What changed in this filing

/stocks — the workspaceLOADING

Item 2. Management’s Discussion and Analysis

2021-08-04 compared with 2021-05-03 · 152 added, 98 removed, 182 unchanged (58% of the section changed)

4 unchanged sentences

These statements are forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995, as codified in Section 27A of the Securities Act of 1933, as amended (the “Securities Act”), and Section 21E of the Securities Exchange Act of 1934, as amended (together with the Securities Act, the “Acts”).

This includes, without limitation, statements regarding corporate social responsibility and in our corporate social responsibility (CSR) report, the effects of the COVID-19 pandemic on our financial condition and our results of operation, including our expectation with respect to our ability to reopen and keep open our restaurants, financial guidance and projections and statements with respect to the acquisition of North Italia and Fox Restaurant Concepts LLC (“FRC”) and expectations regarding accelerated and diversified revenue growth as a result of the acquisition of North Italia and FRC, as well as expectations of our future financial condition, results of operations, sales, cash flows, plans, targets, goals, objectives, performance, growth potential, competitive position and business;

This includes, without limitation, statements regarding corporate social responsibility and in our corporate social responsibility (CSR) report, the effects of the COVID-19 pandemic on our financial condition and our results of operations, including our expectations with respect to our ability to reopen and keep open our restaurants, our fiscal 2021 outlook, financial guidance and projections and statements with respect to the acquisition of North Italia and Fox Restaurant Concepts LLC (“FRC”) and expectations regarding accelerated and diversified revenue growth as a result of the acquisition of North Italia and FRC, as well as expectations of our future financial condition, results of operations, sales, cash flows, plans, targets, goals, objectives, performance, growth potential, competitive position and business;

and our ability to:

28 unchanged sentences

the economic health of suppliers, licensees, vendors and other third parties providing goods or services to us;

the timing of the resumption of our new unit development;

the timing of new unit development;

compliance with debt covenants;

24 unchanged sentences

COVID-19 Pandemic

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 are 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.

While restrictions on the type of permitted operating model and occupancy capacity continue to change, as of April 27, 2021, nearly all of the Company’s restaurants were operating with limited indoor dining capacity with The Cheesecake Factory restaurants with reopened dining rooms operating on average at 60% indoor capacity.

As of April 27, 2021, one The Cheesecake Factory location was operating an off-premise only model and two Other FRC locations were temporarily closed and plan to reopen in the second quarter of fiscal 2021.

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 restaurant 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.

While restrictions on the type of permitted operating model and occupancy capacity continue to change, nearly all of our restaurants were operating with no indoor dining restrictions.

We cannot predict how long the COVID-19 pandemic will last, whether vaccines will be effective at eliminating or slowing the spread of the virus or variants, whether it will reoccur or whether variants will spike, what additional restrictions may be enacted, to what extent we can maintain sales volumes during or following the resumption of mandated social distancing protocols or mask mandates and what long-lasting effects the COVID-19 pandemic may have on the restaurant industry as a whole.

The extent of the reopening process, the potential impact of the COVID-19 pandemic on consumer spending behavior, and our ability to continue to adequately staff out restaurants will determine the significance of the impact to our operating results and financial position.

The Cheesecake Factory Incorporated is a leader in experiential dining.

6 unchanged sentences

Investing in new Company-owned restaurant development is our top long-term capital allocation priority, with a focus on opening our concepts in premier locations within both new and existing markets.

We expect our acquisition of North Italia and FRC to further accelerate and diversify our growth opportunities.

For The Cheesecake Factory concept, we target an average cash-on-cash return on investment of approximately 20% to 25% at the unit level.

We target an average cash-on-cash return on investment of about 35% for the North Italia concept and 25% to 30% for the FRC concepts.

We target an average cash-on-cash return on investment of approximately 35% for the North Italia concept and 25% to 30% for the FRC concepts.

Returns are affected by the cost to build restaurants, the level of revenues that each restaurant can deliver and our ability to maximize the profitability of restaurants.

8 unchanged sentences

Currently, our menu pricing is at the higher end of this range.

We will continue to evaluate future pricing decisions in light of the COVID-19 pandemic operating environment.

On October 2, 2019, we completed the acquisitions of North Italia and FRC, including Flower Child , which we expect will further accelerate and diversify our revenue following the COVID-19 pandemic.

Margins are subject to fluctuations in commodity costs, labor, restaurant-level occupancy expenses, general and administrative (“G&A”) expenses and preopening expenses.

Our objective is to recapture our pre-COVID-19 pandemic margins, and longer-term to drive margin expansion, by maintaining flat restaurant-level margins at The Cheesecake Factory concept, leveraging our bakery operations, international and consumer packaged goods royalty revenue streams and G&A expense over time, and optimizing our restaurant portfolio.

