SEC Info - Chefs’ Warehouse, Inc. - ‘10-Q’ for 3/26/21

Center-of-the-Plate

i 139,880

i 49.9

i 163,820

i 43.6

Dry Goods

i 37,749

i 13.5

i 57,886

i 15.4

Pastry

i 40,978

i 14.6

i 49,261

i 13.1

Cheese and Charcuterie

i 23,125

i 8.3

i 35,073

i 9.3

Produce

i 20,535

i 7.3

i 24,020

i 6.4

Dairy and Eggs

i 2,297

i 0.8

i 22,146

i 5.9

Oils and Vinegars

i 9,567

i 3.4

i 16,159

i 4.3

Kitchen Supplies

i 6,086

i 2.2

i 7,066

i 2.0

Total

i 280,217

i 100

i 375,431

i 100

The Company determines its product category classification based on how the Company currently markets its products to its customers. The Company’s definition of its principal product categories may differ from the way in which other companies present similar information.

Food Processing Costs

Food processing costs include but are not limited to direct labor and benefits, applicable overhead and depreciation of equipment and facilities used in food processing activities. Food processing costs included in cost of sales were $ i 5,396 and $ i 5,413 for the thirteen weeks ended March 26, 2021 and March 27, 2020, respectively.

Note 3 – i Net Loss per Share

The following table sets forth the computation of basic and diluted net (loss) income per common share:

Thirteen Weeks Ended

Net loss per share:

Basic

( i 0.49)

( i 0.48)

Diluted

( i 0.49)

( i 0.48)

Weighted average common shares:

Basic

i 36,401,748

i 29,621,433

Diluted

i 36,401,748

i 29,621,433

Reconciliation of net loss per common share:

Thirteen Weeks Ended

Numerator:

Net loss

( i 17,921)

( i 14,085)

Denominator:

Weighted average basic common shares outstanding

i 36,401,748

i 29,621,433

Weighted average diluted common shares outstanding

i 36,401,748

i 29,621,433

Potentially dilutive securities that have been excluded from the calculation of diluted net loss per common share because the effect is anti-dilutive are as follows:

Thirteen Weeks Ended

Restricted share awards (“RSAs”)

i 779,968

i 75,779

Stock options

i 115,639

i 39,075

Convertible notes

i 3,795,570

i 3,484,788

Note 4 – i Fair Value Measurements

Assets and Liabilities Measured at Fair Value

The Company’s contingent earn-out liabilities are measured at fair value. These liabilities were estimated using Level 3 inputs. Long-term earn-out liabilities were $ i 1,248 and $ i 2,556 as of March 26, 2021 and December 25, 2020, respectively, and are reflected as other liabilities and deferred credits on the consolidated balance sheets. The remaining short-term earn-out liabilities are reflected as accrued liabilities on the consolidated balance sheets. The fair value of contingent consideration was determined based on a probability-based approach which includes projected results, percentage probability of occurrence and the application of a discount rate to present value the payments. A significant change in projected results, discount rate, or probabilities of occurrence could result in a significantly higher or lower fair value measurement. Changes in the fair value of contingent earn-out liabilities are reflected in other operating (income)expenses, net on the consolidated statements of operations.

The following table presents the changes in Level 3 contingent earn-out liabilities:

Fells Point

Bassian

Sid Wainer

Other Acquisitions

Total

Balance December 27, 2019

i 4,544

i 7,957

i —

i 2,197

i 14,698

Acquisition value

i —

i 2,081

i 1,383

i 3,464

Cash payments

i —

( i 2,250)

i —

( i 1,677)

( i 3,927)

Changes in fair value

( i 4,544)

( i 4,631)

( i 1,570)

( i 734)

( i 11,479)

Balance December 25, 2020

i —

i 1,076

i 511

i 1,169

i 2,756

Changes in fair value

i —

i 4

( i 511)

( i 801)

( i 1,308)

Balance March 26, 2021

i —

i 1,080

i —

i 368

i 1,448

Fair Value of Financial Instruments

i The following table presents the carrying value and fair value of the Company’s convertible notes. In estimating the fair value of the convertible notes, the Company utilized Level 3 inputs including prevailing market interest rates to estimate the debt portion of the instrument and a Black Scholes valuation model to estimate the fair value of the conversion option. The Black Scholes model utilizes the market price of the Company’s common stock, estimates of the stock’s volatility and the prevailing risk-free interest rate in calculating the fair value estimate.

Carrying Value

Fair Value

Carrying Value

Fair Value

Convertible Senior Notes

i 200,000

i 238,661

i 150,000

i 163,204

Convertible Unsecured Note

i 4,000

i 4,687

i 4,000

i 4,290

Note 5 – i Inventories

Inventories consist primarily of finished product and are reflected net of adjustments for shrinkage, excess and obsolescence totaling $ i 8,755 and $ i 9,013 at March 26, 2021 and December 25, 2020, respectively.

