What changed in this filing

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Item 2. Management’s Discussion and Analysis

2022-11-02 compared with 2022-08-01 · 152 added, 140 removed, 210 unchanged (58% of the section changed)

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

This includes, without limitation, statements regarding corporate social responsibility (“CSR”) and in our CSR report, the effects of the COVID-19 pandemic on our financial condition and our results of operations, accelerated and diversified revenue growth as a result of the acquisition of North Italia and Fox Restaurant Concepts LLC (“FRC”), financial guidance and projections as well as expectations of our future financial condition, returning to pre-pandemic margins, results of operations, sales, target growth rates, cash flows, quarterly dividends, corporate strategy, plans, targets, goals, objectives, performance, growth potential, competitive position and business, and statements regarding our ability to:

This includes, without limitation, statements regarding corporate social responsibility (“CSR”) and in our CSR report, the effects of the COVID-19 pandemic on our financial condition and our results of operations, accelerated and diversified revenue growth as a result of the acquisition of North Italia and Fox Restaurant Concepts LLC (“FRC”), financial guidance and projections as well as expectations of our future financial condition, our focus on returning to pre-pandemic margins, results of operations, sales, target growth rates, cash flows, quarterly dividends, menu pricing, corporate strategy, plans, targets, goals, objectives, performance, growth potential, competitive position and business, and statements regarding our ability to:

leverage our competitive strengths, including investing in or acquiring new restaurant concepts and expanding The Cheesecake Factory® brand to other retail opportunities;

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leverage sales increases and manage flow through;

manage cost pressures, including wage rates, commodities cost, insurance costs and legal expenses, and stabilize margins;

manage inflation and other cost pressures, including, but not limited to, impacts to wage rates, commodities and services costs, utilities expenses, insurance costs and legal expenses, and stabilize margins;

grow earnings;

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In connection with the “safe harbor” provisions of the Acts, we have identified and are disclosing important factors, risks and uncertainties that could cause our actual results to differ materially from those projected in forward-looking statements made by us, or on our behalf.

(See Part II, Item 1A of this report, “Risk Factors,” and Part I, Item 1A, “Risk Factors,” included in our Annual Report on Form 10-K for the fiscal year ended December 28, 2021.) These cautionary statements are to be used as a reference in connection

with any forward-looking statements.

The factors, risks and uncertainties identified in these cautionary statements are in addition to those contained in any other cautionary statements, written or oral, which may be made or otherwise addressed in connection with a forward-looking statement or contained in any of our subsequent filings with the SEC.

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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.

COVID-19 Pandemic

Beginning in March 2020, COVID-19 and measures to prevent its spread led to temporary closures, shifts to an off-premise only operating model or reduced dining room capacity across our portfolio.

While restrictions on the type of permitted operating model and occupancy capacity may continue to change, currently all of our restaurants are operating with no capacity restrictions.

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, including the recent summer virus resurgence.

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

If, in the future, we experience significant disruptions related to COVID-19, we may again implement mitigation actions such as raising additional financing, not declaring future dividends, suspending share repurchases, suspending capital spending, implementing furloughs or modifying our operating strategies.

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

COVID-19 Pandemic and Other Impacts to our Operating Environment

We have experienced significant disruptions to our business as federal, state and local restrictions have fluctuated over time to mitigate the spread of the COVID-19 virus.

While most of our restaurants operated with no restrictions on indoor dining during the 2021 fiscal year and 2022 fiscal year to date, our operations were notably impacted during periods of accelerating case counts which led to restaurant staff quarantines and a shift in consumer behavior towards sheltering-in-place and social distancing.

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

During fiscal year 2022 to date, along with COVID-19, our operating results have been impacted by geopolitical and other macroeconomic factors, leading to increased commodity and wage inflation and other increased costs.

The ongoing effects of COVID-19 and its variants, along with other geopolitical and macroeconomic events could lead to further government mandates, including but not limited to capacity restrictions, shifts in consumer behavior, wage inflation, staffing challenges, product and services cost inflation and disruptions in the supply chain.

If these factors significantly impact our cash flow in the future, we may again implement mitigation actions such as suspending share repurchases and dividends, increasing borrowings on our credit facility or modifying our operating strategies.

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

The Cheesecake Factory Incorporated is a leader in experiential dining.

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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 maintaining 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.

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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 supporting both our margin objectives 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 menu price increases above our historical levels to support our longer-term restaurant-level margin objectives and are in the process of implementing further such increases in the third quarter of fiscal 2022.

Future near-term pricing actions may also be at levels above historical norms.

In prior years, 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.

Due to the inflationary cost pressures we are experiencing, we implemented menu price increases above our historical levels in the first and third quarters of fiscal 2022 to support our longer-term restaurant-level margin objectives and are in the process of implementing an incremental price increase in the fourth quarter of fiscal 2022.

Future near-term pricing actions may also be at levels above historical norms to keep pace with any significant cost 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.

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

Future decisions to pay or to increase or decrease dividends or to repurchase shares are at the discretion of the Board and will be dependent on a number of factors, including limitations pursuant to the terms and conditions of the Amended Credit Agreement and applicable law.

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.