Our future cash flow performance will depend on the evolving COVID-19 pandemic regulatory landscape, as well as economic conditions and consumer behavior.

We would expect cash generation to increase as the operating environment for the full-service segment of the restaurant industry normalizes from the COVID-19 pandemic impact.

Longer-term, we plan to employ a balanced capital allocation strategy, comprised of:

Our objective is to recapture our pre-COVID-19 pandemic margins when we recapture our pre-COVID-19 annual sales levels, and longer-term to drive margin expansion, by leveraging incremental sales to increase restaurant-level margins at The Cheesecake Factory concept, leveraging our bakery operations, international and consumer packaged goods royalty revenue streams and G&A expense over time, and optimizing our restaurant portfolio.

We plan to employ a balanced capital allocation strategy, comprised of:

investing in new restaurants that are expected to meet our targeted returns, repaying borrowings under our Revolving Facility (as defined below) and reinstating our dividend and share repurchase program, the latter of which offsets dilution from our equity compensation program and supports our earnings per share growth.

1 unchanged sentence

Our ability to declare common dividends and repurchase shares in the future will be subject to financial covenants under the Amended Credit Agreement (as defined below), among other factors.

Longer-term, we believe our domestic revenue growth (comprised of our targeted annual unit growth of 7%, in aggregate across concepts, and comparable sales growth), combined with international expansion, planned debt repayment and an anticipated capital return program will support our long-term financial objective of 13% to 14% total return to shareholders, on average.

Longer-term, we believe our domestic revenue growth (comprised of our targeted annual unit growth of 7%, in aggregate across concepts, and comparable sales growth), combined with margin expansion, planned debt repayment and an anticipated capital return program will support our long-term financial objective of 13% to 14% total return to shareholders, on average.

We define our total return as earnings per share growth plus our dividend yield.

2 unchanged sentences

The results of operations for the interim periods presented are not necessarily indicative of the results to be expected for any other interim period or for the full fiscal year.

March 30, 2021

March 31, 2020

June 29, 2021

June 30, 2020

June 29, 2021

June 30, 2020

Costs and expenses:

4 unchanged sentences

Depreciation and amortization expenses

Impairment of assets and lease termination expenses

Impairment of assets and lease expiration

Acquisition-related costs

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

Acquisition-related contingent consideration and amortization

Preopening costs

6 unchanged sentences

Dividends on Series A preferred stock

Net loss available to common stockholders

Thirteen Weeks Ended March 30, 2021 Compared to Thirteen Weeks Ended March 31, 2020

Revenues increased 2.0% to $627.4 million for the fiscal quarter ended March 30, 2021 compared to $615.1 million for the comparable prior year period, primarily due to an increase in comparable restaurant sales, new restaurant openings and third-party bakery sales, partially offset by permanent and temporary restaurant closures.

The Cheesecake Factory comparable sales increased by 2.8%, or $13.0 million, from the first quarter of fiscal 2020 and decreased 10.4% from the first quarter of fiscal 2019.

The increase from fiscal 2020 was primarily driven by average check growth of 19.6% (based on an increase of 3.0% in menu pricing and a 16.6% positive change in mix), partially offset by decline in customer traffic of 16.8% primarily due to the COVID-19 pandemic.

Direct and incremental Series A preferred stock issuance cost

Undistributed earnings allocated to Series A preferred stock

Net income/(loss) available to common stockholders

Thirteen Weeks Ended June 29, 2021 Compared to Thirteen Weeks Ended June 30, 2020

Revenues increased 159.9% to $769.0 million for the fiscal quarter ended June 29, 2021 compared to $295.9 million for the comparable prior year period, primarily due to the effect of the COVID-19 pandemic on prior year sales.

The Cheesecake Factory comparable sales increased by 150.0%, or $356.2 million, from the second quarter of fiscal 2020 and increased 7.8% from the second quarter of fiscal 2019.

The increase from fiscal 2020 was primarily driven by increased customer traffic of 202.7% primarily due to the impact of the COVID-19 pandemic in the prior year, partially offset by a decline in average check of 52.7% (based on a 55.7% negative change in mix partially offset by an increase of 3.0% in menu pricing).

We implemented effective menu price increases of approximately 1.5% in both the first quarter of fiscal 2021 and third quarter of fiscal 2020.

Sales through the off-premise channel comprised approximately 43% of our restaurant sales during the first quarter of fiscal 2021 as compared to 22% in the first quarter of fiscal 2020 as consumer behavior shifted towards off-premise dining throughout the pandemic.

We account for each off-premise order as one guest for traffic measurement purposes.

Therefore, average check is higher as most off-premise orders are for more than one customer.

