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It is not possible for us to predict all possible risk factors or the impact these factors could have on us or the extent to which any one factor, or combination of factors, may materially adversely affect our financial performance.
+Added: The risk factors set forth below are not guarantees that no such conditions exist as of the date of this report and should not be interpreted as an affirmative statement that such risks or conditions have not materialized, in whole or in part.
Risks Related to the COVID-19 Pandemic
The outbreak of, and local, state and federal governmental responses to, the COVID-19 pandemic have significantly disrupted and will continue to disrupt our business, which has and could continue to materially adversely affect our financial condition and operating results for an extended period of time.
−Removed: The COVID-19 pandemic has significantly disrupted and will continue to disrupt our business for the foreseeable future.
−Removed: Following the imposition of social distancing regulations that curtailed our restaurant operations to an off-premise only model, in late April 2020 certain jurisdictions began allowing the reopening of restaurant dining rooms, and more recently certain jurisdictions have reinstituted off-premise only regulations.
−Removed: We will continue to operate under capacity restrictions in those jurisdictions that permit on-premise dining for some time as social distancing protocols remain in place, and dining rooms that are currently open are subject to closure based on increases in COVID-19 case numbers and the changing rules of various jurisdictions.
−Removed: Additionally, an outbreak or perceived outbreak of the COVID-19 pandemic connected to one or more of our restaurants could result in restaurant closures as well as negative publicity directed at any of our brands and cause customers to avoid our restaurants.
−Removed: 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 consumer behavior and the restaurant industry as a whole.
−Removed: The regulations applicable to the reopening process, along with the potential impact of the COVID-19 pandemic on consumer spending behavior, could materially adversely affect our financial performance.
+Added: 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.
+Added: 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.
+Added: 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.
+Added: While restrictions on the type of permitted operating model and occupancy capacity may continue to change, currently nearly all of our restaurants are operating with no indoor dining capacity restrictions.
+Added: 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 the pandemic will worsen in regions in which we do business, the scope of additional restrictions that may be enacted, to what extent we can maintain sales volumes during or following any mandated social distancing protocols or vaccination or mask mandates and what long-lasting effects the COVID-19 pandemic may have on the restaurant industry as a whole.
+Added: The degree to which the COVID-19 pandemic continues to impact our operating results and financial performance will depend on the ongoing effects of the pandemic on consumer spending behavior and our ability to adequately staff our restaurants, and the extent to which the pandemic contributes to disruptions in the supply chain and labor cost inflation.
Our restaurant operations could be further disrupted if any of our restaurant staff members are diagnosed with COVID-19, which has occurred at some of our restaurants, requiring the quarantine of some or all of a restaurant’s staff members and the temporary closure of the affected restaurant.
If a significant percentage of our workforce is unable to work due to COVID-19 illness, quarantine, limitations on travel or other government restrictions in connection with the COVID-19 pandemic, our operations may be negatively impacted, potentially materially adversely affecting our liquidity, financial condition or results of operations.
−Removed: Certain of our suppliers were similarly adversely impacted by the COVID-19 pandemic and as a result, we experienced certain shortages of food items and other supplies at our restaurants, none of which had a material impact on our operations.
−Removed: Our supplies may continue to be impacted by the COVID-19 pandemic, which could have an adverse effect on our operations.
−Removed: In addition, we furloughed approximately 41,000 staff members, and although a significant number have returned to work, we may need to implement additional furloughs depending on future events.
−Removed: Staff members who are furloughed might seek and find other employment, we may be unable to properly staff and reopen our restaurants with experienced staff members when the business interruptions caused by the COVID-19 pandemic abate or end.
−Removed: In addition, while we have taken actions to manage our liquidity position in response to the COVID-19 pandemic, we may need to seek additional sources of liquidity.
−Removed: The COVID-19 pandemic is adversely affecting the availability of liquidity generally in the credit markets, and there can be no guarantee that additional liquidity will be available on favorable terms, or at all, especially the longer the COVID-19 pandemic lasts or if it were to reoccur.
−Removed: To this end, on May 1, 2020, we entered into an amendment (the "Amendment") to our Third Amended and Restated Loan Agreement, dated July 30, 2019 (as amended by the Amendment, the "Amended Facility"), that, among other changes, provides for net adjusted leverage ratio and EBITDAR to interest and rent expense coverage ratio covenant relief through the first quarter of fiscal 2021.
−Removed: Following the end of the covenant relief period, a material increase in our level of debt could cause our net adjusted leverage ratio and EBITDAR to interest and rent expense coverage ratios to be outside of permitted levels under the covenants in the Amended Facility.
−Removed: (See Item 1A - Risk Factors - Risks Related to our Business - "Any failure to satisfy financial covenants and/or repayment requirements under our credit facility could harm our financial condition.") To further increase our liquidity given the impact of COVID-19 on our operations, we issued 200,000 shares of Series A Convertible Preferred Stock on April 20, 2020 for an aggregate purchase price of $200 million.
−Removed: (See Notes 12 and 17 of Notes to Consolidated Financial Statements in Part 1, Item 1 of this report for further discussion of these events.)
−Removed: To further manage our liquidity position in response to the COVID-19 pandemic and considering governmental occupancy restrictions limiting our ability to access and use our leased restaurants, we engaged our landlords in discussions to obtain rent relief.
+Added: To further manage our liquidity position in response to the COVID-19 pandemic and considering governmental occupancy restrictions limiting our ability to access and use our leased restaurants, during fiscal 2020 we engaged our landlords in discussions to obtain rent relief.
As a result, we entered into a number of lease amendments providing relief in the form of deferred and/or abated rent.
−Removed: If occupancy restrictions related to the COVID-19 pandemic continue for longer than expected or become more prevalent or more restrictive in connection with a reemergence or worsening of the outbreak, we may again seek to engage our landlords in discussions seeking additional rent relief.
+Added: If occupancy restrictions related to the COVID-19 pandemic become more prevalent or more restrictive in connection with any reemergence or worsening of outbreaks, we may again seek to engage our landlords in discussions seeking additional rent relief.
If these discussions are not successful, we may incur considerable rental expenses without sufficient offsetting operating income.
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Should we do so, we will incur significant costs associated with lease terminations and our winding down of operations at the affected restaurant(s).
−Removed: The COVID-19 pandemic has also adversely affected our ability to open new restaurants.
−Removed: We have delayed some new unit openings and will continue to evaluate the pace and quantity of new unit development until more clarity on the restaurant industry operating environment emerges.
−Removed: Delays in new unit development may materially adversely affect our ability to grow our business, particularly if these delays extend for a significant amount of time.
+Added: The COVID-19 pandemic may also have the effect of heightening other risks discussed in this section, including the following:
+Added: ● “The impact global and domestic economic conditions have on consumer discretionary spending could materially adversely affect our financial performance”
+Added: ● “Our inability to grow comparable restaurant sales could materially adversely affect our financial performance”
+Added: ● “If we are unable to protect our reputation, the value of our brands and sales at our restaurants may be negatively impacted, which could materially adversely affect our financial performance”
+Added: ● “Over the past several years we have experienced and continue to experience significant labor cost inflation.
+Added: If we are unable to offset higher labor costs, our cost of doing business will significantly increase, which could materially adversely impact our financial performance”
+Added: ● “The impacts of and our failure to effectively respond to pandemics, epidemics, endemics and other public health emergencies, or food safety and food-borne illness could reduce customer traffic to our restaurants, disrupt our food supply chain or cause us to be the target of litigation, which could materially adversely affect our financial performance”
+Added: ● “Labor organizing could harm our operations and competitive position in the restaurant industry, which could materially adversely affect our financial performance”
+Added: ● “Adverse weather conditions, natural disasters and public health emergencies could unfavorably impact our restaurant sales, which could materially adversely affect our financial performance”
+Added: ● “Our inability to anticipate and react effectively to changes in the costs of key operating resources may increase our cost of doing business, which could materially adversely affect our financial performance”
+Added: ● “If we are unable to staff and retain qualified restaurant management and operating personnel in an increasingly competitive market, we may be unable to effectively operate and grow our business and revenues, which could materially adversely affect our financial performance”
+Added: ● “Information technology system failures or breaches of our network security could interrupt our operations and subject us to increased operating costs, as well as to litigation and other liabilities, any of which could materially adversely affect our financial performance”
+Added: ● “Our stock price could be adversely affected if we continue to be unable to pay dividends or, if paid, if we are unable to increase dividends”
Risks Related to the Restaurant Industry
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We compete directly and indirectly for customer traffic with national and regional casual dining restaurant chains, as well as independently-owned restaurants.
−Removed: In addition, we face competition for customer traffic from fast casual and quick-service restaurants, home delivery services, mobile food service, convenience stores, grocery stores and meal kits that are evolving the quality and variety of their food products in response to customer demand.
−Removed: This increased competition, coupled with an oversupply of restaurants, has driven casual dining industry comparable traffic declines in recent years.
−Removed: This backdrop has made it even more challenging to improve customer traffic.
