2020 ANNUAL REPORT
To Our Shareholders,
Reflecting back on 2020, it’s incredible to think about what we all experienced in the course of a year. The
COVID-19 pandemic has had a profound impact on our restaurants, staff members, country, and world. While it goes
without saying this was the most difficult operating environment we have ever faced as a company since our founding
over 40 years ago, I am extraordinarily proud of our teams for how they continued to live our purpose of nurturing bodies,
minds, hearts and spirits in spite of the challenges we all faced.
It’s hard to remember life before the pandemic but we were off to a solid start in early 2020. Through the first
two months of the year, we generated the strongest comparable sales performance at The Cheesecake Factory restaurants
we had seen in years, solidly outperforming the broader casual dining industry. We had stabilized our restaurant-level
margins, despite the challenging labor environment. And we had a robust development pipeline with plans to open as many
as 20 restaurants across our concepts, including our newly acquired North Italia and Fox Restaurant Concepts brands.
Of course that trajectory promptly changed with the onset of COVID-19 and the associated shelter-in-place orders
and mandated dining room closures in mid-March. This forced us to change the way we do business overnight. Our teams
did a tremendous job pivoting to an off-premise-only operating model and executing in the face of significant adversity to
keep our business running and continue to serve our guests. While the situation remained fluid, we took decisive but
difficult actions to enable our restaurants and company to manage through these unprecedented circumstances, all while
maintaining as our number one priority the health and well-being of our staff members and guests.
To preserve liquidity and enhance financial flexibility, we eliminated non-essential capital expenditures and
expenses; suspended new unit development; reduced board, executive and corporate support staff compensation; made the
difficult decision to furlough a significant number of hourly staff members; engaged in discussions with our landlords
regarding ongoing rent obligations, including the potential deferral, abatement and/or restructuring of rent otherwise
payable during the period of the COVID-19 pandemic related closure; increased borrowings under our revolving credit
facility; raised additional equity capital; and suspended dividends on our common stock and share repurchases. We
believed these actions would ensure that The Cheesecake Factory Incorporated would not only survive this crisis, but also
be poised to thrive on the other side.
Pre-COVID, the off-premise channel was already a key strategic priority for us. We had a very established and
strong business in this channel with sales volumes the size of many stand-alone restaurants. This positioning served us
well during the pandemic, enabling us to shift almost seamlessly to an off-premise only operating model and drive
significant sales volumes despite the dining room closures. In fact, weekly Cheesecake Factory off-premise sales at that
time equated to nearly $4 million per unit, on average, on an annualized basis. To put that into perspective, this sales level
is higher than what most restaurants generate in total in a normal year with no operating model or capacity restrictions.
We believe this performance underscored the power of The Cheesecake Factory brand, our differentiation and our guests’
desire for the “Cheesecake” experience, which transcended the challenges of the pandemic. Leveraging The Cheesecake
Factory brand identity as a dessert leader and the breadth and value of the menu to meet demand across dayparts, we also
developed marketing campaigns to further raise awareness in the off-premise channel and drive sales.
As restrictions eased and we were able to reopen our dining rooms, continued strength in the off-premise channel
supported our sales recovery. In fact, we maintained, on average, 90% of elevated COVID off-premise sales at Cheesecake
Factory restaurants with partially reopened dining rooms. This performance supports our thesis that a meaningful increase
in off-premise sales could be a longer-term sales driver for The Cheesecake Factory.
We also saw strong pent-up demand for the in-restaurant experience and our large restaurant footprints and
flexible seating layouts enabled us to recapture meaningful sales levels despite capacity restrictions. Similarly, the
performance of North Italia and the FRC concepts during COVID-19 reinforced our belief in these brands and their long-
term potential as well.
While COVID-19 had a significant impact on our revenue, bottom line performance, and cash flow generation,
we exited 2020 in a strong liquidity position, with a $154 million cash balance and $97 million in availability on our
revolving credit facility. We believe this financial flexibility will enable us to continue to manage through the volatility
the COVID-19 operating environment may present, while positioning us to capitalize on potential market share and long-
term unit growth opportunities.
Following the resumption of new unit development at the end of the year, which enabled us to open seven new
restaurants during fiscal 2020, we expect to open as many as 12 to 15 new locations across our concepts in fiscal 2021.
Internationally, we expect as many as three Cheesecake Factory locations to open under licensing agreements in fiscal
2021.
While COVID-19 continues to provide a level of uncertainty, we believe that with vaccination on the horizon,
our restaurants are well-positioned for a recovery as dining restrictions ease. Looking further ahead, we believe our
collection of concepts and the strength of our team, coupled with our financial position, will enable us to further accelerate
growth to our targeted 7% level as we emerge from the pandemic.
I extend my sincerest gratitude to every one of our staff members for the tremendous resilience they have shown
throughout the pandemic, while supporting each other, our guests and local communities. And to our shareholders,
restaurant guests, bakery customers, suppliers and international licensees, thank you for your continued support and spirit
of partnership. We look forward to our future with optimism.
Best Regards,
David Overton
Founder, Chairman and Chief Executive Officer
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
☒ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934
For the fiscal year ended December 29, 2020
or
☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
Commission File Number 0-20574
THE CHEESECAKE FACTORY INCORPORATED
(Exact name of registrant as specified in its charter)
Delaware
(State or other jurisdiction
of incorporation or organization)
26901 Malibu Hills Road
Calabasas Hills, California
(Address of principal executive offices)
51-0340466
(I.R.S. Employer
Identification No.)
91301
(Zip Code)
Registrant’s telephone number, including area code: (818) 871-3000
Securities registered pursuant to Section 12(b) of the Act:
Title of each class
Common Stock, par value $.01 per share
Trading Symbol
CAKE
Name of each exchange on which registered
The Nasdaq Stock Market LLC (NASDAQ Global Select
Securities registered pursuant to Section 12(g) of the Act: None
Market)
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ☒ No ☐
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes ☐ No ☒
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes ☒ No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of
Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such
files). Yes ☒ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or
an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth
company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer ☒
Non-accelerated filer ☐
Accelerated filer ☐
Smaller reporting company ☐
Emerging growth company ☐
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any
new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant has filed a report on and attestation to its management's assessment of the effectiveness of its internal
control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that
prepared or issued its audit report. ☒
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes ☐ No ☒
The aggregate market value of the voting stock held by non-affiliates of the registrant as of the last business day of the second fiscal quarter, June 30,
2020, was $966,678,114 (based on the last reported sales on The Nasdaq Stock Market on that date).
As of February 17, 2021, 45,827,047 shares of the registrant’s Common Stock, $.01 par value per share, were outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Part III of this Form 10-K incorporates by reference information from the registrant’s proxy statement for the annual meeting of stockholders expected
to be held on May 27, 2021.
THE CHEESECAKE FACTORY INCORPORATED
INDEX
Page
PART I
Item 1. Business . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Item 1A. Risk Factors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
Item 1B. Unresolved Staff Comments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
Item 2. Properties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
Item 3. Legal Proceedings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
Item 4. Mine Safety Disclosures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
PART II
Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of
Equity Securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
Item 6. Selected Financial Data . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations . . . . . . . . . . . . . . 42
Item 7A. Quantitative and Qualitative Disclosures About Market Risk . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 57
Item 8. Financial Statements and Supplementary Data . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 57
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure . . . . . . . . . . . . . . 57
Item 9A. Controls and Procedures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 58
Item 9B. Other Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 58
PART III
Item 10. Directors, Executive Officers and Corporate Governance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 59
Item 11. Executive Compensation. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 59
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters . . . . 59
Item 13. Certain Relationships and Related Transactions, and Director Independence . . . . . . . . . . . . . . . . . . . . . . . . . . 59
Item 14. Principal Accounting Fees and Services . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 59
PART IV
Item 15. Exhibits, Financial Statement Schedules. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 60
Item 16. Form 10-K Summary. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 60
Forward-Looking Statements
PART I
Certain information included in this Form 10-K and other materials filed or to be filed by us 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 and in our CSR report (defined below), the effects of the COVID-19
pandemic on our financial condition and our results of operations, including our expectations with respect to our ability
to reopen and keep open our restaurants, financial guidance and projections and statements with respect to the
acquisition of North Italia and Fox Restaurant Concepts LLC (“FRC”) and expectations regarding accelerated and
diversified revenue growth as a result of the acquisition of North Italia and FRC, as well as expectations of our future
financial condition, results of operations, sales, cash flows, plans, targets, goals, objectives, performance, growth
potential, competitive position and business, and statements regarding our ability to: leverage our competitive strengths,
including investing in or acquiring new restaurant concepts and expanding The Cheesecake Factory® brand to other
retail opportunities; 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, insurance costs and legal expenses, and stabilize margins; grow earnings;
remain relevant to consumers; attract and retain qualified management and other staff; manage risks associated with the
magnitude and complexity of regulations in the jurisdictions where our restaurants are located; 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 our concept internationally; support the growth of North Italia and other
FRC restaurants; operate Social Monk Asian Kitchen; and utilize our capital effectively. These forward-looking
statements may be affected by various factors including: the rapidly evolving nature of the COVID-19 pandemic and
related containment measures, including the potential for a complete shutdown of our restaurants, international licensee
restaurants and our bakery operations; demonstrations, political unrest, potential damage to or closure of our restaurants
and potential reputational damage to us or any of our brands; economic, public health and political conditions that
impact consumer confidence and spending, including the impact of the COVID-19 pandemic and other health epidemics
or pandemics on the global economy; acceptance and success of The Cheesecake Factory in international markets;
acceptance and success of North Italia and the FRC concepts, Social Monk Asian Kitchen and other 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; changes in laws impacting our business, including laws and regulations
related to COVID-19 impacting restaurant operations and customer access to off- and on-premises dining; 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; unanticipated costs
that may arise in connection with a return to normal course of business, including potential negative impacts from
furlough actions; the economic health of suppliers, licensees, vendors and other third parties providing goods or services
to us; the timing of the resumption of our new unit development; compliance with debt covenants; strategic capital
allocation decisions including any share repurchases or dividends; the ability to achieve projected financial results;
economic and political conditions that impact consumer confidence and spending; impact of tax reform legislation;
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 risk, 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.
1
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 Item 1A — Risk Factors.) 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 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.
Summary Risk Factors
Our business is subject to a number of risks and uncertainties. These risks are more fully described in the
section titled “Risk Factors” included in Part I, Item 1A of this report. These risks include, among others, the following:
• The outbreak of, and local, state and federal governmental responses to, the COVID-19 pandemic have
significantly disrupted and will continue to disrupt our business.
• The impact global and domestic economic conditions have on consumer discretionary spending could
materially adversely affect our financial performance.
• Our inability to grow comparable restaurant sales could adversely affect our financial performance.
•
If we are unable to protect our reputation, the value of our brands and sales at our restaurants may be negatively
impacted.
If we are unable to offset high labor costs, our cost of doing business will significantly increase.
If we are unable to successfully recruit and retain qualified restaurant management and operating personnel in
an increasingly competitive market, we may be unable to effectively operate and grow our business and
revenues.
•
•
• Concerns relating to the COVID-19 pandemic and other diseases, food safety and food-borne illness could
reduce customer traffic to our restaurants, disrupt our food supply chain or cause us to be the target of litigation.
• Our inability to respond appropriately to changes in consumer health and disclosure regulations, and to adapt to
evolving consumer dining preferences, could negatively impact our operations and competitive position.
• Our inability to anticipate and react effectively to changes in the costs of key operating resources may increase
•
our cost of doing business.
If any of our third-party vendors experiences a failure that affects a significant aspect of our business, we may
be subject to certain risks and may experience data loss, increased costs or other harm.
• Our failure to realize the anticipated benefits of our acquisition of North Italia and the remaining business of
Fox Restaurant Concepts LLC could materially adversely affect our financial performance.
• Our failure to satisfy financial covenants and/or repayment requirements under our credit facility could harm
our financial condition.
• Our performance of certain obligations under our Subscription Agreement with RC Cake Holdings LLC could
materially reduce our liquidity.
• We may incur additional costs if we are unable to renew our restaurant leases on similar terms and conditions,
•
or at all, or to relocate our restaurants in certain trade areas.
Information technology system failures or breaches of our network security could interrupt our operations and
subject us to increased operating costs, as well as to litigation and other liabilities.
• Our inability to maintain a secure environment for customers’ and staff members’ personal data could result in
liability and harm our reputation.
2
ITEM 1. BUSINESS
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 294 restaurants throughout the United States and
Canada under brands including The Cheesecake Factory®, North Italia® and a collection within our Fox Restaurant
Concepts business. Internationally, 27 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.
Our business originated in 1972 when Oscar and Evelyn Overton founded a small bakery in the Los Angeles
area. In 1978, their son, David Overton, our Chairman of the Board and Chief Executive Officer, led the creation and
opening of the first The Cheesecake Factory restaurant in Beverly Hills, California. In 1992, the Company was
incorporated in Delaware as The Cheesecake Factory Incorporated (referred to herein as the “Company” or as “we,”
“us” and “our”). Our executive offices are located at 26901 Malibu Hills Road, Calabasas Hills, California 91301, and
our telephone number is (818) 871-3000.
We maintain a general website at www.thecheesecakefactory.com, as well as websites for our bakery and other
subsidiaries, including www.northitalia.com and www.foxrc.com. Our annual reports on Form 10-K, quarterly reports
on Form 10-Q, current reports on Form 8-K, all amendments to those reports and our proxy statements are available on
our general website at no charge, as soon as reasonably practicable after these materials are filed with or furnished to the
SEC. Our filings are also available on the SEC’s website at www.sec.gov. The content of our website is not incorporated
by reference into this Form 10-K.
On October 2, 2019, we completed the acquisition of North Italia and the remaining business of Fox Restaurant
Concepts LLC (“FRC”), including Flower Child and all other FRC brands (the “Acquisition”). The results of operations,
financial position and cash flows of the acquired businesses are included in our consolidated financial statements as of
the acquisition date.
We utilize a 52/53-week fiscal year ending on the Tuesday closest to December 31 for financial reporting
purposes. Fiscal years 2020, 2019 and 2018 each consisted of 52 weeks and fiscal year 2021 will also consist of 52
weeks.
COVID-19 Pandemic
We have experienced significant disruptions to our business due to the COVID-19 pandemic and related
suggested and mandated social distancing and shelter-in-place orders, which initially resulted in the temporary closure of
a number of restaurants across our portfolio while the remaining locations shifted to an off-premise only operating model
on an interim basis. The impacts of the COVID-19 pandemic on our business are discussed in further detail throughout
this Business section, Item 1A — Risk Factors, and Part II — Item 7 — Management's Discussion and Analysis of
Financial Condition and Results of Operations of this Form 10-K.
The Cheesecake Factory
The Cheesecake Factory restaurants strive to provide a distinctive, high-quality dining experience at moderate
prices by offering an extensive, innovative and evolving menu in an upscale casual, high-energy setting with attentive,
efficient and friendly service. As a result, The Cheesecake Factory restaurants appeal to a diverse customer base across a
broad demographic range. Our extensive menu and strategic selection of locations enable us to compete for substantially
all dining preferences and occasions, from the key lunch and dinner day parts to the mid-afternoon and late-night day
parts, which are traditionally weaker times for most casual dining restaurants, as well as special occasion dining. The
Cheesecake Factory restaurants are generally open seven days a week for lunch and dinner, and we offer additional
menu items for weekend brunch. Most of our locations are closed on Thanksgiving and Christmas. All of our restaurants
offer a full-service bar where our entire menu is served. Alcoholic beverage sales represented 9% of The Cheesecake
Factory restaurant sales for fiscal year 2020 compared to 12% in fiscal 2019, primarily due to lower alcoholic beverage
sales associated with off-premise orders, which increased significantly during the COVID-19 pandemic.
3
All items on our menu, except alcoholic beverages where disallowed by regulation, are available for off-
premise consumption. Off-premise sales represented approximately 43% of our restaurant sales for fiscal year 2020, an
increase from approximately 16% in fiscal 2019 as most of our restaurants shifted to an off-premise-only operating
model at the beginning of the COVID-19 pandemic and consumer behavior shifted toward off-premise dining
throughout the pandemic. We work with a third party to provide delivery service, which is now available at all of our
restaurants. In addition, we offer online ordering for to-go sales at all of our domestic locations.
The Cheesecake Factory menu features approximately 250 items, including items presented on supplemental
menus, such as our SkinnyLicious® menu that offers innovative items at 590 calories or less. Our core menu offerings
include appetizers, pizza, seafood, steaks, chicken, burgers, small plates, pastas, salads, sandwiches and omelettes,
including “Super” food choices and a selection of gluten-free items. Examples of menu offerings include Chicken
Madeira, Cajun Jambalaya Pasta, Thai Lettuce Wraps, Avocado Eggrolls, Vegan Cobb Salad and our Bacon-Bacon
Cheeseburger.
Our ability to create, promote and attractively display our unique line of desserts is also important to the
competitive positioning and financial success of our restaurants. We offer approximately 45 varieties of proprietary
cheesecake and other desserts in our restaurants. Our brand identity and reputation for offering premium desserts results
in a significant level of dessert sales, representing approximately 21% of The Cheesecake Factory restaurant sales for
fiscal year 2020, up from 16% in fiscal 2019, primarily driven by increased dessert incident rates on off-premise orders
during the COVID-19 pandemic.
Competitive Positioning
The restaurant industry is comprised of multiple segments, including fine dining, casual dining, fast casual and
quick-service. The Cheesecake Factory restaurants operate in the upscale casual dining segment, which is differentiated
by freshly prepared and innovative food, flavorful recipes with creative presentations, unique restaurant layouts, eye-
catching design elements and more personalized service. Upscale casual dining is positioned above core casual dining,
with standards that are closer to fine dining. We believe that we are a leader in upscale casual dining given the
historically high average sales per square foot of our restaurants as compared to others in this segment.
The restaurant industry is highly competitive with respect to menu and food quality, service, access to qualified
operations personnel, location, decor and value. We compete directly and indirectly for customer traffic with national
and regional casual dining restaurant chains, as well as independently-owned restaurants. In addition, we face
competition for customer traffic from fast casual and quick-service restaurants, home delivery services, mobile food
service, grocery stores and meal kits that are increasing the quality and variety of their food products in response to
customer demand. This increased competition, coupled with an oversupply of restaurants, has driven declines in casual
dining industry comparable traffic in recent years. This backdrop has made it even more challenging to improve
customer traffic. However, we believe the COVID-19 pandemic could drive a contraction in restaurant supply and in
turn, could result in more favorable conditions to grow customer traffic and comparable restaurant sales. We also
compete with other restaurants and retail establishments for quality sites and qualified staff and managers to operate our
restaurants. (See Item 1A — Risk Factors — Risks Related to the Restaurant Industry — “Our inability to grow
comparable restaurant sales could materially adversely affect our financial performance.”)
The key elements that drive our total customer experience and help position us from a competitive standpoint
include the following:
Extensive and Innovative Menu, Made Fresh from Scratch. Our restaurants offer one of the broadest menus in
casual dining and feature a wide array of flavors with portions designed for sharing. In contrast to many restaurant
chains, substantially all of our menu items, except those desserts produced at our bakery facilities, are prepared from
scratch daily at our restaurants with high-quality, fresh ingredients using innovative and proprietary recipes. One of our
competitive strengths is our ability to anticipate customer preferences and adapt our expansive menu to the latest trends.
We regularly update our ingredients and cooking methods, as well as create new menu items and new categories of food
offerings at our restaurants, such as our SkinnyLicious® menu, “Super” food selections and gluten-free choices, further
enhancing the variety, quality and price points offered and keep our menu relevant to our customers. All new menu items
are selected based on anticipated sales popularity and profitability. We also regularly introduce new and innovative
cheesecakes and other baked desserts. In 2020, we launched the Chocolate Caramelicious Cheesecake Made with
4
Snickers® in conjunction with National Cheesecake Day, as well as the Low-Licious Cheesecake, a low carb, no sugar-
added and gluten-free offering.
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 protecting both our margins and customer
traffic levels. We plan to continue targeting menu price increases of approximately 2% to 3% annually, utilizing a
market-based strategy to help mitigate cost pressure in higher-wage geographies, and expect near-term increases to be at
the higher end of this range.
Value Proposition. We believe our restaurants are recognized by customers for offering value with a large
variety of freshly prepared menu items across a broad array of price points and generous portions at moderate prices.
The average check for each customer, including beverages and desserts, was approximately $28.90, $23.50 and $22.60
for fiscal 2020, 2019 and 2018, respectively. Fiscal 2020 average check reflects the impact of higher off-premise channel
mix, as most of our restaurants shifted to an off-premise-only operating model at the beginning of the COVID-19
pandemic and consumer behavior shifted toward off-premise dining throughout the pandemic. We account for each off-
premise order as one customer for traffic measurement purposes. Therefore, average check is higher as most off-premise
orders are for more than one customer.
Commitment to Excellent Service and Hospitality through the Selection, Training and Retention of High-
quality Staff Members. Our mission is to “create an environment where absolute guest satisfaction is our highest
priority.” We strive to consistently exceed the expectations of our customers in all aspects of their experiences in our
restaurants. One of the most important aspects of delivering a consistent and dependable level of service is having a team
of experienced managers who can successfully operate our high-volume, complex restaurants. Our recruitment,
selection, training, retention and internal promotion programs are among the most comprehensive in the restaurant
industry, helping us to attract and retain qualified staff members who are motivated to consistently provide excellence in
restauranteuring and customer hospitality. By providing extensive training, our goal is to encourage our staff members to
develop a sense of personal commitment to our core values and culture of excellence. (See “Restaurant Operations,
Management and Staffing” below.) Our commitment to people-focused programs and creating a great workplace for all
of our staff and managers contributed to The Cheesecake Factory being named to Fortune magazine’s list of “100 Best
Companies to Work For®” in February 2020, for the seventh consecutive year.
High-quality, High-Profile Restaurant Locations and Flexible Site Layouts. We target restaurant sites in high-
quality, high-profile locations with a balanced mix of retail shopping, entertainment, residences, tourism and businesses.
We have the flexibility to design our restaurants to accommodate a wide array of urban and suburban site layouts,
including multi-level locations. Our restaurants feature large, open dining areas, high ceilings where available, a
contemporary kitchen design and a bakery counter that features our desserts while also serving as a strategic location to
facilitate our off-premise sales. The layouts are flexible, permitting tables and seats to be easily rearranged to
accommodate small and large parties, thus permitting more effective utilization of seating capacity. Interior and exterior
patio seating, either or both of which are available at approximately 95% of our restaurants, allow for additional
customer capacity at a comparatively low occupancy cost per seat. During the COVID-19 pandemic, we have also been
able to access additional space to augment our outdoor seating capacity in some locations. Exterior patio seating is
generally available as weather permits. (See “New Restaurant Site Selection and Development” below.)
Distinctive Restaurant Design and Decor. We place significant emphasis on the contemporary interior design
and decor of our restaurants, which create a high-energy ambiance in a casual setting and contribute to the distinctive
dining experience enjoyed by our customers. We have evolved our restaurants’ design over time to remain current while
retaining a similar look and feel to our earlier restaurants. Our restaurants feature large, open dining areas, and where
feasible, both exterior and interior patios. We apply high standards to the maintenance of our restaurants to keep them in
“like new” condition.
Integration of our Bakery Operations. The primary role of our bakery operations is to produce innovative, high-
quality cheesecakes and other baked desserts for sale at The Cheesecake Factory restaurants and those of our
international licensees, which is important to our competitive positioning. Integration of this vital part of our brand gives
us control over the creativity and quality of our desserts and is also more profitable than buying from a third party.
5
New Restaurant Site Selection and Development
The Cheesecake Factory concept has demonstrated success in a variety of layouts (e.g., single or multi-level
and varying interior square feet), site locations (e.g., urban or suburban shopping malls, lifestyle centers, retail strip
centers, office complexes, entertainment centers and urban street locations — either freestanding or in-line) and trade
areas. Accordingly, we intend to continue developing The Cheesecake Factory restaurants in high-quality, high-profile
locations that meet our rigorous site standards. Subject to our broader capital allocation strategy, we plan to open as
many locations in any given year as there are sites available that meet our site selection criteria. It is difficult for us to
precisely predict the timing of our new restaurant openings due to many factors that are outside of our control, including
the effects of the COVID-19 pandemic. (See Item 1A — Risk Factors — Risks Related to Our Business — “Our
inability to secure an adequate number of high-quality sites for future restaurant openings could adversely affect our
ability to grow our business.”) We have the flexibility in our restaurant designs to penetrate a wide variety of markets
across varying population densities in both existing and new markets. We continue to target approximately 300
Company-owned and operated The Cheesecake Factory restaurants domestically over time.
The locations of our restaurants are critical to our long-term success, and we devote significant time and
resources to analyzing each prospective site. We consider many factors when assessing the suitability of a site, including
the demographics of the trade area such as average household income, and historical and anticipated population growth.
Since our restaurants can be successfully executed within a variety of site locations and layouts, we are highly flexible in
choosing suitable locations. While there are common decor elements within each of our restaurant sites, the designs are
customized for the specifics of each location, including the building type, square footage and layout of available space.
Our existing restaurants range from 5,000 to 21,000 interior square feet, and we expect the majority of our new
restaurants to vary between 7,000 and 10,000 interior square feet, generally with additional exterior and/or interior patio
seating, selected appropriately for each market and specific site.
The relatively high sales productivity of our restaurants provides opportunities to obtain competitive leasing
terms from landlords. Due to the flexible and customized nature of our restaurant operations and the complex design,
construction and preopening processes for each new location, our lease negotiation and restaurant development time
frames vary. The development and opening process usually ranges from six to eighteen months, depending largely on the
availability of the leased space we intend to occupy, and can be subject to delays either due to factors outside of our
control or to our selective timing of restaurant openings.
Unit Economics
The operation of high-quality restaurants in premier locations fitting our criteria contributes to the continuing
customer appeal of The Cheesecake Factory. This popularity is reflected in our average sales per restaurant and per
square foot, which are among the highest of any publicly-held restaurant company.
Average sales per location for The Cheesecake Factory restaurants open for the full year were approximately
$7.8 million, $10.7 million and $10.7 million for fiscal 2020, 2019 and 2018, respectively. Since each of our restaurants
has a customized layout and differs in size, an effective method to measure the unit economics of our sites is by square
foot. Average sales per productive square foot (defined as all interior square footage plus seasonally adjusted exterior
patio square footage) for restaurants open for the full year were approximately $716, $986 and $978 for fiscal 2020,
2019 and 2018, respectively. Fiscal 2020 average sales per location and average sales per productive square foot reflect
the impact of the COVID-19 pandemic on our business. Fiscal 2020 average sales per square foot adjusted for interior
capacity restrictions related to the COVID-19 pandemic was $1,127. The variance as compared to fiscal 2019 was
primarily due to an increase in off-premise sales. Fluctuations in both average sales per location and average sales per
productive square foot generally track with comparable restaurant sales trends. (See Part II, Item 7, Management’s
Discussion and Analysis of Financial Condition and Results of Operations for further discussion on comparable
restaurant sales.)
We currently lease all of our restaurant locations and utilize capital for leasehold improvements and furnishings,
fixtures and equipment (“FF&E”) to build out our restaurant premises. Total costs are targeted at approximately $1,000
per interior square foot for The Cheesecake Factory restaurants. Our distinctive design and decor require a higher
investment per square foot than is typical for the casual dining industry. However, our restaurants have historically
generated annual sales per square foot that are also typically higher than our competitors. The construction costs to build
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our restaurant premises vary depending on a number of factors, including geography, the complexity of our build-out,
site characteristics, governmental fees and permits, labor and material conditions in the local market, weather and the
amount, if any, of construction contributions obtained from our landlords for structural additions and other leasehold
improvements. These costs have trended higher over the past several years due primarily to wage inflation and the
availability of trade labor in certain geographies.
In selecting sites for our restaurants, an important objective is to earn an appropriate return on investment. We
measure returns using a cash-on-cash return on investment calculated by dividing restaurant-level margin (earnings
before interest, taxes, depreciation and amortization and preopening costs) by our cash investment.
Our new restaurants typically open with initial sales volumes well in excess of their future run-rate levels. This
initial “honeymoon” effect usually results from grand opening publicity and other customer awareness activities that
generate higher than usual customer traffic, particularly in new markets. During the three to six months following the
opening of new restaurants, customer traffic generally settles into its normal pattern, resulting in sales volumes that
gradually adjust downward to their post-opening run-rate level. Additionally, our new restaurants usually require a
period of time after reaching normal traffic levels to achieve their targeted restaurant-level operating margins due to cost
of sales and labor inefficiencies commonly associated with new, highly complex restaurants such as ours.
Restaurant Operations
Our ability to consistently execute a complex menu offering items prepared daily with high-quality, fresh
ingredients in an upscale casual, high-volume dining environment is critical to our overall success. We employ detailed
operating procedures, standards, controls, food line management systems and cooking methods and processes to
accommodate our extensive menu and to drive sales productivity.
We believe that the high average sales volumes and popularity of our restaurants allow us to attract and retain
high-quality, experienced restaurant-level management and other operational personnel. Each restaurant is generally
staffed with one General Manager (“GM”), one Executive Kitchen Manager (“EKM”), and an average of six to ten
additional kitchen and front-of-the-house managers and approximately 170 hourly staff members, both depending on the
size and sales volume of each restaurant. Our GMs and EKMs possess an average of more than ten years of experience
with the Company. This tenure and knowledge drives our high productivity and contributes to our ability to deliver an
exceptional customer experience. When the closure of our dining rooms in March 2020 due to the COVID-19 pandemic
necessitated the furloughing of approximately 41,000 hourly staff members, we made the decision to retain our
restaurant management teams which we believe enabled us to adapt quickly to a mandated off-premise only operating
model and reopen indoor dining rooms safely when allowed. All newly-recruited restaurant managers complete an
extensive training program during which they receive both classroom and on-the-job instruction in areas such as food
quality and safety, customer service, financial management, staff relations and safely serving alcohol. Managers
continue their development by participating in and completing a variety of training and development activities to assess
and further develop their skills and knowledge necessary for upward progression through our management levels. Our
GMs regularly meet to receive hands-on training, share best practices and celebrate Company successes, all of which
help to foster the unique culture of our brand.
Each restaurant GM reports to an Area Director of Operations (“ADO”) who supervises the operations of six to
eight restaurants within a geographic area. In turn, each ADO reports to one of four Regional Vice Presidents of
Restaurant Operations. Our EKMs report to their GMs, but are also supervised by an Area Kitchen Operations Manager
responsible for between eight and ten restaurants. Our restaurant field supervision organization also includes our Senior
Vice President of Restaurant Operations, Senior Vice President of Kitchen Operations, an operations services team and
our performance development department who are collectively responsible for day-to-day operations, managing new
restaurant openings and training for all operational managers and staff.
To enable us to more effectively compete for, and retain, the highest quality restaurant management personnel,
we offer an innovative and comprehensive compensation program for our restaurant GMs and EKMs. Each participant
receives a competitive base salary and has the opportunity to earn a cash bonus based on quantitative restaurant
performance metrics. GMs are also eligible to use a Company-leased vehicle. In addition, we provide a longer-term,
equity incentive program to our GMs and EKMs based on their extended service with us in their respective positions and
their achievement of certain performance objectives. We believe that these awards encourage our GMs and EKMs to
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think and act as business owners, assist in retention of restaurant management and align our managers’ interests with
those of our stockholders.
Preopening Costs for New Restaurants
Due to the highly customized and operationally complex nature of our upscale, high-volume concept and the
investment we make in properly training our staff to operate our restaurants, our preopening process is more extensive,
time consuming and costly than that of many restaurant chains. Preopening costs for a typical restaurant in an established
market average approximately $1.7 million to $2.0 million and 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 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, and corporate
travel and support activities.
Preopening costs can fluctuate significantly from period to period, based on the number and timing of restaurant
openings and the specific preopening costs incurred for each restaurant. Preopening costs vary by location depending on
a number of factors, including the proximity of our existing restaurants, the size and physical layout of each location, the
number of management and hourly staff members required to operate each restaurant, the availability of qualified
restaurant staff members, the cost of travel and lodging for different metropolitan areas, the timing of the restaurant
opening and the extent of unexpected delays, if any, in obtaining final licenses and permits to open the restaurant, which
may also depend on our landlords obtaining their licenses and permits and completing their construction activities.
Preopening costs are generally higher for larger restaurants and initial entry into new markets and lower when we
relocate a restaurant within its local market. We usually incur the most significant portion of preopening costs within the
two months immediately preceding and the month of a restaurant’s opening. Preopening costs per restaurant will also
depend on our ability to leverage planned management growth expenses.
Expansion of Licensed Locations
We currently have licensing agreements with three restaurant operators to develop and operate The Cheesecake
Factory® brand restaurants in selected international markets. Our licensees invest their capital to build and operate the
restaurants, and we receive initial development fees, site and design fees and ongoing royalties based on our licensees’
restaurant sales. In addition, these licensees purchase bakery products branded under The Cheesecake Factory® mark
from us. Once the operating environment normalizes from the COVID-19 pandemic and assuming full capacity
conditions are ultimately permitted in each jurisdiction, we project each international licensed location to contribute
approximately $0.01 in annual earnings per share (“EPS”), on average, once the location has been in operation for a
full year. As of February 24, 2021, our international licensees operated the following The Cheesecake Factory
restaurants:
Licensee Location
Restaurant Location
# of Restaurants
Kuwait (1). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Bahrain . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Kingdom of Saudi Arabia . . . . . . . . . . . . . . . . . . .
Kuwait . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Qatar . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
United Arab Emirates . . . . . . . . . . . . . . . . . . . . . .
Mexico (2) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Mexico . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Hong Kong (3) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Beijing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Hong Kong . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Macau . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Shanghai . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
1
4
3
3
6
6
1
1
1
1
27
(1) This licensee, or its affiliates, also has the right to develop restaurants in Egypt, with the opportunity to expand
the agreement to include Algeria, Hungary, Iraq, Libya, Morocco, Poland, Russia, Slovakia, The Czech
Republic, Tunisia, Turkey and Ukraine.
8
(2) This licensee, or its affiliates, also has the right to develop restaurants in Chile, with the opportunity to expand
the agreement to include Argentina, Brazil, Colombia and Peru.
(3) This licensee, or its affiliates, also has the right to develop restaurants in Taiwan, with the opportunity to
expand the agreement to include Japan, South Korea, Malaysia, Singapore and Thailand.
Our corporate infrastructure includes a dedicated global development team that works with our international
licensees and coordinates the initial training, ongoing quality control, product specifications and brand oversight at our
licensed locations. Our internal audit department also performs periodic reviews of our international licensees’
compliance with our licensing agreements.
As we evaluate other international markets, we will consider opportunities to directly operate certain locations
and/or enter into licensing, joint venture or partnership arrangements with established third-party companies. We are
selective in our assessment of potential partners and licensees, focusing on well-capitalized companies that have
established business infrastructures, expertise in multiple countries, experience in operating upscale casual dining
restaurants and sound governance practices. We look to associate with companies who will protect The Cheesecake
Factory® brand and operate the concept in a high-quality, consistent manner.
Due to the complexities of opening The Cheesecake Factory restaurants in other countries, including, but not
limited to, the selection and design of appropriate sites, construction of our complex restaurant designs, training of
licensees’ staff members, approval of supply sources and exportation of our bakery products to new countries, the
number and timing of new openings in foreign countries may vary from expectations. (See Item 1A — Risk Factors —
Risks Related to Our Business — “We face a variety of risks and challenges related to our international operations and
global brand development efforts, any of which could materially adversely affect our financial performance.”)
