What changed in this filing

/stocks — the workspaceLOADING

Item 9A. Controls and Procedures

2024-02-26 compared with 2023-02-27 · 184 added, 227 removed, 889 unchanged (32% of the section changed)

24 unchanged sentences

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 June 1, 2023 (the “Proxy Statement”).

EXECUTIVE COMPENSATION

17 unchanged sentences

Consolidated Balance Sheets

Consolidated Statements of Income/(Loss)

Consolidated Statements of Comprehensive Income/(Loss)

Consolidated Statements of Income

Consolidated Statements of Comprehensive Income

Consolidated Statements of Stockholders’ Equity and Series A Convertible Preferred Stock

5 unchanged sentences

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 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 have audited the accompanying consolidated balance sheets of The Cheesecake Factory Incorporated and subsidiaries (the Company) as of January 2, 2024 and January 3, 2023, the related consolidated statements of income, comprehensive income, stockholders’ equity and series A convertible preferred stock, and cash flows for each of the years in the three-year period ended January 2, 2024, and the related notes (collectively, the consolidated financial statements).

We also have audited the Company’s internal control over financial reporting as of January 2, 2024, 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.

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 2, 2024 and January 3, 2023, and the results of its operations and its cash flows for each of the years in the three-year period ended January 2, 2024, in conformity with U.S.

generally accepted accounting principles.

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The Company’s property and equipment, net, and operating lease asset balances as of January 2, 2024 were $791.1 million and $1,302.2 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.

Based upon the analyses performed, the Company recognized pre-tax impairment charges for long-lived assets of $29.5 million in fiscal year 2023.

We identified the evaluation of long-lived assets for impairment as a critical audit matter.

4 unchanged sentences

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.

For certain restaurant 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.

27 unchanged sentences

Other noncurrent liabilities

Total liabilities

Commitments and contingencies (Note 13)

1 unchanged sentence

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;

none issued and outstanding

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

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

107,195,287 shares issued and 50,652,129 shares outstanding at January 2, 2024 and 106,323,117 shares issued and 51,173,597 shares outstanding at January 3, 2023

Additional paid-in capital

Retained earnings

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

Treasury stock inclusive of excise tax, 56,543,158 and 55,149,520 shares at cost at January 2, 2024 and January 3, 2023, respectively

( 1,811,997 )

5 unchanged sentences

THE CHEESECAKE FACTORY INCORPORATED

CONSOLIDATED STATEMENTS OF INCOME/(LOSS)

CONSOLIDATED STATEMENTS OF INCOME

(In thousands, except per share data)

6 unchanged sentences

Impairment of assets and lease termination expenses

Acquisition-related costs

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

Acquisition-related contingent consideration, compensation and amortization expenses

Preopening costs

Total costs and expenses

Income/(loss) from operations

Income from operations

Interest and other expense, net

Income/(loss) before income taxes

Income before income taxes

Income tax benefit

Net income/(loss)

Dividends on Series A preferred stock

Direct and incremental Series A preferred stock issuance costs

Undistributed earnings allocated to Series A preferred stock

Net income/(loss) available to common stockholders

Net income/(loss) per common share:

Net income available to common stockholders

Net income per common share:

Diluted (Note 1)

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THE CHEESECAKE FACTORY INCORPORATED

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME/(LOSS)

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(In thousands)

Net income/(loss)

Other comprehensive (loss)/gain:

Other comprehensive gain/(loss):

Foreign currency translation adjustment

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

Other comprehensive (loss)/gain

Total comprehensive income/(loss)

Unrealized gain on derivative, net of tax

Other comprehensive gain/(loss)

Total comprehensive income

Comprehensive income attributable to Series A preferred stockholders

Total comprehensive income/(loss) available to common stockholders

Total comprehensive income available to common stockholders

See the accompanying notes to the consolidated financial statements.

