What changed in this filing

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Item 9A. Controls and Procedures

2023-02-27 compared with 2022-02-22 · 243 added, 287 removed, 873 unchanged (38% of the section changed)

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We carried out an evaluation, under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures as of the end of the period covered by this report.

Based on that evaluation, the Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were effective at the reasonable assurance level as of December 28, 2021.

Management’s Report on Internal Control over Financial Reporting

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Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements.

Under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, we carried out an evaluation of the effectiveness of our internal control over financial reporting as of December 28, 2021 based on the criteria in “Internal Control - Integrated Framework (2013)” issued by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”).

Based on this evaluation, our management concluded that our internal control over financial reporting was effective as of December 28, 2021.

The effectiveness of our internal control over financial reporting as of December 28, 2021 has been audited by KPMG LLP, an independent registered public accounting firm, as stated in their report which appears in Part IV, Item 15 of this report.

Under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, we carried out an evaluation of the effectiveness of our internal control over financial reporting as of January 3, 2023 based on the criteria in “Internal Control - Integrated Framework (2013)” issued by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”).

Based on this evaluation, our management concluded that our internal control over financial reporting was effective as of January 3,2023.

The effectiveness of our internal control over financial reporting as of January 3, 2023 has been audited by KPMG LLP, an independent registered public accounting firm, as stated in their report which appears in Part IV, Item 15 of this report.

Changes in Internal Control over Financial Reporting

There have been no changes in our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Securities Exchange Act of 1934) during the three months ended December 28, 2021 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

There have been no changes in our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Securities Exchange Act of 1934) during the three months ended January 3, 2023 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

OTHER INFORMATION

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Information with respect to our executive officers is included in Part I, Item 1 of this report.

Other information required by this item is hereby incorporated by reference from the sections entitled “Election of Directors,” “The Board and Corporate Governance,” and “Delinquent Section 16(a) Reports” in our definitive proxy statement for the annual meeting of stockholders to be held on May 19, 2022 (the “Proxy Statement”).

EXECUTIVE COMPENSATION

The information required by this item is hereby incorporated by reference to the sections entitled “Directors Compensation,” “Executive Compensation,” “Compensation of Named Executive Officers” and “Compensation Committee Interlocks and Insider Participation” in the Proxy Statement.

ITEM 12.SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS

SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS

The information required by this item is hereby incorporated by reference to the section entitled “Beneficial Ownership of Principal Stockholders and Management” and “Equity Compensation Plan Information” in the Proxy Statement.

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The information required by this item is hereby incorporated by reference to the sections entitled “Policies Regarding Review, Approval or Ratification of Transactions with Related Persons” and “The Board and Corporate Governance” in the Proxy Statement.

PRINCIPAL ACCOUNTING FEES AND SERVICES

PRINCIPAL ACCOUNTANT FEES AND SERVICES

The information required by this item is hereby incorporated by reference to the section entitled “Independent Registered Public Accounting Firm Fees and Services” (in the proposal entitled “Ratification of Selection of Independent Registered Public Accounting Firm”) in the Proxy Statement.

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Report of Independent Registered Public Accounting Firm

To the Stockholders and the Board of Directors

To the Stockholders and Board of Directors

The Cheesecake Factory Incorporated:

Opinions on the Consolidated Financial Statements and Internal Control Over Financial Reporting

We have audited the accompanying consolidated balance sheets of The Cheesecake Factory Incorporated and subsidiaries (the Company) as of December 28, 2021 and December 29, 2020, the related consolidated statements of income/(loss), comprehensive income/(loss), stockholders’ equity and series A convertible preferred stock, and cash flows for each of the years in the three-year period ended December 28, 2021, and the related notes (collectively, the consolidated financial statements).

We also have audited the Company’s internal control over financial reporting as of December 28, 2021, based on criteria established in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission.

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of the Company as of December 28, 2021 and December 29, 2020, and the results of its operations and its cash flows for each of the years in the three-year period ended December 28, 2021, in conformity with U.S.

We have audited the accompanying consolidated balance sheets of The Cheesecake Factory Incorporated and subsidiaries (the Company) as of January 3, 2023 and December 28, 2021, the related consolidated statements of income/(loss), comprehensive income/(loss), stockholders’ equity and series A convertible preferred stock, and cash flows for each of the years in the three-year period ended January 3, 2023, and the related notes (collectively, the consolidated financial statements).

We also have audited the Company’s internal control over financial reporting as of January 3, 2023, based on criteria established in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission.

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of the Company as of January 3, 2023 and December 28, 2021, and the results of its operations and its cash flows for each of the years in the three-year period ended January 3, 2023, in conformity with U.S.

generally accepted accounting principles.

Also in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 28, 2021 based on criteria established in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission.

Also in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of January 3, 2023 based on criteria established in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission.

Basis for Opinions

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The critical audit matter communicated below is a matter arising from the current period audit of the consolidated financial statements that was communicated or required to be communicated to the audit committee and that:

(1) relates to accounts or disclosures that are material to the consolidated financial statements and (2) involved our especially challenging, subjective, or complex judgment.

(1) relates to accounts or disclosures that are material to the consolidated financial statements and (2) involved our especially challenging, subjective, or complex judgments.

The communication of a critical audit matter does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.

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If the carrying amount of an asset group exceeds its estimated undiscounted future cash flows, an impairment charge is recognized for the amount by which the carrying amount of the asset group exceeds the fair value of the asset group.

The property and equipment, net, and operating lease asset balances as of December 28, 2021 were $741.7 million and $1,241.2 million, respectively.

The Company’s property and equipment, net, and operating lease asset balances as of January 3, 2023 were $746.1 million and $1,269.0 million, respectively.

Based upon the analyses performed, the Company recognized pre-tax impairment charges for long-lived assets of $31.4 million in fiscal 2022.

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The evaluation of the assumptions used in the undiscounted cash flow analysis and determination of fair value of certain long-lived assets resulted in the application of challenging auditor judgment.

These assumptions include revenue and the operating margin.

These assumptions include revenue growth and the operating margin.

The following are the primary procedures we performed to address this critical audit matter.

We evaluated the design and tested the operating effectiveness of certain internal controls over the Company’s long-lived asset impairment assessment process.

This included controls related to the determination of the undiscounted cash flow and fair value of the restaurant asset groups, and the related revenue and operating margin assumptions.

We performed sensitivity analyses over the revenue and operating margin assumptions to assess the impact of changes in those assumptions on the Company’s determination of the undiscounted cash flow and fair value of the restaurant asset groups.

We compared the Company’s prior year revenue and operating margin assumptions to current year actual results to assess the Company’s ability to accurately forecast.

We evaluated the Company’s revenue and operating margin assumptions for the restaurant asset groups by comparing the assumptions to the restaurant asset groups’ historical and peer group performance.

This included controls related to the determination of the undiscounted cash flow and fair value of the restaurant asset groups, and the related revenue growth and operating margin assumptions.

For certain restauant asset groups, we performed sensitivity analyses over the revenue growth and operating margin assumptions to assess the impact of changes in those assumptions on the Company’s determination of the undiscounted cash flow and fair value of these restaurant asset groups.

We compared the Company’s prior year revenue growth and operating margin assumptions to current year actual results to assess the Company’s ability to accurately forecast.

We evaluated the Company’s revenue growth and operating margin assumptions for certain restaurant asset groups by comparing the assumptions to the restaurant asset groups’ historical and peer group performance.

We have served as the Company’s auditor since 2018.

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CONSOLIDATED BALANCE SHEETS

(In thousands, except share data)

(In thousands, except share and per share data)

Current assets:

Cash and cash equivalents

Accounts and other receivable

Accounts and other receivables

Income taxes receivable

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Series A convertible preferred stock, $ .01 par value, 200,000 shares authorized;

0 and 200,000 shares issued and outstanding at December 28, 2021 and December 29, 2020, respectively

Stockholders’ equity:

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Common stock, $ .01 par value, 250,000,000 shares authorized;

105,365,678 and 98,645,147 shares issued at December 28, 2021 and December 29, 2020, respectively

106,323,117 and 105,365,678 shares issued at January 3, 2023 and December 28, 2021, respectively

Additional paid-in capital

Retained earnings

Treasury stock, 53,139,172 and 53,026,409 shares at cost at December 28, 2021 and December 29, 2020, respectively

Treasury stock, 55,149,520 and 53,139,172 shares at cost at January 3, 2023 and December 28, 2021, respectively

( 1,765,641 )

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Costs and expenses:

Cost of sales

Food and beverage costs

Labor expenses

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Income/(loss) from operations

Gain on investments in unconsolidated affiliates

Interest and other expense, net

Income/(loss) before income taxes

Income tax (benefit)/ provision

Income tax benefit

Net income/(loss)

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Net income/(loss)

Other comprehensive gain/(loss):

Other comprehensive (loss)/gain:

Foreign currency translation adjustment

Unrealized gain/(loss) on derivative, net of tax

Other comprehensive gain/(loss)

Other comprehensive (loss)/gain

Total comprehensive income/(loss)

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Comprehensive

Balance, January 1, 2019

( 1,642,140 )

Cumulative effect of adopting the pronouncement related to lease accounting, net of tax

Balance, January 1, 2019, as adjusted

( 1,642,140 )

Foreign currency translation adjustment

Cash dividends declared Common stock, $ 1.38 per share

Stock-based compensation

Common stock issued under stock-based compensation plans

Treasury stock purchases

Balance, December 31, 2019

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Change in derivative, net of tax

Cash dividends declared Common stock, $ 0.36 per share

Cash dividends declared common stock,net of forfeitures, $ 0.36 per share

Stock-based compensation

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( 1,702,509 )

Foreign currency translation adjustment

Cash dividends declared common stock, net of forfeitures, $ 0.81 per share

Stock-based compensation

Common stock issued under stock-based compensation plans

Treasury stock purchases

Balance, January 3, 2023

( 1,765,641 )

See the accompanying notes to the consolidated financial statements.

