Item 2. Management’s Discussion and Analysis
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
Forward-Looking Statements
Certain information included in this Form 10-Q and other materials we have filed or may file with the Securities and Exchange Commission (“SEC”), as well as information included in oral or written statements made by us or on our behalf, may contain forward-looking statements about our current and presently expected performance trends, growth plans, business goals and other matters.
These statements may be contained in our filings with the SEC, in our press releases, in other written communications, and in oral statements made by or with the approval of one of our authorized officers. These statements are forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995, as codified in Section 27A of the Securities Act of 1933, as amended (the “Securities Act”), and Section 21E of the Securities Exchange Act of 1934, as amended (together with the Securities Act, the “Acts”). This includes, without limitation, statements regarding corporate social responsibility (“CSR”) and in our CSR report, the effects of geopolitical and macroeconomic factors on our financial condition and our results of operations, financial guidance and projections, as well as expectations of our future financial condition, results of operations, sales, target growth rates, cash flows, quarterly dividends, share repurchases, corporate strategy, plans, targets, goals, objectives, performance, growth potential, competitive position and business, and statements regarding our ability to: leverage our competitive strengths, including developing and investing in new restaurant concepts and expanding The Cheesecake Factory® brand to other retail opportunities; maintain our aggregate sales volumes; deliver comparable sales growth; provide a differentiated experience to customers; outperform the casual dining industry and increase our market share; leverage sales increases and manage flow through; manage cost pressures, including, increasing wage rates and insurance costs, and increase margins; grow earnings; remain relevant to consumers; attract and retain qualified management and other staff; increase shareholder value; find suitable sites and manage increasing construction costs; profitably expand our concepts domestically and in Canada, and work with our licensees to expand The Cheesecake Factory internationally; support the growth of North Italia, Flower Child and Other FRC restaurants; and utilize our capital effectively. These forward-looking statements may be affected by various factors including: economic, public health and political conditions that impact consumer confidence and spending, including rising interest rates, periods of heightened inflation and market instability, and armed conflicts; supply chain disruptions; demonstrations, political unrest, potential damage to or closure of our restaurants and potential reputational damage to us or any of our brands; pandemics and related containment measures, including the potential for quarantines or restriction on in-person dining; acceptance and success of The Cheesecake Factory in international markets; acceptance and success of North Italia, Flower Child and Other FRC concepts; the risks of doing business abroad through Company-owned restaurants and/or licensees; foreign exchange rates, tariffs and cross border taxation; changes in unemployment rates; increases in minimum wages and benefit costs; the economic health of our landlords and other tenants in retail centers in which our restaurants are located, and our ability to successfully manage our lease arrangements with landlords; the economic health of suppliers, licensees, vendors and other third parties providing goods or services to us; the timing of our new unit development and related permitting; compliance with debt covenants; strategic capital allocation decisions including with respect to share repurchases or dividends; the ability to achieve projected financial results; the resolution of uncertain tax positions with the Internal Revenue Service and the impact of tax reform legislation; changes in laws impacting our business; adverse weather conditions in regions in which our restaurants are located; factors that are under the control of government agencies, landlords and other third parties; the risks, costs and uncertainties associated with opening new restaurants; and other risks and uncertainties detailed from time to time in our filings with the SEC. Such forward-looking statements include all other statements that are not historical facts, as well as statements that are preceded by, followed by or that include words or phrases such as “believe,” “plan,” “will likely result,” “expect,” “intend,” “will continue,” “is anticipated,” “estimate,” “project,” “may,” “could,” “would,” “should” and similar expressions. These statements are based on our current expectations and involve risks and uncertainties which may cause results to differ materially from those set forth in such statements.
