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Item 7. Management’s Discussion and Analysis

2022-02-22 compared with 2021-02-24 · 183 added, 187 removed, 177 unchanged (68% of the section changed)

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

This Management's Discussion and Analysis of Financial Condition and Results of Operations ("MD&A"), which contains forward-looking statements, should be read in conjunction with our audited consolidated financial statements and related notes in Part IV, Item 15 of this report, the “Risk Factors” included in Part I, Item 1A of this report and the cautionary statements included throughout this report.

This Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”), which contains forward-looking statements, should be read in conjunction with our audited consolidated financial statements and related notes in Part IV, Item 15 of this report, the “Risk Factors” included in Part I, Item 1A of this report and the cautionary statements included throughout this report.

The inclusion of supplementary analytical and related information herein may require us to make estimates and assumptions to enable us to fairly present, in all material respects, our analysis of trends and expectations with respect to our results of operations and financial position.

The following MD&A includes a discussion comparing our results in fiscal 2021 to fiscal 2020.

For a discussion comparing our results from fiscal 2019 to fiscal 2018, refer to “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in Part II, Item 7 of our Annual Report on Form 10-K for the fiscal year ended December 31, 2019, filed with the SEC on March 11, 2020.

For a discussion comparing our results from fiscal 2020 to fiscal 2019, refer to “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in Part II, Item 7 of our Annual Report on Form 10-K for the fiscal year ended December 29, 2020, filed with the SEC on February 24, 2021.

COVID-19 Pandemic

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

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

In our initial response to the COVID-19 pandemic, the Company and its Board of Directors implemented the following measures to preserve liquidity and enhance financial flexibility:

● Eliminated non-essential capital expenditures and expenses;

● Suspended new unit development;

● Reduced board, executive and corporate support staff compensation;

● Furloughed approximately 41,000 hourly staff members;

Beginning in March 2020, COVID-19 and measures to prevent its spread led to 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 our remaining locations shifted to an off-premise only operating model on an interim basis.

Reopening of restaurant dining rooms resumed, generally at reduced capacity, at various points since May 2020.

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 capacity restrictions on indoor dining.

The ongoing effects of COVID-19 and its variants, including, but not limited to, consumer behavior, capacity restrictions, mask and vaccination mandates, wage inflation, our ability to continue to staff our restaurants and disruptions in the supply chain, will determine the impact to our operating results and financial position.

The impact to our operations has been most notable during the periods of greatest accelerating COVID-19 case counts.

We have incurred and will continue to incur additional costs to address government regulations and the safety of our staff members and customers.

During fiscal 2020, we implemented the following measures to preserve liquidity and enhance financial flexibility in response to the impacts of COVID-19 on our business:

● Eliminated non-essential capital expenditures and expenses, suspended new unit development and reduced board, executive and corporate support staff compensation for approximately two quarters;

● Furloughed approximately 41,000 hourly staff members, a majority of whom we called back to work in the third quarter of fiscal 2020;

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

● Increased borrowings under our revolving credit facility;

● Raised additional equity capital;

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

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

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

In addition, we resumed new unit development on a limited basis and will continue to evaluate the pace and quantity of new unit development.

Restrictions on the type of operating model and occupancy capacity continue to change, and these restrictions increased in many of our markets during the fourth quarter of fiscal 2020 with the surge in COVID-19 cases.

The following table presents the number of restaurants and their operating model as of February 17, 2021:

The Cheesecake

Indoor dining with limited capacity

Outdoor dining only

Off-premise only

Currently closed

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

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

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

These considerable developments triggered the need to perform interim impairment assessments of our long-lived assets, goodwill and other intangible assets and a revaluation of contingent consideration associated with the acquisition of FRC in addition to our annual impairment testing.

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

(See Notes 7 and 8 for further discussion of impairment of long-lived and intangible assets, respectively.

See Note 3 for further discussion of the revaluation of contingent consideration.)

● Increased borrowings under our credit facility, which were repaid during fiscal 2020;

● Issued convertible preferred stock, which was either repurchased or converted into common stock during fiscal 2021;

● Suspended the dividend on our common stock and share repurchases with such suspensions continuing through fiscal 2021.

We may take additional mitigation actions in the future such as raising additional financing, not declaring future dividends, further suspending capital spending, implementing additional furloughs or modifying our operating strategies.

Some of these measures may have an adverse impact on our business.

See Item 1A - Risk Factors - Risks Related to the COVID-19 Pandemic.

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

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

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

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

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

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

Investing in new restaurant development that meets our return on investment criteria is expected to support achieving mid-teens Company-level return on invested capital.

In light of the COVID-19 pandemic, we will continue to evaluate the pace and quantity of new unit development.

Our overall revenue growth is primarily driven by revenues from new restaurant openings and increases in comparable restaurant sales.

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

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

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

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

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

Average check is driven by menu price increases and/or changes in menu mix.

We generally update The Cheesecake Factory restaurant menus twice a year, and our philosophy is to use price increases to help offset key operating cost increases in a manner that balances protecting both our margins and customer traffic levels.

We have targeted menu price increases of approximately 2% to 3% annually, utilizing a market-based strategy to help mitigate cost pressure in higher-wage geographies.

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

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

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

We generally update The Cheesecake Factory menus twice each year, and our philosophy is to use price increases to help offset key operating cost increases in a manner that balances protecting both our margins and customer traffic levels.

We have historically targeted menu price increases of approximately 2% to 3% annually, utilizing a market-based strategy to help mitigate cost pressure in higher-wage geographies.

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.

We will continue to consider the cost environment when evaluating future menu price increases.

