What changed in this filing

/stocks — the workspaceLOADING

Item 1. Financial Statements

2020-11-06 compared with 2020-08-03 · 146 added, 87 removed, 449 unchanged (34% of the section changed)

3 unchanged sentences

(In thousands, except share data)

September 29,

Current assets:

23 unchanged sentences

Series A convertible preferred stock, $ .01 par value, 200,000 shares authorized;

203,694 and 0 shares issued and outstanding at June 30, 2020 and December 31, 2019, respectively

200,000 and 0 shares issued and outstanding at September 29, 2020 and December 31, 2019, respectively

Stockholders’ equity:

1 unchanged sentence

Common stock, $ .01 par value, 250,000,000 shares authorized;

98,465,059 and 97,685,178 shares issued at June 30, 2020 and December 31, 2019, respectively

98,438,269 and 97,685,178 shares issued at September 29, 2020 and December 31, 2019, respectively

Additional paid-in capital

Retained earnings

Treasury stock, 53,003,428 and 52,916,434 shares at cost at June 30, 2020 and December 31, 2019, respectively

Treasury stock, 53,015,995 and 52,916,434 shares at cost at September 29, 2020 and December 31, 2019, respectively

( 1,696,364 )

7 unchanged sentences

(In thousands, except per share data)

June 30, 2020

September 29, 2020

October 1, 2019

September 29, 2020

October 1, 2019

Costs and expenses:

15 unchanged sentences

Net (loss)/income

Net (loss)/income per common share (Note 11):

Dividends on preferred stock

Direct and incremental preferred stock issuance costs

Net (loss)/income available to common stockholders

Net (loss)/income per common share:

Weighted-average common shares outstanding:

3 unchanged sentences

(In thousands)

June 30, 2020

September 29, 2020

October 1, 2019

September 29, 2020

October 1, 2019

Net (loss)/income

4 unchanged sentences

Total comprehensive (loss)/income

Comprehensive (loss)/income attributable to preferred shareholders

Total comprehensive (loss)/income available to common shareholders

See the accompanying notes to the condensed consolidated financial statements

2 unchanged sentences

(In thousands)

For the twenty-six weeks ended June 30, 2020:

For the Thirty-Nine weeks ended September 29, 2020:

Preferred Stock

20 unchanged sentences

( 1,695,974 )

For the twenty-six weeks ended July 2, 2019:

Foreign currency translation adjustment

Change in derivative, net of tax

Stock-based compensation

Common stock issued under stock-based compensation plans

Treasury stock purchases

Paid-in-kind preferred stock dividend, including beneficial conversion feature

Balance, September 29, 2020

( 1,696,364 )

For the Thirty-Nine weeks ended October 1, 2019:

Comprehensive

18 unchanged sentences

( 1,681,304 )

Foreign currency translation adjustment

Cash dividends declared Common stock, $ 0.33 per share

Stock-based compensation

Common stock issued under stock-based compensation plans

Treasury stock purchases

Balance, October 1, 2019

( 1,692,701 )

See the accompanying notes to the condensed consolidated financial statements.

2 unchanged sentences

(In thousands)

June 30, 2020

September 29, 2020

October 1, 2019

Cash flows from operating activities:

Net (loss)/income

Adjustments to reconcile net income to cash (used in)/provided by operating activities:

Adjustments to reconcile net (loss)/income to cash (used in)/provided by operating activities:

Depreciation and amortization expenses

26 unchanged sentences

Treasury stock purchases

Cash provided by/(used in) financing activities

Cash provided by financing activities

Foreign currency translation adjustment

16 unchanged sentences

Certain information and footnote disclosures normally included in financial statements prepared in accordance with GAAP have been omitted pursuant to the rules of the Securities and Exchange Commission (“SEC”).

The accompanying condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and notes thereto included in our Annual Report on Form 10-K for the fiscal year ended December 31, 2019 filed with the SEC on March 11, 2020 (“fiscal 2019 10-K”).

On October 2, 2019, we completed the acquisition of North Italia and the remaining business of Fox Restaurant Concepts LLC (“FRC”), including Flower Child and all other FRC brands (the "Acquisitions").

3 unchanged sentences

Fiscal 2019, which ended on December 31, 2019, was also a 52 -week year.

