What changed in this filing

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Item 1. Financial Statements

2023-05-10 compared with 2022-11-02 · 140 added, 283 removed, 264 unchanged (62% of the section changed)

3 unchanged sentences

(In thousands, except share and per share data)

September 27,

Current assets:

9 unchanged sentences

Total other assets

LIABILITIES, SERIES A CONVERTIBLE PREFERRED STOCK AND STOCKHOLDERS’ EQUITY

LIABILITIES AND STOCKHOLDERS’ EQUITY

Current liabilities:

8 unchanged sentences

Commitments and contingencies (Note 7)

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

Stockholders’ equity:

Preferred stock, $ .01 par value, other than Series A convertible preferred stock, 4,800,000 shares authorized;

Preferred stock, $ .01 par value, 5,000,000 shares authorized;

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

106,156,302 and 105,365,678 shares issued at September 27, 2022 and December 28, 2021, respectively

106,951,249 and 106,323,117 shares issued at April 4, 2023 and January 3, 2023, respectively

Additional paid-in capital

Retained earnings

Treasury stock, 54,485,868 and 53,139,172 shares at cost at September 27, 2022 and December 28, 2021, respectively

Treasury stock, 55,490,995 and 55,149,520 shares at cost at April 4, 2023 and January 3, 2023, respectively

( 1,778,017 )

2 unchanged sentences

Total stockholders’ equity

Total liabilities, Series A convertible preferred stock and stockholders’ equity

Total liabilities and stockholders’ equity

See the accompanying notes to the condensed consolidated financial statements

THE CHEESECAKE FACTORY INCORPORATED

CONDENSED CONSOLIDATED STATEMENTS OF (LOSS)/INCOME

CONDENSED CONSOLIDATED STATEMENTS OF INCOME

(In thousands, except per share data)

September 27, 2022

September 28, 2021

September 27, 2022

September 28, 2021

April 4, 2023

March 29, 2022

Costs and expenses:

Cost of sales

Food and beverage costs

Labor expenses

6 unchanged sentences

Total costs and expenses

(Loss)/income from operations

Income from operations

Interest and other expense, net

(Loss)/income before income taxes

Income tax (benefit)/provision

Net (loss)/income

Dividends on Series A preferred stock

Undistributed earnings allocated to Series A preferred stock

Net (loss)/income available to common stockholders

Net (loss)/income per common share:

Income before income taxes

Income tax provision

Net income per share:

Diluted (Note 10)

Weighted-average common shares outstanding:

Weighted-average shares outstanding:

See the accompanying notes to the condensed consolidated financial statements.

THE CHEESECAKE FACTORY INCORPORATED

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE (LOSS)/INCOME

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(In thousands)

September 27, 2022

September 28, 2021

September 27, 2022

September 28, 2021

Net (loss)/income

Other comprehensive (loss)/gain:

April 4, 2023

March 29, 2022

Other comprehensive gain:

Foreign currency translation adjustment

Unrealized gain on derivative, net of tax

Other comprehensive (loss)/gain

Total comprehensive (loss)/income

Comprehensive income attributable to Series A preferred stockholders

Total comprehensive (loss)/income available to common stockholders

Other comprehensive gain

Total comprehensive income

See the accompanying notes to the condensed consolidated financial statements

THE CHEESECAKE FACTORY INCORPORATED

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY AND SERIES A CONVERTIBLE PREFERRED STOCK

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

(In thousands)

For the thirty-nine weeks ended September 27, 2022:

Series A Convertible

Preferred Stock

For the thirteen weeks ended April 4, 2023:

Comprehensive

Balance, December 28, 2021

( 1,702,509 )

Foreign currency translation adjustment

Cash dividends declared common stock, net of forfeitures

Stock-based compensation

Common stock issued under stock-based compensation plans

Treasury stock purchases

Balance, March 29, 2022

( 1,706,447 )

Foreign currency translation adjustment

Cash dividends declared common stock, net of forfeitures, $ 0.27 per share

Stock-based compensation

Common stock issued under stock-based compensation plans

Treasury stock purchases

Balance, June 28, 2022

Loss/(Income)

Balance, January 3, 2023

( 1,765,641 )

2 unchanged sentences

Stock-based compensation

Common stock issued under stock-based compensation plans

Treasury stock purchases

Balance, September 27, 2022

Balance, April 4, 2023

( 1,778,017 )