7 unchanged sentences

( 1,696,743 )

Foreign currency translation adjustment

Change in derivative, net of tax

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

Stock-based compensation

Common stock issued under stock-based compensation plans

Treasury stock purchases

Series A preferred stock issuance

Series A preferred stock direct costs

Paid-in-kind Series A preferred stock dividend, including beneficial conversion feature

Balance, December 29, 2020

( 1,696,743 )

Cumulative effect of adopting ASU 2020-06

21 unchanged sentences

( 1,765,641 )

Foreign currency translation adjustment

Cash dividends declared common stock, net of forfeitures, $ 1.08 per share

Stock-based compensation

Treasury stock purchases, inclusive of excise tax

Balance, January 2, 2024

( 1,811,997 )

See the accompanying notes to the consolidated financial statements.

3 unchanged sentences

Cash flows from operating activities:

Net income/(loss)

Adjustments to reconcile net income/(loss) to cash provided by operating activities:

Adjustments to reconcile net income to cash provided by operating activities:

Depreciation and amortization expenses

21 unchanged sentences

Convertible debt direct and incremental costs

Series A preferred stock issuance

Series A preferred stock direct and incremental costs

Series A preferred stock cash-settled conversion

6 unchanged sentences

Treasury stock purchases

Cash (used in)/provided by financing activities

Cash used in financing activities

Foreign currency translation adjustment

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We are culinary forward and relentlessly focused on hospitality.

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.

We currently own and operate 334 restaurants throughout the United States and Canada under brands including The Cheesecake Factory ® (216 locations), North Italia ® (37 locations), Flower Child ® (32 locations) and a collection within our Fox Restaurant Concepts (“FRC”) portfolio (41 locations).

Internationally, 33 The Cheesecake Factory ® restaurants operate under licensing agreements.

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

Fiscal year 2022 consisted of 53 weeks.

Fiscal years 2023 and 2021 each consisted of 52 weeks.

Fiscal year 2022 consisted of 53 weeks.

Fiscal year 2024 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, 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.

Geopolitical and Other Macroeconomic Impacts to our Operating Environment

During fiscal 2021 and 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 also encountered delays in opening new restaurants primarily due to delays in permitting and landlord readiness, as well as supply chain challenges.

The ongoing impact of geopolitical and macroeconomic events could lead to further shifts in consumer behavior, wage inflation, staffing challenges, product and services cost inflation, disruptions in the supply chain and delay in new restaurant openings.

Any of these factors 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 $ 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.

Amounts receivable from credit card processors, totaling $ 21.0 million and $ 19.1 million at January 2, 2024 and January 3, 2023, 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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We invest our excess cash in a money market deposit account, which is insured by the FDIC up to $250,000.

Although we maintain balances that exceed the federally insured limit, we have not experienced any losses related to this balance, and we believe credit risk to be minimal.

Although we maintain balances that exceed the federally insured limit, we have not experienced any losses related to these balances, and we believe credit risk to be minimal.

We consider the concentration of credit risk for accounts receivable from our bakery customers to be minimal due to the payment histories and general financial condition of our larger bakery accounts.

4 unchanged sentences

Improvements are capitalized, while repairs and maintenance costs are expensed as incurred.

Depreciation and amortization are calculated using the straight-line method over the estimated useful life of the assets or the reasonably certain lease term, whichever is shorter.

Depreciation is calculated using the straight-line method over the estimated useful life of the assets or the reasonably certain lease term, whichever is shorter.

Leasehold improvements include the cost of our internal development and construction department.

Depreciation and amortization periods are as follows:

Depreciation periods are as follows:

Buildings and land improvements

14 unchanged sentences

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 2023, we recorded $ 29.5 million of expense primarily related to the impairment of long-lived assets for three The Cheesecake Factory ( one previously impaired), one North Italia (previously impaired), one Other FRC and two Other restaurant lease terminations.

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 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).