In addition, on a regular basis, we carefully consider opportunities to adjust our menu offerings or ingredients to help manage product availability and cost.

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

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

(See Note 2 of Notes to Consolidated Financial Statements in Part IV, Item 15 of this report for further discussion of the Acquisition.)

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

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

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

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

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

investing in new restaurants that are expected to meet our targeted returns, repaying borrowings under our $400 million unsecured revolving credit facility (the “Amended Facility”) and reinstating our dividend and share repurchase program, the latter of which offsets dilution from our equity compensation program and supports our earnings per share growth.

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

Our ability to declare dividends and repurchase shares in the future will be subject to financial covenants under the Amended Facility, among other factors.

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

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

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

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

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

Our Board is actively evaluating capital distribution strategies for fiscal 2022.

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

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

(See Item 1A — Risk Factors — Risks Related to Owning Our Stock — “Our stock price could be adversely affected if our performance falls short of our financial guidance and/or market expectations.”)

(See Item 1A — Risk Factors — “Our stock price could be adversely affected if our performance falls short of our financial guidance and/or market expectations.”)

Results of Operations

The following table presents, for the periods indicated, information from our consolidated statements of (loss)/income expressed as percentages of revenues.

The following table presents, for the periods indicated, information from our consolidated statements of income/(loss) expressed as percentages of revenues.

Costs and expenses:

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Acquisition-related costs

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

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

Preopening costs

Total costs and expenses

(Loss)/income from operations

Gain/(loss) on investments in unconsolidated affiliates

Income/(loss) from operations

Gain on investments in unconsolidated affiliates

Interest and other expense, net

(Loss)/income before income taxes

Income/(loss) before income taxes

Income tax (benefit)/provision

Net (loss)/income

Net income/(loss)

Dividends on Series A preferred stock

Direct and incremental Series A preferred stock issuance cost

Net (loss)/income available to common stockholders

Undistributed earnings allocated to Series A preferred stock

Net income/(loss) available to common stockholders

Fiscal 2021 Compared to Fiscal 2020

Revenues decreased 20.1% to $1,983.2 million for fiscal 2020 compared to $2,482.7 million for fiscal 2019, primarily due to a decline in comparable restaurant sales, reflecting the impact of the COVID-19 pandemic, partially offset by additional revenue related to the acquired restaurants and new restaurant openings.

The Cheesecake Factory comparable sales declined by 28.2%, or $601.9 million, from fiscal 2019, driven by a decline in customer traffic of 41.5%, partially offset by average check growth of 13.3% (based on an increase of 3.1% in menu pricing and a 10.2% positive change in mix).

Revenues increased 47.6% to $2,927.5 million for fiscal 2021 compared to $1,983.2 million for fiscal 2020, primarily due to a increase in comparable restaurant sales, reflecting the impact of the COVID-19 pandemic in fiscal 2020, as well as additional revenue related to the acquired restaurants and new restaurant openings.

The Cheesecake Factory comparable sales increased by 44.0%, or $686.6 million, from fiscal 2020 and increased 3.3% from fiscal 2019.

The increase from fiscal 2020 was primarily driven by increased customer traffic of 41.4% primarily due to the impact of the COVID-19 pandemic in the prior year, and an increase in average check of 2.6 % (based on an increase of 3.0% in menu pricing, partially offset by a 0.4% negative change in mix).

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

Sales through the off-premise channel comprised approximately 43% of our restaurant sales during fiscal 2020 as compared to 16% in fiscal 2019 as most of our restaurants shifted to an off-premise-only model at the beginning of the COVID-19 pandemic and consumer behavior shifted toward off-premise dining throughout the pandemic.

Sales through the off-premise channel comprised approximately 32% of our restaurant sales during fiscal 2021 as compared to 43% in fiscal 2020 as many customers have returned to on-premise dining, whereas consumer behavior had shifted towards the off-premise channel during the prior year period due to the pandemic.

However, off-premise sales mix remains higher than the pre-pandemic level of 16% during fiscal 2019.

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

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

In turn, the high mix of sales in the off-premise channel was the primary driver of the positive change in mix and also contributed to the decline in traffic, along with the broader impact of the COVID-19 pandemic.

The Cheesecake Factory average sales per restaurant operating week decreased 28.2% to $148,939 in fiscal 2020 from $207,310 in fiscal 2019.

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

In turn, the lower mix of sales in the off-premise channel in fiscal 2021 was the primary driver of the negative change in mix and also contributed to the increase in traffic, along with the broader impact of the COVID-19 pandemic.

The Cheesecake Factory average sales per restaurant operating week increased 43.1% to $213,165 in fiscal 2021 from $148,939 in fiscal 2020.

Total operating weeks at The Cheesecake Factory restaurants increased 1.1% to 10,758 in fiscal 2021 compared to 10,642 in the prior year.

North Italia comparable sales declined approximately 28% during fiscal 2020.

North Italia average sales per restaurant operating week for fiscal 2020 was $89,515 based on 1,146 operating weeks.

North Italia comparable sales increased approximately 48% from fiscal 2020 and increased approximately 7% compared to fiscal 2019.

The increase from fiscal 2020 was primarily driven by increased customer traffic of 45% primarily due to the impact of the COVID-19 pandemic in the prior year, and an increase in average check of 3.0% (based on an increase of 3.5% in menu pricing, partially offset by a 0.5% negative change in mix).

North Italia average sales per restaurant operating week increased 42.0% to $127,146 in fiscal 2021 from $89,515 in fiscal 2020.