Consumer Packaged Goods
Given the strong affinity for The Cheesecake Factory® brand, in 2017 we began leveraging opportunities in the
consumer packaged goods channel. We now partner with third-party manufacturers to offer a variety of products
marketed under The Cheesecake Factory At Home® mark. These offerings include our Famous “Brown Bread,”
refrigerated puddings and ice cream available in select retail stores nationwide. We are actively evaluating other
synergistic, on-brand licensing opportunities to add incremental revenue streams to our business.
North Italia and Fox Restaurant Concepts
On October 2, 2019, we completed the acquisition of North Italia and the remaining business of Fox Restaurant
Concepts, including Flower Child and all other FRC brands, which we expect will accelerate and diversify our revenue
growth. North Italia and the FRC concepts are highly-differentiated and deliver unique customer experiences. With our
aligned cultures and philosophies, we believe these transactions are consistent with our long-term strategy of being a
leader in experiential dining and provide a significant accretive unit growth opportunity.
North Italia is a modern interpretation of Italian cooking in the upscale casual dining segment. Dishes are
handmade from scratch daily. The menu features appetizers, salads, fresh pastas, pizzas and entrees. Examples of menu
offerings include White Truffle Garlic Bread, Tuscan Kale Salad, Bolognese, Burrata Tortelloni, Margherita Pizza,
Tuscan Half Chicken, Chicken Parmesan and Braised Short Rib. North Italia offers an assortment of wines, beers and
house-made cocktails. Alcoholic beverage sales represented 24% of North Italia sales for fiscal year 2020 compared to
29% for the fourth quarter of fiscal 2019. This decrease was primarily due to lower alcoholic beverage sales associated
with off-premise orders, which increased significantly during the COVID-19 pandemic. North Italia restaurants are
generally open seven days a week for lunch, dinner and weekend brunch. We see a number of potential synergistic
attributes, including operations and real estate development, as well as significant market opportunity for an on-trend
Italian offering. North Italia's operations have been relocated to the Company's corporate headquarters to help scale the
concept nationally.
With Italian cuisine the number one ethnic food category in the United States, coupled with strong national
reception of the North Italia concept to-date, we believe there is potential for 200 domestic locations over time, which
supports our plan for approximately 20% annual unit growth as the operating environment for the full-service segment of
9
the restaurant industry normalizes from the COVID-19 impact. We target an average unit size of 5,000 to 6,500 square
feet and average sales per mature location of approximately $7 million, or approximately $1,200 per interior square foot.
FRC operates as an independent subsidiary in Phoenix, Arizona. Its concepts are diverse in industry segment,
occasions, square footage and geography. FRC's largest concept, Flower Child, operates in the fast casual dining
segment, offering a customizable menu, made fresh from scratch, featuring locally-sourced, all-natural and organic
ingredients. Flower Child is a potential opportunity for us to diversify our portfolio in a strong and growing niche. Other
FRC potential growth concepts include Culinary Dropout and Blanco, which together with the other FRC brands, serve
as an ecosystem for talent, menu and design development.
We expect to target approximately 15% to 20% annual unit growth for the aggregate FRC portfolio as the
operating environment for the restaurant industry normalizes from the COVID-19 impact, driven primarily by the
anticipated growth of the Flower Child concept, complemented by additional market tests of the potential growth
concepts. Unit sizes range from approximately 3,500 to 15,000 square feet. The FRC restaurants target sales of
approximately $1,000 per interior square foot, on average.
Bakery Operations
We own and operate two bakery production facilities, one in Calabasas Hills, California, and one in Rocky
Mount, North Carolina. Our facility in California accommodates both production operations and corporate support
personnel, while our facility in North Carolina houses production operations and a distribution center.
We produce approximately 70 varieties of proprietary cheesecakes and other baked desserts using high-quality
ingredients for The Cheesecake Factory and Grand Lux Cafe restaurants and for international licensees and third-party
customers. Some of our most popular cheesecakes include the Original Cheesecake, Ultimate Red Velvet Cake
CheesecakeTM, Godiva® Chocolate Cheesecake, Oreo® Dream Extreme Cheesecake and Pineapple Upside Down
Cheesecake. Other popular baked desserts include Chocolate Tower Truffle CakeTM, Carrot Cake, Black-Out Cake and
Lemoncello Cream Torte.
The primary role of our bakery operations is to produce innovative, high-quality cheesecakes and other baked
desserts for sale at our restaurants and those of our international licensees. Integration of this vital part of our brand gives
us control over the creativity and quality of our desserts and is also more profitable than buying from a third party.
We also leverage The Cheesecake Factory brand identity and utilize our bakery production capacity by selling
cheesecakes and other baked products to external foodservice operators, retailers and distributors. Current large-account
customers include retail and supermarkets, foodservice distributors and operators, a national retail bookstore, other
restaurants and national warehouse clubs. We also currently sell a selection of our cakes online and in catalogs
domestically through an agreement with an upscale retailer. Items produced for outside accounts are marketed under The
Cheesecake Factory At Home® marks and other private labels.
We also sell baked goods internationally in approximately 25 countries under The Cheesecake Factory At
Home® mark. Offering our cheesecakes and other baked desserts internationally is important to our branding, creating
awareness and driving demand, not only for bakery products but for the international expansion of our restaurants.
Other Concepts
We also operate Grand Lux Cafe and Social Monk Asian Kitchen. At present, we have no plans to open
additional locations of these concepts.
Grand Lux Cafe
Grand Lux Cafe is an upscale casual dining concept that offers globally-inspired cuisine with an ambiance of
modern sophistication. Using fresh ingredients, the menu of approximately 175 items at Grand Lux Cafe offers classic
American dishes and international favorites, including appetizers, pasta, seafood, steaks, chicken, burgers, salads,
specialty items and desserts. Examples of menu offerings include our Cedar Planked B.B.Q Salmon, Buffalo Chicken
10
Rolls and Shrimp Scampi. Each Grand Lux Cafe features an on-site bakery which produces a selection of signature
desserts, and a full-service bar.
Social Monk Asian Kitchen
In February 2019, we opened the first location of Social Monk Asian Kitchen, a fast casual Asian concept with
a modern urban feel. The menu features the cuisines of Thailand, Vietnam, Malaysia, Singapore, China, Indonesia and
India in made-to-order starters, salads, soups, sandwiches, rice and noodle bowls, classic entrees, vegetables and sides
and house-made frozen custard. The restaurant also offers beer and wine. Examples of menu offerings include Crisp
Vegetable Spring Rolls, Asian Chicken Salad, Thai Basil Cashew Chicken, Shaking Beef and Dan Dan Noodles.
Purchasing and Distribution
We strive to obtain quality menu ingredients, bakery raw materials and other supplies and services for our
operations from reliable sources at competitive prices and consistent with our sustainability goals. We continually
research and evaluate various ingredients and products in an effort to maintain high quality, be responsive to changing
consumer tastes and manage costs.
In order to maximize purchasing efficiencies and to provide the freshest ingredients for our menu items while
obtaining competitive prices for the required quality and consistency, each restaurant’s management determines the
quantities of food and supplies required for their restaurant and orders the items from local, regional and national
suppliers based upon specifications determined and terms negotiated at a corporate level. We strive to maintain
restaurant-level inventories at a minimum dollar level in relation to sales due to the high concentration and relatively
rapid turnover of the perishable produce, poultry, meat, fish and dairy commodities that we use in our operations,
coupled with the limited storage space at our restaurants. Independent foodservice distributors, including the largest
foodservice distributor in North America, deliver most items multiple times per week to our restaurants.
We purchase food and other commodities for use in our operations based on market prices established with our
suppliers. Many of the commodities purchased by us can be subject to volatility due to market supply and demand
factors outside of our control. We mitigate the risk of supply shortages and obtain competitive prices by utilizing
multiple qualified suppliers for substantially all our ingredients and supplies. Certain of our suppliers were adversely
impacted by the COVID-19 pandemic and as a result, we experienced certain shortages of food items and other supplies
at our restaurants, none of which had a material impact on our operations.
We negotiate short-term and long-term agreements for some of our principal commodity, supply and equipment
requirements, such as certain dairy products and poultry, depending on market conditions and expected demand. We
continue to evaluate the possibility of entering into similar arrangements for other commodities and periodically evaluate
hedging vehicles, such as direct financial instruments, to assist us in managing risk and variability associated with such
commodities. As of the end of fiscal 2020, we had no hedging contracts in place. We may or may not have the ability to
increase menu prices or vary menu items in response to food commodity price increases. (See Item 1A — Risk
Factors — “Our inability to anticipate and react effectively to changes in the costs of key operating resources may
increase our cost of doing business, which could materially adversely affect our financial performance.”)
Information Technology
This information technology discussion, unless otherwise noted, relates to The Cheesecake Factory, North
Italia, Grand Lux Cafe and Social Monk Asian Kitchen restaurants. We have completed our assessment of the
information technology systems and infrastructure for the FRC brands and are in the process of implementing identified
improvements. Our technology-enabled business solutions are designed to provide effective financial controls, cost
management, improved efficiencies and enhanced customer experience. Our business intelligence solution and data
warehouse architecture provide corporate and restaurant management with information and insights into key operational
metrics and performance indicators. This framework delivers enterprise reporting, dashboards and analytics, and allows
access to metrics such as quote and wait time accuracy, staff member retention trends, and restaurant quality and service
analyses.
11
Our restaurant point of sale and back-office systems provide information regarding daily sales, cash receipts,
inventory, food and beverage costs, labor costs and other controllable operating expenses. Our restaurants offer online
ordering for to-go sales, and the point of sale system is integrated with our delivery provider to drive efficiencies in the
restaurants and enhance the customer delivery experience. We utilize a customer satisfaction measurement platform that
leverages the “Net Promoter Score” methodology. The data and analytics provided by this software provide us with
actionable insights to better understand what customer experience opportunities should be addressed, while reinforcing
positive staff behaviors. To enable a safer and improved customer experience in response to the COVID-19 pandemic,
we implemented remote greeting and QR code menu capabilities as well as a touchless payment option.
Our kitchen management system, which is in place at The Cheesecake Factory, Grand Lux Cafe and Social
Monk Asian Kitchen restaurants, provides automated routing and cook line balancing, and synchronizes order
completion, ticket time and cook time data, promoting more efficient levels of labor and productivity without sacrificing
quality. We leverage our recipe viewer system to ensure timely and accurate recipe updates, and to provide instructional
media content and detailed procedures enabling our staff to consistently prepare our highly complex, diverse menu
across all locations. We utilize a web-based labor scheduling solution to enhance scheduling precision and staff
satisfaction. We also employ a web-based notification and tracking solution to contact our restaurants and monitor
progress in the event of a needed product withdrawal or recall.
Restaurant hardware and software support is provided by both our internal support services team as well as
third-party vendors. Each restaurant has a private high-speed wide area connection to send and receive critical business
data as well as to access web-based applications securely as well as a failover capability whereby a secondary public
circuit is used to automatically establish a secure connection to our private network if the primary connection becomes
unavailable. We employ modern restaurant switching and routing technology that allows us to leverage and support
contemporary security standards and practices and employ wireless capability for a variety of mobile uses. All of our
core and critical applications are housed in external tier 3 data centers. To mitigate business interruptions, we utilize a
disk-based data backup and replication infrastructure between our onsite and external data centers, so all data is
replicated nightly between the sites.
We employ a multi-discipline security incident response plan to recognize, manage and resolve cybersecurity
threats, and require cybersecurity awareness training for all staff members with access to our cyber systems. We also
maintain cyber risk insurance coverage to further reduce our risk profile. Security of our financial data and other
sensitive information remains a high priority for us, led by our information technology department in conjunction with
an interdepartmental information security council representing our key functional areas. We utilize a public key
infrastructure, ensuring only trusted devices can access our network, employ Intrusion Detection and Intrusion
Prevention (IDS/IPS) that scans data in transit detecting and preventing the execution of harmful code and require secure
sockets layer (SSL) certificates for access to sites outside our network. To further enhance our cybersecurity protection,
we utilize a third-party security operations center (SOC) provider to monitor and analyze internal network traffic for
potential malicious content. Also, in an effort to further secure our customers’ credit card information, we employ a
robust end-to-end encryption and tokenization platform for all credit card transactions in our restaurants, ensuring no
credit card data is stored in our internal systems. This includes equipment that can also process smart payment cards,
commonly referred to as EMV (Europay, Mastercard, Visa). (See Item 1A — Risk Factors — Risks Related to
Information Technology and Cyber Security — “Information technology system failures or breaches of our network
security could interrupt our operations and subject us to increased operating costs, as well as to litigation and other
liabilities, any of which could materially adversely affect our financial performance.”)
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Marketing and Advertising
The Cheesecake Factory
We rely on our reputation, as well as our high-profile locations, media exposure and positive “word of mouth,”
to maintain and grow market share. Historically, we have not used significant paid national advertising through
television, radio or print, nor significant discounting for on-premise dining occasions. We utilize a social media and
digital marketing strategy that allows us to engage regularly with our customers outside of our restaurants, including
communication and paid advertising on Facebook®, Instagram®, YouTube®, Twitter®, Snapchat®, Pinterest® and other
social media platforms, influencer marketing, Google search advertising and direct email to customers. (See Item 1A —
Risk Factors — Risks Related to Our Business — “Any inability to effectively use and manage social media could harm
our marketing efforts as well as our reputation, which could materially adversely affect our financial performance.”)
Public relations is another important aspect of our marketing approach, and we frequently appear on local and
national television in connection with a variety of promotional opportunities, such as National Cheesecake Day, to
perform cooking demonstrations and other brand-building exposure. We generated approximately 35 billion media
impressions in fiscal 2020 at minimal cost to us. To raise awareness in the off-premise channel, we execute marketing
campaigns with our third-party delivery provider and through our online ordering platform. In addition, we work with
several premiere third-party gift card distributors, contributing to our brand awareness and gift card sales, as well as our
consumer packaged goods licensees on co-branded marketing campaigns.
We also attempt to build awareness and relationships with retailers located in the same developments, shopping
center operators, local hotel concierges, neighborhood groups and others in the community. For restaurants opening in
new markets, we strive to obtain local television, radio station and newspaper coverage in order to benefit from publicity
at low or no cost. At times, we also engage in marketing and advertising opportunities in selective local markets.
Our international licensees are committed to opening each new restaurant with marketing that can be comprised
of a mix of elements including print, billboards, digital and radio. We maintain final approval of our licensees’
marketing campaigns and social media posts to promote consistency in the look and feel of marketing efforts including
our brand, domestically and abroad.
North Italia and FRC
North Italia and FRC execute localized marketing programs focused on awareness, frequency and brand
engagement through a variety of channels, including store-level marketing, public relations, in-store events, digital
advertising, email programs and social media. Each restaurant is positioned as an individual brand with a neighborhood
connection. Additionally, the restaurant interiors and exteriors are utilized for brand engagement and messaging through
art and graphics, creating an important part of a brand experience for the customer. We believe minimal discounts ensure
compelling brand proposition for experience and value.
Seasonality and Quarterly Results
While seasonal fluctuations generally do not have a material impact on our quarterly results, year-over-year
comparisons can be significantly impacted by the number and timing of new restaurant openings and associated
preopening costs, the timing of holidays, the impact from inclement weather, the additional week in a 53-week fiscal
year, other variations in revenues and expenses and, for the fiscal 2020 versus fiscal 2019 comparisons, by the impact of
the COVID-19 pandemic and results of the Acquisition. Because of these and other factors, our financial results for any
quarter are not necessarily indicative of the results that may be achieved for the full fiscal year.
Food Safety and Quality Assurance
Our food safety processes and systems are designed to mitigate the risk of contamination and illness and to
ensure compliance with regulatory requirements as well as industry standards. We continuously seek to improve our
food safety and sanitation policies and procedures. Our work and management processes are verified by routine
restaurant management reviews, third-party health inspection/food safety audits and regulatory agency inspections. In
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addition, our bakery facilities are Safe Quality Food certified in alignment with the Global Food Safety Initiative’s
Global Markets Program.
The following discussion on suppliers and traceability applies to The Cheesecake Factory, Grand Lux Cafe and
Social Monk Asian Kitchen restaurants and to our bakeries. We are in the process of reviewing these processes for the
FRC brands. In selecting suppliers, we look for key performance indicators relating to sanitation, operations and facility
management, good manufacturing and agricultural practices, product protection, government inspections and
compliance, compliance with the Food Safety Modernization Act, recovery and food security. In addition to measuring
and testing food safety and security practices, we strive to ensure that all our food suppliers have annual food safety and
quality system audits. Our restaurants and bakery facilities also follow regulatory guidelines required for conducting and
managing ingredient and product traceability. We utilize a web-based notification and tracking solution to efficiently
contact our restaurants and monitor our progress in the event of a product withdrawal or recall. (See Item 1A — Risk
Factors — Risks Related to the Restaurant Industry — “Concerns relating to pandemics and other diseases, food safety
and food-borne illness could reduce customer traffic to our restaurants, disrupt our food supply chain or cause us to be
the target of litigation, which could materially adversely affect our financial performance.”)
Government Regulation
We are subject to numerous federal, state, local and foreign laws affecting our business. Each of our restaurants
is subject to licensing and regulation by a number of government authorities, which may include alcoholic beverage
control, health, sanitation, environmental, labor, immigration, zoning and public safety agencies. We are also subject to
various environmental regulations, including water usage, sanitation disposal and transportation mitigation.
Our international business exposes us to additional regulations, including antitrust and tax requirements, anti-
boycott legislation, import/export and customs regulations and other international trade regulations, privacy laws, the
USA Patriot Act and the Foreign Corrupt Practices Act.
As a provider of food products, we are subject to a comprehensive regulatory framework that governs the
manufacture (including composition and ingredients), labeling, packaging and safety of food in the United States ,
including the Federal Food, Drug and Cosmetic Act, the Public Health Security and Bioterrorism Preparedness Response
Act of 2002, the Federal Food Safety Modernization Act and regulations concerning nutritional labeling under the
Patient Protection and Affordable Care Act of 2010. (See Item 1A — Risk Factors — Risks Related to the Restaurant
Industry — “Our inability to respond appropriately to changes in consumer health and disclosure regulations, and to
adapt to evolving consumer dining preferences could negatively impact our operations and competitive position, which
could materially adversely affect our financial performance.”)
In order to serve alcoholic beverages in our restaurants or off-premise where permitted, we must comply with
alcoholic beverage control regulations which require us to apply to a state or other governmental alcoholic beverage
control authority for licenses and permits. In addition, we are subject to dram shop statutes in most of the jurisdictions in
which we operate, which generally provide a person injured by an intoxicated person the right to recover damages from
an establishment that wrongfully served alcoholic beverages to the intoxicated person. To help mitigate this risk, we
carry liquor liability coverage as part of our existing comprehensive general liability insurance.
Various federal, state, local and foreign laws govern our operations and our relationships with our staff
members, including such matters as minimum wages, breaks, scheduling, exempt classifications, equal pay, overtime, tip
credits, fringe benefits, leaves, safety, working conditions, provision of health insurance, the COVID-19 pandemic and
citizenship or work authorization requirements. In California, we are subject to the Private Attorneys General Act
(“PAGA”) which authorizes employees to file lawsuits to recover civil penalties on behalf of themselves, other
employees and the State of California for labor code violations. We must also comply with local, state and federal laws
protecting the right to equal employment opportunities and prohibiting discrimination and harassment in the workplace.
We have training and awareness programs in place for these areas and further expanded the curriculum in fiscal 2020.
We are also subject to the regulations of the Department of Homeland Security, the U.S. Citizenship and Immigration
Services and U.S. Immigration and Customs Enforcement.
Our facilities must comply with applicable requirements of the Americans with Disabilities Act of 1990
(“ADA”) and related federal, state and foreign statutes which prohibit discrimination on the basis of disability with
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respect to public accommodations and employment. Under the ADA and related state and local laws, we take steps to
make our new or significantly remodeled restaurants, our corporate and bakery facilities and our websites readily
accessible to disabled persons. We make reasonable accommodations for the employment of disabled persons as
required by applicable laws.
A significant number of our hourly restaurant staff members receive income from gratuities. In the United
States, many of our locations participate voluntarily in a Tip Reporting Alternative Commitment (“TRAC”) agreement
with the Internal Revenue Service (“IRS”). By complying with the educational and other requirements of the TRAC
agreement, we reduce the likelihood of potential employer-only FICA tax assessments for unreported or underreported
tips.
We are subject to laws relating to information security, privacy, cashless payments and consumer credit,
protection and fraud. An increasing number of governments and industry groups worldwide have established data
privacy laws and standards for the protection of personal information (including social security numbers), financial
information (including credit card numbers) and health information.
(See Item 1A — Risk Factors — “Changes in, or any failure to comply with, applicable laws or regulations
could materially adversely affect our ability to operate our restaurants and/or increase our cost to do so, which could
materially adversely affect our financial performance.”)
Trade Names, Trademarks and Other Intellectual Property
We own various types of intellectual property and have applied to register trade names, logos, service marks,
trademarks and copyrights (collectively, “Intellectual Property”) in the United States, Canada and in additional countries
throughout the world in various categories, including without limitation, restaurant services and bakery goods. We
regard our Intellectual Property, including without limitation “The Cheesecake Factory,” “North Italia,” and a collection
with the Fox Restaurant Concepts subsidiary, as well as our trade dress, as having substantial value and as being
important to our marketing efforts. Our policy is to pursue registration of our important Intellectual Property whenever
commercially feasible and to vigorously oppose infringements of our Intellectual Property. The duration of Intellectual
Property registrations varies from country to country, and we have not registered all of our trademarks in every country
in which we now or in the future may do business. However, registrations of Intellectual Property are generally valid and
may be renewed indefinitely as long as they are in use and/or their registrations are properly maintained. We have also
registered various internet domain names, including, without limitation, “www.thecheesecakefactory.com,”
“www.northitalia.com,” and “www.foxrc.com,” as well as derivations of these and other domain names to include
international country codes. (See Item 1A — Risk Factors — Risks Related to Our Business — “Our failure to
adequately protect our intellectual property could materially adversely affect our financial performance.”)
Human Capital
At the heart of our culture is the belief that our people are our most important resource. We depend on our staff
members to successfully execute all aspects of our day-to-day operations that differentiate our concepts. Our ability to
attract highly-motivated staff members and retain an engaged, experienced team is key to successful execution of our
strategy. While we continue to operate in a competitive labor environment, we believe our people practices contribute
significantly to our ability to attract talent and to The Cheesecake Factory restaurants’ industry-leading retention rates,
which are consistently in the top tenth percentile of the upscale casual dining industry with respect to both restaurant
management and hourly staff. (See Item 1A — Risk Factors — Risks Related to the Restaurant Industry — “If we are
unable to successfully recruit and retain qualified restaurant management and operating personnel in an increasingly
competitive market, we may be unable to effectively operate and grow our business and revenues, which could
materially adversely affect our financial performance.”)
Retention and engagement of our staff members, one of our top priorities, is fostered by our investment and
support particularly in the following areas:
Culture
Cultivating and maintaining our culture is a key strategic focus. Our core values and purpose reflect who we are
and how our staff members interact with one another, as well as with our customers and other external stakeholders.
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Our purpose – to nurture bodies, minds, hearts and spirits – and our values – quality in everything we do;
passion for excellence; integrity, respect and responsibility; people – our greatest resource; service-mindedness; dynamic
leadership; high performance and create a sustainable future – are the foundation of our company culture. We seek to
embed our purpose in everything we do by cultivating a sense of pride and belonging to the Company and our brands.
We are proud of the way our people nurture one another and extend that nurturing to our customers and communities.
Diversity, Equity and Inclusion
We strive to offer an atmosphere of inclusion and belonging for all. We believe the cultural alignment we
cultivate around respect and inclusion builds trust and promotes teamwork to achieve our common goals. Furthermore,
when our people feel valued and respected for their worth as individuals, they are better able to maximize their potential
at work and more likely to share their perspectives, opinions and ideas, which contributes to our ability to innovate.
With underrepresented talent making up nearly two-thirds of our workforce, we are committed to providing
equal opportunities and seek to ensure there is equity in hiring, development and advancement. We continue to work to
increase the percentage of both underrepresented and female talent in our senior leadership across the organization. To
that end, we sponsor developmental support groups, such as The Cheesecake Factory Women’s Network Group, which
helps advance women into senior-level positions.
In 2020, we strengthened our commitment to fostering an inclusive environment by forming a Diversity,
Inclusion and Belonging Steering Committee to establish strategy, goals and accountability. Key accomplishments
included formulating an official statement that articulates our commitment to diversity, inclusion and belonging,
conducting listening sessions between executives and staff members from underrepresented groups and providing
education to our entire management team aimed at developing their inclusive leadership skills.
We are proud to have been recognized by Fortune and Great Place to Work® as a Best Workplace for Diversity
for two consecutive years, a Best Workplace for Women for four consecutive years and a Best Workplace for
Millennials for five consecutive years.
Development and Training
We invest significant resources to ensure our people receive, what we believe to be, industry-leading training in
order to maximize their potential. On average, our hourly staff members at The Cheesecake Factory restaurants receive
approximately 130 hours of training per year through a combination of online coursework and in-person learning and
development. Our managers receive approximately 350 hours of training and development annually, on average. Besides
company-provided job training, we also encourage the pursuit of educational opportunities at The Cheesecake Factory
and North Italia restaurants through our tuition reimbursement and free high school equivalency and associate degree
programs for kitchen staff members. In addition, we strive to provide our staff with career advancement opportunities.
Our robust training and educational programs allow us to fill a significant portion of our management positions with
internal candidates.
Benefits and Wellness
We believe access to healthcare is a compelling benefit for many staff members and we offer healthcare
benefits to our hourly staff members who work a minimum of 25 hours per week, on average. We attempt to provide a
robust suite of benefits and wellness offerings, including access to free mental health resources, autism coverage and
resources, diabetes and chronic disease care management, a maternal health program and adoption assistance.
Employee Engagement
We believe that engaging our workforce is a key factor in our business success and in turn, have developed
programs to promote enthusiasm and commitment, while providing a sense of belonging. We measure our performance
in this area through an annual engagement survey and pulse surveys throughout the year. These surveys give staff
company-wide the opportunity to share honest feedback about their work experience. Based on survey results, leaders
across the company are tasked with responsibility for creating action plans to address and respond to staff feedback.
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Listening to our staff members is an essential part of building an engaged workforce, and we provide additional
avenues for staff to share their ideas and concerns, including our internal crowdsourcing innovation website and our
Careline, which staff can use to confidentially express their concerns.
As of December 29, 2020, we employed approximately 42,500 people, with approximately 41,000 in our
restaurants and the remainder in our corporate center, FRC headquarters and bakery operations. We believe our efforts in
developing and engaging our workforce and creating a great workplace for all of our staff members, have been effective,
as evidenced by our recognition as one of the Fortune “100 Best Companies to Work For®” in 2020 for the seventh
consecutive year. The list is published annually based on a culture review and surveys of current staff members to
identify and recognize companies that create positive work environments with high employee morale and fulfillment. In
addition, in 2020 we received the Workplace Legacy Award from Black Box Intelligence/People Report, which
recognizes success in balancing superior people practices and best-in-class operational results in the restaurant industry.
Giving Back
Another key aspect of our culture is giving back to the communities where our staff live and work, and uniting
our staff members around charitable causes personal to them. Since 2008, we have donated over $5.3 million to Feeding
America, and we use the annual campaign as an opportunity to engage our teams in a culturally-aligning company-wide
service program. In addition, through our nationwide food donation program, we regularly donate surplus food from our
restaurants to local food rescue operations. Since the program’s inception in 2007, we have donated more than 5.8
million pounds of food, including approximately 620,000 pounds in fiscal 2020. We have similarly promoted our teams’
participation in community volunteer events, and through our gift card program, we contribute to local fundraising
events for community non-profit organizations. We also believe our sustainability programs and initiatives like
restaurant-based composting and recycling and replacing our off-premise packaging with materials that reduce the use of
plastics and improve recyclability serve to foster pride in our staff.
COVID-19 Pandemic
Key to our management of human capital during the COVID-19 pandemic were our decisions to 1) obtain
adequate personal protective equipment for our staff and require the use of face masks by our restaurant teams in
addition to any jurisdictional requirements in an effort to keep our teams and customers safe; 2) institute a special paid
time off program with the goal of ensuring that hourly staff and managers could afford to take adequate time off from
work to care for their health and 3) retain our restaurant management teams which we believe enabled us to adapt
quickly to a mandated off-premise only operating model and reopen indoor dining rooms safely when allowed.
When the closure of our dining rooms in March necessitated the furloughing of approximately 41,000 hourly
staff members, the Company funded a variety of support programs in an effort to provide them with stability, including a
complimentary daily meal, continuation of insurance benefits during the furlough and contributions to a COVID
assistance fund that provided $2.6 million in financial grants during fiscal 2020 to staff members in need. Grants were
funded through donations from the Company and its staff members. In more recent instances where we have been
required to return to off-premise only restaurant operations in certain jurisdictions, we have continued to offer the
complimentary daily meal and benefit protections to our furloughed teams. We believe these benefits have assisted us in
maintaining a connection to furloughed staff with the goal of returning them to work as soon as dining rooms reopen.
Corporate Social Responsibility (“CSR”)
In addition to being a leader in experiential dining that strives to provide excellent food, service and hospitality
to our customers, we also contribute to the well-being of our staff, local communities and the environment we all share.
We regularly examine multiple aspects of our business in an effort to identify, create and implement meaningful and
sustained change. For more information, please review our CSR report on the Corporate Social Responsibility page on
our website at www.thecheesecakefactory.com. The contents of the CSR report and our website are not incorporated by
reference into this Form 10-K.
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Executive Officers of the Registrant
David Overton, age 74, serves as our Chairman of the Board and Chief Executive Officer. Mr. Overton co-
founded our predecessor company in 1972 with his parents, Oscar and Evelyn Overton. He is also a founding member
and director of our Foundation.
David M. Gordon, age 56, was appointed President of the Company in February 2013. Mr. Gordon joined our
Company in 1993 as a Manager and held operational positions, including General Manager, Area Director of Operations,
Regional Vice President and Chief Operating Officer prior to his appointment as President. He is also a director of our
Foundation.
Matthew E. Clark, age 51, was appointed Executive Vice President and Chief Financial Officer in 2017.
Mr. Clark joined our Company in 2006 as Vice President of Strategic Planning and most recently oversaw the strategy,
financial planning, treasury and risk management functions as Senior Vice President, Finance and Strategy. Earlier in his
career, Mr. Clark held a number of finance positions of increasing responsibility at Groupe Danone, Kinko’s and The
Walt Disney Company. He is also an advisory director of our Foundation.
Keith T. Carango, age 59, serves as President of The Cheesecake Factory Bakery Incorporated, our bakery
subsidiary. Mr. Carango joined our bakery operations in 1996 to lead manufacturing and provide continuous
improvement to the bakery operation. In his most recent role of Senior Vice President and Chief Operating Officer, he
oversaw strategic planning, supply chain, manufacturing, distribution, human resources, quality assurance and finance.
Prior to joining the Company, he held manufacturing and finance roles at Frito-Lay, Inc. and Prince Foods.
Scarlett May, age 54, serves as our Executive Vice President, General Counsel and Secretary. Ms. May joined
our Company in 2018, from Brinker International, Inc., where she served as Senior Vice President, General Counsel and
Secretary from 2014 to 2018. Prior to that, she was Senior Vice President, Chief Legal Officer and Secretary for Ruby
Tuesday, Inc. following her earlier career in private practice.
ITEM 1A. RISK FACTORS
An investment in our common stock involves risks and uncertainties. In addition to the information contained
elsewhere in this Annual Report on Form 10-K and other filings that we make with the SEC, you should carefully read
and consider the risks described below before making an investment decision. The occurrence of any of the following
risks could materially harm our business, operating results, earnings per share, financial position, cash flows and/or the
trading price of our common stock (individually and collectively referred to as our “financial performance.”) In addition,
our actual financial performance could vary materially from any results expressed or implied by forward-looking
statements contained in this report, in any of our other filings with the SEC and other communications by us, both
written and oral, depending on a variety of factors, including the risks and uncertainties described below. It is not
possible for us to predict all possible risk factors or the impact these factors could have on us or the extent to which any
one factor, or combination of factors, may materially adversely affect our financial performance.
Risks Related to the COVID-19 Pandemic
The outbreak of, and local, state and federal governmental responses to, the COVID-19 pandemic have
significantly disrupted and will continue to disrupt our business, which has and could continue to materially
adversely affect our financial condition and operating results for an extended period of time.
The COVID-19 pandemic has significantly disrupted and will continue to disrupt our business for the
foreseeable future. Following the imposition of social distancing regulations that curtailed our restaurant operations to an
off-premise only model, in late April 2020 certain jurisdictions began allowing the reopening of restaurant dining rooms,
and more recently certain jurisdictions have reinstituted off-premise only regulations. We will continue to operate under
capacity restrictions in those jurisdictions that permit on-premise dining for some time as social distancing protocols
remain in place, and dining rooms that are currently open are subject to closure based on increases in COVID-19 case
numbers and the changing rules of various jurisdictions. Additionally, an outbreak or perceived outbreak of the COVID-
19 pandemic connected to one or more of our restaurants could result in restaurant closures as well as negative publicity
directed at any of our brands and cause customers to avoid our restaurants. We cannot predict how long the COVID-19
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pandemic will last or whether it will reoccur, what additional restrictions may be enacted, to what extent we can
maintain off-premise sales volumes or if individuals will be comfortable returning to our dining rooms during or
following social distancing protocols and what long-lasting effects the COVID-19 pandemic may have on consumer
behavior and the restaurant industry as a whole. The regulations applicable to the reopening process, along with the
potential impact of the COVID-19 pandemic on consumer spending behavior, could materially adversely affect our
financial performance.
Our restaurant operations could be further disrupted if any of our restaurant staff members are diagnosed with
COVID-19, which has occurred at some of our restaurants, requiring the quarantine of some or all of a restaurant’s staff
members and the temporary closure of the affected restaurant. If a significant percentage of our workforce is unable to
work due to COVID-19 illness, quarantine, limitations on travel or other government restrictions in connection with the
COVID-19 pandemic, our operations may be negatively impacted, potentially materially adversely affecting our
liquidity, financial condition or results of operations. Certain of our suppliers were similarly adversely impacted by the
COVID-19 pandemic and as a result, we experienced certain shortages of food items and other supplies at our
restaurants, none of which had a material impact on our operations. Our supplies may continue to be impacted by the
COVID-19 pandemic, which could have an adverse effect on our operations. In addition, we furloughed approximately
41,000 staff members, and although a significant number have returned to work, we may need to implement additional
furloughs depending on future events. Staff members who are furloughed might seek and find other employment, we
may be unable to properly staff and reopen our restaurants with experienced staff members when the business
interruptions caused by the COVID-19 pandemic abate or end.
In addition, while we have taken actions to manage our liquidity position in response to the COVID-19
pandemic, we may need to seek additional sources of liquidity. The COVID-19 pandemic is adversely affecting the
availability of liquidity generally in the credit markets, and there can be no guarantee that additional liquidity will be
available on favorable terms, or at all, especially the longer the COVID-19 pandemic lasts or if it were to reoccur. To
this end, on May 1, 2020, we entered into an amendment (the “Amendment”) to our Third Amended and Restated Loan
Agreement, dated July 30, 2019 (as amended by the Amendment, the “Amended Facility”), that, among other changes,
provides for net adjusted leverage ratio and EBITDAR to interest and rent expense coverage ratio covenant relief
through the first quarter of fiscal 2021. Following the end of the covenant relief period, a material increase in our level of
debt could cause our net adjusted leverage ratio and EBITDAR to interest and rent expense coverage ratios to be outside
of permitted levels under the covenants in the Amended Facility. (See Item 1A — Risk Factors — Risks Related to our
Business — “Any failure to satisfy financial covenants and/or repayment requirements under our credit facility could
harm our financial condition.”) To further increase our liquidity given the impact of COVID-19 on our operations, we
issued 200,000 shares of Series A Convertible Preferred Stock on April 20, 2020 for an aggregate purchase price of $200
million. (See Notes 12 and 17 of Notes to Consolidated Financial Statements in Part 1, Item 1 of this report for further
discussion of these events.)