In connection with the “safe harbor” provisions of the Acts, we have identified and are disclosing important factors, risks and uncertainties that could cause our actual results to differ materially from those projected in forward-looking statements made by us, or on our behalf. (See Part II, Item 1A of this report, “Risk Factors,” and Part I, Item 1A, “Risk Factors,” included in our Annual Report on Form 10-K for the fiscal year ended January 2, 2024.) These cautionary statements are to be used as a reference in connection with any forward-looking statements. The factors, risks and uncertainties identified in these cautionary statements are in addition to those contained in any other cautionary statements, written or oral, which may be made or otherwise addressed in connection with a forward-looking statement or contained in any of our subsequent filings with the SEC. Because of these factors, risks and uncertainties, we caution against placing undue reliance on forward-looking statements. Although we believe that the assumptions underlying forward-looking statements are currently reasonable, any of the assumptions could be incorrect or incomplete, and there can be no assurance that forward-looking statements will prove to be accurate. Forward-looking statements speak only as of the date
16
Table of Contents
on which they are made, and we undertake no obligation to publicly update or revise any forward-looking statements or to make any other forward-looking statements, whether as a result of new information, future events or otherwise, unless required to do so by law.
The below discussion and analysis, which contains forward-looking statements, should be read in conjunction with our interim unaudited condensed consolidated financial statements and related notes in Part I, Item 1 of this report and with the following items included in our Annual Report on Form 10-K for the fiscal year ended January 2, 2024: the audited consolidated financial statements and related notes in Part IV, Item 15; the “Risk Factors” included in Part I, Item 1A; the “Management’s Discussion and Analysis of Financial Condition and Results of Operations” included in Part II, Item 7; and the cautionary statements included throughout this Form 10-Q. The inclusion of supplementary analytical and related information herein may require us to make estimates and assumptions to enable us to fairly present, in all material respects, our analysis of trends and expectations with respect to our results of operations and financial position.
Geopolitical and Other Macroeconomic Impacts to our Operating Environment
Beginning in 2021, our operating results were impacted by geopolitical and other macroeconomic events, causing supply chain challenges and significantly increased commodity and wage inflation. Some of these factors continue to impact our operating results in fiscal 2024, contributing to significantly increased commodity and other costs. We have 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. Climate change may further exacerbate a number of these factors. For more information regarding the risks to our business relating to the geopolitical and macroeconomic events, see “Risk Factors” in Item 1A of our Annual Report on Form 10-K for the fiscal year ended January 2, 2024.
General
The Cheesecake Factory Incorporated is a leader in experiential dining. We are culinary forward and relentlessly focused on hospitality. We currently own and operate 335 restaurants throughout the United States and Canada under brands including The Cheesecake Factory ® (216 locations), North Italia ® (38 locations), Flower Child ® (31 locations) and additional brands within our FRC portfolio (42 locations). Internationally, 34 The Cheesecake Factory ® restaurants operate under licensing agreements. Our bakery division operates two facilities that produce quality cheesecakes and other baked products for our restaurants, international licensees and third-party bakery customers.
Overview
Our strategy is driven by our commitment to customer satisfaction and is focused primarily on menu innovation, service and operational execution to continue to differentiate ourselves from other restaurant concepts, as well as to drive competitively strong performance that is sustainable. Financially, we are focused on prudently managing expenses at our restaurants, bakery facilities and corporate support center, and leveraging our size to make the best use of our purchasing power.
Investing in new Company-owned restaurant development is our top long-term capital allocation priority, with a focus on opening our concepts in premier locations within both new and existing markets. We plan to continue expanding The Cheesecake Factory and North Italia concepts, and in addition, our FRC subsidiary serves as an incubation engine,innovating new food, dining and hospitality experiences to create fresh, exciting concepts.
Our overall revenue growth is primarily driven by revenues from new restaurant openings and increases in comparable restaurant sales.
For The Cheesecake Factory concept, our strategy is to increase comparable restaurant sales by growing average check and maintaining customer traffic through (1) continuing to offer innovative, high quality menu items that offer customers a wide range of options in terms of flavor, price and value, (2) focusing on service and hospitality with the goal of delivering an exceptional customer experience and (3) continuing to provide our customers with convenient options for off-premise dining. We are continuing our efforts on a number of initiatives, including menu innovation, a greater focus on increasing customer throughput in our restaurants, leveraging our gift card program, working with a third party to provide delivery services for our restaurants, increasing customer
17
Table of Contents
awareness of our online ordering capabilities, improving the pick-up experience, augmenting our marketing programs, including our Cheesecake Rewards TM program, enhancing our training programs and leveraging our customer satisfaction measurement platform.
