What changed in this filing

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Item 2. Management’s Discussion and Analysis

2021-11-04 compared with 2021-08-04 · 116 added, 108 removed, 226 unchanged (50% of the section changed)

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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 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;

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 and 2022 outlook, financial guidance, projections, expectations and statements with respect to the acquisition of North Italia and Fox Restaurant Concepts LLC (“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:

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the rapidly evolving nature of the COVID-19 pandemic and related containment measures, including the potential for a complete shutdown of our restaurants, international licensee restaurants and our bakery operations;

supply chain disruptions;

demonstrations, political unrest, potential damage to or closure of our restaurants and potential reputational damage to us or any of our brands;

economic, public health and political conditions that impact consumer confidence and spending, including the impact of the COVID-19 pandemic and other health epidemics or pandemics on the global economy;

acceptance and success of The Cheesecake Factory in international markets;

acceptance and success of The Cheesecake Factory in domestic and international markets;

acceptance and success of North Italia, the FRC brands and our other concepts;

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changes in laws impacting our business, including laws and regulations related to COVID-19 impacting restaurant operations and customer access to off- and on-premises dining;

increases in minimum wages and benefit costs;

increases in minimum wages and benefit costs, including the cost of group medical insurance;

the economic health of our landlords and other tenants in retail centers in which our restaurants are located, and our ability to successfully manage our lease arrangements with landlords;

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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, 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.

While restrictions on the type of permitted operating model and occupancy capacity may continue to change, currently 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 any resumption of mandated social distancing protocols or vaccination or masks mandates and what long-lasting effects the COVID-19 pandemic may have on the restaurant industry as a whole.

The ongoing effects of the COVID-19 pandemic, including, but not limited to, labor-related impacts, supply chain disruptions and consumer behavior, will determine the significance of the impact to our operating results and financial position.

The Cheesecake Factory Incorporated is a leader in experiential dining.

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Changes in comparable restaurant sales come from variations in customer traffic as well as in average check.

For The Cheesecake Factory concept, our strategy is to increase comparable restaurant sales by growing average check and stabilizing customer traffic through (1) continuing to offer innovative, high quality menu items that offer customers a wide range of options in terms of flavor, price and value, (2) focusing on service and hospitality with the goal of delivering an exceptional customer experience and (3) continuing to provide our customers with convenient options for off-premise dining, as we believe there is opportunity for a longer-term increase in our off-premise mix as we emerge from the COVID-19 pandemic.

We are continuing our efforts on a number of initiatives, including a greater focus on increasing customer throughput in our restaurants, leveraging our gift card program, working with a third party to provide delivery services for our restaurants, increasing customer awareness of our online ordering capabilities, augmenting our marketing programs, enhancing our training programs and leveraging our customer satisfaction measurement platform.

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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 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.

Our objective is to recapture our pre-COVID-19 pandemic margins 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.

investing in new restaurants that are expected to meet our targeted returns, repaying borrowings under our Revolving Facility 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.

At present, our dividends on our common stock and share repurchases are suspended.

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.

Our ability to declare common dividends and repurchase shares in the future will be subject to financial covenants under our Amended Credit Agreement, 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 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.

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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.

June 29, 2021

June 30, 2020

June 29, 2021

June 30, 2020

September 28, 2021

September 29, 2020

September 28, 2021

September 29, 2020

Costs and expenses:

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Income/(loss) before income taxes

Income tax provision/(benefit)

Income tax (benefit)/provision

Net income/(loss)

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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.

Thirteen Weeks Ended September 28, 2021 Compared to Thirteen Weeks Ended September 29, 2020

Revenues increased 45.7% to $754.5 million for the fiscal quarter ended September 28, 2021 compared to $517.7 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 41.1%, or $170.1 million, from the third quarter of fiscal 2020 and increased 8.3% from the third quarter of fiscal 2019.

The increase from fiscal 2020 was primarily driven by increased customer traffic of 47.7% primarily due to the impact of the COVID-19 pandemic in the prior year, partially offset by a decline in average check of 6.6% (based on a 9.6% 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 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.

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

Sales through the off-premise channel comprised approximately 28% of our restaurant sales during the third quarter of fiscal 2021 as compared to 45% in the third 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 remains elevated versus the pre-pandemic level of 15% during the third quarter of fiscal 2019.