To further manage our liquidity position in response to the COVID-19 pandemic and considering governmental
occupancy restrictions limiting our ability to access and use our leased restaurants, we engaged our landlords in
discussions to obtain rent relief. As a result, we entered into a number of lease amendments providing relief in the form
of deferred and/or abated rent. If occupancy restrictions related to the COVID-19 pandemic continue for longer than
expected or become more prevalent or more restrictive in connection with a reemergence or worsening of the outbreak,
we may again seek to engage our landlords in discussions seeking additional rent relief. If these discussions are not
successful, we may incur considerable rental expenses without sufficient offsetting operating income. We also may
choose to cease operations at certain restaurants where profitability is particularly impacted by challenges related to the
COVID-19 pandemic or other factors. Should we do so, we will incur significant costs associated with lease terminations
and our winding down of operations at the affected restaurant(s). The COVID-19 pandemic has also adversely affected
our ability to open new restaurants. We have delayed some new unit openings and will continue to evaluate the pace and
quantity of new unit development until more clarity on the restaurant industry operating environment emerges. Delays in
new unit development may materially adversely affect our ability to grow our business, particularly if these delays
extend for a significant amount of time.
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Risks Related to the Restaurant Industry
The impact global and domestic economic conditions have on consumer discretionary spending could materially
adversely affect our financial performance.
The COVID-19 pandemic has had a significant impact on global and domestic economies and will likely
continue to negatively impact these economies for some time in the future. Dining out is a discretionary expenditure that
historically has been influenced by domestic and global economic conditions. In addition to the COVID-19 pandemic,
these conditions include, but may not be limited to: unemployment, general and industry-specific inflation, consumer
confidence, consumer purchasing and saving habits, credit conditions, stock market performance, home values,
population growth, household incomes and tax policy. Material changes to governmental policy related to domestic and
international fiscal concerns, and/or changes in central bank policies with respect to monetary policy, also could affect
consumer discretionary spending. Any factor affecting consumer discretionary spending may influence customer traffic
in our restaurants and average check amount, thus potentially having a material impact on our financial performance.
Our inability to grow comparable restaurant sales could materially adversely affect our financial performance.
We strive to increase comparable restaurant sales by improving customer traffic trends and growing average
check. Changes in customer traffic and average check amount may be impacted by a variety of factors, including,
without limitation: macroeconomic conditions, including the COVID-19 pandemic, that impact consumer discretionary
spending; perception of our concepts’ offerings in terms of quality, price, value and service; increased competition;
changes in consumer eating habits; the evolving retail landscape, which, for reasons including the COVID-19 pandemic,
is becoming increasingly influenced by technology and a growing consumer preference for convenience, value and
experience; adverse weather conditions; demographic, economic and other adverse changes in the trade areas in which
our restaurants are located and changes in the regulatory environment.
We compete directly and indirectly for customer traffic with national and regional casual dining restaurant
chains, as well as independently-owned restaurants. In addition, we face competition for customer traffic from fast
casual and quick-service restaurants, home delivery services, mobile food service, convenience stores, grocery stores and
meal kits that are evolving the quality and variety of their food products in response to customer demand. This increased
competition, coupled with an oversupply of restaurants, has driven casual dining industry comparable traffic declines in
recent years. This backdrop has made it even more challenging to improve customer traffic. We believe that many
consumers remain focused on value and if our competitors, many of whom have significantly greater resources to market
aggressively to customers, are able to promote and deliver a higher degree of perceived value, our customer traffic could
suffer.
We utilize menu price increases to help offset inflation of key operating costs. However, our menu price
increases may be insufficient to entirely absorb or offset increased costs and, if not accepted by customers, menu price
increases could result in reduced customer traffic.
Our menu mix could be materially adversely affected if our customers purchase fewer menu items or lower cost
menu items in order to reduce their spend. Unfavorable menu mix shifts could reduce average check amount, negatively
impacting our ability to grow comparable restaurant sales.
In recent years we have generated a higher mix of sales from off-premise channels as a consumer preference for
convenience has increased. This shift of sales to off-premise channels has been significantly accelerated in recent months
as a result of occupancy restrictions and dining room closures impacting our restaurants and other challenges related to
the COVID-19 pandemic. As challenges related to the COVID-19 pandemic subside we may be unable to sustain current
off-premise sales volumes. Growing competition in off-premise channels and any reduction in our ability to differentiate
our concepts in these channels could negatively impact our comparable restaurant sales performance.
If our efforts to grow comparable restaurant sales are not successful, the effect, over time, would be to spread
costs across a lower level of sales, which could materially adversely affect our financial performance.
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If we are unable to protect our reputation, the value of our brands and sales at our restaurants may be negatively
impacted, which could materially adversely affect our financial performance.
Our greatest asset is the value of our brands, which is directly linked to our reputation. We must protect our
reputation in order to continue to be successful and to grow the value of our brands domestically and internationally.
Negative publicity directed at any of our brands, regardless of factual basis, such as relating to the quality of our
restaurant food or consumer packaged goods, the quality of our restaurant facilities, outbreaks of COVID-19 infections
at our restaurants, customer complaints or litigation alleging injury or food-borne illnesses, food tampering or
contamination or poor health inspection scores, sanitary or other issues with respect to food processing by us or our
suppliers, the condition of our restaurants, labor relations, any failure to comply with applicable regulations or standards,
allegations of harassment or disparate treatment based upon race, gender, national origin, religion or other class,
allegations of sexual harassment, politically motivated accusations or other negative publicity, could damage our
reputation. Any failure of our third-party delivery provider to represent our brands in a favorable manner could damage
our reputation. These concerns are exacerbated by the speed with which negative information may now be disseminated
through social media. (See Item 1A — Risk Factors — Risks Related to Our Business — “Any inability to effectively
use and manage social media could harm our marketing efforts as well as our reputation, which could materially
adversely affect our financial performance”). Negative publicity about us could harm our reputation and damage the
value of our brands, which could materially adversely affect our financial performance.
Over the past several years we have experienced and continue to experience significant labor cost inflation. If we
are unable to offset higher labor costs, our cost of doing business will significantly increase, which could
materially adversely impact our financial performance.
Increases in minimum wages and minimum tip credit wages, extensions of personal and other leave policies,
other governmental regulations affecting labor costs and a diminishing pool of potential staff members when the
unemployment rate falls and legal immigration is restricted, especially in certain localities, could significantly increase
our labor costs and make it more difficult to fully staff our restaurants, any of which could materially adversely affect
our financial performance.
We believe it is becoming increasing likely that the United States federal government will significantly increase
the federal minimum wage and tip credit wage (or eliminate the tip credit wage) and require significantly more mandated
benefits than what is currently required under federal law. Should this happen, other jurisdictions that have historically
mandated higher wages and greater benefits than what is required under federal law may seek to further increase wages
and mandated benefits. In addition to increasing the overall wages paid to our minimum wage and tip credit wage
earners, these increases create pressure to increase wages and other benefits paid to other staff members who, in
recognition of their tenure, performance, job responsibilities and other similar considerations, historically received a rate
of pay exceeding the applicable minimum wage or minimum tip credit wage. Because we employ a large workforce, any
wage increase and/or expansion of benefits mandates will have a particularly significant impact on our labor costs. Our
vendors, contractors and business partners are similarly impacted by wage and benefit cost inflation, and many have or
will increase their price for goods, construction and services in order to offset their increasing labor costs.
Our labor expenses include significant costs related to our self-insured health, pharmacy and dental benefit
plans. Health care costs continue to rise and are especially difficult to project. These costs include very expensive new
specialty pharmaceutical products. Material increases in costs associated with medical claims, or an increase in the
severity or frequency of such claims, may cause health care costs to vary substantially from quarter-to-quarter and year-
over-year. We offer a variety of health plans to our staff members, including lower cost high deductible health plans,
with an option for participants to contribute to a personal health savings account. However, given the unpredictable
nature of actual health care claims trends, including the severity or frequency of claims, in any given year our health care
costs could significantly exceed our estimates, which could materially adversely affect our financial performance.
Any significant changes to the healthcare insurance system could impact our healthcare costs. Material
increases in healthcare costs could materially adversely affect our financial performance.
While we try to offset labor cost increases through price increases, more efficient purchasing practices,
productivity improvements and greater economies of scale, there can be no assurance that these efforts will be
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successful. If we are unable to effectively anticipate and respond to increased labor costs, our financial performance
could be materially adversely affected.
If we are unable to successfully recruit and retain qualified restaurant management and operating personnel in
an increasingly competitive market, we may be unable to effectively operate and grow our business and revenues,
which could materially adversely affect our financial performance.
We must continue to attract, retain and motivate a sufficient number of qualified management and operating
personnel to maintain consistency in the quality of our restaurants, both domestically and internationally. Qualified
management and operating personnel are currently in high demand. If we are unable to attract and retain qualified
people, our restaurants could be short staffed, we may be forced to incur overtime expenses, and our ability to operate
and expand our concepts effectively could be limited, any of which could materially adversely affect our financial
performance.
Concerns relating to pandemics and other diseases, food safety and food-borne illness could reduce customer
traffic to our restaurants, disrupt our food supply chain or cause us to be the target of litigation, which could
materially adversely affect our financial performance.
The COVID-19 pandemic has had a significant adverse impact on our customer traffic and ability to operate our
restaurants and may continue to do so for the foreseeable future. Future pandemics and other diseases may have a similar
or more severe impact.
We also face food safety risks, including the risk of food-borne illness and food contamination (including
allergen cross contamination), which are common both in the restaurant industry and the food supply chain. While we
dedicate substantial resources and provide training to ensure the safety and quality of the food we serve, these risks
cannot be completely eliminated. Additionally, we rely on our network of suppliers to properly handle, store and
transport our ingredients for delivery to our restaurants. Any failure by our suppliers, or their suppliers, could cause our
ingredients to be contaminated, which could be difficult to detect and put the safety of our food in jeopardy. We freshly
prepare our menu items at our restaurants, which may put us at greater risk for food-borne illness and food
contamination outbreaks than some of our competitors who use processed foods or commissaries to prepare their food.
The risk of food-borne illness also may increase whenever our menu items are served outside of our control, such as by
third-party food delivery services, customer take-out or at catered events.
Adverse publicity or news reports, regardless of accuracy, regarding food quality or safety issues, illness,
injury, recalls, health concerns, government or industry findings concerning food products served by us or our licensees
or delivered by a third-party for off-premises consumption, or issues stemming from the operation of our restaurants or
bakeries, restaurants operated by our licensees, third parties with whom we may co-brand products or who sell or
distribute our products, or third parties we may use to procure materials used in our business or to deliver our products,
or generally in the food supply chain, could be damaging to the restaurant industry overall and specifically harm our
brand and reputation, which in turn could materially adversely affect our financial performance.
The demand for and availability and price of certain food items may be adversely impacted if a pathogen, such
as coronavirus, Ebola, “mad cow disease,” “SARS,” “swine flu,” avian influenza, norovirus or other virus or bacteria,
such as salmonella or E.coli, or if parasites or other toxins infect or are believed to have infected the food supply,
including the food supply chain for our restaurants or bakery facilities. Additionally, customers may avoid our
restaurants and/or it may become difficult to adequately staff our restaurants if our customers or staff members become
infected with a pathogen which was actually or claimed to be contracted at our restaurants. Any adverse food safety
occurrence may result in litigation against us. Although we carry liability and other insurance coverage to mitigate costs
we may incur as a result of these risks, not all risks of this nature are fully insurable and, even if insured, the negative
publicity associated with such an event could damage our reputation and materially adversely affect our financial
performance.
In addition to selling products throughout the world through various distribution channels, including, without
limitation, supermarkets, mass market retailers, club stores and various other food service and retail channels, our two
bakery facilities are the only sources of most of our baked desserts to our restaurants. If any of our bakery products
becomes subject to a product recall or market withdrawal, whether voluntary or involuntary, our costs to conduct such
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recall or market withdrawal could be significant, restaurant sales as well as third-party sales of bakery product could be
negatively impacted and our reputation could be damaged, any of which could materially adversely affect our financial
performance.
In addition, any adverse food safety event could result in mandatory or voluntary product withdrawals or
recalls, regulatory and other investigations, and/or criminal fines and penalties, any of which could disrupt our
operations, increase our costs, require us to respond to findings from regulatory agencies that may divert resources and
assets, and result in potential civil fines and penalties as well as other legal action, any of which could materially
adversely affect our financial performance.
Changes in, or any failure to comply with, applicable laws or regulations could materially adversely affect our
ability to operate our restaurants and/or increase our cost to do so, which could materially adversely affect our
financial performance.
We are required to comply with various federal, state and local and foreign laws and regulations, including,
without limitation, those relating to alcoholic beverage control, public health and safety, access and use by the disabled,
environmental hazards, labor and employment, such as, equal wage laws and exempt versus non-exempt employee
classifications, data security and food safety and labeling. Changes to these laws or regulations may create challenges for
us. While we subscribe to certain services and have established procedures to identify legal and regulatory changes, we
cannot be certain to identify and comply with every change on a timely basis. We may incur penalties and other costs,
sanctions and adverse publicity by failing to comply with applicable laws, any of which could materially adversely affect
our financial performance.
Our failure to obtain and/or retain licenses, permits or other regulatory approvals required to operate our
business could delay or prevent the opening and/or continued operation of any of our restaurants or bakeries, materially
adversely affecting that facility’s operations and profitability and our ability to obtain similar licenses, permits or
approvals elsewhere, any of which could materially adversely affect our financial performance.
In certain jurisdictions, we may be subject to “dram shop” statutes that generally allow a person injured by an
intoxicated person the right to recover damages from an establishment that wrongfully served alcoholic beverages to the
intoxicated person. Dram shop litigation may result in significant judgments, including punitive damages. A settlement
or judgment against us under a dram shop statute in excess of our general liability insurance coverage could materially
adversely affect our financial performance.
Significant increases in minimum wages, including the tip credit wage in certain states, paid or unpaid leaves of
absence, equal wage legislation, mandatory sick pay and paid time off regulations in a growing number of jurisdictions,
mandated health and/or COBRA benefits, or increased tax reporting, assessment or payment requirements related to our
staff members who receive gratuities, or changes in interpretations of existing employment law, including with respect to
classification of exempt versus non-exempt employees, could significantly increase our labor costs, which would
materially adversely affect our financial performance.
We are subject to federal and state laws that prohibit discrimination in the workplace and that set standards for
the design, accessibility and operation of public facilities, such as the Americans with Disabilities Act. Compliance with
these laws and regulations can be costly and failure to comply could create exposure to government proceedings and
litigation. Even a perceived failure to comply could result in negative publicity that could damage our reputation and
materially adversely affect our financial performance. In addition, various federal, state and local and foreign labor laws
and regulations govern our operations and relationships with our staff members, including, but not limited to, minimum
wages, meal and rest breaks, overtime, deductions, certain benefits (including health care benefits), safety, predictive
scheduling, paid leave requirements, working conditions and citizenship and legal residency requirements. These
requirements also extend to independent third-party service providers we engage to perform certain services at our
restaurants. While we take precautions to ensure that our third-party service providers comply with applicable laws and
to maintain an independent contractor relationship, we cannot be assured such efforts will be successful, and we may
incur liability vicariously as a joint employer for failures by our independent third-party service providers to comply
with applicable laws. Changes in, or any failure to comply with, these laws and regulations could subject us to fines or
other legal actions, which could materially adversely affect our financial performance. Additionally, some jurisdictions
have introduced (or may be planning to introduce) legislation seeking to mandate an employment relationship between
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companies that facilitate third-party delivery services and their service personnel. If these measures are successful,
delivery costs will significantly increase and/or these companies may choose to no longer operate within such
jurisdictions, either of which result could significantly impede our ability to grow off-premise sales.
Despite our efforts to maintain compliance with legal requirements, including implementation of electronic
verification of legal work status, some of our staff members may not meet legal citizenship or residency requirements. In
addition, immigration-related employment regulations may make it more difficult for us to identify and hire qualified
staff members. Our inability to maintain an experienced and qualified work force comprised of individuals who meet all
legal citizenship or residency requirements could result in a disruption in our work force, sanctions against us and
adverse publicity, any of which could materially adversely affect our financial performance.
Our inability to respond appropriately to changes in consumer health and disclosure regulations, and to adapt to
evolving consumer dining preferences could negatively impact our operations and competitive position, which
could materially adversely affect our financial performance.
Federal law requires restaurant operators with twenty or more locations to make certain nutritional information
available to customers. Additionally, some state, local and foreign governments also have enacted legislation regulating
or prohibiting the sale of or mandating disclosures relating to certain types and/or levels of ingredients in food served in
restaurants, such as trans fats, sodium, genetically modified organisms (GMOs) and gluten, and are taxing or considering
taxing and/or otherwise regulating high fat, high sugar and high sodium foods. While it remains unclear if and to what
extent consumers may reconsider dining preferences in response to such requirements, it is clear that consumer dining
preferences continue to evolve, and these preferences may evolve more rapidly in light of these new requirements. We
must be able to quickly and effectively adapt to any significant shift in consumer dining preference. Our failure or
inability to do so could cause our or our licensee’s restaurants to lose market share, which could materially adversely
affect our financial performance.
Labor organizing could harm our operations and competitive position in the restaurant industry, which could
materially adversely affect our financial performance.
Our staff members and others may attempt to unionize our workforce, establish boycotts or picket lines or
interrupt our supply chains which could limit our ability to manage our workforce effectively and cause disruptions to
our operations, which could materially adversely affect our financial performance. These risks have been compounded
by worker safety concerns during the ongoing COVID-19 pandemic. Our labor costs may significantly increase if we
become unable to effectively manage our workforce and the compensation and benefits we offer to our staff members,
which also could materially adversely affect our financial performance.
Adverse weather conditions, natural disasters and health epidemics could unfavorably impact our restaurant
sales, which could materially adversely affect our financial performance.
Adverse weather conditions, natural disasters and health epidemics can impact customer traffic, make it more
difficult to fully staff our restaurants and, more severe cases, such as hurricanes, earthquakes, tornadoes, blizzards, other
natural disasters or health epidemics, such as the COVID-19 pandemic, have resulted in and may in the future result in
restaurant closures and curtailed operations, impediments to availability of staff and supplies and increased commodity
costs, sometimes for prolonged periods of time, any of which could materially adversely affect our financial
performance. Climate change may cause adverse weather conditions and natural disasters to become more frequent and
less predictable, which could make it more difficult to accurately project year-to-year comparisons in sales and other
factors affecting financial performance. Our cash flows may be negatively impacted by delay in the receipt of proceeds
under any insurance policies or programs we maintain against certain of these risks or the proceeds may not fully offset
any such losses. Any or all these situations could materially adversely affect our financial performance.
Acts of violence at or threatened against our restaurants or the centers in which they are located, including civil
unrest, customer intimidation, active shooter situations and terrorism, could unfavorably impact our restaurant
sales, which could materially adversely affect our financial performance.
Any act of violence at or threatened against our restaurants or the centers in which they are located, including
civil unrest, customer intimidation, active shooter situations and terrorist activities, may result in damage and restricted
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access to our restaurants and/or restaurant closures in the short-term and, in the long-term, may cause our customers and
staff to avoid our restaurants. Any such situation could adversely impact customer traffic and make it more difficult to
fully staff our restaurants, which could materially adversely affect our financial performance.
Risks Related to Our Business
Our inability to anticipate and react effectively to changes in the costs of key operating resources may increase
our cost of doing business, which could materially adversely affect our financial performance.
We negotiate short-term and long-term agreements for some of our principal commodity, supply and equipment
requirements, such as certain dairy products and poultry, depending on market conditions and expected demand. We
continue to evaluate the possibility of entering into similar arrangements for other commodities and periodically evaluate
hedging vehicles, such as direct financial instruments, to assist us in managing risk and variability associated with such
commodities. Although these vehicles may be available to us, as of February 24, 2021, we had chosen not to enter into
any hedging contracts due to pricing volatility, excessive risk premiums, hedge inefficiencies or other factors.
Commodities for which we have not entered into contracts can be subject to unforeseen supply and cost fluctuations,
which at times may be significant. Additionally, the cost of commodities subject to governmental regulation, such as
dairy and corn, can be especially susceptible to price fluctuation. Commodities we purchase on the international market
may be subject to even greater fluctuations in cost and availability, which could result from a variety of factors,
including the value of the U.S. dollar relative to other currencies, international trade disputes, tariffs and varying global
demand.
While we strive to engage in a competitive bidding process for our principal commodity, supply, service and
equipment requirements, because certain of these products and services may only be available from a few vendors or
service providers, we may not always be able to do so. Because of this lack of competition, we may be vulnerable to
excessive price demands, especially as they relate to the cost of products or services that are critical to our operations or
profitability.
Certain products and ingredients commonly used in food preparation have recently come under scrutiny for
possibly posing social and environmental risks, such as from an animal welfare and sustainability perspective. We have
identified some of these products and ingredients in our supply chain and have adopted a comprehensive Sustainable
Sourcing Policy under which we commit to a buying preference in our supply chain by 2025, or sooner where required,
for products and ingredients that are sustainably grown and harvested and which do not have negative social impact, and
for products from animals that are humanely raised and processed (“sustainable products”). While we are committed to
implementing these changes in as timely and commercially feasible manner as possible, there is a risk that some of our
products or ingredients may become the subject of adverse media attention before we are able to do so, regardless of
factual basis. Additionally, while we make significant efforts to ensure we will have a sufficient ongoing supply of
sustainable products at a reasonable cost, since there is currently a smaller market for certain of these products, they may
be especially susceptible to cost volatility and supply fluctuations. We cannot be certain that our supply and cost
mitigation efforts or commitment to purchase sustainable products will be successful.
Our international licensees are also subject to commodity price fluctuations. While they too employ strategies
to mitigate the impact these fluctuations have on their business, neither we nor they can be assured such strategies will
be successful. Commodity price fluctuations could impede our international licensees' profitability and hamper their
ability to grow, which could negatively impact our ability to expand our brand internationally.
If we are unable to anticipate and effectively respond to these and other increases in our operating costs, our
financial performance could be materially adversely affected.
Our financial performance could be materially adversely affected if we fail to retain, or effectively respond to a
loss of, key executives.
The success of our business continues to depend in critical respects on the contributions of David Overton, our
founder, Chairman of the Board and Chief Executive Officer, and our other senior executives. The departure of Mr.
Overton or other senior executives for any reason could have a material adverse effect on our business and long-term
strategic plan. We have a succession plan that includes short-term and long-term planning elements intended to allow us
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to successfully continue operations should any of our senior management become unavailable to serve in their respective
roles. However, there is a risk that we may not be able to implement the succession plan successfully or in a timely
manner or that the succession plan will not result in the same financial performance we currently achieve under the
guidance of our existing executive team.
If any of our third-party vendors experiences a failure that affects a significant aspect of our business, we may be
subject to certain risks and may experience data loss, increased costs or other harm, any of which could
materially adversely affect our financial performance.
In order to leverage our internal resources and information technology infrastructure, and to support our
business continuity and disaster recovery planning efforts in the event of a physical loss or damage to our corporate
facilities, we utilize third-party vendors to assist us with some of our essential business processes. For example, we rely
on a network of third-party distribution warehouses to deliver ingredients and other materials to our restaurants. In some
instances, these processes rely on technology and may be outsourced to the vendor in their entirety and in other instances
we utilize these vendors' externally-hosted business applications.
We also utilize third parties to provide gift card distribution and transaction processing services and to perform
food delivery services. We derive substantial revenue from these aspects of our business, which could suffer in the event
of any factor that adversely impacts our vendors' ability to provide such services. Such factors may include, without
limitation, loss of, or significant change in contractual terms of, key vendor contracts, vendor or processor failures,
technology failures, damage to the reputation of any key vendor and mandated employment relationships between
companies that facilitate third-party delivery services and their service personnel. (See Item 1A — Risk Factors — Risks
Related to the Restaurant Industry — “Changes in, or any failure to comply with, applicable laws or regulations could
materially adversely affect our ability to operate our restaurants and/or increase our cost to do so, which could materially
adversely affect our financial performance.)”
We continue to review options to expand the use of third-party providers in other areas. Our practice is to work
with service providers that are leading performers in their industries and with technology vendors that employ up to date
and appropriate data security practices and internal control practices. However, we cannot guarantee that failures will not
occur. The failure of third-party vendors to provide adequate services, including protection of sensitive data, could
significantly harm our operations and reputation, which could materially adversely affect our financial performance.
Any failure to realize the anticipated benefits of our acquisition (“Acquisition”) of North Italia and the remaining
business of Fox Restaurant Concepts LLC (“FRC”) could materially adversely affect our financial performance.
In 2019, we acquired FRC's businesses with the expectation that the Acquisition will result in various benefits
including, among others, business and growth opportunities and synergies in supply chain, real estate and other areas
over time. Combining independent companies with separate businesses, customers, employees, cultures and systems is a
complex, costly and time-consuming process. We may experience material unanticipated difficulties or expenses in
connection with the integration of FRC's businesses with ours, and this process may disrupt the business of either or both
companies. Some of the difficulties could include: consolidating and retaining management and other key employees;
integrating information, communications and other systems; integrating purchasing, logistics, marketing and
administration methods; integrating corporate and administrative infrastructures; minimizing the diversion of
management's attention from ongoing business concerns; and, successfully managing and coordinating the growth of the
combined company.
Even if we are able to successfully integrate FRC's businesses with ours, there can be no assurances that we will
realize some or all of the anticipated benefits of the Acquisitions, within the anticipated timeframes, if at all. In addition,
we may experience increased competition that limits our ability to expand our business, we may not be able to capitalize
on expected business opportunities, and general industry and business conditions may deteriorate. If any of these or other
expected or unexpected factors limit our ability to achieve the anticipated benefits of the Acquisition, or if such business
opportunities, growth prospects and synergies are not realized for any other reason, our financial performance could be
materially adversely affected.
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Any failure to satisfy financial covenants and/or repayment requirements under our credit facility could harm
our financial condition.
In response to the COVID-19 pandemic, on May 1, 2020, we entered into the Amended Facility which provides
for, among other things, (i) a covenant relief period (the “Covenant Relief Period”) during which we are not required to
comply with financial covenants requiring maintenance of the maximum Net Adjusted Leverage Ratio and minimum
EBITDAR Ratio, (ii) a substitution of the Net Adjusted Leverage Ratio and EBITDAR to Interest and Rental Expense
Ratio covenants with a liquidity covenant during the Covenant Relief Period and (iii) increased limitations on capital
expenditures and on our ability to make restricted payments, incur debt and consummate acquisitions during the
Covenant Relief Period.
Any failure to maintain debt covenants under the Amended Facility or to have sufficient liquidity to either
repay or refinance the then outstanding balance at expiration of the Amended Facility, or upon any violation of the
covenants, could materially adversely affect our financial performance. (See Note 12 of Notes to Consolidated Financial
Statements in Part IV, Item 15 for further discussion of our long-term debt.)
In addition, our increased indebtedness related to the Acquisition and our resulting higher debt-to-equity ratio,
as compared to that which has existed on a historical basis, could limit our ability to obtain additional financing in the
future and have other material consequences, including: increasing our vulnerability to, and limiting our flexibility in
planning for, changing business and market conditions, making us more vulnerable to adverse economic and industry
conditions; limiting our ability to use proceeds from any offering or divestiture transaction for purposes other than the
repayment of debt; and, creating competitive disadvantages compared to other companies with less indebtedness.
The Series A Convertible Preferred Stock has rights, preferences and privileges that are not held by, and are
preferential to, the rights of our common stock. Such preferential rights could adversely affect our liquidity and
financial condition, and may result in the interests of the holders of the Series A Convertible Preferred Stock
differing from those of the holders of our common stock.
On April 20, 2020, we issued 200,000 shares of the Series A Convertible Preferred Stock, par value $0.01 per
share (the “Series A preferred stock”), for an aggregate purchase price of $200 million.
The Series A preferred stock ranks senior to our common stock with respect to dividends and distributions on
liquidation, winding-up and dissolution upon which each share of Series A preferred stock will be entitled to receive an
amount per share equal to the greater of (i) the purchase price (without giving effect to any commitment fee), plus all
accrued and unpaid dividends (the “Liquidation Preference”) and (ii) the amount that the holder of the Series A preferred
stock would have been entitled to receive at such time if the Series A preferred stock were converted into our common
stock.
The holders of Series A preferred stock are entitled to dividends on the Liquidation Preference at the rate of
9.5% per annum, payable in cash or, at our option, paid-in-kind. Such holders are also entitled to participate in dividends
declared or paid on our common stock on an as-converted basis.
On and after October 20, 2027, holders of Series A preferred stock have the right to require redemption of all or
any part of the Series A preferred stock for an amount equal to the Liquidation Preference. Upon certain change of
control events, we are required to redeem, subject to conversion rights of the holders of Series A preferred stock, all of
the outstanding shares of Series A preferred stock for cash consideration equal to the greater of (i) the Liquidation
Preference and (ii) the amount that such holder would have been entitled to receive at such time if the Series A preferred
stock were converted into common stock. If a redemption is required, we may not have sufficient funds to satisfy our
obligation to pay the Liquidation Preference.
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Each holder has the right, at its option, to convert its Series A preferred stock, in whole or in part, into fully
paid and non-assessable shares of our common stock at a conversion price equal to $22.23 per share, subject to
customary anti-dilution adjustments, including in the event of any stock split, stock dividend, recapitalization or similar
events and certain antidilutive offerings if they occur on or prior to April 19, 2021. Pursuant to the terms of the
Certificate of Designations, unless and until approval of our stockholders is obtained as contemplated by Nasdaq listing
rules (the “Stockholder Approval”), no holder may convert shares of Series A preferred stock through either an optional
or a mandatory conversion into shares of common stock if and solely to the extent that such conversion would result in
the holder beneficially owning in excess of 19.9% of then outstanding common stock. We have the right to settle any
conversion at the request of a holder in cash. As of December 29, 2020, the Series A preferred stock was convertible into
approximately 17.1% of our outstanding common stock, on an as-converted basis.
The dividend and redemption provisions of the Series A preferred stock could impact our liquidity and reduce
the amount of cash flows available for working capital, capital expenditures, growth opportunities, acquisitions and other
general corporate purposes. Our obligations to the holders of Series A preferred stock could also limit our ability to
obtain additional financing or increase our borrowing costs, which could have an adverse effect on our financial
condition. The preferential rights could also result in divergent interests between the holders of Series A preferred stock
and those of the holders of our common stock.
The issuance of the Series A preferred stock has effectively reduced the relative voting power of holders of our
common stock, may dilute the ownership of such holders, and may adversely affect the market price of our
common stock.
As of December 29, 2020, the Series A preferred stock was convertible into approximately 17.1% of our
outstanding common stock, on an as-converted basis. As holders of the Series A preferred stock are entitled to vote, on
an as-converted basis, together with holders of our common stock as a single class on generally all matters submitted to a
vote of our common stockholders, the issuance of the Series A preferred stock has effectively reduced the relative voting
power of the holders of our common stock.
In addition, the conversion of the Series A preferred stock to common stock would dilute the ownership interest
of existing holders of our common stock, and any sales in the public market of the common stock issuable upon
conversion of the Series A preferred stock could adversely affect prevailing market prices of our common stock. We
have granted the holders of the Series A preferred stock registration rights in respect of the shares of common stock
issued upon conversion of the Series A preferred stock. These registration rights would facilitate the resale of such
common stock into the public market, and any such resale would increase the number of shares of our common stock
available for public trading. Sales by the holders of the Series A preferred stock of a substantial number of shares of our
common stock in the public market, or the perception that such sales might occur, could have a material adverse effect
on the price of our common stock.
We may incur additional costs if we are unable to renew our restaurant leases on similar terms and conditions, or
at all, or to relocate our restaurants in certain trade areas, which could materially adversely affect our financial
performance.
We currently lease all our restaurant premises and, although we may consider other arrangements, we currently
plan to continue to lease our restaurant locations in the future. Some of our leases have terms that will expire in the next
few years and beyond. Many of these leases include renewal options; some do not. While lease expirations allow us to
opportunistically evaluate the possibility of relocating certain restaurants to higher quality sites and trade areas over
time, doing so may involve additional costs, such as increased rent and other expenses related to renegotiating the terms
of occupancy of an existing lease, and the costs to relocate and develop a replacement restaurant if we choose not to
renew a lease, or are unable to do so, on favorable terms in a desirable location. In addition, we may elect to terminate
certain leases prior to their expiration dates, and we may be unable to negotiate favorable terms for such early
terminations. Additional costs related to expiring restaurant lease terms, our inability to terminate certain restaurant
leases under favorable terms or the unavailability of suitable replacement locations could materially adversely affect our
financial performance.
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Any inability to effectively use and manage social media could harm our marketing efforts as well as our
reputation, which could materially adversely affect our financial performance.
Social media provides a powerful medium for consumers, staff members and others to communicate their
approval of or displeasure with a business. This aspect of social media is especially challenging because it allows any
individual to reach a broad audience with an ability to respond or react, in near real time, with comments that are often
not filtered or checked for accuracy. If we are unable to quickly and effectively respond, any negative publicity could
“go viral” causing nearly immediate and potentially significant harm to our brand and reputation, whether or not
factually accurate.
Our marketing strategy includes an emphasis on social media. As social media continues to grow in popularity,
many of our competitors have expanded and improved their use of social media, making it more difficult for us to
differentiate our social media messaging. As a result, we need to continuously innovate and develop our social media
strategies.
If we do not appropriately use and manage our social media strategies, our marketing efforts in this area may
not be successful, and any failure to effectively respond to negative or potentially damaging social media, whether
accurate or not, could damage our reputation, which could materially adversely affect our financial performance.
Our failure to adequately protect our intellectual property could materially adversely affect our financial
performance.
We own and have applied to register trade names, logos, service marks, trademarks, copyrights and other
intellectual property (collectively, “Intellectual Property”), including The Cheesecake Factory®, North Italia®, a
collection within the Fox Restaurant Concepts subsidiary and other trademarks related to our restaurant businesses in the
United States and in additional countries throughout the world. Our Intellectual Property is valuable to our business and
requires continuous monitoring to protect. We regularly and systemically search for misappropriations of our Intellectual
Property and seek to enforce our rights whenever appropriate to do so; however, we cannot be assured of success in
every case and cannot possibly find all infringing uses of our Intellectual Property. Furthermore, we have not registered
all our Intellectual Property throughout the world, as doing so may not be feasible because of associated costs, various
foreign trademark law prohibitions or registrations by others. Our failure or inability to protect our Intellectual Property
worldwide could limit our ability to globally expand our brand.
Our inability to effectively protect our Intellectual Property domestically or internationally could cause our
customers to believe lesser quality products or services are ours, may reduce the capacity of our Intellectual Property to
uniquely identify our products and services and/or may limit our ability to globally expand our brand, any of which
could materially adversely affect our financial performance.
We face a variety of risks and challenges related to our international operations and global brand development
efforts, any of which could materially adversely affect our financial performance.
International operations have a unique set of risks and challenges that differ from country to country, and can
include, among other risks, political instability, governmental corruption, social, religious and ethnic unrest, anti-
American sentiment, delayed and potentially less effective ability to respond to a crisis occurring internationally,
changes in global economic conditions (such as currency valuation, disposable income, unemployment levels and
increases in the prices of commodities and labor), the regulatory environment, immigration, labor and pension laws,
income and other taxes, consumer preferences and practices, as well as changes in the laws and regulations governing
foreign investment, joint ventures or licensing arrangements in countries where our restaurants or licensees are located
and local import controls.
