What changed in this filing

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Item 1. Financial Statements

2021-05-03 compared with 2020-11-06 · 218 added, 379 removed, 216 unchanged (73% of the section changed)

3 unchanged sentences

(In thousands, except share data)

September 29,

Current assets:

Cash and cash equivalents

Accounts receivable

Accounts and other receivable

Income taxes receivable

Other receivables

Prepaid expenses

5 unchanged sentences

Total other assets

LIABILITIES, CONVERTIBLE PREFERRED STOCK AND STOCKHOLDERS’ EQUITY

LIABILITIES, SERIES A CONVERTIBLE PREFERRED STOCK AND STOCKHOLDERS’ EQUITY

Current liabilities:

4 unchanged sentences

Total current liabilities

Deferred income taxes

Long-term debt

3 unchanged sentences

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

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

200,000 and 200,000 shares issued and outstanding at March 30, 2021 and December 29, 2020, respectively

Stockholders’ equity:

1 unchanged sentence

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

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

99,508,470 and 98,645,147 shares issued at March 30, 2021 and December 29, 2020, respectively

Additional paid-in capital

Retained earnings

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

Treasury stock, 53,101,293 and 53,026,409 shares at cost at March 30, 2021 and December 29, 2020, respectively

( 1,700,700 )

2 unchanged sentences

Total stockholders’ equity

Total liabilities, convertible preferred stock and stockholders’ equity

Total liabilities, Series A convertible preferred stock and stockholders’ equity

See the accompanying notes to the condensed consolidated financial statements

THE CHEESECAKE FACTORY INCORPORATED

CONDENSED CONSOLIDATED STATEMENTS OF INCOME

CONDENSED CONSOLIDATED STATEMENTS OF INCOME /(LOSS)

(In thousands, except per share data)

September 29, 2020

October 1, 2019

September 29, 2020

October 1, 2019

March 30, 2021

March 31, 2020

Costs and expenses:

4 unchanged sentences

Depreciation and amortization expenses

Impairment of assets and lease terminations

Impairment of assets and lease termination expenses

Acquisition-related costs

Acquisition-related contingent consideration, compensation and amortization

Acquisition-related contingent consideration, compensation and amortization expenses/(benefit)

Preopening costs

Total costs and expenses

(Loss)/income from operations

Loss on investment in unconsolidated affiliates

Income/(loss) from operations

Interest and other expense, net

(Loss)/income before income taxes

Income tax (benefit)/provision

Net (loss)/income

Dividends on preferred stock

Direct and incremental preferred stock issuance costs

Net (loss)/income available to common stockholders

Net (loss)/income per common share:

Income/(loss) before income taxes

Income tax provision/(benefit)

Net income/(loss)

Dividends on Series A preferred stock

Net loss available to common stockholders

Net loss per common share:

Weighted-average common shares outstanding:

1 unchanged sentence

THE CHEESECAKE FACTORY INCORPORATED

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME/(LOSS)

(In thousands)

September 29, 2020

October 1, 2019

September 29, 2020

October 1, 2019

Net (loss)/income

Other comprehensive (loss)/gain:

March 30, 2021

March 31, 2020

Net income/(loss)

Other comprehensive gain/(loss):

Foreign currency translation adjustment

Unrealized loss on derivative, net of tax

Other comprehensive (loss)/gain

Total comprehensive (loss)/income

Comprehensive (loss)/income attributable to preferred shareholders

Total comprehensive (loss)/income available to common shareholders

Unrealized gain/(loss) on derivative, net of tax

Other comprehensive gain/(loss)

Total comprehensive income/(loss)

Comprehensive income attributable to preferred stockholders

Total comprehensive income/(loss) available to common stockholders

See the accompanying notes to the condensed consolidated financial statements

THE CHEESECAKE FACTORY INCORPORATED

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY AND CONVERTIBLE PREFERRED STOCK

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY AND SERIES A CONVERTIBLE PREFERRED STOCK

(In thousands)

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

For the thirteen weeks ended March 30, 2021:

Series A Convertible

Preferred Stock

2 unchanged sentences

( 1,696,743 )

Foreign currency translation adjustment

Change in derivative, net of tax

Cash dividends declared Common stock, $ 0.36 per share

Stock-based compensation

Common stock issued under stock-based compensation plans

Treasury stock purchases

Balance, March 31, 2020

( 1,695,708 )

Foreign currency translation adjustment

Change in derivative, net of tax

Stock-based compensation

Common stock issued under stock-based compensation plans

Treasury stock purchases

Preferred stock issuance

Preferred stock direct costs

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

Balance, June 30, 2020

Cumulative effect of adopting ASU 2020-06

Balance, December 29, 2020, as adjusted

( 1,696,743 )

1 unchanged sentence

Change in derivative, net of tax

Cash dividends declared Common stock, net of forfeitures

Stock-based compensation

1 unchanged sentence

Treasury stock purchases

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

Balance, September 29, 2020

Cash dividend declared Series A preferred stock, $ 25.35 per share

Balance, March 30, 2021

( 1,700,700 )

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

For the thirteen weeks ended March 31, 2020:

Series A Convertible

Preferred Stock

Comprehensive

Balance, January 1, 2019

( 1,642,140 )

Cumulative effect of adopting the pronouncement related to lease accounting, net of tax

Balance, January 1, 2019, as adjusted

( 1,642,140 )