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Stock-based compensation

Gain from investments in unconsolidated affiliates

Changes in assets and liabilities, net of acquired amounts:

Changes in assets and liabilities:

Accounts and other receivables

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Additions to intangible assets

Acquisition, net of cash acquired

Investments in unconsolidated affiliates

Loans made to unconsolidated affiliates

Cash used in investing activities

Cash flows from financing activities:

Acquisition-related deferred consideration

Acquisition-related deferred consideration and compensation

Borrowings on credit facility

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Construction payable

Non-cash investing:

Acquisition-related deferred consideration and compensation

Fair value of previously-held equity investments

Loans repaid by unconsolidated affiliates as a reduction of acquisition cash

Loan to unconsolidated affiliate assumed in acquisition

Non-cash financing:

Series A preferred stock conversion to common stock

See the accompanying notes to the consolidated financial statements.

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We are culinary forward and relentlessly focused on hospitality.

We currently own and operate 306 restaurants throughout the United States and Canada, including 208 The Cheesecake Factory ® restaurants, 29 North Italia ® restaurants and a collection within our Fox Restaurant Concepts (“FRC”) business.

We currently own and operate 318 restaurants throughout the United States and Canada under brands including The Cheesecake Factory ® (210 locations), North Italia ® (33 locations) and a collection within our Fox Restaurant Concepts (“FRC”) business.

Internationally, 30 The Cheesecake Factory ® restaurants operate under licensing agreements.

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All intercompany accounts and transactions for the periods presented have been eliminated in consolidation.

On October 2, 2019, we completed the acquisition of North Italia and the remaining business of FRC, including Flower Child and all other FRC brands (the “Acquisition”).

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

We utilize a 52/53-week fiscal year ending on the Tuesday closest to December 31 for financial reporting purposes.

Fiscal years 2021, 2020 and 2019 each consisted of 52 weeks and fiscal year 2022 will consist of 53 weeks.

Fiscal year 2022 consisted of 53 weeks.

Fiscal years 2021 and 2020 each consisted of 52 weeks.

Fiscal year 2023 will consist of 52 weeks.

Beginning in the fourth quarter of fiscal 2022, we retitled the income statement line item “Cost of Sales” to “Food and Beverage Costs.” This is a title change only, and there is no difference in the classification of items within this category of costs.

Use of Estimates

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Actual results could differ from these estimates.

COVID-19 Pandemic

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.

COVID-19 Pandemic, Geopolitical and Other Macroeconomic 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 fiscal years 2021 and 2022, our revenues were negatively impacted during periods of accelerating case counts during which we incurred increased restaurant staff absenteeism and a temporary shift in consumer behavior, such as changes in customer traffic or the mix between on-premise and off-premise channels.

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

In addition, we experienced labor shortfalls relative to our sales levels in certain parts of our workforce and/or geographies as we reopened our dining rooms after the lifting of mandatory social-distancing regulations related to the COVID-19 pandemic.

During fiscal 2021, we also began to experience certain supply shortages and transportation delays largely attributable to impacts of the COVID-19 pandemic.

These shortages continued in fiscal 2022 and were exacerbated by geopolitical unrest.

The aggregate impact of these and other geopolitical and macroeconomic factors contributed to significantly increased commodity and wage inflation and other increased costs.

We have also encountered delays in opening new restaurants due to supply chain challenges, as well as to longer lead times in obtaining licenses and permits and in the timeline required to complete the overall leasing process with landlords.

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, disruptions in the supply chain and delay in new restaurant openings.

If these factors significantly impact our cash flow in the future, we may again implement mitigation actions such as suspending share repurchases, not declaring future dividends, increasing borrowings under our credit facility or modifying our operating strategies.

Any of these measures may have an adverse impact on our business and materially adversely affect our financial performance.

Cash and Cash Equivalents

Amounts receivable from credit card processors, totaling $ 17.5 million and $ 9.1 million at December 28, 2021 and December 29, 2020, respectively, are considered cash equivalents because they are both short-term and highly liquid in nature and are typically converted to cash within three days of the sales transaction.

During the last week of fiscal 2020, almost all of our restaurants were operating under capacity restrictions or in an off-premise-only model.

Therefore, we processed less sales through credit cards causing a lower receivable in fiscal 2020.

Amounts receivable from credit card processors, totaling $ 19.1 million and $ 17.5 million at January 3, 2023 and December 28, 2021, respectively, are considered cash equivalents because they are both short-term and highly liquid in nature and are typically converted to cash within three days of the sales transaction.

Our cash management system provides for the funding of all major bank disbursement accounts on a daily basis as checks are presented for payment.

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Impairment losses are measured as the amount by which the carrying values of the assets exceed their fair value, which is determined based on discounted future net cash flows expected to be generated by the assets.

In fiscal 2022, we recorded $ 31.4 million of expense primarily related to the impairment of long-lived assets for three The Cheesecake Factory, one Other FRC and three Other restaurants.

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.

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

These amounts are recorded in impairment of assets and lease terminations on the consolidated statements of income.

In fiscal 2020, we recorded $ 36.2 million of expense primarily related to the impairment of 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.

These amounts are recorded in impairment of assets and lease terminations on the consolidated statements of income/(loss).

Intangible Assets

Our intangible assets consist of goodwill, indefinite-lived trade names, trademarks and transferable alcoholic beverage licenses and definite-lived licensing agreements and non-transferable alcoholic beverage licenses.

Definite-lived intangible assets are amortized on a straight-line basis over their estimated useful lives and reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset or asset group may not be recoverable based on estimated undiscounted future cash flows.

If impaired, the asset or asset group is written down to fair value based on discounted future cash flows.

The following table presents components of intangible assets, net (in thousands):

Fiscal year ended

January 3, 2023

December 28, 2021

Indefinite-lived intangible assets:

Trade names and trademarks

Transferable alcoholic beverage licenses

Total indefinite-lived intangible assets

Definite-lived intangible assets, net:

Licensing agreements

Non-transferable alcoholic beverage licenses

Total definite-lived intangible assets

Total intangible assets, net

Goodwill and other indefinite-lived intangible assets are not amortized and are tested for impairment annually as of the first day of our fiscal fourth quarter or on an interim basis if events or changes in circumstances between annual tests indicate a potential impairment.

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, assumptions related to the COVID-19 pandemic, wage, product and services inflation, competitive environment, macroeconomic and industry conditions, results of prior impairment tests and share price performance.

Any adverse change in these factors could have a significant impact on the recoverability of these assets and could have a material impact on our consolidated financial statements.

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

The quantitative assessments require the use of estimates and assumptions regarding future cash flows and asset fair values.

For the goodwill impairment test, the estimated fair value of the reporting units is determined using a blend of the income approach using a discounted cash flow analysis and the market capitalization approach.

The fair value of the trade names, trademarks and licensing agreements is estimated using the relief from royalty method.

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

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

Such assessments could change materially if different estimates and assumptions were used.

We performed our annual impairment assessment of indefinite-lived intangible assets as of the first day of the fourth quarters of fiscal 2022 and 2021 and concluded there was no impairment.

During the first quarter of fiscal 2020, we determined it was necessary to perform an interim assessment of our goodwill, trade names and trademarks due to the decrease in our stock price coupled with the dining room closures related to the COVID-19 pandemic and significant decline to the equity value of our peers and overall U.S.

stock market.

Based on the results of this assessment, we recorded goodwill impairment expense related to the Other FRC, North Italia and Flower Child operating segments of $ 33.8 million, $ 27.7 million and $ 17.9 million, respectively.

In addition, we recorded impairment expense of $ 101.0 million related to trade names and trademarks.

We performed our annual assessment of indefinite-lived intangible assets as of the first day of our fiscal fourth quarter of fiscal year 2020 and concluded there was no further impairment of these assets, other than $ 0.4 million of expense related to transferable alcoholic beverage licenses.

If impaired, the asset or asset group is written down to fair value based on discounted future cash flows.

We performed our annual impairment assessment of definite-lived intangible assets as of the first day of the fourth quarters of fiscal 2022 and 2021.

We concluded there was no impairment for fiscal 2022 and recorded $ 1.3 million of impairment expense in fiscal 2021 related to licensing agreements.

During the first quarter of fiscal 2020, we determined it was necessary to perform an interim assessment of our licensing agreements and we recorded impairment expense of $ 2.3 million related to licensing agreements.

Amortization expenses related to our definite-lived intangible assets were $ 0.5 million, $ 0.7 million and $ 0.7 million for fiscal 2022, 2021 and 2020, respectively.

Definite-lived intangible assets will be amortized over one to 53 years .

We evaluate the useful lives of our intangible assets, other than goodwill, at each reporting period to determine if they are definite or indefinite-lived.

A determination on useful life requires judgments and assumptions regarding the future effects of obsolescence, demand, competition, other economic factors (such as the stability of the industry, legislative action that results in an uncertain or changing regulatory environment and expected changes in distribution channels), the level of required maintenance expenditures and the expected lives of other related groups of assets.