29
Operations at our international Company-owned and licensed restaurants may be negatively affected by factors
outside of our control, including, but not limited to:
•
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•
•
•
•
•
•
•
•
difficulties in achieving the consistency of product quality and service as compared to restaurants we operate in
the United States;
changes to our recipes required by cultural norms;
inability to obtain, at a reasonable cost, adequate and reliable supplies of ingredients and products necessary to
execute our diverse menu;
availability of experienced management to operate international restaurants according to our domestic
standards;
changes in economic conditions of our licensees, whether or not related to the operation of our restaurants;
differences, changes or uncertainties in economic, regulatory, legal, immigration, social, climatic, and political
conditions, including the possibility of terrorism, social unrest, trade embargos and/or trade restrictions, which
may result in periodic or permanent closure of foreign restaurants, affect our ability to supply our international
restaurants with necessary supplies and ingredients and affect international perception of our brand;
inability of our licensees to locate profitable or suitable sites for development;
rising cost and scarcity of labor world-wide;
exchange rate fluctuations; and
currency fluctuations, trade restrictions, taxes or tariffs adversely affecting our or our licensees' ability to import
goods from the United States and other parts of the world that are required for operating our branded
restaurants, including our cakes which are wholly manufactured in the United States.
Our international licensees are authorized to operate The Cheesecake Factory restaurant concept in licensed
trade areas using certain of our Intellectual Property, including our proprietary systems. We provide extensive and
detailed training to our licensees so their staff members may be able to effectively execute our operating processes and
procedures and periodically audit their performance and adherence to our requirements. However, because we do not
operate these restaurants directly, we can provide no assurance that our licensees will adhere to our operating standards
to the same extent as we would.
If we or our licensees fail to effectively operate our international restaurants, or if we or they fail to receive an
adequate return on investment, and these difficulties are attributed to us or our brand, our reputation and brand value
could be harmed, our revenues from these restaurants could be diminished and our international growth may be slowed,
any of which could materially adversely affect our financial performance.
In order to support our international expansion, our bakeries supply certain of our bakery products to our
branded international restaurants. In order to supply bakery products to restaurants in other countries, we may be
required to adapt certain recipes to eliminate locally prohibited ingredients, comply with labeling requirements that
differ from those in the United States and maintain certifications required to export to such countries. In addition,
unexpected events outside of our control, such as, without limitation, trade restrictions, import and export embargos,
governmental shutdowns and disruptions in shipping, may affect our ability to transport adequate levels of our bakery
products to our or our licensee's international restaurants, for which we are the sole source of supply. A failure to
adequately supply bakery products to our or our licensee's international restaurants could affect the customer experience
at those restaurants, resulting in decreased sales, and could, depending upon the reason for the failure, trigger contractual
defaults on our part, any of which could materially adversely affect our financial performance.
As we continue to expand our brand internationally, we must comply with regulations and legal requirements,
including those related to immigration and the protection of our Intellectual Property. Additionally, we must comply
with domestic laws affecting U.S. businesses that operate internationally, including the Foreign Corrupt Practices Act
and anti-boycott laws, and with foreign laws in the countries in which we expand our restaurants. (See Item 1A - Risk
Factors - Risks Related to the Restaurant Industry – “Changes in, or any failure to comply with, applicable laws or
regulations could materially adversely affect our ability to operate our restaurants and/or increase our cost to do so,
which could materially adversely affect our financial performance.”) We may incur considerable liability in the event we
or our licensees fail to comply with foreign or domestic laws relating to our or their operation of any international
restaurant and can provide no assurance that our insurance programs or contractual indemnification rights would be
effective to protect against such liabilities.
30
We may engage in expansion opportunities or other initiatives which may create risks to our business that could
materially adversely affect our financial performance.
We may engage in other means to leverage our competitive strengths, including expansion of our brand to other
retail opportunities and/or other initiatives. Many risks are inherent in any such development, investment arrangement,
expansion of our brand or other initiative, including, without limitation:
•
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•
•
damaging our reputation if retail products bearing our brand are not of the same value and quality that our
customers associate with our brand;
dilution of the goodwill associated with our brand as it become more common and increasingly accessible;
inaccurate assessment of value, growth potential, weaknesses, liabilities, contingent or otherwise, and expected
profitability of such ventures; and
diversion of management's attention and focus from existing operations to the expansion of our brand to non-
restaurant items.
If we do not appropriately scale our infrastructure in a timely manner, we may be unable to respond to and
support our domestic or international opportunities for growth, which could materially adversely affect our
financial performance.
We continually evaluate the appropriate level of infrastructure necessary to support our operational and
development plans, including our domestic and international expansion. Likewise, if sales decline, we may be unable to
reduce our infrastructure quickly enough to prevent sales deleveraging. Either circumstance could materially adversely
affect our financial performance.
Our international license agreements require us to provide training and support to our licensees for their
development and operation of The Cheesecake Factory restaurants. We have dedicated certain corporate personnel to
international development and continue to utilize the talents of existing management, as we grow our international
licensing and operations infrastructure. In addition, one of the most important aspects of our restaurant operations is our
ability to deliver dependable, quality service by experienced staff members who can execute our concepts according to
our high standards. This may require training our licensees' management in the United States and our licensees' staff
members in the licensed territories, as well as providing support in the selection and development of restaurant sites,
product sourcing logistics, technological systems, menu modification and other areas. If, for any reason, we are unable to
provide the appropriate level of infrastructure support to our international licensees, our licensee's operations could
suffer, which could make it more difficult for us to grow our brand internationally and materially adversely affect our
financial performance.
We have and may again be required to record impairment charges, be unable to fully recoup landlord
improvement allowances and/or decide to discontinue operations at certain restaurants, any of which could
materially adversely affect our financial performance.
In the first quarter of fiscal 2020, developments related to the COVID-19 pandemic triggered the need to
perform impairment assessments of our long-lived assets, goodwill and other intangible assets and a revaluation of
contingent consideration associated with the acquisition of FRC. While no further interim assessments were required in
fiscal 2020, future changes in estimates could further impact the carrying value of these items. (See Notes 7 and 8 for
further discussion of impairment of long-lived and intangible assets, respectively. See Note 3 for further discussion of
the revaluation of contingent consideration.)
We assess the potential impairment of our long-lived assets on an annual basis or whenever events or changes
in circumstances indicate the carrying value of the assets or asset group may not be recoverable. Factors considered
include, but are not limited to, negative cash flow, significant underperformance relative to historical or projected future
operating results, significant changes in the manner in which an asset is being used, an expectation that an asset will be
disposed of significantly before the end of its previously estimated useful life and significant negative industry or
economic trends. In addition, we may incur impairment charges if an acquired business does not meet the performance
expectations upon which the acquisition price was based. At any given time, we may be monitoring a number of
31
locations, and future impairment charges and/or closures may occur if individual restaurant performance does not
improve, which could materially adversely affect our financial performance.
We test our goodwill and other indefinite-lived intangible assets for impairment annually or whenever events or
changes in circumstances indicate a potential impairment. Factors considered include, but are not limited to historical
financial performance, a significant decline in expected future cash flows, unanticipated competition, changes in
management or key personnel, macroeconomic and industry conditions and the legal and regulatory environment. We
cannot accurately predict the amount and timing of any impairment of these assets. Should the value of goodwill or other
intangible assets become impaired, there could be a material adverse effect on our financial performance.
A portion of our tenant allowances at certain premises may be subject to recoupment against percentage rent
otherwise payable for such sites. When we are unable to achieve sales in a sufficient amount to generate percentage rent
obligations, we are not able to fully recoup available allowances at affected sites, which also could materially adversely
affect our financial performance.
Our inability to secure an adequate number of high-quality sites for future restaurant openings could adversely
affect our ability to grow our business.
Our ability to grow our business depends on the availability and selection of high-quality sites that meet our
criteria. The number and timing of new restaurants opened during any given period, and their associated contribution to
the growth of our business, will depend on a number of factors including, but not limited to:
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unforeseen delays due to market conditions;
the identification and availability of high-quality locations;
an increase in competition for available premier locations;
the influence of consumer shopping trends on the availability of sites in traditional locations, such as premier
shopping centers;
acceptable lease terms and the lease negotiation process;
the availability of suitable financing for our landlords;
the financial viability of our landlords;
timing of the delivery of the leased premises to us from our landlords in order to perform build-out construction
activities;
the ability of our landlords and us to obtain all necessary governmental licenses and permits, and consents of
third parties, on a timely basis to construct and operate our restaurants;
our ability to successfully manage the complex design, construction and preopening processes for our highly
customized restaurants;
the availability and/or cost of raw materials and labor used in construction;
the availability of qualified tradespeople in the local market;
any unforeseen engineering or environmental problems with the leased premises; and
adverse weather or other delays during the construction period.
If we are unable to manage risks related to our business, costs associated with litigation and insurance could
increase, which could materially adversely affect our financial performance.
We are subject to lawsuits, administrative proceedings and claims that arise in the ordinary course of business.
These matters typically involve claims by customers, staff members and others regarding issues such as food-borne
illness, food safety, premises liability, dram shop liability, compliance with wage and hour requirements, work-related
injuries, discrimination, harassment, disability and other operational issues common to the foodservice industry. We
could be materially adversely affected by negative publicity and litigation costs resulting from these claims, regardless of
their validity. Employment-related litigation, particularly with respect to claims styled as class action lawsuits, are
especially costly to defend. Also, some employment-related claims in the area of wage and hour disputes are not
insurable risks and many employment-related disputes involve uncertainty in judicial interpretation from state to state
and from federal to state court with respect to the effectiveness of arbitration agreements with our staff members,
particularly those which provide for class waivers. We have experienced an increase in wage and hour litigation, in
particular in California, where we have seen an increase in claims filed under California’s Private Attorneys General Act
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(“PAGA”). PAGA allows an aggrieved staff member to bring a lawsuit on behalf of other current and former staff
members for labor code violations, including certain technical violations. PAGA claims are not subject to arbitration and
may result in exposure to additional penalties, which can be assessed separately from recovery of attorneys’ fees.
Significant legal fees and costs in complex class action litigation or an adverse judgment or settlement that are not
insured or are in excess of insurance coverage can materially and adversely affect our financial performance.
We retain financial responsibility for a significant portion of our risks and associated liabilities with respect to
workers’ compensation, general liability, employment practices, staff health benefits and certain other insurable risks.
Several factors may significantly increase our self-insurance costs, such as conditions of the insurance market, the
availability of insurance, or changes in applicable regulations. The accrued liabilities associated with these programs are
based on our annual estimate of the ultimate costs to settle known claims as well as claims incurred but not yet reported
to us (“IBNR”). Significant judgment is required to estimate IBNR amounts, as parties have yet to assert such claims.
Our financial performance may be materially adversely affected if our actual claims costs significantly exceed our
estimates.
Our inability or failure to execute on comprehensive business continuity and disaster recovery plans following a
major disaster could interfere with our business operations, which could materially adversely affect our financial
performance.
All our core and critical applications are housed in an external tier 3 data center, which is a location with
redundant and dual-powered servers, storage, network links and other IT components. To mitigate business
interruptions, we employ a disk-based data backup and replication infrastructure between our onsite and external data
centers. We provide support for our restaurant operations, with the exception of design and construction, from our
corporate headquarters in Calabasas, California, an area that is prone to natural disasters such as earthquakes and
wildfires. Corporate support for our bakery operations is also performed from this centralized location. If we are unable
to execute our disaster recovery procedures in whole or in part, we may experience delays in recovery and losses of data,
inability to perform vital corporate functions, tardiness in required reporting and compliance, failures to adequately
support field operations and other breakdowns in normal operating procedures that could expose us to administrative and
other legal claims, any of which could materially adversely affect our financial performance.
A closure of or material damage to one or both of our bakery facilities could impede our ability to supply
bakery products to our own and our international licensees’ restaurants as well as to other bakery customers. Such an
incident could also result in the loss of critical data regarding our bakery operations. Any of these events could
materially adversely affect our financial performance.
Risks Related to Information Technology and Cyber Security
Information technology system failures or breaches of our network security could interrupt our operations and
subject us to increased operating costs, as well as to litigation and other liabilities, any of which could materially
adversely affect our financial performance.
We rely heavily on our in-restaurant and enterprise-wide computer systems and network infrastructure across
our operations (“Cyber Environment”), which could be vulnerable to various risks. This reliance has grown since the
onset of the COVID-19 pandemic as we have had to rely to a greater extent on systems such as online ordering,
contactless payments, online reservations, systems supporting a remote workforce and the like. The efficient
management of our operations depends upon our ability to protect our Cyber Environment against damage from theft,
casualties such as fire, power loss, telecommunications failure or other catastrophic events, as well as from internal and
external security breaches, denial of service attacks, viruses, worms, malware, breaches of the algorithms we and our
third-party service providers use to encrypt and protect data, including customer transaction and credit card data, and
other malicious or disruptive events (collectively, “security incidents”). On December 13, 2020, we were made aware
that our Cyber Environment was penetrated by a cyberattack that penetrated thousands of organizations globally,
including multiple parts of the United States government. The culprits exploited a supply chain attack on one of our
information technology services vendors, SolarWinds, which is widely used in government and industry. We do not
believe we were specifically targeted in the attack and after investigating we believe that no activation of the malware
and no exfiltration of data occurred. We worked with SolarWinds to remove the malware from our systems and do not
believe there is any ongoing risk to our Cyber Environment as a result of this attack. We employ both internal resources
33
and external consultants to conduct auditing and testing for weaknesses in our Cyber Environment to reduce the
likelihood of any security incident and have developed a multi-discipline security incident response plan to help ensure
that our executives are fully and accurately informed and manage, with the help of content experts, the discovery,
investigation and auditing of, and recovery from any security incidents. Despite these measures, we were unable to
prevent the SolarWinds penetration and can provide no assurance that these measures will be successful in preventing a
future security incident or mitigating losses resulting from a security incident. We have and will continue to have greater
uncertainty with respect to these risks as they relate to our newly acquired concepts until we are able to complete a full
review of their Cyber Environments and implement all identified corrective measures.
Our international licensees have access to certain elements of our intellectual property within their Cyber
Environment and may not have developed adequate processes to secure their Cyber Environments against a security
incident and may not maintain robust discovery, investigation, auditing or recovery protocols, or have the ability to
promptly and effectively respond to a security incident. Available cyber-risk insurance coverage and policy limits may
not adequately cover or compensate us in the event of a security incident. Our financial performance could be materially
adversely affected if our operations are interrupted by a security incident from which we are not able to promptly and
fully recover, if any cyber-risk insurance is unable to fully address our losses and/or if we become subjected to litigation
or regulatory action because of such an incident.
Our inability to maintain a secure environment for customers' and staff members' personal data could result in
liability and harm our reputation, which could materially adversely affect our financial performance.
We receive and maintain certain personal information about our customers and staff members. For example, we
transmit confidential credit card information in connection with credit card transactions, and we are required to collect
and maintain certain personal information in connection with our employment practices, including the administration of
our benefit plans. Our collection and use of this information may be regulated by U.S. federal, state and local and foreign
laws and regulations. If a security incident were to occur involving loss of or inappropriate access to or dissemination of
such personal information, we may become liable under applicable law for damages (including statutory damages) and
incur penalties and other costs to remedy such an incident. Depending on the facts and circumstances of such an
incident, these damages, penalties and costs could be significant and may not be covered by insurance or could exceed
our applicable insurance coverage limits. Such an event also could harm our reputation and result in litigation against us.
Any of these results could materially adversely affect our financial performance.
Our ability to accept credit cards as a form of payment depends on us remaining compliant with standards set
by the PCI Security Standards Council (PCI). These standards require certain levels of Cyber Environment security and
procedures to protect our customers’ credit card and other personal information. At The Cheesecake Factory, North
Italia, Grand Lux Cafe and Social Monk Asian Kitchen restaurants, we have implemented a robust end-to-end
encryption and tokenization technology, a public key infrastructure, ensuring only trusted devices can access our
network, and Intrusion Detection and Intrusion Prevention (IDS/IPS) that scans data in transit detecting and preventing
the execution of harmful code. In addition, we utilize a third-party security operations center (SOC) provider to monitor
and analyze internal network traffic for potential malicious content. However, we can provide no assurance that our
security measures will be successful in the event of an attempted or actual security incident. If these security measures
are not successful, we may become subject to litigation or the imposition of regulatory penalties, which could result in
negative publicity and significantly harm our reputation, either of which could materially adversely affect our financial
performance. We are in the process of assessing the information technology systems and infrastructure for the FRC
brands other than North Italia. We will continue to have greater degree of risk with respect to the acquired systems and
infrastructure until we are able to implement any recommended improvements.
Risks Related to Owning Our Stock
The market price of our common stock is subject to volatility.
During fiscal 2020, the price of our common stock fluctuated between $14.52 and $43.00 per share. The market
price of our common stock may be significantly affected by a number of factors, including, but not limited to, actual or
anticipated variations in our operating results or those of our competitors as compared to analyst expectations, changes
in financial estimates by research analysts with respect to us or others in the restaurant industry, and announcements of
significant transactions (including mergers or acquisitions, divestitures, joint ventures or other strategic initiatives) by us
34
or others in the restaurant industry. In addition, the equity markets have experienced price and volume fluctuations that
affect the stock price of companies in ways that have been unrelated to an individual company’s operating performance.
The price of our common stock may continue to be volatile, based on factors specific to our company and industry, as
well as factors related to the equity markets overall.
Our stock price could be adversely affected if our performance falls short of our financial guidance and/or
market expectations.
Our failure to achieve performance consistent with any financial guidance we provide and/or market
expectations could adversely affect the price of our stock. Factors such as comparable restaurant sales that are below our
target, slowing growth of our concepts domestically, our inability to successfully integrate and realize the anticipated
benefits of the Acquisition, execute other growth opportunities, a decline in growth of our international business, any
event that causes our operating costs to substantially increase, including, without limitation, any of the events described
elsewhere in these Risk Factors, or our failure to repurchase stock as expected or pay or increase our dividend over time,
could cause our performance to fall short of our financial guidance and/or market expectations.
Our stock price could be adversely affected if we continue to be unable to pay dividends or, if paid, if we are
unable to increase dividends.
To preserve liquidity during the COVID-19 pandemic and in conjunction with the terms of our Amended
Facility, our Board suspended the quarterly dividend on our common stock. Any future dividends on our common stock
will depend on our ability to do so under our Amended Facility or any future credit facility as well as our ability to
generate sufficient cash flows from operations and capacity to borrow funds, which may be subject to economic,
financial, competitive and other factors that are beyond our control. (See Note 12 of Notes to Consolidated Financial
Statements in Part IV, Item 15 of this report for further discussion of our long-term debt.) Continued failure to pay or
increase our dividends over time may negatively impact investor confidence in us and may negatively impact our stock
price.
Our stock price could be adversely affected by future sales or other dilution of our equity.
Subject to Nasdaq Listing Rules, we are not restricted from issuing additional common stock or preferred stock,
including any securities that are convertible into or exchangeable for, or that represent the right to receive, common
stock or preferred stock or any substantially similar securities. Our Board of Directors is authorized to issue additional
shares of common stock and additional classes or series of preferred stock without any action on the part of the
stockholders. The Board of Directors also has the discretion, without stockholder approval, to set the terms of any such
classes or series of preferred stock that may be issued, including voting rights, dividend rights and preferences over the
common stock with respect to dividends or upon the liquidation or winding up of our business and other terms. If we
issue preferred shares that have a preference over our common stock with respect to the payment of dividends or upon
liquidation, dissolution or winding up, or if we issue preferred shares with voting rights that dilute the voting power of
our common stock, including additional shares issued in connection with the paid-in-kind dividends on or anti-dilution
adjustments to the conversion price of the Series A preferred stock, the rights of our common stockholders or the market
price of our common stock could be materially adversely affected.
General Risk Factors
Changes in tax laws and resulting regulations could result in changes to our tax provisions and expose us to
additional tax liabilities that could materially adversely affect our financial performance.
We are subject to income and other taxes in the U.S. and foreign jurisdictions. Changes in applicable U.S. or
foreign tax laws and regulations, such as the 2017 enactment of Federal legislation commonly referred to as the Tax Cuts
and Jobs Act and the The Coronavirus Aid, Relief, and Economic Security Act of 2020 (collectively, the “Tax Acts”), or
their interpretation and application, including the possibility of retroactive effect and changes to state tax laws that may
occur in response to the Tax Acts, could affect our tax expense and profitability. In addition, the final determination of
any tax audits or related litigation could be materially different from our historical income tax provisions and accruals.
Changes in our tax provision or an increase in our tax liabilities, whether due to changes in applicable laws and
regulations, the interpretation or application thereof, or a final determination of tax audits or litigation, could materially
adversely affect our financial performance.
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Our failure to establish, maintain and apply adequate internal control over our financial reporting and comply
with changes in financial accounting standards or interpretations of existing standards could limit our ability to
report our financial results accurately and timely or to detect and prevent fraud, any of which could materially
adversely affect our financial performance.
We are subject to the ongoing internal control provisions of Section 404 of the Sarbanes-Oxley Act of 2002.
These provisions provide for the identification of material weaknesses in internal control over financial reporting - a
process to provide reasonable assurance regarding the reliability of financial reporting for external purposes in
accordance with accounting principles generally accepted in the United States. There can be no assurance that we will be
able to timely remediate material weakness in internal controls (if any) or maintain all of the controls necessary to
remain in compliance. Any failure to maintain an effective system of internal control over financial reporting could limit
our ability to report our financial results accurately and timely or to detect and prevent fraud, any of which could
materially adversely affect our financial performance. Additionally, changes in accounting standards or new accounting
pronouncements and interpretations could materially adversely affect our previously reported or future financial results,
which could materially adversely affect our financial performance.
Our business and stock price could be adversely affected by the actions of activist investors.
Publicly-traded companies have increasingly become subject to activist investor campaigns. Responding to
actions of an activist investor may be a significant distraction for our management and staff and could require us to
expend significant time and resources, including legal fees and potential proxy solicitation expenses. Any of these
conditions could materially adversely affect our financial performance.
ITEM 1B. UNRESOLVED STAFF COMMENTS
Not applicable.
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ITEM 2. PROPERTIES
Our corporate support center and one of our bakery production facilities are located in Calabasas Hills,
California. The corporate support center consists of an 88,000 square foot main facility and a 19,000 square foot training
facility on an approximately five-acre parcel of land. The bakery production facility is a 60,000 square foot facility on an
approximately three-acre parcel of land. Our second bakery facility located in Rocky Mount, North Carolina is a 100,000
square foot facility on an approximately 31-acre parcel of land. Our development and design department is in a 29,000
square foot facility on approximately one acre of land in Irvine, California. All of these properties are owned by the
Company. FRC's headquarters are located in Phoenix, Arizona in approximately 22,000 square feet of leased office
space.
All of our Company-owned restaurants are located on leased properties, and we have no current plans to own
the real estate underlying our restaurants. Below is a table showing the number of Company-owned restaurants by
location.
Location
Alabama . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Arizona . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
California . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Colorado . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Connecticut . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Delaware . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
District of Columbia . . . . . . . . . . . . . . . . . . . . .
Florida . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Georgia . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Hawaii . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Idaho . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Illinois . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Indiana . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Iowa . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Kansas . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Kentucky . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Louisiana . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Maryland . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Massachusetts . . . . . . . . . . . . . . . . . . . . . . . . . .
Michigan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Minnesota . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Missouri . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Nebraska . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Nevada. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
New Jersey . . . . . . . . . . . . . . . . . . . . . . . . . . . .
New Mexico . . . . . . . . . . . . . . . . . . . . . . . . . . .
New York . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
North Carolina . . . . . . . . . . . . . . . . . . . . . . . . .
Oklahoma . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Ohio . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Oregon . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Pennsylvania . . . . . . . . . . . . . . . . . . . . . . . . . . .
Puerto Rico . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Rhode Island . . . . . . . . . . . . . . . . . . . . . . . . . . .
South Carolina . . . . . . . . . . . . . . . . . . . . . . . . .
Tennessee . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Texas . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Utah . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Virginia . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Washington . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Wisconsin . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Ontario, Canada . . . . . . . . . . . . . . . . . . . . . . . .
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
The Cheesecake
Factory
North Italia Other FRC Other Total
1
34
51
6
3
1
3
23
8
2
1
7
2
1
2
2
1
7
7
2
2
3
1
9
11
1
13
6
3
7
2
7
1
1
1
6
35
2
10
5
3
1
294
—
4
4
2
—
—
1
2
3
—
—
1
—
—
—
—
—
1
—
—
—
—
—
3
1
—
1
1
1
—
—
1
—
—
—
—
11
—
1
—
—
—
38
—
21
3
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
3
—
—
—
—
—
27
—
3
5
1
—
—
1
1
—
—
—
—
—
—
1
—
—
—
—
—
—
—
—
1
—
—
—
1
—
—
—
1
—
—
—
1
5
—
2
—
—
—
23
1
6
39
3
3
1
1
20
5
2
1
6
2
1
1
2
1
6
7
2
2
3
1
5
10
1
12
4
2
7
2
5
1
1
1
5
16
2
7
5
3
1
206
37
ITEM 3.
LEGAL PROCEEDINGS
See Note 16 of Notes to Consolidated Financial Statements in Part IV, Item 15 of this report for a summary of
legal proceedings.
ITEM 4.
MINE SAFETY DISCLOSURES
Not applicable.
PART II
ITEM 5.
MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER
MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES
Our common stock is traded on The Nasdaq Global Select Market under the symbol CAKE. There were
approximately 1,300 holders of record of our common stock at February 17, 2021, and we estimate there were
approximately 63,700 beneficial stockholders on that date.
Under the authorization by our Board to repurchase up to 56.0 million shares of our common stock, we have
cumulatively repurchased 53.0 million shares at a total cost of $1,696.7 million through December 29, 2020 with 9,998
shares repurchased at a cost of $0.4 million during the fourth quarter of fiscal 2020 to satisfy tax withholding obligations
on vested restricted share awards. Our share repurchase authorization does not have an expiration date, does not require
us to purchase a specific number of shares and may be modified, suspended or terminated at any time. To preserve
liquidity during the COVID-19 pandemic and in conjunction with the terms of our credit facility, in March 2020, our
Board suspended share repurchases. The timing and number of shares repurchased are also subject to legal constraints
and financial covenants under our credit facility that limit share repurchases based on a defined ratio.
The following table presents our purchases of our common stock during the fiscal quarter ended December 29,
2020:
Period
Total
Number
of Shares
Purchased (1)
Average
Price Paid
per Share
Total Number of Shares Maximum Number of
Shares that May Yet
Purchased as Part of
Be Purchased Under the
Publicly Announced
Plans or Programs
Plans or Programs
September 30 — November 3, 2020 . . . . . . . . .
November 4 — December 1, 2020 . . . . . . . . . .
December 2 — December 29, 2020 . . . . . . . . . .
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
— $
4,663
5,335
9,998
—
37.22
38.53
—
—
—
—
2,980,255
2,975,592
2,970,257
(1) The total number of shares purchased includes 9,998 shares withheld upon vesting of restricted share awards to
satisfy tax withholding obligations.
To preserve liquidity during the COVID-19 pandemic and in conjunction with the terms of our credit facility, in
March 2020, our Board suspended the quarterly dividend on our common stock. 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 our
credit facility and applicable law, and such other factors that the Board considers relevant. (See Item 1A — Risk
Factors — Risks Related to Owning Our Stock — “Our stock price could be adversely affected if we are unable to
continue to pay or if we are unable to increase dividends.”)
On April 20, 2020, as further discussed in Note 17 of Notes to Consolidated Financial Statements in Part IV,
Item 15 of this report, to increase our liquidity given the impact of the COVID-19 pandemic on our operations, we
issued 200,000 shares of Series A Convertible Preferred Stock, par value $0.01 per share (the “Series A preferred stock”)
for an aggregate purchase price of $200 million. During fiscal 2020, we recorded paid in-kind dividends of $13.5
million.
38
Each holder of Series A preferred stock has the right, at its option, to convert its Series A preferred stock, in
whole or in part, into fully paid and non-assessable shares of our common stock at a conversion price equal to $22.23 per
share, subject to customary anti-dilution adjustments, including in the event of any stock split, stock dividend,
recapitalization or similar events and certain anti-dilutive offerings occurring through April 19, 2021. Pursuant to the
terms of the Certificate of Designations, unless and until approval of our stockholders is obtained as contemplated by
Nasdaq Listing Rules, no holder may convert shares of Series A preferred stock through either an optional or a
mandatory conversion into shares of our common stock if and solely to the extent that such conversion would result in
the holder beneficially owning in excess of 19.9% of then outstanding common stock. The Company has the right to
settle any conversion in cash.
After April 20, 2023 and subject to certain conditions, we may, at our option, require conversion of all of the
outstanding shares of Series A preferred stock to common stock if, for at least 20 trading days during the 30 consecutive
trading days immediately preceding the date we notify the holders of the Series A preferred stock of the election to
convert, the closing price of the common stock is at least 200% of the conversion price. We will not exercise our right to
mandatorily convert all outstanding shares of Series A preferred stock unless certain liquidity conditions with regard to
the shares of common stock to be issued upon such conversion are satisfied.
The shares of common stock issuable upon conversion of shares of the Series A preferred stock will be issued
in reliance upon the exemption from registration in Section 3(a)(9) of the Securities Act.
(See Note 12 and 17 of Notes to Consolidated Financial Statements in Part IV, Item 15 of this report for further
discussion of our credit facility and stockholders' equity, respectively.)
39
Price Performance Graph
The following graph compares the cumulative five-year total return provided to stockholders on the Company’s
common stock relative to the S&P 400 Midcap Index, the NASDAQ US Benchmark TR Index and the S&P 600
Restaurants Index. The graph assumes a $100 initial investment and the reinvestment of dividends in each of the
indices. The measurement points utilized in the graph consist of the last trading day in each calendar year, which closely
approximates the last day of the respective fiscal year of the Company. The historical stock performance presented
below is not intended to and may not be indicative of future stock performance.
$250
$200
$150
$100
$50
$0
12/31/2015
12/31/2016
12/31/2017
12/31/2018
12/31/2019
12/31/2020
The Cheesecake Factory Incorporated
S&P 400 Midcap Index
NASDAQ US Benchmark TR Index(1)
S&P 600 Restaurants Index(2)
12/31/15 12/31/16 12/31/17 12/31/18 12/31/19 12/31/20
The Cheesecake Factory Incorporated. . . . . . . . . . . . . . . . . . . . $ 100 $ 132 $ 109 $ 101 $
89
S&P 400 Midcap Index . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 100 $ 119 $ 136 $ 119 $ 148 $ 165
NASDAQ US Benchmark TR Index (1) . . . . . . . . . . . . . . . . . . . $ 100 $ 113 $ 137 $ 130 $ 170 $ 205
S&P 600 Restaurants Index (2) . . . . . . . . . . . . . . . . . . . . . . . . . . $ 100 $ 118 $ 124 $ 135 $ 150 $ 189
93 $
(1) Underlying data provided by Nasdaq Global Indexes.
(2) The S&P 600 Restaurants Index is a comprehensive restaurant industry index that includes casual dining, fast
casual and quick-service constituents.
This graph shall not be deemed incorporated by reference by any general statement incorporating by reference
this Annual Report on Form 10-K into any filing under the Securities Act of 1933 or under the Securities Exchange Act
of 1934, except to the extent that the Company specifically incorporates this information by reference, and shall not
otherwise be deemed filed under such Acts.
40
ITEM 6.
SELECTED FINANCIAL DATA
The following selected financial data should be read in conjunction with our consolidated financial statements
and related notes thereto, and with Part II, Item 7, “Management’s Discussion and Analysis of Financial Condition and
Results of Operations.”
2020
Fiscal Year (1)
2019
2018
(In thousands, except per share data)
2017
2016
Statements of (Loss)/Income Data:
Revenues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 1,983,225 $ 2,482,692
$ 2,332,331
$ 2,260,502
$ 2,275,719
Costs and expenses:
Cost of sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Labor expenses. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other operating costs and expenses . . . . . . . . . . . . . . . . . . . . . . .
General and administrative expenses . . . . . . . . . . . . . . . . . . . . . .
Depreciation and amortization expenses . . . . . . . . . . . . . . . . . . .
Impairment of assets and lease termination expenses . . . . . . . . . .
Acquisition-related costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Acquisition-related contingent consideration, compensation and
amortization (benefit)/expenses . . . . . . . . . . . . . . . . . . . . . . . . . .
Preopening costs. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total costs and expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
458,332
778,586
616,069
157,644
91,415
219,333
2,699
561,783
899,667
631,613
160,199
88,133
18,247
5,270
532,880
834,134
566,825
154,770
95,976
17,861
—
519,388
777,595
552,791
141,533
92,729
10,343
—
526,628
759,998
540,365
146,042
88,010
114
—
(3,872)
10,456
2,330,662
1,033
13,149
2,379,094
—
10,937
2,213,383
—
13,278
2,107,657
—
13,569
2,074,726
(Loss)/income from operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Gain/(loss) on investments in unconsolidated affiliates. . . . . . . . . . . .
Interest and other expense, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(Loss)/income before income taxes . . . . . . . . . . . . . . . . . . . . . . . . . .
Income tax (benefit)/provision . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net (loss)/income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Dividends on Series A preferred stock. . . . . . . . . . . . . . . . . . . . . . . .
Direct and incremental Series A preferred stock issuance costs . . . . . .
Net (loss)/income available to common stockholders . . . . . . . . . . . . . $ (277,107) $
(347,437)
—
(8,599)
(356,036)
(102,671)
(253,365)
(13,485)
(10,257)
103,598
39,233
(2,497)
140,334
13,041
127,923
—
—
127,923
Net (loss)/income per common share:
Basic . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Diluted. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
(6.32) $
(6.32) $
2.90
2.86
118,948
(4,754)
(6,783)
107,411
8,376
99,035
—
—
99,035
2.19
2.14
$
$
$
152,845
(479)
(5,900)
146,466
(10,926)
157,392
—
—
157,392
3.35
3.27
$
$
$
200,993
—
(9,225)
191,768
52,274
139,494
—
—
139,494
2.91
2.83
$
$
$
Weighted-average shares outstanding:
Basic . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Diluted. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
43,869
43,869
43,949
44,545
45,263
46,215
46,930
48,152
47,981
49,372
Cash dividends declared per common share . . . . . . . . . . . . . . . . . . . . $
0.36 $
1.38
$
1.24
$
1.06
$
0.88
Balance Sheet Data (at end of period):
Cash and cash equivalents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Total assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total long-term debt and deemed landlord financing liability,
including current portion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total stockholders’ equity and Series A convertible preferred stock . .
154,085 $
2,747,054
58,416
2,840,593
$
26,578
1,314,133
$
6,008
1,333,060
$
53,839
1,293,319
280,000
506,941
290,000
571,742
118,610
571,059
113,527
613,530
104,868
603,207
Restaurant Data:
The Cheesecake Factory comparable restaurant sales . . . . . . . . . . . . .
The Cheesecake Factory restaurants open at year-end . . . . . . . . . . . .
(28.2) %
206
0.8 %
206
1.7 %
201
199
(0.8) %
1.2 %
194
(1) Fiscal 2016 consisted of 53 weeks. All other fiscal years presented consisted of 52 weeks. The estimated impact of the 53rd week in fiscal
2016 was an increase in revenues and diluted net income per share of approximately $54.7 million and $0.07, respectively.
41
ITEM 7.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
This Management's Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”),
which contains forward-looking statements, should be read in conjunction with our audited consolidated financial
statements and related notes in Part IV, Item 15 of this report, the “Risk Factors” included in Part I, Item 1A of this
report and the cautionary statements included throughout this report. 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.