The Cheesecake Factory average sales per restaurant operating week increased 40.7% to $220,362 in the third quarter of fiscal 2021 from $156,643 in the third quarter of fiscal 2020.

Total operating weeks at The Cheesecake Factory restaurants increased 1.0% to 2,689 in the third quarter of fiscal 2021 compared to 2,662 in the prior year.

North Italia comparable sales increased approximately 38% from the third quarter of fiscal 2020 and increased approximately 8% compared to the third quarter of fiscal 2019.

North Italia average sales per restaurant operating week increased 34.4% to $127,098 in the third quarter of fiscal 2021 from $94,561 in the third quarter of fiscal 2020.

Total operating weeks at North Italia increased 17.9% to 349 in the third quarter of fiscal 2021 compared to 296 in the prior year.

Revenues for North Italia, Flower Child and the other FRC brands totaled $112.4 million in the third quarter of fiscal 2021.

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

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

At September 28, 2021, there were two The Cheesecake Factory restaurants and five 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 $15.4 million for the second quarter of fiscal 2021 compared to $14.7 million in the comparable prior year period.

External bakery sales were $16.7 million for the third quarter of fiscal 2021 compared to $17.8 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 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.

As a percentage of revenues, cost of sales was 22.5% and 22.8% in the third 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, partially offset by increased costs related to buying in the spot market to meet volume needs that exceeded our contracted levels.

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 35.7% and 41.5% in the second 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 37.1% and 38.7% in the third 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, partially offset by higher group medical costs, wage rates, training labor and overtime in the third quarter of fiscal 2021.

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, 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.

As a percentage of revenues, other operating costs and expenses were 26.7% and 30.7% in the third quarters of fiscal 2021 and 2020, respectively.

This variance was primarily driven by sales leverage.

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 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.

As a percentage of revenues, G&A expenses were 6.1% and 7.3% in the third quarters of fiscal 2021 and 2020, respectively.

This variance was primarily driven by sales leverage and expense management.

Depreciation and Amortization Expenses

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.

As a percentage of revenues, depreciation and amortization expenses decreased to 3.0% in the third quarter of fiscal 2021 from 4.4% in the comparable prior year period due primarily to sales leverage.

Impairment of Assets and Lease Terminations

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.

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

In the third quarter of fiscal 2020, we recorded impairment of assets and lease terminations expense of $10.4 million related to lease termination costs and accelerated depreciation for two Grand Lux Cafe locations, RockSugar Southeast Asian Kitchen and one Flower Child location.

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

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.

We recorded $0.7 million and $1.4 million during the third quarter of fiscal 2021 and 2020, respectively, 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 $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 were $3.2 million and $2.4 million in the third quarters of fiscal 2021 and 2020, respectively.

We opened two North Italia, one Other FRC location and one Other location in the third quarter of fiscal 2021 compared to two Other 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.

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Interest and Other Expense, Net

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 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.

Interest and other expense, net was $1.8 million and $2.9 million for the third quarters of fiscal 2021 and 2020, respectively.

This increase was primarily due to the lower borrowings outstanding on our Amended Facility.

Income Tax (Benefit)/Provision

Our effective income tax rate was (10.5%) and 25.0% for the third quarters 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 fiscal 2021, 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% and a benefit recorded in the third quarter of fiscal 2021 arising from an increase to our fiscal 2020 loss carryback as a result of repaying 100% of the FICA taxes that were deferred in fiscal 2020 under the Coronavirus Aid, Relief and Economic Security Act (“the CARES Act.”)

Thirty-Nine Weeks Ended September 28, 2021 Compared to Thirty-Nine Weeks Ended September 29, 2020

Revenues increased 50.5% to $2,150.8 million for the first three quarters of fiscal 2021 compared to $1,428.7 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 48.0%, or $539.3 million, from the first three quarters of fiscal 2020 and increased 1.9% from the first three quarters of fiscal 2019.

The increase from fiscal 2020 was primarily driven by increased customer traffic of 42.9% primarily due to the impact of the COVID-19 pandemic in the prior year period and average check growth of 5.1% (based on an increase of 3.0% in menu pricing and a 2.1% positive change in mix).