(See Note 8 for further discussion of our intangible assets.)

Investments in Unconsolidated Affiliates

From fiscal 2016 until the Acquisition on October 2, 2019, we held minority equity investments in two restaurant concepts, North Italia and Flower Child, with our percentage of ownership growing to 49 % in each concept immediately prior to the Acquisition.

Since we held a number of rights with regard to participation in policy-making processes, but did not control these entities prior to the Acquisition, we accounted for these investments under the equity method.

Accordingly, we recognized our proportionate share of the reported earnings or losses of these entities on the consolidated statements of income and as an adjustment to our investments on the consolidated balance sheets.

We assessed the potential impairment of these equity investments whenever events or changes in circumstances indicated that a decrease in value of the investment had occurred that was other than temporary, in which case we would have recognized the decrease even though it was in excess of what would otherwise be recognized by application of the equity method.

No impairment losses were recorded for these assets during fiscal 2019.

Revenue Recognition

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Our consumer packaged goods minimum guarantees do not require distinct performance obligations.

Therefore, related revenue is recognized on a straight-line basis over the life of the applicable agreements, ranging from one to three years .

Therefore, related revenue is recognized on a straight-line basis over the life of the applicable agreements, ranging from five to seven years .

As our development and site fee agreements do not contain distinct performance obligations, related revenue is recognized on a straight-line basis over the life of the applicable agreements, ranging from eight to 30 years .

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We recognize a liability upon the sale of our gift cards and recognize revenue when these gift cards are redeemed in our restaurants.

Based on our historical redemption patterns, we can reasonably estimate the amount of gift cards for which redemption is remote, which is referred to as “breakage.” Breakage is recognized over a three-year period in proportion to historical redemption trends and is classified as revenues in our consolidated statements of income.

We recognized $ 7.0 million, $ 6.8 million and $ 7.6 million of gift card breakage in fiscal years 2022, 2021 and 2020, respectively.

Incremental direct costs related to gift card sales, including commissions and credit card fees, are deferred and recognized in earnings in the same pattern as the related gift card revenue.

There were no changes to our accounting for gift card revenue and related costs upon adoption of the new revenue recognition standard.

Certain of our promotional programs include multiple element arrangements that incorporate various performance obligations.

We allocate revenue using the relative selling price of each performance obligation considering the likelihood of redemption and recognize revenue upon satisfaction of each performance obligation.

During fiscal 2021, we deferred revenue of $ 27.5 million related to promotional programs and recognized $ 15.2 million of previously deferred revenue related to promotional programs.

During fiscal 2020, we deferred revenue of $ 11.6 million related to promotional programs and recognized $ 11.2 million of previously deferred revenue related to promotional programs.

During fiscal 2022, we deferred and recognized previously deferred revenue of $ 27.3 million and $ 23.6 million, respectively, related to promotional programs.

During fiscal 2021, we deferred and recognized previously deferred revenue of $ 27.5 million and $ 15.2 million, respectively, related to promotional programs.

During fiscal 2020, we deferred and recognized previously deferred revenue of $ 11.6 million and $ 11.2 million, respectively, related to promotional programs.

We currently lease all of our restaurant locations, generally with initial terms of 10 to 20 years plus two five-year renewal options.

Our leases typically require contingent rent above the minimum base rent payments based on a percentage of revenues ranging from 2 % to 10 %, have escalating minimum rent requirements over the term of the lease and require payment for various expenses incidental to the use of the property.

A majority of our leases provide for a reduced level of overall rent obligation should specified co-tenancy requirements not be satisfied.

A majority of our leases provide for a reduced level of overall rent obligation if specified co-tenancy requirements are not satisfied.

We expend cash for leasehold improvements and furniture, fixtures, and equipment to build out and equip our leased premises.

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Variable lease payments, which primarily consist of real estate taxes, common area maintenance charges, insurance cost and other operating expenses, are not included in the operating lease right-of-use asset or operating lease liability balances and are recognized as incurred.

The reasonably certain lease term and the incremental borrowing rate for each restaurant location require judgment by management and can impact the classification and accounting for a lease as operating or finance, as well as the value of the operating lease asset and liability.

These judgments may produce materially different amounts of rent expense than would be reported if different assumptions were used.

Rent expense is included in other operating costs and expenses in the consolidated statements of income.

In April 2020, the FASB staff issued interpretive guidance that indicated it would be acceptable for entities to make an election to account for lease concessions related to the effects of the COVID-19 pandemic consistent with how those concessions would be accounted for under Topic 842, as though enforceable rights and obligations for those concessions existed (regardless of whether those enforceable rights and obligations for the concessions explicitly exist in the contract) rather than as a lease modification.

Lessees may make the election for any lessor-provided lease concession related to the impact of the COVID-19 pandemic if the concession does not result in a substantial increase in the rights of the lessor or in the obligations of the lessee.

During fiscal 2020, we received a number of lease concessions, primarily in the form of rent deferrals or reduction over the period of time when our restaurant business was adversely impacted and have elected to apply the interpretive guidance.

This election did not have a material impact on our consolidated financial statements.

Three concession agreements did not qualify for this accounting election and were treated as lease modifications.

During fiscal 2020, we deferred rent payments of $ 7.6 million, of which $ 7.3 million was paid in fiscal 2021.

Rent expense is included in other operating costs and expenses in the consolidated statements of income/(loss).

The reasonably certain lease term and the incremental borrowing rate for each restaurant location require judgment by management and can impact the classification and accounting for a lease as operating or finance, the value of the operating lease asset and liability and the term over which leasehold improvements for each restaurant are depreciated.

These judgments may produce materially different amounts of operating lease assets and liabilities, rent expense and interest expense than would be reported if different assumptions were used.

Self-Insurance Liabilities

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Basic net income/(loss) per share is computed by dividing net income/(loss) available to common stockholders by the weighted-average number of common shares outstanding during the period, reduced by unvested restricted stock awards.

At December 28, 2021, December 29, 2020 and December 31, 2019, 2.1 million shares, 2.0 million shares and 1.8 million shares, respectively, of restricted stock issued were unvested and, therefore, excluded from the calculation of basic earnings per share for the fiscal years ended on those dates.

At January 3, 2023, December 28, 2021 and December 29, 2020, 2.5 million shares, 2.1 million shares and 2.0 million shares, respectively, of restricted stock and restricted stock units issued were unvested and, therefore, excluded from the calculation of basic earnings per share for the fiscal years ended on those dates.

Diluted net income/(loss) per share is computed by dividing net income/(loss) available to common stockholders by the weighted-average number of common stock equivalents outstanding for the period.

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Holders of our Series A Convertible Preferred Stock, par value $ 0.01 per share (the “Series A preferred stock”) participated in dividends on an as-converted basis when declared on common stock.

As a result, our Series A preferred stock met the definition of a participating security which requires us to apply the two-class method to compute both basic and diluted net income per share.

As a result, our Series A preferred stock met the definition of a participating security which required us to apply the two-class method to compute both basic and diluted net income per share.

The two-class method is an earnings allocation formula that treats participating securities as having rights to earnings that would otherwise have been available to common stockholders.

In addition, as our Series A preferred stock was a participating security, we are required to calculate diluted net income per share under the if-converted method in addition to the two-class method and utilize the most dilutive result.

In addition, as our Series A preferred stock was a participating security, we were required to calculate diluted net income per share under the if-converted method in addition to the two-class method and utilize the most dilutive result.

In periods where there is a net loss, no allocation of undistributed net loss to preferred stockholders was performed as the holders of our Series A preferred stock were not contractually obligated to participate in our losses.

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Diluted net income/(loss) per common share

(1) Shares of common stock equivalents of 1.9 million, 4.0 million and 2.3 million for fiscal 2021, 2020 and 2019, respectively, were excluded from the diluted calculation due to their anti-dilutive effect.

(2) Our Notes of $ 345 million were excluded from the diluted calculation due to their anti-dilutive effect.

(1) Shares of common stock equivalents related to outstanding stock options, restricted stock and restricted stock units of 3.3 million, 1.9 million and 4.0 million for fiscal 2022, 2021 and 2020, respectively, were excluded from the diluted calculation due to their anti-dilutive effect.

No shares of common stock equivalents related to the Notes were included in the diluted calculation due to their anti-dilutive effect.

Comprehensive Income/(Loss)

Comprehensive income/(loss) includes all changes in equity during a period except those resulting from investment by and distribution to owners.

Our comprehensive income consists of net income/(loss), unrealized losses on our interest rate swap and translation gains and losses related to our Canadian restaurant operations.

Our comprehensive income consists of net income/(loss), unrealized gains/(losses) on our interest rate swap and translation gains/(losses) related to our Canadian restaurant operations.

Foreign Currency

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Equity accounts are translated at historical rates, except for the change in retained earnings which is the result of the income statement translation process.

Translation gains and losses are reported as a separate component in our consolidated statements of comprehensive income and would only be realized upon the sale or upon complete or substantially complete liquidation of the business.

Gains and losses from foreign currency transactions are recognized in our consolidated statements of income in interest and other expense, net.

Translation gains and losses are reported as a separate component in our consolidated statements of comprehensive income/(loss) and would only be realized upon the sale or upon complete or substantially complete liquidation of the business.

Gains and losses from foreign currency transactions are recognized in our consolidated statements of income/(loss) in interest and other expense, net.