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

Intangible Assets

2 unchanged sentences

January 2, 2024

December 28, 2021

January 3, 2023

Indefinite-lived intangible assets:

9 unchanged sentences

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, 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.

Factors considered include, but are not limited to, historical financial performance, 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.

4 unchanged sentences

We performed our annual impairment assessment of indefinite-lived intangible assets as of the first day of the fourth quarters of fiscal 2023, 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.

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.

1 unchanged sentence

We performed our annual impairment assessment of definite-lived intangible assets as of the first day of the fourth quarters of fiscal 2023, 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.

We concluded there was no impairment for fiscal 2023 and 2022 and recorded $ 1.3 million of impairment expense in fiscal 2021 related to licensing agreements.

Amortization expenses related to our definite-lived intangible assets were $ 0.8 million, $ 0.7 million and $ 0.7 million for fiscal 2023, 2022 and 2021, respectively.

14 unchanged sentences

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/(loss).

We recognized $ 7.3 million, $ 7.0 million and $ 6.8 million of gift card breakage in fiscal years 2023, 2022 and 2021, respectively.

41 unchanged sentences

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.

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

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

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.

14 unchanged sentences

Most of our advertising costs are included in other operating costs and expenses and were $ 34.7 million, $ 24.0 million and $ 19.9 million in fiscal 2023, 2022 and 2021, respectively.

The increase in fiscal 2023 is primarily due to the launch of our Cheesecake Rewards TM program.

Preopening Costs

13 unchanged sentences

We recognize interest and penalties related to uncertain tax positions in income tax expense.

Net Income/(Loss) per Share

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 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.

Common stock equivalents for our convertible senior notes due 2026 (“Notes”) are determined by application of the if-converted method, and common stock equivalents for outstanding stock options and restricted stock are determined by the application of the treasury stock method.

Net Income per Share

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

At January 2, 2024, January 3, 2023 and December 28, 2021, 2.9 million shares, 2.5 million shares and 2.1 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 per share is computed by dividing net income available to common stockholders by the weighted-average number of common stock equivalents outstanding for the period.

Common stock equivalents for our convertible senior notes due 2026 (“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.

2 unchanged sentences

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.

(In thousands, except per share data)

Basic net income/(loss) per common share:

Net income/(loss)

Basic net income per common share:

Dividends on Series A preferred stock

Direct and incremental Series A preferred stock issuance costs

Undistributed earnings allocated to Series A preferred stock

Net income/(loss) available to common stockholders

Net income available to common stockholders

Basic weighted-average shares outstanding

Basic net income/(loss) per common share

Diluted net income/(loss) per common share:

Net income/(loss) available to common stockholders

Basic net income per common share

Diluted net income per common share:

Net income available to common stockholders

Reallocation of undistributed earnings to Series A preferred stock

Net income/(loss) available to common stockholders for diluted EPS

Net income available to common stockholders for diluted EPS

Basic weighted-average shares outstanding

1 unchanged sentence

Diluted weighted-average shares outstanding

Diluted net income/(loss) per common share

Diluted net income per common share

(1) Shares of common stock equivalents related to outstanding stock options, restricted stock and restricted stock units of 2.9 million, 3.3 million and 1.9 million for fiscal 2023, 2022 and 2021, 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 gains/(losses) on our interest rate swap and translation gains/(losses) related to our Canadian restaurant operations.

Comprehensive Income

Comprehensive income 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, unrealized gains on our interest rate swap and translation gains/(losses) related to our Canadian restaurant operations.

Foreign Currency

4 unchanged sentences

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/(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.

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.

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 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.

As further discussed in Note 10, we issued certain 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 1.

In November 2023, the FASB issued ASU 2023-07, Segment Reporting (Topic 280):

Improvements to Reportable Segment Disclosures, which updates reportable segment disclosure requirements primarily through enhanced disclosures about significant segment expenses.

