||||||
Alexandros Aldous | General Counsel, Corporate Secretary, Chief Government Relations Officer, and Chief Administrative Officer | |||||||
| Christina Polychroni | Chief Human Resources Officer | |||||||
Tim McCauley | Chief Accounting Officer | |||||||
CORPORATE DATA | ||||||||||||||
Available Information | Annual Meeting | Transfer Agent | ||||||||||||
The Company’s annual and quarterly reports and other news releases are posted on its website (investors.chefswarehouse.com). If you would like to have a printed copy of any of this information mailed to you, please call or write to our Corporate Secretary in the corporate offices and he will be glad to send them to you. | The annual meeting of stockholders will be held on May 10, 2024 at the Company’s principal executive offices located at 100 East Ridge Road, Ridgefield, Connecticut 06877, and simultaneously on the Internet through a virtual web conference at www.virtualshareholdermeeting.com/chef24. | American Stock Transfer & Trust Company, LLC 6201 15th Avenue Brooklyn, New York 11219 | ||||||||||||
Independent Registered Public Accounting | ||||||||||||||
| Firm | ||||||||||||||
BDO USA, P.C. Melville, New York | ||||||||||||||
Market Information | Corporate Offices | Securities Counsel | ||||||||||||
Our common stock trades on the NASDAQ Global Select Market under the symbol “CHEF.” | 100 East Ridge Road Ridgefield, Connecticut 06877 (203) 894-1345 www.chefswarehouse.com | Shearman & Sterling LLP New York, New York | ||||||||||||