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Results of Operations

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

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

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

June 28, 2022

June 29, 2021

June 28, 2022

June 29, 2021

September 27, 2022

September 28, 2021

September 27, 2022

September 28, 2021

Costs and expenses:

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Total costs and expenses

Income from operations

(Loss)/income from operations

Interest and other expense, net

Income before income taxes

Income tax provision

(Loss)/income before income taxes

Income tax (benefit)/provision

Net (loss)/income

Dividends on Series A preferred stock

Undistributed earnings allocated to Series A preferred stock

Net income available to common stockholders

Thirteen Weeks Ended June 28, 2022 Compared to Thirteen Weeks Ended June 29, 2021

Revenues increased 8.3% to $832.6 million for the fiscal quarter ended June 28, 2022 compared to $769.0 million for the comparable prior year period, primarily due to an increase in comparable restaurant sales, as well as additional revenue related to new restaurant openings.

The Cheesecake Factory comparable sales increased by 4.7%, or $28.4 million, from the second quarter of fiscal 2021 and increased 13.1% from the second quarter of fiscal 2019.

The increase from fiscal 2021 was primarily driven by increased customer traffic of 5.7%, partially offset by a decline in average check of 1.0% (based on a 5.7% negative change in mix, partially offset by an increase of 4.7% in menu pricing).

Sales through the off-premise channel comprised approximately 25% of our restaurant sales during the second quarter of fiscal 2022 as compared to 31% in the second quarter of fiscal 2021 as more customers have returned to on-premise dining, whereas consumer behavior had shifted towards the off-premise channel during the prior year period due to the pandemic.

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

Net (loss)/income available to common stockholders

Thirteen Weeks Ended September 27, 2022 Compared to Thirteen Weeks Ended September 28, 2021

Revenues increased 3.9% to $784.0 million for the fiscal quarter ended September 27, 2022 compared to $754.5 million for the comparable prior year period, primarily due to an increase in comparable restaurant sales, as well as additional revenue related to new restaurant openings.

The Cheesecake Factory comparable sales increased by 1.1%, or $6.3 million, from the third quarter of fiscal 2021 and increased 9.5% from the third quarter of fiscal 2019.

The increase from fiscal 2021 was primarily driven by an increase in average check of 1.0% (based on an increase of 6.0% in menu pricing, partially offset by 5.0% negative impact from mix) and increased customer traffic of 0.1%.

Sales through the off-premise channel comprised approximately 23% of our restaurant sales during the third quarter of fiscal 2022 as compared to 28% in the third quarter of fiscal 2021.

Off-premise sales mix remains elevated versus the pre-pandemic level of 15% during the third quarter of fiscal 2019, even as customers continue to return to on-premise dining.

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

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

In turn, the lower mix of sales in the off-premise channel during the second quarter of fiscal 2022 compared to the prior year second quarter was the primary driver of the negative change in mix and also contributed to the increase in traffic.

We implemented effective menu price increases of approximately 3.3% and 1.5% in the first quarter of fiscal 2022 and third quarter of fiscal 2021, respectively.

The Cheesecake Factory average sales per restaurant operating week increased 5.1% to $237,004 in the second quarter of fiscal 2022 from $225,452 in the second quarter of fiscal 2021.

Total operating weeks at The Cheesecake Factory restaurants increased 0.5% to 2,704 in the second quarter of fiscal 2022 compared to 2,691 in the prior year.

North Italia comparable sales increased approximately 12% from the second quarter of fiscal 2021 and increased 22% from the second quarter of fiscal 2019.

The increase from fiscal 2021 was primarily driven by increased customer traffic of 8%, as well as an increase in average check of 4% (based on an increase of 5% in menu pricing, partially offset by a 1% negative change in mix).

North Italia average sales per restaurant operating week increased 12.0% to $148,778 in the second quarter of fiscal 2022 from $132,824 in the second quarter of fiscal 2021.

Total operating weeks at North Italia increased 15.2% to 378 in the second quarter of fiscal 2022 compared to 328 in the prior year.

In turn, the lower mix of sales in the off-premise channel during the third quarter of fiscal 2022 compared to the prior year third quarter comprised approximately 2% of the negative change in mix with a positive correlative impact to traffic.

We implemented effective menu price increases of approximately 3.25% and 4.25% in the first and third quarters of fiscal 2022, respectively, and are in the process of implementing an incremental 2.8% price increase in the fourth quarter of fiscal 2022.

The Cheesecake Factory average sales per restaurant operating week increased 1.1% to $222,884 in the third quarter of fiscal 2022 from $220,362 in the third quarter of fiscal 2021.

Total operating weeks at The Cheesecake Factory restaurants increased 0.6% to 2,705 in the third quarter of fiscal 2022 compared to 2,689 in the prior year.

North Italia comparable sales increased approximately 10% from the third quarter of fiscal 2021 and increased 18% from the third quarter of fiscal 2019.

The increase from fiscal 2021 was primarily driven by increased customer traffic of 5%, as well as an increase in average check of 5% (based on an increase of 8% in menu pricing, partially offset by a 3% negative impact from mix).

We implemented effective menu price increases of approximately 2.0% and 5.5% in the fourth quarter of fiscal 2021 and second quarter of fiscal 2022, respectively, and are in the process of implementing a 4.3% price increase in the fourth quarter of fiscal 2022.