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, April 2, 2019

( 1,653,211 )

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, July 2, 2019

Balance, December 31, 2019

( 1,693,122 )

Foreign currency translation adjustment

Change in derivative, net of tax

Cash dividends declared Common stock, $ 0.36 per share

2 unchanged sentences

Treasury stock purchases

Balance, October 1, 2019

Balance, March 31, 2020

( 1,695,708 )

3 unchanged sentences

(In thousands)

September 29, 2020

October 1, 2019

March 30, 2021

March 31, 2020

Cash flows from operating activities:

Net (loss)/income

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

Net income/(loss)

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

Depreciation and amortization expenses

Impairment of assets and lease terminations

Impairment of assets and lease termination expense

Deferred income taxes

Stock-based compensation

Loss from investments in unconsolidated affiliates

Changes in assets and liabilities:

Accounts and other receivable

Accounts and other receivables

Income taxes receivable/payable

4 unchanged sentences

Other accrued expenses

Cash (used in)/provided by operating activities

Cash provided by/(used in) operating activities

Cash flows from investing activities:

1 unchanged sentence

Additions to intangible assets

Investments in unconsolidated affiliates

Loans made to unconsolidated affiliates

Cash used in investing activities

Cash flows from financing activities:

Preferred stock issuance

Preferred stock direct costs

Borrowings on credit facility

Repayments on credit facility

Proceeds from exercise of stock options

20 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 12, 2020, as amended on June 22, 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").

The results of operations, financial position and cash flows of the acquired businesses are included in our consolidated financial statements as of the acquisition date.

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 29, 2020 filed with the SEC on February 24, 2021 ("fiscal 2020 10-K").

We utilize a 52/53-week fiscal year ending on the Tuesday closest to December 31 for financial reporting purposes.

1 unchanged sentence

Fiscal 2020, which ended on December 29, 2020, 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.

Beginning with our fiscal 2020 10-K, we combined accounts receivable and other receivable on the consolidated balance sheet and statement of cash flow.

Corresponding balances for the thirteen weeks ended March 31, 2020 were reclassified to conform to the current presentation.

Use of Estimates

3 unchanged sentences

COVID-19 Pandemic

The Company is subject to risks and uncertainties as a result of the outbreak of, and local, state and federal governmental responses to, the COVID-19 pandemic which was declared a National Public Health Emergency on March 13, 2020.

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, 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

Indoor dining with limited capacity

Outdoor only with social distancing

Off-premise only

Currently closed

(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;

● Suspended new unit development;

● Reduced Board, executive and corporate support staff compensation;

● Furloughed approximately 41,000 hourly staff members;

● Engaged in discussions with our landlords regarding ongoing rent obligations, including the potential deferral, abatement and/or restructuring of rent otherwise payable during the period of the COVID-19 pandemic related closure;

● Increased borrowings under our revolving credit facility;

● Raised additional equity capital;

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

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.

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 full-service segment of the restaurant industry.

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.

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 Acquisitions.

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.

(See Notes 3 and 4 for further discussion of impairment of long-lived and intangible assets, respectively.

See Note 9 for further discussion of the revaluation of contingent consideration.)

See “Risk Factors” included in Part II, Item 1A for further discussion of risks associated with the COVID-19 pandemic.

Derivative Financial Instruments

We recognize derivative financial instruments on the balance sheet at fair value under a Level 2 categorization.

Our only derivative is an interest rate swap which is designated as a cash flow hedge.

Therefore, the effective portion of the changes in fair value are recognized in accumulated other comprehensive income when the hedged item is recognized in earnings, and the ineffective portion of changes in the fair value are immediately recognized in earnings as interest expense.

We classify cash inflows and outflows from derivatives within operating activities on the consolidated statements of cash flows.

See Note 8 for further discussion of this interest rate swap.

The Company is subject to continued risks and uncertainties as a result of the outbreak of, and local, state and federal governmental responses to, the COVID-19 pandemic which was declared a National Public Health Emergency in March 2020.

We experienced significant disruptions to our business as suggested and mandated social distancing and shelter-in-place orders led to 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 the second quarter of fiscal 2020, certain jurisdictions began allowing the reopening of restaurant dining rooms, and we began to reopen dining rooms across our concepts.

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

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

Recent Accounting Pronouncements

In August 2018, the Financial Accounting Standards Board ("FASB") issued ASU 2018-13, Fair Value Measurement (Topic 820):

Disclosure Framework - Changes to the Disclosure Requirements for Fair Value Measurement.

The update eliminates, adds and modifies certain disclosure requirements for fair value measurements.

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.

In August 2020, the FASB issued Accounting Standards Update ("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.

We adopted this guidance in the first quarter of fiscal 2021 utilizing the modified retrospective method and, accordingly, recorded a $ 4.8 million cumulative adjustment to retained earnings to reverse previously recorded beneficial conversion features.