Total operating weeks at North Italia increased 18.0% to 1,352 in fiscal 2021 compared to 1,146 in the prior year.

Revenues for North Italia, Flower Child and the other FRC brands totaled $444.0 million in fiscal 2021.

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

At December 29, 2020, there were six The Cheesecake Factory restaurants and four North Italia restaurants not yet in the comparable sales base.

At December 28, 2021, there were three The Cheesecake Factory restaurants and six North Italia restaurants not yet in the comparable sales base.

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

Revenue contribution from the acquired concepts in fiscal 2020 totaled $259.9 million compared to $92.0 million in the fourth quarter of fiscal 2019, representing the period subsequent to the October 2, 2019 closing date of the Acquisition.

External bakery sales were $66.6 million for fiscal 2020 compared to $58.4 million for fiscal 2019.

External bakery sales were $66.2 million in fiscal 2021 compared to $66.6 million in the comparable prior year period.

Cost of Sales

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

As a percentage of revenues, cost of sales was 23.1% for fiscal 2020 compared to 22.6% for fiscal 2019, reflecting a shift in sales mix between restaurant and third-party bakery revenues, as well as a full year of revenues from the acquired concepts.

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

As a percentage of revenues, cost of sales was 22.3% for fiscal 2021 compared to 23.1% for fiscal 2020, primarily reflecting a shift in sales mix within the restaurants and a lower proportion of third-party bakery revenues (0.4%) and pricing leverage (0.7%).

These factors were partially offset by increased costs related to buying in the spot market to meet volume needs that exceeded our contracted levels (0.2%).

The Cheesecake Factory restaurant menus are among the most diversified in the foodservice industry and, accordingly, are not overly dependent on a few select commodities.

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(See the discussion of our contracting activities in Part II, Item 7A — “Quantitative and Qualitative Disclosures About Market Risk.”)

As has been our past practice, we will carefully consider opportunities to introduce new menu items and implement selected menu price increases to help offset any expected cost increases for key commodities and other goods and services.

For new restaurants, cost of sales will typically be higher for a period of time after opening until our management team becomes more accustomed to predicting, managing and servicing the sales volumes at these restaurants.

For new restaurants, cost of sales is typically higher for a period of time after opening until our management team becomes more accustomed to predicting, managing and servicing the sales volumes at these restaurants.

Labor Expenses

As a percentage of revenues, labor expenses, which include restaurant-level labor costs and bakery direct production labor, including associated fringe benefits, were 36.6% and 39.3% in fiscal 2021 and fiscal 2020, respectively.

This increase was primarily due to the cost of maintaining our full restaurant management team in the reduced sales environment, as well as higher group medical insurance costs, reflecting both higher large claims activity and the costs associated with healthcare benefits for our furloughed staff members, partially offset by a benefit from the Employee Retention Credit in the Coronavirus Aid, Relief and Economic Security Act (“the CARES Act”) and less hourly labor.

For new restaurants, labor expenses will typically be higher for a period of time after opening while our management team becomes more accustomed to predicting and managing the sales volumes at the new restaurants.

This decrease was primarily due to deleverage in the prior year when costs associated with the COVID-19 pandemic, including maintaining our full restaurant management team and healthcare benefits for our furloughed staff members, were incurred in the reduced sales environment, as well as pricing leverage (3.6%).

These factors were partially offset by higher training costs (0.2%), wage rates and overtime (0.7%) in fiscal 2021.

For new restaurants, labor expenses are typically higher for a period of time after opening while our management team becomes more accustomed to predicting and managing the sales volumes at the new restaurants.

Other Operating Costs and Expenses

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As a percentage of revenues, other operating costs and expenses were 27.0% and 31.1% in fiscal 2021 and fiscal 2020, respectively.

This increase was primarily driven by sales deleverage, increased marketing expenses and costs associated with the COVID-19 pandemic such as additional sanitation and personal protective equipment.

This variance was primarily driven by sales leverage within occupancy and building costs (3.7%) and pricing leverage (0.8%), partially offset by increased restaurant-level incentive compensation expense (0.6%).

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

As a percentage of revenues, G&A expenses were 6.4% and 7.9% for fiscal 2021 and fiscal 2020, respectively.

This variance was primarily due to sales deleverage, partially offset by lower corporate incentive compensation costs.

This variance was primarily driven by sales leverage and expense management (2.1%), partially offset by higher corporate incentive compensation expense (0.4%).

Depreciation and Amortization Expenses

As a percentage of revenues, depreciation and amortization expenses were 4.6% in fiscal 2020 compared to 3.5% in fiscal 2019 primarily due to sales deleverage.

As a percentage of revenues, depreciation and amortization expenses were 3.1% in fiscal 2021 compared to 4.6% in fiscal 2020 primarily due to sales leverage.

Impairment of Assets and Lease Termination Expenses

During fiscal 2020, we recorded $219.3 million of impairment of assets and lease termination expenses primarily related to the impairment of goodwill, trade names, trademarks and licensing agreements associated with the Acquisition and long-lived assets for one The Cheesecake Factory, one North Italia, two Other FRC and six Other restaurants, as well as lease termination costs and accelerated depreciation for one The Cheesecake Factory and seven Other restaurants, of which one closed in fiscal 2019, four closed in fiscal 2020, one closed in early fiscal 2021 and two are anticipated to close in fiscal 2021 and 2022.

In fiscal 2019, we recorded $18.2 million of impairment of assets and lease termination expenses related to the impairment of long-lived assets for two The Cheesecake Factory and two Other restaurants, as well as lease termination costs and accelerated depreciation for two Other restaurants.