Recent Accounting Pronouncements

In August 2020, the FASB issued Accounting Standards Update (“ASU”) 2020-06, Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity, which is intended to simplify the accounting and measurement of convertible instruments and the settlement assessment for contracts in an entity’s own equity.

This pronouncement is effective for fiscal years beginning after December 15, 2021 and early adoption is permitted.

The guidance allows for either full retrospective adoption or modified retrospective adoption.

This pronouncement was effective for fiscal years beginning after December 15, 2021 and early adoption was permitted.

The guidance allowed for either full retrospective adoption or modified retrospective adoption.

We adopted this guidance in the first quarter of fiscal 2021 utilizing the modified retrospective method and, accordingly, recorded a $ 4.8 million cumulative adjustment to retained earnings to reverse previously-recorded beneficial conversion features.

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Additionally, the impact on diluted earnings per share of the Notes was calculated based on the if-converted method, as further described in Note 1.

Acquisition Pro Forma Results of Operations (unaudited)

The following pro forma results of operations for fiscal 2019 give effect to the Acquisition as if it had occurred on January 1, 2019 (in thousands):

Net income per share:

The above pro forma information includes combined North Italia and FRC actual revenues and net loss of $ 92.0 million and $ 1.5 million, respectively, contributed post acquisition in fiscal 2019.

The most significant adjustments included in the pro forma financial information are the elimination of the gain/(loss) on our previously-held equity interests in North Italia and Flower Child, elimination of transaction costs, increased interest expense associated with debt incurred to fund the Acquisition, elimination of historical FRC interest expense and corresponding income tax effects.

In the opinion of the Company’s management, the unaudited pro forma financial information includes all significant necessary adjustments that can be factually supported to reflect the effects of the Acquisition and related transactions.

The unaudited pro forma financial information is provided for informational purposes only and is not necessarily indicative of what our actual results of operations would have been had the Acquisition and related transactions been completed as of January 1, 2019 or that may be achieved in the future.

Fair Value Measurements

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The following tables present the components and classification of our assets and liabilities that are measured at fair value on a recurring basis (in thousands):

December 28, 2021

January 3, 2023

Assets/(Liabilities)

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Acquisition-related deferred consideration

Acquisition-related contingent consideration and compensation liabilities

Acquisition-related contingent consideration and compensation liability

December 28, 2021

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Non-qualified deferred compensation liabilities

Interest rate swap

Acquisition-related deferred consideration

Acquisition-related contingent consideration and compensation liabilities

Changes in the fair value of non-qualified deferred compensation assets and liabilities are recognized in interest and other expense, net in our consolidated statements of income.

Changes in the fair value of the acquisition-related deferred and contingent consideration and compensation liabilities are recognized in acquisition-related contingent consideration, compensation and amortization expense/(benefit) in our consolidated statements of income.

See Note 14 for information regarding the financial statement classification of fair value changes in our interest rate swap.

The following table presents a reconciliation of the beginning and ending amounts of the fair value of the acquisition-related contingent consideration and compensation liabilities categorized as Level 3 (in thousands):

Changes in the fair value of non-qualified deferred compensation assets and liabilities are recognized in interest and other expense, net in our consolidated statements of income/(loss).

Changes in the fair value of the acquisition-related deferred and contingent consideration and compensation liability are recognized in acquisition-related contingent consideration, compensation and amortization expenses in our consolidated statements of income/(loss).

Fiscal year ended

December 28, 2021

January 3, 2023

December 28, 2021

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Ending balance

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

The undiscounted range of outcomes per the Monte Carlo model utilized to determine the fair value of the acquisition-related contingent consideration and compensation liability was $ 0 to $ 276.0 million at January 3, 2023 and $ 0 to $ 204.0 million at December 28, 2021.

Results could change materially if different estimates and assumptions were used.

The significant increase in the fair value of the contingent consideration and compensation liabilities during fiscal 2021 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.

During fiscal 2022, the fair value of the contingent consideration and compensation liability increased by $ 4.7 million due to an $ 8.3 million increase in the fair value primarily stemming from a change in the volatility factors, as well as an increase in fiscal 2022 revenues and estimated future revenues utilized in the calculation and amortization, partially offset by a payment of $ 7.2 million per the FRC acquisition agreement.

The increase in the fair value of the contingent consideration and compensation liability during fiscal 2021 was primarily due to a $ 15.3 million decrease 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, partially offset by amortization.

The fair values of our cash and cash equivalents, accounts receivable, income taxes receivable, other receivables, prepaid expenses, accounts payable, income taxes payable and other accrued expenses approximate their carrying amounts due to their short duration.

As of December 28, 2021, we had $ 345.0 million aggregate principal amount of Notes outstanding.

The estimated fair value of the Notes based on a market approach as of December 28, 2021 was approximately $ 309.8 million and determined based on the estimated or actual bids and offers of the Notes in an over-the-counter market on the last business day of the reporting period.

At both January 3, 2023 and December 28, 2021, we had $ 345.0 million aggregate principal amount of Notes outstanding.

The estimated fair value of the Notes based on a market approach as of January 3, 2023 and December 28, 2021 was approximately $ 282.9 million and $ 309.8 million, respectively, and determined based on the estimated or actual bids and offers of the Notes in an over-the-counter market on the last business day of the reporting period.

The decrease in the fair value of the Notes was primarily due to a decline in our stock price from the date of the issuance of Notes.

See Note 10 for further discussion of the Notes.

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Fiscal year ended

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January 3, 2023

December 28, 2021

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Insurance providers

Landlord construction contributions

Delivery partner

(1) The increase stems from the impact of the COVID-19 pandemic on our business in the prior year .

(2) The increase primarily relates to an Employee Retention Credit receivable associated with the CARES Act, as well as timing of tenant improvement and vendor rebate collections.

Inventories consisted of (in thousands):

Fiscal year ended

December 28, 2021

January 3, 2023

December 28, 2021

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Bakery raw materials and supplies

(1) The increase in bakery finished goods and work in progress inventory primarily relates to lower than typical levels at December 28, 2021 due to challenges ramping back up after the initial COVID-19 shutdown, as well as higher valuations at January 3, 2023 due to the significant cost inflation experienced during fiscal 2022.

Prepaid Expenses

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Fiscal year ended

December 28, 2021

January 3, 2023

December 28, 2021

Gift card contract assets

(1) The primary cause for the increase in other prepaid expenses is that our January 2023 rent payments fell before the fiscal 2022 year-end date compared to the January 2022 rent payments which fell after the fiscal 2021 year-end date .

Property and Equipment

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Fiscal year ended

December 28, 2021

January 3, 2023

December 28, 2021

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Net expense for property and equipment disposals was $ 1.6 million, $ 1.1 million and $ 0.6 million, in fiscal 2022, 2021 and 2020, respectively.

Intangible Assets, net

The following table presents components of intangible assets, net (in thousands):

Fiscal year ended

December 28, 2021

December 29, 2020

Indefinite-lived intangible assets:

Trade names and trademarks

Transferable alcoholic beverage licenses

Total indefinite-lived intangible assets

Definite-lived intangible assets, net:

Licensing agreements

Non-transferable alcoholic beverage licenses

Total definite-lived intangible assets

Total intangible assets, net

Amortization expenses related to our definite-lived intangible assets were $ 0.7 million, $ 0.7 million and $ 0.3 million for fiscal 2021, 2020 and 2019, respectively.

Definite-lived intangible assets will be amortized over one to 54 years .

We performed our annual assessment of indefinite-lived intangible assets as of the first day of our fiscal fourth quarter of fiscal 2021 and concluded there was a $ 1.3 million impairment of our licensing agreements.

During the first quarter of fiscal 2020, we determined it was necessary to perform an interim assessment of our goodwill, trade names, trademarks and licensing agreements due to the decrease in our stock price coupled with the dining room closures related to the COVID-19 pandemic and significant decline to the equity value of our peers and overall U.S.

stock market.

For the goodwill impairment test, the estimated fair value of the reporting units was determined using a blend of the income approach using a discounted cash flow analysis and the market capitalization approach.

The fair value of the trade names, trademarks and licensing agreements was estimated using the relief from royalty method.

There were a number of estimates and significant judgments made by management in performing these evaluations, such as future unit growth, average unit volumes, cash flows, discount rates and royalty rates.

Accordingly, actual results could vary significantly from such estimates.

In addition, we recorded impairment expense of $ 101.0 million and $ 2.3 million related to trade names and trademarks, and licensing agreements, respectively.

More than half of the total impairment amount was driven by the impact on our market capitalization, with the balance related to lower future cash flow estimates.

The reduced projections stemmed primarily from our decision to delay fiscal 2020 unit development, thereby moving our expected unit growth trajectory out by one year.

The cash flow estimates assumed that average unit volumes and margins would substantially return to pre-COVID-19 levels by mid-fiscal 2021.

Other assets consisted of (in thousands):

Fiscal year ended

December 28, 2021

January 3, 2023

December 28, 2021

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Deferred income taxes (1)

(1) See Note 18 for further discussion of our income taxes.

The following tables present information related to gift cards (in thousands):

Fiscal year ended

December 28, 2021

January 3, 2023

December 28, 2021

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Fiscal year ended

December 28, 2021

January 3, 2023

December 28, 2021

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(1) Included in prepaid expenses on the consolidated balance sheets.

The significant increases in activations, redemptions and breakage during fiscal 2021 compared to fiscal 2020 stem from the impact of the COVID-19 pandemic on our business in the prior year.