Sales through the off-premise channel comprised approximately 33% of our restaurant sales during the first three quarters of fiscal 2021 as compared to 43% in the first three quarters of fiscal 2020.

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

The Cheesecake Factory average sales per restaurant operating week increased 46.6% to $210,801 in the first three quarters of fiscal 2021 from $143,747 in the first three quarters of fiscal 2020.

Total operating weeks at The Cheesecake Factory restaurants increased 1.0% to 8,058 in the first three quarters of fiscal 2021 compared to 7,976 in the prior year period.

North Italia comparable sales increased approximately 53% from the first three quarters of fiscal 2020 and increased approximately 5% compared to the first three quarters of fiscal 2019.

North Italia average sales per restaurant operating week increased 44.4% to $123,211 in the first three quarters of fiscal 2021 from $85,315 in the first three quarters of fiscal 2020.

Total operating weeks at North Italia increased 15.7% to 980 in the first three quarters of fiscal 2021 compared to 847 in the prior year period.

Revenues for North Italia, Flower Child and the other FRC brands totaled $314.4 million in the third quarter of fiscal 2021.

External bakery sales were $48.8 million for the first three quarters of fiscal 2021 compared to $46.3 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.

As a percentage of revenues, cost of sales was 22.0% and 23.2% in the first three 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, partially offset by increased costs related to buying in the spot market to meet volume needs that exceeded our contracted levels.

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.

As a percentage of revenues, labor expenses were 36.5% and 39.2% in the first three 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, partially offset by higher wage rates and overtime in the first three quarters of fiscal 2021.

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.

As a percentage of revenues, other operating costs and expenses were 27.1% and 31.4% in the first three quarters 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.

As a percentage of revenues, G&A expenses were 6.4% and 8.2% in the first three quarters of fiscal 2021 and 2020, respectively.

This variance was primarily driven by sales leverage and expense management, 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.

As a percentage of revenues, depreciation and amortization expenses decreased to 3.1% in the first three quarters of fiscal 2021 from 4.8% 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.

During the first three quarters 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 three quarters of fiscal 2020, we recorded $204.7 million of impairment of assets and lease terminations expense related to the impairment of goodwill, trade names, trademarks and licensing agreements associated with the Acquisitions and long-lived assets for one The Cheesecake Factory, one North Italia, two Other FRC and four Other restaurants, as well as lease termination costs and accelerated depreciation for one The Cheesecake Factory restaurant, two Grand Lux Cafe locations, RockSugar Southeast Asian Kitchen and one Flower Child location.

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.

In the first three quarters of fiscal 2021, we recorded $12.6 million of acquisition-related contingent consideration, compensation and amortization, primarily related to the impact of an amendment in the second fiscal quarter to the Acquisition agreement that, among other things, extended the measurement period through fiscal 2026.

In the first three quarters of fiscal 2020, we recorded a benefit of $4.0 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.

Preopening costs were $9.8 million and $7.6 million in the first three quarters of fiscal 2021 and 2020, respectively.

We opened one The Cheesecake Factory, five North Italia, two Other FRC and two Other locations in the first three quarters of fiscal 2021 compared to one North Italia and three Other locations 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.

Interest and other expense, net was $9.2 million and $7.0 million for the first three quarters of fiscal 2021 and 2020, respectively.

This increase was primarily due to the termination of the interest rate swap, partially offset by lower borrowings outstanding on our Amended Facility.

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.

Our effective income tax rate was 2.6% and 30.0% for the first three quarters 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 fiscal 2021, 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% and a benefit recorded in 2021 arising from an increase to our fiscal 2020 loss carryback as a result of repaying 100% of the FICA taxes that were deferred in fiscal 2020 under the CARES Act.

This decrease was partially offset by a reserve for an uncertain tax position recorded in fiscal 2021 related to tenant improvement allowances.

Non-GAAP Measures

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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):

June 29, 2021

June 30, 2020

June 29, 2021

June 30, 2020

September 28, 2021

September 29, 2020

September 28, 2021

September 29, 2020

Net income/(loss) available to common stockholders

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(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 (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.

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.

(3) Represents the impact of assuming the conversion of preferred stock into common stock (0 and 5,908,187 shares for the thirteen and thirty-nine weeks ended September 28, 2021, respectively), resulting in an assumption of 51,112,650 and 53,582,824 weighted-average common shares outstanding for the thirteen and thirty-nine weeks ended September 28, 2021.