For the thirty-nine weeks ended September 28, 2021:

Series A Convertible

Preferred Stock

For the thirteen weeks ended March 29, 2022:

Comprehensive

1 unchanged sentence

( 1,702,509 )

Cumulative effect of adopting ASU 2020-06

Balance, December 29, 2020, as adjusted

( 1,696,743 )

Foreign currency translation adjustment

Change in derivative, net of tax

Cash dividends declared common stock, net of forfeitures

2 unchanged sentences

Treasury stock purchases

Cash dividends declared Series A preferred stock, $ 25.35 per share

Balance, March 29, 2022

( 1,706,447 )

Foreign currency translation adjustment

Change in derivative, net of tax

Cash dividends declared common stock, net of forfeitures

Stock-based compensation

Common stock issued under stock-based compensation plans

Common stock issuance

Treasury stock purchases

Series A preferred stock cash-settled conversion

Series A preferred stock conversion to common stock

Deemed dividends on Series A preferred stock

Balance, June 29, 2021

( 1,701,303 )

Foreign currency translation adjustment

Cash dividends declared common stock, net of forfeitures

Stock-based compensation

Common stock issued under stock-based compensation plans

Treasury stock purchases

Balance, September 28, 2021

( 1,701,984 )

See the accompanying notes to the condensed consolidated financial statements.

2 unchanged sentences

(In thousands)

September 27, 2022

September 28, 2021

April 4, 2023

March 29, 2022

Cash flows from operating activities:

19 unchanged sentences

Acquisition-related deferred consideration and compensation

Repayment on credit facility

Convertible debt issuance

Convertible debt direct and incremental costs

Series A preferred stock cash-settled conversion

Series A preferred stock conversion direct and incremental costs

Series A preferred stock dividends paid

Common stock issuance

Common stock issuance direct and incremental costs

Proceeds from exercise of stock options

20 unchanged sentences

Certain information and footnote disclosures normally included in financial statements prepared in accordance with GAAP have been omitted pursuant to the rules of the Securities and Exchange Commission (“SEC”).

The accompanying condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and notes thereto included in our Annual Report on Form 10-K for the fiscal year ended December 28, 2021 filed with the SEC on February 22, 2022.

The accompanying condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and notes thereto included in our Annual Report on Form 10-K for the fiscal year ended January 3, 2023 filed with the SEC on February 27, 2023.

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

Fiscal year 2023 consists of 52 weeks and will end on January 2, 2024.

Fiscal year 2021, which ended on December 28, 2021, was a 52 -week year.

Fiscal year 2022, which ended on January 3, 2023 was a 53 -week year.

Use of Estimates

3 unchanged sentences

COVID-19 Pandemic and Other Impacts to our Operating Environment

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

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

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

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

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

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

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

During fiscal 2022, the COVID-19 pandemic continued to affect our business during periods of accelerated case counts in which we experienced increased restaurant staff absenteeism and temporary shifts in consumer behavior, such as changes in customer traffic or the mix between on-premise and off-premise channels.

Along with the COVID-19 pandemic, our operating results were impacted by geopolitical and macroeconomic events, causing supply chain challenges and significantly increased commodity and wage inflation.

Some of these factors continued to impact our operating results in fiscal 2023, contributing to significantly increased commodity and other costs.

We have also encountered delays in opening new restaurants due to supply chain challenges and delays in permitting, construction, landlord readiness, and equipment availability.

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.

For more information regarding the risks to our business relating to the COVID-19 pandemic and other geopolitical and macroeconomic events, see “Risk Factors” in Item 1A of our Annual Report on Form 10-K for the fiscal year ended January 3, 2023.

Recent Accounting Pronouncements

In August 2020, the Financial Accounting Standards Board (“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.

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.

As further discussed in Note 5, we issued certain convertible senior notes due 2026 (“Notes”) during the second quarter of fiscal 2021, and the accounting for these instruments was based on the guidance in ASU 2020-06.

Additionally, the impact on diluted earnings per share of the Notes was calculated based on the if-converted method, as further described in Note 11.

We reviewed all recently issued accounting pronouncements and concluded that they were either not applicable or not expected to have a significant impact to the consolidated financial statements.