During fiscal 2021, we recorded impairment of assets and lease terminations expense of $18.1 million primarily related to the impairment of long-lived assets for three The Cheesecake Factory and two Other restaurants.

See Notes 7 and 8 of Notes to Consolidated Financial Statements in Part 1V, Item 15 of this report for further discussion of our long-lived and intangible assets, respectively.

Acquisition-Related Costs

We recorded $2.7 million and $5.3 million of costs in fiscal 2020 and fiscal 2019, respectively, to effect and integrate the Acquisition.

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

In fiscal 2020, we recorded a benefit of $3.9 million in acquisition-related contingent consideration, compensation and amortization (benefit)/expenses, reflecting a $5.7 million decrease in the fair value of the contingent consideration and compensation liabilities primarily related to the impact of the COVID-19 pandemic, partially offset by an increase of $1.4 million in the deferred consideration liability and $0.4 million in amortization of acquired definite-lived licensing agreements.

In fiscal 2019, we recorded $1.0 million of acquisition-related expenses related to changes in the fair value of the deferred and contingent consideration and compensation liabilities, as well as amortization of acquired definite-lived licensing agreements.

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

In fiscal 2021, we recorded $19.5 million of acquisition-related contingent consideration, compensation and amortization expenses, primarily related to the impact of an amendment to the Acquisition agreement that, among other things, extended the measurement period through fiscal 2026, as well as to an increase in fiscal 2021 revenues and estimated future revenues utilized in the fair value calculation.

In fiscal 2020, we recorded a benefit of $3.9 million in acquisition-related contingent consideration, compensation and amortization (benefit)/expenses, reflecting a $5.7 million decrease in the fair value of the contingent consideration and compensation liabilities primarily related to the impact of the COVID-19 pandemic, partially offset by an increase of $1.4 million in the Acquisition-related deferred consideration liability and $0.4 million in amortization of acquired definite-lived licensing agreements.

Preopening Costs

Preopening costs were $13.7 million for fiscal 2021 compared to $10.5 million for fiscal 2020.

We opened seven restaurants in fiscal 2020 comprised of one The Cheesecake Factory, one North Italia, two Other FRC and three Other locations compared to nine restaurants in fiscal 2019 comprised of five The Cheesecake Factory, one North Italia and three Other locations.

We opened 14 restaurants in fiscal 2021 comprised of two The Cheesecake Factory, six North Italia, four Other FRC and two Other locations compared to seven restaurants in fiscal 2020 comprised of one The Cheesecake Factory, one North Italia, two Other FRC and three Other locations.

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

Also included are expenses for maintaining a roster of trained managers for pending openings, the associated temporary housing and other costs necessary to relocate managers in alignment with future restaurant opening and operating needs, and corporate travel and support activities.

Preopening costs can fluctuate significantly from period to period based on the number and timing of restaurant openings and the specific preopening costs incurred for each restaurant.

Gain/(loss) on Investments in Unconsolidated Affiliates

We recorded a $39.2 million net gain on investments in unconsolidated affiliates in fiscal 2019 comprised of a $52.7 million gain on our investments in North Italia and Flower Child upon acquisition of the remaining equity interests in these concepts, partially offset by our share of pre-acquisition losses incurred by these concepts which were driven primarily by impairment of assets and acquisition-related expenses.

There was no corresponding amount in fiscal 2020 as we acquired the outstanding equity interests in these concepts in the fourth quarter of fiscal 2019.

Preopening costs can fluctuate significantly from period to period based on the number, mix and timing of restaurant openings and the specific preopening costs incurred for each restaurant.

The increase in preopening costs from fiscal 2020 primarily relates to the increased number of openings, partially offset by the mix toward concepts with lower preopening costs and a lower number of managers in reserve for pending openings.

Interest and Other Expense, Net

Interest and other expense, net was $10.7 million in fiscal 2021 compared to $8.6 million in fiscal 2020.

This variance was primarily due to increased borrowings on our credit facility to effect the Acquisition and enhance our financial flexibility in response to the COVID-19 pandemic.

This increase was primarily due to the termination of the interest rate swap ($2.5 million), as well as favorability across several categories, partially offset by lower borrowings outstanding on our Amended Facility ($1.7 million).

Income Tax (Benefit)/Provision

Our effective income tax rate was 28.8% and 9.3% in fiscal 2020 and fiscal 2019, respectively.

The increase resulted primarily from a lower proportion of employment credits and non-taxable gains on our investments in variable life insurance contracts used to support our non-qualified deferred compensation plan in relation to pre-tax (loss)/income, as well as a benefit arising from the expected carryback of our anticipated fiscal 2020 loss to prior years when the federal statutory rate was 35%.

These factors were partially offset by a lower proportion of state taxes benefit as compared to state taxes expense in relation to pre-tax (loss)/income.

In fiscal 2021, we had an income tax benefit of $0.8 million, an effective tax rate of (1.1%), compared to an income tax benefit of $102.7 million, an effective tax rate of 28.8%, in fiscal 2020.

The significant change was due primarily to the fact that we had $71.6 million in income before income taxes in fiscal 2021 compared to a loss before income taxes of $356.0 million in fiscal 2020.

The variance was also driven by a higher proportion of employment credits and non-taxable gains on our investments in variable life insurance contracts used to support our non-qualified deferred compensation plan in relation to income/(loss) before income taxes, as well as a benefit arising from our decision to pay all FICA taxes deferred under the Coronavirus Aid, Relief and Economic Security Act (“the CARES Act”) earlier than required, which increased the amount of our 2020 loss carryback to prior years when the federal statutory rate was 35%.

