Attached files

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8-K/A - FORM 8-K/A - Chefs' Warehouse, Inc.d430036d8ka.htm
EX-23.1 - CONSENT OF GBQ PARTNERS, LLC - Chefs' Warehouse, Inc.d430036dex231.htm
EX-99.3 - UNAUDITED FINANCIAL STATEMENTS OF MICHAEL'S FINER MEATS, LLC - Chefs' Warehouse, Inc.d430036dex993.htm
EX-99.2 - AUDITED FINANCIAL STATEMENTS OF MICHAEL'S FINER MEATS, LLC - Chefs' Warehouse, Inc.d430036dex992.htm

Exhibit 99.4

The Chefs’ Warehouse, Inc.

Unaudited Pro Forma Condensed Combined Financial Information


UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL INFORMATION RELATING TO THE PURCHASE

The unaudited pro forma condensed combined financial information has been prepared using the purchase method of accounting, giving effect to the purchase of Michael’s Finer Meats, LLC (“Michael’s”) by The Chefs’ Warehouse, Inc. (the “Company”, “we”, or “us”) which was completed on August 10, 2012 (the “purchase”). The unaudited pro forma condensed combined balance sheet combines the historical financial information of the Company and Michael’s as of June 29, 2012, and assumes that the purchase was completed on that date. The unaudited pro forma condensed combined statements of operations for the year ended December 30, 2011 and the twenty-six weeks ended June 29, 2012 give effect to the purchase as if the purchase had been completed on December 24, 2010. The unaudited pro forma condensed combined financial information is presented for illustrative purposes only and is not necessarily indicative of the results of operations or financial condition of the combined company had the purchase been completed on the dates described above, nor is it necessarily indicative of the future results of operations or financial position of the combined company.

The pro forma financial information includes adjustments to record assets and liabilities of Michael’s at their estimated respective fair values based on available information and to give effect to the financing for the purchase and related transactions. The pro forma adjustments included herein are subject to change depending on changes in the components of assets and liabilities and as additional analyses are performed. The final allocation of the purchase price of Michael’s will be determined after completion of a thorough analysis to determine the fair value of Michael’s tangible and identifiable intangible assets and liabilities as of the date the purchase was completed. Increases or decreases in the estimated fair values of the net assets as compared with the information shown in the unaudited pro forma condensed combined financial information may change the amount of the purchase price allocated to goodwill and other assets and liabilities, and may impact the Company’s statement of operations in future periods. Any changes to Michael’s members’ equity, including results of operations from June 29, 2012, through the date the purchase was completed, will also change the purchase price allocation, which may include the recording of a higher or lower amount of goodwill. The final adjustments may be materially different from the unaudited pro forma adjustments presented herein.

The Company anticipates that the purchase will provide the combined company with financial benefits that included increased sales, additional customers, expanded geographic reach and enhanced capabilities in the center-of-the-plate protein category. The unaudited pro forma condensed combined financial information, while helpful in illustrating the financial characteristics of the combined company under one set of assumptions, does not reflect any cost savings from operating efficiencies, synergies or restructurings that could result from the purchase. Additionally, the unaudited pro forma condensed combined financial information does not reflect additional revenue opportunities following the purchase and does not attempt to predict or suggest future results.

The unaudited pro forma condensed combined financial information has been derived from and should be read in conjunction with the historical consolidated financial statements and the related notes of the Company and Michael’s.

The unaudited pro forma stockholders’ equity and net loss are qualified by the statements set forth under this caption and should not be considered indicative of the market value of the Company’s common stock or the actual or future results of operations of the Company for any period. Actual results may be materially different from the pro forma information presented.


Unaudited Pro Forma Condensed Combined Balance Sheet as of June 29, 2012 (in thousands)

 

     Chefs’
historical
     Michael’s historical      Pro forma
adjustments
    Note      Pro forma
combined
 

ASSETS

             

Cash and cash equivalents

   $ 2,436       $ 2,562       $ (2,562     4a       $ 2,436   

Accounts receivable, net

     44,189         7,209         —             51,398   

Inventories, net

     27,419         8,852         —             36,271   

Deferred taxes, net

     1,453         —           —             1,453   

Prepaid expenses and other assets

     3,879         —           —             3,879   
  

 

 

    

 

 

    

 

 

      

 

 

 

Total current assets

     79,376         18,623         (2,562        95,437   

Restricted cash

     11,002         —           —             11,002   

Equipment and leasehold improvements, net

     6,340         2,275         426        4c        9,041   

Software costs, net

     428         —           —             428   

Goodwill

     30,780         30,485         (17,993     4d         43,272   

Intangible assets, net

     11,476         —           26,282        4d         37,758   

Deferred taxes, net

     978         —           —             978   

Other assets

     2,815         965         (835     4b         2,945   
  

 