In turn, the high mix of sales in the off-premise channel was the primary driver of the positive change in mix and also had a corresponding impact on the in the reported traffic.

The Cheesecake Factory average sales per restaurant operating week increased 2.1% to $186,478 in the first quarter of fiscal 2021 from $182,674 in the first quarter of fiscal 2020.

Total operating weeks at The Cheesecake Factory restaurants increased 0.1% to 2,678 in the first quarter of fiscal 2021 compared to 2,674 in the prior year.

North Italia comparable sales increased approximately 5% from the first quarter of fiscal 2020 and decreased approximately 5% compared to the first quarter of fiscal 2019.

North Italia average sales per restaurant operating week increased 3.0% to $108,327 in the first quarter of fiscal 2021 from $105,214 in the first quarter of fiscal 2020.

Total operating weeks at North Italia increased 4.5% to 303 in the first quarter of fiscal 2021 compared to 290 in the prior year.

Sales through the off-premise channel comprised approximately 31% of our restaurant sales during the second quarter of fiscal 2021 as compared to 79% in the second quarter of fiscal 2020 as many customers have returned to on-premise dining, whereas consumer behavior had shifted towards the off-premise channel during the prior year period due to the pandemic.

However, off-premise sales mix of 31% remains elevated versus the pre-pandemic level of 16% during the second quarter of fiscal 2019.

The Cheesecake Factory average sales per restaurant operating week increased 146.9% to $225,452 in the second quarter of fiscal 2021 from $91,314 in the second quarter of fiscal 2020.

Total operating weeks at The Cheesecake Factory restaurants increased 1.9% to 2,691 in the second quarter of fiscal 2021 compared to 2,640 in the prior year.

North Italia comparable sales increased approximately 182% from the second quarter of fiscal 2020 and increased approximately 10% compared to the second quarter of fiscal 2019.

North Italia average sales per restaurant operating week increased 152.0% to $132,824 in the second quarter of fiscal 2021 from $52,718 in the second quarter of fiscal 2020.

Total operating weeks at North Italia increased 25.7% to 328 in the second quarter of fiscal 2021 compared to 261 in the prior year.

Restaurants become eligible to enter the comparable sales base in their 19th month of operation.

At March 30, 2021, there were four The Cheesecake Factory restaurants and three North Italia restaurants not yet in the comparable sales base.

At June 29, 2021, there were two The Cheesecake Factory restaurants and four North Italia restaurants not yet in the comparable sales base.

International licensed locations and restaurants that are no longer in operation, including those which we have relocated, are excluded from comparable sales calculations.

External bakery sales were $16.7 million for the first quarter of fiscal 2021 compared to $13.8 million in the comparable prior year period.

External bakery sales were $15.4 million for the second quarter of fiscal 2021 compared to $14.7 million in the comparable prior year period.

Cost of Sales

Cost of sales consists of food, beverage and bakery production supply costs incurred in conjunction with our restaurant and bakery revenues, and excludes depreciation, which is captured separately in depreciation and amortization expenses.

As a percentage of revenues, cost of sales was 21.7% and 22.9% in the first quarters of fiscal 2021 and 2020, respectively, reflecting a shift in sales mix within the restaurants, a higher proportion of third-party bakery revenues and pricing leverage.

As a percentage of revenues, cost of sales was 22.0% and 24.4% in the second quarters of fiscal 2021 and 2020, respectively, reflecting a shift in sales mix within the restaurants, a lower proportion of third-party bakery revenues and pricing leverage.

Labor Expenses

As a percentage of revenues, labor expenses, which include restaurant-level labor costs and bakery direct production labor, including associated fringe benefits, were 36.6% and 38.6% in the first quarters of fiscal 2021 and 2020, respectively.

As a percentage of revenues, labor expenses, which include restaurant-level labor costs and bakery direct production labor, including associated fringe benefits, were 35.7% and 41.5% in the second quarters of fiscal 2021 and 2020, respectively.

This decrease was primarily due to deleverage in the prior year when costs associated with the COVID-19 pandemic, including maintaining our full restaurant management team and healthcare benefits for our furloughed staff members, were incurred in the reduced sales environment.

Other Operating Costs and Expenses

Other operating costs and expenses consist of restaurant-level occupancy expenses (rent, common area expenses, insurance, licenses, taxes and utilities), marketing, including delivery commissions, and other operating expenses (excluding food costs and labor expenses, which are reported separately) and bakery production overhead and distribution expenses.

As a percentage of revenues, other operating costs and expenses were 28.9% and 27.3% in the first quarters of fiscal 2021 and 2020, respectively.

This variance was primarily driven by increased restaurant-level incentive compensation expense, costs associated with COVID-19, such as additional sanitation and personal protective equipment, and marketing expenses, partially offset by decreased occupancy costs.