These favorable factors were partially offset by a higher proportion of state taxes expense as compared to state taxes benefit in relation to income/(loss) before income taxes, the benefit in the prior year of our fiscal 2020 loss carryback and a reserve for uncertain tax positions in fiscal 2021.

(See Note 20 of Notes to Consolidated Financial Statements in Part IV, Item 15 of this report for further discussion of income taxes.)

Non-GAAP Measures

Adjusted net (loss)/income and adjusted diluted net (loss)/income per share are supplemental measures of our performance that are not required by or presented in accordance with GAAP.

Adjusted net income/(loss) and adjusted diluted net income/(loss) per share are supplemental measures of our performance that are not required by or presented in accordance with GAAP.

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

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

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

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

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

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

(See Note 17 of Notes to Condensed Consolidated Financial Statements in Part IV, Item 15 of this report for further discussion of our preferred stock.) We use these non-GAAP financial measures for financial and operational decision-making and as a means to evaluate period-to-period comparisons.

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

In the future, we may incur expenses or generate income similar to the adjusted items.

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

Net (loss)/income available to common stockholders

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

Net income/(loss) available to common stockholders

Dividends on Series A preferred stock

Direct and incremental Series A preferred stock issuance costs

Net income attributed to Series A preferred stock to apply if-converted method

COVID-19 related costs (1)

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Acquisition-related costs

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

(Gain)/loss on investments in unconsolidated affiliates

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

Termination of interest rate swap

Uncertain tax positions

Gain on investments in unconsolidated affiliates

Tax effect of adjustments (2)

Adjusted net (loss)/income

Diluted net (loss)/income per common share

Adjusted net income/(loss)

Diluted net income/(loss) per common share

Dividends on Series A preferred stock

Direct and incremental Series A preferred stock issuance costs

Net income attributable to Series A preferred stock to apply if-converted method

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

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Acquisition-related costs

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

(Gain)/loss on investments in unconsolidated affiliates

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

Termination of interest rate swap

Uncertain tax positions

Gain on investments in unconsolidated affiliates

Tax effect of adjustments (2)

Adjusted net (loss)/income per share (4)

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

Adjusted net income/(loss) per share (4)

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

During fiscal 2021, we recorded $4.9 million for these costs with approximately $4.6 million reflected in labor expenses and $0.3 million in other operating expenses.

During fiscal 2020, we recorded $23.0 million for these costs with approximately $2.2 million in cost of sales, $11.9 million reflected in labor expenses, $8.8 million in other operating expenses and $0.1 million in G&A expenses.

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

(3) Represents the impact of assuming the conversion of Series A preferred stock into common stock utilizing a weighted-average shares outstanding approach (6,390,210 shares), resulting in an assumption of 50,258,815 weighted-average common shares outstanding for fiscal 2020.

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

(3) Represents the impact of assuming the conversion of Series A preferred stock into common stock (4,431,140 and 6,390,210 shares for fiscal 2021 and fiscal 2020, respectively), resulting in an assumption of 51,959,879 and 50,258,815 weighted-average common shares outstanding for fiscal 2021 and fiscal 2020, respectively.

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

Fiscal 2022 Outlook

This discussion contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995, as codified in Section 27A of the Securities Act, and Section 21E of the Exchange Act and should be read in conjunction with our consolidated financial statements and related notes in Part IV, Item 15 of this report, the “Risk Factors” included in Part I, Item 1A of this report and the cautionary statements included throughout this report.

For fiscal 2021, we are currently estimating commodity cost inflation of approximately 2%, and while we are still evaluating the potential effects of COVID-19 pandemic on the labor environment, we expect hourly wage rate inflation to be slightly more favorable in fiscal 2021 versus recent years based on current governmental roadmaps for minimum wage.

Depending on the course of the pandemic, we expect to open as many as 12 to 15 new restaurants in fiscal 2021, including two to three The Cheesecake Factory restaurants, six North Italia restaurants and four to six restaurants within our FRC business, which includes as many as two Flower Child locations.

We also expect as many as three locations to open internationally under licensing agreements.

We expect fiscal 2021 net capital expenditures to range between $100 million and $105 million to support anticipated unit growth, ongoing maintenance needs and bakery and corporate infrastructure investments.

We will also pay $17.3 million of deferred consideration to the sellers of FRC.

Based on extrapolating recent trends and assuming no material disruptions from COVID-19 or other factors, we anticipate total revenue for fiscal 2022 to be approximately $3.3 billion to $3.4 billion, with The Cheesecake Factory average sales per location reaching just over $12 million, including the impact of the 53 rd operating week.

We remain committed to protecting our longer-term restaurant-level margins and will take appropriate actions, including additional menu pricing to offset structural and permanent costs, as needed.

However, we will likely continue to absorb short-term cost fluctuations driven by the current environment.

Including the February 2022 price increase, we currently have 4.75% pricing in The Cheesecake Factory menu and depending on inflationary trends will evaluate our pricing needs for the fall menu.

During fiscal 2022, we expect commodity inflation of low double digits and anticipate net labor inflation of approximately 5% when factoring in wage rates and channel mix, among other components such as payroll taxes and benefits.

We also anticipate other operating costs and expenses as a percentage of revenues to range from 25.0% to 25.5% and G&A expenses to be approximately $210 million.

We estimate preopening costs of approximately $19 million and depreciation and amortization expenses of approximately $90 million and are utilizing a tax rate of approximately 13% for modeling purposes.