Fair Value Measurements

4 unchanged sentences

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):

September 27, 2022

April 4, 2023

Assets/(Liabilities)

3 unchanged sentences

Acquisition-related contingent consideration and compensation liabilities

December 28, 2021

January 3, 2023

Assets/(Liabilities)

4 unchanged sentences

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):

September 27, 2022

September 28, 2021

April 4, 2023

March 29, 2022

Beginning balance

2 unchanged sentences

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 utilized to determine the fair value of the acquisition-related contingent consideration and compensation liabilities at September 27, 2022 was $ 0 to $ 204.0 million.

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

The significant decrease in the fair value of the contingent consideration and compensation liabilities during the first three quarters of fiscal 2022 primarily related to the payment of $ 7.2 million per the Fox Restaurant Concept LLC (“FRC”) acquisition agreement.

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

As of September 27, 2022, 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 September 27, 2022 was approximately $ 269.1 million and was 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.

During the first quarter of fiscal 2022, we made a payment of $ 7.2 million per the Fox Restaurant Concept LLC (“FRC”) acquisition agreement.

Our corresponding fiscal 2023 payment of $ 13.0 million was made early in the second quarter.

As of April 4, 2023, 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 April 4, 2023 was approximately $ 286.4 million and was 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 the Notes.

See Note 5 for further discussion of the Notes.

Inventories consisted of (in thousands):

September 27, 2022

December 28, 2021

April 4, 2023

January 3, 2023

Restaurant food and supplies

1 unchanged sentence

Bakery raw materials and supplies

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 September 27, 2022 due to the significant cost inflation experienced during fiscal 2022.

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

September 27, 2022

September 28, 2021

September 27, 2022

September 28, 2021

April 4, 2023

March 29, 2022

Gift card liabilities:

2 unchanged sentences

Ending balance

September 27, 2022

September 28, 2021

September 27, 2022

September 28, 2021

April 4, 2023

March 29, 2022

Gift card contract assets:

3 unchanged sentences

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 .

Our Net Adjusted Leverage and EBITDAR Ratios were 3.7 and 2.1 , respectively, at September 27, 2022.

Our compliance with the financial covenants set forth in the Revolving Facility as of September 27, 2022 was measured under the Fourth Revolving Facility (as defined in Note 13 below), and as of such date we were in compliance.

Concurrently with our delivery of the compliance certificate demonstrating our compliance with the financial covenants in the Amended Credit Agreement as of December 28, 2021, the Covenant Relief Period was terminated.

Borrowings under the Amended Credit Agreement during the Covenant Relief Period bore 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 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 September 27, 2022, we had net availability for borrowings of $ 238.5 million, based on a $ 130.0 million outstanding debt balance and $ 31.5 million in standby letters of credit.

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.

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.

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 April 4, 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 of April 4, 2023, we were in compliance with all the foregoing 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

15 unchanged sentences

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.

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

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

As of April 4, 2023, the conversion rate for the Notes was 13.1638 shares of common stock per $ 1,000 principal amount of the Notes, which represents a conversion price of approximately $ 75.97 per share of common stock.

In connection with the cash dividend that was declared by our Board on May 10, 2023, on May 23, 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;

4 unchanged sentences

The definition of Fundamental Change includes certain business combination transactions involving us and certain de-listing events with respect to our common stock.

The Notes contain customary provisions relating to the occurrence of “Events of Default” (as defined in the Indenture), which include the following:

The Notes have customary provisions relating to the occurrence of “Events of Default” (as defined in the Indenture), which include the following:

(i) certain payment defaults on the Notes (which, in the case of a default in the payment of interest on the Notes, will be subject to a 30-day cure period);

8 unchanged sentences

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 September 27, 2022, the Notes had a gross principal balance of $ 345.0 million and a balance of $ 337.5 million, net of unamortized issuance costs.

Total amortization expense was $ 0.5 million and $ 1.5 million during the thirteen and thirty-nine weeks ended September 27, 2022, respectively.

The effective interest rate for the Notes was 0.96 % as of September 27, 2022.

As of April 4, 2023, the Notes had a gross principal balance of $ 345.0 million and a balance of $ 338.5 million, net of unamortized issuance costs of $ 6.5 million.

Total amortization expense was $ 0.5 million during both the first quarter of fiscal 2023 and fiscal 2022.