−Removed: We believe that many consumers remain focused on value and if our competitors, many of whom have significantly greater resources to market aggressively to customers, are able to promote and deliver a higher degree of perceived value, our customer traffic could suffer.
+Added: In addition, we face competition for customer traffic from fast casual and quick-service restaurants, home delivery services, mobile food service, convenience stores, grocery stores and meal kits that are increasing the quality and variety of their food products in response to customer demand.
+Added: We believe that many consumers remain focused on value and if our competitors, many of whom have significantly greater resources to market aggressively to customers, promote and deliver a higher degree of perceived value, our customer traffic could suffer.
We utilize menu price increases to help offset inflation of key operating costs.
−Removed: However, our menu price increases may be insufficient to entirely absorb or offset increased costs and, if not accepted by customers, menu price increases could result in reduced customer traffic.
−Removed: Our menu mix could be materially adversely affected if our customers purchase fewer menu items or lower cost menu items in order to reduce their spend.
+Added: However, our menu price increases may not entirely offset increased costs and, if not accepted by customers, menu price increases could result in reduced customer traffic.
+Added: These risks may become more pronounced as supply shortages and wage inflation increase our costs and may result in our need to implement pricing actions above our historical norms.
+Added: For instance, due to the cost pressures we are currently experiencing, particularly in commodities, in the first quarter of fiscal 2022, we implemented price increases above our historical levels to protect margins.
+Added: (See Item 1A - Risk Factors – “Our inability to anticipate and react effectively to changes in the costs of key operating resources may increase our cost of doing business, which could materially adversely affect our financial performance”).
+Added: Our menu mix could be materially adversely affected if our customers purchase fewer menu items or lower cost menu items to reduce their spend.
Unfavorable menu mix shifts could reduce average check amount, negatively impacting our ability to grow comparable restaurant sales.
In recent years we have generated a higher mix of sales from off-premise channels as a consumer preference for convenience has increased.
−Removed: This shift of sales to off-premise channels has been significantly accelerated in recent months as a result of occupancy restrictions and dining room closures impacting our restaurants and other challenges related to the COVID-19 pandemic.
−Removed: As challenges related to the COVID-19 pandemic subside we may be unable to sustain current off-premise sales volumes.
+Added: This shift of sales to off-premise channels increased significantly while COVID-19 related occupancy restrictions and dining room closures limited our on-premise operations.
+Added: Sales through the off-premise channel declined in fiscal 2021 as compared to 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 due to the pandemic.
+Added: However, off-premise sales mix remains higher than pre-pandemic levels.
+Added: We may be unable to sustain current off-premise sales volumes.
Growing competition in off-premise channels and any reduction in our ability to differentiate our concepts in these channels could negatively impact our comparable restaurant sales performance.
−Removed: If our efforts to grow comparable restaurant sales are not successful, the effect, over time, would be to spread costs across a lower level of sales, which could materially adversely affect our financial performance.
If we are unable to protect our reputation, the value of our brands and sales at our restaurants may be negatively impacted, which could materially adversely affect our financial performance.
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Any failure of our third-party delivery provider to represent our brands in a favorable manner could damage our reputation.
−Removed: These concerns are exacerbated by the speed with which negative information may now be disseminated through social media.
−Removed: (See Item 1A — Risk Factors — Risks Related to Our Business — “Any inability to effectively use and manage social media could harm our marketing efforts as well as our reputation, which could materially adversely affect our financial performance”).
+Added: These concerns are exacerbated by the speed with which negative information can be disseminated through social media.
+Added: (See Item 1A — Risk Factors — “Any inability to effectively use and manage social media could harm our marketing efforts as well as our reputation, which could materially adversely affect our financial performance”).
Negative publicity about us could harm our reputation and damage the value of our brands, which could materially adversely affect our financial performance.
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If we are unable to offset higher labor costs, our cost of doing business will significantly increase, which could materially adversely impact our financial performance.
−Removed: Increases in minimum wages and minimum tip credit wages, extensions of personal and other leave policies, other governmental regulations affecting labor costs and a diminishing pool of potential staff members when the unemployment rate falls and legal immigration is restricted, especially in certain localities, could significantly increase our labor costs and make it more difficult to fully staff our restaurants, any of which could materially adversely affect our financial performance.
+Added: Low unemployment coupled with increases in minimum wages and minimum tip credit wages, extensions of personal and other leave policies, other governmental regulations affecting labor costs, restrictions on legal immigration and a diminishing pool of potential staff members, which has been exacerbated by the COVID-19 pandemic and potential staff members choosing to exit the workforce, in general and hospitality industry, in particular, especially in certain localities, could significantly increase our labor costs and make it more difficult to fully staff our restaurants, any of which could materially adversely affect our financial performance.
We believe it is becoming increasing likely that the United States federal government will significantly increase the federal minimum wage and tip credit wage (or eliminate the tip credit wage) and require significantly more mandated benefits than what is currently required under federal law.
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Our vendors, contractors and business partners are similarly impacted by wage and benefit cost inflation, and many have or will increase their price for goods, construction and services in order to offset their increasing labor costs.
−Removed: Our labor expenses include significant costs related to our self-insured health, pharmacy and dental benefit plans.
−Removed: Health care costs continue to rise and are especially difficult to project.
−Removed: These costs include very expensive new specialty pharmaceutical products.
−Removed: Material increases in costs associated with medical claims, or an increase in the severity or frequency of such claims, may cause health care costs to vary substantially from quarter-to-quarter and year-over-year.
−Removed: We offer a variety of health plans to our staff members, including lower cost high deductible health plans, with an option for participants to contribute to a personal health savings account.
−Removed: However, given the unpredictable nature of actual health care claims trends, including the severity or frequency of claims, in any given year our health care costs could significantly exceed our estimates, which could materially adversely affect our financial performance.
−Removed: Any significant changes to the healthcare insurance system could impact our healthcare costs.
−Removed: Material increases in healthcare costs could materially adversely affect our financial performance.
−Removed: While we try to offset labor cost increases through price increases, more efficient purchasing practices, productivity improvements and greater economies of scale, there can be no assurance that these efforts will be successful.
+Added: Our labor expenses include significant costs related to our self-insured health, pharmacy and dental benefit plans as well as costs to provide COVID-19 testing to our staff members.
+Added: Health care costs continue to rise and are especially difficult to project given that material increases in costs associated with medical claims, or an increase in the severity or frequency of such claims, may cause health care costs to vary substantially from quarter-to-quarter and year-over-year.
+Added: Any significant changes to the healthcare insurance system could also impact our health care costs.
+Added: Material increases in health care costs could materially adversely affect our financial performance.
+Added: While we try to offset labor cost increases through price increases, more efficient purchasing practices, productivity improvements, greater economies of scale and by offering a variety of health plans to our staff members, including lower cost high deductible health plans, there can be no assurance that these efforts will be successful.
If we are unable to effectively anticipate and respond to increased labor costs, our financial performance could be materially adversely affected.
−Removed: If we are unable to successfully recruit and retain qualified restaurant management and operating personnel in an increasingly competitive market, we may be unable to effectively operate and grow our business and revenues, which could materially adversely affect our financial performance.
−Removed: We must continue to attract, retain and motivate a sufficient number of qualified management and operating personnel to maintain consistency in the quality of our restaurants, both domestically and internationally.
−Removed: Qualified management and operating personnel are currently in high demand.
−Removed: If we are unable to attract and retain qualified people, our restaurants could be short staffed, we may be forced to incur overtime expenses, and our ability to operate and expand our concepts effectively could be limited, any of which could materially adversely affect our financial performance.
−Removed: Concerns relating to pandemics and other diseases, food safety and food-borne illness could reduce customer traffic to our restaurants, disrupt our food supply chain or cause us to be the target of litigation, which could materially adversely affect our financial performance.
−Removed: The COVID-19 pandemic has had a significant adverse impact on our customer traffic and ability to operate our restaurants and may continue to do so for the foreseeable future.
−Removed: Future pandemics and other diseases may have a similar or more severe impact.
+Added: The impacts of and our failure to effectively respond to pandemics, epidemics, endemics and other public health emergencies, or food safety and food-borne illness could reduce customer traffic to our restaurants, disrupt our food supply chain or cause us to be the target of litigation, which could materially adversely affect our financial performance.
+Added: The COVID-19 pandemic significantly disrupted our business and may continue to do so for the foreseeable future.
+Added: While we have taken and are continuing to take a variety of actions to maintain and grow our business during the COVID-19 pandemic, these efforts may not be successful or yield our intended results.
+Added: The impacts of and our failure to effectively respond to future pandemics, epidemics, endemics and other public health emergencies may also significantly disrupt our business.
We also face food safety risks, including the risk of food-borne illness and food contamination (including allergen cross contamination), which are common both in the restaurant industry and the food supply chain.
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The demand for and availability and price of certain food items may be adversely impacted if a pathogen, such as coronavirus, Ebola, “mad cow disease,” “SARS,” “swine flu,” avian influenza, norovirus or other virus or bacteria, such as salmonella or E.coli, or if parasites or other toxins infect or are believed to have infected the food supply, including the food supply chain for our restaurants or bakery facilities.