Beginning with our fiscal 2019 10-K, we separately disclosed our acquisition-related costs on the consolidated statement of income.

Corresponding balances for the thirteen and thirty-nine weeks ended October 1, 2019 were reclassified to conform to the current presentation.

Use of Estimates

5 unchanged sentences

We have experienced significant disruptions to our business due to suggested and mandated social distancing and shelter-in-place orders, which resulted in the temporary closure of a number of restaurants across our portfolio while the remaining locations shifted to an off-premise only operating model on an interim basis.

In late April 2020, certain jurisdictions began allowing the reopening of restaurant dining rooms.

However, restrictions on the type of operating model and occupancy capacity continue to change.

We began to reopen dining rooms across our concepts the second week of May.

The following table presents the number of restaurants and their operating model as of July 29, 2020:

In late April 2020, certain jurisdictions began allowing the reopening of restaurant dining rooms, and we began to reopen dining rooms across our concepts the second week of May.

However, restrictions on the type of

operating model and occupancy capacity continue to change.

The following table presents the number of restaurants and their operating model as of October 29, 2020:

The Cheesecake

3 unchanged sentences

Currently closed

In our initial response to the pandemic, the Company and its Board of Directors implemented the following measures to preserve liquidity and enhance financial flexibility:

(1) On average, The Cheesecake Factory restaurants with reopened dining rooms were operating at 50 % capacity.

In our initial response to the pandemic, the Company and its Board of Directors (the "Board") implemented the following measures to preserve liquidity and enhance financial flexibility:

● Eliminated non-essential capital expenditures and expenses;

6 unchanged sentences

● Suspended the dividend on our common stock and share repurchases.

We cannot predict how long the COVID-19 pandemic will last or whether it will reoccur, what additional restrictions may be enacted, to what extent we can maintain off-premise sales volumes or if individuals will be comfortable returning to our dining rooms during or following social distancing protocols and what long-lasting effects the COVID-19 pandemic may have on the restaurants industry as a whole.

The extent of the reopening process, along with the potential impact of the COVID-19 pandemic on consumer spending behavior, will determine the significance of the impact to our operating results and financial position.

In the first quarter of fiscal 2020, these considerable developments triggered the need to perform impairment assessments of our long-lived assets, goodwill and other intangible assets and a revaluation of contingent consideration associated with the acquisition of Fox Restaurant Concepts LLC.

No additional impairment assessments were required in the second quarter of fiscal 2020.

During the third quarter of fiscal 2020, we called back to work a majority of our staff members who were previously furloughed, and restored Board, executive and corporate support staff compensation.

In addition, we resumed new unit development on a limited basis and will continue to evaluate the pace and quantity of new unit development as more clarity on the restaurant industry operating environment emerges.

The extent of the reopening process, along with the potential impact of the COVID-19 pandemic on economic conditions and consumer spending behavior, will determine the significance of the impact to our operating results and financial position.

No additional impairment assessments were required in the second or third quarters of fiscal 2020.

Future changes in estimates could further impact the carrying value of these items.

13 unchanged sentences

We adopted this standard as of the beginning of fiscal 2020 and such adoption did not have a significant impact on our consolidated financial statements.

In August 2020, the FASB issued ASU 2020-06, Accounting for Convertible Instruments and Contracts in an Entity's Own Equity, which is intended to simplify the accounting and measurement of convertible instruments and the settlement assessment for contracts in an entity's own equity.

This pronouncement is effective for fiscal years beginning after December 15, 2021 and early adoption is permitted.

The guidance allows for either full retrospective adoption or modified retrospective adoption.

We plan to adopt this pronouncement for our fiscal year beginning December 30, 2020 utilizing the modified retrospective method.

Depending on the future value of our stock price, the adoption of this standard could have a material impact on our additional paid-in capital and retained earnings balances due to the elimination of the beneficial conversion feature provision.

Inventories consisted of (in thousands):

June 30, 2020

September 29, 2020

December 31, 2019

2 unchanged sentences

Bakery raw materials and supplies

The decrease in bakery finished goods and work in progress inventories is due to strong demand coupled with manufacturing disruptions resulting from the COVID-19 pandemic.