Other operating costs and expenses consist of restaurant-level occupancy expenses (rent, common area expenses, insurance, licenses, taxes and utilities), marketing, including delivery commissions, other operating expenses (excluding food costs and labor expenses, which are reported separately) and bakery production overhead and distribution expenses.

As a percentage of revenues, other operating costs and expenses were 25.9% and 41.1% in the second quarters of fiscal 2021 and 2020, respectively.

This variance was primarily driven by sales leverage, partially offset by increased restaurant-level incentive compensation expense.

G&A expenses consist of the restaurant management recruiting and training program, restaurant field supervision, corporate support and bakery administrative organizations, as well as gift card commissions to third-party distributors.

As a percentage of revenues, G&A expenses were 7.1% in both the first quarters of fiscal 2021 and 2020 as higher corporate incentive compensation expense was offset by cost management efforts.

As a percentage of revenues, G&A expenses were 6.3% and 12.1% in the second quarters of fiscal 2021 and 2020, respectively.

This variance was primarily driven by sales leverage, partially offset by higher corporate incentive compensation expense.

Depreciation and Amortization Expenses

As a percentage of revenues, depreciation and amortization expenses decreased to 3.5% in the first quarter of fiscal 2021 from 3.8% in the comparable prior year period.

As a percentage of revenues, depreciation and amortization expenses decreased to 2.9% in the second quarter of fiscal 2021 from 7.6% in the comparable prior year period due primarily to sales leverage.

Impairment of Assets and Lease Terminations

During the first quarter of fiscal 2021, we recorded impairment of assets and lease terminations expense of $0.6 million related to lease termination costs for two Other restaurants, one of which closed during the fourth quarter of fiscal 2020 and one that closed at the beginning of the first quarter of fiscal 2021.

In the first quarter of fiscal 2020, we recorded $8.9 million of impairment of assets and lease terminations expense primarily related to the impairment of one The Cheesecake Factory, one North Italia, two Other FRC and four Other restaurants.

In addition, during the first quarter of fiscal 2020, we determined it was necessary to perform an interim assessment of our goodwill, trade names, trademarks and licensing agreements 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.

Based on the results of this assessment, we recorded $191.9 million of impairment expense.

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.

During the second quarter of fiscal 2021, we recorded no impairment of assets and lease terminations expense.

In 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 which closed in July 2020.

Acquisition-Related Contingent Consideration, Compensation and Amortization Expenses/(Benefit)

In the first quarter of fiscal 2021, we recorded $0.6 million of acquisition-related contingent consideration, compensation and amortization, primarily reflecting changes in the fair value of the deferred and contingent consideration and compensation liabilities.

In the first quarter of fiscal 2020, we recorded a benefit of $4.5 million, reflecting a $6.0 million decrease in the fair value of the contingent consideration and compensation liabilities related to the impact of the COVID-19 pandemic, partially offset by an increase of $1.5 million in the deferred consideration liability.

In the second quarter of fiscal 2021, we recorded $11.4 million of acquisition-related contingent consideration, compensation and amortization, primarily related to the impact of an amendment to the Acquisition agreement that, among other things, extended the measurement period through fiscal 2026.

In the second quarter of fiscal 2020, we recorded a benefit of $0.9 million of acquisition-related contingent consideration, compensation and amortization, reflecting changes in the fair value of the deferred and contingent consideration and compensation liabilities, partially offset by amortization of acquired definite-lived licensing agreements.

Preopening Costs

Preopening costs were $3.9 million and $3.1 million in the first quarters of fiscal 2021 and 2020, respectively.

We opened one The Cheesecake Factory, one North Italia and one Other FRC location in the first quarter of fiscal 2021 compared to one North Italia and one Flower Child location in the comparable prior year period.

Preopening costs were $2.8 million and $2.1 million in the second quarters of fiscal 2021 and 2020, respectively.

We opened two North Italia and one Other location in the second quarter of fiscal 2021 compared no restaurants in the comparable prior year period.

Preopening costs include all costs to relocate and compensate restaurant management staff members during the preopening period, costs to recruit and train hourly restaurant staff members, and wages, travel and lodging costs for our opening training team and other support staff members.

2 unchanged sentences

Interest and Other Expense, Net

Interest and other expense, net was $2.7 million and $1.5 million for the first quarters of fiscal 2021 and 2020, respectively.

This variance was primarily due to lower gains on our investments used to support our non-qualified executive deferred compensation plan.

Interest and other expense, net was $4.7 million and $2.6 million for the second quarters of fiscal 2021 and 2020, respectively.

This increase was primarily due to the termination of our interest rate swap.