Average check variations are driven by menu price increases and/or changes in menu mix. We generally update The Cheesecake Factory menus twice each year, and our philosophy is to use price increases to help offset key operating cost increases in a manner that balances supporting both our margin objectives and customer traffic levels, utilizing a market-based strategy to help mitigate cost pressure in higher-wage geographies. Prior to fiscal 2022, we targeted menu price increases of approximately 2% to 3% annually. Beginning in 2022, we have implemented menu price increases above our historical levels to help offset significant inflationary cost pressures. Current and future near-term pricing actions may also be at levels above historical norms to keep pace with any significant cost increases. In addition, on a regular basis, we carefully consider opportunities to adjust our menu offerings or ingredients to help manage product availability and cost.
Margins are subject to fluctuations in commodity costs, labor, restaurant-level occupancy expenses, general and administrative (“G&A”) expenses and preopening expenses. Our objective is to recapture our pre-COVID-19 pandemic margins and longer-term to drive margin expansion, by leveraging incremental sales to increase restaurant-level margins at The Cheesecake Factory concept, leveraging our bakery operations, international and consumer packaged goods royalty revenue streams and G&A expense over time, and optimizing our restaurant portfolio.
We plan to employ a balanced capital allocation strategy comprised of investing in new restaurants that are expected to meet our targeted returns, repaying borrowings under our Revolving Facility and returning capital to shareholders through our dividend and share repurchase programs, the latter of which offsets dilution from our equity compensation program and supports our earnings per share growth. Future decisions to pay or to increase or decrease dividends or to repurchase shares are at the discretion of the Board and will be dependent on a number of factors, including limitations pursuant to the terms and conditions of the Loan Agreement and applicable law.
Longer-term, we believe our domestic revenue growth (comprised of our targeted annual unit growth of 7%, in aggregate across concepts, and comparable sales growth), combined with margin expansion, planned debt repayments and an anticipated capital return program will support our long-term financial objective of 13% to 14% total return to shareholders, on average. We define our total return as earnings per share growth plus our dividend yield.
18
Table of Contents
Results of Operations
The following table presents, for the periods indicated, information from our condensed consolidated statements of income expressed as percentages of revenues. The results of operations for the interim periods presented are not necessarily indicative of the results to be expected for any other interim period or for the full fiscal year.
Thirteen
Thirteen
Weeks Ended
Weeks Ended
April 2, 2024
April 4, 2023
Revenues
100.0
%
100.0
%
Costs and expenses:
Food and beverage costs
22.8
23.8
Labor expenses
36.0
36.0
Other operating costs and expenses
26.3
26.7
General and administrative expenses
6.8
6.2
Depreciation and amortization expenses
2.8
2.7
Impairment of assets and lease termination expenses
0.2
0.3
Acquisition-related contingent consideration, compensation and amortization expenses
0.1
0.1
Preopening costs
0.6
0.3
Total costs and expenses
95.6
96.1
Income from operations
4.4
3.9
Interest and other expense, net
(0.2)
(0.2)
Income before income taxes
4.2
3.7
Income tax provision
0.5
0.5
Net income
3.7
%
3.2
%
Thirteen Weeks Ended April 2, 2024 Compared to Thirteen Weeks Ended April 4, 2023
Revenues
Revenues increased 2.9% to $891.2 million for the fiscal quarter ended April 2, 2024 compared to $866.1 million for the comparable prior year period, primarily due to additional revenue related to new restaurant openings, partially offset by a decrease in comparable restaurant sales.
The Cheesecake Factory sales increased 1.8% to $667.8 million for the first quarter of fiscal 2024, compared to $656.0 million for the first quarter of fiscal 2023. Average sales per restaurant operating week decreased 0.7% to $237,903 in the first quarter of fiscal 2024 from $239,679 in the first quarter of fiscal 2023. Total operating weeks at The Cheesecake Factory restaurants increased 2.6% to 2,807 in the first quarter of fiscal 2024 compared to 2,737 in the prior year. The Cheesecake Factory comparable sales decreased by 0.6%, or $3.9 million, from the first quarter of fiscal 2023. The decrease from fiscal 2023 was primarily driven by decreased customer traffic of 1.5% partially offset by an increase in average check of 0.9% (based on an increase of 5.2% in menu pricing and 4.3% negative impact from mix). We implemented effective menu price increases of approximately 2.5% and 2.0% in the first quarter of fiscal 2024 and the third quarter of fiscal 2023, respectively. Sales through the off-premise channel comprised approximately 22% of our restaurant sales during the first quarter of fiscal 2024 as compared to 23% in the first quarter of fiscal 2023. We account for each off-premise order as one customer for traffic measurement purposes. Therefore, average check is generally higher for off-premise orders as most are for more than one customer. In turn, the lower mix of sales in the off-premise channel during the first quarter of fiscal 2024 compared to the prior year first quarter comprised approximately 1% of the negative change in mix with a positive correlative impact to traffic.