Fair Value Measurements

Fair value measurements are estimated based on valuation techniques and inputs categorized as follows:

Quoted prices in active markets for identical assets or liabilities

Observable inputs other than quoted prices in active markets for identical assets and liabilities

Unobservable inputs in which little or no market activity exists, therefore requiring the Company to develop its own assumptions

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):

March 30, 2021

Assets/(Liabilities)

Non-qualified deferred compensation assets

Non-qualified deferred compensation liabilities

Acquisition-related deferred consideration

Acquisition-related contingent consideration and compensation liabilities

Interest rate swap

December 29, 2020

Assets/(Liabilities)

Non-qualified deferred compensation assets

Non-qualified deferred compensation liabilities

Acquisition-related deferred consideration

Acquisition-related contingent consideration and compensation liabilities

Interest rate swap

The fair value of the acquisition-related contingent consideration and compensation liabilities was determined utilizing a Monte Carlo model based on estimated future revenues, margins and volatility factors, among other variables and estimates and has no minimum or maximum payment.

The undiscounted range of outcomes per the Monte Carlo model was $ 0 to $ 32.0 million.

Results could change materially if different estimates and assumptions were used.

The following table presents a reconciliation of the beginning and ending amounts of the fair value of the acquisition-related contingent consideration and compensation liabilities categorized as Level 3 (in thousands):

March 30, 2021

March 31, 2020

Beginning balance

Change in fair value

Ending balance

The change in the fair value of the contingent consideration during the first quarter of fiscal 2020 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.

The fair values of our cash and cash equivalents, accounts and other receivable, income taxes receivable, prepaid expenses, accounts payable, income taxes payable and other accrued expenses approximate their carrying amounts due to their short duration.

Inventories consisted of (in thousands):

September 29, 2020

March 30, 2021

December 29, 2020

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

We assess the potential impairment of our long-lived assets on an annual basis or whenever events or changes in circumstances indicate the carrying value of the assets or asset group may not be recoverable.

Due to the significant impact of the COVID-19 pandemic on our operations, we determined it was necessary to perform an interim test of our long-lived assets during the first quarter of fiscal 2020.

Based on the results of these assessments, we recorded $ 8.9 million of expense primarily related to the impairment of one The Cheesecake Factory, one North Italia, two Other FRC and four Other restaurants.

These amounts were recorded in impairment of assets and lease terminations on the consolidated statements of income.

Intangible Assets, net

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

September 29, 2020

December 31, 2019

Indefinite-lived intangible assets:

Trade names and trademarks

Transferable alcoholic beverage licenses

Total indefinite-lived intangible assets

Definite-lived intangible assets, net:

Licensing agreements

Non-transferable alcoholic beverage licenses

Total definite-lived intangible assets

Total intangible assets, net

During the first quarter of fiscal 2020, we finalized our purchase accounting for the Acquisitions, increasing goodwill by $ 2.5 million with an offsetting decrease in trade names and trademarks.

Goodwill and other indefinite-lived intangible assets are tested for impairment annually as of the first day of our fiscal fourth quarter or on an interim basis if events or changes in circumstances between annual tests indicate a potential impairment.

Definite-lived intangible assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset or asset group may not be recoverable based on estimated undiscounted future cash flows.

Due to the decrease in our stock price coupled with the dining room closures related to the COVID-19 pandemic and significant decline to the equity value of our peers and overall U.S.

stock market, we determined it was necessary to perform an interim assessment of our indefinite and definite-lived intangible assets during the first quarter of fiscal 2020.

For the goodwill impairment test, the estimated fair value of the reporting units was determined using a blend of the income and market capitalization approaches.

For the income approach, we performed a discounted cash flow analysis.

The fair value of the other indefinite-lived assets was estimated using the relief from royalty method.

There were a number of estimates and significant judgments made by management in performing these evaluations, such as future unit growth, average unit volumes, cash flows and discount rates.

Accordingly, actual results could vary significantly from such estimates.

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.

The reduced projections stemmed primarily from our decision to delay fiscal 2020 unit development, thereby moving our expected unit growth trajectory out by one year.

The cash flow estimates assumed that average unit volumes and margins would substantially return to pre-COVID-19 levels by mid-fiscal 2021.

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

September 29, 2020

October 1, 2019

September 29, 2020

October 1, 2019

March 30, 2021

March 31, 2020

Gift card liabilities:

2 unchanged sentences

Ending balance

September 29, 2020

October 1, 2019

September 29, 2020

October 1, 2019

March 30, 2021

March 31, 2020

Gift card contract assets:

1 unchanged sentence

Ending balance

(1) Included in prepaid expenses on the consolidated balance sheets.

The significant declines in redemptions and breakage during the first quarter of 2021 compared to 2020 stem from the impact of the COVID-19 pandemic on our business.

Long-Term Debt

On March 30, 2021, we entered into a Second Amendment (the “Second Amendment”) to our existing Third Amended and Restated Loan Agreement, dated July 30, 2019 (as amended by that certain First Amendment, dated as of May 1, 2020 and by the Second Amendment, collectively, the “Amended Credit Agreement”).

The Amended Credit Agreement, which terminates on July 30, 2024, consists of a $ 400 million revolving loan facility (the “Revolving Facility”), including a $ 40 million sublimit for letters of credit.The Amended Credit Agreement also provides the ability to increase the Revolving Facility in an amount not to exceed (a) during the Covenant Relief Period (as defined below) $ 125 million and (b) thereafter, $ 200 million.

The funding of any such increases are subject to receipt of lender commitments and satisfaction of customary conditions precedent.

Certain of our material subsidiaries have guaranteed our obligations under the Amended Credit Agreement.