The following MD&A includes a discussion comparing our results in fiscal 2020 to fiscal 2019. For a
discussion comparing our results from fiscal 2019 to fiscal 2018, refer to “Management’s Discussion and Analysis of
Financial Condition and Results of Operations” in Part II, Item 7 of our Annual Report on Form 10-K for the fiscal year
ended December 31, 2019, filed with the SEC on March 11, 2020.
COVID-19 Pandemic
The Company is subject to risks and uncertainties as a result of the outbreak of, and local, state and federal
governmental responses to, the COVID-19 pandemic which was declared a National Public Health Emergency on March
13, 2020. We experienced significant disruptions to our business due to suggested and mandated social distancing and
shelter-in-place orders, which resulted in the temporary closure of a number of restaurants across our portfolio while the
remaining locations shifted to an off-premise only operating model on an interim basis.
In our initial response to the COVID-19 pandemic, the Company and its Board of Directors implemented the
following measures to preserve liquidity and enhance financial flexibility:
• Eliminated non-essential capital expenditures and expenses;
• Suspended new unit development;
• Reduced board, executive and corporate support staff compensation;
• Furloughed approximately 41,000 hourly staff members;
• Engaged in discussions with our landlords regarding ongoing rent obligations, including the potential deferral,
abatement and/or restructuring of rent otherwise payable during the period of the COVID-19 pandemic related
closure;
Increased borrowings under our revolving credit facility;
•
• Raised additional equity capital; and
• Suspended the dividend on our common stock and share repurchases.
In late April 2020, certain jurisdictions began allowing the reopening of restaurant dining rooms, and we began
to reopen dining rooms across our concepts the second week of May. During the third quarter of fiscal 2020, we called
back to work a majority of our staff members who were previously furloughed, and restored Board, executive and
corporate support staff compensation. In addition, we resumed new unit development on a limited basis and will
continue to evaluate the pace and quantity of new unit development.
42
Restrictions on the type of operating model and occupancy capacity continue to change, and these restrictions
increased in many of our markets during the fourth quarter of fiscal 2020 with the surge in COVID-19 cases. The
following table presents the number of restaurants and their operating model as of February 17, 2021:
The Cheesecake
Factory
North Italia Other FRC
Other
Total
Indoor dining with limited capacity . . . . . . . . . . .
Outdoor dining only. . . . . . . . . . . . . . . . . . . . . . . .
Off-premise only . . . . . . . . . . . . . . . . . . . . . . . . . .
Currently closed . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
166 (1)
39
1
—
206
18
5
—
—
23
24
2
—
1
27
32
3
1
2
38
240
49
2
3
294
(1) On average, The Cheesecake Factory restaurants with reopened dining rooms were operating at 50% capacity.
We cannot predict how long the COVID-19 pandemic will last or whether it will reoccur, what additional
restrictions may be enacted, to what extent we can maintain off-premise sales volumes or if individuals will be
comfortable returning to our dining rooms during or following social distancing protocols and what long-lasting effects
the COVID-19 pandemic may have on the restaurant industry as a whole. The extent of the reopening process, along
with the potential impact of the COVID-19 pandemic on consumer spending behavior, will determine the significance of
the impact to our operating results and financial position.
These considerable developments triggered the need to perform interim impairment assessments of our long-
lived assets, goodwill and other intangible assets and a revaluation of contingent consideration associated with the
acquisition of FRC in addition to our annual impairment testing. Future changes in estimates could further impact the
carrying value of these items. (See Notes 7 and 8 for further discussion of impairment of long-lived and intangible
assets, respectively. See Note 3 for further discussion of the revaluation of contingent consideration.)
See Item 1A - Risk Factors - Risks Related to the COVID-19 Pandemic.
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 294 restaurants throughout the United States and
Canada under brands including The Cheesecake Factory®, North Italia® and a collection within our Fox Restaurant
Concepts business. Internationally, 27 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. For The Cheesecake Factory
concept, we target an average cash-on-cash return on investment of approximately 20% to 25% at the unit level. We
target an average cash-on-cash return on investment of about 35% for the North Italia concept and 25% to 30% for the
FRC concepts. Returns are affected by the cost to build restaurants, the level of revenues that each restaurant can deliver
and our ability to maximize the profitability of restaurants. Investing in new restaurant development that meets our
return on investment criteria is expected to support achieving mid-teens Company-level return on invested capital. In
light of the COVID-19 pandemic, we will continue to evaluate the pace and quantity of new unit development.
43
Our overall revenue growth is primarily driven by revenues from new restaurant openings and increases in
comparable restaurant sales. Changes in comparable restaurant sales come from variations in customer traffic, as well as
in average check.
For The Cheesecake Factory concept, our strategy is to increase comparable restaurant sales by growing
average check and stabilizing customer traffic through (1) continuing to offer innovative, high quality menu items that
offer customers a wide range of options in terms of flavor, price and value (2) focusing on service and hospitality with
the goal of delivering an exceptional customer experience and (3) continuing to provide our customers with convenient
options for off-premise dining, as we believe there is opportunity for a longer-term increase in our off-premise mix as we
emerge from the COVID-19 pandemic. We are continuing our efforts on a number of initiatives, including a greater
focus on increasing customer throughput in our restaurants, leveraging the success of our gift card program, working
with a third party to provide delivery services for our restaurants, increasing customer awareness of our online ordering
capabilities, augmenting our marketing programs, enhancing our training programs and leveraging our customer
satisfaction measurement platform.
Average check is driven by menu price increases and/or changes in menu mix. We generally update The
Cheesecake Factory restaurant menus twice a year, and our philosophy is to use price increases to help offset key
operating cost increases in a manner that balances protecting both our margins and customer traffic levels. We have
targeted menu price increases of approximately 2% to 3% annually, utilizing a market-based strategy to help mitigate
cost pressure in higher-wage geographies. Currently, our menu pricing is at the higher end of this range. We will
continue to evaluate future pricing decisions in light of the COVID-19 pandemic operating environment.
On October 2, 2019, we completed the acquisition of North Italia and FRC, including Flower Child (the
“Acquisition”), which we expect will further accelerate and diversify our revenue following the COVID-19 pandemic.
The results of operations, financial position and cash flows of the acquired businesses are included in our consolidated
financial statements as of the closing date of the Acquisition. (See Note 2 of Notes to Consolidated Financial Statements
in Part IV, Item 15 of this report for further discussion of the Acquisition.)
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 maintaining flat 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.
Our future cash flow performance will depend on the evolving COVID-19 pandemic regulatory landscape, as
well as economic conditions and consumer behavior. We would expect cash generation to increase as the operating
environment for the full-service segment of the restaurant industry normalizes from the COVID-19 pandemic impact.
Longer-term, 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 $400 million unsecured revolving credit
facility (the “Amended Facility”) and reinstating our dividend and share repurchase program, the latter of which offsets
dilution from our equity compensation program and supports our earnings per share growth. At present, our dividends on
our common stock and share repurchases are suspended. Our ability to declare dividends and repurchase shares in the
future will be subject to financial covenants under the Amended Facility, among other factors.
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 international expansion, planned debt
repayment 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. (See
Item 1A — Risk Factors — Risks Related to Owning Our Stock — “Our stock price could be adversely affected if our
performance falls short of our financial guidance and/or market expectations.”)
44
Results of Operations
The following table presents, for the periods indicated, information from our consolidated statements of
(loss)/income expressed as percentages of revenues.
2020
Fiscal Year
2019
2018
Revenues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 100.0 % 100.0 % 100.0 %
Costs and expenses:
Cost of sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23.1
Labor expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39.3
Other operating costs and expenses. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31.1
7.9
General and administrative expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Depreciation and amortization expenses . . . . . . . . . . . . . . . . . . . . . . . . . . .
4.6
Impairment of assets and lease termination expenses . . . . . . . . . . . . . . . . . 11.1
Acquisition-related costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
0.1
Acquisition-related contingent consideration, compensation and
amortization (benefit)/expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (0.2)
0.5
Preopening costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total costs and expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 117.5
22.6
36.3
25.5
6.5
3.5
0.7
0.2
0.0
0.5
95.8
22.8
35.8
24.3
6.6
4.1
0.8
—
—
0.5
94.9
(Loss)/income from operations. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (17.5)
Gain/(loss) on investments in unconsolidated affiliates . . . . . . . . . . . . . . . . —
Interest and other expense, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (0.5)
(Loss)/income before income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (18.0)
Income tax (benefit)/provision . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (5.2)
Net (loss)/income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (12.8)
Dividends on Series A preferred stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (0.7)
Direct and incremental Series A preferred stock issuance cost . . . . . . . . . . (0.5)
Net (loss)/income available to common stockholders . . . . . . . . . . . . . . . . . . (14.0) %
4.2
1.6
(0.1)
5.7
0.6
5.1
—
—
5.1 %
5.1
(0.3)
(0.2)
4.6
0.4
4.2
—
—
4.2 %
Fiscal 2020 Compared to Fiscal 2019
Revenues
Revenues decreased 20.1% to $1,983.2 million for fiscal 2020 compared to $2,482.7 million for fiscal 2019,
primarily due to a decline in comparable restaurant sales, reflecting the impact of the COVID-19 pandemic, partially
offset by additional revenue related to the acquired restaurants and new restaurant openings.
The Cheesecake Factory comparable sales declined by 28.2%, or $601.9 million, from fiscal 2019, driven by a
decline in customer traffic of 41.5%, partially offset by average check growth of 13.3% (based on an increase of 3.1% in
menu pricing and a 10.2% positive change in mix). We implemented effective menu price increases of approximately
1.5% in both the first and third quarters of fiscal 2020. Sales through the off-premise channel comprised approximately
43% of our restaurant sales during fiscal 2020 as compared to 16% in fiscal 2019 as most of our restaurants shifted to an
off-premise-only model at the beginning of the COVID-19 pandemic and consumer behavior shifted toward off-premise
dining throughout the pandemic. We account for each off-premise order as one customer for traffic measurement
purposes. Therefore, average check is higher as most off-premise orders are for more than one customer. In turn, the
high mix of sales in the off-premise channel was the primary driver of the positive change in mix and also contributed to
the decline in traffic, along with the broader impact of the COVID-19 pandemic. The Cheesecake Factory average sales
per restaurant operating week decreased 28.2% to $148,939 in fiscal 2020 from $207,310 in fiscal 2019. Total operating
weeks at The Cheesecake Factory restaurants increased 1.2% to 10,642 in fiscal 2020 compared to 10,520 in the prior
year. North Italia comparable sales declined approximately 28% during fiscal 2020. North Italia average sales per
restaurant operating week for fiscal 2020 was $89,515 based on 1,146 operating weeks.
45
Restaurants become eligible to enter the comparable sales base in their 19th month of operation. At December
29, 2020, there were six The Cheesecake Factory restaurants and four 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.
Revenue contribution from the acquired concepts in fiscal 2020 totaled $259.9 million compared to $92.0
million in the fourth quarter of fiscal 2019, representing the period subsequent to the October 2, 2019 closing date of the
Acquisition. External bakery sales were $66.6 million for fiscal 2020 compared to $58.4 million for fiscal 2019.
Cost of Sales
Cost of sales consists of food, beverage, retail and bakery production supply costs incurred in conjunction with
our restaurant and bakery revenues, and excludes depreciation, which is captured separately in depreciation and
amortization expenses. As a percentage of revenues, cost of sales was 23.1% for fiscal 2020 compared to 22.6% for
fiscal 2019, reflecting a shift in sales mix between restaurant and third-party bakery revenues, as well as a full year of
revenues from the acquired concepts.
The Cheesecake Factory restaurant menus are among the most diversified in the foodservice industry and,
accordingly, are not overly dependent on a few select commodities. Changes in costs for one commodity sometimes can
be offset by cost changes in other commodity categories. The principal commodity categories for our restaurants include
general grocery items, dairy, produce, seafood, poultry, meat and bread. (See the discussion of our contracting activities
in Part II, Item 7A — “Quantitative and Qualitative Disclosures About Market Risk.”)
As has been our past practice, we will carefully consider opportunities to introduce new menu items and
implement selected menu price increases to help offset any expected cost increases for key commodities and other goods
and services. For new restaurants, cost of sales will typically be higher for a period of time after opening until our
management team becomes more accustomed to predicting, managing and servicing the sales volumes at these
restaurants.
Labor Expenses
As a percentage of revenues, labor expenses, which include restaurant-level labor costs and bakery direct
production labor, including associated fringe benefits, were 39.3% and 36.3% in fiscal 2020 and fiscal 2019,
respectively. This increase was primarily due to the cost of maintaining our full restaurant management team in the
reduced sales environment, as well as higher group medical insurance costs, reflecting both higher large claims activity
and the costs associated with healthcare benefits for our furloughed staff members, partially offset by a benefit from the
Employee Retention Credit in the Coronavirus Aid, Relief and Economic Security Act (“the CARES Act”) and less
hourly labor.
For new restaurants, labor expenses will typically be higher for a period of time after opening while our
management team becomes more accustomed to predicting and managing the sales volumes at the new restaurants.
Other Operating Costs and Expenses
Other operating costs and expenses consist of restaurant-level occupancy expenses (rent, common area
expenses, insurance, licenses, taxes and utilities), marketing, including delivery commissions, and other operating
expenses (excluding food costs and labor expenses, which are reported separately) and bakery production overhead and
distribution expenses. As a percentage of revenues, other operating costs and expenses were 31.1% and 25.5% in fiscal
2020 and fiscal 2019, respectively. This increase was primarily driven by sales deleverage, increased marketing
expenses and costs associated with the COVID-19 pandemic such as additional sanitation and personal protective
equipment.
46
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 7.9% and 6.5% for fiscal 2020 and fiscal 2019,
respectively. This variance was primarily due to sales deleverage, partially offset by lower corporate incentive
compensation costs.
Depreciation and Amortization Expenses
As a percentage of revenues, depreciation and amortization expenses were 4.6% in fiscal 2020 compared to
3.5% in fiscal 2019 primarily due to sales deleverage.
Impairment of Assets and Lease Termination Expenses
During fiscal 2020, we recorded $219.3 million of impairment of assets and lease termination expenses
primarily related to the impairment of goodwill, trade names, trademarks and licensing agreements associated with the
Acquisition and 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, of which one closed in fiscal 2019, four closed in fiscal 2020, one closed in early fiscal 2021 and two
are anticipated to close in fiscal 2021 and 2022.
In fiscal 2019, we recorded $18.2 million of impairment of assets and lease termination expenses related to the
impairment of long-lived assets for two The Cheesecake Factory and two Other restaurants, as well as lease termination
costs and accelerated depreciation for two Other restaurants.
See Notes 7 and 8 of Notes to Consolidated Financial Statements in Part 1V, Item 15 of this report for further
discussion of our long-lived and intangible assets, respectively.
Acquisition-Related Costs
We recorded $2.7 million and $5.3 million of costs in fiscal 2020 and fiscal 2019, respectively, to effect and
integrate the Acquisition.
Acquisition-Related Contingent Consideration, Compensation and Amortization (Benefit)/Expenses
In fiscal 2020, we recorded a benefit of $3.9 million in acquisition-related contingent consideration,
compensation and amortization (benefit)/expenses, reflecting a $5.7 million decrease in the fair value of the contingent
consideration and compensation liabilities primarily related to the impact of the COVID-19 pandemic, partially offset by
an increase of $1.4 million in the deferred consideration liability and $0.4 million in amortization of acquired definite-
lived licensing agreements.
In fiscal 2019, we recorded $1.0 million of acquisition-related expenses related to changes in the fair value of
the deferred and contingent consideration and compensation liabilities, as well as amortization of acquired definite-lived
licensing agreements.
Preopening Costs
Preopening costs were $10.5 million for fiscal 2020 compared to $13.1 million for fiscal 2019. We opened
seven restaurants in fiscal 2020 comprised of one The Cheesecake Factory, one North Italia, two Other FRC and three
Other locations compared to nine restaurants in fiscal 2019 comprised of five The Cheesecake Factory, one North Italia
and three Other locations. 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 are expenses for maintaining
a roster of trained managers for pending openings, the associated temporary housing and other costs necessary to
47
relocate managers in alignment with future restaurant opening and operating needs, and corporate travel and support
activities. Preopening costs can fluctuate significantly from period to period based on the number and timing of
restaurant openings and the specific preopening costs incurred for each restaurant.
Gain/(Loss) on Investments in Unconsolidated Affiliates
We recorded a $39.2 million net gain on investments in unconsolidated affiliates in fiscal 2019 comprised of a
$52.7 million gain on our investments in North Italia and Flower Child upon acquisition of the remaining equity interests
in these concepts, partially offset by our share of pre-acquisition losses incurred by these concepts which were driven
primarily by impairment of assets and acquisition-related expenses. There was no corresponding amount in fiscal 2020
as we acquired the outstanding equity interests in these concepts in the fourth quarter of fiscal 2019.
Interest and Other Expense, Net
Interest and other expense, net was $8.6 million in fiscal 2020 compared to $2.5 million in fiscal 2019. This
variance was primarily due to increased borrowings on our credit facility to effect the Acquisition and enhance our
financial flexibility in response to the COVID-19 pandemic.
Income Tax (Benefit)/Provision
Our effective income tax rate was 28.8% and 9.3% in fiscal 2020 and fiscal 2019, respectively. The increase
resulted primarily from a lower proportion of employment credits and non-taxable gains on our investments in variable
life insurance contracts used to support our non-qualified deferred compensation plan in relation to pre-tax
(loss)/income, as well as a benefit arising from the expected carryback of our anticipated fiscal 2020 loss to prior years
when the federal statutory rate was 35%. These factors were partially offset by a lower proportion of state taxes benefit
as compared to state taxes expense in relation to pre-tax (loss)/income. (See Note 20 of Notes to Consolidated Financial
Statements in Part IV, Item 15 of this report for further discussion of income taxes.)
Non-GAAP Measures
Adjusted net (loss)/income and adjusted diluted net (loss)/income per share are supplemental measures of our
performance that are not required by or presented in accordance with GAAP. These non-GAAP measures may not be
comparable to similarly titled measures used by other companies and should not be considered in isolation or as a
substitute for measures of performance prepared in accordance with GAAP. We calculate these non-GAAP measures by
eliminating from net (loss)/income and diluted net (loss)/income per common share the impact of items we do not
consider indicative of our ongoing operations. To reflect the potential impact of the conversion of our Series A preferred
stock into common stock, we exclude the preferred dividend and direct and incremental preferred stock issuance costs,
and assume all shares of Series A preferred stock convert to common stock. 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.
48
Following is a reconciliation from net (loss)/income and diluted net (loss)/income per common share to the
corresponding adjusted measures (in thousands, except per share data):
2020
Fiscal Year
2019
2018
Net (loss)/income available to common stockholders . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Dividends on Series A preferred stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Direct and incremental Series A preferred stock issuance costs . . . . . . . . . . . . . . . . . .
COVID-19 related costs (1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Impairment of assets and lease termination expenses. . . . . . . . . . . . . . . . . . . . . . . . . . .
Acquisition-related costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Acquisition-related contingent consideration, compensation and amortization
(benefit)/expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(Gain)/loss on investments in unconsolidated affiliates . . . . . . . . . . . . . . . . . . . . . . . . .
Tax effect of adjustments (2) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Adjusted net (loss)/income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ (277,107) $ 27,293 $ 99,035
—
—
—
17,861
—
13,485
10,257
22,963
219,333
2,699
—
—
—
18,247
5,270
(3,872)
—
(62,692)
—
4,754
(5,880)
$ (74,934) $ 116,428 $ 115,770
1,033
(39,233)
3,818
Diluted net (loss)/income per common share . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Dividends on Series A preferred stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Direct and incremental Series A preferred stock issuance costs . . . . . . . . . . . . . . . . . .
Assumed impact of potential conversion of Series A preferred stock into common
stock (3) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
COVID-19 related costs (1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Impairment of assets and lease termination expenses. . . . . . . . . . . . . . . . . . . . . . . . . . .
Acquisition-related costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Acquisition-related contingent consideration, compensation and amortization
(benefit)/expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(Gain)/loss on investments in unconsolidated affiliates . . . . . . . . . . . . . . . . . . . . . . . . .
Tax effect of adjustments (2) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Adjusted net (loss)/income per share (4) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
(6.32) $
0.27
0.20
2.86 $
—
—
0.80
0.46
4.36
0.05
—
—
0.41
0.12
2.14
—
—
—
—
0.39
—
(0.08)
—
(1.25)
(1.49) $
0.02
(0.88)
0.09
2.61 $
—
0.10
(0.13)
2.51
$
(1) Represents incremental costs associated with the COVID-19 pandemic such as additional sanitation, personal
protective equipment, and healthcare benefits and other expenses associated with furloughed staff members.
During fiscal 2020, we recorded $23.0 million for these costs with approximately $2.2 million in cost of sales,
$11.9 million reflected in labor expenses, $8.8 million in other operating expenses and $0.1 million in G&A
expenses.
(2) Based on the federal statutory rate and an estimated blended state tax rate, the tax effect on all adjustments
assumes a 26% tax rate.
(3) Represents the impact of assuming the conversion of Series A preferred stock into common stock utilizing a
weighted-average shares outstanding approach (6,390,210 shares), resulting in an assumption of 50,258,815
weighted-average common shares outstanding for fiscal 2020.
(4) Adjusted net (loss)/income per share may not add due to rounding.
Fiscal 2021 Outlook
This discussion contains forward-looking statements within the meaning of the Private Securities Litigation
Reform Act of 1995, as codified in Section 27A of the Securities Act, and Section 21E of the Exchange Act and should
be read in conjunction with our consolidated financial statements and related notes in Part IV, Item 15 of this report, the
“Risk Factors” included in Part I, Item 1A of this report and the cautionary statements included throughout this report.
For fiscal 2021, we are currently estimating commodity cost inflation of approximately 2%, and while we are
still evaluating the potential effects of COVID-19 pandemic on the labor environment, we expect hourly wage rate
inflation to be slightly more favorable in fiscal 2021 versus recent years based on current governmental roadmaps for
minimum wage.
49
Depending on the course of the pandemic, we expect to open as many as 12 to 15 new restaurants in fiscal
2021, including two to three The Cheesecake Factory restaurants, six North Italia restaurants and four to six restaurants
within our FRC business, which includes as many as two Flower Child locations. We also expect as many as three
locations to open internationally under licensing agreements.
We expect fiscal 2021 net capital expenditures to range between $100 million and $105 million to support
anticipated unit growth, ongoing maintenance needs and bakery and corporate infrastructure investments. We will also
pay $17.3 million of deferred consideration to the sellers of FRC.
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. However, given the impact of the COVID-19
pandemic on our operations, during fiscal 2020 we increased borrowings under our Facility (as defined below) and
raised additional equity capital to increase our liquidity.
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 fiscal 2020, our cash and cash equivalents increased by $95.7 million to $154.1 million. The following
table presents, for the periods indicated, a summary of our key cash flows from operating, investing and financing
activities (in millions):
Fiscal Year
2020
2019
Cash provided by operating activities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Additions to property and equipment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Investments in and loans to unconsolidated affiliates . . . . . . . . . . . . . . . . . . . . . . . .
Acquisition, net of cash acquired . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Acquisition-related deferred consideration . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net borrowings on credit facility . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Series A preferred stock issuance, net of issuance costs . . . . . . . . . . . . . . . . . . . . . .
Cash dividends paid . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Treasury stock purchases . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2.9 $ 218.8
(73.8)
(25.5)
(261.7)
—
280.0
—
(60.7)
(51.0)
(50.3)
—
—
(17.3)
(10.0)
189.7
(15.8)
(3.6)
Cash Provided by Operating Activities
Cash flows from operations decreased by $215.9 million from fiscal 2019 primarily due to the impact of the
COVID-19 pandemic. 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. However, this dynamic
shifted in fiscal 2020 as all of our restaurants temporarily closed their dining rooms due to the COVID-19 pandemic. Our
future cash flow performance will depend on the evolving COVID-19 pandemic regulatory landscape, as well as
economic conditions and consumer behavior. We would expect cash generation to increase as the operating environment
for the full-service segment of the restaurant industry normalizes from the COVID-19 pandemic impact.
50
Property and Equipment
Capital expenditures for new restaurants, including locations under development as of each fiscal year-end,
were $31.7 million, $40.5 million and $58.6 million for fiscal 2020, 2019 and 2018, respectively. Capital expenditures
also included $16.6 million, $29.4 million and $26.9 million for our existing restaurants and $2.0 million, $3.9 million
and $17.4 million for bakery and corporate capacity and infrastructure investments in fiscal 2020, 2019 and 2018,
respectively, including an infrastructure upgrade of our California bakery in 2018.
We opened seven restaurants in fiscal 2020 comprised of one The Cheesecake Factory, one North Italia, two
Other FRC and three Other locations compared to nine restaurants in fiscal 2019 comprised of five The Cheesecake
Factory, one North Italia and three Other locations. Depending on the course of the pandemic, we expect to open as
many as 12 to 15 new restaurants in fiscal 2021 across our portfolio of concepts. We anticipate approximately $100
million to $105 million in capital expenditures to support this level of unit development, as well as required maintenance
on our restaurants. We will refine these assumptions as more clarity on the operating environment emerges.
Acquisition
On October 2, 2019 (“Closing” or “Closing Date”), we acquired North Italia and FRC, including Flower Child
and all other FRC brands. The Acquisition was completed for consideration consisting of the following components:
$288.1 million in cash at Closing, which was primarily funded by drawing on the Facility (as defined below);
assumption of $10.0 million in debt previously owed by FRC to us; a $12.0 million indemnity escrow amount
specifically related to North Italia due ratably over two years; and $45.0 million of deferred consideration due ratably
over four years (including a $13.0 million indemnity escrow amount specifically related to the remaining FRC
businesses). Deferred consideration of $17.3 million was paid in fiscal 2020.
The acquisition agreement also included a contingent consideration provision which is payable on the fifth
anniversary of the Closing Date 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. 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. (See Note 2 of Notes to Consolidated Financial Statements in Part IV, Item 15 of this report for further
discussion of the Acquisition.)
Credit Facility
On July 30, 2019, we entered into a Third Amended and Restated Loan Agreement (the “Facility”) which
amended and restated in its entirety our prior Second Amended and Restated Loan Agreement dated as of December 22,
2015. The Facility, which terminates on July 30, 2024, provides us with revolving loan commitments that total $400
million (of which $40 million may be used for issuances of letters of credit). The Facility contains a commitment
increase feature that could provide for additional available credit upon our request and subject to the participating
lenders electing to increase their commitments or new lenders being added to the Facility. Certain of our material
subsidiaries have guaranteed our obligations under the Amended Facility.
During fiscal 2019, we utilized the Facility to fund the Acquisition. During the first quarter of fiscal 2020, we
increased our borrowings under the Facility to bolster our cash position and enhance financial flexibility given the
impact of the COVID-19 pandemic on our operations. To provide additional financial flexibility, on May 1, 2020, we
entered into a First Amendment (the “Amendment”) to the Facility (as amended by the Amendment, the “Amended
Facility”). During the fourth quarter of fiscal 2020, we repaid a portion of the outstanding balance on the Amended
Facility such that at December 29, 2020, we had net availability for borrowings of $96.6 million, based on a $280.0
million outstanding debt balance and $23.4 million in standby letters of credit.
The Amended Facility limits cash distributions with respect to our equity interests, such as cash dividends and
share repurchases, and sets forth negative covenants that restrict indebtedness, liens, investments, sales of assets,
fundamental changes and other matters. As of December 29, 2020, we were in compliance with the covenants set forth
in the Amended Facility. (See Note 12 of Notes to Consolidated Financial Statements in Part IV, Item 15 of this report
for further discussion of our long-term debt.)
51
Series A Preferred Stock Issuance
During fiscal 2020, we issued 200,000 shares of Series A Convertible Preferred Stock for an aggregate
purchase price of $200 million to increase our liquidity given the impact of the COVID-19 pandemic on our operations.
In connection with the issuance, we incurred direct and incremental costs of $10.3 million, including financial advisory
fees, closing costs, legal expenses, a commitment fee and other offering-related expenses. (See Note 17 of Notes to
Consolidated Financial Statements in Part IV, Item 15 of this report for further discussion of our preferred stock.)
Cash Dividends
To preserve liquidity during the COVID-19 pandemic and in conjunction with the terms of our Amended
Facility, in March 2020, our Board suspended the quarterly dividend on our common stock. Prior to this suspension, our
Board declared cash dividends of $0.36 per common share for the first quarter of fiscal 2020. Cash dividends of $1.38
per common share were declared during fiscal 2019. Future decisions to pay or to increase or decrease dividends are at
the discretion of the Board and will be dependent on our operating performance, financial condition, capital expenditure
requirements, limitations on cash distributions pursuant to the terms and conditions of the Amended Facility and
applicable law, and other such factors that the Board considers relevant.
Share Repurchases
Under authorization by our Board to repurchase up to 56.0 million shares of our common stock, we have
cumulatively repurchased 53.0 million shares at a total cost of $1,696.7 million through December 29, 2020. During
fiscal 2020 and 2019, we repurchased 0.1 million and 1.1 million shares of our common stock at a cost of $3.6 million
and $51.0 million, respectively. 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 authorization does not have an expiration date, does not require us to purchase a specific number of
shares and may be modified, suspended or terminated at any time.
To preserve liquidity during the COVID-19 pandemic and in conjunction with the terms of our Amended
Facility, in March 2020, our Board suspended share repurchases. Future decisions to repurchase shares are at the
discretion of the Board and are based on several factors, including current and forecasted operating cash flows, capital
needs associated with new restaurant development and maintenance of existing locations, dividend payments, debt levels
and cost of borrowing, obligations associated with the Acquisition, our share price and current market conditions. The
timing and number of shares repurchased are also subject to legal constraints and financial covenants under the
Amended Facility that limit share repurchases based on a defined ratio. (See Note 17 of Notes to Consolidated Financial
Statements in Part IV, Item 15 of this report for further discussion of our repurchase authorization and methods.)
52
Contractual Obligations and Commercial Commitments
The following table summarizes our undiscounted contractual obligations and commercial commitments as of
December 29, 2020 (amounts in millions):
Payment Due by Period
Contractual obligations
Recorded contractual obligations:
Total
Less than
1 Year
1‑3 Years 4‑5 Years 5 Years
More than
Operating leases liabilities (1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 2,040.2 $
Long-term debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Deferred consideration (2) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Uncertain tax positions (3) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
280.0
39.8
0.7
135.8 $
—
17.3
—
255.6 $
—
22.5
0.7
253.7 $ 1,395.1
—
280.0
—
—
—
—
Unrecorded contractual obligations:
Purchase obligations (4) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Real estate obligations (5) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
91.6
130.5
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 2,582.8 $
65.4
27.1
245.6 $
22.3
6.6
307.7 $
3.8
6.7
0.1
90.1
544.2 $ 1,485.3
Other commercial commitments
Standby letters of credit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
23.4 $
23.4 $ — $ — $
—
(1) Includes $840.5 million related to options to extend lease terms that are reasonably certain of being exercised.
(See Note 13 in Notes to Consolidated Financial Statements in Part IV, Item 15 of this report for discussion of
leases.)
(2) Represents acquisition-related deferred consideration. (See Note 2 of Notes to Consolidated Financial
Statements in Part IV, Item 15 of this report for further discussion of the Acquisition.)
(3) Represents liability for uncertain tax positions. (See Note 20 of Notes to Consolidated Financial Statements in
Part IV, Item 15 of this report for further discussion of income taxes.)
(4) Includes obligations for inventory purchases, equipment purchases, information technology and other
miscellaneous commitments. Amounts exclude agreements that are cancelable without significant penalty.
(5) Real estate obligations include construction commitments, net of up-front landlord construction contributions,
and legally binding minimum lease payments for leases signed but not yet commenced. Amounts exclude
agreements that are cancelable without significant penalty.
The acquisition agreement also included a contingent consideration provision which is payable on the fifth
anniversary of the Closing Date 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. 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.
Cash Flow Outlook
We believe that our cash and cash equivalents, combined with expected cash flows provided by operations,
anticipated cash refunds from our net operating loss carryback claims and available borrowings under the Amended
Facility, will provide us with adequate liquidity for the next 12 months. (See Note 20 of Notes to Consolidated Financial
Statements in Part IV, Item 15 of this report for discussion of our income taxes and Part II, Item 1A — Risk Factors for
further discussion of risks associated with the COVID-19 pandemic.)
As of December 29, 2020, 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.
53
Critical Accounting Policies
Critical accounting policies are those we believe are most important to portraying our financial condition and
results of operations and also require the greatest amount of subjective or complex judgments by management.
Judgments and uncertainties regarding the application of these policies may result in materially different amounts being
reported under various conditions or using different assumptions. We consider the following policies to be the most
critical in understanding the judgment that is involved in preparing our consolidated financial statements.
Business Combination
On October 2, 2019, we completed the acquisition of North Italia and the remaining business of Fox Restaurant
Concepts LLC. In accordance with the acquisition method of accounting for business combinations, we allocated the
purchase price of acquired businesses to the tangible and intangible assets acquired and liabilities assumed based on
preliminary estimated fair values. Our purchase price allocation methodology contains uncertainties because it requires
us to make certain assumptions and to apply judgment to estimate the fair value of acquired assets and liabilities,
including, but not limited to, property and equipment and intangible assets. We estimated the fair value of assets and
liabilities based upon widely-accepted valuation techniques, including discounted cash flow, relief from royalty and
Monte Carlo methods, depending on the nature of the assets acquired or liabilities assumed. The process for estimating
fair values in many cases requires the use of significant estimates, assumptions and judgments, including determining the
timing and estimates of future cash flows and developing appropriate discount rates. Unanticipated events or
circumstances may occur which could affect the accuracy of our fair value estimates. We made minor adjustments to our
purchase accounting in the first quarter of fiscal 2020 as we finalized our valuation of the acquired intangible assets.
(See Note 2 in Notes to Consolidated Financial Statements in Part IV, Item 15 of this report for further discussion of the
Acquisition.)
Contingent Consideration
The acquisition agreement included a contingent consideration provision which is payable on the fifth
anniversary of the Closing Date. The fair value of the contingent consideration is determined utilizing a Monte Carlo
model based on estimated future revenues, margins and volatility factors, among other variables and estimates, and has
no maximum payment. The fair value of the contingent consideration is highly subjective, and results could change
materially if different estimates and assumptions were used. (See Note 3 in Notes to Consolidated Financial Statements
in Part IV, Item 15 of this report for further discussion of our fair value measurements.)
Indefinite-Lived Intangible Assets
Goodwill and other indefinite-lived intangible assets are tested for impairment annually or on an interim basis if
events or changes in circumstances between annual tests indicate a potential impairment. First, we determine if, based on
qualitative factors, it is more likely than not that an impairment exists. Factors considered include, but are not limited to
historical financial performance, a significant decline in expected future cash flows, unanticipated competition, changes
in management or key personnel, macroeconomic and industry conditions and the legal and regulatory environment. If
the qualitative assessment indicates that it is more likely than not that an impairment exists, then a quantitative
assessment is performed.
The quantitative assessments require the use of estimates and assumptions regarding future cash flows and asset
fair values. For the goodwill impairment test, the estimated fair value of the reporting units is determined using a blend
of the income approach using a discounted cash flow analysis and the market capitalization approach. The fair value of
the trade names, trademarks and licensing agreements is estimated using the relief from royalty method. Key
assumptions include projected revenue growth and operating expenses, discount rates, royalty rates and other factors that
could affect fair value or otherwise indicate potential impairment. Estimates of revenue growth and operating expenses
are based on internal projections and consider historical performance and forecasted growth, including assumptions
regarding business recovery after the COVID-19 pandemic, industry economics and the business environment. The
discount rate is based on the estimated cost of capital that reflects the risk profile of the related business. These
estimates, as well as the selection of comparable companies and valuation multiples used in the market approaches, are
subjective, and our ability to realize future cash flows and asset fair values is affected by factors such as changes in
54
economic conditions and operating performance. These fair value assessments could change materially if different
estimates and assumptions were used.