Other Accrued Expenses

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Fiscal year ended

December 28, 2021

January 3, 2023

December 28, 2021

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Deferred consideration

(1) The increase in accrued salaries and wages is primarily due to lower labor expenses in the prior year due to impact of the COVID-19 pandemic.

(2) The decrease in accrued payroll and sales taxes represents the repayment of certain payroll taxes that were deferred in fiscal 2020 under the CARES Act, partially offset by increased payroll and sales tax accruals due to lower labor and revenues, respectively, in fiscal 2020 due to the impact of the COVID-19 pandemic.

(3) The decrease during fiscal 2021 represents payment of deferred consideration per the Acquisition agreement.

(1) The decrease in accrued salaries and wages was primarily due to the timing of payroll disbursements in relation to the fiscal 2022 versus 2021 year-end dates.

Long-Term Debt

Revolving Credit Facility

On March 30, 2021, we entered into a Second Amendment (the “Second Amendment”) to our existing Third Amended and Restated Loan Agreement, dated July 30, 2019 (as amended by that certain First Amendment, dated as of May 1, 2020 and by the Second Amendment, collectively, the “Amended Credit Agreement”).

The Amended Credit Agreement, which terminates on July 30, 2024, consists of a $ 400 million revolving loan facility (the “Revolving Facility”), including a $ 40 million sublimit for letters of credit.

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 Second Amendment, among other things, (i) extended the prior covenant relief period during which the testing of the net adjusted debt to EBITDAR ratio covenant (the “Net Adjusted Leverage Ratio”) and the EBITDAR to interest and rent expense ratio covenant (the “EBITDAR Ratio”) was suspended until the quarter ending December 28, 2021 (the “Covenant Relief Period”), (ii) continued to impose a monthly Liquidity covenant of $ 100 million (with Liquidity being the sum of (a) unrestricted cash and cash equivalents and (b) the unused portion of the Revolving Facility) until the Company demonstrated compliance with the financial covenants as of the quarter ending December 28, 2021, (iii) provided that the obligations thereunder be secured by a first priority security interest in substantially all of our and any guarantor’s property, with such property to be released upon (a) the termination of the Covenant Relief Period, (b) the Company’s compliance with the Net Adjusted Leverage Ratio and the EBITDAR Ratio as of the quarter ending on March 29, 2022, (c) neither the Company nor any of the guarantors having incurred unsecured debt using certain debt baskets under the Revolving Facility unless such debt is convertible debt or subordinated on customary debt subordination terms reasonably acceptable to the administrative agent and (d) no default or event of default having occurred or continuing, (iv) amended certain negative covenants during the Covenant Relief Period, including certain restrictions on capital expenditures, restricted payments, investments and indebtedness, and (v) permitted the payment of cash dividends with respect to our Series A Convertible Preferred Stock, par value $ 0.01 per share (“Series A preferred stock”) for each fiscal quarter of 2021 in an amount not to exceed $ 5.25 million per quarter.

Subsequent to the Covenant Relief Period, we are required to maintain (i) a maximum Net Adjusted Leverage Ratio of 4.75 and (ii) a minimum EBITDAR Ratio of 1.9 .

Borrowings under the Amended Credit Agreement during the Covenant Relief Period bear interest, at our option, at a rate equal to either:

(i) the adjusted LIBO Rate (as customarily defined, the “Adjusted LIBO Rate”) plus 2.5 %, or (ii) the sum of (a) the highest of (1) the rate of interest last quoted by The Wall Street Journal as the prime rate in effect in the United States, (2) the greater of the rate calculated by the Federal Reserve Bank of New York as the effective federal funds rate or the rate that is published by the Federal Reserve Bank of New York as an overnight bank funding rate, in either case plus 0.5 %, and (3) the one-month Adjusted LIBO Rate plus 1.0 %, plus (b) 1.5 %.

During the Covenant Relief Period, we also incurred a fee of 0.4 % on the daily amount of unused commitments.

Subsequent to the Covenant Relief Period, borrowings under the Amended Credit Agreement will bear interest, at our option, at a rate equal to either:

(i) the Adjusted LIBO Rate plus a margin that is based on our net adjusted leverage ratio, or (ii) the sum of (a) the highest of (1) the rate of interest last quoted by The Wall Street Journal as the prime rate in effect in the United States, (2) the greater of the rate calculated by the Federal Reserve Bank of New York as the effective federal funds rate or the rate that is published by the Federal Reserve Bank of New York as an overnight bank funding rate, in either case plus 0.5 %, and (3) the one-month Adjusted LIBO Rate plus 1.0 %, plus (b) a margin that is based on our net adjusted leverage ratio.

Subsequent to the Covenant Relief Period, we will also incur a fee of 0.1 % to 0.2 % on the daily amount of unused commitments.

Letters of credit bear fees that are equivalent to the interest rate margin that is applicable to revolving loans that bear interest at the adjusted LIBO Rate plus other customary fees charged by the issuing bank.

We paid certain customary loan origination fees in conjunction with the Amended Credit Agreement.

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.

Our Liquidity balance at December 28, 2021 was $ 443.7 million, and we were in compliance with all covenants under the Amended Credit Agreement in effect at that date.

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.

Credit Facility

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

The Loan Agreement amends and restates in its entirety our prior credit agreement.

The Revolver 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 Revolver 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 Revolver Facility are unsecured.

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

During fiscal 2021, we utilized a portion of the net proceeds from our Notes and common share offerings to reduce the balance on our then-existing credit facility by $ 150.0 million.

On October 6, 2022, we repaid the outstanding balance under the then-existing credit agreement and borrowed the same amount on the Revolver Facility.

As of January 3, 2023, 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 Revolver Facility.

Under the Revolver Facility, we are subject to the following financial covenants as of the last day of each fiscal quarter:

(i) a maximum ratio of net adjusted debt to EBITDAR (the “Amended Net Adjusted Leverage Ratio”) of 4.25 and (ii) a minimum ratio of EBITDAR to interest and rent expense (“EBITDAR Ratio”) of 1.90 .

The Amended Net Adjusted Leverage Ratio includes a rental expense multiplier of six as compared to eight in the Amended Credit Agreement.

At January 3, 2023, we were in compliance with all covenants in effect at that date.

Borrowings under the Loan Agreement bear interest, at the Company’s election, at a rate equal to either:

(i) the sum of (A) adjusted term SOFR (as defined in the Loan Agreement, the “Term SOFR Rate”) plus (B) a rate variable based on the Amended Net Adjusted Leverage Ratio, ranging from 1.00 % to 1.75 %, or (ii) the sum of (A) the highest of (x) the rate of interest last quoted by The Wall Street Journal as the prime rate in effect in the United States, (y) the greater of the rate calculated by the Federal Reserve Bank of New York as the federal funds effective rate or the rate that is published by the Federal Reserve Bank of New York as the overnight bank funding rate, in either case, plus 0.50 %, and (z) the one-month Term SOFR Rate plus 1.00 %, plus (B) a rate variable based on the Net Adjusted Leverage Ratio, ranging from 0.00 % to 0.75 %.

The Company will also pay a fee variable based on the Net Adjusted Leverage Ratio, ranging from 0.125 % to 0.25 %, on the daily amount of unused commitments under the Loan Agreement.

Letters of credit bear fees that are equivalent to the interest rate margin that is applicable to revolving loans that bear interest at the adjusted SOFR plus other customary fees charged by the issuing bank.

We paid certain customary loan origination fees in conjunction with the Loan Agreement.

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

Subject to certain exceptions, the Revolver 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.

Convertible Senior Notes

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In addition, if certain corporate events that constitute a “Make-Whole Fundamental Change” (as defined in the Indenture) occur, then the conversion rate will, in certain circumstances, be increased for a specified period of time.

At January 3, 2023, the conversion rate for the Notes was 13.0675 shares of common stock per $ 1,000 principal amount of the Notes, which represents a conversion price of approximately $ 76.53 per share of common stock.

In connection with the cash dividend that was declared by our Board on February 16, 2023, on March 21, 2023 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.

The Notes are redeemable, in whole or in part (subject to certain limitations described below), at our option at any time, and from time to time, on or after June 20, 2024 and on or before the 30th scheduled trading day immediately before the maturity date, at a cash redemption price equal to the principal amount of the Notes to be redeemed, plus accrued and unpaid interest, if any, to, but excluding, the redemption date, but only if the last reported sale price per share of our common stock exceeds 130 % of the conversion price on (i) each of at least 20 trading days, whether or not consecutive, during the 30 consecutive trading days ending on, and including, the trading day immediately before the date we send the related redemption notice;

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If any other Event of Default occurs and is continuing, then, the Trustee, by notice to us, or noteholders of at least 25 % of the aggregate principal amount of Notes then outstanding, by notice to us and the Trustee, may declare the principal amount of, and all accrued and unpaid interest on, all of the Notes then outstanding to become due and payable immediately.

However, notwithstanding the foregoing, we may elect, at our option, that the sole remedy for an Event of Default relating to certain failures by us to comply with certain reporting covenants in the Indenture consists exclusively of the right of the noteholders to receive special interest on the Notes for up to 180 days at a specified rate per annum not exceeding 0.50 % on the principal amount of the Notes.

As of December 28, 2021, the Notes had a gross principal balance of $ 345.0 million and a balance of $ 336.0 million, net of unamortized issuance costs of $ 9.0 million.