The Second Amendment, among other things, (i) extended the prior covenant relief period during which the testing of the net adjusted debt to EBITDAR ratio covenant (the “Net Adjusted Leverage Ratio”) and the EBITDAR to interest and rent expense ratio covenant (the “EBITDAR Ratio”) is suspended until the quarter ending December 28, 2021 (the “Covenant Relief Period”), (ii) continued to impose a monthly liquidity covenant of $ 100 million until the Company has demonstrated compliance with the financial covenants as of the quarter ending December 28, 2021, (iii) provided that the obligations thereunder be secured by a first priority security interest in substantially all of our and any guarantor’s property, with such property to be released upon (a) the termination of the Covenant Relief Period, (b) the Company’s compliance with the Net Adjusted Leverage Ratio and the EBITDAR Ratio as of the quarter ending on March 29, 2022, (c) neither the Company nor any of the guarantors having incurred unsecured debt using certain debt baskets under the Revolving Facility unless such debt is convertible debt or subordinated on customary debt subordination terms reasonably acceptable to the administrative agent and (d) no default or event of default having occurred or continuing, (iv) amended certain negative covenants during the Covenant Relief Period, including certain restrictions on capital expenditures, restricted payments, investments and indebtedness, and (v) permitted the payment of cash dividends with respect to our Series A Convertible Preferred Stock, par value $ 0.1 per share (“Series A preferred stock”) for each fiscal quarter of 2021 in an amount not to exceed $ 5.25 million per quarter.

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

(i) the adjusted LIBO Rate (as customarily defined, the “Adjusted LIBO Rate”) plus 2.5 %, or (ii) the sum of (a) the highest of (1) the rate of interest last quoted by The Wall Street Journal as the prime rate in effect in the United States, (2) the greater of the rate calculated by the Federal Reserve Bank of New York as the effective federal funds rate or the rate that is published by the Federal Reserve Bank of New York as an overnight bank funding rate, in either case plus 0.5 %, and (3) the one-month Adjusted LIBO Rate plus 1.0 %, plus (b) 1.5 %.

We also pay a fee of 0.4 % on the daily amount of unused commitments under the Amended Credit Agreement.

Subsequent to the Covenant Relief Period, borrowings under the Amended Credit Agreement will bear interest, at our option, at a rate equal to either:

(i) the Adjusted LIBO Rate plus a margin that is based on our net adjusted leverage ratio, or (ii) the sum of (a) the highest of (1) the rate of interest last quoted by The Wall Street Journal as the prime rate in effect in the United States, (2) the greater of the rate calculated by the Federal Reserve Bank of New York as the effective federal funds rate or the rate that is published by the Federal Reserve Bank of New York as an overnight bank funding rate, in either case plus 0.5 %, and (3) the one-month Adjusted LIBO Rate plus 1.0 %, plus (b) a margin that is based on our net adjusted leverage ratio.

Letters of credit bear fees that are equivalent to the interest rate margin that is applicable to revolving loans that bear interest at the adjusted LIBO Rate plus other customary fees charged by the issuing bank.

We paid certain customary loan origination fees in conjunction with the Amended Credit Agreement.

During the first quarter of fiscal 2021 we had net availability for borrowings of $ 96.6 million, based on a $ 280.0 million outstanding debt balance and $ 23.4 million in standby letters of credit.

Our Liquidity balance was $ 300.4 million at March 29, 2021, and we were in compliance with all covenants under the Amended Credit Agreement in effect at that date.

The Amended Credit Agreement contains customary affirmative and negative covenants, including limits on cash dividends and share repurchases with respect to our equity interests, and restrictions on indebtedness, liens, investments, sales of assets, fundamental changes and other matters.

The Amended Credit Agreement also contains customary events of default that include, among others, non-payment of principal, interest or fees, violation of covenants, inaccuracy of representations and warranties, bankruptcy and insolvency events, material judgements, cross defaults to material indebtedness and events constituting a change of control.

The occurrence of an event of default could result in the termination of commitments under the Revolving Facility, the declaration that all outstanding loans are immediately due and payable in whole or in part and the requirement of cash collateral deposits in respect of outstanding letters of credit.

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

September 29, 2020

October 1, 2019

September 29, 2020

October 1, 2019

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

September 29, 2020

October 1, 2019

March 30, 2021

March 31, 2020

Supplemental information related to leases (in thousands):

March 30, 2021

March 31, 2020

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

1 unchanged sentence

Right-of-use assets obtained in exchange for new operating lease liabilities

In April 2020, the FASB staff issued interpretive guidance that indicated it would be acceptable for entities to make an election to account for lease concessions related to the effects of the COVID-19 pandemic consistent with how those concessions would be accounted for under Topic 842, as though enforceable rights and obligations for those concessions existed (regardless of whether those enforceable rights and obligations for the concessions explicitly exist in the contract) rather than as a lease modification.

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 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.

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

On July 30, 2019, we entered into a Third Amended and Restated Loan Agreement (the “Facility”) which amends and restates in its entirety our prior Second Amended and Restated Loan Agreement dated as of December 22, 2015.

The Facility, which terminates on July 30, 2024, provides us with revolving loan commitments that total $ 400 million (of which $ 40 million may be used for issuances of letters of credit).

The Facility contains a commitment increase feature that could provide for additional available credit upon our request and subject to the participating lenders electing to increase their commitments or new lenders being added to the Facility.