Impairment of Long-Lived Assets

5 unchanged sentences

The following table presents the components of our intangible assets, net (in thousands):

June 30, 2020

September 29, 2020

December 31, 2019

18 unchanged sentences

Accordingly, actual results could vary significantly from such estimates.

Based on the results of these assessments, we recorded impairment expense of $ 79.4 million, $ 101.0 million and $ 2.3 million related to goodwill, trade names and trademarks, and licensing agreements, respectively, in the first quarter of fiscal 2020.

Based on the results of these assessments, we recorded goodwill impairment expense related to the Other FRC, North Italia and Flower Child operating segments of $ 33.8 million, $ 27.7 million and $ 17.9 million, respectively, in the first quarter of fiscal 2020.

In addition, we recorded impairment expense of $ 101.0 million and $ 2.3 million related to trade names and trademarks, and licensing agreements, respectively, in the first quarter of fiscal 2020.

More than half of the total impairment amount was driven by the impact on our market capitalization, with the balance related to lower future cash flow estimates.

2 unchanged sentences

The following tables present information related to gift cards (in thousands):

June 30, 2020

September 29, 2020

October 1, 2019

September 29, 2020

October 1, 2019

Gift card liabilities:

2 unchanged sentences

Ending balance

June 30, 2020

September 29, 2020

October 1, 2019

September 29, 2020

October 1, 2019

Gift card contract assets:

3 unchanged sentences

Components of lease expense were as follows (in thousands):

June 30, 2020

September 29, 2020

October 1, 2019

September 29, 2020

October 1, 2019

Supplemental cash flow information related to leases (in thousands):

June 30, 2020

September 29, 2020

October 1, 2019

Cash paid for amounts included in the measurement of lease liabilities:

3 unchanged sentences

Lessees may make the election for any lessor-provided lease concession related to the impact of the COVID-19 pandemic if the concession does not result in a substantial increase in the rights of the lessor or in the obligations of the lessee.

During the second quarter of fiscal 2020, we received a number of lease concessions, primarily in the form of rent deferral or reduction over the period of time when our restaurant business was adversely impacted and have elected to apply the interpretive guidance.

During the second and third quarters of fiscal 2020, we received a number of lease concessions, primarily in the form of rent deferral or reduction over the period of time when our restaurant business was adversely impacted and have elected to apply the interpretive guidance.

This election did not have a material impact on our consolidated financial statements.

Two concession agreements did not qualify for this accounting election and were treated as lease modifications.

Three concession agreements did not qualify for this accounting election and were treated as lease modifications.

We deferred rent payments of $7.6 million, the majority of which is due in fiscal 2021.

Long-Term Debt

5 unchanged sentences

The Facility also limits cash distributions with respect to our equity interests, such as cash dividends and share repurchases, based on a defined ratio, and sets forth negative covenants that restrict indebtedness, liens, investments, sales of assets, fundamental changes and other matters.

During the first half of fiscal 2020, we increased our borrowings under the Facility to bolster our cash position and enhance financial flexibility given the impact of the COVID-19 pandemic on our operations.

During the first quarter of fiscal 2020, we increased our borrowings under the Facility to bolster our cash position and enhance financial flexibility given the impact of the COVID-19 pandemic on our operations.

To provide additional financial flexibility, on May 1, 2020 (the “Effective Date”), we entered into a First Amendment (the “Amendment”) to the Facility (as amended by the Amendment, the “Amended Facility”).