However, notwithstanding the foregoing, we may elect, at our option, that the sole remedy for an Event of Default relating to certain failures by us to comply with certain reporting covenants in

the Indenture consists exclusively of the right of the noteholders to receive special interest on the Notes for up to 180 days at a specified rate per annum not exceeding 0.50 % on the principal amount of the Notes.

As of January 3, 2023, the Notes had a gross principal balance of $ 345.0 million and a balance of $ 338.0 million, net of unamortized issuance costs of $ 7.0 million.

The unamortized balance of issuance costs was recorded as a contra-liability and netted with long-term debt on our condensed consolidated balance sheets.

Total amortization expense was $ 1.1 million fiscal 2021 and was included in interest expense in the consolidated statements of income/(loss).

The effective interest rate for the Notes was 0.96 % as of December 28, 2021.

Total amortization expense was $ 2.0 million and $ 1.1 million in fiscal 2022 and fiscal 2021, respectively and was included in interest expense in the consolidated statements of income/(loss).

The effective interest rate for the Notes was 0.96 % as of January 3, 2023.

Components of lease expense were as follows (in thousands):

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Weighted-average discount rate — operating leases

As of December 28, 2021, the maturities of our operating lease liabilities were as follows (in thousands):

As of January 3, 2023, the maturities of our operating lease liabilities were as follows (in thousands):

Total future lease payments

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Operating lease liabilities include $ 845.1 million related to options to extend lease terms that are reasonably certain of being exercised and exclude $ 169.1 million of legally binding minimum lease payments for leases signed but not yet commenced.

On June 22, 2021, we terminated our interest rate swap agreement at a cost of $ 2.4 million.

This interest rate swap, which would have matured on April 1, 2025, was established to manage our exposure to interest rate movements on our Revolving Facility.

We terminated our interest rate swap agreement, which was designated as a cash flow hedge, in fiscal 2021.

This interest rate swap, which would have matured on April 1, 2025, was established to manage our exposure to interest rate movements on our credit facility.

The interest rate swap entitled us to receive a variable rate of interest based on the one-month LIBO rate in exchange for the payment of a fixed interest rate of 0.802 %.

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Prior to termination, the interest rate swap was determined to be an effective hedging agreement.

Our only derivative is the aforementioned interest rate swap, which is designated as a cash flow hedge.

Therefore, changes in fair value are initially included as a component of accumulated other comprehensive loss (AOCL) and subsequently reclassified to earnings as interest expense when the hedged forecasted transaction occurs.

For derivatives designated as a cash flow hedge, changes in fair value are initially included as a component of accumulated other comprehensive loss (“AOCL”) and subsequently reclassified to earnings as interest expense when the hedged forecasted

transaction occurs.

Any ineffective portion of changes in the fair value are immediately recognized in earnings as interest expense.

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Fiscal year ended

December 28, 2021

January 3, 2023

December 28, 2021

1 unchanged sentence

Deferred consideration (1)

Contingent consideration and compensation liabilities (2)

Payroll taxes (3)

Contingent consideration and compensation liability

(1) The decrease during fiscal 2022 represents payment of deferred consideration per the Acquisition agreement.

(2) The increase during fiscal 2021 primarily relates to the impact of an amendment to the Acquisition agreement, as well as to an increase in revenues utilized in the fair value calculation.

(3) The decrease represents the repayment in fiscal 2021 of certain payroll taxes that were deferred in fiscal 2020 under the CARES Act.

Commitments and Contingencies

Purchase obligations, which include inventory purchases, equipment purchases, information technology and other miscellaneous commitments, were $ 139.5 million and $ 91.6 million at December 28, 2021 and December 29, 2020, respectively.

Purchase obligations, which include inventory purchases, equipment purchases, information technology and other miscellaneous commitments, were $ 129.9 million and $ 139.5 million at January 3, 2023 and December 28, 2021, respectively.

These purchase obligations are primarily due within three years and recorded as liabilities when goods are received or services rendered.

Real estate obligations, which include construction commitments, net of up-front landlord construction contributions, and legally binding minimum lease payments for leases signed but not yet commenced, were $ 151.6 million and $ 130.5 million at December 28, 2021 and December 29, 2020, respectively.

The Acquisition agreement included a deferred consideration provision, of which the remaining balance is due in two equal payments of $ 11.3 million during fiscal 2022 and 2023.

This balance includes an indemnity escrow amount of $ 13.0 million specifically related to the acquired businesses other than North Italia.

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.

Real estate obligations, which include construction commitments, net of up-front landlord construction contributions, and legally binding minimum lease payments for leases signed but not yet commenced, were $ 252.4 million and $ 151.6 million at January 3, 2023 and December 28, 2021, respectively.

The Acquisition agreement included a deferred consideration provision, of which the remaining balance of $ 11.3 million is due in fiscal 2023.

The Acquisition agreement also included a contingent consideration provision of which the remainder is payable annually from 2023 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 $ 28.6 million at January 3, 2023.

See Note 2 for discussion of the fair value measurement of 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.

As credit guarantees to insurers, we had $ 29.9 million and $ 23.4 million at December 28, 2021 and December 29, 2020, respectively, in standby letters of credit related to our self-insurance liabilities.

As credit guarantees to insurers, we had $ 31.5 million and $ 29.9 million at January 3, 2023 and December 28, 2021, respectively, in standby letters of credit related to our self-insurance liabilities.

All standby letters of credit are renewable annually.

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The accrued liabilities associated with these programs are based on our estimate of the ultimate costs to settle known claims, as well as claims incurred but not yet reported to us (“IBNR”) as of the balance sheet date.

The total accrued liability for our self-insured plans was $ 67.6 million and $ 62.6 million at December 28, 2021 and December 29, 2020, respectively.

The total accrued liability for our self-insured plans was $ 71.9 million and $ 67.6 million at January 3, 2023 and December 28, 2021, respectively.

On June 7, 2018, the California Department of Industrial Relations issued a $ 4.2 million wage citation jointly against the Company and our vendor that provides janitorial services to eight of our Southern California restaurants, alleging that the janitorial vendor or its subcontractor failed to comply with various provisions of the California Labor Code (Wage Citation Case No.

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On June 28, 2018, we filed an appeal of the wage citation.

On June 11, 2020, the DLSE postponed the hearing on the Company’s appeal due to safety concerns related to the COVID-19 pandemic.

It is not possible at this time to reasonably estimate the outcome of or any potential liability from this matter and, accordingly, we have not reserved for any potential future payments.

On June 22, 2018, the Internal Revenue Service issued a Notice of Deficiency in which they disallowed $ 8.0 million of our §199 Domestic Production Activities Deduction for tax years 2010, 2011 and 2012.

On November 10, 2022, the parties participated in voluntary mediation and reached a tentative settlement on the wage citation.

The settlement is subject to documentation and final agency approval.

We have reserved an immaterial amount for settlement purposes.

On June 22, 2018, the Internal Revenue Service issued a Notice of Deficiency in which they disallowed a portion of our §199 Domestic Production Activities Deduction for tax years 2010, 2011 and 2012.

On September 11, 2018, we petitioned the United States Tax Court for a redetermination of the deficiency.

The tax court has assigned docket number 18150-18 to our case.

On June 30, 2021, the judge issued a ruling on certain procedural motions filed by the parties and set a timeline to conclude discovery and determine if the matter will proceed to trial.

The parties have entered into discussions to resolve the matter without trial, and we have reserved an immaterial amount in anticipation of settlement.

The tax court assigned docket number 18150-18 to our case.

On April 29, 2022, the parties filed a Settlement Stipulation and a Proposed Stipulated Decision (the “Decision”) with the tax court stipulating to the amount of income tax deficiency.

On May 11, 2022, the court entered the Decision in accordance with the stipulation of the parties.

We have recorded an immaterial amount in connection with the Decision.

Within the ordinary course of our business, we are subject to private lawsuits, government audits and investigations, administrative proceedings and other claims.

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We have employment agreements with certain of our executive officers that provide for payments to those officers in the event of an actual or constructive termination of their employment, including in the event of a termination without cause, an acquirer failure to assume or continue equity awards following a change in control of the Company or, otherwise, in the event of death or disability as defined in those agreements.

Aggregate payments totaling approximately $ 3.2 million, excluding accrued potential bonuses of $ 3.0 million, which are subject to approval by the Compensation Committee, would have been required by those agreements had all such officers terminated their employment for reasons requiring such payments as of December 28, 2021.

Aggregate payments totaling approximately $ 3.3 million, excluding accrued potential bonuses of $ 2.0 million, which are subject to approval by the Compensation Committee, would have been required by those agreements had all such officers terminated their employment for reasons requiring such payments as of January 3, 2023.

In addition, the employment agreement with our Chief Executive Officer specifies an annual founder’s retirement benefit of $ 650,000 for ten years , commencing six months after termination of his full-time employment.

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Common Stock - Dividends and 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 the quarterly dividend on our common stock, as well as share repurchases.

To preserve liquidity during the COVID-19 pandemic and in conjunction with the terms of our then-existing 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 Credit Agreement and applicable law, and such other factors that the Board considers relevant.

Our Board resumed our quarterly dividend in

the second quarter of fiscal 2022, declaring $ 0.81 per common share during 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 Loan Agreement and applicable law, and such other factors that the Board considers relevant.

(See Note 10 for further discussion of our long-term debt.)

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.

On October 26, 2022, our Board increased the authorization to repurchase our common stock by 5.0 million shares to 61.0 million shares.