−Removed: Additionally, customers may avoid our restaurants and/or it may become difficult to adequately staff our restaurants if our customers or staff members become infected with a pathogen which was actually or claimed to be contracted at our restaurants.
+Added: Additionally, customers may avoid our restaurants and it may become difficult to adequately staff our restaurants if our customers or staff members become infected with a pathogen which was actually or claimed to be contracted at our restaurants.
Any adverse food safety occurrence may result in litigation against us.
−Removed: Although we carry liability and other insurance coverage to mitigate costs we may incur as a result of these risks, not all risks of this nature are fully insurable and, even if insured, the negative publicity associated with such an event could damage our reputation and materially adversely affect our financial performance.
+Added: Although we carry liability and other insurance coverage to mitigate costs we may incur as a result of these risks, not all risks of this nature are fully insurable.
+Added: Even if insured, the negative publicity associated with such an event could damage our reputation and materially adversely affect our financial performance.
In addition to selling products throughout the world through various distribution channels, including, without limitation, supermarkets, mass market retailers, club stores and various other food service and retail channels, our two bakery facilities are the only sources of most of our baked desserts to our restaurants.
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Changes in, or any failure to comply with, applicable laws or regulations could materially adversely affect our ability to operate our restaurants and/or increase our cost to do so, which could materially adversely affect our financial performance.
−Removed: We are required to comply with various federal, state and local and foreign laws and regulations, including, without limitation, those relating to alcoholic beverage control, public health and safety, access and use by the disabled, environmental hazards, labor and employment, such as, equal wage laws and exempt versus non-exempt employee classifications, data security and food safety and labeling.
−Removed: Changes to these laws or regulations may create challenges for us.
−Removed: While we subscribe to certain services and have established procedures to identify legal and regulatory changes, we cannot be certain to identify and comply with every change on a timely basis.
−Removed: We may incur penalties and other costs, sanctions and adverse publicity by failing to comply with applicable laws, any of which could materially adversely affect our financial performance.
+Added: We are subject to numerous federal, state, local and foreign laws and regulations.
+Added: Each of our restaurants is subject to various laws and regulations, including license and permit requirements, that regulate many aspects of our business, including, among other things, alcoholic beverage control, health, sanitation, labor, immigration, zoning and public safety.
Our failure to obtain and/or retain licenses, permits or other regulatory approvals required to operate our business could delay or prevent the opening and/or continued operation of any of our restaurants or bakeries, materially adversely affecting that facility’s operations and profitability and our ability to obtain similar licenses, permits or approvals elsewhere, any of which could materially adversely affect our financial performance.
−Removed: In certain jurisdictions, we may be subject to “dram shop” statutes that generally allow a person injured by an intoxicated person the right to recover damages from an establishment that wrongfully served alcoholic beverages to the intoxicated person.
+Added: We are also subject to various environmental regulations governing areas such as water usage, sanitation disposal and transportation mitigation.
+Added: The United States and other countries are expanding the type, nature and scope of laws and regulations governing other environmental matters, such as climate change, reducing greenhouse gas emission and water consumption.
+Added: We may incur significant additional costs to comply with these laws and regulations and may incur legal liability in the event of our failure to do so.
+Added: Our international business exposes us to additional laws and regulations, including antitrust and tax requirements, anti-boycott legislation, import/export and customs regulations and other international trade regulations, privacy laws, the USA Patriot Act and the Foreign Corrupt Practices Act.
+Added: As a provider of food products, we are subject to a comprehensive regulatory framework that governs the manufacture (including composition and ingredients), labeling, packaging and safety of food in the United States , including the Federal Food, Drug and Cosmetic Act, the Public Health Security and Bioterrorism Preparedness Response Act of 2002, the Federal Food Safety Modernization Act and regulations concerning nutritional labeling under the Patient Protection and Affordable Care Act of 2010.
+Added: (See Item 1A — Risk Factors — Risks Related to the Restaurant Industry — “Our inability to respond appropriately to changes in consumer health and disclosure regulations, and to adapt to evolving consumer dining preferences could negatively impact our operations and competitive position, which could materially adversely affect our financial performance.”)
+Added: In order to serve alcoholic beverages in our restaurants or off-premise where permitted, we must comply with alcoholic beverage control regulations which require us to apply to a state or other governmental alcoholic beverage control authority for licenses and permits.
+Added: In addition, we are subject to dram shop statutes in most of the jurisdictions in which we operate, which generally provide a person injured by an intoxicated person the right to recover damages from an establishment that wrongfully served alcoholic beverages to the intoxicated person.
Dram shop litigation may result in significant judgments, including punitive damages.
−Removed: A settlement or judgment against us under a dram shop statute in excess of our general liability insurance coverage could materially adversely affect our financial performance.
−Removed: Significant increases in minimum wages, including the tip credit wage in certain states, paid or unpaid leaves of absence, equal wage legislation, mandatory sick pay and paid time off regulations in a growing number of jurisdictions, mandated health and/or COBRA benefits, or increased tax reporting, assessment or payment requirements related to our staff members who receive gratuities, or changes in interpretations of existing employment law, including with respect to classification of exempt versus non-exempt employees, could significantly increase our labor costs, which would materially adversely affect our financial performance.
−Removed: We are subject to federal and state laws that prohibit discrimination in the workplace and that set standards for the design, accessibility and operation of public facilities, such as the Americans with Disabilities Act.
+Added: Various federal, state, local and foreign laws and regulations govern our operations as they relate to our staff members, including such matters as minimum wages, breaks, scheduling, exempt classifications, equal pay, overtime, tip credits, fringe benefits, leaves, safety, working conditions, provision of health insurance, the COVID-19 pandemic and citizenship or work authorization requirements.
+Added: Significant increases in minimum wage rates, including the tip credit wage rate in certain states, paid or unpaid leaves of absence, equal wage legislation, mandatory sick pay and paid time off regulations in a growing number of jurisdictions, mandated health and/or COBRA benefits, or increased tax reporting, assessment or payment requirements related to our staff members who receive gratuities, or changes in interpretations of existing employment law, including with respect to classification of exempt versus non-exempt employees, could significantly increase our labor costs, which would materially adversely affect our financial performance.
+Added: In California, we are subject to the Private Attorneys General Act (“PAGA”) which authorizes employees to file lawsuits to recover civil penalties on behalf of themselves, other employees and the State of California for labor code violations.
+Added: We must also comply with local, state and federal laws and regulations protecting the right to equal employment opportunities and prohibiting discrimination and harassment in the workplace.
Compliance with these laws and regulations can be costly and failure to comply could create exposure to government proceedings and litigation.
Even a perceived failure to comply could result in negative publicity that could damage our reputation and materially adversely affect our financial performance.
−Removed: In addition, various federal, state and local and foreign labor laws and regulations govern our operations and relationships with our staff members, including, but not limited to, minimum wages, meal and rest breaks, overtime, deductions, certain benefits (including health care benefits), safety, predictive scheduling, paid leave requirements, working conditions and citizenship and legal residency requirements.
−Removed: These requirements also extend to independent third-party service providers we engage to perform certain services at our restaurants.
−Removed: While we take precautions to ensure that our third-party service providers comply with applicable laws and to maintain an independent contractor relationship, we cannot be assured such efforts will be successful, and we may incur liability vicariously as a joint employer for failures by our independent third-party service providers to comply with applicable laws.
−Removed: Changes in, or any failure to comply with, these laws and regulations could subject us to fines or other legal actions, which could materially adversely affect our financial performance.
−Removed: Additionally, some jurisdictions have introduced (or may be planning to introduce) legislation seeking to mandate an employment relationship between companies that facilitate third-party delivery services and their service personnel.
−Removed: If these measures are successful, delivery costs will significantly increase and/or these companies may choose to no longer operate within such jurisdictions, either of which result could significantly impede our ability to grow off-premise sales.
+Added: We are also subject to the regulations of the Department of Homeland Security, the U.S.
+Added: Citizenship and Immigration Services and U.S.
+Added: Immigration and Customs Enforcement.
Despite our efforts to maintain compliance with legal requirements, including implementation of electronic verification of legal work status, some of our staff members may not meet legal citizenship or residency requirements.
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Our inability to maintain an experienced and qualified work force comprised of individuals who meet all legal citizenship or residency requirements could result in a disruption in our work force, sanctions against us and adverse publicity, any of which could materially adversely affect our financial performance.
+Added: Our facilities must comply with applicable requirements of the Americans with Disabilities Act of 1990 (“ADA”) and related federal, state and foreign laws and regulations which prohibit discrimination on the basis of disability with respect to public accommodations and employment.
+Added: We are also subject to laws and regulations relating to information security, privacy, cashless payments and consumer credit, protection and fraud.
+Added: Many laws and regulations governing our business and operations also extend to independent third-party service providers we engage to perform certain services.
+Added: While we take precautions to ensure that our third-party service providers comply with applicable laws and to maintain an independent contractor relationship, we cannot be assured such efforts will be successful, and we may incur liability vicariously as a joint employer for failures by our independent third-party service providers to comply with applicable laws.