The amendments are effective for fiscal years beginning after December 15, 2023, and for interim periods within fiscal years beginning after December 15, 2024.

Early adoption is permitted.

The amendments should be applied retrospectively to all prior periods presented in the financial statements.

Management is currently evaluating this ASU to determine its impact on the Company’s disclosures.

In December 2023, the FASB issued ASU 2023-09, Income Taxes (Topic 740):

Improvements to Income Tax Disclosures, which updates income tax disclosures related to the rate reconciliation and requires disclosure of income taxes paid by jurisdiction.

The amendment also provides further disclosure comparability.

The amendments are effective for fiscal years beginning after December 15, 2024.

Early adoption is permitted.

The amendments should be applied prospectively.

However, retrospective application is permitted.

Management is currently evaluating this ASU to determine its impact on the Company’s disclosures.

Fair Value Measurements

8 unchanged sentences

Non-qualified deferred compensation liabilities

Acquisition-related deferred consideration

Acquisition-related contingent consideration and compensation liability

December 28, 2021

January 3, 2023

Assets/(Liabilities)

2 unchanged sentences

Acquisition-related deferred consideration (1)

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/(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).

Acquisition-related contingent consideration and compensation liability

(1) The final $ 11.3 million payment related to the Acquisition - related deferred consideration was made in fiscal year 2023.

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.

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

1 unchanged sentence

January 2, 2024

December 28, 2021

January 3, 2023

Beginning balance

2 unchanged sentences

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.

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 $ 2.6 million to $ 235.4 million at January 2, 2024 and $ 0 to $ 276.0 million at January 3, 2023.

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

During fiscal 2023, the fair value of the contingent consideration and compensation liability decreased by $ 3.1 million due to a payment of $ 13.0 million per the FRC acquisition agreement, partially offset by $ 9.9 million increase in the fair value primarily stemming from a change in the volatility factors, as well as an increase in fiscal 2023 revenues and estimated future revenues utilized in the calculation and amortization.

During fiscal 2022, the fair value of the contingent consideration and compensation liability increased by $ 4.7 million due to an $ 11.9 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.

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.

At both January 2, 2024 and January 3, 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 January 2, 2024 and January 3, 2023 was approximately $ 298.8 million and $ 282.9 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 increase in the fair value of the Notes was primarily due to an increase in our stock price.

See Note 10 for further discussion of the Notes.

3 unchanged sentences

January 2, 2024

December 28, 2021

January 3, 2023

Gift card distributors

Bakery customers

Insurance providers

Landlord construction contributions

Insurance providers

Delivery partner

2 unchanged sentences

January 2, 2024

December 28, 2021

January 3, 2023

Restaurant food and supplies

1 unchanged sentence

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

2 unchanged sentences

January 2, 2024

December 28, 2021

January 3, 2023

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 .

Prepaid rent (1)

(1) The primary cause for the increase in prepaid rent expenses is a higher number of restaurants under construction at January 2, 2024 where the lease has not yet commenced compared to the prior year.

Property and Equipment

2 unchanged sentences

January 2, 2024

December 28, 2021

January 3, 2023

Land and related improvements

10 unchanged sentences

Depreciation expenses related to property and equipment for fiscal 2023, 2022 and 2021 were $ 92.9 million, $ 92.1 million and $ 89.4 million, respectively.

Repair and maintenance expenses for fiscal 2022, 2021 and 2020 were $ 89.1 million, $ 77.4 million and $ 61.8 million, respectively.

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.

Repair and maintenance expenses for fiscal 2023, 2022 and 2021 were $ 99.5 million, $ 89.1 million and $ 77.4 million, respectively and are recorded in other operating costs and expenses.

Net (income)/expense for property and equipment disposals was ($ 0.4 ) million, $ 1.6 million and $ 1.1 million, in fiscal 2023, 2022 and 2021, respectively.