The effective interest rate for the Notes was 0.96 % as of April 4, 2023.

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

September 27, 2022

September 28, 2021

September 27, 2022

September 28, 2021

April 4, 2023

March 29, 2022

Supplemental information related to leases (in thousands):

September 27, 2022

September 28, 2021

April 4, 2023

March 29, 2022

Cash paid for amounts included in the measurement of lease liabilities:

1 unchanged sentence

Right-of-use assets obtained in exchange for new operating lease liabilities

We terminated our interest rate swap agreement, which was designated as a cash flow hedge, in the second quarter of 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 % .

The notional amount of the swap agreement was $ 280.0 million through March 31, 2023 and $ 140.0 million from April 1, 2023 through April 1, 2025.

The differences between the variable LIBO rate and the interest rate swap rate were settled monthly.

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

No gains or losses representing amounts excluded from the assessment of effectiveness were recognized in earnings in the first two quarters of fiscal 2021.

The following table summarizes the changes related to the interest rate swap in accumulated other comprehensive income (“AOCI”), net of tax, during the thirty-nine weeks ended September 28, 2021 (in thousands):

Beginning balance

Other comprehensive loss before reclassifications

Amounts reclassified from AOCI

Other comprehensive loss, net of tax

Ending balance

We classified this interest rate swap within Level 2 of the valuation hierarchy described in Note 2.

Our counterparty under this arrangement provided monthly statements of the market values of this instrument based on significant inputs that were observable or could be derived principally from, or corroborated by, observable market data for substantially the full term of the asset or liability.

The impact on the derivative liability for our and the counterparty’s non-performance risk to the derivative trade was considered when measuring the fair value of derivative liability.

Commitments and Contingencies

3 unchanged sentences

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

On July 7, 2022, the parties participated in voluntary mediation and reached a tentative settlement on the wage citation.

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 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.

On February 10, 2023, a class action complaint was filed against the Company in the United States District Court for the Southern District of California, (Lightoller vs.

LLC., Case No.

3:23-cv-00272-AJB-NLS), alleging violations of state privacy laws.

The lawsuit alleges that the Company violated state wiretapping and privacy laws by improperly tracking and/or recording the keystrokes of visitors on the Company’s website without permission.

A similar case was filed on the United States District Court for the District of Maryland on February 21, 2023 (Curd v.

Civil Action No.

1:23-cv-00472-JMC).

The plaintiffs in Case Nos.

3:23-cv-00272 and 1:23-cv-00472 are seeking unspecified amounts of penalties and other monetary payments.

We intend to vigorously defend this action.

However, 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.

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

6 unchanged sentences

Legal costs related to such claims are expensed as incurred.

Stockholders’ Equity and Series A Convertible Preferred Stock

Common Stock Issuance

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

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

Stockholders’ Equity

Common Stock – Dividends and Share Repurchases

On July 21, 2022, our Board declared a quarterly cash dividend of $ 0.27 per share that was paid on August 23, 2022 to the stockholders of record of each share of our common stock at the close of business on August 10, 2022.

Future decisions to pay or to increase or decrease dividends are at the discretion of the Board and will be dependent on our operating performance, financial condition, capital expenditure requirements, limitations on cash distributions pursuant to the terms and conditions of the Fourth Amended Credit Agreement (as defined in Note 13 below) and applicable law, and such other factors that the Board considers relevant.

(See Notes 5 and 13 for further discussion of our long-term debt and dividends declared subsequent to September 27, 2022, respectively.)

Under authorization by our Board to repurchase up to 56.0 million shares of our common stock, we have cumulatively repurchased 54.5 million shares at a total cost of $ 1,744.0 million through September 27, 2022, with 889,309 shares and 1,346,696 shares repurchased at a cost of $ 26.7 million and $ 41.5 million during the thirteen and thirty-nine weeks ended September 27, 2022, respectively.

On February 16, 2023, our Board declared a quarterly cash dividend of $ 0.27 per share that was 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.

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 Notes 5 and 12 for further discussion of our long-term debt and dividends declared subsequent to April 4, 2023, respectively.)

Under authorization by our Board to repurchase up to 61.0 million shares of our common stock, we have cumulatively repurchased 55.5 million shares at a total cost of $ 1,778.0 million through April 4, 2023, with 0.3 million shares repurchased at a cost of $ 12.4 million during the thirteen weeks ended April 4, 2023.