Certain financial covenants under the Facility require us to maintain (i) a maximum "Net Adjusted Leverage Ratio"

of 4.75 and (ii) a minimum ratio of EBITDAR to interest and rent expense of 1.9 ("EBITDAR Ratio"), as well as customary events of default that, if triggered, could result in acceleration of the maturity of the Facility.

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 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.

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

We also pay a fee of 0.4 % on the daily amount of unused commitments under the Amended Facility.

Subsequent to the Covenant Relief period, borrowings under the Amended Facility will bear interest, at our option, at a rate equal to either:

(i) the adjusted LIBO Rate (as customarily defined) (the “Adjusted LIBO Rate”) plus a margin that is based on our net adjusted leverage ratio, or (ii) the sum of (a) the highest of (1) the rate of interest last quoted by The Wall Street Journal as the prime rate in effect in the United States, (2) the greater of the rate calculated by the Federal Reserve Bank of New York as the effective federal funds rate or the rate that is published by the Federal Reserve Bank of New York as an overnight bank funding rate, in either case plus 0.5 %, and (3) the one-month Adjusted LIBO Rate plus 1.0 %, plus (b) a margin that is based on our net adjusted leverage ratio.

We paid certain customary loan origination fees in conjunction with both the Facility and Amendment.

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

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.

The agreement became effective on April 1, 2020 and matures on April 1, 2025.

The interest rate swap entitles us to receive a variable rate of interest based on the one-month LIBO rate in exchange for the payment of a fixed interest rate of 0.802 %.

The Company has an interest rate swap agreement, which matures on April 1, 2025, to manage our exposure to interest rate movements on our Revolving Facility.The interest rate swap entitles us to receive a variable rate of interest based on the one-month LIBO rate in exchange for the payment of a fixed interest rate of 0.802 %.

The notional amount of the swap agreement is $ 280.0 million through March 31, 2023 and $ 140.0 million from April 1, 2023 through April 1, 2025.

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

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 $ 0.5 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.

We determined that at both March 30, 2021 and March 31, 2020, the interest rate swap agreement was an effective hedging agreement.

Our only derivative is the aforementioned interest rate swap, which is designated as a cash flow hedge.

At March 30, 2021 and March 31, 2020, the fair value of our interest rate swap was a liability of $ 2.3 million and $ 3.1 million, respectively.

We reclassified $ 0.5 million out of accumulated other comprehensive loss (“AOCL”) in the first quarter of fiscal 2021 and none out of AOCL in the first quarter of 2020 for the monthly settlement of the interest rate swap.

No gains or losses representing amounts excluded from the assessment of effectiveness were recognized in earnings in the first quarter of fiscal 2021 or 2020.

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

Balance, December 31, 2019

March 30, 2021

March 31, 2020

Beginning balance

Other comprehensive loss before reclassifications

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Other comprehensive loss, net of tax

Balance, September 29, 2020

Ending balance

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

1 unchanged sentence

The impact on the derivative liability for the Company’s and the counterparty’s non-performance risk to the derivative trade was considered when measuring the fair value of derivative liability.

Fair Value Measurements

Fair value measurements are estimated based on valuation techniques and inputs categorized as follows:

Quoted prices in active markets for identical assets or liabilities.

Observable inputs other than quoted prices in active markets for identical assets and liabilities

Unobservable inputs in which little or no market activity exists, therefore requiring the Company to develop its own assumptions

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):

September 29, 2020

Assets (Liabilities)

Non-qualified deferred compensation assets

Non-qualified deferred compensation liabilities

Interest rate swap

Acquisition-related deferred consideration

Acquisition-related contingent consideration and compensation liabilities

December 31, 2019

Assets (Liabilities)

Non-qualified deferred compensation assets

Non-qualified deferred compensation liabilities

Acquisition-related deferred consideration

Acquisition-related contingent consideration and compensation liabilities

The undiscounted range of outcomes per the Monte Carlo model was $ 0 to $ 35.6 million.

Results could change materially if different estimates and assumptions were used.

Balance, December 31, 2019

Change in fair value

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.

The fair values of our cash and cash equivalents, accounts receivable, income taxes receivable, other receivables, prepaid expenses, accounts payable, income taxes payable and other accrued expenses approximate their carrying amounts due to their short duration.

Commitments and Contingencies

17 unchanged sentences

Legal costs related to such claims are expensed as incurred.

Stockholders’ Equity and Convertible Preferred Stock

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 suspended the quarterly dividend on our common stock, as well as share repurchases.

Stockholders’ Equity and Series A Convertible Preferred Stock

Common Stock -Dividends and Share Repurchases

To preserve liquidity during the COVID-19 pandemic and in conjunction with the terms of the Amended Credit Agreement, in March 2020, our Board suspended the quarterly dividend on our common stock, as well as share repurchases.

Prior to this suspension, our Board declared cash dividends of $ 0.36 per common share for the first quarter of fiscal 2020.

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 Amended Credit Agreement and applicable law, and such other factors that the Board considers relevant.

(See Note 5 for further discussion of our long-term debt.)

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.

Under authorization by our Board to repurchase up to 56.0 million shares of our common stock, we have cumulatively repurchased 53.1 million shares at a total cost of $ 1,700.7 million through March 30, 2021 with 0.1 million shares repurchased at a cost of $ 4.0 million during the first quarter of fiscal 2021 to satisfy tax withholding obligations on vested restricted share awards.

Our objectives with regard to 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.