Income Tax Provision/(Benefit)

Our effective income tax rate was 37.1% and 28.9% for the first quarters of fiscal 2021 and 2020, respectively.

The increase resulted primarily from a reserve for an uncertain tax position recorded in the first quarter of fiscal 2021 related to tenant improvement allowances, partially offset by a higher proportion of employment credits in relation to pre-tax income/(loss) in the first quarter of fiscal 2021 and a benefit in the prior year arising from the expected carryback of our anticipated fiscal 2020 loss to prior years when the federal statutory rate was 35%.

Our effective income tax rate was 7.4% and 34.5% for the second quarters of fiscal 2021 and 2020, respectively.

Twenty-Six Weeks Ended June 29, 2021 Compared to Twenty-Six Weeks Ended June 30, 2020

Revenues increased 53.3% to $1,396.4 million for the first half of fiscal 2021 compared to $911.0 million for the comparable prior year period, primarily due to the effect of the COVID-19 pandemic on prior year sales.

The Cheesecake Factory comparable sales increased by 52.0%, or $369.3 million, from the first half of fiscal 2020 and decreased 1.2% from the first half of fiscal 2019.

The increase from fiscal 2020 was primarily driven by increased customer traffic of 40.3% primarily due to the impact of the COVID-19 pandemic in the prior year period and average check growth of 11.7% (based on an increase of 3.0% in menu pricing and an 8.7% positive change in mix).

Sales through the off-premise channel comprised approximately 36% of our restaurant sales during the first half of fiscal 2021 as compared to 41% in the first half of fiscal 2020.

However, off-premise sales mix of 36% remains elevated versus the pre-pandemic level of 16% during the first half of fiscal 2019.

The Cheesecake Factory average sales per restaurant operating week increased 50.1% to $206,012 in the first half of fiscal 2021 from $137,286 in the first half of fiscal 2020.

Total operating weeks at The Cheesecake Factory restaurants increased 1.0% to 5,369 in the first half of fiscal 2021 compared to 5,314 in the prior year period.

North Italia comparable sales increased approximately 63% from the first half of fiscal 2020 and increased approximately 3% compared to the first half of fiscal 2019.

North Italia average sales per restaurant operating week increased 50.7% to $121,061 in the first half of fiscal 2021 from $80,348 in the first half of fiscal 2020.

Total operating weeks at North Italia increased 14.5% to 631 in the first half of fiscal 2021 compared to 551 in the prior year period.

External bakery sales were $32.1 million for the first half of fiscal 2021 compared to $28.5 million in the comparable prior year period.

Cost of Sales

As a percentage of revenues, cost of sales was 21.8% and 23.4% in the first half of fiscal 2021 and 2020, respectively, reflecting a shift in sales mix within the restaurants, a lower proportion of third-party bakery revenues and pricing leverage.

Labor Expenses

As a percentage of revenues, labor expenses were 36.1% and 39.5% in the first half of fiscal 2021 and 2020, respectively.

Other Operating Costs and Expenses

As a percentage of revenues, other operating costs and expenses were 27.3% and 31.8% in the first half of fiscal 2021 and 2020, respectively.

This variance was primarily driven by sales leverage, partially offset by increased restaurant-level incentive compensation expense.

As a percentage of revenues, G&A expenses were 6.6% and 8.7% in the first half of fiscal 2021 and 2020, respectively.

This variance was primarily driven by sales leverage, partially offset by higher corporate incentive compensation expense.

Depreciation and Amortization Expenses

As a percentage of revenues, depreciation and amortization expenses decreased to 3.2% in the first half of fiscal 2021 from 5.1% in the comparable prior year period due primarily to sales leverage.

Impairment of Assets and Lease Terminations

During the first half of fiscal 2021, we recorded impairment of assets and lease terminations expense of $0.6 million related to lease termination costs for two Other restaurants, one of which closed during the fourth quarter of fiscal 2020 and one that closed at the beginning of the first quarter of fiscal 2021.

During the first half of fiscal 2020, we recorded $194.3 million of impairment of assets and lease termination expense related to the impairment of goodwill, trade names, trademarks and licensing agreements associated with the Acquisition and long-lived assets for one The Cheesecake Factory, one North Italia, two Other FRC and four Other restaurants, as well as lease terminations costs for one The Cheesecake Factory restaurant which closed in July 2020.

Acquisition-Related Contingent Consideration, Compensation and Amortization Expenses/(Benefit)

In the first half of fiscal 2021, we recorded $11.9 million of acquisition-related contingent consideration, compensation and amortization, primarily related to the impact of an amendment to the Acquisition agreement that, among other things, extended the measurement period through fiscal 2026.

In the first half of fiscal 2020, we recorded a benefit of $5.4 million in acquisition-related contingent consideration, compensation and amortization, primarily due to a decrease in the fair value of the contingent consideration and compensation liabilities related to impact of the COVID-19 pandemic.