Other assets consisted of (in thousands):

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January 2, 2024

December 28, 2021

January 3, 2023

Non-qualified deferred compensation assets (1)

Deferred income taxes (2)

(1) See Note 16 for further discussion of our non-qualified deferred compensation assets.

(2) See Note 17 for further discussion of our income taxes.

2 unchanged sentences

January 2, 2024

December 28, 2021

January 3, 2023

Gift card liabilities:

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January 2, 2024

December 28, 2021

January 3, 2023

Gift card contract assets:

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January 2, 2024

December 28, 2021

January 3, 2023

Self-insurance

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Deferred consideration (2)

(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.

(1) The increase in accrued salaries and wages was primarily due to the timing of payroll disbursements in relation to the fiscal 2023 versus 2022 year-end dates.

(2) The final $ 11.3 million payment related to the Acquisition-related deferred consideration was made in fiscal year 2023.

Long-Term Debt

Credit Facility

Revolving 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”).

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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.

In November 2023, we borrowed $ 15.0 million on the Revolver Facility and repaid it in December 2023.

As of January 2, 2024, we had net availability for borrowings of $ 236.5 million, based on a $ 130.0 million outstanding debt balance and $ 33.5 million in standby letters of credit under the Revolver Facility.

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(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.

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

At January 2, 2024, 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:

Borrowings under the Loan Agreement bear interest, at our 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.

We 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.

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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.

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 2, 2024, the Notes had a gross principal balance of $ 345.0 million and a balance of $ 340.0 million, net of unamortized issuance costs of $ 5.0 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 $ 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).

Total amortization expense was $ 2.0 million, $ 2.0 million and $ 1.1 million in fiscal 2023, fiscal 2022 and fiscal 2021, respectively and was included in interest expense in the consolidated statements of income.

The effective interest rate for the Notes was 0.96 % as of January 2, 2024.

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As of January 2, 2024, the maturities of our operating lease liabilities were as follows (in thousands):

Fiscal year 2024

Fiscal year 2025

Fiscal year 2026

Fiscal year 2027

Fiscal year 2028

Total future lease payments

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Operating lease liabilities include $ 710.3 million related to options to extend lease terms that are reasonably certain of being exercised and exclude $ 280.7 million of legally binding minimum lease payments for leases signed but not yet commenced.

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 %.

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.

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.

We classify cash inflows and outflows from derivatives within operating activities on the consolidated statements of cash flows.

No gains or losses representing amounts excluded from the assessment of effectiveness were recognized in earnings in fiscal 2021 or fiscal 2020.

The following table summarizes the changes in AOCL, net of tax, related to the interest rate swap (in thousands):

Fiscal year ended

December 28, 2021

December 29, 2020

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 3.

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.

Other Noncurrent Liabilities

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January 2, 2024

December 28, 2021

January 3, 2023

Non-qualified deferred compensation liabilities (1)

Deferred consideration (1)

Contingent consideration and compensation liability

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

(1) See Note 16 for further discussion of our non-qualified deferred compensation assets and liabilities.

Commitments and Contingencies

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.

Purchase obligations, which include inventory purchases, equipment purchases, information technology and other miscellaneous commitments, were $ 101.4 million and $ 129.9 million at January 2, 2024 and January 3, 2023, 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 $ 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.

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 $ 414.8 million and $ 252.4 million at January 2, 2024 and January 3, 2023, respectively.

The FRC acquisition agreement included a contingent consideration provision of which the remainder is payable annually from 2024 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 $ 25.5 million at January 2, 2024.

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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 $ 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.

As credit guarantees to insurers, we had $ 33.5 million and $ 31.5 million at January 2, 2024 and January 3, 2023, 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 $ 71.9 million and $ 67.6 million at January 3, 2023 and December 28, 2021, respectively.

The total accrued liability for our self-insured plans was $ 71.5 million and $ 71.9 million at January 2, 2024 and January 3, 2023, 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 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 November 10, 2022, the parties participated in voluntary mediation and reached a settlement of all claims.