+Added: Additionally, some jurisdictions have introduced (or may be planning to introduce) legislation seeking to mandate an employment relationship between companies that facilitate third-party delivery services and their service personnel.
+Added: If these measures are successful, delivery costs will significantly increase and/or these companies may choose to no longer operate within such jurisdictions, either of which result could significantly impact our off-premise sales.
+Added: Any changes to the numerous laws governing our business or operations may create challenges for us.
+Added: While we subscribe to certain services and have established procedures to identify legal and regulatory changes, we cannot be certain to identify and comply with every change on a timely basis.
+Added: We may incur penalties and other costs, sanctions and adverse publicity by failing to comply with applicable laws, any of which could materially adversely affect our financial performance.
Our inability to respond appropriately to changes in consumer health and disclosure regulations, and to adapt to evolving consumer dining preferences, could negatively impact our operations and competitive position, which could materially adversely affect our financial performance.
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Additionally, some state, local and foreign governments also have enacted legislation regulating or prohibiting the sale of or mandating disclosures relating to certain types and/or levels of ingredients in food served in restaurants, such as trans fats, sodium, genetically modified organisms (GMOs) and gluten, and are taxing or considering taxing and/or otherwise regulating high fat, high sugar and high sodium foods.
−Removed: While it remains unclear if and to what extent consumers may reconsider dining preferences in response to such requirements, it is clear that consumer dining preferences continue to evolve, and these preferences may evolve more rapidly in light of these new requirements.
−Removed: We must be able to quickly and effectively adapt to any significant shift in consumer dining preference.
−Removed: Our failure or inability to do so could cause our or our licensee’s restaurants to lose market share, which could materially adversely affect our financial performance.
+Added: While it remains unclear if and to what extent consumers may reconsider dining preferences in response to such requirements, it is clear that consumer dining preferences continue to evolve, and these preferences may evolve more rapidly in response to any of these new requirements.
+Added: Our failure to quickly and effectively adapt to any significant shift in consumer dining preference could cause our or our licensee’s restaurants to lose market share, which could materially adversely affect our financial performance.
Labor organizing could harm our operations and competitive position in the restaurant industry, which could materially adversely affect our financial performance.
Our staff members and others may attempt to unionize our workforce, establish boycotts or picket lines or interrupt our supply chains which could limit our ability to manage our workforce effectively and cause disruptions to our operations, which could materially adversely affect our financial performance.
−Removed: These risks have been compounded by worker safety concerns during the ongoing COVID-19 pandemic.
Our labor costs may significantly increase if we become unable to effectively manage our workforce and the compensation and benefits we offer to our staff members, which also could materially adversely affect our financial performance.
−Removed: Adverse weather conditions, natural disasters and health epidemics could unfavorably impact our restaurant sales, which could materially adversely affect our financial performance.
−Removed: Adverse weather conditions, natural disasters and health epidemics can impact customer traffic, make it more difficult to fully staff our restaurants and, more severe cases, such as hurricanes, earthquakes, tornadoes, blizzards, other natural disasters or health epidemics, such as the COVID-19 pandemic, have resulted in and may in the future result in restaurant closures and curtailed operations, impediments to availability of staff and supplies and increased commodity costs, sometimes for prolonged periods of time, any of which could materially adversely affect our financial performance.
−Removed: Climate change may cause adverse weather conditions and natural disasters to become more frequent and less predictable, which could make it more difficult to accurately project year-to-year comparisons in sales and other factors affecting financial performance.
+Added: Adverse weather conditions, natural disasters and public health emergencies could unfavorably impact our restaurant sales, which could materially adversely affect our financial performance.
+Added: Adverse weather conditions, natural disasters and public health emergencies can impact customer traffic, make it more difficult to fully staff our restaurants and, more severe cases, such as hurricanes, earthquakes, tornadoes, blizzards, wildfires and other natural disasters and public health emergencies, such as the COVID-19 pandemic, have resulted in and may in the future result in restaurant closures, underutilization of outdoor patio dining and curtailed operations, impediments to availability of staff and supplies and increased commodity costs, sometimes for prolonged periods of time.
+Added: These effects may become more pronounced in the future as climatologists predict climate change and global warming may cause extended droughts and certain adverse weather conditions and natural disasters to become more frequent, more severe and less predictable over time.
Our cash flows may be negatively impacted by delay in the receipt of proceeds under any insurance policies or programs we maintain against certain of these risks or the proceeds may not fully offset any such losses.
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Our inability to anticipate and react effectively to changes in the costs of key operating resources may increase our cost of doing business, which could materially adversely affect our financial performance.
+Added: We purchase food and other commodities for use in our operations based on market prices established with our suppliers.
+Added: Many of these commodities can be subject to market volatility driven by supply and demand factors outside of our control, including the relative availability of labor and distribution, weather, natural disasters, inventory levels, and political and economic conditions.
+Added: Climate change may further exacerbate a number of these factors.
We negotiate short-term and long-term agreements for some of our principal commodity, supply and equipment requirements, such as certain dairy products and poultry, depending on market conditions and expected demand.
−Removed: We continue to evaluate the possibility of entering into similar arrangements for other commodities and periodically evaluate hedging vehicles, such as direct financial instruments, to assist us in managing risk and variability associated with such commodities.
−Removed: Although these vehicles may be available to us, as of February 24, 2021, we had chosen not to enter into any hedging contracts due to pricing volatility, excessive risk premiums, hedge inefficiencies or other factors.
+Added: Recently, these efforts have been hampered by supply shortages caused by supply chain challenges that have affected the restaurant industry and broader economy.
+Added: As a result, we have needed to purchase a greater portion of certain products in the spot market at a significantly higher cost than our historical contracted rates.
+Added: While we are in the process of contracting for certain key food and non-food supplies for fiscal 2022, these efforts may not be successful or yield our intended benefits.
+Added: Due to the cost pressures we are currently experiencing, particularly in commodities, in the first quarter of fiscal 2022, we implemented price increases above our historical levels to protect margins.
+Added: We will continue to consider the cost environment and consumer price sensitivity when evaluating future menu price increases.
+Added: However, we can provide no assurance that these efforts will be successful.
+Added: We continue to evaluate the possibility of entering into similar arrangements for other commodities and periodically evaluate hedging vehicles, such as direct financial instruments, to assist us in managing price risk and variability associated with such commodities.
+Added: Although these vehicles may be available to us, as of the end of fiscal 2021, we had no hedging contracts in place.
Commodities for which we have not entered into contracts can be subject to unforeseen supply and cost fluctuations, which at times may be significant.
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Because of this lack of competition, we may be vulnerable to excessive price demands, especially as they relate to the cost of products or services that are critical to our operations or profitability.
−Removed: Certain products and ingredients commonly used in food preparation have recently come under scrutiny for possibly posing social and environmental risks, such as from an animal welfare and sustainability perspective.
−Removed: We have identified some of these products and ingredients in our supply chain and have adopted a comprehensive Sustainable Sourcing Policy under which we commit to a buying preference in our supply chain by 2025, or sooner where required, for products and ingredients that are sustainably grown and harvested and which do not have negative social impact, and for products from animals that are humanely raised and processed ("sustainable products").
+Added: Certain products and ingredients commonly used in food preparation are under scrutiny for possibly posing social and environmental risks, such as from an animal welfare and sustainability perspective.
+Added: We use many of these products and ingredients and have adopted a comprehensive Sustainable Sourcing Policy under which, among other things, we commit to a buying preference by 2025, or sooner where required, for products and ingredients that are sustainably grown and harvested and which do not have negative social impact, and for products from animals that are humanely raised and processed (“sustainable products”).
While we are committed to implementing these changes in as timely and commercially feasible manner as possible, there is a risk that some of our products or ingredients may become the subject of adverse media attention before we are able to do so, regardless of factual basis.
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Commodity price fluctuations could impede our international licensees’ profitability and hamper their ability to grow, which could negatively impact our ability to expand our brand internationally.
−Removed: If we are unable to anticipate and effectively respond to these and other increases in our operating costs, our financial performance could be materially adversely affected.
Our financial performance could be materially adversely affected if we fail to retain, or effectively respond to a loss of, key executives.
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However, there is a risk that we may not be able to implement the succession plan successfully or in a timely manner or that the succession plan will not result in the same financial performance we currently achieve under the guidance of our existing executive team.
−Removed: If any of our third-party vendors experiences a failure that affects a significant aspect of our business, we may be subject to certain risks and may experience data loss, increased costs or other harm, any of which could materially adversely affect our financial performance.
−Removed: In order to leverage our internal resources and information technology infrastructure, and to support our business continuity and disaster recovery planning efforts in the event of a physical loss or damage to our corporate facilities, we utilize third-party vendors to assist us with some of our essential business processes.
+Added: If we are unable to staff and retain qualified restaurant management and operating personnel in an increasingly competitive market, we may be unable to effectively operate and grow our business and revenues, which could materially adversely affect our financial performance.