 

    

 

 

    

 

 

      

 

 

 

Total assets

   $ 143,195       $ 52,348       $ 5,318         $ 200,861   
  

 

 

    

 

 

    

 

 

      

 

 

 

LIABILITIES AND STOCKHOLDERS’ EQUITY

             

Accounts payable

   $ 32,754       $ 2,301       $ —           $ 35,055   

Accrued liabilities

     2,632         360         —             2,992   

Accrued compensation

     2,895         388         —             3,283   

Current portion of long term debt

     4,612         5,622         (5,563     4e         4,671   
  

 

 

    

 

 

    

 

 

      

 

 

 

Total current liabilities

     42,893         8,671         (5,563        46,001   

Long-term debt, net of current portion

     68,254         11,862         42,696        4e         122,812   

Other liabilities and deferred credits

     1,028         —           —             1,028   
  

 

 

    

 

 

    

 

 

      

 

 

 

Total liabilities

   $ 112,175       $ 20,533       $ 37,133         $ 169,841   

Common stock

     209         —           —             209   

Additional paid-in capital

     20,164         —           —             20,164   

Members equity

     —           31,815         (31,815     4f         —     

Retained earnings

     10,647         —           —             10,647   
  

 

 

    

 

 

    

 

 

      

 

 

 

Total stockholders’ equity

     31,020         31,815         (31,815        31,020   
  

 

 

    

 

 

    

 

 

      

 

 

 

Total liabilities and stockholders’ equity

   $ 143,195       $ 52,348       $ 5,318         $ 200,861   
  

 

 

    

 

 

    

 

 

      

 

 

 

See accompanying notes to unaudited pro forma condensed combined financial information.


Unaudited Pro Forma Condensed Combined Statement of Operations for the Twenty-Six Weeks Ended

June 29, 2012 (in thousands, except per share data)

 

     Chefs’
historical
     Michael’s
historical
    Pro forma
adjustments
    Note      Pro forma
combined
 

Net revenues

   $ 212,894       $ 42,583      $ —           $ 255,477   

Cost of sales

     156,374         32,353        —             188,727   
  

 

 

    

 

 

   

 

 

      

 

 

 

Gross profit

     56,520         10,230        —             66,750   

Operating expenses

     42,945         7,310        635        5a         50,890   
  

 

 

    

 

 

   

 

 

      

 

 

 

Operating income

     13,575         2,920        (635        15,860   

Interest expense

     1,444         807        148        5b         2,399   

Gain on fluctuation of interest rate swap

     —           (159     159        5c         —     
  

 

 

    

 

 

   

 

 

      

 

 

 

Income before income taxes

     12,131         2,272        (942        13,461   

Provision for income taxes

     5,039         —          553        5d         5,592   
  

 

 

    

 

 

   

 

 

      

 

 

 

Net income

     7,092         2,272        (1,495        7,869   
  

 

 

    

 

 

   

 

 

      

 

 

 
            
  

 

 

    

 

 

   

 

 

      

 

 

 

Income from continuing operations per share

            

Basic

   $ 0.35       $ —          —           $ 0.38   

Diluted

     0.34         —          —             0.38   

Weighted-average common shares outstanding

            

Basic

     20,526,293         —          —             20,526,293   

Diluted

     20,876,995         —          —             20,876,995   

See accompanying notes to unaudited pro forma condensed combined financial information.


Unaudited Pro Forma Condensed Combined Statement of Operations for the Year Ended

December 30, 2011 (in thousands, except per share data)

 

     Chefs’
historical
    Michael’s
historical
    Pro forma
adjustments
    Note      Pro forma
combined
 

Net revenues

   $ 400,632      $ 81,334      $ —           $ 481,966   

Cost of sales

     294,698        62,165        —             356,863   
  

 

 

   

 

 

   

 

 

      

 

 

 

Gross profit

     105,934        19,169        —             125,103   

Operating expenses

     78,138        13,920        1,512        5a         93,570   
  

 

 

   

 

 

   

 

 

      

 

 

 

Operating income

     27,796        5,249        (1,512        31,533   

Interest expense

     14,570        1,989        (50     5b         16,509   

Gain on fluctuation of interest rate swap

     (81     (588     588        5c         (81

Loss on sale of assets

     6        —          —             6   
  

 

 

   

 

 

   

 

 

      

 

 

 

Income before income taxes

     13,301        3,848        (2,050        15,099   

Provision for income taxes

     5,603        —          757        5d         6,360   
  

 

 

   

 

 

   

 

 

      

 

 

 

Net income

     7,698        3,848        (2,807        8,739   
  

 

 

   

 

 

   

 

 

      

 

 

 
           
  

 

 

   

 

 

   

 

 

      

 

 

 

Income from continuing operations per share

           

Basic

   $ 0.44      $ —          —           $ 0.50   

Diluted

     0.43        —          —             0.48   

Weighted-average common shares outstanding

           

Basic

     17,591,376        —          —             17,591,376   

Diluted

     18,031,651        —          —             18,031,651   

See accompanying notes to unaudited pro forma condensed combined financial information.