Under this authorization, we have cumulatively repurchased 55.1 million shares at a total cost of $ 1,765.6 million through January 3, 2023.

During fiscal 2022, 2021 and 2020, we repurchased 2.0 million, 0.1 million and 0.1 million shares of our common stock at a cost of $ 63.1 million, $ 5.8 million and $ 3.6 million, respectively.

The share repurchases in fiscal 2021 and 2020 were solely in conjunction with satisfying tax withholding obligations on vested restricted share awards.

The increase from fiscal 2021 to 2022 is primarily 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 Loan Agreement.

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.

Repurchased common stock is reflected as a reduction of stockholders’ equity in treasury stock.

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.

Shares may be repurchased in the open market or through privately negotiated transactions at times and prices considered appropriate by us.

Our share repurchase program 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.

Share repurchases may be made from time to time in open market purchases, privately-negotiated transactions, accelerated share repurchase programs, issuer self-tender offers or otherwise.

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 covenants under our credit facility that limit share repurchases based on a defined ratio.

(See Note 10 for further discussion of our long-term debt.)

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To date, we have only granted non-qualified stock options, restricted shares and restricted share units of common stock under these plans.

On April 5, 2017, our Board approved an amendment to our 2010 Stock Incentive Plan to increase the number of shares of common stock reserved for grant under the plan to 12.7 million shares from 9.2 million shares.

This amendment was approved by our stockholders at our annual meeting held on June 8, 2017.

On April 4, 2019, our Board adopted The Cheesecake Factory Incorporated Stock Incentive Plan.

This plan was approved by our stockholders at our annual meeting held on May 30, 2019.

The maximum number of shares of common stock available for grant under this plan is 4.8 million shares plus 1.8 million shares, which, as of May 30, 2019, were available for issuance under our 2010 Stock Incentive Plan, plus 1.9 million shares which may become available for issuance under The Cheesecake Factory Incorporated Stock Incentive Plan due to forfeiture or lapse of awards under our 2010 Stock Incentive Plan following May 30, 2019.

Approximately 4.0 million of these shares were available for grant as of December 28, 2021.

On March 24, 2022, our Board approved an amendment to our The Cheesecake Factory Incorporated Stock Incentive Plan to increase the number of shares of common stock reserved for grant under the plan to 19.8 million shares from 17.5 million shares.

This amendment was approved by our stockholders at our annual meeting held on May 23, 2022.

Approximately 4.7 million of these shares were available for grant as of January 3, 2023.

Stock options generally vest at 20 % per year and expire eight to ten years from the date of grant.

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Stock Options

We did not issue any stock options during fiscal 2021.

The weighted-average fair value at the grant date for options issued during fiscal 2020 and 2019 was $ 6.66 and $ 9.84 per share, respectively.

The fair value of options was estimated utilizing the Black-Scholes valuation model with the following weighted-average assumptions for fiscal 2020 and 2019, respectively:

(a) an expected option term of 6.9 years in all fiscal years presented, (b) expected stock price volatility of 25.7 % and 26.3 %, (c) a risk-free interest rate of 1.5 % and 2.6 %, and (d) a dividend yield on our stock of 3.6 % and 2.9 %.

We did not issue any stock options during fiscal 2022 or 2021.

The weighted-average fair value at the grant date for options issued during fiscal 2020 was $ 6.66 per share.

The fair value of options issued was estimated utilizing the Black-Scholes valuation model with the following weighted-average assumptions:

(a) an expected option term of 6.9 years, (b) expected stock price volatility of 25.7 %, (c) a risk-free interest rate of 1.5 % and (d) a dividend yield on our stock of 3.6 %.

The expected option term represents the estimated period of time until exercise and is based on historical experience of similar options, giving consideration to the contractual terms, vesting schedules and expectations of future staff member behavior.

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The total intrinsic value of options exercised during fiscal 2022, 2021 and 2020 was $ 4.9 million, $ 7.1 million and $ 0.1 million, respectively.

As of December 28, 2021, total unrecognized stock-based compensation expense related to unvested stock options was $ 4.7 million, which we expect to recognize over a weighted-average period of approximately 2.5 years.

As of January 3, 2023, total unrecognized stock-based compensation expense related to unvested stock options was $ 2.5 million, which we expect to recognize over a weighted-average period of approximately 1.7 years.

Restricted Shares and Restricted Share Units

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The fair value of shares that vested during fiscal 2022, 2021 and 2020 was $ 18.5 million, $ 15.4 million and $ 15.6 million, respectively.

As of December 28, 2021, total unrecognized stock-based compensation expense related to unvested restricted shares and restricted share units was $ 44.0 million, which we expect to recognize over a weighted-average period of approximately 2.9 years.

As of January 3, 2023, total unrecognized stock-based compensation expense related to unvested restricted shares and restricted share units was $ 50.2 million, which we expect to recognize over a weighted-average period of approximately 2.9 years.

Employee Benefit Plans

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Our consolidated balance sheets reflect investments in other assets and our obligation to participants in the Non-Qualified Plans in other noncurrent liabilities.

All gains and losses related to our non-qualified deferred compensation assets and liabilities are reflected in interest and other expense, net in our consolidated statements of income.

Gains and losses related to our non-qualified deferred compensation assets and liabilities are reflected in interest and other expense, net in our consolidated statements of income/(loss).

We maintain self-insured medical and dental benefit plans for our staff members.

The accrued liabilities associated with these programs are based on our estimate of the ultimate costs to settle known claims as well as claims incurred but not yet reported to us as of the balance sheet date.

The accrued liability for our self-insured benefit plans, which is included in other accrued expenses, was $ 15.3 million and $ 14.8 million as of December 28, 2021 and December 29, 2020, respectively.

The accrued liability for our self-insured benefit plans, which is included in other accrued expenses, was $ 14.0 million and $ 15.3 million as of January 3, 2023 and December 28, 2021, respectively.

(See Note 1 for further discussion of accounting for our self-insurance liabilities.)

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Income/(Loss) before income taxes

Income tax (benefit)/provision:

Income tax provision/(benefit):

Total current

Total deferred

Total (benefit)/provision

Total benefit

The following reconciles the U.S.

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Uncertain tax positions

Non-deductible executive compensation

Effective tax rate

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Intended to provide economic relief to those impacted by the COVID-19 pandemic, the CARES Act includes provisions allowing for the carryback of net operating losses generated in fiscal years 2018, 2019 and 2020 and technical amendments regarding the expensing of qualified improvement property (“QIP”).

During fiscal 2021, we filed a refund claim in the amount of $ 18.4 million for our fiscal 2020 net operating loss carryback and in January 2022, we filed amended returns for tax years 2018 and 2019 requesting total refunds of $ 21.3 million for credits released by our fiscal 2020 loss carryback.

During fiscal 2021, we filed a refund claim in the amount of $ 18.4 million for our fiscal 2020 net operating loss carryback, which was received during fiscal 2022.

In January 2022, we filed amended returns for tax years 2018 and 2019 requesting total refunds of $ 21.3 million for credits released by our fiscal 2020 loss carryback.

These refunds have not yet been received.

The effects of these claims were primarily included in our fiscal 2020 provision for income taxes, using estimates based on the best information available at the time we prepared our fiscal 2020 consolidated financial statements, and were adjusted to as-filed actual amounts in our fiscal 2021 provision for income taxes.

Except for the increase to our loss carryback resulting from the remittance of all of our deferred FICA taxes as discussed below, these adjustments had a minor effect on our fiscal 2021 provision for income taxes.

The CARES Act also allowed eligible employers to defer the remittance of certain FICA taxes otherwise payable during calendar year 2020 and remit half of such deferred amounts on or before December 31, 2021 and half on or before December 31, 2022.

We deferred approximately $ 36.6 million of FICA tax remittances under this provision.

We previously planned to remit the first half of the deferred FICA taxes within 8.5 months of year-end 2020 to secure a fiscal 2020 tax deduction and we recorded the effects of that planned remittance in our fiscal 2020 provision for income taxes.

Prior to filing our 2020 federal tax return and within 8.5 months of year-end 2020, we remitted all of the deferred FICA taxes, which increased the value of our fiscal 2020 loss carryback by $ 4.3 million.

We recorded the effects of this increased remittance in our fiscal 2021 provision for income taxes.

These adjustments had a minor effect on our fiscal 2021 provision for income taxes.

In our fiscal 2021 provision for income taxes, we also recorded the effects of accelerating the remittance of certain FICA taxes that had been deferred pursuant to the CARES Act.

The accelerated remittance increased the value of our fiscal 2020 loss carryback by $ 4.3 million.

We made no further adjustments in our fiscal 2022 provision for income taxes relating to these amounts.

Following are the temporary differences that created our deferred tax assets and liabilities (in thousands):

December 28, 2021

January 3, 2023

December 28, 2021

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State and foreign net operating loss carryforwards

Derivative asset

Valuation allowance

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Operating lease asset

Net deferred tax asset/(liability)

At December 28, 2021 and December 29, 2020, we had $ 33.6 million and $ 35.6 million, respectively of U.S.

federal credit carryforwards which begin to expire in 2038 and $ 64.6 million and $ 79.5 million, respectively, of state net operating loss carryforwards with statutory carryforward periods ranging from 5 years to no expiration period.

Net deferred tax asset

At January 3, 2023 and December 28, 2021, we had $ 56.5 million and $ 33.6 million, respectively of U.S.

federal credit carryforwards which begin to expire in 2038 and $ 1.6 million and $ 1.7 million, respectively, of state hiring and investment credits which begin to expire in 2024.