We plan to open as many as 17 to 19 new restaurants in fiscal 2022, including five The Cheesecake Factory restaurants, five to seven North Italia restaurants and seven restaurants within our FRC business, which includes three Flower Child locations.

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

We expect our first quarter restaurant-level margins to be at their lowest level of the fiscal 2022 primarily due to the timing of the first quarter price increase and the projected cadence of commodity inflation we expense to lessen over the course of the fiscal year.

Liquidity and Capital Resources

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Typically, cash flows generated from operating activities are our principal source of liquidity, which we use to finance our restaurant expansion plans, ongoing maintenance of our restaurants and bakery facilities and investment in our corporate and information technology infrastructures.

However, given the impact of the COVID-19 pandemic on our operations, during fiscal 2020 we increased borrowings under our Facility (as defined below) and raised additional equity capital to increase our liquidity.

However, given the impact of the COVID-19 pandemic on our operations, during fiscal 2020 we increased borrowings under our credit facility and issued convertible preferred stock to increase our liquidity.

During fiscal 2021, we used net proceeds from issuing convertible senior notes and additional common stock to fund the repurchase of the majority of our Series A preferred stock and the conversion of the remaining Series A preferred stock into common stock, simplifying our capital structure and eliminating future convertible preferred stock dividends.

We also utilized a portion of the net proceeds to reduce borrowings under our credit facility.

Similar to many restaurant and retail chain store operations, we utilize operating lease arrangements for all of our restaurant locations.

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Additions to property and equipment

Investments in and loans to unconsolidated affiliates

Acquisition, net of cash acquired

Acquisition-related deferred consideration

Net borrowings on credit facility

Convertible debt issuance, net of issuance cost

Common stock issuance, net of issuance cost

Net repayments on credit facility

Series A preferred stock issuance, net of issuance costs

Cash dividends paid

Series A preferred stock cash-settled conversion

Series A preferred stock dividends paid

Acquisition-related deferred consideration

Proceeds from exercises of stock options

Common stock dividends paid

Treasury stock purchases

Cash Provided by Operating Activities

Cash flows from operations decreased by $215.9 million from fiscal 2019 primarily due to the impact of the COVID-19 pandemic.

Cash flows from operations increased by $210.1 million from fiscal 2020 primarily due to a lesser impact of the COVID-19 pandemic, partially offset by the payback of $36.5 million of payroll taxes that were deferred in fiscal 2020 under the CARES Act.

Typically, our requirement for working capital has not been significant since our restaurant customers pay for their food and beverage purchases in cash or cash equivalents at the time of sale, and we are able to sell many of our restaurant inventory items before payment is due to the suppliers of such items.

However, this dynamic shifted in fiscal 2020 as all of our restaurants temporarily closed their dining rooms due to the COVID-19 pandemic.

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

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

This dynamic shifted in fiscal 2020 in the reduced sales environment but returned to the historical pattern in fiscal 2021.

Property and Equipment

Capital expenditures for new restaurants, including locations under development as of each fiscal year-end, were $31.7 million, $31.7 million and $40.5 million for fiscal 2021, 2020 and 2019, respectively.

Capital expenditures also included $16.6 million, $29.4 million and $26.9 million for our existing restaurants and $2.0 million, $3.9 million and $17.4 million for bakery and corporate capacity and infrastructure investments in fiscal 2020, 2019 and 2018, respectively, including an infrastructure upgrade of our California bakery in 2018.

Depending on the course of the pandemic, we expect to open as many as 12 to 15 new restaurants in fiscal 2021 across our portfolio of concepts.

We anticipate approximately $100 million to $105 million in capital expenditures to support this level of unit development, as well as required maintenance on our restaurants.

We will refine these assumptions as more clarity on the operating environment emerges.

On October 2, 2019 (“Closing” or “Closing Date”), we acquired North Italia and FRC, including Flower Child and all other FRC brands.

The Acquisition was completed for consideration consisting of the following components:

$288.1 million in cash at Closing, which was primarily funded by drawing on the Facility (as defined below);

assumption of $10.0 million in debt previously owed by FRC to us;

a $12.0 million indemnity escrow amount specifically related to North Italia due ratably over two years;

and $45.0 million of deferred consideration due ratably over four years (including a $13.0 million indemnity escrow amount specifically related to the remaining FRC businesses).

Deferred consideration of $17.3 million was paid in fiscal 2020.

The acquisition agreement also included a contingent consideration provision which is payable on the fifth anniversary of the Closing Date and is based on achievement of revenue and profitability targets for the FRC brands other than North Italia and Flower Child with considerations made in the event we undergo a change in control or divest any FRC brand (other than North Italia and Flower Child) during the five years after Closing.

We are also required to provide financing to FRC in an amount sufficient to support achievement of these targets during the five years after Closing.

(See Note 2 of Notes to Consolidated Financial Statements in Part IV, Item 15 of this report for further discussion of the Acquisition.)

Credit Facility

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

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

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

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

During fiscal 2019, we utilized the Facility to fund the Acquisition.

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

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

During the fourth quarter of fiscal 2020, we repaid a portion of the outstanding balance on the Amended Facility such that at December 29, 2020, we had net availability for borrowings of $96.6 million, based on a $280.0 million outstanding debt balance and $23.4 million in standby letters of credit.

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

As of December 29, 2020, we were in compliance with the covenants set forth in the Amended Facility.

Capital expenditures also included $30.1 million, $16.6 million and $29.4 million for our existing restaurants and $5.1 million, $2.0 million and $3.9 million for bakery and corporate capacity and infrastructure investments in fiscal 2021, 2020 and 2019, respectively.