+Added: Similar to the restaurant industry and broader economy, we are experiencing labor shortfalls relative to our sales levels in certain parts of our workforce as we have reopened our dining rooms after the lifting of mandatory, social-distancing regulations related to the COVID-19 pandemic and expanded bakery production.
+Added: If we are unable to attract and retain qualified people, our restaurants and bakery operations could be short staffed, we may be forced to incur overtime expenses, and our ability to operate and expand our concepts effectively and to meet our customers’ demand for bakery goods could be limited, any of which could materially adversely affect our financial performance.
+Added: If any of our third-party vendors experiences a failure that affects a significant aspect of our business, we may experience data loss, increased costs or other harm, any of which could materially adversely affect our financial performance.
+Added: In order to leverage our internal resources and information technology infrastructure, and to support our business continuity and disaster recovery planning efforts, we rely on third-party vendors to provide some of our essential business processes.
For example, we rely on a network of third-party distribution warehouses to deliver ingredients and other materials to our restaurants.
In some instances, these processes rely on technology and may be outsourced to the vendor in their entirety and in other instances we utilize these vendors’ externally-hosted business applications.
+Added: Our vendors’ systems have experienced cyber security breaches and may again be vulnerable to a variety of risks, including, without limitation, theft, casualties such as fire, power loss, telecommunications failure or other catastrophic events, as well as from internal and external security breaches, denial of service attacks, viruses, worms, malware, ransomware, breaches of the algorithms they or their third-party service providers use to encrypt and protect data and other malicious or disruptive events (each, a “Security Incident” and collectively, “Security Incidents”).
We also utilize third parties to provide gift card distribution and transaction processing services and to perform food delivery services.
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Such factors may include, without limitation, loss of, or significant change in contractual terms of, key vendor contracts, vendor or processor failures, technology failures, damage to the reputation of any key vendor and mandated employment relationships between companies that facilitate third-party delivery services and their service personnel.
−Removed: (See Item 1A - Risk Factors - Risks Related to the Restaurant Industry - "Changes in, or any failure to comply with, applicable laws or regulations could materially adversely affect our ability to operate our restaurants and/or increase our cost to do so, which could materially adversely affect our financial performance.)"
+Added: (See Item 1A - Risk Factors – “Changes in, or any failure to comply with, applicable laws or regulations could materially adversely affect our ability to operate our restaurants and/or increase our cost to do so, which could materially adversely affect our financial performance.”)
We continue to review options to expand the use of third-party providers in other areas.
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However, we cannot guarantee that failures will not occur.
−Removed: The failure of third-party vendors to provide adequate services, including protection of sensitive data, could significantly harm our operations and reputation, which could materially adversely affect our financial performance.
−Removed: Any failure to realize the anticipated benefits of our acquisition ("Acquisition") of North Italia and the remaining business of Fox Restaurant Concepts LLC ("FRC") could materially adversely affect our financial performance.
+Added: The failure of third-party vendors to provide adequate services, including, as result of any Security Incident, could significantly harm our operations and reputation, which could materially adversely affect our financial performance.
+Added: Any failure to realize the anticipated benefits of our acquisition (“Acquisition”) of North Italia and the remaining business of Fox Restaurant Concepts LLC (“FRC”) could materially adversely affect our financial performance.
In 2019, we acquired FRC’s businesses with the expectation that the Acquisition will result in various benefits including, among others, business and growth opportunities and synergies in supply chain, real estate and other areas over time.
Combining independent companies with separate businesses, customers, employees, cultures and systems is a complex, costly and time-consuming process.
−Removed: We may experience material unanticipated difficulties or expenses in connection with the integration of FRC's businesses with ours, and this process may disrupt the business of either or both companies.
−Removed: Some of the difficulties could include:
−Removed: consolidating and retaining management and other key employees;
−Removed: integrating information, communications and other systems;
−Removed: integrating purchasing, logistics, marketing and administration methods;
−Removed: integrating corporate and administrative infrastructures;
−Removed: minimizing the diversion of management's attention from ongoing business concerns;
−Removed: and, successfully managing and coordinating the growth of the combined company.
−Removed: Even if we are able to successfully integrate FRC's businesses with ours, there can be no assurances that we will realize some or all of the anticipated benefits of the Acquisitions, within the anticipated timeframes, if at all.
+Added: There can be no assurances that we will realize some or all of the anticipated benefits of the Acquisition, within the anticipated timeframes, if at all.
In addition, we may experience increased competition that limits our ability to expand our business, we may not be able to capitalize on expected business opportunities, and general industry and business conditions may deteriorate.
If any of these or other expected or unexpected factors limit our ability to achieve the anticipated benefits of the Acquisition, or if such business opportunities, growth prospects and synergies are not realized for any other reason, our financial performance could be materially adversely affected.
−Removed: Any failure to satisfy financial covenants and/or repayment requirements under our credit facility could harm our financial condition.
−Removed: In response to the COVID-19 pandemic, on May 1, 2020, we entered into the Amended Facility which provides for, among other things, (i) a covenant relief period (the "Covenant Relief Period") during which we are not required to comply with financial covenants requiring maintenance of the maximum Net Adjusted Leverage Ratio and minimum EBITDAR Ratio, (ii) a substitution of the Net Adjusted Leverage Ratio and EBITDAR to Interest and Rental Expense Ratio covenants with a liquidity covenant during the Covenant Relief Period and (iii) increased limitations on capital expenditures and on our ability to make restricted payments, incur debt and consummate acquisitions during the Covenant Relief Period.
−Removed: Any failure to maintain debt covenants under the Amended Facility or to have sufficient liquidity to either repay or refinance the then outstanding balance at expiration of the Amended Facility, or upon any violation of the covenants, could materially adversely affect our financial performance.
−Removed: (See Note 12 of Notes to Consolidated Financial Statements in Part IV, Item 15 for further discussion of our long-term debt.)
−Removed: In addition, our increased indebtedness related to the Acquisition and our resulting higher debt-to-equity ratio, as compared to that which has existed on a historical basis, could limit our ability to obtain additional financing in the future and have other material consequences, including:
−Removed: increasing our vulnerability to, and limiting our flexibility in planning for, changing business and market conditions, making us more vulnerable to adverse economic and industry conditions;
−Removed: limiting our ability to use proceeds from any offering or divestiture transaction for purposes other than the repayment of debt;
−Removed: and, creating competitive disadvantages compared to other companies with less indebtedness.
−Removed: The Series A Convertible Preferred Stock has rights, preferences and privileges that are not held by, and are preferential to, the rights of our common stock.
−Removed: Such preferential rights could adversely affect our liquidity and financial condition, and may result in the interests of the holders of the Series A Convertible Preferred Stock differing from those of the holders of our common stock.
−Removed: On April 20, 2020, we issued 200,000 shares of the Series A Convertible Preferred Stock, par value $0.01 per share (the "Series A preferred stock"), for an aggregate purchase price of $200 million.
−Removed: The Series A preferred stock ranks senior to our common stock with respect to dividends and distributions on liquidation, winding-up and dissolution upon which each share of Series A preferred stock will be entitled to receive an amount per share equal to the greater of (i) the purchase price (without giving effect to any commitment fee), plus all accrued and unpaid dividends (the “Liquidation Preference”) and (ii) the amount that the holder of the Series A preferred stock would have been entitled to receive at such time if the Series A preferred stock were converted into our common stock.
−Removed: The holders of Series A preferred stock are entitled to dividends on the Liquidation Preference at the rate of 9.5% per annum, payable in cash or, at our option, paid-in-kind.
−Removed: Such holders are also entitled to participate in dividends declared or paid on our common stock on an as-converted basis.
−Removed: On and after October 20, 2027, holders of Series A preferred stock have the right to require redemption of all or any part of the Series A preferred stock for an amount equal to the Liquidation Preference.
−Removed: Upon certain change of control events, we are required to redeem, subject to conversion rights of the holders of Series A preferred stock, all of the outstanding shares of Series A preferred stock for cash consideration equal to the greater of (i) the Liquidation Preference and (ii) the amount that such holder would have been entitled to receive at such time if the Series A preferred stock were converted into common stock.
−Removed: If a redemption is required, we may not have sufficient funds to satisfy our obligation to pay the Liquidation Preference.
−Removed: Each holder has the right, at its option, to convert its Series A preferred stock, in whole or in part, into fully paid and non-assessable shares of our common stock at a conversion price equal to $22.23 per share, subject to customary anti-dilution adjustments, including in the event of any stock split, stock dividend, recapitalization or similar events and certain antidilutive offerings if they occur on or prior to April 19, 2021.
−Removed: Pursuant to the terms of the Certificate of Designations, unless and until approval of our stockholders is obtained as contemplated by Nasdaq listing rules (the “Stockholder Approval”), no holder may convert shares of Series A preferred stock through either an optional or a mandatory conversion into shares of common stock if and solely to the extent that such conversion would result in the holder beneficially owning in excess of 19.9% of then outstanding common stock.
−Removed: We have the right to settle any conversion at the request of a holder in cash.
−Removed: As of December 29, 2020, the Series A preferred stock was convertible into approximately 17.1% of our outstanding common stock, on an as-converted basis.