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

We make the determination to repurchase shares based on several factors, including current and forecasted operating cash flows, capital needs associated with new restaurant development and maintenance of existing locations, dividend payments, debt levels and cost of borrowing, obligations associated with the Acquisitions, our share price and current market conditions.

The timing and number of shares repurchased are also subject to legal constraints and financial covenants under the Facility that limit share repurchases based on a defined ratio.

Future decisions to repurchase shares are at the discretion of the Board and are based on several factors, including current and forecasted operating cash flows, capital needs associated with new restaurant development and maintenance of existing locations, dividend payments, debt levels and cost of borrowing, obligations associated with the acquisitions of North Italia and FRC (the "Acquisition "), our share price and current market conditions.

The timing and number of shares repurchased are also subject to legal constraints and financial covenants under the Amended Credit Agreement that limit share repurchases based on a defined ratio.

(See Note 5 for further discussion of our long-term debt.)

Series A Convertible Preferred Stock

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.

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 preferred stock, par value $ 0.01 per share 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, 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 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.

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

The Series A 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 Series A 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 the Series A preferred stock would have been entitled to receive at such time if the Series A preferred stock were converted into common stock.

At March 30, 2021, the Liquidation Preference was $ 1,067.42 per share.

Dividend Rights

The holders are entitled to dividends on the Liquidation Preference at the rate of 9.5 % per annum, payable in cash or, at our option, paid in-kind.

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

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

The holders of Series A preferred stock are entitled to dividends on the Liquidation Preference at the rate of 9.5 % per annum, payable in cash or, at our option, paid in-kind.

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

During the first quarter of fiscal 2021, we declared a cash dividend of $ 5.1 million, or $ 25.35 per share.

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 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 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.

The Company has the right to settle any conversion in cash.

Subject to certain conditions, we may, at our option, require conversion of all of the outstanding shares of Preferred Stock to common stock if, for at least 20 trading days during the 30 consecutive trading days immediately preceding the date we notify the holders of the election to convert, the closing price of the common stock is at least 200 % of the conversion price.

We will not exercise our right to mandatorily convert all outstanding shares of Preferred Stock unless certain liquidity conditions with regard to the shares of common stock to be issued upon such conversion are satisfied.

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 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 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.

Each holder has the right, at its option, to convert its Series A preferred stock, in whole or in part, into fully paid and non-assessable shares of our common stock at a conversion price equal to $ 22.23 per share, subject to customary anti-dilution adjustments, including in the event of any stock split, stock dividend, recapitalization or similar events and certain anti-dilutive offerings if they occur on or prior to April 19, 2021.

At March 30, 2021, the number of common shares that would be required to be issued upon conversion of the outstanding shares of Series A preferred stock was 9.6 million.

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 Series A 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 the then outstanding common stock.

We have the right to settle any conversion in cash.

As of March 30, 2021, the Series A preferred stock was convertible into approximately 17.1 % of our outstanding common stock, on an as-converted basis.

After April 20, 2023 and subject to certain conditions, we may, at our option, require conversion of all of the outstanding shares of Series A preferred stock to common stock if, for at least 20 trading days during the 30 consecutive trading days immediately preceding the date we notify the holders of Series A preferred stock of the election to convert, the closing price of the common stock is at least 200 % of the conversion price.

We will not exercise our right to mandatorily convert all outstanding shares of Series A preferred stock unless certain liquidity conditions with regard to the shares of common stock to be issued upon such conversion are satisfied.

Upon adoption of ASU 2020-06 in the first quarter of fiscal 2021, we recorded a $ 4.8 million cumulative adjustment to retained earnings to reverse previously recorded beneficial conversion features.

Redemption Rights

On and after October 20, 2027, holders of the Preferred Stock have the right to require redemption of all or any part of the Preferred Stock for an amount equal to the Liquidation Preference.

Upon certain change of control events, we are required to redeem, subject to conversion rights of the holders, all of the outstanding shares of Preferred Stock for cash consideration equal to the greater of (i) the Liquidation Preference and (ii) the amount that such holder would have been entitled to receive at such time if the Preferred Stock were converted into common stock.

We may redeem any or all of the Preferred Stock for an amount equal to (i) 120 % of the Liquidation Preference thereof at any time between April 21, 2025 and April 19, 2026 and (ii) 100 % of the Liquidation Preference at any time beginning on April 20, 2026, provided that such holder will have the right to convert the Preferred Stock immediately prior to and in lieu of such redemption.

To the extent such holder elects to convert the Preferred Stock in lieu of such redemption and the number of shares of common stock issuable upon such conversion would exceed 19.9 % of the outstanding shares of common stock, and the Stockholder Approval has not been obtained as of such date, any portion in excess of such limit will remain outstanding as Preferred Stock.

Since the redemption of the Preferred Stock is contingently redeemable and therefore not certain to occur, the Preferred Stock is not required to be classified as a liability under ASC 480, Distinguishing Liabilities from Equity.

As the Preferred Stock is redeemable in certain circumstances at the option of the holder and is redeemable in certain circumstances upon the occurrence of an event that is not solely within our control, we have classified the Preferred Stock separately from stockholders’ equity in the consolidated balance sheets.

As noted above, we determined that the nature of the Preferred Stock was more akin to an equity instrument than a debt instrument.

However, we determined that the economic characteristics and risks of the embedded put option, call option and redemption upon change of control provision were not clearly and closely related to the Preferred Stock.

