Chefs' Warehouse, Inc. 10-K

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. 41 Item 8. CONSOLIDATED FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA Index to the Consolidated Financial Statements Page Report of Independent Registered Public Accounting Firm (BDO USA, P.C , Stamford, Connecticut, PCAOB ID# 243 ) 43 Consolidated Balance Sheets 45 Consolidated Statements of Operations and Comprehensive Income (Loss) 46 Consolidated Statements of Changes in Stockholders’ Equity 47 Consolidated Statements of Cash Flows 48 Notes to Consolidated Financial Statements 49 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. 43 • 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 44 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. 45 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. 46 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. 47 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. 48 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 49 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. 50 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, 51 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 no t 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 52 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 expense s 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. 53 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 54 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 55 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 56 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 57 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 58 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. 59 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 expense s 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. 60 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 61 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. 62 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 63 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. 64 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 65 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 66 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 67 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. 68 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. 69 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. 70 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. 71 Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE Not applicable.