Represents the impact of assuming the conversion of preferred stock into common stock (9,163,043 and 5,394,188 shares for the thirteen and thirty-nine weeks ended September 29, 2020, respectively), resulting in an assumption of 53,062,945 and 49,243,370 weighted-average common shares outstanding for the thirteen and thirty-nine weeks ended September 29, 2020.

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

Fourth Quarter Fiscal 2021 Outlook

Fourth quarter-to-date through November 2, 2021, The Cheesecake Factory restaurant comparable sales increased approximately 20% and 10.5% compared to the comparable period in fiscal 2020 and fiscal 2019, respectively.

In the fourth quarter of fiscal 2021, we anticipate about a 1% negative comparable sales impact given that our 2021 fiscal year will end on December 28 th and the balance of the high-volume sales week between Christmas and New Year’s Day will move into the first quarter of fiscal 2022.

Fourth quarter-to-date through November 2, 2021, North Italia comparable sales increased approximately 20% and 14.5% compared to the comparable period in fiscal 2020 and fiscal 2019, respectively.

We currently estimate cost of sales inflation of approximately 6% in the fourth quarter of fiscal 2021, which is approximately three percentage points higher than the third quarter of fiscal 2021.

We expect labor as a percent of sales to be slightly favorable to the third quarter of fiscal 2021 and other operating expenses to be favorable to the third quarter of fiscal 2021 by as much as 0.75% of revenues.

In addition, we estimate G&A of approximately $47 million and preopening of approximately $5 million in the fourth quarter of fiscal 2021.

We estimate our tax rate for the fourth quarter of fiscal 2021 to be approximately 5%.

Fiscal 2022 Outlook

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.

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.

Looking ahead to fiscal 2022, due to the disruptions in the supply chain impacting the restaurant industry and the broader economy, our purchasing team is still in the process of contracting as you would expect in these circumstances.

The labor market is also dynamic, and we are currently anticipating inflation, inclusive of known minimum wage increases, to be similar to the 5% level we have experienced in our restaurants on a year-to-date basis during fiscal 2021.

We currently have 3% pricing in The Cheesecake Factory menu and plan to remain at that level for the remainder of the fiscal 2021.

Should the cost pressures prove to not be transitory in nature, we will implement pricing actions above our historical levels at our menu change during the first quarter of fiscal 2022 to protect margins.

We plan to open as many as 20 new restaurants in fiscal 2022, including five The Cheesecake Factory restaurants, seven North Italia restaurants and eight restaurants within our FRC business, which includes three Flower Child locations.

We anticipate approximately $150 million in cash capital expenditures to support this level of unit development, as well as required maintenance on our restaurants.

Liquidity and Capital Resources

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

During the first three quarters of fiscal 2021, our cash and cash equivalents decreased by $23.1 million to $131.0 million.

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

June 29, 2021

June 30, 2020

September 28 2021

September 29, 2020

Cash provided by/(used in) operating activities

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Cash Provided by/(Used in) Operating Activities

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.

Cash flows from operations increased by $151.9 million from the first three quarters of fiscal 2020 primarily due to a lesser impact from the COVID-19 pandemic during the first three quarters of fiscal 2021, partially offset by the payback of $36.5 million of payroll taxes that were deferred in fiscal 2020 under the CARES Act.

Our future cash flow performance will depend on the ongoing effects of the COVID-19 pandemic, including, but not limited to, labor-related impacts, supply chain disruptions and consumer behavior.

Property and Equipment

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.

Capital expenditures were $49.2 million and $38.3 million in the first three quarters of fiscal 2021 and 2020, respectively.

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

We currently estimate fiscal 2021 cash capital expenditures to be approximately $80 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.

On June 15, 2021, we issued $345.0 million aggregate principal amount Notes.

The initial conversion rate for the Notes was 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.

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

As of September 28, 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 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.

During the first quarter 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 September 28, 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

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(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.)

Cash Dividends

Common Stock Dividends

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.

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 $0.3 million paid in the first half 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 quarter 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 $1,701.3 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.

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 $1,702.0 million through September 28, 2021 with 100,081 shares repurchased at a cost of $5.2 million during the first three quarters 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.

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

As of September 28, 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.

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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