−Removed: The dividend and redemption provisions of the Series A preferred stock could impact our liquidity and reduce the amount of cash flows available for working capital, capital expenditures, growth opportunities, acquisitions and other general corporate purposes.
−Removed: Our obligations to the holders of Series A preferred stock could also limit our ability to obtain additional financing or increase our borrowing costs, which could have an adverse effect on our financial condition.
−Removed: The preferential rights could also result in divergent interests between the holders of Series A preferred stock and those of the holders of our common stock.
−Removed: The issuance of the Series A preferred stock has effectively reduced the relative voting power of holders of our common stock, may dilute the ownership of such holders, and may adversely affect the market price of our common stock.
−Removed: As of December 29, 2020, the Series A preferred stock was convertible into approximately 17.1% of our outstanding common stock, on an as-converted basis.
−Removed: As holders of the Series A preferred stock are entitled to vote, on an as-converted basis, together with holders of our common stock as a single class on generally all matters submitted to a vote of our common stockholders, the issuance of the Series A preferred stock has effectively reduced the relative voting power of the holders of our common stock.
−Removed: In addition, the conversion of the Series A preferred stock to common stock would dilute the ownership interest of existing holders of our common stock, and any sales in the public market of the common stock issuable upon conversion of the Series A preferred stock could adversely affect prevailing market prices of our common stock.
−Removed: We have granted the holders of the Series A preferred stock registration rights in respect of the shares of common stock issued upon conversion of the Series A preferred stock.
−Removed: These registration rights would facilitate the resale of such common stock into the public market, and any such resale would increase the number of shares of our common stock available for public trading.
−Removed: Sales by the holders of the Series A preferred stock of a substantial number of shares of our common stock in the public market, or the perception that such sales might occur, could have a material adverse effect on the price of our common stock.
We may incur additional costs if we are unable to renew our restaurant leases on similar terms and conditions, or at all, or to relocate our restaurants in certain trade areas, which could materially adversely affect our financial performance.
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This aspect of social media is especially challenging because it allows any individual to reach a broad audience with an ability to respond or react, in near real time, with comments that are often not filtered or checked for accuracy.
−Removed: If we are unable to quickly and effectively respond, any negative publicity could "go viral"
−Removed: causing nearly immediate and potentially significant harm to our brand and reputation, whether or not factually accurate.
+Added: If we are unable to quickly and effectively respond, any negative publicity could “go viral” causing nearly immediate and potentially significant harm to our brand and reputation, whether or not factually accurate.
Our marketing strategy includes an emphasis on social media.
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Our failure to adequately protect our intellectual property could materially adversely affect our financial performance.
−Removed: We own and have applied to register trade names, logos, service marks, trademarks, copyrights and other intellectual property (collectively, "Intellectual Property"), including The Cheesecake Factory ® , North Italia ® , a collection within the Fox Restaurant Concepts subsidiary and other trademarks related to our restaurant businesses in the United States and in additional countries throughout the world.
+Added: We own and have applied to register trade names, logos, service marks, trademarks, copyrights and other intellectual property (collectively, “Intellectual Property”), including The Cheesecake Factory ® , North Italia ® , a collection within the Fox Restaurant Concepts subsidiary and other trademarks related to our restaurant and bakery businesses in the United States and in additional countries throughout the world.
Our Intellectual Property is valuable to our business and requires continuous monitoring to protect.
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businesses that operate internationally, including the Foreign Corrupt Practices Act and anti-boycott laws, and with foreign laws in the countries in which we expand our restaurants.
−Removed: (See Item 1A - Risk Factors - Risks Related to the Restaurant Industry - "Changes in, or any failure to comply with, applicable laws or regulations could materially adversely affect our ability to operate our restaurants and/or increase our cost to do so, which could materially adversely affect our financial performance.") We may incur considerable liability in the event we or our licensees fail to comply with foreign or domestic laws relating to our or their operation of any international restaurant and can provide no assurance that our insurance programs or contractual indemnification rights would be effective to protect against such liabilities.
+Added: (See Item 1A - Risk Factors – “Changes in, or any failure to comply with, applicable laws or regulations could materially adversely affect our ability to operate our restaurants and/or increase our cost to do so, which could materially adversely affect our financial performance.”) We may incur considerable liability in the event we or our licensees fail to comply with foreign or domestic laws relating to our or their operation of any international restaurant and can provide no assurance that our insurance programs or contractual indemnification rights would be effective to protect against such liabilities.
We may engage in expansion opportunities or other initiatives which may create risks to our business that could materially adversely affect our financial performance.
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We have and may again be required to record impairment charges, be unable to fully recoup landlord improvement allowances and/or decide to discontinue operations at certain restaurants, any of which could materially adversely affect our financial performance.
−Removed: In the first quarter of fiscal 2020, developments related to the COVID-19 pandemic triggered the need to perform impairment assessments of our long-lived assets, goodwill and other intangible assets and a revaluation of contingent consideration associated with the acquisition of FRC.
−Removed: While no further interim assessments were required in fiscal 2020, future changes in estimates could further impact the carrying value of these items.
−Removed: (See Notes 7 and 8 for further discussion of impairment of long-lived and intangible assets, respectively.
−Removed: See Note 3 for further discussion of the revaluation of contingent consideration.)
We assess the potential impairment of our long-lived assets on an annual basis or whenever events or changes in circumstances indicate the carrying value of the assets or asset group may not be recoverable.
Factors considered include, but are not limited to, negative cash flow, significant underperformance relative to historical or projected future operating results, significant changes in the manner in which an asset is being used, an expectation that an asset will be disposed of significantly before the end of its previously estimated useful life and significant negative industry or economic trends.
−Removed: In addition, we may incur impairment charges if an acquired business does not meet the performance expectations upon which the acquisition price was based.
At any given time, we may be monitoring a number of locations, and future impairment charges and/or closures may occur if individual restaurant performance does not improve, which could materially adversely affect our financial performance.
−Removed: We test our goodwill and other indefinite-lived intangible assets for impairment annually or whenever events or changes in circumstances indicate a potential impairment.
+Added: (See Note 1 of Notes to Consolidated Financial Statements in Part IV, Item 15 for further discussion of impairment of long-lived assets.)
+Added: We test our goodwill and other indefinite-lived intangible assets for impairment annually or on an interim basis if events or changes in circumstances between annual tests indicate a potential impairment.
Factors considered include, but are not limited to, historical financial performance, a significant decline in expected future cash flows, unanticipated competition, changes in management or key personnel, macroeconomic and industry conditions and the legal and regulatory environment.
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Should the value of goodwill or other intangible assets become impaired, there could be a material adverse effect on our financial performance.
+Added: (See Note 8 of Notes to Consolidated Financial Statements in Part IV, Item 15 for further discussion of impairment of intangible assets.)
A portion of our tenant allowances at certain premises may be subject to recoupment against percentage rent otherwise payable for such sites.
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Also, some employment-related claims in the area of wage and hour disputes are not insurable risks and many employment-related disputes involve uncertainty in judicial interpretation from state to state and from federal to state court with respect to the effectiveness of arbitration agreements with our staff members, particularly those which provide for class waivers.
−Removed: We have experienced an increase in wage and hour litigation, in particular in California, where we have seen an increase in claims filed under California’s Private Attorneys General Act (“PAGA”).
+Added: In recent year, we have experienced an increase in wage and hour litigation, in particular in California, where we have seen an increase in claims filed under California’s Private Attorneys General Act (“PAGA”).
PAGA allows an aggrieved staff member to bring a lawsuit on behalf of other current and former staff members for labor code violations, including certain technical violations.
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Significant legal fees and costs in complex class action litigation or an adverse judgment or settlement that are not insured or are in excess of insurance coverage can materially and adversely affect our financial performance.
−Removed: We retain financial responsibility for a significant portion of our risks and associated liabilities with respect to workers’ compensation, general liability, employment practices, staff health benefits and certain other insurable risks.
+Added: We retain financial responsibility for a significant portion of our risks and associated liabilities with respect to workers’ compensation, general liability, staff member health benefits, employment practices and certain other insurable risks.
Several factors may significantly increase our self-insurance costs, such as conditions of the insurance market, the availability of insurance, or changes in applicable regulations.
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Information technology system failures or breaches of our network security could interrupt our operations and subject us to increased operating costs, as well as to litigation and other liabilities, any of which could materially adversely affect our financial performance.
−Removed: We rely heavily on our in-restaurant and enterprise-wide computer systems and network infrastructure across our operations ("Cyber Environment"), which could be vulnerable to various risks.
+Added: We rely heavily on our in-restaurant and enterprise-wide computer systems and network infrastructure across our operations (“Cyber Environment”), which could be vulnerable to various risks.
This reliance has grown since the onset of the COVID-19 pandemic as we have had to rely to a greater extent on systems such as online ordering, contactless payments, online reservations, systems supporting a remote workforce and the like.