The Amended Facility provides for, among other things, (i) a covenant relief period (the “Covenant Relief Period”) from the Effective Date until we demonstrate compliance with our financial covenants as of the quarter ending on or after June 29, 2021, during which we are not required to comply with financial covenants requiring maintenance of the maximum Net Adjusted Leverage Ratio and minimum EBITDAR Ratio, (ii) a substitution of the Net Adjusted Leverage Ratio and EBITDAR Ratio covenants with a liquidity covenant for the calendar month ending May 31, 2020 and continuing through the calendar month ending February 28, 2021 that requires our Liquidity to be at least $ 65,000,000 at the end of each calendar month (with Liquidity being the sum of (a) unrestricted cash and cash equivalents and (b) the unused portion of the revolving facility) (and solely for the fiscal quarter ending March 30, 2021, we can meet either (x) both the Net Adjusted Leverage Ratio test and the EBITDAR Ratio test or (y) meet the minimum Liquidity test), with the minimum Liquidity covenant to be tested again from the calendar month ending April 30, 2021 until we demonstrate compliance with the Net Adjusted Leverage Ratio and EBITDAR Ratio for a fiscal quarter ending on or after March 30, 2021, (iii) a lowered amount of permitted increases to revolving loan commitments under the Amended Facility during the Covenant Relief Period from $ 200,000,000 to $ 125,000,000 , (iv) a limit on capital expenditures not to exceed $ 90,000,000 during the Covenant Relief Period, and (v) increased limitations on our ability to make restricted payments, incur debt, and consummate acquisitions during the Covenant Relief Period.

calendar month ending February 28, 2021 that requires our Liquidity to be at least $ 65,000,000 at the end of each calendar month (with Liquidity being the sum of (a) unrestricted cash and cash equivalents and (b) the unused portion of the revolving facility) (and solely for the fiscal quarter ending March 30, 2021, we can meet either (x) both the Net Adjusted Leverage Ratio test and the EBITDAR Ratio test or (y) meet the minimum Liquidity test), with the minimum Liquidity covenant to be tested again from the calendar month ending April 30, 2021 until we demonstrate compliance with the Net Adjusted Leverage Ratio and EBITDAR Ratio for a fiscal quarter ending on or after March 30, 2021, (iii) a lowered amount of permitted increases to revolving loan commitments under the Amended Facility during the Covenant Relief Period from $ 200,000,000 to $ 125,000,000 , (iv) a limit on capital expenditures not to exceed $ 90,000,000 during the Covenant Relief Period, and (v) increased limitations on our ability to make restricted payments, incur debt, and consummate acquisitions during the Covenant Relief Period.

Borrowings under the Amended Facility during the Covenant Relief Period bear interest, at our option, at a rate equal to either:

6 unchanged sentences

Our obligations under the Amended Facility are unsecured, and certain of our material subsidiaries have guaranteed these obligations.

At June 30, 2020, we had net availability for borrowings of $ 0.6 million, based on a $ 376.0 million outstanding debt balance and $ 23.4 million in standby letters of credit.

Our Liquidity balance was $ 254 .1 million at June 30, 2020, and we were in compliance with all covenants under the Amended Facility in effect at that date.

At September 29, 2020, we had net availability for borrowings of $ 0.6 million, based on a $ 376.0 million outstanding debt balance and $ 23.4 million in standby letters of credit.

Our Liquidity balance was $ 242.7 million at September 29, 2020, and we were in compliance with all covenants under the Amended Facility in effect at that date.

On March 13, 2020, we entered into an interest rate swap agreement to manage our exposure to interest rate movements on our Facility.

3 unchanged sentences

The differences between the variable LIBO rate and the interest rate swap rate are settled monthly.

We determined that at June 30, 2020, the interest rate swap agreement was an effective hedging agreement.

At June 30, 2020, the fair value of our interest rate swap was a liability of $ 5.1 million and was included in long-term other liabilities in the condensed consolidated balance sheet.

We determined that at September 29, 2020, the interest rate swap agreement was an effective hedging agreement.

At September 29, 2020, the fair value of our interest rate swap was a liability of $ 5.4 million and was included in long-term other liabilities in the condensed consolidated balance sheet.

Changes in the valuation of the interest rate swap are initially included as a component of accumulated other comprehensive loss (AOCL) and subsequently reclassified to earnings as realized.

We reclassified $ 0.2 million out of AOCL in both the thirteen and twenty-six weeks ended June 30, 2020 for the monthly settlement of the interest rate swap.

This amount was recorded in interest and other expense, net on the consolidated statement of income.

No gains or losses representing amounts excluded from the assessment of effectiveness were recognized in earnings for the six months ended June 30, 2020.

We reclassified $ 0.5 million and $ 0.7 million out of AOCL in the thirteen and thirty-nine weeks ended September 29, 2020, respectively, for the monthly settlement of the interest rate swap.

These amounts were recorded in interest and other expense, net on the consolidated statement of income.