North Italia average sales per restaurant operating week increased 7.8% to $136,994 in the third quarter of fiscal 2022 from $127,098 in the third quarter of fiscal 2021.

Total operating weeks at North Italia increased 13.2% to 395 in the third quarter of fiscal 2022 compared to 349 in the prior year.

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

At June 28, 2022, there were two The Cheesecake Factory restaurants and seven North Italia restaurants not yet in the comparable sales base.

At September 27, 2022, there were three The Cheesecake Factory restaurants and seven 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.

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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 24.5% and 22.0% in the second quarters of fiscal 2022 and 2021, respectively, primarily due to inflation across most categories in excess of menu price increases (2.3%).

As a percentage of revenues, cost of sales was 25.2% and 22.5% in the third quarters of fiscal 2022 and 2021, respectively, primarily due to inflation across most categories in excess of menu price increases (2.6%).

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 35.7% in the second quarters of fiscal 2022 and 2021, respectively.

This increase was primarily due to wage rate inflation in excess of menu price increases (1.2%), as well as increased staffing levels compared to the prior year (0.3%), partially offset by a decline in group medical insurance costs due to lower claim activity (0.5%) in the second quarter of fiscal 2022.

As a percentage of revenues, labor expenses, which include restaurant-level labor costs and bakery direct production labor, including associated fringe benefits, were 37.4% and 37.1% in the third quarters of fiscal 2022 and 2021, respectively.

This increase was primarily due to increased staffing levels compared to the prior year (0.5%), as well as wage rate inflation in excess of menu price increases (0.3%) and training costs (0.2%), partially offset by a decline in group medical insurance costs due to lower claim activity (0.7%) in the third quarter of fiscal 2022.

Other Operating Costs and Expenses

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

As a percentage of revenues, other operating costs and expenses were 26.3% and 25.9% in the second quarters of fiscal 2022 and 2021, respectively.

This variance was primarily driven by utilities inflation in excess of menu price increases (0.2%) and higher workers compensation insurance costs due to lower claim activity in the prior year (0.2%).

As a percentage of revenues, other operating costs and expenses were 27.7% and 26.7% in the third quarters of fiscal 2022 and 2021, respectively.

This variance was primarily driven by utilities (0.5%) and building maintenance expense (0.4%) inflation in excess of menu price increases.

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 6.0% and 6.3% in the second quarters of fiscal 2022 and 2021, respectively.

This variance was primarily driven by lower corporate incentive compensation expense (0.4%).

As a percentage of revenues, G&A expenses were 6.4% and 6.1% in the third quarters of fiscal 2022 and 2021, respectively.

This variance was primarily driven by higher travel and meeting expenses as we return to more normalized business operations (0.3%).

Depreciation and Amortization Expenses

As a percentage of revenues, depreciation and amortization expenses decreased to 2.7% in the second quarter of fiscal 2022 from 2.9% in the comparable prior year period due primarily to sales leverage.

Impairment of Assets and Lease Terminations Expenses

During the second quarter of fiscal 2022, we recorded impairment of assets and lease terminations expense of $0.1 million compared with no impairment of assets and lease terminations expense during the second quarter of fiscal 2021.

As a percentage of revenues, depreciation and amortization expenses decreased to 2.9% in the third quarter of fiscal 2022 from 3.0% in the comparable prior year period due primarily to sales leverage.

Acquisition-Related Contingent Consideration, Compensation and Amortization Expenses

We recorded $0.9 million and $11.4 million during the second quarter of fiscal 2022 and 2021, respectively, of acquisition-related contingent consideration, compensation and amortization.

This decrease is primarily related to the impact of an amendment to the FRC acquisition agreement in the second quarter of fiscal 2021 that, among other things, extended the measurement period through fiscal 2026.

We recorded $1.1 million and $0.7 million of acquisition-related contingent consideration, compensation and amortization during the third quarters of fiscal 2022 and 2021, respectively, reflecting changes in the fair value of the deferred and contingent consideration and compensation liabilities, and amortization of acquired definite-lived licensing agreements.

Preopening Costs

Preopening costs were $2.9 million and $2.8 million in the second quarters of fiscal 2022 and 2021, respectively.

We opened one North Italia restaurants and one Other location in the second quarter of fiscal 2022 compared to two North Italia and one Other location in the comparable prior year period.

Preopening costs were $4.3 million and $3.2 million in the third quarters of fiscal 2022 and 2021, respectively.

We opened one The Cheesecake Factory, one North Italia and one Other FRC locations in the third quarter of fiscal 2022 compared to two North Italia, one Other FRC location and one Other location in the comparable prior year period.

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

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Interest and Other Expense, Net

Interest and other expense, net was $1.1 million and $4.7 million for the second quarters of fiscal 2022 and 2021, respectively.

This decrease was primarily due to interest in the prior year related to our interest rate swap, which was terminated in June 2021 ($2.8 million), lower interest on our Revolving Credit Facility due to a repayment in June 2021 ($0.4 million), as well as favorability across several other categories .

Income Tax Provision

Our effective income tax rate was 4.3% and 7.4% for the second quarters of fiscal 2022 and 2021, respectively.