The impact of the COVID-19 pandemic necessitated a quantitative assessment of our goodwill, trade names,
trademarks and licensing agreements during the first quarter of fiscal 2020, resulting in a significant reduction in the
balances of these assets. (See Note 8 in Notes to Consolidated Financial Statements in Part IV, Item 15 of this report for
further discussion of our intangible assets.)
Long-Lived Assets
We assess the potential impairment of our long-lived assets on an annual basis or whenever events or changes
in circumstances indicate that the carrying value of the assets or asset group may not be recoverable. Factors considered
include, but are not limited to, negative cash flow, significant underperformance relative to historical or projected future
operating results, significant changes in the manner in which an asset is being used, an expectation that an asset will be
disposed of significantly before the end of its previously estimated useful life and significant negative industry or
economic trends.
Assessing whether impairment testing is warranted and, if so, determining the amount of expense require the
use of estimates and assumptions regarding future cash flows and asset fair values. Key assumptions include projected
revenue growth and operating expenses, as well as forecasting asset useful lives and selecting an appropriate discount
rate. Estimates of revenue growth and operating expenses are based on internal projections and consider the restaurant's
historical performance, the local market economics and the business environment. The discount rate is based on the yield
curve rate for U.S. Treasury securities with a duration that coincides with the period covered by the cash flows. These
estimates are subjective and our ability to realize future cash flows and asset fair values is affected by factors such as
changes in economic conditions and operating performance. (See Note 1 in Notes to Consolidated Financial Statements
in Part IV, Item 15 of this report for further discussion related to long-lived asset impairment.)
Leases
The reasonably certain lease term and the incremental borrowing rate for each restaurant location require
judgment by management and can impact the classification and accounting for a lease as operating or finance, the value
of the operating lease asset and liability and the term over which leasehold improvements for each restaurant are
depreciated. These judgments may produce materially different amounts of operating lease assets and liabilities, rent
expense and interest expense than would be reported if different assumptions were used.
Income Taxes
We compute income taxes based on estimates of our federal, state and foreign tax liabilities. Our estimates
include, but are not limited to, effective state and local income tax rates, allowable tax credits, depreciation expense
allowable for tax purposes, the tax deductibility of certain other items and applicable valuation allowances on deferred
tax assets. Our estimates are made based on the best available information at the time we prepare our consolidated
financial statements. In making our estimates, we consider the impact of legislative and judicial developments. As these
developments evolve, we update our estimates, which, in turn, may result in adjustments to our effective tax rate.
We anticipate realization of a significant portion of our deferred tax assets through the reversal of existing
deferred tax liabilities. Realization of some of our deferred tax assets, in particular those which have statutorily limited
time periods within which they must be used, is dependent on generating sufficient taxable income in the relevant
jurisdictions prior to expiration of these time periods. Although realization is not assured, management believes it is
more likely than not that our deferred tax assets, net of valuation allowances, will be realized. The amount of deferred
tax assets considered realizable could be reduced, however, if estimates of future earnings and taxable income in the
carryforward periods are reduced.
Uncertain tax positions taken or expected to be taken in a tax return are recognized (or derecognized) in the
financial statements when it is more likely than not that the position would be sustained on its technical merits upon
examination by tax authorities, taking into account available administrative remedies and litigation. Assessment of
uncertain tax positions requires significant judgments relating to the amounts, timing and likelihood of resolution.
55
Recent Accounting Pronouncements
See Note 1 of Notes to Consolidated Financial Statements in Part IV, Item 15 of this report for a summary of
new accounting standards.
Impact of Inflation
The impact of inflation on food costs, labor, and other supplies and services can adversely impact our financial
results. While we attempt to at least partially offset increases in the costs of key operating resources by gradually raising
prices for our menu items and bakery products and employing more efficient purchasing practices, productivity
improvements and greater economies of scale, there can be no assurance that we will be effective in doing so.
56
ITEM 7A.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The following discussion of market risks contains forward-looking statements and should be read in
conjunction with our consolidated financial statements and related notes in Part IV, Item 15 of this report, the “Risk
Factors” in Part I, Item 1A of this report, the “Management's Discussion and Analysis of Financial Condition and
Results of Operations” in Part II, Item 7 of this report and the cautionary statements included throughout this
report. Actual results may differ materially from the following discussion based on general conditions in the commodity
and financial markets.
We purchase food and other commodities for use in our operations based on market prices established with our
suppliers. Many of the commodities purchased by us can be subject to volatility due to market supply and demand
factors outside of our control. We mitigate the risk of supply shortages and obtain competitive prices by utilizing
multiple qualified suppliers for substantially all our ingredients and supplies.
We negotiate short-term and long-term agreements for some of our principal commodity, supply and equipment
requirements, such as certain dairy products and poultry, depending on market conditions and expected demand. We
continue to evaluate the possibility of entering into similar arrangements for other commodities and periodically evaluate
hedging vehicles, such as direct financial instruments, to assist us in managing risk and variability associated with such
commodities. Although these vehicles may be available to us, as of the end of our 2020 fiscal year, we had chosen not to
enter into any hedging contracts due to pricing volatility, excessive risk premiums, hedge inefficiencies or other factors.
Commodities for which we have not entered into contracts can be subject to unforeseen supply and cost fluctuations,
which at times may be significant. Additionally, the cost of commodities subject to governmental regulation, such as
dairy and corn, can be especially susceptible to price fluctuation. Commodities we purchase on the international market
may be subject to even greater fluctuations in cost and availability, which could result from a variety of factors,
including the value of the U.S. dollar relative to other currencies, international trade disputes, tariffs and varying global
demand. We may or may not have the ability to increase menu prices or vary menu items in response to food commodity
price increases. For fiscal years 2020 and 2019, a hypothetical increase of 1% in food costs would have negatively
impacted cost of sales by $4.6 million and $5.6 million, respectively. (See Item 1A — Risk Factors — Risks Related to
Our Business — “Our inability to anticipate and react effectively to changes in the costs of key operating resources may
increase our cost of doing business, which could materially adversely affect our financial performance.”)
We are exposed to market risk from interest rate changes on our funded debt. This exposure relates to the
component of the interest rate on the Amended Facility that is indexed to market rates. Based on outstanding borrowings
at December 29, 2020 and December 31, 2019, a hypothetical 1% rise in interest rates would have increased interest
expense by $2.8 million and $2.9 million, respectively, on an annual basis. (See Note 12 of Notes to Consolidated
Financial Statements in Part IV, Item 15 of this report for further discussion of our long-term debt.)
We are also subject to market risk related to our investments in variable life insurance contracts used to support
our ESP to the extent these investments are not equivalent to the related liability. In addition, because changes in these
investments are not taxable, gains and losses result in tax benefit and tax expense, respectively, and directly affect net
income through the income tax provision. Based on balances at December 29, 2020 and December 31, 2019, a
hypothetical 10% decline in the market value of our deferred compensation asset and related liability would not have
impacted income before income taxes. However, under such scenario, net income would have declined by $2.2 million
and $1.9 million at December 29, 2020 and December 31, 2019, respectively.
ITEM 8.
FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The consolidated financial statements required to be filed hereunder are set forth in Part IV, Item 15 of this
report.
ITEM 9.
None.
CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
57
ITEM 9A.
CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures
We have established and maintain disclosure controls and procedures that are designed to ensure that
information required to be disclosed by us in the reports that we file or submit under the Securities Exchange Act of
1934 is recorded, processed, summarized, and reported within the time periods specified in the SEC’s rules and forms,
and that such information is accumulated and communicated to our management, including our Chief Executive Officer
and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure. In designing and
evaluating the disclosure controls and procedures, management recognized that any controls and procedures, no matter
how well designed and operated, can provide only a reasonable assurance of achieving the desired control objectives,
and management was necessarily required to apply its judgment in evaluating the cost-benefit relationship of possible
controls and procedures. We carried out an evaluation, under the supervision and with the participation of our
management, including our Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and
operation of our disclosure controls and procedures as of the end of the period covered by this report. Based on that
evaluation, the Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and
procedures were effective at the reasonable assurance level as of December 29, 2020.
Management’s Report on Internal Control over Financial Reporting
Our management is responsible for establishing and maintaining adequate internal control over financial
reporting. As defined in Exchange Act Rule 13a-15(f), internal control over financial reporting is a process designed by,
or under the supervision of, our principal executive and principal financial officers and effected by our Board of
Directors, management and other personnel, to provide reasonable assurance regarding the reliability of financial
reporting and the preparation of financial statements for external purposes in accordance with accounting principles
generally accepted in the United States (“GAAP”) and includes those policies and procedures that (i) pertain to the
maintenance of records that in reasonable detail accurately and fairly reflect the transactions and dispositions of the
assets of the company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation
of financial statements in accordance with GAAP, and that receipts and expenditures of the Company are being made
only in accordance with authorizations of management and directors of the Company; and (iii) provide reasonable
assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the Company’s
assets that could have a material effect on the financial statements. Because of its inherent limitations, internal control
over financial reporting may not prevent or detect misstatements.
Under the supervision and with the participation of our management, including our Chief Executive Officer and
Chief Financial Officer, we carried out an evaluation of the effectiveness of our internal control over financial reporting
as of December 31, 2020 based on the criteria in “Internal Control - Integrated Framework (2013)” issued by the
Committee of Sponsoring Organizations of the Treadway Commission (“COSO”). Based on this evaluation, our
management concluded that our internal control over financial reporting was effective as of December 29, 2020.
The effectiveness of our internal control over financial reporting as of December 29, 2020 has been audited by
KPMG LLP, an independent registered public accounting firm, as stated in their report which appears in Part IV, Item 15
of this report.
Changes in Internal Control over Financial Reporting
There have been no changes in our internal control over financial reporting (as defined in Rules 13a-15(f) and
15d-15(f) under the Securities Exchange Act of 1934) during the three months ended December 29, 2020 that have
materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
ITEM 9B.
OTHER INFORMATION
None.
58
PART III
ITEM 10.
DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
We have adopted a code of ethics which applies to our Chief Executive Officer, Chief Financial Officer and
Chief Accounting Officer, who are the Company’s principal executive, financial and accounting officers, respectively,
and the Company’s other executive officers and members of the Board of Directors, entitled “Code of Ethics for
Executive Officers, Senior Financial Officers and Directors.” We have also adopted a code of ethics which applies to
other employees entitled “Code of Ethics and Code of Business Conduct.” The codes of ethics are available on our
corporate website at www.thecheesecakefactory.com in the “Governance” section of our “Investors” page. The contents
of our website are not incorporated by reference into this report. We intend to satisfy disclosure requirements under
Item 5.05 of Form 8-K regarding an amendment to, or waiver from, a provision of the Code of Ethics for Executive
Officers, Senior Financial Officers and Directors by posting such information on our website, at the address and location
specified above, or as otherwise required by the Nasdaq Global Market.
Information with respect to our executive officers is included in Part I, Item 1 of this report. Other information
required by this item is hereby incorporated by reference from the sections entitled “Election of Directors,” “The Board
and Corporate Governance,” and “Delinquent Section 16(a) Reports” in our definitive proxy statement for the annual
meeting of stockholders to be held on May 27, 2021 (the “Proxy Statement”).
ITEM 11.
EXECUTIVE COMPENSATION
The information required by this item is hereby incorporated by reference to the sections entitled “Directors
Compensation,” “Executive Compensation,” “Compensation of Named Executive Officers” and “Compensation
Committee Interlocks and Insider Participation” in the Proxy Statement.
ITEM 12.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
AND RELATED STOCKHOLDER MATTERS
The information required by this item is hereby incorporated by reference to the section entitled “Beneficial
Ownership of Principal Stockholders and Management” and “Equity Compensation Plan Information” in the Proxy
Statement.
ITEM 13.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR
INDEPENDENCE
The information required by this item is hereby incorporated by reference to the sections entitled “Policies
Regarding Review, Approval or Ratification of Transactions with Related Persons” and “The Board and Corporate
Governance” in the Proxy Statement.
ITEM 14.
PRINCIPAL ACCOUNTING FEES AND SERVICES
The information required by this item is hereby incorporated by reference to the section entitled “Independent
Registered Public Accounting Firm Fees and Services” (in the proposal entitled “Ratification of Selection of
Independent Registered Public Accounting Firm”) in the Proxy Statement.
59
PART IV
ITEM 15.
EXHIBITS, FINANCIAL STATEMENT SCHEDULES
The following documents are filed as a part of this Report:
(a) 1. Financial statements:
The consolidated financial statements required to be filed hereunder are listed in the Index to
Consolidated Financial Statements on page 61 of this report.
2. Financial statement schedules:
All schedules have been omitted because they are not applicable, not required or the information
has been otherwise supplied in the financial statements or notes to the financial statements.
3. Exhibits:
The Exhibits required to be filed hereunder are listed in the exhibit index included herein at page
100.
ITEM 16.
FORM 10-K SUMMARY
None.
60
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Page
Report of Independent Registered Public Accounting Firm . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Consolidated Balance Sheets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Consolidated Statements of (Loss)/Income. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Consolidated Statements of Comprehensive (Loss)/Income. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Consolidated Statements of Stockholders’ Equity and Series A Convertible Preferred Stock . . . . . . . . . . . . . . . . . .
Consolidated Statements of Cash Flows . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Notes to Consolidated Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
62
65
66
67
68
69
70
61
Report of Independent Registered Public Accounting Firm
To the Stockholders and Board of Directors
The Cheesecake Factory Incorporated:
Opinions on the Consolidated Financial Statements and Internal Control Over Financial Reporting
We have audited the accompanying consolidated balance sheets of The Cheesecake Factory Incorporated and
subsidiaries (the Company) as of December 29, 2020 and December 31, 2019, the related consolidated statements of
(loss)/income, comprehensive (loss)/income, stockholders’ equity and Series A convertible preferred stock, and cash
flows for each of the years in the three-year period ended December 29, 2020, and the related notes (collectively, the
consolidated financial statements). We also have audited the Company’s internal control over financial reporting as of
December 29, 2020, based on criteria established in “Internal Control – Integrated Framework (2013)” issued by the
Committee of Sponsoring Organizations of the Treadway Commission.
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the
financial position of the Company as of December 29, 2020 and December 31, 2019, and the results of its operations and
its cash flows for each of the years in the three-year period ended December 29, 2020, in conformity with U.S. generally
accepted accounting principles. Also in our opinion, the Company maintained, in all material respects, effective internal
control over financial reporting as of December 29, 2020 based on criteria established in “Internal Control – Integrated
Framework (2013)” issued by the Committee of Sponsoring Organizations of the Treadway Commission.
Change in Accounting Principle
As discussed in Note 1 to the consolidated financial statements, the Company has changed its method of accounting for
leases as of January 2, 2019 due to the adoption of Accounting Standards Codification Topic 842, Leases.
Basis for Opinions
The Company’s management is responsible for these consolidated financial statements, for maintaining effective internal
control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting,
included in the accompanying Management’s Report on Internal Control over Financial Reporting. Our responsibility is
to express an opinion on the Company’s consolidated financial statements and an opinion on the Company’s internal
control over financial reporting based on our audits. We are a public accounting firm registered with the Public
Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the
Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities
and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and
perform the audits to obtain reasonable assurance about whether the consolidated financial statements are free of
material misstatement, whether due to error or fraud, and whether effective internal control over financial reporting was
maintained in all material respects.
Our audits of the consolidated financial statements included performing procedures to assess the risks of material
misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that
respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and
disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used
and significant estimates made by management, as well as evaluating the overall presentation of the consolidated
financial statements. Our audit of internal control over financial reporting included obtaining an understanding of
internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the
design and operating effectiveness of internal control based on the assessed risk. Our audits also included performing
such other procedures as we considered necessary in the circumstances. We believe that our audits provide a reasonable
basis for our opinions.
Definition and Limitations of Internal Control Over Financial Reporting
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding
the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with
generally accepted accounting principles. A company’s internal control over financial reporting includes those policies
and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the
transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are
62
recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting
principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of
management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely
detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the
financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements.
Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become
inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may
deteriorate.
Critical Audit Matters
The critical audit matters communicated below are matters arising from the current period audit of the consolidated
financial statements that were communicated or required to be communicated to the audit committee and that: (1) relate
to accounts or disclosures that are material to the consolidated financial statements and (2) involved our especially
challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way
our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical
audit matters below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which
they relate.
Evaluation of long-lived assets for impairment
As discussed in Notes 1, 7 and 13 to the consolidated financial statements, the Company assesses the potential
impairment of long-lived assets on an annual basis or whenever events or changes in circumstances indicate the carrying
value of the asset or asset group may not be recoverable. If the carrying amount of an asset group exceeds its estimated
undiscounted future cash flows, an impairment charge is recognized for the amount by which the carrying amount of the
asset group exceeds the fair value of the asset group. The property and equipment, net, and operating lease asset balances
as of December 29, 2020 were $774.1 million and $1,251.0 million, respectively. Based upon the analyses performed,
the Company recognized pre-tax impairment charges for long-lived assets of $36.2 million in fiscal 2020.
We identified the evaluation of long-lived assets for impairment as a critical audit matter. The evaluation of the
assumptions used in the undiscounted cash flow analysis and determination of fair value of certain long-lived assets
resulted in the application of challenging auditor judgment. These assumptions include revenue and the operating
margin.
The following are the primary procedures we performed to address this critical audit matter. We evaluated the design
and tested the operating effectiveness of certain internal controls over the Company’s long-lived asset impairment
assessment process. This included controls related to the determination of the undiscounted cash flow and fair value of
the restaurant asset groups, and the related revenue and operating margin assumptions. We performed sensitivity
analyses over the revenue and operating margin assumptions to assess the impact of changes in those assumptions on the
Company’s determination of the undiscounted cash flow and fair value of the restaurant assets groups. We compared the
Company’s prior year revenue and operating margin assumptions to current year actual results to assess the Company’s
ability to accurately forecast. We evaluated the Company’s revenue and operating margin assumptions for the restaurant
asset groups by comparing the assumptions to the restaurant asset groups’ historical and peer group performance.
Evaluation of goodwill for impairment
As discussed in Notes 1, 2 and 8 to the consolidated financial statements, goodwill as of December 29, 2020 was $1.5
million. The Company tests for impairment of goodwill annually or whenever events or changes in circumstances
between annual tests indicate a potential impairment. The Company determined it was necessary to perform an interim
impairment evaluation during the first quarter of fiscal 2020 due to the decrease in stock price coupled with the dining
room closures related to the COVID-19 pandemic and significant decline to the equity value of peers and overall U.S.
stock market. Based on the results of this evaluation, the Company recorded impairment expense of $79.4 million. The
estimated fair value of the reporting units was determined using the income approach using a discounted cash flow
analysis.
We identified the evaluation of goodwill for impairment as a critical audit matter. Challenging auditor judgment was
involved in evaluating certain assumptions used to determine the fair value of the reporting units. These assumptions
include future unit growth, cash flows, and discount rates used to estimate the fair value of the reporting units. Minor
63
changes to those assumptions had a significant effect on the Company’s estimate of the fair value of the reporting units.
Additionally, the audit effort associated with the evaluation of the determination of fair value required specialized skills
and knowledge.
The following are the primary procedures we performed to address this critical audit matter. We evaluated the design
and tested the operating effectiveness of certain internal controls related to the Company’s goodwill impairment
evaluation process, including controls over the assumptions listed above. We compared future unit growth and cash
flows as a percentage of revenue to historical actual results and to the Company’s most recent plans. We performed
sensitivity analyses over the future unit growth assumption to assess its impact on the Company’s determination of fair
value. In addition, we involved valuation professionals with specialized skills and knowledge, who assisted in:
•
•
•
evaluating the selected discount rates by comparing them against discount rate ranges that were independently
developed using publicly available market data
assessing cash flows as a percentage of revenue by comparing it against cash flows as a percentage of revenue
of publicly available market data for comparable companies
testing the estimates of fair value of the reporting units using independently obtained market data and
comparing the results to the Company’s estimates of fair value.
Evaluation of trade name and trademark intangible assets for impairment
As discussed in Notes 1, 2 and 8 to the consolidated financial statements, trade name and trademark intangible assets as
of December 29, 2020 was $233.7 million. The Company tests for impairment of trade name and trademark intangible
assets annually or whenever events or changes in circumstances between annual tests indicate a potential impairment.
The Company determined it was necessary to perform an interim impairment evaluation during the first quarter of fiscal
2020 due to the decrease in stock price coupled with the dining room closures related to the COVID-19 pandemic and
significant decline to the equity value of peers and overall U.S. stock market. Based on the results of this evaluation, the
Company recorded impairment expense of $101.0 million. The estimated fair value of the trade name and trademark
intangible assets was determined using the relief from royalty method.
We identified the evaluation of trade name and trademark intangible assets for impairment as a critical audit matter.
Challenging auditor judgment was involved in evaluating certain assumptions used to determine the fair value of trade
name and trademark intangible assets. These assumptions include future unit growth, discount rates, and royalty rates
used to estimate the fair value of trade name and trademark intangible assets. Minor changes to those assumptions had a
significant effect on the Company’s estimate of the fair value of trade name and trademark intangible assets.
Additionally, the audit effort associated with the evaluation of the determination of fair value required specialized skills
and knowledge.
The following are the primary procedures we performed to address this critical audit matter. We evaluated the design
and tested the operating effectiveness of certain internal controls related to the Company’s trade name and trademark
intangible assets impairment evaluation process, including controls over the assumptions listed above. We compared
future unit growth to historical actual results and to the Company’s most recent plans. We performed sensitivity analyses
over the future unit growth assumption to assess its impact on the Company’s determination of fair value. In addition, we
involved valuation professionals with specialized skills and knowledge, who assisted in:
•
•
•
evaluating the selected discount rates by comparing them against discount rate ranges that were independently
developed using publicly available market data
evaluating the selected royalty rates by comparing them against publicly available royalty rates of comparable
companies
testing the estimates of fair value of trade name and trademark intangible assets using independently obtained
market data and comparing the results to the Company’s estimates of fair value.
/s/ KPMG LLP
We have served as the Company’s auditor since 2018.
Los Angeles, California
February 24, 2021
64
THE CHEESECAKE FACTORY INCORPORATED
CONSOLIDATED BALANCE SHEETS
(In thousands, except share data)
December 29, December 31,
2020
2019
Current assets:
ASSETS
Cash and cash equivalents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Accounts and other receivable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Income taxes receivable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Inventories . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Prepaid expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total current assets. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
154,085 $
75,787
36,889
39,288
35,310
341,359
58,416
90,302
4,626
47,225
43,946
244,515
Property and equipment, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
774,137
831,599
Other assets:
Intangible assets, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Operating lease assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total other assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
253,160
1,251,027
127,371
1,631,558
437,207
1,240,976
86,296
1,764,479
Total assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 2,747,054 $
2,840,593
LIABILITIES, SERIES A CONVERTIBLE PREFERRED STOCK AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Gift card liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Operating lease liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other accrued expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total current liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
58,432 $
184,655
132,519
210,461
586,067
61,946
187,978
128,081
236,582
614,587
Deferred income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Long-term debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Operating lease liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other noncurrent liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Commitments and contingencies (Note 16)
Series A convertible preferred stock, $.01 par value, 200,000 shares authorized; 200,000 and 0 shares issued and
outstanding at December 29, 2020 and December 31, 2019, respectively . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Stockholders’ equity:
—
280,000
1,224,321
149,725
33,847
290,000
1,189,869
140,548
218,248
Preferred stock, $.01 par value, other than Series A convertible preferred stock, 4,800,000 shares authorized;
none issued . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Common stock, $.01 par value, 250,000,000 shares authorized; 98,645,147 and 97,685,178 shares issued at
December 29, 2020 and December 31, 2019, respectively . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Additional paid-in capital . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Retained earnings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Treasury stock, 53,026,409 and 52,916,434 shares at cost at December 29, 2020 and December 31, 2019,
respectively . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (1,696,743)
Accumulated other comprehensive loss . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(3,785)
Total stockholders’ equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
288,693
986
878,148
1,110,087
—
—
—
977
855,989
1,408,333
(1,693,122)
(435)
571,742
Total liabilities, Series A convertible preferred stock and stockholders’ equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 2,747,054 $ 2,840,593
See the accompanying notes to the consolidated financial statements.
65
THE CHEESECAKE FACTORY INCORPORATED
CONSOLIDATED STATEMENTS OF (LOSS)/INCOME
(In thousands, except per share data)
2020
Fiscal Year
2019
2018
Revenues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 1,983,225 $ 2,482,692 $ 2,332,331
Costs and expenses:
458,332
778,586
616,069
157,644
91,415
219,333
2,699
561,783
899,667
631,613
160,199
88,133
18,247
5,270
Cost of sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Labor expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other operating costs and expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
General and administrative expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Depreciation and amortization expenses. . . . . . . . . . . . . . . . . . . . . . . . . . . .
Impairment of assets and lease termination expenses . . . . . . . . . . . . . . . . .
Acquisition-related costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Acquisition-related contingent consideration, compensation and
amortization (benefit)/expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Preopening costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total costs and expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(Loss)/income from operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Gain/(loss) on investments in unconsolidated affiliates. . . . . . . . . . . . . . . . .
Interest and other expense, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(Loss)/income before income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Income tax (benefit)/provision . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net (loss)/income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Dividends on Series A preferred stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Direct and incremental Series A preferred stock issuance costs . . . . . . . . . .
Net (loss)/income available to common stockholders . . . . . . . . . . . . . . . . . . $ (277,107) $ 127,293 $
1,033
13,149
2,379,094
103,598
39,233
(2,497)
140,334
13,041
127,293
—
—
(3,872)
10,456
2,330,662
(347,437)
—
(8,599)
(356,036)
(102,671)
(253,365)
(13,485)
(10,257)
532,880
834,134
566,825
154,770
95,976
17,861
—
—
10,937
2,213,383
118,948
(4,754)
(6,783)
107,411
8,376
99,035
—
—
99,035
Net (loss)/income per common share:
Basic . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Diluted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
(6.32) $
(6.32) $
2.90 $
2.86 $
2.19
2.14
Weighted-average common shares outstanding:
Basic . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Diluted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
43,869
43,869
43,949
44,545
45,263
46,215
See the accompanying notes to the consolidated financial statements.
66
THE CHEESECAKE FACTORY INCORPORATED
CONSOLIDATED STATEMENTS OF COMPREHENSIVE (LOSS)/INCOME
(In thousands)
Net (loss)/income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ (253,365) $ 127,293 $ 99,035
Other comprehensive (loss)/gain:
Fiscal Year
2020
2019
2018
Foreign currency translation adjustment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Unrealized loss on derivative, net of tax . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other comprehensive (loss)/gain . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
114
(3,464)
(3,350)
Total comprehensive (loss)/income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (256,715)
(23,742)
(850)
—
(850)
98,185
—
Total comprehensive (loss)/income available to common stockholders . . . . . . . . . . . $ (280,457) $ 127,796 $ 98,185
Comprehensive (loss)/income attributable to preferred stockholders . . . . . . . . . . . .
503
—
503
127,796
—
See the accompanying notes to the consolidated financial statements.
67
THE CHEESECAKE FACTORY INCORPORATED
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY AND SERIES A CONVERTIBLE
PREFERRED STOCK
(In thousands)
Series A Convertible
Preferred Stock
Common Stock
Additional
Paid-in
Retained Treasury Comprehensive
Accumulated
Other
Shares Amount Shares Amount Capital Earnings
Stock
Loss
Total
— $
— 95,412 $
954
$ 799,862
$ 1,345,666 $ (1,532,864) $
(88) $ 613,530
Balance, January 2, 2018 . . . . . . . . . . . . . . . . . . . .
Cumulative effect of adopting the pronouncement
related to revenue recognition, net of tax . . . . . . . . .
Balance, January 2, 2018, as adjusted . . . . . . . . . . .
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Foreign currency translation adjustment . . . . . . . . .
Cash dividends declared Common stock, $1.24 per
share . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Stock-based compensation . . . . . . . . . . . . . . . . . . .
Common stock issued under stock-based
compensation plans. . . . . . . . . . . . . . . . . . . . . . . .
Treasury stock purchases . . . . . . . . . . . . . . . . . . . .
Balance, January 1, 2019 . . . . . . . . . . . . . . . . . . . .
Cumulative effect of adopting the pronouncement
related to lease accounting, net of tax . . . . . . . . . . .
Balance, January 1, 2019, as adjusted . . . . . . . . . . .
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Foreign currency translation adjustment . . . . . . . . .
Cash dividends declared Common stock, $1.38 per
share . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Stock-based compensation . . . . . . . . . . . . . . . . . . .
Common stock issued under stock-based
compensation plans. . . . . . . . . . . . . . . . . . . . . . . .
Treasury stock purchases . . . . . . . . . . . . . . . . . . . .
Balance, December 31, 2019 . . . . . . . . . . . . . . . . .
Net loss . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Foreign currency translation adjustment . . . . . . . . .
Change in derivative, net of tax . . . . . . . . . . . . . . .
Cash dividends declared Common stock, $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 . . . . . . . . . . . . . . . . .
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
— — —
— 95,412
954
— — —
— — —
—
799,862
—
—
(3,560)
—
1,342,106 (1,532,864)
—
—
99,035
—
—
(88)
—
(850)
(3,560)
609,970
99,035
(850)
— — —
6
554
—
—
20,245
(56,647)
—
—
—
—
—
(56,647)
20,251
656
—
—
—
— 96,622
7
—
967
8,569
—
828,676
—
(109,276)
1,384,494 (1,642,140)
—
—
—
—
— 96,622
—
—
—
—
—
967
—
—
—
828,676
—
—
(41,466)
—
1,343,028 (1,642,140)
—
—
127,293
—
—
8,576
— (109,276)
571,059
(938)
—
(938)
—
503
(41,466)
529,593
127,293
503
—
—
—
476
—
4
—
19,595
(61,988)
—
—
—
—
—
(61,988)
19,599
587
—
—
—
—
—
—
—
97,685
—
—
—
6
—
977
—
—
—
7,718
—
855,989
—
—
—
—
—
—
637
—
7
—
21,550
—
—
200
—
—
—
189,743
10,257
323
—
—
—
2
—
—
—
609
—
—
—
—
18,248
—
200 $ 218,248 98,645 $
—
986
—
$ 878,148
—
—
—
(50,982)
(1,693,122)
1,408,333
(253,365)
—
—
(16,376)
—
—
—
—
(10,257)
(18,248)
—
—
—
—
—
—
(3,621)
—
—
—
$ 1,110,087 $ (1,696,743) $
—
—
(435)
7,724
(50,982)
571,742
— (253,365)
114
(3,464)
114
(3,464)
—
—
(16,376)
21,557
—
—
—
—
611
(3,621)
—
(10,257)
—
(18,248)
(3,785) $ 288,693
See the accompanying notes to the consolidated financial statements.
68
THE CHEESECAKE FACTORY INCORPORATED
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
2020
Fiscal Year
2019
2018
Cash flows from operating activities:
Net (loss)/income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ (253,365) $ 127,293 $
99,035
Adjustments to reconcile net (loss)/income to cash (used in)/provided by operating activities:
Depreciation and amortization expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Deferred income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Impairment of assets and lease termination expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Stock-based compensation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(Gain)/loss from investments in unconsolidated affiliates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Changes in assets and liabilities, net of acquired amounts:
Accounts and other receivables . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Income taxes receivable/payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Inventories . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Prepaid expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Operating lease assets/liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accounts payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Gift card liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other accrued expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Cash provided by operating activities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
91,415
(67,228)
208,066
21,350
—
15,148
(32,263)
7,921
8,563
22,958
(6,019)
(2,005)
(3,324)
(8,309)
2,908
88,133
(2,197)
16,223
19,373
(39,233)
3,777
(5,338)
(5,766)
(4,133)
5,019
(11,989)
2,326
9,695
15,578
218,761
95,976
(5,510)
16,411
19,988
4,754
3,680
15,729
3,667
6,262
—
7,406
5,601
8,395
9,921
291,315
Cash flows from investing activities:
Additions to property and equipment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Additions to intangible assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Acquisition, net of cash acquired . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Investments in unconsolidated affiliates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Loans made to unconsolidated affiliates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Proceeds from variable life insurance contract . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Cash used in investing activities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(50,329)
(585)
—
—
—
—
(50,914)
(73,765)
(2,100)
(261,695)
(3,000)
(22,500)
—
(363,060)
(102,909)
(3,020)
—
(25,000)
—
540
(130,389)
Cash flows from financing activities:
Acquisition-related deferred consideration . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Deemed landlord financing proceeds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Deemed landlord financing payments. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Borrowings on credit facility . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Repayments on credit facility . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Proceeds from exercise of stock options . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Series A preferred stock issuance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Series A preferred stock direct costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Cash dividends paid . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Treasury stock purchases . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Cash provided by/(used in) financing activities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Foreign currency translation adjustment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net change in cash and cash equivalents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Cash and cash equivalents at beginning of period . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Cash and cash equivalents at end of period . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 154,085 $
(17,250)
—
—
90,000
(100,000)
611
200,000
(10,257)
(15,791)
(3,621)
143,692
(17)
95,669
58,416
—
—
—
335,000
(55,000)
7,724
—
—
(60,722)
(50,982)
176,020
117
31,838
26,578
58,416 $
—
21,788
(5,128)
70,000
(70,000)
8,576
—
—
(56,251)
(109,276)
(140,291)
(65)
20,570
6,008
26,578
Supplemental disclosures:
Interest paid. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Income taxes paid . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Construction payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
13,045 $
2,968 $
5,007 $
1,646 $
20,778 $
6,504 $
8,156
10,149
4,585
Non-cash operating:
Settlement of sale-leaseback accounting . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
— $
— $
11,863
Non-cash investing:
Settlement of landlord sale-leaseback accounting . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Acquisition-related deferred consideration and compensation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Fair value of previously-held equity investments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Loans repaid by unconsolidated affiliates as a reduction of acquisition cash . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Loan to unconsolidated affiliate assumed in acquisition . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
— $
— $
— $ (66,257) $
— $ (122,000) $
12,500 $
— $
10,000 $
— $
6,824
—
—
—
—
Non-cash financing:
Settlement of landlord financing obligation for sale-leaseback leases . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Deemed landlord financing proceeds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
— $
— $
— $ (18,687)
13,748
— $
See the accompanying notes to the consolidated financial statements.
69
THE CHEESECAKE FACTORY INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Summary of Significant Accounting Policies
Description of Business
The Cheesecake Factory Incorporated is a leader in experiential dining. We are culinary forward and
relentlessly focused on hospitality. We currently own and operate 294 restaurants throughout the United States and
Canada under brands including The Cheesecake Factory®, North Italia® and a collection within our Fox Restaurant
Concepts (“FRC”) business. Internationally, 27 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.
Basis of Presentation
The accompanying consolidated financial statements include the accounts of The Cheesecake Factory
Incorporated and its wholly owned subsidiaries (referred to herein collectively as the “Company,” “we,” “us” and “our”)
and are prepared in accordance with accounting principles generally accepted in the United States of America
(“GAAP”). All intercompany accounts and transactions for the periods presented have been eliminated in consolidation.
On October 2, 2019, we completed the acquisition of North Italia and the remaining business of FRC, including
Flower Child and all other FRC brands (the “Acquisition”). The results of operations, financial position and cash flows
of the acquired businesses are included in our consolidated financial statements as of the acquisition date. See Note 2 for
further discussion of the Acquisition.