No gains or losses representing amounts excluded from the assessment of effectiveness were recognized in earnings for the nine months ended September 29, 2020.

The following table summarizes the changes in AOCL, net of tax, related to the interest rate swap (in thousands):

3 unchanged sentences

Other comprehensive loss, net of tax

Balance, June 30, 2020

Balance, September 29, 2020

We classified this interest rate swap within Level 2 of the valuation hierarchy described in Note 9.

7 unchanged sentences

The following tables present the components and classification of our assets and liabilities that are measured at fair value on a recurring basis (in thousands):

June 30, 2020

September 29, 2020

Assets (Liabilities)

16 unchanged sentences

Change in fair value

Balance, June 30, 2020

Balance, September 29, 2020

The significant change in the fair value of the contingent consideration primarily stemmed from the delay of future new restaurant openings caused by the impact of the COVID-19 pandemic on the estimated cash flows used in the valuation.

21 unchanged sentences

Dividends and Share Repurchases

To preserve liquidity during the COVID-19 pandemic and in conjunction with the terms of our Facility, as amended on May 1,2020 , our Board of Directors suspended the quarterly dividend on our common stock, as well as share repurchases.

To preserve liquidity during the COVID-19 pandemic and in conjunction with the terms of our Facility, as amended on May 1,2020 , our Board suspended the quarterly dividend on our common stock, as well as share repurchases.

(See Note 7 for further discussion of our long-term debt.)

Future decisions to pay or to increase or decrease dividends are at the discretion of the Board and will be dependent on our operating performance, financial condition, capital expenditure requirements, limitations on cash distributions pursuant to the terms and conditions of the Facility and applicable law, and such other factors that our Board considers relevant.

Under authorization by our Board to repurchase up to 56.0 million shares of our common stock, we have cumulatively repurchased 53.0 million shares at a total cost of $ 1,696.0 million through June 30, 2020 with 12,413 shares repurchased at a cost of $ 0.3 million during the second quarter of fiscal 2020 to satisfy tax withholding obligations on vested restricted share awards.

Future decisions to pay or to increase or decrease dividends on our common stock are at the discretion of the Board and will be dependent on our operating performance, financial condition, capital expenditure requirements, limitations on cash distributions pursuant to the terms and conditions of the Facility and applicable law, and such other factors that our Board considers relevant.

Under authorization by our Board to repurchase up to 56.0 million shares of our common stock, we have cumulatively repurchased 53.0 million shares at a total cost of $ 1,696.4 million through September 29, 2020 with 12,567 shares repurchased at a cost of $ 0.4 million during the third quarter of fiscal 2020 to satisfy tax withholding obligations on vested restricted share awards.

Our objectives regarding share repurchases have been to offset the dilution to our shares outstanding that results from equity compensation grants and to supplement our earnings per share growth.

Our share repurchase authorization does not have an expiration date, does not require us to purchase a specific number of shares and may be modified, suspended or terminated at any time.

Our share repurchase authorization does not have an expiration date, does not

require us to purchase a specific number of shares and may be modified, suspended or terminated at any time.

Shares may be repurchased in the open market or through privately negotiated transactions at times and prices considered appropriate by us.

3 unchanged sentences

On April 20, 2020, to increase our liquidity given the impact of the COVID-19 pandemic on our operations, we issued 200,000 shares of Series A Convertible Preferred Stock (“Preferred Stock”) for an aggregate purchase price of $ 200 million, or $ 1,000 per share.

In connection with the issuance, we incurred direct and incremental costs of $ 10.3 million, including financial advisory fees, closing costs, legal expenses and other offering-related expenses.

In connection with the issuance, we incurred direct and incremental costs of $ 10.3 million, including financial advisory fees, closing costs, legal expenses, a commitment fee and other offering-related expenses.

These direct and incremental costs reduced the Preferred Stock balance at the issuance date and were recognized through retained earnings on June 30, 2020, the first measurement date.

The Preferred Stock ranks senior to our common stock with respect to dividends and distributions on liquidation, winding-up and dissolution upon which each share of Preferred Stock will be entitled to receive an amount per share equal to the greater of (i) the purchase price (without giving effect to any commitment fee), plus all accrued and unpaid dividends (the “Liquidation Preference”) and (ii) the amount that the holder of Preferred Stock would have been entitled to receive at such time if the Preferred Stock were converted into common stock.