The decrease resulted primarily from a higher proportion of employment credits in relation to pre-tax income, partially offset by nondeductible losses in the second quarter of fiscal 2022 as compared to non-taxable gains in the comparable prior year period on our investments in variable life insurance contracts used to support our non-qualified deferred compensation plan (“ESP”).

Twenty-Six Weeks Ended June 28, 2022 Compared to Twenty-Six Weeks Ended June 29, 2021

Revenues increased 16.5% to $1,626.4 million for the first half of 2022 compared to $1,396.4 million for the comparable prior year period, primarily due to an increase in comparable restaurant sales, reflecting the impact of the COVID-19 pandemic in the first half of fiscal 2021, as well as additional revenue related to new restaurant openings.

The Cheesecake Factory comparable sales increased by 12.0%, or $130.9 million, from the first half of fiscal 2021 and increased 10.6% from the first half of fiscal 2019.

The increase from fiscal 2021 was primarily driven by increased customer traffic of 14.4% primarily due to the impact of the COVID-19 pandemic in the prior year, partially offset by a decline in average check of 2.4% (based on a 6.7% negative change in mix, partially offset by an increase of 4.3% in menu pricing).

Sales through the off-premise channel comprised approximately 26% of our restaurant sales during the first half of fiscal 2022 as compared to 36% in the first half of fiscal 2021 as more customers have returned to on-premise dining, whereas consumer behavior had shifted towards the off-premise channel during the prior year period due to the pandemic.

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

The Cheesecake Factory average sales per restaurant operating week increased 12.3% to $231,264 in the first half of fiscal 2022 from $206,012 in the first half of fiscal 2021.

Total operating weeks at The Cheesecake Factory restaurants increased 0.7% to 5,408 in the first half of fiscal 2022 compared to 5,369 in the prior year.

North Italia comparable sales increased approximately 21% from the first half of fiscal 2021 and increased 22% from the first half of fiscal 2019.

The increase from fiscal 2021 was primarily driven by increased customer traffic of 19%, as well as an increase in average check of 2% (based on an increase of 4% in menu pricing, partially off by a 2% negative change in mix).

North Italia average sales per restaurant operating week increased 19.2% to $144,365 in the first half of fiscal 2022 from $121,061 in the first half of fiscal 2021.

Total operating weeks at North Italia increased 19.7% to 755 in the first half of fiscal 2022 compared to 631 in the prior year.

Interest and other expense, net was $1.3 million and $1.8 million for the third quarters of fiscal 2022 and 2021, respectively.

Income Tax (Benefit)/Provision

Our effective income tax rate was 31.9% and (10.5%) for the third quarters of fiscal 2022 and 2021, respectively.

The increase was primarily due to a cumulative benefit recorded in the fiscal 2022 third quarter tax provision resulting from a decline in annual forecasted pre-tax income from the second quarter to the third quarter of fiscal 2022, a benefit recorded in the third quarter of fiscal 2021 arising from an increase to our fiscal 2020 loss carryback as a result of repaying 100% of the FICA taxes that were deferred in fiscal 2020 under the Coronavirus Aid, Relief and Economic Security Act (“the CARES Act”) and higher nondeductible losses in the third quarter of fiscal 2022 as compared to the comparable prior year period on our investments in variable life insurance contracts used to support our non-qualified deferred compensation plan (“ESP”).

These factors were partially offset by a higher proportion of employment credits in relation to pre-tax income in the third quarter of fiscal 2022.

Thirty-Nine Weeks Ended September 27, 2022 Compared to Thirty-Nine Weeks Ended September 28, 2021

Revenues increased 12.1% to $2,410.4 million for the three quarters of 2022 compared to $2,150.8 million for the comparable prior year period, primarily due to an increase in comparable restaurant sales, reflecting the impact of the COVID-19 pandemic in the first three quarters of fiscal 2021, as well as additional revenue related to new restaurant openings.

The Cheesecake Factory comparable sales increased by 8.2%, or $137.3 million, from the first three quarters of fiscal 2021 and increased 10.2% from the first three quarters of fiscal 2019.

The increase from fiscal 2021 was primarily driven by increased customer traffic of 9.2% primarily due to the impact of the COVID-19 pandemic in the prior year, partially offset by a decline in average check of 1.0% (based on a 5.8% negative impact from mix, partially offset by an increase of 4.8% in menu pricing).

Sales through the off-premise channel comprised approximately 25% of our restaurant sales during the first three quarters of fiscal 2022 as compared to 33% in the comparable prior year period as more customers have returned to on-premise dining, whereas consumer behavior had shifted towards the off-premise channel during the prior year period due to the pandemic.

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

The lower mix of sales in the off-premise channel during the first three quarters of fiscal 2022 versus the comparable prior year third quarter comprised approximately 4% of the negative change in mix with a positive correlative impact to traffic.

The Cheesecake Factory average sales per restaurant operating week increased 8.4% to $228,470 in the first three quarters of fiscal 2022 from $210,801 in the first three quarters of fiscal 2021.

Total operating weeks at The Cheesecake Factory restaurants increased 0.7% to 8,113 in the first three quarters of fiscal 2022 compared to 8,058 in the comparable prior year period.