We expect to open as many as 17 to 19 new restaurants in fiscal 2022 across our portfolio of concepts.

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

Convertible Senior Notes

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

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

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

(See Note 12 of Notes to Consolidated Financial Statements in Part IV, Item 15 of this report for further discussion of the Notes.)

Common Stock Issuance

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

In connection with the issuance, we incurred direct and incremental costs of $8.0 million.

Revolving Facility

On March 30, 2021, we entered into an Amended Credit Agreement, which terminates on July 30, 2024, and consists of a $400 million revolving loan facility (the “Revolving Facility”), including a $40 million sublimit for letters of credit.

The Amended Credit Agreement also provides the ability to increase the Revolving Facility in an amount not to exceed (a) during the Covenant Relief Period (as defined below) $125 million and (b) thereafter, $200 million.

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

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

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

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

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

As of December 28, 2021, we were in compliance with the covenants set forth in the Revolving Facility.

(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.)

Series A Preferred Stock Issuance

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

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

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

In the second quarter of fiscal 2021, we utilized a portion of the net proceeds from our Notes and common share offerings to reduce the balance on our Revolving Facility, such that at December 28, 2021, we had net availability for borrowings of $240.1 million, based on a $130.0 million outstanding debt balance and $29.9 million in standby letters of credit.

Series A Preferred Stock

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

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

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

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

(See Note 17 of Notes to Consolidated Financial Statements in Part IV, Item 15 of this report for further discussion of our preferred stock.)

Cash Dividends

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

Common Stock Dividends

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

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

Cash dividends of $1.38 per common share were declared during fiscal 2019.

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

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

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

Our Board is considering the reinstatement of our dividend program in fiscal 2022.

However, the decision to reinstate the dividend as well as the amount of any dividend have yet to be determined.

Share Repurchases

Under authorization by our Board to repurchase up to 56.0 million shares of our common stock, we have cumulatively repurchased 53.1 million shares at a total cost of $1,702.5 million through December 28, 2021.

During fiscal 2020 and 2019, we repurchased 0.1 million and 1.1 million shares of our common stock at a cost of $3.6 million and $51.0 million, respectively.

During fiscal 2021 and 2020, we repurchased 0.1 million and 0.1 million shares of our common stock at a cost of $5.8 million and $3.6 million, respectively, in conjunction with satisfying tax withholding obligations on vested restricted share awards.

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

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

To preserve liquidity during the COVID-19 pandemic and in conjunction with the terms of our Amended Facility, in March 2020, our Board suspended share repurchases.

To preserve liquidity during the COVID-19 pandemic and in conjunction with the terms of our Amended Credit Agreement, in March 2020, our Board suspended share repurchases.

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

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

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

Our Board is actively evaluating share repurchase strategies for fiscal 2022.

(See Note 17 of Notes to Consolidated Financial Statements in Part IV, Item 15 of this report for further discussion of our repurchase authorization and methods.)

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Long-term debt

Deferred consideration (2)

Acquisition-related deferred consideration

Uncertain tax positions (2)

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(See Note 13 in Notes to Consolidated Financial Statements in Part IV, Item 15 of this report for discussion of leases.)

(2) Represents acquisition-related deferred consideration.

(See Note 2 of Notes to Consolidated Financial Statements in Part IV, Item 15 of this report for further discussion of the Acquisition.)

(2) Represents liability for uncertain tax positions.

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Amounts exclude agreements that are cancelable without significant penalty.

The Acquisition agreement also included a contingent consideration provision which is payable annually from 2022 through 2027 and is based on achievement of revenue and profitability targets for the FRC brands other than North Italia and Flower Child with considerations made in the event we undergo a change in control or divest any FRC brand (other than North Italia and Flower Child) during the five years after Closing.

The liability for this contingent consideration provision was $23.9 million at December 28, 2021.

See Note 3 in Notes to Consolidated Financial Statements in Part IV, Item 15 of this report for discussion of the fair value measurement for this liability.

We are also required to provide financing to FRC in an amount sufficient to support achievement of these targets during the five years after Closing.

Cash Flow Outlook

We believe that our cash and cash equivalents, combined with expected cash flows provided by operations, anticipated cash refunds from our net operating loss carryback claims and available borrowings under the Amended Facility, will provide us with adequate liquidity for the next 12 months.

(See Note 20 of Notes to Consolidated Financial Statements in Part IV, Item 15 of this report for discussion of our income taxes and Part II, Item 1A - Risk Factors for further discussion of risks associated with the COVID-19 pandemic.)

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

As of December 28, 2021, we had no financing transactions, arrangements or other relationships with any unconsolidated entities or related parties.

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

Critical Accounting Policies

Critical Accounting Estimates

Critical accounting policies are those we believe are most important to portraying our financial condition and results of operations and also require the greatest amount of subjective or complex judgments by management.

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We consider the following policies to be the most critical in understanding the judgment that is involved in preparing our consolidated financial statements.

Business Combination

On October 2, 2019, we completed the acquisition of North Italia and the remaining business of Fox Restaurant Concepts LLC.

In accordance with the acquisition method of accounting for business combinations, we allocated the purchase price of acquired businesses to the tangible and intangible assets acquired and liabilities assumed based on preliminary estimated fair values.

Our purchase price allocation methodology contains uncertainties because it requires us to make certain assumptions and to apply judgment to estimate the fair value of acquired assets and liabilities, including, but not limited to, property and equipment and intangible assets.

We estimated the fair value of assets and liabilities based upon widely-accepted valuation techniques, including discounted cash flow, relief from royalty and Monte Carlo methods, depending on the nature of the assets acquired or liabilities assumed.