North Italia sales increased 12.0% to $70.9 million for the first quarter of fiscal 2024, compared to $63.3 million for the first quarter of fiscal 2023. Average sales per restaurant operating week increased 0.1% to $147,654 in the first quarter of fiscal 2024 from $147,559 in the first quarter of fiscal 2023. Total operating weeks at North Italia increased 11.9% to 480 in the first quarter of fiscal 2024 compared to 429 in the prior year. North Italia comparable sales increased approximately 3% from the first quarter of fiscal 2023. The increase from fiscal 2023 was primarily driven by an increase in average check of 4% (based on an increase of 8% in menu pricing, partially offset by a 4% negative impact from mix), partially offset by decreased customer traffic of 1%. We implemented
19
Table of Contents
effective menu price increases of approximately 4.0% and 3.7% in the second and fourth quarters of fiscal 2023, respectively. We are in the process of implementing a 2.5% price increase in the second quarter of fiscal 2024.
Flower Child sales increased 10.2% to $34.5 million for the first quarter of fiscal 2024, compared to $31.3 million for the first quarter of fiscal 2023. Flower Child sales per restaurant operating week increased 4.2% to $83,673 in first quarter of fiscal 2024 from $80,282 in the first quarter of fiscal 2023. Total operating weeks at Flower Child increased 5.6% to 412 in the first quarter of fiscal 2024 compared to 390 in the prior year.
Other FRC sales increased 8.2% to $74.2 million for the first quarter of fiscal 2024, compared to $68.6 million for the first quarter of fiscal 2023. Other FRC average sales per restaurant operating week decreased 7.6% to $140,584 in the first quarter of fiscal 2024 from $152,194 in the first quarter of fiscal 2023. Average sales per restaurant operating week were impacted by new restaurant openings, as well as the concept mix and a decline in comparable sales. Total operating weeks at Other FRC increased 17.1% to 528 in the first quarter of fiscal 2024 compared to 451 in the prior year.
Restaurants become eligible to enter the comparable sales base in their 19th month of operation. As of April 2, 2024, there were eight The Cheesecake Factory restaurants and seven North Italia restaurants not yet in the comparable sales base. International licensed locations and restaurants that are no longer in operation, including those which we have relocated, are excluded from comparable sales calculations.
Food and Beverage Costs
Food and beverage costs consist of raw materials and ingredients used in the food and beverage products sold in our restaurants and to our third-party customers. As a percentage of revenues, cost of sales was 22.8% and 23.8% in the first quarters of fiscal 2024 and 2023, respectively, primarily due to menu price increases in excess of inflation across most categories (0.6%) and a shift in sales mix (0.3%).
Labor Expenses
As a percentage of revenues, labor expenses, which include restaurant-level labor costs and bakery production labor, including associated fringe benefits, were 36.0% in both the first quarters of fiscal 2024 and 2023. Management labor increased due to higher staffing levels (0.3%), offset by menu price increases in excess of wage rate inflation (0.3%).
Other Operating Costs and Expenses
Other operating costs and expenses consist of all other restaurant-level operating costs, the major components of which are occupancy expenses (rent, common area expenses, insurance, licenses, taxes and utilities), dining room and to-go supplies, repairs and maintenance, janitorial expenses, credit card processing fees, marketing including delivery commissions, and incentive compensation, as well as bakery production overhead. As a percentage of revenues, other operating costs and expenses were 26.3% and 26.7% in the first quarters of fiscal 2024 and 2023, respectively. This variance was primarily driven by a shift in sales mix (0.3%) and lower utilities (0.1%), partially offset by increased restaurant-level incentive compensation expense (0.1%).