North Italia comparable sales increased approximately 17% from the first three quarters of fiscal 2021 and increased approximately 21% from the first three quarters of fiscal 2019.

The increase from fiscal 2021 was primarily driven by increased customer traffic of 14%, as well as an increase in average check of 3% (based on an increase of 5% in menu pricing, partially off by a 2% negative impact from mix).

North Italia average sales per restaurant operating week increased 15.1% to $141,833 in the first three quarters of fiscal 2022 from $123,211 in the first three quarters of fiscal 2021.

Total operating weeks at North Italia increased 17.3% to 1,150 in the first three quarters of fiscal 2022 compared to 980 in the prior year.

Cost of Sales

As a percentage of revenues, cost of sales was 24.1% and 21.8% in the first half of fiscal 2022 and 2021, respectively, primarily due to inflation across most categories in excess of menu price increases (1.9%).

As a percentage of revenues, cost of sales was 24.5% and 22.0% in the first three quarters of fiscal 2022 and 2021, respectively, primarily due to inflation across most categories in excess of menu price increases (2.2%).

Labor Expenses

As a percentage of revenues, labor expenses were 36.9% and 36.1% in the first half of fiscal 2022 and 2021, respectively.

This increase was primarily due to wage rate inflation in excess of menu price increases (1.4%), partially offset by a decrease in group medical insurance costs due to lower claim activity (0.5%) in the first half of fiscal 2022.

As a percentage of revenues, labor expenses were 37.1% and 36.5% in the first three quarters of fiscal 2022 and 2021, respectively.

This increase was primarily due to wage rate inflation in excess of menu price increases (0.9%), partially offset by a decrease in group medical insurance costs due to lower claim activity (0.6%) in the first three quarters of fiscal 2022.

Other Operating Costs and Expenses

As a percentage of revenues, other operating costs and expenses were 26.3% and 27.3% in the first half of fiscal 2022 and 2021, respectively.

This variance was primarily driven by pricing leverage (0.5%), sales leverage within occupancy and building costs (0.3%) and lower restaurant-level incentive compensation expense (0.3%).

As a percentage of revenues, G&A expenses were 6.1% and 6.6% in the first half of fiscal 2022 and 2021, respectively.

This variance was primarily driven by lower corporate incentive compensation expense (0.3%), as well as sales leverage and expense management (0.3%).

As a percentage of revenues, other operating costs and expenses were 26.7% and 27.1% in the first three quarters of fiscal 2022 and 2021, respectively.

This variance was primarily driven by sales leverage within occupancy and building costs (0.3%).

As a percentage of revenues, G&A expenses were 6.2% and 6.4% in the first three quarters of fiscal 2022 and 2021, respectively.

This variance was primarily driven by lower corporate incentive compensation expense (0.2%).

Depreciation and Amortization Expenses

As a percentage of revenues, depreciation and amortization expenses decreased to 2.7% in the first half of fiscal 2022 from 3.2% in the comparable prior year period due primarily to sales leverage.

As a percentage of revenues, depreciation and amortization expenses decreased to 2.8% in the first three quarters of fiscal 2022 from 3.1% in the comparable prior year period due primarily to sales leverage.

Impairment of Assets and Lease Terminations Expenses

During the first half of fiscal 2022, we recorded impairment of assets and lease terminations expense of $0.3 million related to lease termination costs and accelerated depreciation for two Grand Lux Cafe locations that closed during the first quarter of fiscal 2022.

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

During the first three quarters of fiscal 2022, we recorded impairment of assets and lease terminations expense of $0.3 million related to lease termination costs and accelerated depreciation for two Grand Lux Cafe locations that closed during the first quarter of fiscal 2022.

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

Acquisition-Related Contingent Consideration, Compensation and Amortization Expenses

We recorded $1.8 million and $11.9 million during the first half of fiscal 2022 and 2021, respectively, of acquisition-related contingent consideration, compensation and amortization.

We recorded $2.9 million and $12.6 million during the first three quarters of fiscal 2022 and 2021, respectively, of acquisition-related contingent consideration, compensation and amortization.

Preopening Costs

Preopening costs were $4.7 million and $6.6 million in the first half of fiscal 2022 and 2021, respectively.

We opened one North Italia and one Other location in the first half of fiscal 2022 compared to one The Cheesecake Factory, three North Italia restaurants, one Other FRC and one Other location in the comparable prior year period.

Preopening costs were $9.0 million and $9.8 million in the first three quarters of fiscal 2022 and 2021, respectively.

We opened one The Cheesecake Factory, two North Italia, one Other FRC and one Other location in the first three quarters of fiscal 2022 compared to one The Cheesecake Factory, five North Italia restaurants, two Other FRC and two Other locations in the comparable prior year period.

Interest and Other Expense, Net

Interest and other expense, net was $2.6 million and $7.4 million for the first half of fiscal 2022 and 2021, respectively.

This decrease was primarily due to interest in the prior year related to our interest rate swap, which was terminated in June 2021 ($3.3 million), lower interest on our Revolving Credit Facility due to a repayment in June 2021 ($0.5), as well as favorability across several other categories.