The process for estimating fair values in many cases requires the use of significant estimates, assumptions and judgments, including determining the timing and estimates of future cash flows and developing appropriate discount rates.

Unanticipated events or circumstances may occur which could affect the accuracy of our fair value estimates.

We made minor adjustments to our purchase accounting in the first quarter of fiscal 2020 as we finalized our valuation of the acquired intangible assets.

(See Note 2 in Notes to Consolidated Financial Statements in Part IV, Item 15 of this report for further discussion of the Acquisition.)

Contingent Consideration

The acquisition agreement included a contingent consideration provision which is payable on the fifth anniversary of the Closing Date.

The fair value of the contingent consideration is determined utilizing a Monte Carlo model based on estimated future revenues, margins and volatility factors, among other variables and estimates, and has no maximum payment.

The fair value of the contingent consideration is highly subjective, and results could change materially if different estimates and assumptions were used.

(See Note 3 in Notes to Consolidated Financial Statements in Part IV, Item 15 of this report for further discussion of our fair value measurements.)

Contingent Consideration and Compensation Liability

The Acquisition agreement included a contingent consideration provision, a portion of which was considered part of the acquisition consideration and the remainder of which was considered future compensation expense.

This contingent consideration and compensation is payable annually from 2022 through 2027 and is based on achievement of revenue and profitability targets for the FRC brands other than North Italia and Flower Child.

The fair value of the contingent consideration and compensation liability is determined utilizing a Monte Carlo model based on estimated future revenues, margins, volatility factors and discount rates, among other variables and estimates and has no minimum or maximum payment.

The undiscounted range of outcomes per the Monte Carlo model was $0 to $204.0 million at December 28, 2021 and $0 to $32.0 million at December 29, 2020.

The fair value of the contingent consideration and compensation liabilities increased $16.4 million during fiscal 2021 primarily due to the impact of an amendment to the Acquisition agreement that, among other things, extended the measurement period through fiscal 2026, as well as to an increase in fiscal 2021 revenues and estimated future revenues utilized in the fair value calculation.

The fair value of the contingent consideration and compensation liability is highly subjective, and results could change materially if different estimates and assumptions were used.

Indefinite-Lived Intangible Assets

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First, we determine if, based on qualitative factors, it is more likely than not that an impairment exists.

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.

Factors considered include, but are not limited to, historical financial performance, a significant decline in expected future cash flows, including assumptions related to the COVID-19 pandemic, unanticipated competition, changes in management or key personnel, macroeconomic and industry conditions and the legal and regulatory environment.

If the qualitative assessment indicates that it is more likely than not that an impairment exists, then a quantitative assessment is performed.

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Key assumptions include projected revenue growth and operating expenses, discount rates, royalty rates and other factors that could affect fair value or otherwise indicate potential impairment.

Estimates of revenue growth and operating expenses are based on internal projections and consider historical performance and forecasted growth, including assumptions regarding business recovery after the COVID-19 pandemic, industry economics and the business environment.

Estimates of revenue growth and operating expenses are based on internal projections and consider historical performance and forecasted growth, including assumptions related to the COVID-19 pandemic, industry economics and the business environment.

The discount rate is based on the estimated cost of capital that reflects the risk profile of the related business.

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These fair value assessments could change materially if different estimates and assumptions were used.

The impact of the COVID-19 pandemic necessitated a quantitative assessment of our goodwill, trade names, trademarks and licensing agreements during the first quarter of fiscal 2020, resulting in a significant reduction in the balances of these assets.

We recorded impairment charges of $1.3 million and $183.1 million in fiscal 2021 and 2020, respectively.

The fiscal 2021 charges primarily related to impairment of licensing agreements, while the fiscal 2020 charges related primarily to impairment of our goodwill, trade names and trademarks.

(See Note 8 in Notes to Consolidated Financial Statements in Part IV, Item 15 of this report for further discussion of our intangible assets.)

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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.

Assessing whether impairment testing is warranted and, if so, determining the amount of expense require the use of estimates and assumptions regarding future cash flows and asset fair values.

Assessing whether impairment testing is warranted and, if so, determining the amount of expense require the use of estimates and assumptions regarding future cash flows, including assumptions related to the COVID-19 pandemic, and asset fair values.

Key assumptions include projected revenue growth and operating expenses, as well as forecasting asset useful lives and selecting an appropriate discount rate.

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These estimates are subjective and our ability to realize future cash flows and asset fair values is affected by factors such as changes in economic conditions and operating performance.

In fiscal 2021, we recorded $16.3 million of expense primarily related to the impairment of long-lived assets for three The Cheesecake Factory and two Other restaurants.

In fiscal 2020, we recorded $36.2 million of expense primarily related to the impairment of one The Cheesecake Factory, one North Italia, two Other FRC and six Other restaurants, as well as lease termination costs and accelerated depreciation for one The Cheesecake Factory and seven Other restaurants.

(See Note 1 in Notes to Consolidated Financial Statements in Part IV, Item 15 of this report for further discussion related to long-lived asset impairment.)

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See Note 1 of Notes to Consolidated Financial Statements in Part IV, Item 15 of this report for a summary of new accounting standards.

Impact of Inflation

The impact of inflation on food costs, labor, and other supplies and services can adversely impact our financial results.

While we attempt to at least partially offset increases in the costs of key operating resources by gradually raising prices for our menu items and bakery products and employing more efficient purchasing practices, productivity improvements and greater economies of scale, there can be no assurance that we will be effective in doing so.

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

What changed 10-K

Item 7. Management’s Discussion and Analysis