G&A Expenses
G&A expenses consist of the restaurant management recruiting and training program, restaurant field supervision, corporate support and bakery administrative organizations, as well as gift card commissions to third-party distributors. As a percentage of revenues, G&A expenses were 6.8% and 6.2% in first quarter of fiscal 2024 and 2023, respectively. This variance was primarily due to increased labor expense (0.4%) and higher legal fees (0.1%)
Impairment of Assets and Lease Termination Expenses
During the first quarter of fiscal 2024, we recorded impairment of assets and lease terminations expense of $2.1 million primarily related to impairment of assets for one The Cheesecake Factory location and lease termination costs for one The Cheesecake Factory location. During the first quarter of fiscal 2023, we recorded impairment of assets and lease terminations expense of $2.2 million primarily related to lease termination costs for one Grand Lux Cafe location.
20
Table of Contents
Preopening Costs
Preopening costs were $5.9 million and $3.1 million in the first quarters of fiscal 2024 and 2023, respectively. We opened two North Italia, one Flower Child and two Other FRC locations in the first quarter of fiscal 2024 compared to one Flower Child and one Other FRC location in the first quarter of fiscal 2023. Restaurant-level preopening costs include all costs to relocate and compensate restaurant management staff members during the preopening period, costs to recruit and train hourly restaurant staff members, and wages, travel and lodging costs for our opening training team and other support staff members. Also included in preopening costs are expenses for maintaining a roster of trained managers for pending openings, the associated temporary housing and other costs necessary to relocate managers in alignment with future restaurant opening and operating needs. Preopening costs can fluctuate significantly from period to period based on the number, mix and timing of restaurant openings and the specific preopening costs incurred for each restaurant.
Income Tax Provision
Our effective income tax rate was 11.6% and 12.5% for the first quarters of fiscal 2024 and 2023, respectively. The decrease was primarily due to a change to our reserve for uncertain tax positions (1.8%), a lower proportion of non-deductible executive compensation in relation to income before income taxes in the first quarter of fiscal 2024 (0.5%), and higher non-taxable gains in the first quarter of fiscal 2024 on our investments in variable life insurance contracts used to support our non-qualified deferred compensation plan (0.4%). These factors were partially offset by a higher proportion of tax shortfall related to equity compensation in relation to income before income taxes in the first quarter of fiscal 2024 (1.8%).
Non-GAAP Measures
Adjusted net income and adjusted diluted net income per share are supplemental measures of our performance that are not required by or presented in accordance with GAAP. These non-GAAP measures may not be comparable to similarly-titled measures used by other companies and should not be considered in isolation or as a substitute for measures of performance prepared in accordance with GAAP. We calculate these non-GAAP measures by eliminating from net income and diluted net income per share the impact of items we do not consider indicative of our ongoing operations. We use these non-GAAP financial measures for financial and operational decision-making and as a means to evaluate period-to-period comparisons. Our inclusion of these adjusted measures should not be construed as an indication that our future results will be unaffected by unusual or infrequent items. In the future, we may incur expenses or generate income similar to the adjusted items.
Following is a reconciliation from net income and diluted net income per share to the corresponding adjusted measures (in thousands, except per share data):
Thirteen
Thirteen
Weeks Ended
Weeks Ended
April 2, 2024
April 4, 2023
Net income
$
33,191
$
28,050
Impairment of assets and lease termination expenses
2,083
2,242
Acquisition-related contingent consideration, compensation and amortization expenses
1,121
1,189
Tax effect of adjustments (1)
(833)
(892)
Adjusted net income
$
35,562
$
30,589
Diluted net income per share
$
0.68
$
0.56
Impairment of assets and lease termination expenses
0.04
0.05
Acquisition-related contingent consideration, compensation and amortization expenses
0.02
0.02
Tax effect of adjustments (1)
(0.02)
(0.02)
Adjusted diluted net income per share (2)
$
0.73
$
0.61
(1) Based on federal statutory rate and an estimated blended state tax rate, the tax effect on all adjustments assumes a 26% tax rate.
(2) Adjusted net income per share may not add due to rounding.
21
Table of Contents
Fiscal 2024 Outlook
Based on recent trends and assuming no material operating or consumer disruptions, we anticipate total revenue for fiscal 2024 to be approximately $3.6 billion.