Income Tax Provision

Our effective income tax rate was 9.0% and 11.7% for the first half of fiscal 2022 and 2021, respectively.

The decrease resulted primarily from a higher proportion of employment credits in relation to pre-tax income in the first half of fiscal 2022 and our reserve for an uncertain tax position recorded in the comparable prior year period, partially offset by nondeductible losses in the first half of fiscal 2022 as compared to non-taxable gains in the comparable prior year period on our investments in variable life insurance contracts used to support our ESP.

Interest and other expense, net was $3.9 million and $9.2 million for the three quarters of fiscal 2022 and 2021, respectively.

This decrease was primarily due to higher interest expense in the prior year ($4.1 million), mainly related to our interest rate swap, which was terminated in June 2021 ($3.3 million).

Income Tax (Benefit)/Provision

Our effective income tax rate was 7.4% and 2.6% for the first three quarters of fiscal 2022 and 2021, respectively.

The increase resulted primarily from nondeductible losses in the first three quarters of fiscal 2022 as compared to non-taxable gains in the comparable prior year period on our investments in variable life insurance contracts used to support our ESP and a benefit recorded in 2021 arising from an increase to our fiscal 2020 loss carryback as a result of repaying 100% of the FICA taxes that were deferred in fiscal 2020 under the CARES Act, partially offset by a higher proportion of employment credits in relation to pre-tax income in the first three quarters of fiscal 2022 and our reserve for an uncertain tax position recorded in the comparable prior year period.

Non-GAAP Measures

Adjusted net income and adjusted if- converted net income per share are supplemental measures of our performance that are not required by or presented in accordance with GAAP.

Adjusted net (loss)/income and adjusted if- converted net (loss)/income 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 income available to common stockholders and diluted net income per common share the impact of items we do not consider indicative of our ongoing operations.

We calculate these non-GAAP measures by eliminating from net (loss)/income available to common stockholders 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 for the period that it was outstanding prior to the conversion on June 15, 2021, we excluded the preferred dividend and assumed all convertible preferred shares had been converted into common stock.

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

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

June 28, 2022

June 29, 2021

June 28, 2022

June 29, 2021

Net income available to common stockholders

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

September 27, 2022

September 28, 2021

September 27, 2022

September 28, 2021

Net (loss)/income available to common stockholders

Dividends on Series A preferred stock

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Tax effect of adjustments (2)

Adjusted net income

Diluted net income per common share

Adjusted net (loss)/income

Diluted net (loss)/income per common share

Dividends on Series A preferred stock

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Tax effect of adjustments (2)

Adjusted if-converted net income per share (4)

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

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

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

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

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

(3) Represents the impact of assuming the conversion of preferred stock into common stock (0 and 5,908,167 shares for the thirteen and thirty-nine weeks ended September 28, 2021, respectively), resulting in an assumption of 51,112,650 and 53,582,824 weighted-average common shares outstanding for the thirteen and thirty-nine weeks ended September 28, 2021.

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

Fiscal 2022 Outlook

Based on our second quarter performance, recent trends and including the impact of the latest virus resurgence, we anticipate total revenue for the third quarter of fiscal 2022 to be approximately $785 million to $805 million and for the full fiscal year to be approximately $3.32 billion to $3.37 billion, with The Cheesecake Factory fiscal year 2022 average sales per location reaching $12 million, including the impact of the 53rd operating week.

We remain committed to supporting our longer-term restaurant-level margin objectives and will take appropriate actions, including additional menu pricing to help offset structural and permanent costs.

Based on our fiscal 2022 year-to-date performance and recent trends, we anticipate total revenue for the fourth quarter of fiscal 2022 to be approximately $900 million to $930 million, including the impact of the 53rd operating week.

Fourth quarter-to-date through October 25, 2022, The Cheesecake Factory comparable sales increased approximately 2.8% and 14.0% compared to the comparable periods in fiscal 2021 and fiscal 2019, respectively.

Fourth quarter-to-date through October 25, 2022, North Italia comparable sales increased approximately 9% and 25% compared to the comparable periods in fiscal 2021 and fiscal 2019, respectively.

We are currently estimating the following expenses for the fourth quarter of fiscal 2022.

However, there remains measurable risk associated with cost fluctuations driven by the current environment.

We currently have 4.75% pricing in The Cheesecake Factory menu and are in the process of implementing a 4.25% menu price increase in the third quarter of fiscal 2022.

For fiscal year 2022, we expect commodity inflation of approximately 14% to 15% inclusive of the recent geopolitical environment, with 15% to 16% inflation in the third quarter of fiscal 2022 and moderating to 13% to 14% inflation in the fourth

quarter of fiscal 2022.

We expect fiscal year 2022 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 be slightly above 26% in the third quarter of fiscal 2022 and, with the full benefit of the third quarter menu price increase, to be approximately 25% for the fourth quarter of fiscal year 2022.

In addition, we expect fiscal 2022 G&A expenses of approximately $207 million, with approximately $52 million and $55 million to $56 million in the third and fourth quarter of fiscal 2022, respectively.

The increase in G&A expenses from the third to the fourth quarter of fiscal 2022 primarily relates to the 53rd operating week.