Preopening Costs

Preopening costs were $6.6 million and $5.2 million in the first half of fiscal 2021 and 2020, respectively.

We opened one The Cheesecake Factory, three North Italia, one Other FRC and one Other location in the first half of fiscal 2021 compared to one North Italia and one Other location in the comparable prior year period.

Interest and Other Expense, Net

Interest and other expense, net was $7.4 million and $4.1 million for the first half of fiscal 2021 and 2020, respectively.

This increase was primarily due to the termination of the interest rate swap.

Income Tax Provision/(Benefit)

Our effective income tax rate was 11.7% and 30.6% for the first half of fiscal 2021 and 2020, respectively.

The decrease resulted primarily from a higher proportion of employment credits in relation to pre-tax income/(loss) in the first half of fiscal 2021 and a benefit in the prior year arising from the expected carryback of our anticipated fiscal 2020 loss to prior years when the federal statutory rate was 35%, partially offset by a reserve for an uncertain tax position recorded in the first quarter of fiscal 2021 related to tenant improvement allowances.

Non-GAAP Measures

1 unchanged sentence

These non-GAAP measures may not be comparable to similarly titled measures used by other companies and should not be considered in isolation or as a substitute for measures of performance prepared in accordance with GAAP.

We calculate these non-GAAP measures by eliminating from net loss and diluted net loss per common share the impact of items we do not consider indicative of our ongoing operations.

To reflect the potential impact of the conversion of our Series A preferred stock into common stock, we exclude the preferred dividend and assume all convertible preferred shares convert to common stock.

We use these non-GAAP financial measures for financial and operational decision-making and as a means to evaluate period-to-period comparisons.

We calculate these non-GAAP measures by eliminating from net income/(loss) and diluted net income/(loss) per common share the impact of items we do not consider indicative of our ongoing operations.

To reflect the potential impact of the conversion of our Series A preferred stock into common stock for the period that it was outstanding prior to the conversion on June 15,2021, we exclude the preferred dividend and assume all convertible preferred shares have been converted into common stock.

(See Note 9 of Notes to Condensed Consolidated Financial Statements in Part I, Item 1 of this report for further discussion of our preferred stock.) We use these non-GAAP financial measures for financial and operational decision-making and as a means to evaluate period-to-period comparisons.

Our inclusion of these adjusted measures should not be construed as an indication that our future results will be unaffected by unusual or infrequent items.

1 unchanged sentence

Following is a reconciliation from net income/(loss) and diluted net income/(loss) per common share to the corresponding adjusted measures (in thousands, except per share data):

March 30, 2021

March 31, 2020

Net loss available to common stockholders

Dividends on Series A preferred stock

June 29, 2021

June 30, 2020

June 29, 2021

June 30, 2020

Net income/(loss) available to common stockholders

Dividends on preferred stock

Direct and incremental preferred stock issuance costs

Net income attributable to Series A preferred stock

COVID-19 related costs (1)

Impairment of assets and lease termination expenses

Impairment of assets and lease terminations

Acquisition-related costs

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

Termination of interest rate swap

Uncertain tax position related to tenant improvement allowances

Tax effect of adjustments (2)

Adjusted net income

Diluted net loss per common share

Dividends on Series A preferred stock

Assumed impact of potential conversion of Series A preferred stock into common stock (3)

Adjusted net income/(loss)

Diluted net income/(loss) per common share

Dividends on preferred stock

Direct and incremental preferred stock issuance costs

Net income attributable to Series A preferred stock

Assumed impact of potential conversion of preferred stock into common stock (3)

COVID-19 related costs (1)

Impairment of assets and lease termination expenses

Impairment of assets and lease terminations

Acquisition-related costs

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

Acquisition-related contingent consideration, compensation and amortization expenses

Termination of interest rate swap

Uncertain tax position related to tenant improvement allowances

Tax effect of adjustments (2)

Adjusted net income per share (4)

Adjusted if-converted net income/(loss) per share (4)

(1) Represents incremental costs associated with the COVID-19 pandemic such as additional sanitation, personal protective equipment, sick and vaccination pay, and healthcare benefits associated with furloughed staff members.

For the thirteen weeks ended March 30, 2021, we recorded $4.9 million for these costs with approximately $4.6 million reflected in other operating expenses and $0.3 million in labor expenses.

For the thirteen weeks ended March 31, 2020, we recorded $3.3 million for these costs with approximately $2.3 million reflected in labor expenses and $1.0 million in other operating expenses.

(2) Based on the federal statutory rate and an estimated blended state tax rate, the tax effect on all adjustments assumes a 26% tax rate.