During fiscal 2024, we currently estimate total inflation across our commodities, total labor (factoring in the latest trends in wage rates and channel mix, as well as in other components such as payroll taxes and benefits) and other operating costs and expenses to be in the low to mid-single digit range. However, there remains measurable risk associated with cost fluctuations driven by the current environment. We estimate G&A expenses to be slightly higher than fiscal 2023 as a percent of sales and preopening costs of approximately $28 million. Based on these factors, we expect fiscal 2024 net income margin of approximately 4.25% at the estimated revenue.
We plan to open as many as 22 new restaurants in fiscal 2024, including three to four The Cheesecake Factory restaurants, six to seven North Italia restaurants, six to seven Flower Child locations and six to seven restaurants within our Other FRC business. We anticipate approximately $180 to $200 million in cash capital expenditures to support this level of unit development, as well as required maintenance on our restaurants. Restaurant opening dates may be impacted by supply chain challenges and permit approval delays.
Total revenues for the second quarter of fiscal 2024 are expected to be between $890 million to $910 million. We anticipate commodity inflation to be in the low - single digit range and expect labor inflation to be in the mid - single digit range. Based on these factors, we expect second quarter fiscal 2024 net income margin of approximately 5.25% at the mid - point of the estimated revenue range.
Liquidity and Capital Resources
Our corporate financial objectives are to maintain a sufficiently strong and conservative balance sheet to support our operating initiatives and unit growth while maintaining financial flexibility to provide the financial resources necessary to protect and enhance the competitiveness of our restaurant and bakery brands and to provide a prudent level of financial capacity to manage the risks and uncertainties of conducting our business operations under various economic and industry cycles. Typically, cash flows generated from operating activities are our principal source of liquidity, which we use to finance our restaurant expansion plans, ongoing maintenance of our restaurants and bakery facilities and investment in our corporate and information technology infrastructures.
Similar to many restaurant and retail chain store operations, we utilize operating lease arrangements for all of our restaurant locations. Accordingly, our lease arrangements reduce, to some extent, our capacity to utilize funded indebtedness in our capital structure. We are not limited to the use of lease arrangements as our only method of opening new restaurants. However, we believe our operating lease arrangements continue to provide appropriate leverage for our capital structure in a financially efficient manner.
During the first quarter of fiscal 2024, our cash and cash equivalents increased by $3.9 million to $60.2 million. The following table presents, for the periods indicated, a summary of our key cash flows from operating, investing and financing activities (in millions):
Thirteen
Thirteen
Weeks Ended
Weeks Ended
April 2, 2024
April 4, 2023
Cash provided by operating activities
$
66.7
$
65.0
Additions to property and equipment
(37.1)
(38.0)
Common stock dividends paid
(12.8)
(13.2)
Treasury stock purchases
(12.5)
(12.4)
22
Table of Contents
Cash Provided by Operating Activities
Cash flows from operations increased by $1.7 million from the first quarter of fiscal 2023 primarily due to higher net income, partially offset by the timing of receivables collected and payments of accounts payable and accrued expenses made. Typically, our requirement for working capital has not been significant since our restaurant customers pay for their food and beverage purchases in cash or cash equivalents at the time of sale, and we are able to sell many of our restaurant inventory items before payment is due to the suppliers of such items.
Property and Equipment
Capital expenditures for new restaurants, including locations under development, were $25.0 million and $24.3 million for the first quarter of fiscal 2024 and 2023, respectively. Capital expenditures also included $11.1 million and $12.2 million for our existing restaurants and $1.0 million and $1.5 million for bakery and corporate capacity and infrastructure investments in the first quarter of fiscal 2024 and 2023, respectively.
We opened five restaurants in the first quarter of fiscal 2024 comprised of two North Italia, one Flower Child and two Other FRC locations compared to one Flower Child and one Other FRC location in the first quarter of fiscal 2023. We expect to open as many as 22 new restaurants in fiscal 2024 across our portfolio of concepts. We anticipate approximately $180 to $200 million in capital expenditures to support this level of unit development, as well as required maintenance on our restaurants.