We reserved an immaterial amount for settlement purposes.

Final payment under the settlement agreement was made in October 2023 following the final agency approval.

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 in the United States District Court for the District of Maryland on February 21, 2023 (Curd v.

Civil Action No.

1:23-cv-00472-JMC).

On May 10, 2023, the plaintiffs in Case Nos.

3:23-cv-00272 and 1:23-cv-00472 voluntarily dismissed their complaints against the Company without prejudice.

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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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.

Stockholders’ Equity and Series A Convertible Preferred Stock

Stockholders’ Equity

Common Stock Issuance

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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 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.

Our Board resumed our quarterly dividend in

the second quarter of fiscal 2022, declaring $ 0.81 per common share during fiscal 2022.

Following 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 Board declared a quarterly dividend in the second quarter of fiscal 2022 and has declared quarterly dividends since then.

Our Board declared dividends of $ 1.08 per common share in the aggregate during fiscal 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.

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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.

Under this authorization, we have cumulatively repurchased 56.5 million shares at a total cost of $ 1,811.7 million, excluding excise tax, through January 2, 2024.

During fiscal 2023, 2022 and 2021, we repurchased 1.4 million, 2.0 million and 0.1 million shares of our common stock at a cost of $ 46.1 million, $ 63.1 million and $ 5.8 million, excluding excise tax, respectively.

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.

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

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

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

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

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Stock Options

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 2023 was $ 15.76 per share.

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(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 fiscal 2022 or 2021.

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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(1) Aggregate intrinsic value is calculated as the difference between our closing stock price at fiscal year 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 year-end date.

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.

There were no options exercised during fiscal 2023.

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

As of January 2, 2024, total unrecognized stock-based compensation expense related to unvested stock options was $ 1.5 million, which we expect to recognize over a weighted-average period of approximately 1.3 years.

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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.

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).

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.

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 $ 14.0 million and $ 15.3 million as of January 3, 2023 and December 28, 2021, respectively.

The accrued liability for our self-insured benefit plans, which is included in other accrued expenses, was $ 11.3 million and $ 14.0 million as of January 2, 2024 and January 3, 2023, respectively.

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

The provision for income taxes consisted of the following (in thousands):

Income/(Loss) before income taxes

Income before income taxes

Income tax provision/(benefit):

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On March 27, 2020, the CARES Act was signed into law.

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”).

It included provisions allowing for the carryback of net operating losses generated in fiscal years 2018, 2019 and 2020.

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.

8 unchanged sentences

January 2, 2024

December 28, 2021

January 3, 2023

Deferred tax assets:

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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.

At January 2, 2024 and January 3, 2023, we had $ 72.8 million and $ 56.5 million, respectively of U.S.

federal credit carryforwards which begin to expire in 2038 and $ 1.6 million and $ 1.6 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.

At January 2, 2024 and January 3, 2023, we had $ 2.3 million and $ 2.5 million, respectively of foreign net operating loss carryforwards which begin to expire in 2038 and $ 27.4 million and $ 46.6 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.

2 unchanged sentences

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

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.

Based on this evaluation, at January 2, 2024 and January 3, 2023 we carried a valuation allowance of $ 1.4 million and $ 1.2 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.

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Balance at end of year

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.

At January 2, 2024 and January 3, 2023, we had $ 1.4 million and $ 2.2 million, respectively, of accrued interest and penalties related to uncertain tax positions.

$ 0.3 million of the balance of uncertain tax positions at January 2, 2024 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

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 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 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.

1 unchanged sentence

The Cheesecake Factory restaurants

Income/(loss) from operations:

Income from operations:

The Cheesecake Factory restaurants

Depreciation and amortization :

Depreciation and amortization expenses:

The Cheesecake Factory restaurants

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(1) Fiscal 2023, 2022 and fiscal 2021 include $ 11.7 million, $ 13.4 million and $ 19.5 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).