Therefore, we assessed these items further and determined they did not meet the definition of a derivative under ASC 815, Derivatives and Hedging .

On and after October 20, 2027, holders of the Series A preferred stock have the right to require redemption of all or any part of the Series A preferred stock for an amount equal to the Liquidation Preference.

Upon certain change of control events, we are required to redeem, subject to conversion rights of the holders of Series A preferred stock, all of the outstanding shares of Series A preferred stock for cash consideration equal to the greater of (i) the Liquidation Preference and (ii) the amount that such holder would have been entitled to receive at such time if the Series A preferred stock were converted into common stock.

We may redeem any or all of the Series A preferred stock for an amount equal to (i) 120 % of the Liquidation Preference thereof at any time between April 21, 2025 and April 19, 2026 and (ii) 100 % of the Liquidation Preference at any time beginning on April 20, 2026, provided that such holder will have the right to convert the Series A preferred stock immediately prior to and in lieu of such redemption.

To the extent such holder elects to convert the Series A preferred stock in lieu of such redemption and the number of shares of common stock issuable upon such conversion would exceed 19.9 % of the outstanding shares of common stock, and the Stockholder Approval has not been obtained as of such date, any portion in excess of such limit will remain outstanding as Series A preferred stock.

Voting Rights

Holders of Preferred Stock are generally entitled to vote with the holders of the common stock on an as-converted basis.

Holders of Preferred Stock are entitled to a separate class vote with respect to, among other things, amendments to the Company’s organizational documents that have an adverse effect on the Preferred Stock and issuances of securities that are senior to, or equal in priority with, the Preferred Stock.

Holders of Series A preferred stock are generally entitled to vote with the holders of the common stock on an as-converted basis.

Holders of Series A preferred stock are entitled to a separate class vote with respect to, among other things, amendments to the Company’s organizational documents that have an adverse effect on the Series A preferred stock, issuances of securities that are senior to, or equal in priority with, the Series A preferred stock and certain business combinations and binding or statutory share exchanges or reclassification involving the Series A preferred stock unless such events do not adversely affect the rights, preferences or voting powers of such preferred stock.

In addition, for so long as the holders of Series A preferred stock hold record and beneficial ownership of 25 % of the Series A preferred stock issued to them, such holders will have the right to designate one member to our board of directors.

If the holders cease to have such designation right, for so long as the holders have record and beneficial ownership of shares of common stock issued upon conversion of the Series A preferred stock that constitute at least 5 % of the outstanding common stock, the holders will have the right to nominate one person for election to our board of directors.

Stock-Based Compensation

On April 4, 2019, our Board adopted The Cheesecake Factory Incorporated Stock Incentive Plan (the “Plan”) under which incentive stock options, non-qualified stock options, stock appreciation rights, restricted shares and restricted share units may be granted to staff members, consultants and non-employee directors.

The Plan replaced the 2010 Stock Incentive Plan.

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

September 29, 2020

October 1, 2019

September 29, 2020

October 1, 2019

We maintain stock-based incentive plan under which incentive stock options, non-qualified stock options, stock appreciation rights, restricted shares and restricted share units may be granted to staff members, consultants and non-employee directors.

The following table presents information related to stock-based compensation, net of forfeitures (in thousands):

March 30, 2021

March 31, 2020

Labor expenses

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(1) It is our policy to capitalize the portion of stock-based compensation costs for our internal development department that relates to capitalizable activities such as the design and construction of new restaurants, remodeling existing locations and equipment installation.

Capitalized stock-based compensation is included in property and equipment, net on the consolidated balance sheets.

Capitalized stock-based compensation is included in property and equipment, net on the condensed consolidated balance sheets.

Stock Options

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:

We did not issue any stock options during the first quarter of fiscal 2021.

The weighted-average fair value at the grant date for options issued during the first quarter of fiscal 2020 was $ 6.66 per share.

The fair value of options was estimated utilizing the Black-Scholes valuation model with the following weighted-average assumptions for the first quarter of fiscal 2020:

(a) an expected option term of 6.9 years, (b) expected stock price volatility of 25.7 %, (c) a risk-free interest rate of 1.5 % and (d) a dividend yield on our stock of 3.6 %.

Stock option activity during the thirteen weeks ended March 30, 2021 was as follows:

Exercise Price

Intrinsic Value (1)

(In thousands)

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Forfeited or cancelled

Outstanding at September 29, 2020

Exercisable at September 29, 2020

Outstanding at March 30, 2021

Exercisable at March 30, 2021

(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 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.

The total intrinsic value of options exercised during the thirteen weeks ended March 30, 2021 and March 31, 2020 was $ 5.7 million and $ 35.6 million, respectively.

As of March 30, 2021, total unrecognized stock-based compensation expense related to unvested stock options was $ 6.5 million, which we expect to recognize over a weighted-average period of approximately 3.2 years.

Restricted Shares and Restricted Share Units

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

Restricted share and restricted share unit activity during the thirteen weeks ended March 30, 2021 was as follows:

(In thousands)

Outstanding at December 29, 2020

Outstanding at September 29, 2020

Outstanding at March 30, 2021

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 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.

Intended to provide economic relief to those impacted by the COVID-19 pandemic, the CARES Act includes provisions allowing for the carryback of net operating losses generated in fiscal years 2018, 2019 and 2020 and technical amendments regarding the expensing of qualified improvement property (“QIP”).