(3) Represents the impact of assuming the conversion of preferred stock into common stock (9,598,559 shares), resulting in an assumption of 53,787,314 weighted-average common shares outstanding for the first quarter of fiscal 2021.

(3) Represents the impact of assuming the conversion of preferred stock into common stock (8,126,001 and 8,862,280 shares for the thirteen and twenty-six weeks ended June 29, 2021, respectively), resulting in an assumption of 54,902,770 and 54,837,353 weighted-average common shares outstanding for the thirteen and twenty-six weeks ended June 29, 2021.

Represents the impact of assuming the conversion of preferred stock into common stock (7,019,521 and 3,509,761 shares for the thirteen and twenty-six weeks ended June 30, 2020, respectively), resulting in an assumption of 50,893,967 and 47,333,583 weighted-average common shares outstanding for the thirteen and twenty-six weeks ended June 30, 2020.

(4) Adjusted net income per share may not add due to rounding.

Second Quarter Fiscal 2021 Update

Second quarter-to-date through April 27, 2021, The Cheesecake Factory restaurant comparable sales increased approximately 220% and 7% compared to the comparable period in fiscal 2020 and fiscal 2019, respectively.

Second quarter-to-date

through April 27, 2021, North Italia comparable sales increased approximately 336% and 8% compared to the comparable period in fiscal 2020 and fiscal 2019, respectively.

Third Quarter Fiscal 2021 Update

Third quarter-to-date through July 26, 2021, The Cheesecake Factory restaurant comparable sales increased approximately 61% and 10% compared to the comparable period in fiscal 2020 and fiscal 2019, respectively.

Third quarter-to-date through July 26, 2021, North Italia comparable sales increased approximately 64% and 10% compared to the comparable period in fiscal 2020 and fiscal 2019, respectively.

Fiscal 2021 Outlook

For fiscal 2021, we currently estimate commodity cost inflation of approximately 2% and continue to expect government-mandated minimum wage impacts to be more favorable than in recent years.

We currently estimate cost of sales inflation of approximately 3% in the second half of fiscal 2021 and continue to expect government-mandated minimum wage impacts to be more favorable than in recent years.

However, there is some uncertainty to overall hourly wage rate inflation given the more competitive current industry labor environment.

In addition, we estimate G&A of approximately $47 million per quarter for the remainder of fiscal 2021.

Internationally, we expect to open as many as three The Cheesecake Factory restaurants under licensing agreements.

We plan to open as many as 14 new restaurants in fiscal 2021, including two The Cheesecake Factory restaurants, six North Italia restaurants and six restaurants within our FRC business, which includes two Flower Child locations, and anticipate approximately $16 million in preopening costs to support this new unit development.

Internationally, we now expect as many as two The Cheesecake Factory restaurants to open under licensing agreements.

We currently estimate fiscal 2021 cash capital expenditures to be approximately $95 million.

This estimate contemplates a net outlay of approximately $47 million for restaurants expected to open during fiscal 2021, approximately $43 million for replacements, enhancements and capacity additions to our existing restaurants and approximately $10 million for bakery and corporate infrastructure investments.

Liquidity and Capital Resources

During the first quarter of fiscal 2021, our cash and cash equivalents increased by $27.3 million to $181.3 million.

During the first half of fiscal 2021, our cash and cash equivalents increased by $7.7 million to $161.8 million.

The following table presents, for the periods indicated, a summary of our key cash flows from operating, investing and financing activities (in millions):

March 30, 2021

March 31, 2020

June 29, 2021

June 30, 2020

Cash provided by/(used in) operating activities

Additions to property and equipment

Net borrowings on credit facility

Convertible debt issuance, net of issuance cost

Common stock issuance, net of issuance cost

Net borrowings/(repayments) on credit facility

Series A preferred stock issuance, net of issuance cost

Series A preferred stock, cash-settled conversion

Series A preferred stock dividends paid

Proceeds from exercise of stock options

Cash dividends paid

Common stock dividends paid

Treasury stock purchases

Cash Provided by/(Used in) Operating Activities

Cash flows from operations increased by $54.6 million from the first quarter of fiscal 2020 primarily due to a lesser impact from the COVID-19 pandemic during the first quarter of fiscal 2021.

Cash flows from operations increased by $166.1 million from the first half of fiscal 2020 primarily due to a lesser impact from the COVID-19 pandemic during the first half of fiscal 2021.

Our future cash flow performance will depend on the evolving COVID-19 pandemic regulatory landscape, as well as economic conditions and consumer behavior.

We would expect cash generation to increase as the operating environment for the full-service segment of the restaurant industry normalizes from the COVID-19 pandemic impact.

Property and Equipment

Capital expenditures were $7.2 million and $15.8 million in the first quarter of fiscal 2021 and 2020, respectively.