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

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

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

(See Notes 5 and 13 for further discussion of our long-term debt and increased authorized amount under our share repurchase program, respectively.)

Series A Convertible Preferred Stock

On April 20, 2020, we issued 200,000 shares of Series A Convertible Preferred Stock, par value $ 0.01 per share for an aggregate purchase price of $ 200 million, or $ 1,000 per share.

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

These direct and incremental costs reduced the Series A preferred stock balance at the issuance date and were recognized through retained earnings on June 30, 2020, the first measurement date.

Upon adoption of ASU 2020-06 in the first quarter of fiscal 2021, we recorded a $ 4.8 million cumulative adjustment to retained earnings to reverse beneficial conversion features recorded during fiscal 2020.

On June 15, 2021, we paid $ 443.8 million in connection with the cash-settled conversion of 150,000 shares of our outstanding Series A preferred stock (effected through a repurchase agreement), which was recognized through additional paid in capital.

We also share-settled the conversion of the remaining 50,000 shares of our outstanding Series A convertible preferred stock into 2,400,864 shares of our common stock.

These are both based on the then current Liquidation Preference per share of $ 1,067.42 and conversion price of $ 22.23 .

During the first quarter of fiscal 2021, we declared a cash dividend of $ 5.1 million, or $ 25.35 per share, on the Series A preferred stock.

During the second quarter of fiscal 2021, $ 13.6 million in payments were made in connection with the conversion of the preferred stock, consisting of $ 3.9 million, or $ 19.72 per share of accrued dividends and $ 9.7 million of an inducement, which was also deemed to be a dividend.

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

(See Note 5 for further discussion of our long-term debt.)

Stock-Based Compensation

We maintain stock-based incentive plans under which incentive stock options, non-qualified stock options, stock appreciation rights, restricted shares and restricted share units may be granted to staff members, consultants and non-employee directors.

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.

The following table presents information related to stock-based compensation, net of forfeitures (in thousands):

September 27, 2022

September 28, 2021

September 27, 2022

September 28, 2021

April 4, 2023

March 29, 2022

Labor expenses

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Stock Options

We did not issue any stock options during the third quarter of fiscal 2022 or fiscal 2021.

Stock option activity during the thirty-nine weeks ended September 27, 2022 was as follows:

The weighted-average fair value at the grant date for options issued during the first quarter of fiscal 2023 was $ 15.76 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 6.7 years, (b) expected stock price volatility of 45.2 %, (c) a risk-free interest rate of 4.0 % and (d) a dividend yield on our stock of 2.7 %.

We did not issue any stock options during the first quarter of fiscal 2022.

Stock option activity during the thirteen weeks ended April 4, 2023 was as follows:

Exercise Price

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(In thousands)

Outstanding at December 28, 2021

Outstanding at January 3, 2023

Forfeited or cancelled

Outstanding at September 27, 2022

Exercisable at September 27, 2022

Outstanding at April 4, 2023

Exercisable at April 4, 2023

(1) Aggregate intrinsic value is calculated as the difference between our closing stock price at fiscal period end and the exercise price, multiplied by the number of in-the-money options and represents the pre-tax amount that would have been received by the option holders, had they all exercised their options on the fiscal period-end date.

There were no options exercised during the third quarters of fiscal 2022 or 2021.

The total intrinsic value of options exercised during the first three quarters of fiscal 2022 and 2021 were $ 4.9 million and $ 7.1 million, respectively.

As of September 27, 2022, total unrecognized stock-based compensation expense related to unvested stock options was $ 3.1 million, which we expect to recognize over a weighted-average period of approximately 1.9 years.

There were no options exercised during the first quarter of fiscal 2023.

The total intrinsic value of options exercised during thirteen weeks ended March 29, 2022 was $ 4.9 million.

As of April 4, 2023, total unrecognized stock-based compensation expense related to unvested stock options was $ 2.7 million, which we expect to recognize over a weighted-average period of approximately 2.0 years.