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

Subsequent Events

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Form of Reorganization Agreement (P)

Purchase Agreement, dated as of November 14, 2016, as amended by Amendment & Option Exercise Agreement, dated as of July 30, 2019, by and among The Cheesecake Factory Incorporated and the other Parties thereto #

First Amendment to Option Exercise Agreement and Second Amendment to Purchase Agreement and Operating Agreement, dated as of October 2, 2019, by and among The Cheesecake Factory Incorporated and the other Parties thereto #

Membership Interest Purchase Agreement, dated as of July 30, 2019, by and among The Cheesecake Factory Restaurants, Inc., Fox Restaurant Concepts LLC, the Sellers party thereto, SWF Posse LLC, as Seller’s representative, and, solely for limited purposes set forth therein, The Cheesecake Factory Incorporated #†

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

Incorporated by

Reference from

Exhibit Number

Certificate of Designations of The Cheesecake Factory Incorporated, dated April 20, 2020

2 unchanged sentences

Bank National Association, as trustee

Incorporated by

Reference from

Exhibit Number

First Supplemental Indenture, dated as of June 15, 2021, between The Cheesecake Factory Incorporated and U.S.

1 unchanged sentence

Form of certificate representing the 0.375% Convertible Senior Notes due 2026 (included as Exhibit A to Exhibit 4.3)

Employment Agreement, effective as of April 1, 2017, between The Cheesecake Factory Incorporated and David M.

First Amendment to Employment Agreement, effective as of April 1, 2018, between The Cheesecake Factory Incorporated and David M.

Amended and Restated Employment Agreement, effective as of April 5, 2023, between The Cheesecake Factory Incorporated and David M.

Employment Agreement, effective as of March 3, 2016, between The Cheesecake Factory Incorporated and David M.

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Form of Indemnification Agreement*

Incorporated by

Reference from

Exhibit Number

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

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The Cheesecake Factory Incorporated 2010 Stock Incentive Plan as amended effective as of February 27, 2013*

Incorporated by

Reference from

Exhibit Number

The Cheesecake Factory Incorporated 2010 Stock Incentive Plan as amended April 3, 2014*

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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*

Incorporated by

Reference from

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*

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Form of Standard Notice of Grant and Restricted Share Agreement I under the 2010 Stock Incentive Plan, for equity grants made after February 15, 2018*

Incorporated by

Reference from

Exhibit Number

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

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

Incorporated by

Reference from

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

Second Amendment to the Third Amended and Restated Loan Agreement, dated as of March 30, 2021, among The Cheesecake Factory Incorporated, JPMorgan Chase Bank, N.A., as administrative agent, and the lenders party thereto

Registration Rights Agreement, dated April 20, 2020, by and between The Cheesecake Factory Incorporated and RC Cake Holdings LLC

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

Repurchase Agreement, dated as of June 10, 2021 among The Cheesecake Factory Incorporated and RC Cake 1 LLC, RC Cake 2 LLC and RC Cake 3 LLC

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

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Filed herewith

Incorporated by

Reference from

Exhibit Number

Consent of Independent Registered Public Accounting Firm — KPMG LLP

4 unchanged sentences

Filed herewith

Incorporated by

Reference from

Exhibit Number

Certification Pursuant to 18 U.S.C.

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Filed herewith

The Registrant’s Policy for Recover of Erroneously Awarded Compensation

Filed herewith

The following materials from The Cheesecake Factory Incorporated’s Annual Report on Form 10-K for the year ended January 2, 2024, formatted in Inline eXtensible Business Reporting Language (iXBRL):

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(Principal Financial Officer)

/s/ CHERYL M.

Senior Vice President, Controller and

/s/ ASHLEY W.

Vice President, Controller

February 26, 2024

Chief Accounting Officer

(Principal Accounting Officer)

17 unchanged sentences

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