As a result of the CARES Act, we expect to carry back our anticipated fiscal 2020 loss and reduce taxes payable for accelerated depreciation on QIP placed in service during fiscal 2018 and 2019.

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

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 %.

Without the carryback provisions of the CARES Act, we would expect the fiscal 2020 loss to provide a tax benefit at the statutory rate of 21 %.

The 14 % rate benefit is reflected primarily in the annual effective tax rate, although the portion representing prior year temporary differences that are estimated to reverse in fiscal 2020 and become part of the fiscal 2020 loss carryback was recognized as a discrete item in the first quarter of fiscal 2020.

We expect to have federal credit carryforwards of approximately $ 36 million at the end of fiscal 2020 compared to $ 14.3 million at December 31, 2019.

This increase is driven primarily by our estimated fiscal 2020 loss.

We assess the available evidence to estimate if sufficient future taxable income will be generated to use these carryforwards, which have a 20 -year carryforward period and are utilized on a first-in, first-out basis.

Based on this evaluation, we concluded that no valuation allowance is required.

This assessment could change if estimates of future taxable income during the carryforward period are revised.

As a result of the goodwill impairment discussed in Note 4, we recorded a deferred tax asset of $ 16.4 million.

Net (Loss)/Income Per Share

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 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.

The weighted average fair value for restricted shares and restricted share units issued during the first quarter of fiscal 2021 and 2020 was $ 48.38 and $ 40.01 , respectively.

The fair value of shares that vested during the thirteen weeks ended March 30, 2021 was $ 9.5 million.

As of March 30, 2021, total unrecognized stock-based compensation expense related to unvested restricted shares and restricted share units was $ 46.5 million, which we expect to recognize over a weighted-average period of approximately 3.2 years.

Net Income/(Loss) Per Share

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

At both March 30, 2021 and March 31, 2020, 2.1 million shares of restricted stock issued 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.

Holders of our Preferred Stock participate in dividends on an as-converted basis when declared on common stock.

As a result, our Preferred Stock meets the definition of a participating security which requires us to apply the two-class method to compute both basic and diluted net income per share.

Holders of our Series A Convertible Preferred Stock, par value $ 0.01 per share (the "Series A preferred stock") participate in dividends on an as-converted basis when declared on common stock.

As a result, our Series A preferred stock meets the definition of a participating security which requires us to apply the two-class method to compute both basic and diluted net income per share.

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 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.

September 29, 2020

October 1, 2019

September 29, 2020

October 1, 2019

In addition, as our Series A 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 stockholders is performed as the holders of our Series A preferred stock are not contractually obligated to participate in our losses.

March 30, 2021

March 31, 2020

(In thousands, except per share data)

Basic net (loss)/income per common share:

Net (loss)/income

Dividends on preferred stock

Direct and incremental preferred stock issuance costs

Net (loss)/income available to common stockholders

Basic net income/(loss) per common share:

Net income/(loss)

Dividends on Series A preferred stock

Net loss available to common stockholders

Basic weighted-average shares outstanding

Basic net (loss)/income per common share

Diluted net (loss)/income per common share:

Net (loss)/income available to common stockholders

Basic net loss per common share

Diluted net income/(loss) per common share:

Net loss available to common stockholders

Basic weighted-average shares outstanding

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Diluted weighted-average shares outstanding

Diluted net (loss)/income per common share

(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.

Diluted net loss per common share

(1) Shares of common stock equivalents of 1.5 million and 3.8 million as of March 30, 2021 and March 31, 2020, respectively, were excluded from the diluted calculation due to their anti-dilutive effect .

Segment Information

1 unchanged sentence

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.

Unallocated corporate expenses, capital expenditures and assets, which were previously classified in a separate Corporate line, are also combined in Other.

In addition, gift card costs, which were previously classified in The Cheesecake Factory restaurants reportable segment, are combined in Other.

Corresponding prior year balances were reclassified to conform to the current year presentation.

The remaining operating segments (Flower Child, our bakery division and Grand Lux Cafe) along with our businesses that don’t qualify as operating segments are combined in Other.

Unallocated corporate expenses, capital expenditures and assets are also combined in Other.

Segment information is presented below (in thousands):

September 29, 2020

October 1, 2019

September 29, 2020

October 1, 2019

The Cheesecake Factory restaurants

Loss/(income) from operations:

The Cheesecake Factory restaurants

Depreciation and amortization:

The Cheesecake Factory restaurants

Capital expenditures:

The Cheesecake Factory restaurants

March 30, 2021

March 31, 2020

The Cheesecake Factory

Income/(loss) from operations:

The Cheesecake Factory

Depreciation and amortization expenses:

The Cheesecake Factory

Impairment of assets and lease termination expenses:

The Cheesecake Factory

Preopening costs:

The Cheesecake Factory restaurants

September 29, 2020

The Cheesecake Factory

Capital expenditures:

The Cheesecake Factory

March 30, 2021

December 29, 2020

Total assets:

The Cheesecake Factory restaurants

(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 .

The Cheesecake Factory

Subsequent Events

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

On March 30, 2021, the Audit Committee of our Board declared a cash dividend of $ 5.1 million, or $ 25.35 per share, on our Series A preferred stock, which was paid on March 31, 2021 to the holders of record on March 15, 2021.

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