−Removed: The efficient management of our operations depends upon our ability to protect our Cyber Environment against damage from theft, casualties such as fire, power loss, telecommunications failure or other catastrophic events, as well as from internal and external security breaches, denial of service attacks, viruses, worms, malware, breaches of the algorithms we and our third-party service providers use to encrypt and protect data, including customer transaction and credit card data, and other malicious or disruptive events (collectively, "security incidents").
−Removed: On December 13, 2020, we were made aware that our Cyber Environment was penetrated by a cyberattack that penetrated thousands of organizations globally, including multiple parts of the United States government.
−Removed: The culprits exploited a supply chain attack on one of our information technology services vendors, SolarWinds, which is widely used in government and industry.
−Removed: We do not believe we were specifically targeted in the attack and after investigating we believe that no activation of the malware and no exfiltration of data occurred.
−Removed: We worked with SolarWinds to remove the malware from our systems and do not believe there is any ongoing risk to our Cyber Environment as a result of this attack.
+Added: The efficient management of our operations depends upon our ability to protect our Cyber Environment against damage from theft, casualties such as fire, power loss, telecommunications failure or other catastrophic events, as well as from Security Incidents.
We employ both internal resources and external consultants to conduct auditing and testing for weaknesses in our Cyber Environment to reduce the likelihood of any Security Incident and have developed a multi-discipline Security Incident response plan to help ensure that our executives are fully and accurately informed and manage, with the help of content experts, the discovery, investigation and auditing of, and recovery from any Security Incidents.
−Removed: Despite these measures, we were unable to prevent the SolarWinds penetration and can provide no assurance that these measures will be successful in preventing a future security incident or mitigating losses resulting from a security incident.
−Removed: We have and will continue to have greater uncertainty with respect to these risks as they relate to our newly acquired concepts until we are able to complete a full review of their Cyber Environments and implement all identified corrective measures.
+Added: Despite these efforts, we can provide no assurance that these measures will successfully prevent any Security Incident or mitigate losses resulting from a Security Incident.
+Added: We have completed our assessment of the information technology systems and infrastructure for the FRC brands and are in the process of implementing recommended improvements.
+Added: We will continue to have greater degree of risk with respect to the acquired systems and infrastructure until we have implemented all recommended improvements.
Our international licensees have access to certain elements of our intellectual property within their Cyber Environment and may not have developed adequate processes to secure their Cyber Environments against a Security Incident and may not maintain robust discovery, investigation, auditing or recovery protocols, or have the ability to promptly and effectively respond to a Security Incident.
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For example, we transmit confidential credit card information in connection with credit card transactions, and we are required to collect and maintain certain personal information in connection with our employment practices, including the administration of our benefit plans.
−Removed: Our collection and use of this information may be regulated by U.S.
+Added: Our collection, storage, handling, use, disclosure and security of this information is regulated by U.S.
federal, state and local and foreign laws and regulations.
+Added: For instance, the California Consumer Privacy Act (“CCPA”), which became effective on January 1, 2020, provides California residents broad rights with respect to their personal data, including, the right to know about the personal information a business collects about them, the right to delete personal information collected from them, the right to opt-out of the sale of their personal information and the right to non-discrimination for exercising their CCPA rights.
+Added: In addition, the CCPA provides a private right of action for certain data breaches coupled with statutory damages under certain circumstances.
+Added: Compliance with the CCPA and other laws relating to the protection of personal information involve significant costs and could result in significant liability in the event we allow an unauthorized disclosure of personal information.
If a Security Incident were to occur involving loss of or inappropriate access to or dissemination of such personal information, we may become liable under applicable law for damages (including statutory damages) and incur penalties and other costs to remedy such an incident.
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If these security measures are not successful, we may become subject to litigation or the imposition of regulatory penalties, which could result in negative publicity and significantly harm our reputation, either of which could materially adversely affect our financial performance.
−Removed: We are in the process of assessing the information technology systems and infrastructure for the FRC brands other than North Italia.
−Removed: We will continue to have greater degree of risk with respect to the acquired systems and infrastructure until we are able to implement any recommended improvements.
+Added: We have completed our assessment of the information technology systems and infrastructure for the FRC brands and are in the process of implementing recommended improvements.
+Added: We will continue to have greater degree of risk with respect to the acquired systems and infrastructure until we have implemented all recommended improvements.
+Added: Risks Related to Our Indebtedness
+Added: Any failure to satisfy financial covenants and/or repayment requirements under our credit facility could harm our financial condition.
+Added: On March 30, 2021, we entered into a Second Amendment (the “Second Amendment”) to our existing Third Amended and Restated Loan Agreement, dated July 30, 2019 (as amended by that certain First Amendment, dated as of May 1, 2020 and by the Second Amendment, collectively, the “Amended Credit Agreement”), that, among other changes, extended the prior covenant relief period during which the testing of the net adjusted debt to earning before income taxes, depreciation, amortization and rent (“EBITDAR”) ratio covenant and the EBITDAR to interest and rent expense ratio covenant is suspended through the fourth quarter of fiscal 2021.
+Added: Following the end of the covenant relief period, in addition to a material decrease in EBITDAR, a material increase in our level of debt could cause our net adjusted leverage ratio and EBITDAR to interest and rent expense coverage ratios to be outside of permitted levels under the covenants in the Amended Credit Agreement.
+Added: The Amended Credit Agreement, which terminates on July 30, 2024, consists of a $400 million revolving loan facility (the “Revolving Facility”), including a $40 million sublimit for letters of credit.
+Added: The Amended Credit Agreement also provides the ability to increase the Revolving Facility in an amount not to exceed $200 million.
+Added: The funding of any such increases are subject to receipt of lender commitments and satisfaction of customary conditions precedent.
+Added: Certain of our material subsidiaries have guaranteed our obligations under the Amended Credit Agreement.
+Added: Any failure to maintain debt covenants under the Amended Credit Agreement or to have sufficient liquidity to either repay or refinance the then outstanding balance at expiration of the Amended Credit Agreement, or upon any violation of the covenants, could materially adversely affect our financial performance.
+Added: (See Note 12 of Notes to Consolidated Financial Statements in Part IV, Item 15 for further discussion of our long-term debt.)
+Added: In addition, our increased indebtedness related to the Acquisition and our resulting higher debt-to-equity ratio, as compared to that which has existed on a historical basis, could limit our ability to obtain additional financing in the future and have other material consequences, including:
+Added: increasing our vulnerability to, and limiting our flexibility in planning for, changing business and market conditions, making us more vulnerable to adverse economic and industry conditions;
+Added: limiting our ability to use proceeds from any offering or divestiture transaction for purposes other than the repayment of debt;
+Added: and, creating competitive disadvantages compared to other companies with less indebtedness.
+Added: The indenture governing our outstanding Notes will not restrict us from incurring additional indebtedness, and the Notes and the incurrence of any additional indebtedness could limit the cash flow available for our operations, expose us to risks that could adversely affect our business, financial condition and results of operations and impair our ability to satisfy our obligations under the Notes.
+Added: In June 2021, we completed the offering of $345.0 million aggregate principle amount of convertible senior notes due 2026 (“Notes”) and issued $175.0 million of shares of our common stock (the “Issuance”).
+Added: The Notes and Issuance are collectively referred to as the “Offerings.” We used the net proceeds from the Offerings to fund approximately $457.3 million payable in connection with the cash-settled conversion of 150,000 shares of our previously outstanding Series A convertible preferred stock and the share-settled conversion of the remaining 50,000 shares of Series A convertible preferred stock into approximately 2.4 million shares of our common stock.
+Added: (See Notes 12 and 17 of Notes to Consolidated Financial Statements in Part 1, Item 1 of this report for further discussion of these events.)
+Added: As of December 28, 2021, we had approximately $475.0 million in principal amount of consolidated indebtedness.
+Added: We incurred $345.0 million aggregate principal amount of additional indebtedness as a result of the offering of the Notes.
+Added: The indenture governing the Notes does not contain any meaningful restrictive covenants and does not prohibit us or our subsidiaries from incurring additional indebtedness in the future.
+Added: Accordingly, we may incur a significant amount of additional indebtedness to meet future financing needs.
+Added: The incurrence of indebtedness could have significant negative consequences for our security holders and our business, results of operations and financial condition by, among other things:
+Added: ● increasing our vulnerability to adverse economic and industry conditions;
+Added: ● limiting our ability to obtain additional financing;
+Added: ● requiring the dedication of a substantial portion of our cash flow from operations to service our indebtedness, which will reduce the amount of cash available for other purposes;
+Added: ● limiting our flexibility to plan for, or react to, changes in our business;
+Added: ● diluting the interests of our existing stockholders as a result of issuing shares of our common stock upon conversion of the Notes;
+Added: ● placing us at a possible competitive disadvantage with competitors that are less leveraged than us or have better access to capital.
+Added: Our business may not generate sufficient funds, and we may otherwise be unable to maintain sufficient cash reserves, to pay amounts due under our indebtedness, including the Notes, and our cash needs may increase in the future.
+Added: In addition, the Amended Credit Agreement contains, and any future indebtedness that we may incur may contain, financial and other restrictive covenants that limit our ability to operate our business, raise capital or make payments under our other indebtedness.