We utilize a 52/53-week fiscal year ending on the Tuesday closest to December 31 for financial reporting
purposes. Fiscal years 2020, 2019 and 2018 each consisted of 52 weeks.
In fiscal 2019, we separately disclosed accounts receivable and other receivable on the consolidated balance
sheet and statement of cash flow. In addition, rent related deferred tax assets and liabilities were consolidated and
presented as accrued rent in the notes to consolidated financial statements. Corresponding prior year balance were
reclassified to conform to the current year presentation.
Use of 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.
Business Combination
On October 2, 2019, we completed the acquisition of North Italia and the remaining business of FRC. Since the
Acquisition represents a business combination achieved in stages, we remeasured our previously-held equity interests in
North Italia and Flower Child immediately before the acquisition to acquisition-date fair value and recognized a
resulting gain. In accordance with the acquisition method of accounting for business combinations, we allocated the
purchase price of acquired businesses to the tangible and intangible assets acquired and liabilities assumed based on
preliminary estimated fair values. We estimated the fair value of assets and liabilities based upon widely-accepted
valuation techniques, including discounted cash flow, relief from royalty and Monte Carlo methods, depending on the
nature of the assets acquired or liabilities assumed. We made minor adjustments to our purchase accounting in the first
quarter of fiscal 2020 as we finalized our valuation of the acquired intangible assets. (See Note 2 for further discussion
of the Acquisition.)
70
COVID-19 Pandemic
The Company is subject to risks and uncertainties as a result of the outbreak of, and local, state and federal
governmental responses to, the COVID-19 pandemic which was declared a National Public Health Emergency on March
13, 2020. We experienced significant disruptions to our business due to suggested and mandated social distancing and
shelter-in-place orders, which resulted in the temporary closure of a number of restaurants across our portfolio while the
remaining locations shifted to an off-premise only operating model on an interim basis.
In our initial response to the COVID-19 pandemic, the Company and its Board of Directors implemented the
following measures to preserve liquidity and enhance financial flexibility:
• Eliminated non-essential capital expenditures and expenses;
• Suspended new unit development;
• Reduced board, executive and corporate support staff compensation;
• Furloughed approximately 41,000 hourly staff members;
• Engaged in discussions with our landlords regarding ongoing rent obligations, including the potential deferral,
abatement and/or restructuring of rent otherwise payable during the period of the COVID-19 pandemic related
closure;
Increased borrowings under our revolving credit facility;
•
• Raised additional equity capital; and
• Suspended the dividend on our common stock and share repurchases.
In late April 2020, certain jurisdictions began allowing the reopening of restaurant dining rooms, and we began
to reopen dining rooms across our concepts the second week of May. During the third quarter of fiscal 2020, we called
back to work a majority of our staff members who were previously furloughed, and restored Board, executive and
corporate support staff compensation. In addition, we resumed new unit development on a limited basis and will
continue to evaluate the pace and quantity of new unit development. Restrictions on the type of operating model and
occupancy capacity continue to change, and these restrictions increased in many of our markets during the fourth quarter
of fiscal 2020 with the surge in COVID-19 cases.
We cannot predict how long the COVID-19 pandemic will last or whether it will reoccur, what additional
restrictions may be enacted, to what extent we can maintain off-premise sales volumes or if individuals will be
comfortable returning to our dining rooms during or following social distancing protocols and what long-lasting effects
the COVID-19 pandemic may have on the restaurant industry as a whole. The extent of the reopening process, along
with the potential impact of the COVID-19 pandemic on consumer spending behavior, will determine the significance of
the impact to our operating results and financial position.
These considerable developments triggered the need to perform interim impairment assessments of our long-
lived assets, goodwill and other intangible assets and a revaluation of contingent consideration associated with the
acquisition of FRC in addition to our annual impairment testing. Future changes in estimates could further impact the
carrying value of these items. (See Notes 7 and 8 for further discussion of impairment of long-lived and intangible
assets, respectively. See Note 9 for further discussion of the revaluation of contingent consideration.)
Cash and Cash Equivalents
Amounts receivable from credit card processors, totaling $9.1 million and $21.2 million at December 29, 2020
and December 31, 2019, respectively, are considered cash equivalents because they are both short-term and highly liquid
in nature and are typically converted to cash within three days of the sales transaction. During the last week of fiscal
2020, almost all of our restaurants were operating under capacity restrictions or in an off-premise-only model. Therefore,
we processed less sales through credit cards causing a decrease in this receivable from the prior year. Our cash
management system provides for the funding of all major bank disbursement accounts on a daily basis as checks are
presented for payment. Under this system, outstanding checks are in excess of the cash balances at certain banks, which
creates book overdrafts. Book overdrafts are presented as a current liability in other accrued expenses on our
consolidated balance sheet.
71
Concentration of Credit Risk
Financial instruments that potentially subject us to a concentration of credit risk are cash and cash equivalents
and receivables. We maintain our day-to-day operating cash balances in non-interest-bearing transaction accounts, which
are insured by the Federal Deposit Insurance Corporation (“FDIC”) up to $250,000. 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.
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. Concentration of credit risk
related to other receivables is limited as this balance is comprised primarily of amounts due from our gift card
distributors, insurance providers and delivery partner.
Inventories
Inventories consist of restaurant food and other supplies, bakery raw materials and bakery finished goods and
are stated at the lower of cost or net realizable value on an average cost basis at the restaurants and on a first-in, first-out
basis at the bakeries.
Property and Equipment
We record property and equipment at cost less accumulated depreciation. 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.
Leasehold improvements include the cost of our internal development and construction department. Depreciation and
amortization periods are as follows:
Buildings and land improvements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Leasehold improvements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Furnishings, fixtures and equipment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Computer software and equipment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
30 years
10 to 30 years
3 to 15 years (1)
5 years
(1) Other than certain types of restaurant equipment with estimated useful lives that equal or exceed the reasonably
certain lease term, in which case the reasonably certain lease term is utilized
Gains and losses related to property and equipment disposals are recorded in depreciation and amortization
expenses.
Impairment of Long-Lived Assets and Lease Termination Expenses
We assess the potential impairment of our long-lived assets on an annual basis or whenever events or changes
in circumstances indicate the carrying value of the assets or asset group may not be recoverable. Factors considered
include, but are not limited to, negative cash flow, significant underperformance relative to historical or projected future
operating results, significant changes in the manner in which an asset is being used, an expectation that an asset will be
disposed of significantly before the end of its previously estimated useful life and significant negative industry or
economic trends. At any given time, we may be monitoring a number of locations, and future impairment charges could
be required if individual restaurant performance does not improve or we make the decision to close or relocate a
restaurant.
Long-lived assets are grouped with other assets and liabilities at the lowest level for which identifiable cash
flows are largely independent of the cash flows of other assets and liabilities. Impairment testing is performed at the
individual restaurant asset group level, which is inclusive of property and equipment and lease right-of-use assets.
Recoverability is assessed by comparing the carrying value of the assets to the undiscounted cash flows expected to be
generated by those assets. Impairment losses are measured as the amount by which the carrying values of the assets
72
exceed their fair value, which is determined based on discounted future net cash flows expected to be generated by the
assets.
In fiscal 2020, we recorded $36.2 million of expense primarily related to the impairment of one The
Cheesecake Factory, one North Italia, two Other FRC and six Other restaurants, as well as lease termination costs and
accelerated depreciation for one The Cheesecake Factory and seven Other restaurants. In fiscal 2019, we recorded $18.2
million of expense related to the impairment of two The Cheesecake Factory and two Other restaurants, as well as lease
termination costs and accelerated depreciation for two Other restaurants. In fiscal 2018, we recorded $17.9 million of
expense related to the impairment of one The Cheesecake Factory and two Other restaurants, as well as lease termination
costs and accelerated depreciation for two The Cheesecake Factory restaurants. These amounts are recorded in
impairment of assets and lease terminations on the consolidated statements of income.
Intangible Assets
Our intangible assets consist of goodwill, indefinite-lived trade names, trademarks and transferable alcoholic
beverage licenses and definite-lived licensing agreements and non-transferable alcoholic beverage licenses.
Definite-lived intangible assets are amortized on a straight-line basis over their estimated useful lives and
reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset or
asset group may not be recoverable based on estimated undiscounted future cash flows. If impaired, the asset or asset
group is written down to fair value based on discounted future cash flows.
Goodwill and other indefinite-lived intangible assets are not amortized and are tested for impairment annually
as of the first day of our fiscal fourth quarter or on an interim basis if events or changes in circumstances between annual
tests indicate a potential impairment. First, we determine if, based on qualitative factors, it is more likely than not that an
impairment exists. Factors considered include, but are not limited to historical financial performance, a significant
decline in expected future cash flows, unanticipated competition, changes in management or key personnel,
macroeconomic and industry conditions and the legal and regulatory environment. If the qualitative assessment indicates
that it is more likely than not that an impairment exists, then a quantitative assessment is performed. The quantitative
assessments require the use of estimates and assumptions regarding future cash flows and asset fair values. For the
goodwill impairment test, the estimated fair value of the reporting units is determined using a blend of the income
approach using a discounted cash flow analysis and the market capitalization approach. The fair value of the trade
names, trademarks and licensing agreements is estimated using the relief from royalty method. These fair value
assessments could change materially if different estimates and assumptions were used.
We evaluate the useful lives of our intangible assets, other than goodwill, at each reporting period to determine
if they are definite or indefinite-lived. A determination on useful life requires judgments and assumptions regarding the
future effects of obsolescence, demand, competition, other economic factors (such as the stability of the industry,
legislative action that results in an uncertain or changing regulatory environment and expected changes in distribution
channels), the level of required maintenance expenditures and the expected lives of other related groups of assets. (See
Note 8 for further discussion of our intangible assets.)
Investments in Unconsolidated Affiliates
From fiscal year 2016 until the Acquisition on October 2, 2019, we held minority equity investments in two
restaurant concepts, North Italia and Flower Child, with our percentage of ownership growing to 49% in each concept
immediately prior to the Acquisition. Since we held a number of rights with regard to participation in policy-making
processes, but did not control these entities prior to the Acquisition, we accounted for these investments under the equity
method. Accordingly, we recognized our proportionate share of the reported earnings or losses of these entities on the
consolidated statements of income and as an adjustment to our investments on the consolidated balance sheets. We
assessed the potential impairment of these equity investments whenever events or changes in circumstances indicated
that a decrease in value of the investment had occurred that was other than temporary, in which case we would have
recognized the decrease even though it was in excess of what would otherwise be recognized by application of the equity
method. No impairment losses were recorded for these assets during fiscal years 2019 and 2018.
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Revenue Recognition
Our revenues consist of sales at our Company-owned restaurants, sales from our bakery operations to our
licensees and other third-party customers, royalties from our licensees’ restaurant sales and from consumer packaged
goods sales, and licensee development and site fees. Revenues are presented net of sales taxes. Sales tax collected is
included in other accrued expenses until the taxes are remitted to the appropriate taxing authorities.
Revenues from restaurant sales are recognized when payment is tendered at the point of sale. Revenues from
bakery sales are recognized upon transfer of title and risk to customers. Royalty revenues are recognized in the period
the related sales occur, utilizing the sale-based royalty exception available under current accounting guidance. Our
consumer packaged goods minimum guarantees do not require distinct performance obligations. Therefore, related
revenue is recognized on a straight-line basis over the life of the applicable agreements, ranging from one to three years.
As our development and site fee agreements do not contain distinct performance obligations, related revenue is
recognized on a straight-line basis over the life of the applicable agreements, ranging from eight to 30 years. Deferred
and recognized revenue for new minimum guarantees for consumer packaged goods and for new site and development
agreements were immaterial in all periods presented.
We recognize a liability upon the sale of our gift cards and recognize revenue when these gift cards are
redeemed in our restaurants. Based on our historical redemption patterns, we can reasonably estimate the amount of gift
cards for which redemption is remote, which is referred to as “breakage.” Breakage is recognized over a three-year
period in proportion to historical redemption trends and is classified as revenues in our consolidated statements of
income. We recognized $7.6 million, $8.0 million and $8.0 million of gift card breakage in fiscal years 2020, 2019 and
2018, respectively. Incremental direct costs related to gift card sales, including commissions and credit card fees, are
deferred and recognized in earnings in the same pattern as the related gift card revenue. There were no changes to our
accounting for gift card revenue and related costs upon adoption of the new revenue recognition standard.
Certain of our promotional programs include multiple element arrangements that incorporate various
performance obligations. We allocate revenue using the relative selling price of each performance obligation considering
the likelihood of redemption and recognize revenue upon satisfaction of each performance obligation. During fiscal
2020, we deferred revenue of $11.6 million related to promotional programs and recognized $11.2 million of previously
deferred revenue related to promotional programs. During fiscal 2019, we deferred revenue of $7.9 million related to
promotional programs and recognized $7.3 million of previously deferred revenue related to promotional programs.
Leases
We currently lease all of our restaurant locations, generally with initial terms of 10 to 20 years plus two five-
year renewal options. Our leases typically require contingent rent above the minimum base rent payments based on a
percentage of revenues ranging from 2% to 10%, have escalating minimum rent requirements over the term of the lease
and require payment for various expenses incidental to the use of the property. A majority of our leases provide for a
reduced level of overall rent obligation should specified co-tenancy requirements not be satisfied. We expend cash for
leasehold improvements and furniture, fixtures, and equipment to build out and equip our leased premises. We may also
expend cash for structural additions that we make to leased premises. Generally, a portion of the leasehold improvements
and building costs are reimbursed to us by our landlords as construction contributions. If obtained, landlord construction
contributions usually take the form of up-front cash, full or partial credits against our future minimum or percentage
rents, or a combination thereof. We do not meet any of the accounting criteria under Financial Accounting Standards
Board (“FASB”) Accounting Standards Codification (“ASC”) Topic 842, Leases, for being the owner of the asset under
construction. Many of our leases provide early termination rights permitting us to terminate the lease prior to expiration
in the event our revenues are below a stated level for a period of time, generally conditioned upon repayment of the
unamortized landlord contributions.
In addition to leases for our restaurant locations, we also lease automobiles and certain equipment that is used in
the restaurants, bakeries and corporate office. The leases for our restaurant locations, automobiles and certain restaurant
equipment are included in our operating lease assets and liabilities. All other leases are immaterial or qualify for the
short-term lease exclusion.
The assessment of whether a contract is or contains a lease is performed at contract inception. A lease is defined
as a contract that conveys the right to control the use of an identified asset for a period of time in exchange for
74
consideration. Control is defined as having both the right to obtain substantially all the economic benefits from the use of
the asset and to direct how and for what purpose the asset is used.
At lease commencement, we evaluate each material lease and those that don’t qualify for the short-term
exclusion to determine its appropriate classification as an operating or finance lease. All of the leases evaluated meet the
criteria for classification as operating leases. For restaurant leases that existed as of the adoption of ASC 842, we
continued to apply our historical practice of excluding executory costs, and only minimum base rent was factored into
the initial operating lease liability and corresponding lease asset. For restaurant leases beginning after adoption of ASC
842, we have elected the single lease component practical expedient. Operating lease assets and liabilities are recorded
on the balance sheet at lease commencement based on the present value of minimum base rent and other fixed payments
over the reasonably certain lease term. The difference between the amounts we expend for structural costs and the
construction contributions received from our landlords is recorded as an adjustment to the operating lease asset. Lease
terms include the build-out period for our leases where no rent payments are typically due under the terms of the lease,
as well as options to renew when we deem we have significant economic incentive to exercise the extension. When
determining if we have a significant economic incentive, we consider relevant factors, such as contractual, asset, entity
and market-based considerations. Option periods are included in the lease term for the majority of our leases.
Termination rights have not been factored into the lease terms since based on our probability assessment we are
reasonably certain we will not terminate our leases.
We cannot determine the interest rate implicit in our leases because we do not have access to the lessor’s
estimated residual value or the amount of the lessor’s deferred initial direct costs. Therefore, we use our incremental
borrowing rate as the discount rate for our leases. Our incremental borrowing rate for a lease is the rate of interest we
would have to pay on a collateralized basis to borrow an amount equal to the lease payments under similar terms.
Because we do not generally borrow on a collateralized basis, we derive an appropriate incremental borrowing rate using
the interest rate we pay on our non-collateralized borrowings, adjusted for the amount of the lease payments, the lease
term and the effect of designating specific collateral with a value equal to the unpaid lease payments for that lease.
We monitor for events or changes in circumstances that require reassessment of our leases. When a
reassessment results in the re-measurement of a lease liability, a corresponding adjustment is made to the carrying
amount of the operating lease asset. We also assess the potential impairment of our operating lease assets under long-
lived asset impairment guidance in ASC 360, Property, Plant, and Equipment: Impairment or disposal on long-lived
assets.
Rent expense included in our operating lease assets is recognized on a straight-line basis. Contingent rent
expense is recorded as incurred to the extent it exceeds minimum base rent per the lease agreement. Variable lease
payments, which primarily consist of real estate taxes, common area maintenance charges, insurance cost and other
operating expenses, are not included in the operating lease right-of-use asset or operating lease liability balances and are
recognized as incurred. The reasonably certain lease term and the incremental borrowing rate for each restaurant location
require judgment by management and can impact the classification and accounting for a lease as operating or finance, as
well as the value of the operating lease asset and liability. These judgments may produce materially different amounts of
rent expense than would be reported if different assumptions were used. Rent expense is included in other operating
costs and expenses in the consolidated statements of income.
In April 2020, the FASB staff issued interpretive guidance that indicated it would be acceptable for entities to
make an election to account for lease concessions related to the effects of the COVID-19 pandemic consistent with how
those concessions would be accounted for under Topic 842, as though enforceable rights and obligations for those
concessions existed (regardless of whether those enforceable rights and obligations for the concessions explicitly exist in
the contract) rather than as a lease modification. Lessees may make the election for any lessor-provided lease concession
related to the impact of the COVID-19 pandemic if the concession does not result in a substantial increase in the rights
of the lessor or in the obligations of the lessee.
During fiscal 2020, we received a number of lease concessions, primarily in the form of rent deferrals or
reduction over the period of time when our restaurant business was adversely impacted and have elected to apply the
interpretive guidance. This election did not have a material impact on our consolidated financial statements. Three
concession agreements did not qualify for this accounting election and were treated as lease modifications. We deferred
rent payments of $7.6 million, the majority of which is due in fiscal 2021.
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Self-Insurance Liabilities
We retain the financial responsibility for a significant portion of our risks and associated liabilities with respect
to workers’ compensation, general liability, staff member health benefits, employment practices and other insurable
risks. 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 and are
recorded in other accrued expenses. Our estimated liabilities, which are not discounted, are based on information
provided by our insurance brokers and insurers, combined with our judgment regarding a number of assumptions and
factors, including the frequency and severity of claims, claims development history, case jurisdiction, applicable
legislation and our claims settlement practices. Significant judgment is required to estimate IBNR amounts, as parties
have yet to assert such claims. If actual claims trends, including the severity or frequency of claims, differ from our
estimates, our financial results could be impacted.
Stock-Based Compensation
We maintain stock-based incentive plans under which equity awards may be granted to staff members,
consultants and non-employee directors. We account for the awards based on fair value measurement guidance and
amortize to expense over the vesting period using a straight-line or graded-vesting schedule, as applicable. (See Note 18
for further discussion of our stock-based compensation.)
Advertising Costs
We expense advertising production costs at the time the advertising first takes place. All other advertising costs
are expensed as incurred. Most of our advertising costs are included in other operating costs and expenses and were
$16.0 million, $10.6 million and $6.1 million in fiscal 2020, 2019 and 2018, respectively.
Preopening Costs
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 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, and corporate travel and support activities. We expense
preopening costs as incurred.
Income Taxes
We provide for federal, state and foreign income taxes currently payable and for deferred taxes that result from
differences between financial accounting rules and tax laws governing the timing of recognition of various income and
expense items. We recognize deferred income tax assets and liabilities for the future tax effects of such temporary
differences based on the difference between the financial statement and tax bases of existing assets and liabilities using
the statutory rates expected in the years in which the differences are expected to reverse. The effect on deferred taxes of
any enacted change in tax rates is recognized in income in the period that includes the enactment date. Income tax credits
are recorded as a reduction of tax expense.
We routinely evaluate the likelihood of realizing the benefit of our deferred tax assets and record a valuation
allowance if, based on all available evidence, we determine that some portion of the tax benefit will not be realized. In
evaluating our ability to recover our deferred tax assets within the jurisdictions from which they arise, we consider all
available positive and negative evidence, including scheduled reversals of deferred tax liabilities, projected future
taxable income, tax planning strategies (when applicable) and results of recent operations. If we later determine that we
would be able to realize our deferred tax assets in excess of their net recorded amount, we adjust the deferred tax asset
valuation allowance and reduce income tax expense.
We evaluate our exposures associated with our various tax filing positions and recognize a tax benefit from an
uncertain tax position only if it is more-likely-than-not that the position will be sustained upon examination by the
relevant taxing authorities based solely on its technical merits, taking into account available administrative remedies and
76
litigation. If this threshold is met, we recognize only the portion of the tax benefit that has a greater than 50% likelihood
of being realized upon ultimate resolution. We record a liability for any portion of the tax benefit that does not meet
these recognition and measurement criteria and we adjust this liability through income tax expense in the period in
which the uncertain tax position is effectively settled, when the statute of limitations expires for the relevant taxing
authority to examine the tax position or when new information becomes available. We recognize interest related to
uncertain tax positions in income tax expense. Penalties related to uncertain tax positions are recorded in general and
administrative expenses.
Net (Loss)/Income per Share
Basic net (loss)/income per share is computed by dividing net (loss)/income available to common stockholders
by the weighted-average number of common shares outstanding during the period, reduced by unvested restricted stock
awards. At December 29, 2020, December 31, 2019 and January 1, 2019, 2.0 million shares, 1.8 million shares and 1.7
million shares, respectively, of restricted stock issued to staff members were unvested and, therefore, excluded from the
calculation of basic earnings per share for the fiscal years ended on those dates.
Holders of our Series A Convertible Preferred Stock, par value $0.01 per share (the “Series A preferred stock”)
participate in dividends on an as-converted basis when declared on common stock. As a result, our Series A preferred
stock meets the definition of a participating security which requires us to apply the two-class method to compute both
basic and diluted net income per share. The two-class method is an earnings allocation formula that treats participating
securities as having rights to earnings that would otherwise have been available to common stockholders. In addition, as
our Series A preferred stock is a participating security, we are required to calculate diluted net income per share under
the if-converted method in addition to the two-class method and utilize the most dilutive result. In periods where there is
a net loss, no allocation of undistributed net loss to preferred stockholders is performed as the holders of our Series A
preferred stock are not contractually obligated to participate in our losses.
Fiscal Year
2020
2019
(In thousands, except per share data)
2018
Basic net (loss)/income per common share:
Net (loss)/income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ (253,365) $ 127,293 $ 99,035
—
Dividends on Series A preferred stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Direct and incremental Series A preferred stock issuance costs . . . . . . . . . . . . . .
—
99,035
Net (loss)/income available to common stockholders . . . . . . . . . . . . . . . . . . . . . .
45,263
Basic weighted-average shares outstanding . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2.19
Basic net (loss)/income per common share . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
(13,485)
(10,257)
(277,107)
43,869
—
—
127,293
43,949
(6.32) $
2.90 $
Diluted net (loss)/income per common share:
Net (loss)/income available to common stockholders . . . . . . . . . . . . . . . . . . . . . .
Basic weighted-average shares outstanding . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Dilutive effect of equity awards (1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Diluted weighted-average shares outstanding . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Diluted net (loss)/income per common share . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
(277,107)
43,869
—
43,869
127,293
43,949
596
44,545
(6.32) $
2.86 $
99,035
45,263
952
46,215
2.14
(1) Shares of common stock equivalents of 4.0 million, 2.3 million and 1.5 million for fiscal 2020, 2019 and 2018,
respectively, were excluded from the diluted calculation due to their anti-dilutive effect.
Comprehensive (Loss)/Income
Comprehensive (loss)/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 (loss)/income, unrealized losses on
our interest rate swap and translation gains and losses related to our Canadian restaurant operations.
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Foreign Currency
The Canadian dollar is the functional currency for our Canadian restaurant operations. Revenue and expense
accounts are translated into U.S. dollars using the average exchange rates during the reporting period. Assets and
liabilities are translated using the exchange rates in effect at the reporting period end date. Equity accounts are translated
at historical rates, except for the change in retained earnings which is the result of the income statement translation
process. Translation gains and losses are reported as a separate component in our consolidated statements of
comprehensive income and would only be realized upon the sale or upon complete or substantially complete liquidation
of the business. Gains and losses from foreign currency transactions are recognized in our consolidated statements of
income in interest and other expense, net.
Recent Accounting Pronouncements
Recently Adopted Accounting Standards
In August 2018, the FASB issued ASU 2018-13, Fair Value Measurement (Topic 820): Disclosure Framework
- Changes to the Disclosure Requirements for Fair Value Measurement. The update eliminates, adds and modifies
certain disclosure requirements for fair value measurements. We adopted this standard as of the beginning of fiscal 2020
and such adoption did not have a significant impact on our consolidated financial statements.
We adopted FASB ASC Topic 842, Leases, as of January 2, 2019, using the alternative transition method and
recorded a cumulative effect adjustment to beginning retained earnings without restating prior periods. We elected the
package of practical expedients which allowed us to carry forward our historical lease classification, our assessment of
whether a contract is or contains a lease and our initial direct costs for any leases that existed prior to adoption of the
new standard. In addition, we elected the short-term lease exclusion and the hindsight practical expedient, which
lengthened the lease term for certain of our leases to include renewal options. Adoption of the new standard resulted in
the recognition of operating lease assets and liabilities of $975.1 million and $1,045.4 million, respectively, and a
reduction to retained earnings of $41.5 million, net of tax. All prior lease-related balances of $39.2 million of prepaid
rent, $140.2 million in property and equipment, net, $6.2 million of intangible assets, net, $82.1 million of deferred rent
liabilities and $118.7 million of deemed landlord financing were reclassified into operating lease assets or eliminated
upon ASC 842 adoption.
Recently Issued Accounting Standards
In August 2020, the FASB issued Accounting Standards Update (“ASU”) 2020-06, Accounting for Convertible
Instruments and Contracts in an Entity's Own Equity, which is intended to simplify the accounting and measurement of
convertible instruments and the settlement assessment for contracts in an entity's own equity. This pronouncement is
effective for fiscal years beginning after December 15, 2021 and early adoption is permitted. The guidance allows for
either full retrospective adoption or modified retrospective adoption. We plan to adopt this pronouncement for our fiscal
year beginning December 30, 2020 utilizing the modified retrospective method. Depending on the future value of our stock
price, the adoption of this standard could have a material impact on our additional paid-in capital and retained earnings
balances due to the elimination of the beneficial conversion feature provision.
2. Acquisition
On October 2, 2019 (the “Closing Date” or “Closing”), we completed the acquisition of North Italia and the
remaining business of Fox Restaurant Concepts LLC, including Flower Child and all other FRC brands. North Italia is a
restaurant company that operated 21 locations across ten states and Washington D.C. as of the Closing Date. FRC is a
multi-concept restaurant company that operated 10 concepts with 47 locations across eight states and Washington D.C.
as of the Closing Date. The results of operations, financial position and cash flows of the acquired businesses are
included in our consolidated financial statements as of the acquisition date.
We have concluded that the Acquisition represents a single business combination of related businesses under
common control within the scope of ASC Topic 805, Business Combinations. The acquisition date was determined to be
the Closing Date, which was the date we obtained control by legally transferring the consideration for the remaining
ownership interests, acquiring the assets and assuming the liabilities of North Italia and the remaining FRC business.
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The Acquisition, which we expect will accelerate and diversify our revenue growth, was completed for
consideration consisting of the following components: $288.1 million in cash at Closing, which was primarily funded by
drawing on our credit facility; assumption of $10.0 million in debt previously owed by FRC to us; a $12.0 million
indemnity escrow amount specifically related to North Italia due ratably over two years; and $45.0 million of deferred
consideration due ratably over four years (including a $13.0 million indemnity escrow amount specifically related to the
remaining FRC businesses). The assumption of debt previously owed by North Italia to us represents the effective
settlement of a preexisting relationship. Since we determined the loans were at market terms, the debt assumed was
treated as purchase consideration, and no gain or loss was recorded.
The acquisition agreement also included a contingent consideration provision, a portion of which was
considered part of the acquisition consideration, and the remainder of which was considered future compensation
expense. The acquisition-date fair values for the acquisition consideration and future compensation expense were $12.8
million and $7.3 million, respectively, determined utilizing a Monte Carlo model based on estimated future revenues,
margins and volatility factors, among other variables and estimates. The contingent consideration, which has no
maximum payment, is payable on the fifth anniversary of the Closing Date 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. 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.
Since the Acquisition represents a business combination achieved in stages, we remeasured our previously-held
equity interests in North Italia and Flower Child immediately before the acquisition to acquisition-date fair value of
$122.0 million and recognized a resulting gain of $52.7 million which is included in gain/(loss) on investments in
unconsolidated affiliates in our consolidated statements of operations. The fair value of the previously-held interests was
determined using a discounted cash flow model based on estimated future revenues, margins and discount rates, among
other variables and estimates.
The following table summarizes the calculation of goodwill, as finalized in the first quarter of fiscal 2020,
based on the excess of consideration transferred and the fair value of the previously held equity interests over the fair
value of the assets acquired and liabilities assumed (in thousands).
Purchase consideration:
Cash at closing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 288,089
10,000
Assumption of debt previously owed by FRC . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
53,471
Deferred payments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
12,786
Contingent consideration . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Consideration transferred . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 364,346
Fair value of previously-held equity interests . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 122,000
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 486,346
Less net assets acquired:
23,682
Current assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Property and equipment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
84,360
Intangible assets. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 336,280
Operating lease assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 223,455
5,842
Other assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Current liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(64,814)
Operating lease liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (202,433)
(883)
Other noncurrent liabilities. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total net assets acquired . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 405,489
80,857
Goodwill . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Goodwill is related to the benefits expected as result of the Acquisition, including acceleration and
diversification of our revenue growth. $29.2 million of the goodwill recorded as part of our purchase accounting entries
related to North Italia. During fiscal 2020, we recorded goodwill impairment expense of $79.4 million. (See Note 8 for
further discussion of our goodwill assessment and resulting impairment charge.) $74.2 million of goodwill is expected to
be deductible for tax purposes.
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Property and equipment will be depreciated over useful lives of 3 years to 30 years. The fair value of acquired
property and equipment was determined under a trended original cost approach utilizing variables and estimates such as
useful lives, hold factors and economic obsolescence.
Intangible assets acquired primarily consist of trade names and trademarks that were assigned indefinite lives
based on the expected use of the assets and the regulatory and economic environment within which they are being used.
The fair value of the acquired intangible assets was determined utilizing the relief from royalty method based on
estimated future revenues, royalty rates and discount rates, among other variables and estimates. During fiscal 2020, we
recorded impairment expense of $103.3 million related to the acquired intangible assets. (See Note 8 for further
discussion of our intangible asset assessment and resulting impairment charge.)
Operating lease assets include values associated with favorable and unfavorable market leases that will amortize
over a weighted-average period of 15.2 years. The fair value of the operating lease assets was derived using an income
approach based on market transaction data and estimated discount rates, among other variables and estimates.
During fiscal 2020 and 2019, we incurred $2.7 million and $5.3 million of costs, respectively, to effect and
integrate the Acquisition. These costs were expensed in accordance with ASC 805 and are included in acquisition-related
costs in our consolidated statements of operations.
Pro Forma Results of Operations (unaudited)
The following pro forma results of operations for fiscal 2019 and 2018 give effect to the Acquisition as if it had
occurred on January 2, 2018 (in thousands):
Fiscal Year
2019
2018
Revenues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 2,732,901 $ 2,579,019
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
80,800
Net income per share:
74,949
Basic . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Diluted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
1.71 $
1.68 $
1.79
1.75
The above pro forma information includes combined North Italia and FRC actual revenues and net loss of $92.0
million and $1.5 million, respectively, contributed post acquisition in fiscal 2019. The most significant adjustments
included in the pro forma financial information are the elimination of the gain/(loss) on our previously-held equity
interests in North Italia and Flower Child, elimination of transaction costs, increased interest expense associated with
debt incurred to fund the Acquisition, elimination of historical FRC interest expense and corresponding income tax
effects.
In the opinion of the Company’s management, the unaudited pro forma financial information includes all
significant necessary adjustments that can be factually supported to reflect the effects of the Acquisition and related
transactions. The unaudited pro forma financial information is provided for informational purposes only and is not
necessarily indicative of what our actual results of operations would have been had the Acquisition and related
transactions been completed as of January 2, 2018 or that may be achieved in the future.
3. Fair Value Measurements
Fair value measurements are estimated based on valuation techniques and inputs categorized as follows:
• Level 1: Quoted prices in active markets for identical assets or liabilities
• Level 2: Observable inputs other than quoted prices in active markets for identical assets and liabilities
• Level 3: Unobservable inputs in which little or no market activity exists, therefore requiring the Company
to develop its own assumptions
80
The following tables present the components and classification of our assets and liabilities that are measured at
fair value on a recurring basis (in thousands):
Assets/(Liabilities)
Non-qualified deferred compensation assets . . . $
Non-qualified deferred compensation liabilities
Acquisition-related deferred consideration . . . . .
Acquisition-related contingent consideration
and compensation liabilities . . . . . . . . . . . . . . . . .
Interest rate swap . . . . . . . . . . . . . . . . . . . . . . . . . .
Level 1
December 29, 2020
Level 2
Level 3
83,485 $
(83,702)
—
— $
—
(38,119)
—
—
—
—
—
—
(4,591)
(7,465)
—
Level 1
December 31, 2019
Level 2
Level 3
Assets/(Liabilities)
Non-qualified deferred compensation assets . . . $
Non-qualified deferred compensation liabilities
Acquisition-related deferred consideration . . . . .
Acquisition-related contingent consideration
and compensation liabilities . . . . . . . . . . . . . . . . .
77,228 $
(76,255)
—
— $
—
(53,933)
—
—
—
—
—
(13,218)
Changes in the fair value of non-qualified deferred compensation assets and liabilities are recognized in interest
and other expense, net in our consolidated statements of income. Changes in the fair value of the acquisition-related
deferred and contingent consideration and compensation liabilities are recognized in acquisition-related contingent
consideration, compensation and amortization (benefit)/expenses in our consolidated statements of income. See Note 12
for information regarding the financial statement classification of fair value changes in our interest rate swap.
The fair value of the acquisition-related contingent consideration and compensation liabilities was determined
utilizing a Monte Carlo model based on estimated future revenues, margins and volatility factors, among other variables
and estimates and has no minimum or maximum payment. The undiscounted range of outcomes per the Monte Carlo
model was $0 to $32.0 million at December 29, 2020 and $0 to $69.2 million at December 31, 2019. Results could
change materially if different estimates and assumptions were used. The following table presents a reconciliation of the
beginning and ending amounts of the fair value of the acquisition-related contingent consideration and compensation
liabilities, categorized as Level 3 (in thousands):
Balance, January 1, 2019 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Acquisition-date fair value . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Change in fair value . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Balance, December 31, 2019 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Change in fair value . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Balance, December 29, 2020 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
—
12,786
432
13,218
(5,753)
7,465
The change in the fair value of the contingent consideration during fiscal 2020 primarily stemmed from the
delay of future new restaurant openings caused by the impact of the COVID-19 pandemic on the estimated cash flows
used in the valuation.
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.