We also anticipate fiscal 2022 preopening costs of approximately $18 million, depreciation and amortization expenses of approximately $91 million and are utilizing a tax rate of approximately 9% to 10% for modeling purposes.

We plan to open as many as 15 new restaurants in fiscal 2022, including four The Cheesecake Factory restaurants, four North Italia restaurants and as many as seven restaurants within our FRC business, which includes three Flower Child locations.

We anticipate commodity inflation of approximately 15% and expect net labor inflation of approximately 5% when factoring in wage rates and channel mix, among other components such as payroll taxes and benefits.

We anticipate other operating costs and expenses as a percentage of revenues to be approximately 25.5%.

In addition, we expect G&A expenses of approximately $55 million to $56 million, preopening costs of approximately $7 million and depreciation and amortization expenses of approximately $25 million in the fourth quarter of fiscal 2022, including the 53rd operating week, and are utilizing a tax rate of 8% for modeling purposes.

We plan to open as many as 13 new restaurants in fiscal 2022, including three The Cheesecake Factory restaurants, four North Italia restaurants and as many as six restaurants within our FRC business, which includes three Flower Child locations.

We anticipate approximately $130 million in cash capital expenditures to support this level of unit development, as well as required maintenance on our restaurants.

Restaurant opening dates may be impacted by supply chain challenges and permit approval delays.

Fiscal 2023 Outlook

Based on our fiscal 2022 year-to-date performance and recent trends, we anticipate total revenue for fiscal 2023 to be approximately $3.5 billion to $3.6 billion.

We anticipate commodity and net labor inflation to be in the mid-single digit range.

We plan to open as many as 21 to 24 new restaurants in fiscal 2023, including four to five The Cheesecake Factory restaurants, seven to eight North Italia restaurants and ten to eleven restaurants within our FRC business, which includes three to four Flower Child locations.

We anticipate approximately $150 million to $170 million in cash capital expenditures to support this level of unit development, as well as required maintenance on our restaurants.

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 credit facility and issued convertible preferred stock 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 Series A 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.

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However, we believe our operating lease arrangements continue to provide appropriate leverage for our capital structure in a financially efficient manner.

During the first half of fiscal 2022, our cash and cash equivalents increased by $5.3 million to $194.9 million.

During the first three quarters of fiscal 2022, our cash and cash equivalents decreased by $56.5 million to $133.2 million.

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

June 28, 2022

June 29, 2021

September 27, 2022

September 28, 2021

Cash provided by operating activities

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Cash Provided by Operating Activities

Cash flows from operations decreased by $42.9 million from the first half of fiscal 2021 primarily due to higher fiscal year-end 2021 liabilities related to increased sales and staffing levels that were paid in the first half of fiscal 2022, compared to those accrued at fiscal year-end 2020 and paid in the first half of fiscal 2021.

Cash flows from operations decreased by $20.3 million from the first three quarters of fiscal 2021 primarily due to lower net income and higher fiscal year-end 2021 liabilities related to increased sales and staffing levels that were paid in the first three quarters of fiscal 2022 compared to those accrued at fiscal year-end 2020 and paid in the first three quarters of fiscal 2021.

These factors were partially offset by collection of our fiscal 2020 net operating loss carryback refund.

Property and Equipment

Capital expenditures for new restaurants, including locations under development, were $21.7 million and $14.0 million for the first half of fiscal 2022 and 2021, respectively.

Capital expenditures also included $22.4 million and $14.4 million for our existing restaurants and $2.3 million and $2.5 million for bakery and corporate capacity and infrastructure investments in the first half of fiscal 2022 and 2021, respectively.

Capital expenditures for new restaurants, including locations under development, were $36.9 million and $23.6 million for the first three quarters of fiscal 2022 and 2021, respectively.

Capital expenditures also included $37.3 million and $21.7 million for our existing restaurants and $3.9 million and $3.9 million for bakery and corporate capacity and infrastructure investments in the first three quarters of fiscal 2022 and 2021, respectively.

We currently anticipate fiscal 2022 capital expenditures to be approximately $130 million.

Acquisition-Related Deferred Consideration and Compensation

During the first half of fiscal 2022, we made a payment of $7.2 million for contingent consideration and compensation related to the FRC acquisition.

During the first quarter of fiscal 2022, we made a payment of $7.2 million for contingent consideration and compensation related to the FRC acquisition.

Convertible Senior Notes

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

At June 28, 2022, the conversion rate for the Notes was 12.8586 shares of common stock per $1,000 principal amount of the Notes, which represents a conversion price of approximately $77.77 per share of common stock.

In connection with the cash dividend that was declared by our Board on July 21, 2022, on August 11, 2022 we will adjust the conversion rate (which is expected to increase) and the conversion price (which is expected to decrease) of the Notes in accordance with the terms.

At September 27, 2022, the conversion rate for the Notes was 12.9717 shares of common stock per $1,000 principal amount of the Notes, which represents a conversion price of approximately $77.09 per share of common stock.

In connection with the cash dividend that was declared by our Board on October 26, 2022, on November 14, 2022 we will adjust the conversion rate (which is expected to increase) and the conversion price (which is expected to decrease) of the Notes in accordance with the terms.

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

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

Revolving Credit 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.