Restricted Shares and Restricted Share Units

Restricted share and restricted share unit activity during the thirty-nine weeks ended September 27, 2022 was as follows:

Restricted share and restricted share unit activity during the thirteen weeks ended April 4, 2023 was as follows:

(In thousands)

Outstanding at December 28, 2021

Outstanding at September 27, 2022

Outstanding at January 3, 2023

Outstanding at April 4, 2023

Fair value of our restricted shares and restricted share units is based on our closing stock price on the date of grant.

The weighted average fair value for restricted shares and restricted share units issued during the third quarter of fiscal 2022 and 2021 was $ 28.59 and $ 51.95 , respectively.

The fair value of shares that vested during the thirteen and thirty-nine weeks ended September 27, 2022 was $ 1.9 million and $ 16.4 million, respectively.

The fair value of shares that vested during the thirteen weeks and thirty-nine weeks ended September 28, 2021 was $ 2.1 million and $ 13.3 million, respectively.

As of September 27, 2022, total unrecognized stock-based compensation expense related to unvested restricted shares and restricted share units was $ 53.3 million, which we expect to recognize over a weighted-average period of approximately 3.0 years.

Net (Loss)/Income Per Share

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

At September 27, 2022 and September 28, 2021, 2.4 million and 2.1 million shares, respectively, of restricted stock issued were unvested and, therefore, excluded from the calculation of basic earnings per share for the fiscal periods ended on those dates.

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

The weighted average fair value for restricted shares and restricted share units issued during the first quarter of fiscal 2023 and 2022 was $ 39.94 and $ 39.59 , respectively.

The fair value of shares that vested during the thirteen weeks ended April 4, 2023 and March 29, 2022 was $ 15.2 million and $ 12.4 million, respectively.

As of April 4, 2023, total unrecognized stock-based compensation expense related to unvested restricted shares and restricted share units was $ 65.7 million, which we expect to recognize over a weighted-average period of approximately 3.3 years.

Net Income Per Share

Basic net income per share is computed by dividing net income by the weighted-average number of common shares outstanding during the period, reduced by unvested restricted stock awards.

As of April 4, 2023 and March 29, 2022, 2.8 million and 2.5 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 periods ended on those dates.

Diluted net income per share is computed by dividing net income by the weighted-average number of common stock equivalents outstanding for the period.

Common stock equivalents for the Notes are determined by application of the if-converted method, and common stock equivalents for outstanding stock options, restricted stock and restricted stock units are determined by the application of the treasury stock method.

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 required us to apply the two-class method to compute both basic and diluted net (loss)/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 were required to calculate diluted net (loss)/income per share under the if-converted method in addition to the two-class method and utilize the most dilutive result.

September 27, 2022

September 28, 2021

September 27, 2022

September 28, 2021

April 4, 2023

March 29, 2022

(In thousands, except per share data)

Basic net (loss)/income per common share:

Net (loss)/income

Dividends on Series A preferred stock

Undistributed earnings allocated to Series A preferred stock

Net (loss)/income available to common stockholders

Basic weighted-average shares outstanding

Basic net (loss)/income per common share

Diluted net (loss)/income per common share:

Net (loss)/income available to common stockholders

Reallocation of undistributed earnings to Series A preferred stock

Net (loss)/income available to common stockholders for diluted earnings per share

Basic weighted-average shares outstanding

Dilutive effect of equity awards (1)

Diluted weighted-average shares outstanding

Diluted net (loss)/income per common share

(1) Shares of common stock equivalents related to outstanding stock options, restricted stock and restricted stock units of 3.3 million and 3.8 million as of September 27, 2022 and September 28, 2021, respectively, were excluded from the diluted calculation due to their anti-dilutive effect.

Basic net income per share

Diluted net income per share

(1) Shares of common stock equivalents related to outstanding stock options, restricted stock and restricted stock units of 1.9 million and 2.9 million for April 4, 2023 and March 29, 2022, 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.

Segment Information

Our operating segments, the businesses for which our management reviews discrete financial information for decision-making purposes, are comprised of The Cheesecake Factory, North Italia, Flower Child, the other FRC brands, our bakery division and Grand Lux Cafe.

Based on quantitative thresholds set forth in Accounting Standards Codification (“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 do not qualify as operating segments are combined in Other.

The remaining operating segments (Flower Child and our bakery division) along with our businesses that do not 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):

September 27, 2022

September 28, 2021

September 27, 2022

September 28, 2021

April 4, 2023

March 29, 2022