At June 30, 2020, the Liquidation Preference was $ 1,018.47 per share.

The Preferred Stock ranks senior to our common stock with respect to dividends and distributions on liquidation, winding-up and dissolution upon which each share of Preferred Stock will be entitled to receive an amount per share equal to the greater of (i) the purchase price (without giving effect to the commitment fee), plus all accrued and unpaid dividends (the “Liquidation Preference”) and (ii) the amount that the holder of Preferred Stock would have been entitled to receive at such time if the Preferred Stock were converted into common stock.

At September 29, 2020, the Liquidation Preference was $ 1,042.22 per share.

Dividend Rights

1 unchanged sentence

The holders are also entitled to participate in dividends declared or paid on our common stock on an as-converted basis.

During the second quarter of fiscal 2020, we issued 3,694 shares of Preferred Stock to satisfy a payment-in-kind dividend of $ 18.47 per share.

We paid in-kind dividends of $ 4.8 million and $ 8.5 million for the thirteen and thirty-nine weeks ended September 29, 2020.

Conversion Rights

Each holder has the right, at its option, to convert its Preferred Stock into common stock at a conversion price equal to $ 22.23 per share.

As of June 30, 2020, the number of common shares that would be required to be issued upon conversion of the outstanding shares of Preferred Stock was 9.2 million.

As of September 29, 2020, the number of common shares that would be required to be issued upon conversion of the outstanding shares of Preferred Stock was 9.4 million.

The conversion price is subject to customary anti-dilution adjustments, including in the event of any stock split, stock dividend, recapitalization or similar events.

The conversion price is also subject to adjustment for certain anti-dilutive offerings occurring through April 19, 2021.

The conversion price is also subject to adjustment for certain anti-dilutive offerings if they occur on or prior to April 19, 2021.

Pursuant to the terms of the Certificate of Designations, unless and until approval of our stockholders is obtained as contemplated by Nasdaq listing rules (the “Stockholder Approval”), no holder may convert shares of Preferred Stock through either an optional or a mandatory conversion into shares of common stock if and solely to the extent that such conversion would result in the holder beneficially owning in excess of 19.9 % of then outstanding common stock.

3 unchanged sentences

We determined that the nature of the Preferred Stock was more akin to an equity instrument than a debt instrument and that the economic characteristics and risks of the embedded conversion options were clearly and closely related to the Preferred Stock.

As such, the conversion options were not required to be bifurcated from the host under ASC 815, Derivatives and Hedging.

As such, the conversion options were not required to be bifurcated from the host under FASB Accounting Standards Codification (“ASC 815”), Derivatives and Hedging.

We also determined that the Preferred Stock did not generate a beneficial conversion feature (“BCF”) upon issuance.

However, the associated dividend for the quarter ended June 30, 2020 generated a BCF of $ 0.1 million based on the fair value of our stock price on the date the dividends were declared to be paid-in-kind.

However, the associated dividends for the second and third quarters of fiscal 2020 generated a BCF of $ 0.1 million and $ 1.3 million, respectively, based on the fair value of our stock price on the date the dividends were declared to be paid in-kind.

Redemption Rights

15 unchanged sentences

The following table presents the stock-based compensation recorded in the consolidated financial statements:

June 30, 2020

September 29, 2020

October 1, 2019

September 29, 2020

October 1, 2019

Labor expenses

8 unchanged sentences

Stock Options

We did not issue any stock options during the second quarter of fiscal 2020 or 2019.

Stock option activity during the twenty-six weeks ended June 30, 2020 was as follows:

We did not issue any stock options during the third quarter of fiscal 2020 or 2019.

Stock option activity during the thirty-nine weeks ended September 29, 2020 was as follows:

Exercise Price

4 unchanged sentences

Forfeited or cancelled

Outstanding at June 30, 2020

Exercisable at June 30, 2020

Outstanding at September 29, 2020

Exercisable at September 29, 2020

(1) Aggregate intrinsic value is calculated as the difference between our closing stock price at fiscal period end and the exercise price, multiplied by the number of in-the-money options and represents the pre-tax amount that would have been received by the option holders, had they all exercised their options on the fiscal period end date.