NOTES TO UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL INFORMATION (in thousands)

1 Description of the transaction

On August 10, 2012, two wholly owned subsidiaries of the Company entered into a securities purchase agreement (the “purchase agreement”) pursuant to which the subsidiaries acquired 100% of the equity securities of Michael’s for approximately $54,267 subject to customary post-closing working capital adjustments. The purchase was funded with borrowings under the Company’s revolving credit facility.

2 Basis of preparation

The unaudited pro forma condensed combined financial information has been derived from the historical financial information of the Company and Michael’s and was prepared using the acquisition method of accounting in accordance with the Financial Accounting Standards Board’s Accounting Standards Codification (“ASC”) 805, Business Combinations, and uses the fair value concepts defined in ASC 820, Fair Value Measurements and Disclosures. ASC 805 requires, among other things, that most assets acquired and liabilities assumed be recognized at their fair values as of the purchase date. In addition, ASC 805 establishes that the consideration transferred be measured at the closing date of the purchase at the then-current market price. The pro forma adjustments are preliminary and have been made solely for the purpose of providing unaudited pro forma condensed combined financial information. the Company anticipates that the values assigned to the assets acquired and liabilities assumed will be finalized during the measurement period following the August 10, 2012 closing date.

The unaudited pro forma condensed combined financial information does not reflect any cost savings from operating efficiencies, synergies or restructurings that could result from the purchase. Additionally, the unaudited pro forma condensed combined financial information does not reflect additional revenue opportunities following the purchase.

3 Purchase accounting

The following is a preliminary estimate of the assets acquired and the liabilities assumed by The Company in the purchase, reconciled to the estimate of consideration transferred:


Purchase Consideration

   $ 54,267   
  

 

 

 

Recognized amounts of identifiable assets acquired and liabilities assumed:

  

Accounts receivable, net

   $ 7,209   

Inventories, net

     8,852   

Equipment and leasehold improvements, net

     2,701   

Other assets

     130   

Accounts payable

     (2,301

Accrued liabilities

     (360

Accrued compensation

     (388

Capital lease obligation

     (350

Identified intangible assets

     26,282   
  

 

 

 

Net recognized amounts of identifiable assets acquired

   $ 41,775   
  

 

 

 

Goodwill

   $ 12,492   
  

 

 

 


a) Intangible assets: As of the effective date of the purchase, intangible assets are required to be measured at fair value and these acquired assets could include assets that are not intended to be used or sold or that are intended to be used in a manner other than their highest and best use. For purposes of the unaudited pro forma condensed combined financial information, the Company assumed that all assets will be used in a manner that represents their highest and best use from a market participant’s perspective. The following reflects the estimated fair values and useful lives of the significant intangible assets identified based on the Company’s preliminary purchase accounting assessments:

 

     Estimated fair value
(in millions)
     Estimated useful life
(in years)
 

Customer relationships

   $ 11,741            10   

Trade names and trademarks

     12,724            12-20   

Covenants not-to-compete

     1,817            5   
  

 

 

       

Total

   $ 26,282         
  

 

 

       

The fair value of customer relationships has been estimated using an income approach, excess earnings method, based on cash flow projections. In this method, the fair value of the asset reflects the present value of the stream of net cash flows that will be generated by the asset over the projection period. The net cash flow is the net sales attributable to the existing customer relationships for products that were available to the customers as of the acquisition date, less cost of goods sold, operating expenses, and charges for the use of other assets. The fair value of Michael’s trade names and associated trademarks has been estimated using an income-based methodology referred to as the relief-from-royalty method. This method makes use of market participant assumptions regarding the estimated future intended use of these assets, the hypothetical royalty payments that a market participant would be required to pay if it did not already own these assets, and a discount rate reflecting the risks inherent in the income generation of these assets. The fair value of covenants not-to-compete has been estimated with consideration to the detrimental impact of competition that would arise if these covenants were not in place, adjusted for an estimated probability that such competition would arise.