At January 3, 2023 and December 28, 2021, we had $ 2.5 million and $ 2.7 million, respectively of foreign net operating loss carryforwards which begin to expire in 2038 and $ 46.6 million and $ 64.6 million, respectively, of state net operating loss carryforwards with statutory carryforward periods ranging from 5 years to no expiration period.

The earliest year that a material state net operating loss will expire is 2032.

At December 28, 2021 and December 29, 2020, we had $ 1.7 million and $ 1.9 million, respectively, of state hiring and investment credits which begin to expire in 2024.

At both December 28, 2021 and December 29, 2020, we had $ 2.7 million of foreign net operating loss carryforwards which begin to expire in 2038.

We assess the available evidence to estimate if these carryforwards and our other deferred tax assets will be realized.

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We did not need to consider tax planning strategies in this analysis.

Based on this evaluation, at both December 28, 2021 and December 29, 2020 we carried a valuation allowance of $ 1.0 million to reflect the amount that we will likely not realize.

Based on this evaluation, at January 3, 2023 and December 28, 2021 we carried a valuation allowance of $ 1.2 million and $ 1.0 million, respectively to reflect the amount that we will likely not realize.

This assessment could change if estimates of future taxable income during the carryforward period are revised.

The earliest tax year still subject to examination by a significant taxing jurisdiction is 2015.

At December 28, 2021, we had a reserve of $ 4.8 million for uncertain tax positions, all of which would favorably impact our effective income tax rate if resolved in our favor.

At January 3, 2023, we had a reserve of $ 3.8 million for uncertain tax positions, all of which would favorably impact our effective income tax rate if resolved in our favor.

A reconciliation of the beginning and ending amount of our uncertain tax positions is as follows (in thousands):

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Additions related to current period tax positions

Reductions related to settlements with taxing authorities and lapses of statutes of limitations

Reductions related to settlements with taxing authorities

Balance at end of year

At December 28, 2021 and December 29, 2020, we had $ 3.6 million and $ 0.3 million, respectively of accrued interest and penalties related to uncertain tax positions.

We believe it is reasonably possible that the balance of uncertain tax positions at December 28, 2021 will decrease by $ 1.8 million during the next twelve months as a result of an anticipated settlement of our litigation regarding Section 199 deductions.

At January 3, 2023 and December 28, 2021, we had $ 2.2 million and $ 3.6 million, respectively of accrued interest and penalties related to uncertain tax positions.

None of the balance of uncertain tax positions at January 3, 2023 related to tax positions for which it is reasonably possible that the total amount could decrease during the next twelve months based on the lapses of statutes of limitations.

Segment Information

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Based on quantitative thresholds set forth in ASC 280, “Segment Reporting,” The Cheesecake Factory, North Italia and the other FRC brands are the only businesses that meet the criteria of a reportable operating segment.

The remaining operating segments (Flower Child, our bakery division and Grand Lux Cafe) along with our businesses that don’t qualify as operating segments (RockSugar Southeast Asian Kitchen and Social Monk Asian Kitchen) are combined in Other.

The remaining operating segments (Flower Child, our bakery division and Grand Lux Cafe) along with our businesses that don’t qualify as operating segments are combined in Other.

Unallocated corporate expenses, capital expenditures and assets are also combined in Other.

Segment information is presented below (in thousands):

Fiscal Year (1)

The Cheesecake Factory restaurants

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The Cheesecake Factory restaurants

(1) We completed the acquisition of North Italia and the remaining business of FRC on October 2, 2019.

The results of the acquired businesses are included in our consolidated financial statements as of the acquisition date.

(2) Fiscal 2021, 2020 and fiscal 2019 include $ 19.5 million, ($ 1.2 ) million and $ 6.3 million, respectively, of acquisition-related expense/(benefit).

These amounts were recorded in acquisition-related costs and acquisition-related contingent consideration, compensation and amortization expense/(benefit) in the consolidated statements of income.

(1) Fiscal 2022, 2021 and fiscal 2020 include $ 13.4 million, $ 19.5 million and $( 1.2 ) million, respectively, of acquisition-related expenses.

These amounts were recorded in acquisition-related costs and acquisition-related contingent consideration, compensation and amortization expenses in the consolidated statements of income/(loss).

Subsequent Events

On February 16, 2023, our Board declared a quarterly cash dividend of $ 0.27 per share to be paid on March 21, 2023 to the stockholders of record of each share of our common stock at the close of business on March 8, 2023.

EXHIBIT INDEX

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Third Amendment to Membership Interest Purchase Agreement, dated as of January 7, 2022, by and among The Cheesecake Factory Restaurants, Inc., Fox Restaurant Concepts LLC, and SWF Posse LLC, as Seller’s representative # †

Filed herewith

Restated Certificate of Incorporation of The Cheesecake Factory Incorporated

Bylaws of The Cheesecake Factory Incorporated (Amended and Restated on May 20, 2009)

Bylaws of The Cheesecake Factory Incorporated (Amended and Restated on October 26, 2022)

Certificate of Elimination of Series A Junior Participating Cumulative Preferred Stock of The Cheesecake Factory Incorporated

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Form of Indemnification Agreement*

Indemnification Agreement, dates as of April 20, 2020, between The Cheesecake Factory Incorporated and Paul D.

Incorporated by

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Exhibit Number

Indemnification Agreement, dates as of April 20, 2020, between The Cheesecake Factory Incorporated and Paul D.

Inducement Agreement dated as of July 27, 2005

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Form of Notice of Grant and Stock Option Agreement and/or Restricted Share Agreement for MEP II under the 2010 Stock Incentive Plan, for equity grants made after February 15, 2018*

Form of Notice of Grant and Stock Option Agreement and/or Restricted Share Agreement for MEP III under the 2010 Stock Incentive Plan, for equity grants made after February 15, 2018*

Incorporated by

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Exhibit Number

Form of Notice of Grant and Stock Option Agreement and/or Restricted Share Agreement for MEP III under the 2010 Stock Incentive Plan, for equity grants made after February 15, 2018*

Form of Notice of Grant and Stock Option Agreement and/or Restricted Share Agreement for MEP IV under the 2010 Stock Incentive Plan, for equity grants made after February 15, 2018*

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The Cheesecake Factory Incorporated Stock Incentive Plan*

The Cheesecake Factory Incorporated Stock Incentive Plan, as amended March 24, 2022*

Form of Notice of Grant and Stock Unit Grant Agreement for Directors under The Cheesecake Factory Incorporated Stock Incentive Plan*

Form of Notice of Grant and Stock Option Agreement and/or Restricted Share Agreement for Executive Officers under The Cheesecake Factory Incorporated Stock Incentive Plan*

Filed herewith

Form of Notice of Grant and Stock Option Agreement and/or Restricted Share Agreement under The Cheesecake Factory Incorporated Stock Incentive Plan*

Filed herewith

Form of Notice of Grant and Restricted Share Agreement for MEP I under The Cheesecake Factory Incorporated Stock Incentive Plan*

Filed herewith

2015 Amended and Restated Performance Incentive Plan (Amended and Restated on September 2, 2020)*

Third Amended and Restated Loan Agreement with JPMorgan Chase Bank, National Association dated as of July 30, 2019

Incorporated by

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Exhibit Number

2015 Amended and Restated Performance Incentive Plan (Amended and Restated on September 2, 2020)*

Third Amended and Restated Loan Agreement with JPMorgan Chase Bank, National Association dated as of July 30, 2019

First Amendment, dated as of May 1, 2020, to the Third Amended and Restated Loan Agreement, dated as of July 30, 2019, between The Cheesecake Factory Incorporated, JPMorgan Chase Bank, N.A., as administrative agent, and the lenders from time to time part thereto

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Conversion Agreement, dated as of June 10, 2021 among The Cheesecake Factory Incorporated and RC Cake Holdings LLC

Fourth Amended and Restated Loan Agreement, with JPMorgan Chase Bank, National Association dated as of October 6, 2022

List of Subsidiaries

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Filed herewith

Incorporated by

Reference from

Exhibit Number

Certification Pursuant to 18 U.S.C.

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Filed herewith

Incorporated by

Reference from

Exhibit Number

The following materials from The Cheesecake Factory Incorporated’s Annual Report on Form 10-K for the year ended December 28, 2021, formatted in Inline eXtensible Business Reporting Language (iXBRL):

The following materials from The Cheesecake Factory Incorporated’s Annual Report on Form 10-K for the year ended January 3, 2023, formatted in Inline eXtensible Business Reporting Language (iXBRL):

(i) consolidated balance sheets, (ii) consolidated statements of income, (iii) consolidated statements of comprehensive income, (iv) consolidated statement of stockholders’ equity, (v) consolidated statements of cash flows, and (vi) the notes to the consolidated financial statements

Filed herewith

The cover page of The Cheesecake Factory Incorporated’s Annual Report on Form 10-K for the year ended December 28, 2021, formatted in iXBRL (included with Exhibit 101.1)

The cover page of The Cheesecake Factory Incorporated’s Annual Report on Form 10-K for the year ended January 3, 2023, formatted in iXBRL (included with Exhibit 101.1)

Filed herewith

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(P) This exhibit has been paper filed and is not subject to the hyperlinking requirements of Item 601 of Regulation S-K.

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized on the 22nd day of February, 2022.

THE CHEESECAKE FACTORY INCORPORATED

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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-K

Item 9A. Controls and Procedures