There was no option exercised during the thirteen weeks ended June 30, 2020.

The total intrinsic value of options exercised during the twenty-six weeks ended June 30, 2020 was $ 35.6 million.

The total intrinsic value of options exercised during the thirteen and twenty-six weeks ended July 2, 2019 was $ 0.2 million and $ 3.6 million, respectively.

As of June 30, 2020, total unrecognized stock-based compensation expense related to unvested stock options was $ 9.4 million, which we expect to recognize over a weighted-average period of approximately 5.2 years.

There were no options exercised during the thirteen weeks ended September 29, 2020.

The total intrinsic value of options exercised during the thirty-nine weeks ended September 29, 2020 was $ 35,606 .

The total intrinsic value of options exercised during the thirteen and thirty-nine weeks ended October 1, 2019 was $ 0.1 million and $ 3.7 million, respectively.

As of September 29, 2020, total unrecognized stock-based compensation expense related to unvested stock options was $ 7.5 million, which we expect to recognize over a weighted-average period of approximately 3.6 years.

Restricted Shares and Restricted Share Units

Restricted share and restricted share unit activity during the twenty-six weeks ended June 30, 2020 was as follows:

Restricted share and restricted share unit activity during the thirty-nine weeks ended September 29, 2020 was as follows:

(In thousands)

Outstanding at December 31, 2019

Outstanding at June 30, 2020

Outstanding at September 29, 2020

Fair value of our restricted shares and restricted share units is based on our closing stock price on the date of grant.

The weighted average fair value for restricted shares and restricted share units issued during the second quarter of fiscal 2020 and 2019 was $ 23.56 and $ 45.15 , respectively.

The fair value of shares that vested during the thirteen weeks and twenty-six weeks ended June 30, 2020 was $ 1.8 million and $ 12.4 million, respectively.

The fair value of shares that vested during the thirteen weeks and twenty-six weeks ended July 2, 2019 was $ 1.3 million and $ 12.4 million, respectively.

As of June 30, 2020, total unrecognized stock-based compensation expense related to unvested restricted shares and restricted share units was $ 44.6 million, which we expect to recognize over a weighted-average period of approximately 3.2 years.

The weighted average fair value for restricted shares and restricted share units issued during the third quarter of fiscal 2020 and 2019 was $ 24.00 and $ 44.24 , respectively.

The fair value of shares that vested during the thirteen weeks and thirty-nine weeks ended September 29, 2020 was $ 1.8 million and $ 14.2 million, respectively.

The fair value of shares that vested during the thirteen weeks and thirty-nine weeks ended October 1, 2019 was $ 1.9 million and $ 14.3 million, respectively.

As of September 29, 2020, total unrecognized stock-based compensation expense related to unvested restricted shares and restricted share units was $ 34.3 million, which we expect to recognize over a weighted-average period of approximately 3.0 years.

Income and Payroll Taxes

On March 27, 2020, the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”) was signed into law.

2 unchanged sentences

We expect to file carryback claims during fiscal 2021, and we estimate that these claims will generate cash refunds of approximately $ 40 million.

Our effective income tax rate was 30.6 % and 6.9 % for the first half of fiscal 2020 and 2019, respectively.

Also in conjunction with the CARES Act, during the thirty-nine weeks ended September 29, 2020, we reduced payroll tax expense by $ 8.5 million for employee retention credits primarily related to healthcare benefits for furloughed staff members, and we deferred $ 20.5 million of payroll taxes which will be due in fiscal years 2021 and 2022.

Our effective income tax rate was 30.0 % and 6.2 % for the first three quarters of fiscal 2020 and 2019, respectively.

The increase resulted primarily from a lower proportion of employment credits in relation to pre-tax (loss)/income and a benefit arising from the expected carryback of our anticipated fiscal 2020 loss to prior years when the federal statutory rate was 35 %.

9 unchanged sentences

Basic net income per share is computed by dividing net income available to common stockholders by the weighted-average number of common shares outstanding during the period, reduced by unvested restricted stock awards.