At this time, the Company estimates of the fair values of intangible assets are still subject to considerable uncertainty, as substantial amounts of Michael’s data must be thoroughly analyzed before more precise valuations can be determined. The Company anticipates that these analyses will be completed during the measurement period following the closing date.

For each 1% change in the valuation of the underlying definite lived intangible assets, we estimate that annual amortization expense would increase or decrease by approximately $22, assuming the useful lives reflected in the table above. To the extent that the useful lives of the underlying definite lived intangible assets were to increase or decrease by one year, we estimate that our annual amortization expense would decrease or increase by approximately $198 or $255, respectively.

b) Property and equipment: As of the effective date of the purchase all property and equipment are required to be measured at fair value. The acquired assets can include assets that are intended to be used in a manner other than their highest and best use. For purposes of the pro forma condensed combined financial information, the Company assumed an in-use premise for all property and equipment in its estimation of fair value. This estimation was determined using cost-based and market-based appraisal methodologies considering the costs associated with the historical purchase of the property and equipment, market prices for similar assets, and estimates of the property and equipment’s age, economic life, and other relevant characteristics. At this time, the Company has not completed the analysis required to be able to estimate all inputs required to perform the fair value estimates with certainty. The Company anticipates that these analyses will be completed during the measurement period following the closing date. The estimated remaining weighted-average useful lives of the underlying property and equipment are estimated to be 5 years.

For each 1% change in the valuation of the underlying depreciable property and equipment, we estimate that annual depreciation and amortization expense would increase or decrease by $5, assuming a weighted-average useful life of 5 years. To the extent that the useful lives of all the underlying depreciable property and equipment were to increase or decrease by one year, we estimate that annual depreciation and expense would decrease or increase by approximately $90 or $135, respectively.

c) Other long-term assets/deferred financing costs: As of the effective date of the purchase, deferred financing costs were written off as all debt of Michael’s, with the exception of certain vehicle capital lease obligations, was paid off.

d) Long-term debt: As of the effective date of the purchase, all of Michael’s debt, with the exception of certain vehicle capital lease obligations were repaid. The transaction was financed with funds drawn from the Company’s revolving credit facilities. The Company used an interest rate of 3.5% to estimate interest expense on these borrowings. For each one eight percent increase or decrease in the interest rate on our revolving credit facility, we estimate that annual interest expense would increase or decrease by approximately $68.


f) Goodwill: Goodwill is calculated as the difference between the acquisition date fair value of the estimated consideration paid and the values assigned to the assets acquired and liabilities assumed. Goodwill is not amortized but is generally subject to an impairment test annually or more frequently if an event or circumstance indicates that an impairment loss may have been incurred. The level of goodwill expected to result from the purchase is primarily reflective of Michael’s going-concern value, the value of Michael’s assembled workforce, new customer relationships expected to arise from the purchase, and operational synergies that the Company expects to achieve that would not be available to other market participants.

The premium in the purchase price paid by the Company for the acquisition of Michael’s reflects the creation of a leading specialty food distributor with a more attractive business mix, greater scale and enhanced growth prospects.

4 Pro forma balance sheet adjustments

a. To record disbursement of Michael’s cash to its members.

b. To write-off debt issuance costs of Michael’s.

c. Reflects the step-up in basis of Michael’s property and equipment.

d. Reflects removal of Michael’s historical goodwill and recording of intangible assets for this transaction.

e. Reflects repayment of Michael’s debt totaling $17,134 and drawdown of $54,267 on the Company’s revolving credit facility to pay for the Michael’s acquisition.

f. To record elimination of Michael’s historical equity.

5 Pro forma statement of operations adjustments

a. For the 26 weeks ended June 29, 2012, represents the removal of Michael’s historical depreciation and amortization of $366, the removal of $356 of private equity management fees, the addition of $270 of depreciation expense on the estimated value of Michael’s assets and $1,087 of new amortization for the intangible assets. For the year ended December 30, 2011, represents the removal of Michael’s historical depreciation and amortization of $650, the removal of $552 of private equity management fees, the addition of $540 of depreciation expense on the estimated value of Michael’s assets and $2,174 of new amortization for the intangible assets.

b. For the 26 weeks ended June 29, 2012, represents the removal of $802 of interest expense on Michael’s debt that was paid off at closing offset by $950 of interest incurred by the Company as a result of financing the transaction with borrowings under its revolving credit facility. For the year ended December 30, 2011, represents the removal of $1,949 of interest expense on Michael’s debt that was paid off at closing offset by $1,899 of interest incurred by the Company as a result of financing the transaction with borrowings under its revolving credit facility.

c. Represents the elimination of the gain on Michael’s swap agreement.

d. To adjust the combined effective tax rate to the Company’s effective tax rate.