+Added: If we fail to comply with these covenants or to make payments under our indebtedness when due, then we would be in default under that indebtedness, which could, in turn, result in that and our other indebtedness becoming immediately payable in full.
+Added: The issuance or sale of shares of our common stock, or rights to acquire shares of our common stock, could depress the trading price of our common stock and the Notes.
+Added: We have the right to elect to settle conversion of the Notes either entirely in cash or in combination of cash and shares of common stock.
+Added: Our election to convert Notes into common stock may further dilute the economic and voting rights of our existing stockholders and/or reduce the market price of our common stock.
+Added: In addition, the market’s expectation that conversions may occur could depress the trading price of our common stock even in the absence of actual conversions.
+Added: Moreover, the expectation of conversions could encourage the short selling of our common stock, which could place further downward pressure on the trading price of our common stock.
+Added: We may also conduct future offerings of our common stock, preferred stock or other securities that are convertible into or exercisable for our common stock to finance our operations or fund acquisitions, or for other purposes.
+Added: In addition, we have reserved approximately 4.0 million shares of common stock for grant under our The Cheesecake Factory Incorporated Stock Incentive Plan as of December 28, 2021.
+Added: If we issue additional shares of our common stock or rights to acquire shares of our common stock, if any of our existing stockholders sells a substantial amount of our common stock, or if the market perceives that such issuances or sales may occur, then the trading price of our common stock may significantly decline.
+Added: In addition, our issuance of additional shares of common stock will dilute the ownership interests of our existing common stockholders.
+Added: Hedging activity by investors in the Notes could depress the trading price of our common stock.
+Added: We expect that many investors in the Notes, including potential purchasers of the Notes, will seek to employ a convertible note arbitrage strategy.
+Added: Under this strategy, investors typically short sell a certain number of shares of our common stock and adjust their short position over time while they continue to hold the Notes.
+Added: Investors may also implement this type of strategy by entering into swaps on our common stock in lieu of, or in addition to, short selling shares of our common stock.
+Added: This market activity, or the market’s perception that it will occur, could depress the trading price of our common stock.
+Added: Provisions in the indenture governing the Notes could delay or prevent an otherwise beneficial takeover of us.
+Added: Certain provisions in the Notes and the indenture governing the Notes could make a third-party attempt to acquire us more difficult or expensive.
+Added: For example, if a takeover constitutes a “fundamental change” (which is defined in the indenture governing the Notes to include certain change-of-control events and the delisting of our common stock), then noteholders will have the right to require us to repurchase their Notes for cash.
+Added: In addition, if a takeover constitutes a “make-whole fundamental change” (which is defined in the indenture governing the Notes to include, among other events, fundamental changes and certain additional business combination transactions), then we may be required to temporarily increase the conversion rate for the Notes.
+Added: In either case, and in other cases, our obligations under the Notes and the indenture could increase the cost of acquiring us or otherwise discourage a third party from acquiring us or removing incumbent management, including in a transaction that noteholder holders of our common stock may view as favorable.
+Added: We may be unable to raise the funds necessary to repurchase the Notes for cash following a fundamental change, or to pay the cash amounts due upon conversion, and our other indebtedness limits our ability to repurchase the Notes or pay cash upon their conversion .
+Added: Noteholders of our outstanding Notes may, subject to limited exceptions, require us to repurchase their Notes following a “fundamental change” (which is defined in the indenture governing the Notes) at a cash repurchase price generally equal to the principal amount of the Notes to be repurchased, plus accrued and unpaid interest, if any.
+Added: In addition, all conversions of the Notes will be settled partially or entirely in cash.
+Added: We may not have enough available cash or be able to obtain financing at the time we are required to repurchase the Notes or pay the cash amounts due upon conversion.
+Added: In addition, applicable law, regulatory authorities and the Amended Credit Agreement or any future indebtedness may restrict our ability to repurchase the Notes or pay the cash amounts due upon conversion.
+Added: For example, the Amended Credit Agreement restricts us from paying cash upon conversion of the Notes in an amount that exceeds the principal amount being converted.
+Added: Furthermore, the Amended Credit Agreement places several restrictions on our ability to repurchase the Notes upon a fundamental change.
+Added: Under the Amended Credit Agreement we are permitted to repurchase Notes upon a fundamental change only if (i) no default of event of default exists and (ii) our pro forma net adjusted leverage ratio (as measured in accordance with the revolving credit facility) does not exceed 4.75 to 1.00 and our EBITDAR to interest and rental expense ratio (as measured in accordance with the revolving credit facility) is at least 1.90 to 1.00.
+Added: Our failure to repurchase the Notes or pay the cash amounts due upon conversion when required will constitute a default under the indenture governing the Notes.
+Added: A default under the indenture governing the Notes or the fundamental change itself could also lead to a default under the Amended Credit Agreement and agreements governing our other or future indebtedness, which may result in that other indebtedness becoming immediately payable in full.
+Added: We may not have sufficient funds to satisfy all amounts due under the such indebtedness and the Notes.
Risks Related to Owning Our Stock
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Our failure to achieve performance consistent with any financial guidance we provide and/or market expectations could adversely affect the price of our stock.
−Removed: Factors such as comparable restaurant sales that are below our target, slowing growth of our concepts domestically, our inability to successfully integrate and realize the anticipated benefits of the Acquisition, execute other growth opportunities, a decline in growth of our international business, any event that causes our operating costs to substantially increase, including, without limitation, any of the events described elsewhere in these Risk Factors, or our failure to repurchase stock as expected or pay or increase our dividend over time, could cause our performance to fall short of our financial guidance and/or market expectations.
+Added: Factors such as comparable restaurant sales that are below our target, slowing growth of our concepts domestically, our inability to successfully integrate and realize the anticipated benefits of the Acquisition, execute other growth opportunities, a decline in growth of our international business, any event that causes our operating costs to substantially increase, including, without limitation, any of the events described elsewhere in these Risk Factors, our inability to obtain additional capital at market terms, or our failure to repurchase stock as expected or pay or increase our dividend over time, could cause our performance to fall short of our financial guidance and/or market expectations.
Our stock price could be adversely affected if we continue to be unable to pay dividends or, if paid, if we are unable to increase dividends.
−Removed: To preserve liquidity during the COVID-19 pandemic and in conjunction with the terms of our Amended Facility, our Board suspended the quartely dividend on our common stock.
−Removed: Any future dividends on our common stock will depend on our ability to do so under our Amended Facility or any future credit facility as well as our ability to generate sufficient cash flows from operations and capacity to borrow funds, which may be subject to economic, financial, competitive and other factors that are beyond our control.
+Added: To preserve liquidity during the COVID-19 pandemic and in conjunction with the terms of the Amended Credit Agreement, our Board suspended the quarterly dividend on our common stock.
+Added: Any future dividends on our common stock will depend on our ability to do so under the Amended Credit Agreement or any future credit agreement as well as our ability to generate sufficient cash flows from operations and capacity to borrow funds, which may be subject to economic, financial, competitive and other factors that are beyond our control.
(See Note 12 of Notes to Consolidated Financial Statements in Part IV, Item 15 of this report for further discussion of our long-term debt.) Continued failure to pay or increase our dividends over time may negatively impact investor confidence in us and may negatively impact our stock price.
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The Board of Directors also has the discretion, without stockholder approval, to set the terms of any such classes or series of preferred stock that may be issued, including voting rights, dividend rights and preferences over the common stock with respect to dividends or upon the liquidation or winding up of our business and other terms.
−Removed: If we issue preferred shares that have a preference over our common stock with respect to the payment of dividends or upon liquidation, dissolution or winding up, or if we issue preferred shares with voting rights that dilute the voting power of our common stock, including additional shares issued in connection with the paid-in-kind dividends on or anti-dilution adjustments to the conversion price of the Series A preferred stock, the rights of our common stockholders or the market price of our common stock could be materially adversely affected.
+Added: If we issue preferred shares that have a preference over our common stock with respect to the payment of dividends or upon liquidation, dissolution or winding up, or if we issue preferred shares with voting rights that dilute the voting power of our common stock, the rights of our common stockholders or the market price of our common stock could be materially adversely affected.
General Risk Factors
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Changes in applicable U.S.
−Removed: or foreign tax laws and regulations, such as the 2017 enactment of Federal legislation commonly referred to as the Tax Cuts and Jobs Act and the The Coronavirus Aid, Relief, and Economic Security Act of 2020 (collectively, the "Tax Acts"), or their interpretation and application, including the possibility of retroactive effect and changes to state tax laws that may occur in response to the Tax Acts, could affect our tax expense and profitability.
+Added: or foreign tax laws and regulations, such as the 2017 enactment of Federal legislation commonly referred to as the Tax Cuts and Jobs Act and the The Coronavirus Aid, Relief, and Economic Security Act of 2020 (collectively, the “Tax Acts”), or their interpretation and application, including the possibility of retroactive effect and changes to state tax laws that may occur in response to the Tax Acts, could affect our tax expense and profitability.
In addition, the final determination of any tax audits or related litigation could be materially different from our historical income tax provisions and accruals.
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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.