As of June 30, 2020 and July 2, 2019, 2.0 million shares and 1.8 million shares, respectively, of restricted stock issued to staff members were unvested and, therefore, excluded from the calculation of basic earnings per share for the fiscal periods ended on those dates.

As of September 29, 2020 and October 1, 2019, 1.9 million shares and 1.8 million shares, respectively, of restricted stock issued to staff members were unvested and, therefore, excluded from the calculation of basic earnings per share for the fiscal periods ended on those dates.

Diluted net income per share is computed by dividing net income available to common stockholders by the weighted-average number of common stock equivalents outstanding for the period.

2 unchanged sentences

The two-class method is an earnings allocation formula that treats participating securities as having rights to earnings that would otherwise have been available to common stockholders.

In addition, as our Preferred Stock is a participating security, we are required to calculate diluted net income per share under the if-converted method in addition to the two-class method and utilize the most dilutive result.

In addition, as our Preferred Stock is a participating security, we are required to calculate diluted net income per share under the if-converted method in addition to the two-

class method and utilize the most dilutive result.

In periods where there is a net loss, no allocation of undistributed net loss to preferred shareholders is performed as the holders of our Preferred Stock are not contractually obligated to participate in our losses.

June 30, 2020

September 29, 2020

October 1, 2019

September 29, 2020

October 1, 2019

(In thousands, except per share data)

12 unchanged sentences

Diluted net (loss)/income per common share

(1) Shares of common stock equivalents of 3.9 million and 2.0 million as of June 30, 2020 and July 2, 2019, respectively, were excluded from the diluted calculation due to their anti-dilutive effect.

(1) Shares of common stock equivalents of 4.0 million and 2.1 million as of September 29, 2020 and October 1, 2019, respectively, were excluded from the diluted calculation due to their anti-dilutive effect.

Segment Information

Our operating segments, the businesses for which our management reviews discrete financial information for decision-making purposes, are comprised of The Cheesecake Factory, North Italia, Flower Child, the Other FRC brands, our bakery division and Grand Lux Cafe.

Based on quantitative thresholds set forth in FASB Accounting Standards Codification (“ASC”) 280, “Segment Reporting,” The Cheesecake Factory, North Italia and the Other FRC brands are the only businesses that meet the criteria of a reportable operating segment.

Based on quantitative thresholds set forth in ASC 280, “Segment Reporting,” The Cheesecake Factory, North Italia and the Other FRC brands are the only businesses that meet the criteria of a reportable operating segment.

The remaining operating segments (Flower Child, our bakery division and Grand Lux Cafe) along with our businesses that don’t qualify as operating segments, including RockSugar Southeast Asian Kitchen, Social Monk Asian Kitchen and our international business, are combined in Other.

3 unchanged sentences

Segment information is presented below (in thousands):

June 30, 2020

September 29, 2020

October 1, 2019

September 29, 2020

October 1, 2019

The Cheesecake Factory restaurants

Income/(loss) from operations:

Loss/(income) from operations:

The Cheesecake Factory restaurants

5 unchanged sentences

The Cheesecake Factory restaurants

June 30, 2020

September 29, 2020

December 31, 2019

1 unchanged sentence

The Cheesecake Factory restaurants

(1) During the first quarter of fiscal 2020, we recorded impairment of assets and lease terminations expense of $ 0.6 million for The Cheesecake Factory restaurants, $ 71.5 million for North Italia, $ 72.9 million for Other FRC and $ 46.8 million for Other (See Note 3 and 4 for further discussion of these charges.) During the second quarter of fiscal 2020, we recorded impairment of assets and lease terminations expense of $ 2.4 million related to lease termination costs for one The Cheesecake Factory restaurant.

(1) During the thirteen weeks ended September 29, 2020, we recorded impairment of assets and lease termination expense of $ 10.4 million in the Other segment.

During the thirty-nine weeks ended September 29, 2020, we recorded impairment of assets and lease termination expense of $ 3.0 million for The Cheesecake Factory restaurants, $ 71.5 million for North Italia, $ 72.9 million for Other FRC and $ 57.3 million for Other .

Subsequent Events

In October 2020, we repaid $ 96.0 million of our Facility, bringing our debt balance to $ 280.0 million.

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 1. Financial Statements