We opened three restaurants in fiscal 2021 comprised of one The Cheesecake Factory, one North Italia and one Other FRC location, of which a significant amount of the development was completed in fiscal 2020, compared to one North Italia and one Flower Child restaurant during the comparable prior year period.

Capital expenditures were $30.9 million and $29.4 million in the first half of fiscal 2021 and 2020, respectively.

We opened five restaurants in fiscal 2021 comprised of one The Cheesecake Factory, three North Italia, one Other FRC and one Other location, of which a significant amount of the development was completed in fiscal 2020, compared to one North Italia and one Flower Child restaurant during the comparable prior year period.

We currently estimate fiscal 2021 cash capital expenditures to be approximately $95 million.

Convertible Senior Notes

On June 15, 2021, we issued $345.0 million aggregate principal amount of our 0.375% Convertible Senior Notes due 2026 (the “Notes”).

The initial conversion rate for the Notes is 12.7551 shares of common stock per $1,000 principal amount of the Notes, which represents an initial conversion price of approximately $78.40 per share of common stock.

The net proceeds from the sale of the Notes were approximately $334.9 million after deducting issuance costs related to the Notes.

(See Note 5 of Notes to Condensed Consolidated Financial Statements in Part I, Item 1 of this report for further discussion of the Notes.)

Common Stock Issuance

On June 15, 2021, we issued 3.125 million shares of our common stock for $175.0 million.

In connection with the issuance, we incurred direct and incremental costs of $7.9 million.

Revolving Facility

6 unchanged sentences

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.

As of March 30, 2021, we were in compliance with the covenants set forth in the Revolving Facility.

As of June 29, 2021, we were in compliance with the covenants set forth in the Revolving Facility.

(See Note 5 of Notes to Condensed Consolidated Financial Statements in Part I, Item 1 of this report for further discussion of our long-term debt.)

During the first quarter of fiscal 2020, we increased our borrowings under the Revolving Facility by $90.0 million to bolster our cash position and enhance financial flexibility given the impact of the COVID-19 pandemic on our operations.

During the third and fourth quarters of fiscal 2020, we repaid $100.0 million of the outstanding balance on the Revolving Facility such that at March 30, 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.

Series A Preferred Stock Issuance

During the first half of fiscal 2020, we increased our borrowings under our Revolving Facility to bolster our cash position and enhance financial flexibility.

In the second quarter of fiscal 2021, we utilized a portion of the net proceeds from our Notes and common share offerings to reduce the balance on our Revolving Facility, such that at June 29, 2021, we had net availability for borrowings of $240.1 million, based on a $130.0 million outstanding debt balance and $29.9 million in standby letters of credit.

Series A Preferred Stock

During the second quarter of fiscal 2020, we issued 200,000 shares of Series A preferred stock for an aggregate purchase price of $200.0 million to increase our liquidity given the impact of the COVID-19 pandemic on our operations.

In connection with the issuance, we incurred direct and incremental costs of $10.3 million.

During the first quarter of fiscal 2021, we declared a cash dividend of $25.35 per share on the Series A preferred stock.

During the second quarter of fiscal 2021, we paid $457.3 million in connection with the cash-settled conversion of 150,000 shares of our outstanding Series A preferred stock (effected through a repurchase agreement), and the share-settled conversion of the remaining 50,000 shares of our outstanding Series A preferred stock into 2,400,864 shares of our common stock, of which $13.6 million was deemed to be a dividend.

(See Note 9 of Notes to Condensed Consolidated Financial Statements in Part I, Item 1 of this report for further discussion of our preferred stock.)

2 unchanged sentences

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

Cash dividends of $2.2 million paid in the first quarter of fiscal 2021 represent dividends previously accrued on restricted stock awards that vested during the quarter.

Cash dividends of $0.3 million paid in the first half of fiscal 2021 represent dividends previously accrued on restricted stock awards that vested during the quarter.

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 other such factors that the Board considers relevant.

Share Repurchases

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.

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 $1,701.3 million through June 29, 2021 with 85,539 shares repurchased at a cost of $4.6 million during the first half 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.

6 unchanged sentences

We believe that our cash and cash equivalents, combined with expected cash flows provided by operations and available borrowings under the Revolving Facility, will provide us with adequate liquidity for the next 12 months.

As of March 30, 2021, we had no financing transactions, arrangements or other relationships with any unconsolidated entities or related parties.

As of June 29, 2021, we had no financing transactions, arrangements or other relationships with any unconsolidated entities or related parties.

Additionally, we had no financing arrangements involving synthetic leases or trading activities involving commodity contracts.

2 unchanged sentences

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 2. Management’s Discussion and Analysis