Convertible Senior Notes
On June 15, 2021, we issued $345.0 million in aggregate principal amount of convertible senior notes (“Notes”), which will mature on June 15, 2026, unless earlier repurchased, redeemed or converted. The net proceeds from the sale of the Notes were approximately $334.9 million after deducting issuance costs related to the Notes. As of April 2, 2024, the conversion rate for the Notes was 13.5979 shares of common stock per $1,000 principal amount of the Notes, which represents a conversion price of approximately $73.54 per share of common stock. In connection with the cash dividend that was declared by our Board on May 7, 2024, on May 21, 2024 we will adjust the conversion rate (which is expected to increase) and the conversion price (which is expected to decrease) of the Notes in accordance with the terms. (See Note 5 of Notes to Condensed Consolidated Financial Statements in Part I, Item 1 of this report for further discussion of the Notes.)
Credit Facility
On October 6, 2022, we entered into a Fourth Amended and Restated Loan Agreement (the “Loan Agreement” and the revolving credit facility provided thereunder, the “Revolver Facility”). The Loan Agreement amends and restates in its entirety our prior credit agreement. The Revolver Facility, which terminates on October 6, 2027, provides us with revolving loan commitments that total $400 million, of which $50 million may be used for issuances of letters of credit. The Revolver Facility contains a commitment increase feature that, subject to certain conditions precedent, could provide for an additional $200 million in revolving loan commitments. Our obligations under the Revolver Facility are unsecured. Certain of our material subsidiaries have guaranteed our obligations under the Revolver Facility. As of April 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.
Under the Revolver Facility, we are subject to financial covenants, as well as 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 sets forth negative covenants that restrict indebtedness, liens, investments, sales of assets, fundamental changes and other matters. (See Note 5 of Notes to Condensed Consolidated Financial Statements in Part I, Item 1 of this report for further discussion of our long-term debt.)
Common Stock Dividends
Common stock dividends of $12.8 million and $13.2 million were paid in the first quarter of fiscal 2024 and 2023, respectively. As further discussed in Note 12 of Notes to Condensed Consolidated Financial Statements in Part I, Item 1 of this report, in May 2024, our Board declared a quarterly dividend to be paid in June 2024. 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
23
Table of Contents
expenditure requirements, limitations on cash distributions pursuant to the terms and conditions of the Loan Agreement and applicable law, and other such factors that the Board considers relevant.
Share Repurchases
Under authorization by our Board to repurchase up to 61.0 million shares of our common stock, we have cumulatively repurchased 56.9 million shares at a total cost of $1,824.2 million, excluding excise tax through April 2, 2024. We repurchased 0.4 million shares at a cost of $12.5 million, excluding excise tax during the first quarter of fiscal 2024 compared to 0.3 million shares at a cost of $12.4 million, excluding excise tax during the comparable fiscal 2023 period.
Our objectives with regard to share repurchases have been to offset the dilution to our shares outstanding that results from equity compensation grants and to supplement our earnings per share growth. Our share repurchase program does not have an expiration date, does not require us to purchase a specific number of shares and may be modified, suspended or terminated at any time. 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 financial covenants under our Loan Agreement that limit share repurchases based on a defined ratio. (See Note 8 of Notes to Condensed Consolidated Financial Statements in Part I, Item 1 of this report for further discussion of our repurchase authorization.)
Cash Flow Outlook
We believe that our cash and cash equivalents, combined with expected cash flows provided by operations and available borrowings under the Revolving Facility, will provide us with adequate liquidity for the next 12 months and the foreseeable future.
As of April 2, 2024, we had no financing transactions, arrangements or other relationships with any unconsolidated entities or related parties. Additionally, we had no financing arrangements involving synthetic leases or trading activities involving commodity contracts.
Critical Accounting Estimates
The preparation of financial statements in conformity with GAAP requires us to make estimates and assumptions for the reporting periods covered by the financial statements. These estimates and assumptions affect the reported amounts of assets, liabilities, revenues and expenses, and the disclosure of contingent liabilities. Actual results could differ from these estimates. Our critical accounting estimates have not changed materially from those previously reported in our Annual Report on Form 10-K for the fiscal year ended January 2, 2024.
Recent Accounting Pronouncements
See Note 1 of Notes to Condensed Consolidated Financial Statements in Part I, Item 1 of this report for a summary of new accounting standards.
24
Table of Contents
Text extracted from the filing as submitted to EDGAR. Formatting, tables and exhibits are simplified for reading; the original document is authoritative for anything you rely on.