Credit Facility

On March 30, 2021, we entered into an amendment to our existing loan agreement (the “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 $200 million.

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

As of June 28, 2022, we were in compliance with the covenants set forth in the Revolving Facility.

Our compliance with the financial covenants set forth in the Revolving Facility as of September 27, 2022 was measured under the Fourth Revolving Facility, and as such date we were in compliance with such financial covenants.

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 by $150.0 million.

At June 28, 2022, we had net availability for borrowings of $237.7

million, based on a $130.0 million outstanding debt balance and $32.3 million in standby letters of credit.

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

At September 27, 2022, we had net availability for borrowings of $238.5 million, based on a $130.0 million outstanding debt balance and $31.5 million in standby letters of credit.

On October 6, 2022, we entered into a Fourth Amended and Restated Loan Agreement (the “Fourth Amended Credit Agreement” and the revolving credit facility provided thereunder, the “Fourth Revolving Facility”).

The Fourth Amended Credit Agreement amends and restates in its entirety our prior Amended Credit Agreement.

The Fourth Revolving Facility, which terminates on October 6, 2027, provides us with revolving loan commitments that total $400 million, of which $50 million may be used for issuances of letters of credit.

The Fourth Revolving Facility contains a commitment increase feature that, subject to certain conditions precedent, could provide for an additional $200 million in revolving loan commitments.

Our obligations under the Fourth Revolving Facility are unsecured.

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

On October 6, 2022 we repaid the outstanding balance under the Revolving Facility and borrowed the same amount on the Fourth Revolving Facility.

As of the date of this report, we had net availability for borrowings of $238.5 million, based on a $130.0 million outstanding debt balance and $31.5 million in standby letters of credit under the Fourth Revolving Facility.

Under the Fourth Revolving Facility, we are subject to financial covenants as of the last day of each fiscal quarter.

We are also subject to customary events of default that, if triggered, could result in acceleration of the maturity of the Fourth Revolving Facility.

Subject to certain exceptions, the Fourth Revolving Facility also limits distributions with respect to our equity interests, such as cash dividends and share repurchases, based on a defined ratio, and also sets forth negative covenants that restrict indebtedness, liens, investments, sales of assets, fundamental changes and other matters.

(See Notes 5 and 13 of Notes to Condensed Consolidated Financial Statements in Part I, Item 1 of this report for further discussion of our long-term debt and the October 6, 2022 amendment.)

Series A Preferred Stock

During the second quarter of fiscal 2021, we paid a cash dividend on our Series A preferred stock of $5.1 million.

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

(See Note 9 of Notes to Consolidated Financial Statements in Part IV, Item 15 of this report for further discussion of our preferred stock.)

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

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

Common Stock Dividends

Common stock dividends of $14.3 million and $0.3 million were paid in the first half of fiscal 2022 and 2021, respectively.

Common stock dividends of $28.3 million and $0.3 million were paid in the first three quarters of fiscal 2022 and 2021, respectively.

The increase is primarily due to the resumption of our quarterly dividend in the second quarter of fiscal 2022 after the suspension that began in fiscal 2020 due to the impact of COVID-19 on our business and in conjunction with the terms of our Amended Credit Agreement.

As further discussed in Note 13 of Notes to Condensed Consolidated Financial Statements in Part I, Item 1 of this report, in July 2022, our Board declared a quarterly dividend to be paid in the third quarter of fiscal 2022.

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.

As further discussed in Note 13 of Notes to Condensed Consolidated Financial Statements in Part I, Item 1 of this report, in October 2022, our Board declared a quarterly dividend to be paid in the fourth quarter of fiscal 2022.

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

Share Repurchases

Under authorization by our Board to repurchase up to 56.0 million shares of our common stock, we have cumulatively repurchased 53.6 million shares at a total cost of $1,717.3 million through June 28, 2022.

We repurchased 0.5 million shares at a cost of $14.8 million during the first half of fiscal 2022 compared to 0.1 million shares at a cost of $4.6 million during the comparable fiscal 2021 period.

Under authorization by our Board to repurchase up to 56.0 million shares of our common stock, we have cumulatively repurchased 54.5 million shares at a total cost of $1,744.0 million through September 27, 2022.

We repurchased 1.3 million shares at a cost of $41.5 million during the first three quarters of fiscal 2022 compared to 0.1 million shares at a cost of $5.2 million during the comparable fiscal 2021 period.

$26.2 million of the increase is due to the resumption of our share repurchase program in the second quarter of fiscal 2022 after the suspension that began in fiscal 2020 due to the impact of COVID-19 on our business and in conjunction with the terms of our Amended Credit Agreement.

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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 FRC acquisition, our share price and current market conditions.

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

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

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

(See Notes 9 and 13 of Notes to Condensed Consolidated Financial Statements in Part I, Item 1 of this report for further discussion of our repurchase authorization and methods and increased authorized amount under our share repurchase program, respectively.)

Cash Flow Outlook

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 June 28, 2022, we had no financing transactions, arrangements or other relationships with any unconsolidated entities or related parties.

As of September 27, 2022, we had no financing transactions, arrangements or other relationships with any unconsolidated entities or related parties.

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

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

What changed 10-Q

Item 2. Management’s Discussion and Analysis