Note 6 – i Equipment, Leasehold Improvements and Software

Equipment, leasehold improvements and software as of March 26, 2021 and December 25, 2020 consisted of the following:

Useful Lives

Land

Indefinite

i 5,020

Buildings

i 20 years

i 15,685

Machinery and equipment

i 5 - i 10 years

i 25,116

i 24,900

Computers, data processing and other equipment

i 3 - i 7 years

i 14,328

i 14,207

Software

i 3 - i 7 years

i 41,273

i 33,063

Leasehold improvements

i 1 - i 40 years

i 68,855

i 68,747

Furniture and fixtures

i 7 years

i 3,418

i 3,412

Vehicles

i 5 - i 7 years

i 21,926

i 21,873

Other

i 7 years

i 88

Construction-in-process

i 2,435

i 8,115

i 198,144

i 195,110

Less: accumulated depreciation and amortization

( i 84,694)

( i 79,662)

Equipment, leasehold improvements and software, net

i 113,450

i 115,448

Construction-in-process at March 26, 2021 related primarily to the build-out of the Company’s Los Angeles distribution facility. Construction-in-process at December 25, 2020 related primarily to the implementation of the Company’s Enterprise Resource Planning system. The net book value of equipment financed under finance leases at March 26, 2021 and December 25, 2020 was $ i 15,592 and $ i 14,705, respectively.

The components of depreciation and amortization expense were as follows:

Thirteen Weeks Ended

Depreciation expense

i 3,935

i 3,568

Software amortization

i 1,172

i 1,194

i 5,107

i 4,762

Note 7 – i Goodwill and Other Intangible Assets

The changes in the carrying amount of goodwill are presented as follows:






Carrying amount as of December 25, 2020	$	i 214,864


Foreign currency translation	i 24
Carrying amount as of March 26, 2021	$	i 214,888

Other intangible assets consist of customer relationships being amortized over a period ranging from four to i twenty years, trademarks being amortized over a period of one to i forty years, and non-compete agreements being amortized over a period of two to i six years.

Other intangible assets as of March 26, 2021 and December 25, 2020 consisted of the following:

Gross Carrying Amount

Accumulated Amortization

Net Amount

Customer relationships

i 141,701

( i 57,616)

i 84,085

Non-compete agreements

i 8,579

( i 7,818)

i 761

Trademarks

i 44,539

( i 21,166)

i 23,373

Total

i 194,819

( i 86,600)

i 108,219

Customer relationships

i 141,679

( i 55,135)

i 86,544

Non-compete agreements

i 8,579

( i 7,752)

i 827

Trademarks

i 44,520

( i 20,174)

i 24,346

Total

i 194,778

( i 83,061)

i 111,717

Amortization expense for other intangibles was $ i 3,539 and $ i 3,298 for the thirteen weeks ended March 26, 2021 and March 27, 2020, respectively. i Estimated amortization expense for other intangible assets for the remainder of the fiscal year ending December 24, 2021 and each of the next four fiscal years and thereafter is as follows:


2021	$	i 9,254
2022	i 11,555
2023	i 10,525
2024	i 9,921
2025	i 9,488
Thereafter	i 57,476
Total	$	i 108,219

Note 8 – i Debt Obligations

Debt obligations as of March 26, 2021 and December 25, 2020 consisted of the following:

Senior secured term loans

i 169,959

i 201,553

Convertible senior notes

i 200,000

i 150,000

Asset-based loan facility

i 20,000

i 40,000

Finance lease and other financing obligations

i 16,434

i 15,798

Convertible unsecured note

i 4,000

Deferred finance fees and original issue premium (discount)

( i 7,861)

( i 7,172)

Total debt obligations

i 402,532

i 404,179

Less: current installments

( i 6,043)

( i 6,095)

Total debt obligations excluding current installments

i 396,489

i 398,084

On March 1, 2021, the Company issued $ i 50,000 aggregate principal amount of i 1.875% Convertible Senior Notes at a premium which were offered as an additional issuance and under the same terms of the Company’s $ i 150,000 Convertible Senior Notes due 2024 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 $ i 31,166 and repay a portion of borrowings outstanding under the Company’s asset-based loan facility (“ABL Facility”). The Company incurred transaction costs of approximately $ i 1,350 which were capitalized as deferred financing fees to be amortized over the term of the Convertible Senior Notes due 2024. At March 26, 2021, the effective interest rate charged on the Company’s Convertible Senior Notes was approximately i 2.3%.

The net carry value of the Company’s Convertible Senior Notes as of March 26, 2021 and December 25, 2020 was:

Principal amount outstanding

i 200,000

i 150,000

Unamortized deferred financing fees and premium

( i 3,814)

( i 4,999)

Net carry value

i 203,814

i 154,999

The components of interest expense on the Company’s Convertible Senior Notes were as follows:

Thirteen Weeks Ended