81
4. Accounts and Other Receivables
Accounts and other receivables consisted of (in thousands):
December 29, 2020 December 31, 2019
Gift card distributors (1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Bakery customers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Insurance providers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Delivery partner . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
26,046 $
16,176
8,991
8,449
16,125
75,787 $
38,947
21,568
9,646
3,628
16,513
90,302
(1) The decrease in receivables from gift card distributors stems from the impact of the COVID-19 pandemic on
our business.
5. Inventories
Inventories consisted of (in thousands):
Restaurant food and supplies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Bakery finished goods and work in progress (1) . . . . . . . . . . . . . . .
Bakery raw materials and supplies . . . . . . . . . . . . . . . . . . . . . . . . .
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
24,282 $
7,861
7,145
39,288 $
25,057
16,000
6,168
47,225
December 29, 2020 December 31, 2019
(1) The decrease in bakery finished goods and work in progress inventories is due to strong demand coupled with
manufacturing disruptions resulting from the COVID-19 pandemic.
6. Prepaid Expenses
Prepaid expenses consisted of (in thousands):
Gift card contract assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
17,955 $
17,355
35,310 $
23,172
20,774
43,946
December 29, 2020 December 31, 2019
82
7. Property and Equipment
Property and equipment consisted of (in thousands):
December 29, 2020 December 31, 2019
Land and related improvements . . . . . . . . . . . . . . . . . . . . . . . . $
Buildings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Leasehold improvements . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Furnishings, fixtures and equipment . . . . . . . . . . . . . . . . . . . .
Computer software and equipment . . . . . . . . . . . . . . . . . . . . .
Restaurant smallwares . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Construction in progress . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
15,852 $
44,049
1,154,400
530,614
51,678
34,009
46,486
15,852
44,049
1,158,467
548,075
55,614
34,653
23,732
Property and equipment, total . . . . . . . . . . . . . . . . . . . . . . . . .
Less: Accumulated depreciation . . . . . . . . . . . . . . . . . . . . . . .
1,877,088
(1,102,951)
Property and equipment, net . . . . . . . . . . . . . . . . . . . . . . . . . $
774,137 $
1,880,442
(1,048,843)
831,599
Depreciation expenses related to property and equipment for fiscal 2020, 2019 and 2018 were $91.1 million,
$88.0 million and $93.3 million, respectively. Repair and maintenance expenses for fiscal 2020, 2019 and 2018 were
$56.6 million, $56.3 million and $55.2 million, respectively. Net expense for property and equipment disposals was $0.6
million, $0.9 million and $2.1 million, in fiscal 2020, 2019 and 2018, respectively.
8. Intangible Assets, net
The following table presents components of intangible assets, net (in thousands):
December 29, 2020 December 31, 2019
Indefinite-lived intangible assets:
Goodwill . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Trade names and trademarks . . . . . . . . . . . . . . . . . . . . . . . . . .
Transferable alcoholic beverage licenses . . . . . . . . . . . . . . . .
Total indefinite-lived intangible assets . . . . . . . . . . . . . . . .
Definite-lived intangible assets, net:
Licensing agreements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Non-transferable alcoholic beverage licenses . . . . . . . . . . . .
Total definite-lived intangible assets . . . . . . . . . . . . . . . . . .
Total intangible assets, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
1,451
233,676
7,753
242,880
7,320
2,960
10,280
253,160
$
$
78,355
337,027
8,575
423,957
10,060
3,190
13,250
437,207
Amortization expenses related to our definite-lived intangible assets were $0.7 million, $0.3 million and $0.6
million for fiscal 2020, 2019 and 2018, respectively. Definite-lived intangible assets will be amortized over one to 55
years.
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, we determined it was
necessary to perform an interim assessment of our goodwill, trade names, trademarks and licensing agreements during
the first quarter of fiscal 2020. For the goodwill impairment test, the estimated fair value of the reporting units was
determined using a blend of the income approach using a discounted cash flow analysis and the market capitalization
approach. The fair value of the trade names, trademarks and licensing agreements was estimated using the relief from
royalty method. There were a number of estimates and significant judgments made by management in performing these
evaluations, such as future unit growth, average unit volumes, cash flows, discount rates and royalty rates. Accordingly,
actual results could vary significantly from such estimates.
83
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 and $2.3 million related to trade names and trademarks, and
licensing agreements, respectively. More than half of the total impairment amount was driven by the impact on our
market capitalization, with the balance related to lower future cash flow estimates. The reduced projections stemmed
primarily from our decision to delay fiscal 2020 unit development, thereby moving our expected unit growth trajectory
out by one year. The cash flow estimates assumed that average unit volumes and margins would substantially return to
pre-COVID-19 levels by mid-fiscal 2021. We performed our annual assessment of indefinite-lived intangible assets as of
the first day of our fiscal fourth quarter and concluded as of the date of the test that there was no further impairment of
these assets, other than $0.4 million of expense related to transferable alcoholic beverage licenses.
9. Other Assets
Other assets consisted of (in thousands):
Non-qualified deferred compensation assets . . . . . . . . . . . . . . . $
Deferred income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
83,485 $
37,885
6,001
127,371 $
77,228
3,375
5,693
86,296
December 29, 2020
December 31, 2019
10. Gift Cards
The following tables present information related to gift cards (in thousands):
Gift card liabilities:
Beginning balance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Activations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Redemptions and breakage . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Ending balance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
187,978 $
110,670
(113,993)
184,655 $
172,336
158,099
(142,457)
187,978
December 29, 2020 December 31, 2019
Gift card contract assets (1):
Beginning balance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Deferrals . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Amortization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Ending balance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
23,172 $
12,348
(17,565)
17,955 $
23,388
18,378
(18,594)
23,172
December 29, 2020 December 31, 2019
(1) Included in prepaid expenses on the consolidated balance sheets.
The significant declines in activations, redemptions and breakage during fiscal 2020 compared to fiscal 2019
stem from the impact of the COVID-19 pandemic on our business.
84
11. Other Accrued Expenses
Other accrued expenses consisted of (in thousands):
December 29, 2020 December 31, 2019
Self-insurance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Salaries and wages (1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Staff member benefits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Payroll and sales taxes (2) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Deferred consideration . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
62,567 $
37,124
26,686
24,316
16,740
43,028
210,461 $
68,427
56,774
25,044
22,822
16,740
46,775
236,582
(1) The decrease in accrued salaries and wages is due to lower labor expenses in the COVID-19 pandemic
operating environment.
(2) The increase in accrued payroll and sales taxes represents the allowed deferral of certain payroll taxes under the
CARES Act, partially offset by lower payroll taxes due to reduced salaries and wages.
12. Long-Term Debt
On July 30, 2019, we entered into a Third Amended and Restated Loan Agreement (the “Facility”) which
amended and restated in its entirety our prior Second Amended and Restated Loan Agreement dated as of December 22,
2015. The Facility, which terminates on July 30, 2024, provides us with revolving loan commitments that total $400
million (of which $40 million may be used for issuances of letters of credit). The Facility contains a commitment
increase feature that could provide for additional available credit upon our request and subject to the participating
lenders electing to increase their commitments or new lenders being added to the Facility.
Certain financial covenants under the Facility require us to maintain (i) a maximum “Net Adjusted Leverage
Ratio” of 4.75 and (ii) a minimum ratio of EBITDAR to interest and rent expense of 1.9 (“EBITDAR Ratio”), as well as
customary events of default that, if triggered, could result in acceleration of the maturity of the Facility. The Facility also
limits cash 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.
During the first quarter of fiscal 2020, we increased our borrowings under the Facility to bolster our cash
position and enhance financial flexibility given the impact of the COVID-19 pandemic on our operations. To provide
additional financial flexibility, on May 1, 2020 (the “Effective Date”), we entered into a First Amendment (the
“Amendment”) to the Facility (as amended by the Amendment, the “Amended Facility”). The Amended Facility
provides for, among other things, (i) a covenant relief period (the “Covenant Relief Period”) from the Effective Date
until we demonstrate compliance with our financial covenants as of the quarter ending on or after June 29, 2021, during
which we are not required to comply with financial covenants requiring maintenance of the maximum Net Adjusted
Leverage Ratio and minimum EBITDAR Ratio, (ii) a substitution of the Net Adjusted Leverage Ratio and EBITDAR
Ratio covenants with a liquidity covenant for the calendar month ending May 31, 2020 and continuing through the
calendar month ending February 28, 2021 that requires our Liquidity to be at least $65,000,000 at the end of each
calendar month (with Liquidity being the sum of (a) unrestricted cash and cash equivalents and (b) the unused portion of
the revolving facility) (and solely for the fiscal quarter ending March 30, 2021, we can meet either (x) both the Net
Adjusted Leverage Ratio test and the EBITDAR Ratio test or (y) meet the minimum Liquidity test), with the minimum
Liquidity covenant to be tested again from the calendar month ending April 30, 2021 until we demonstrate compliance
with the Net Adjusted Leverage Ratio and EBITDAR Ratio for a fiscal quarter ending on or after March 30, 2021, (iii) a
lowered amount of permitted increases to revolving loan commitments under the Amended Facility during the Covenant
Relief Period from $200,000,000 to $125,000,000, (iv) a limit on capital expenditures not to exceed $90,000,000 during
the Covenant Relief Period, and (v) increased limitations on our ability to make restricted payments, incur debt, and
consummate acquisitions during the Covenant Relief Period.
85
Borrowings under the Amended Facility during the Covenant Relief Period bear interest, at our option, at a rate
equal to either: (i) the adjusted LIBO Rate (as customarily defined, the “Adjusted LIBO Rate”) plus 2.5%, or (ii) the sum
of (a) the highest of (1) the rate of interest last quoted by The Wall Street Journal as the prime rate in effect in the United
States, (2) the greater of the rate calculated by the Federal Reserve Bank of New York as the effective federal funds rate
or the rate that is published by the Federal Reserve Bank of New York as an overnight bank funding rate, in either case
plus 0.5%, and (3) the one-month Adjusted LIBO Rate plus 1.0%, plus (b) 1.50%. We also pay a fee of 0.4% on the
daily amount of unused commitments under the Amended Facility.
Subsequent to the Covenant Relief period, borrowings under the Amended Facility will bear interest, at our
option, at a rate equal to either: (i) the adjusted LIBO Rate (as customarily defined) (the “Adjusted LIBO Rate”) plus a
margin that is based on our net adjusted leverage ratio, or (ii) the sum of (a) the highest of (1) the rate of interest last
quoted by The Wall Street Journal as the prime rate in effect in the United States, (2) the greater of the rate calculated by
the Federal Reserve Bank of New York as the effective federal funds rate or the rate that is published by the Federal
Reserve Bank of New York as an overnight bank funding rate, in either case plus 0.5%, and (3) the one-month Adjusted
LIBO Rate plus 1.0%, plus (b) a margin that is based on our net adjusted leverage ratio.
Letters of credit bear fees that are equivalent to the interest rate margin that is applicable to revolving loans that
bear interest at the adjusted LIBO Rate plus other customary fees charged by the issuing bank. We paid certain
customary loan origination fees in conjunction with both the Facility and Amended Facility. Our obligations under the
Amended Facility are unsecured, and certain of our material subsidiaries have guaranteed these obligations. During the
fourth quarter of fiscal 2020, we repaid a portion of the outstanding balance on the Amended Facility such that at
December 29, 2020, we had net availability for borrowings of $96.6 million, based on a $280.0 million outstanding debt
balance and $23.4 million in standby letters of credit. Our Liquidity balance was $249.5 million at December 29, 2020,
and we were in compliance with all covenants under the Amended Facility in effect at that date.
We capitalized interest expense related to new restaurant openings and major remodels totaling $0.8 million,
$0.6 million and $0.4 million in fiscal 2020, 2019 and 2018, respectively.
13. Leases
Components of lease expense were as follows (in thousands):
Fiscal Year
2020
2019
Operating . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 129,431 $ 112,048
66,689
Variable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
368
Short-term . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 188,708 $ 179,105
58,863
414
Rent expense on all operating leases (under ASC 840) was as follows (in thousands):
Fiscal Year
2018
Straight-lined minimum base rent . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Contingent rent . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Common area maintenance and taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
83,999
20,147
39,961
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 144,107
86
Supplemental information related to leases (in thousands, except percentages):
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows from operating leases . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 115,273 $ 103,210
Fiscal Year
2020
2019
Right-of-use assets obtained in exchange for new operating lease liabilities . . .
Weighted-average remaining lease term — operating leases (in years) . . . . . . .
Weighted-average discount rate — operating leases . . . . . . . . . . . . . . . . . . . . . . .
46,068
16.2
5.1 %
262,421 (1)
16.6
5.2 %
(1) Includes $223.5 million in right-of-use assets related to the Acquisition. (See Note 2 for further discussion of
the Acquisition.)
As of December 29, 2020, the maturities of our operating lease liabilities were as follows (in thousands):
135,801
2021 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
128,707
2022 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
126,925
2023 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
127,012
2024 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2025 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
126,660
Thereafter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,395,083
Total future lease payments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,040,188
(683,347)
Less: Interest. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Present value of lease liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 1,356,841
Operating lease liabilities include $840.5 million related to options to extend lease terms that are reasonably
certain of being exercised and exclude $130.5 million of legally binding minimum lease payments for leases signed but
not yet commenced.
14. Derivative
On March 13, 2020, we entered into an interest rate swap agreement to manage our exposure to interest rate
movements on our Facility. The agreement became effective on April 1, 2020 and matures on April 1, 2025. The interest
rate swap entitles 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 is $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 are settled monthly. We determined that at December 29, 2020, the interest rate swap agreement
was an effective hedging agreement.
Our only derivative is the aforementioned interest rate swap, which is designated as a cash flow hedge.
Therefore, changes in fair value are initially included as a component of accumulated other comprehensive loss (AOCL)
and subsequently reclassified to earnings as interest expense when the hedged forecasted transaction occurs. 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.
At December 29, 2020, the fair value of our interest rate swap was a liability of $4.6 million and was included
in other noncurrent liabilities in the consolidated balance sheet. We reclassified $1.1 million out of AOCL in fiscal 2020
for the monthly settlement of the interest rate swap. No gains or losses representing amounts excluded from the
assessment of effectiveness were recognized in earnings during fiscal 2020.
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The following table summarizes the changes in AOCL, net of tax, related to the interest rate swap (in
thousands):
Balance, December 31, 2019 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Other comprehensive loss before reclassifications . . . . . . . . . . . . . . . . . . . . . . . . . .
Amounts reclassified from AOCL . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other comprehensive loss, net of tax. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
—
(4,612)
1,148
(3,464)
Balance, December 29, 2020 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ (3,464)
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 the Company’s and the
counterparty’s non-performance risk to the derivative trade was considered when measuring the fair value of derivative
liability.
15. Other Noncurrent Liabilities
Other noncurrent liabilities consisted of (in thousands):
December 29, 2020 December 31, 2019
Non-qualified deferred compensation liabilities . . . . . . . . . . . . . . $
Deferred consideration . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Contingent consideration and compensation liabilities . . . . . . . . .
Payroll taxes (1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
83,702 $
21,379
7,465
18,308
18,871
149,725 $
76,255
37,193
13,218
—
13,882
140,548
(1) Represents the allowed deferral of certain payroll taxes under the CARES Act.
16. Commitments and Contingencies
Purchase obligations, which include inventory purchases, equipment purchases, information technology and
other miscellaneous commitments, were $91.6 million and $118.2 million at December 29, 2020 and December 31,
2019, 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 $130.5 million and $176.1 million at December 29, 2020 and December 31, 2019, respectively.
The Acquisition purchase price included a $12 million indemnity escrow amount specifically related to North
Italia due ratably over two years, $6.0 million of which was paid in fiscal 2020; and $45 million of deferred
consideration due ratably over four years (including a $13 million indemnity escrow amount specifically related to the
remaining FRC businesses), $11.3 million of which was paid in fiscal 2020. The acquisition agreement also included a
contingent consideration provision which is payable on the fifth anniversary of the Closing Date 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. 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. (See Note 2 for further discussion
of the Acquisition.)
As credit guarantees to insurers, we had $23.4 million and $19.4 million at December 29, 2020 and December
31, 2019, respectively, in standby letters of credit related to our self-insurance liabilities. All standby letters of credit are
renewable annually.
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We retain the financial responsibility for a significant portion of our risks and associated liabilities with respect
to workers’ compensation, general liability, staff member health benefits, employment practices and other insurable
risks. 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 $62.6 million and $68.4 million at December 29, 2020 and December 31,
2019, 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. 35-CM-188798-16). The wage citation seeks to recover penalties and other monetary
payments on behalf of the employees that worked for this vendor or its subcontractor. On June 28, 2018, we filed an
appeal of the wage citation. On June 11, 2020, the DLSE postponed the hearing on the Company’s appeal due to safety
concerns related to the COVID-19 pandemic. It is not possible at this time to reasonably estimate the outcome of or any
potential liability from this matter and, accordingly, we have not reserved for any potential future payments.
On June 22, 2018, the Internal Revenue Service issued a Notice of Deficiency in which they disallowed $8.0
million of our §199 Domestic Production Activities Deduction for tax years 2010, 2011 and 2012. On September 11,
2018 we petitioned the United States Tax Court for a redetermination of the deficiency. The tax court has assigned
docket number 18150-18 to our case. We intend to vigorously defend our position in litigation and based on our analysis
of the law, regulations and relevant facts, we have not reserved for any potential future payments.
Within the ordinary course of our business, we are subject to private lawsuits, government audits and
investigations, administrative proceedings and other claims. These matters typically involve claims from customers, staff
members and others related to operational and employment issues common to the foodservice industry. A number of
these claims may exist at any given time, and some of the claims may be pled as class actions. From time to time, we are
also involved in lawsuits with respect to infringements of, or challenges to, our registered trademarks and other
intellectual property, both domestically and abroad. We could be affected by adverse publicity and litigation costs
resulting from such allegations, regardless of whether they are valid or whether we are legally determined to be liable.
At this time, we believe that the amount of reasonably possible losses resulting from final disposition of any
pending lawsuits, audits, investigations, proceedings and claims will not have a material adverse effect individually or in
the aggregate on our financial position, results of operations or liquidity. It is possible, however, that our future results of
operations for a particular quarter or fiscal year could be impacted by changes in circumstances relating to lawsuits,
audits, proceedings or claims. Legal costs related to such claims are expensed as incurred.
We have employment agreements with certain of our executive officers that provide for payments to those
officers in the event of an actual or constructive termination of their employment, including in the event of a termination
without cause, an acquirer failure to assume or continue equity awards following a change in control of the Company or,
otherwise, in the event of death or disability as defined in those agreements. Aggregate payments totaling approximately
$3.1 million, excluding accrued potential bonuses of $0.9 million, which are subject to approval by the Compensation
Committee, would have been required by those agreements had all such officers terminated their employment for
reasons requiring such payments as of December 29, 2020. 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.
17. Stockholders’ Equity and Series A Convertible Preferred Stock
Common Stock - Dividends and Share Repurchases
To preserve liquidity during the COVID-19 pandemic and in conjunction with the terms of our Amended
Facility, in March 2020, our Board suspended the quarterly dividend on our common stock, as well as share repurchases.
Prior to this suspension, our Board declared cash dividends of $0.36 per common share for the first quarter of
fiscal 2020. Cash dividends of $1.38 and $1.24 per common share were declared during fiscal 2019 and 2018,
respectively. Future decisions to pay or to increase or decrease dividends are at the discretion of the Board and will be
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dependent on our operating performance, financial condition, capital expenditure requirements, limitations on cash
distributions pursuant to the terms and conditions of the Amended Facility and applicable law, and such other factors
that the Board considers relevant. (See Note 12 for further discussion of our long-term debt.)
Under authorization by our Board to repurchase up to 56.0 million shares of our common stock, we have
cumulatively repurchased 53.0 million shares at a total cost of $1,696.7 million through December 29, 2020. During
fiscal 2020, 2019 and 2018, we repurchased 0.1 million, 1.1 million and 2.3 million shares of our common stock at a cost
of $3.6 million, $51.0 million and $109.3 million, respectively. Our objectives with regard to share repurchases have
been to offset the dilution to our shares outstanding that results from equity compensation grants and to supplement our
earnings per share growth. Repurchased common stock is reflected as a reduction of stockholders’ equity in treasury
stock.
Our share repurchase authorization does not have an expiration date, does not require us to purchase a specific
number of shares and may be modified, suspended or terminated at any time. Shares may be repurchased in the open
market or through privately negotiated transactions at times and prices considered appropriate by us. 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. (See Note 2 for further discussion of the Acquisition.) The timing and number of shares
repurchased are also subject to legal constraints and financial covenants under the Amended Facility that limit share
repurchases based on a defined ratio. (See Note 12 for further discussion of our long-term debt.)
Series A Convertible Preferred Stock
On April 20, 2020, to increase our liquidity given the impact of the COVID-19 pandemic on our operations, we
issued 200,000 shares of Series A Convertible Preferred Stock, par value $0.01 per share (the “Series A preferred stock”)
for an aggregate purchase price of $200 million, or $1,000 per share. In connection with the issuance, we incurred direct
and incremental costs of $10.3 million, including financial advisory fees, closing costs, legal expenses, a commitment
fee and other offering-related expenses. These direct and incremental costs reduced the Series A preferred stock balance
at the issuance date and were recognized through retained earnings on June 30, 2020, the first measurement date.
The Series A preferred stock ranks senior to our common stock with respect to dividends and distributions on
liquidation, winding-up and dissolution upon which each share of Series A preferred stock will be entitled to receive an
amount per share equal to the greater of (i) the purchase price (without giving effect to the commitment fee), plus all
accrued and unpaid dividends (the “Liquidation Preference”) and (ii) the amount that the holder of the Series A preferred
stock would have been entitled to receive at such time if the Series A preferred stock were converted into common stock.
At December 29, 2020, the Liquidation Preference was $1,042.66 per share.
Dividend Rights
The holders of Series A preferred stock are entitled to dividends on the Liquidation Preference at the rate of
9.5% per annum, payable in cash or, at our option, paid in-kind. Such holders are also entitled to participate in dividends
declared or paid on our common stock on an as-converted basis. We recorded in-kind dividends of $13.5 million during
fiscal 2020.
Conversion Rights
Each holder has the right, at its option, to convert its Series A preferred stock, in whole or in part, into fully
paid and non-assessable shares of our common stock at a conversion price equal to $22.23 per share, subject to
customary anti-dilution adjustments, including in the event of any stock split, stock dividend, recapitalization or similar
events and certain anti-dilutive offerings if they occur on or prior to April 19, 2021. As of December 29, 2020, the
number of common shares that would be required to be issued upon conversion of the outstanding shares of Series A
preferred stock was 9.4 million. Pursuant to the terms of the Certificate of Designations, unless and until approval of our
stockholders is obtained as contemplated by Nasdaq listing rules (the “Stockholder Approval”), no holder may convert
shares of Series A preferred stock through either an optional or a mandatory conversion into shares of common stock if
and solely to the extent that such conversion would result in the holder beneficially owning in excess of 19.9% of then
90
outstanding common stock. We have the right to settle any conversion in cash. As of December 29, 2020, the Series A
preferred stock was convertible into approximately 17.1% of our outstanding common stock, on an as-converted basis.
After April 20, 2023 and subject to certain conditions, we may, at our option, require conversion of all of the
outstanding shares of Series A preferred stock to common stock if, for at least 20 trading days during the 30 consecutive
trading days immediately preceding the date we notify the holders of Series A preferred stock of the election to convert,
the closing price of the common stock is at least 200% of the conversion price. We will not exercise our right to
mandatorily convert all outstanding shares of Series A preferred stock unless certain liquidity conditions with regard to
the shares of common stock to be issued upon such conversion are satisfied.
We determined that the nature of the Series A preferred stock was more akin to an equity instrument than a debt
instrument and that the economic characteristics and risks of the embedded conversion options were clearly and closely
related to the Series A preferred stock. As such, the conversion options were not required to be bifurcated from the host
under FASB Accounting Standards Codification (“ASC 815”), Derivatives and Hedging. We also determined that the
Series A preferred stock did not contain a beneficial conversion feature (“BCF”) upon issuance. However, the associated
dividends for fiscal 2020 generated a BCF of $4.8 million based on the fair value of our stock price on the commitment
date (the date the dividends were declared to be paid in-kind) as compared to the conversion price. Any BCF determined
to exist is recorded as a debit to retained earnings and an increase to preferred stock.
Redemption Rights
On and after October 20, 2027, holders of the Series A preferred stock have the right to require redemption of
all or any part of the Series A preferred stock for an amount equal to the Liquidation Preference. Upon certain change of
control events, we are required to redeem, subject to conversion rights of the holders of Series A preferred stock, all of
the outstanding shares of Series A preferred stock for cash consideration equal to the greater of (i) the Liquidation
Preference and (ii) the amount that such holder would have been entitled to receive at such time if the Series A preferred
stock were converted into common stock.
We may redeem any or all of the Series A preferred stock for an amount equal to (i) 120% of the Liquidation
Preference thereof at any time between April 21, 2025 and April 19, 2026 and (ii) 100% of the Liquidation Preference at
any time beginning on April 20, 2026, provided that such holder will have the right to convert the Series A preferred
stock immediately prior to and in lieu of such redemption. To the extent such holder elects to convert the Series A
preferred stock in lieu of such redemption and the number of shares of common stock issuable upon such conversion
would exceed 19.9% of the outstanding shares of common stock, and the Stockholder Approval has not been obtained as
of such date, any portion in excess of such limit will remain outstanding as Series A preferred stock.
Since the redemption of the Series A preferred stock is contingently redeemable and therefore not certain to
occur, the Series A preferred stock is not required to be classified as a liability under ASC 480, Distinguishing Liabilities
from Equity. As the Series A preferred stock is redeemable in certain circumstances at the option of the holder and is
redeemable in certain circumstances upon the occurrence of an event that is not solely within our control, we have
classified the Series A preferred stock separately from stockholders’ equity in the consolidated balance sheets.
As noted above, we determined that the nature of the Series A preferred stock was more akin to an equity
instrument than a debt instrument. However, we determined that the economic characteristics and risks of the embedded
put option, call option and redemption upon change of control provision were not clearly and closely related to the Series
A preferred stock. Therefore, we assessed these items further and determined they did not meet the definition of a
derivative under ASC 815, Derivatives and Hedging.
Voting Rights
Holders of Series A preferred stock are generally entitled to vote with the holders of the common stock on an
as-converted basis. Holders of Series A preferred stock are entitled to a separate class vote with respect to, among other
things, amendments to the Company’s organizational documents that have an adverse effect on the Series A preferred
stock, issuances of securities that are senior to, or equal in priority with, the Series A preferred stock and certain business
combinations and binding or statutory share exchanges or reclassification involving the Series A preferred stock unless
such events do not adversely affect the rights, preferences or voting powers of such preferred stock. In addition, for so
91
long as the holders of Series A preferred stock hold record and beneficial ownership of 25% of the Series A preferred
stock issued to them, such holders will have the right to designate one member to our board of directors. If the holders
cease to have such designation right, for so long as the holders have record and beneficial ownership of shares of
common stock issued upon conversion of the Series A preferred stock that constitute at least 5% of the outstanding
common stock, the holders will have the right to nominate one person for election to our board of directors.
18. Stock-Based Compensation
We maintain stock-based incentive plans under which incentive stock options, non-qualified stock options,
stock appreciation rights, restricted shares and restricted share units may be granted to staff members, consultants and
non-employee directors. Our current practice is to issue new shares, rather than treasury shares, upon stock option
exercises, for restricted share grants and upon vesting of restricted share units. To date, we have only granted non-
qualified stock options, restricted shares and restricted share units of common stock under these plans.
On April 5, 2017, our Board approved an amendment to our 2010 Stock Incentive Plan to increase the number
of shares of common stock reserved for grant under the plan to 12.7 million shares from 9.2 million shares. This
amendment was approved by our stockholders at our annual meeting held on June 8, 2017. On April 4, 2019, our Board
adopted The Cheesecake Factory Incorporated Stock Incentive Plan. This plan was approved by our stockholders at our
annual meeting held on May 30, 2019. The maximum number of shares of common stock available for grant under this
plan is 4.8 million shares plus 1.8 million shares, which, as of May 30, 2019, were available for issuance under our 2010
Stock Incentive Plan, plus 1.9 million shares which may become available for issuance under The Cheesecake Factory
Incorporated Stock Incentive Plan due to forfeiture or lapse of awards under our 2010 Stock Incentive Plan following
May 30, 2019. Approximately 4.9 million of these shares were available for grant as of December 29, 2020.
Stock options generally vest at 20% per year and expire eight to ten years from the date of grant. Restricted
shares and restricted share units generally vest between three to five years from the date of grant and require that the
staff member remains employed in good standing with the Company as of the vesting date. Certain restricted share units
granted to executive officers contain performance-based vesting conditions. Performance goals are determined by the
Board of Directors. The quantity of units that will vest ranges from 0% to 150% based on the level of achievement of the
performance conditions. Equity awards for certain executive officers may vest earlier in the event of a change of control
in which the acquirer fails to assume or continue such awards, as defined in the plan, or under certain circumstances
described in such executive officers’ respective employment agreements. Compensation expense is recognized only for
those options, restricted shares and restricted share units expected to vest, with forfeitures estimated based on our
historical experience and future expectations.
The following table presents information related to stock-based compensation, net of forfeitures (in thousands):
2020
Fiscal Year
2019
2018
Labor expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 7,753 $ 6,233 $ 5,681
287
Other operating costs and expenses . . . . . . . . . . . . . . . . . . . . . .
14,020
General and administrative expenses . . . . . . . . . . . . . . . . . . . . .
19,988
Total stock-based compensation . . . . . . . . . . . . . . . . . . . . . . . .
4,987
Income tax benefit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total stock-based compensation, net of taxes . . . . . . . . . . . . . $ 16,105 $ 14,613 $ 15,001
309
13,288
21,350
5,245
274
12,866
19,373
4,760
Capitalized stock-based compensation (1) . . . . . . . . . . . . . . . . . . $
207 $
226 $
262
(1) It is our policy to capitalize the portion of stock-based compensation costs for our internal development
department that relates to capitalizable activities such as the design and construction of new restaurants,
remodeling existing locations and equipment installation. Capitalized stock-based compensation is included in
property and equipment, net on the consolidated balance sheets.
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Stock Options
The weighted-average fair value at the grant date for options issued during fiscal 2020, 2019 and 2018 was
$6.66, $9.84 and $11.62 per share, respectively. The fair value of options was estimated utilizing the Black-Scholes
valuation model with the following weighted-average assumptions for fiscal 2020, 2019 and 2018, respectively: (a) an
expected option term of 6.9 years in all fiscal years presented, (b) expected stock price volatility of 25.7%, 26.3% and
27.8%, (c) a risk-free interest rate of 1.5%, 2.6% and 2.8%, and (d) a dividend yield on our stock of 3.6%, 2.9% and
2.5%.
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. Expected stock price volatility is based on a combination of the historical volatility of our stock
and the implied volatility of actively traded options on our common stock. The risk-free interest rate is based on the U.S.
Treasury yield curve in effect at the time of grant with an equivalent remaining term. The dividend yield is based on
anticipated cash dividend payouts.
Stock option activity during fiscal 2020 was as follows:
Weighted
Average
Exercise Price
(Per share)
Shares
(In thousands)
Outstanding at beginning of year . . . . . . . . . . . . . . . . . .
Granted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Exercised . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Forfeited or cancelled . . . . . . . . . . . . . . . . . . . . . . . . . . .
Outstanding at end of year . . . . . . . . . . . . . . . . . . . . . . .
1,829
654
(18)
(171)
2,294
$
$
$
$
$
47.32
40.16
34.38
47.75
45.35
Weighted
Average
Remaining
Contractual
Term
(In years)
Aggregate
Intrinsic
Value (1)
(In thousands)
4.3
$
844
5.0
$
307
Exercisable at end of year . . . . . . . . . . . . . . . . . . . . . . . .
1,121
$
46.77
2.4
$
307
(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 2020, 2019 and 2018 was $0.1 million, $4.3 million
and 6.2 million, respectively. As of December 29, 2020, total unrecognized stock-based compensation expense related to
unvested stock options was $7.0 million, which we expect to recognize over a weighted-average period of approximately
3.3 years.
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Restricted Shares and Restricted Share Units
Restricted share and restricted share unit activity during fiscal 2020 was as follows:
Weighted
Average
Fair
Value
(Per share)
Shares
(In thousands)
Outstanding at beginning of year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Granted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Vested . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Forfeited . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Outstanding at end of year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
1,764 $
763 $
(316) $
(203) $
2,008 $
47.76
37.94
49.35
48.54
43.70
Fair value of our restricted shares and restricted share units is based on our closing stock price on the date of
grant. The weighted-average fair value for restricted shares and restricted share units issued during fiscal 2020, 2019 and
2018 was $37.94, $45.02 and $48.22, respectively. The fair value of shares that vested during fiscal 2020, 2019 and
2018 was $15.6 million, $15.8 million and $17.8 million, respectively. As of December 29, 2020, total unrecognized
stock-based compensation expense related to unvested restricted shares and restricted share units was $36.0 million,
which we expect to recognize over a weighted-average period of approximately 2.9 years.
19. Employee Benefit Plans
We have defined contribution benefit plans in accordance with section 401(k) of the Internal Revenue Code
(“401(k) Plans”) that are open to our staff members who meet certain compensation and eligibility requirements.
Participation in the 401(k) Plans is currently open to staff members from our restaurant concepts, bakery facilities,
corporate office and FRC headquarters. The 401(k) Plans allow participating staff members to defer the receipt of a
portion of their compensation and contribute such amount to one or more investment options. Our executive officers and
a select group of management and/or highly compensated staff members are not eligible to participate in the 401(k)
Plans. We currently match in cash a certain percentage of the staff member contributions to the 401(k) Plans and also
pay a portion of the administrative costs. Expense recognized in fiscal 2020, 2019 and 2018 was $1.8 million, $1.2
million and $1.0 million, respectively.
We have also established non-qualified deferred compensation plans (“Non-Qualified Plans”) for our executive
officers and a select group of management and/or highly compensated staff members. The Non-Qualified Plans allow
participating staff members to defer the receipt of a portion of their base compensation and bonuses. Non-employee
directors may also participate in the Non-Qualified Plans and defer the receipt of their earned director fees. We currently
match in cash a certain percentage of the staff member contributions to the Non-Qualified Plans and also pay for the
administrative costs. We do not match any contributions made by non-employee directors. Expense recognized in fiscal
2020, 2019 and 2018 was $1.3 million, $1.2 million and $1.3 million, respectively.
While we are under no obligation to fund Non-Qualified Plan liabilities (in whole or in part), our current
practice is to maintain company-owned life insurance contracts and other investments that are specifically designed to
informally fund savings plans of this nature. These contracts are recorded at their cash surrender value as determined by
the insurance carrier. Our consolidated balance sheets reflect investments in other assets and our obligation to
participants in the Non-Qualified Plans in other noncurrent liabilities. All gains and losses related to our non-qualified
deferred compensation assets and liabilities are reflected in interest and other expense, net in our consolidated statements
of income.
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 $14.8 million and $10.8 million as of December 29, 2020 and
December 31, 2019, respectively. (See Note 1 for further discussion of accounting for our self-insurance liabilities.)
94
20. Income Taxes
The provision for income taxes consisted of the following (in thousands):
2020
Fiscal Year
2019
2018
(Loss)/Income before income taxes . . . . . . . . . . . . . . . . . . . . . . $ (356,036) $ 140,334 $ 107,411
Income tax (benefit)/provision:
Current:
Federal . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ (38,414) $
State . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total current . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2,971
(35,443)
8,211 $
7,027
15,238
5,082
8,804
13,886
Deferred:
Federal . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
State . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total deferred . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(52,607)
(14,621)
(67,228)
(3,695)
1,498
(2,197)
Total (benefit)/provision . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ (102,671) $ 13,041 $
(4,549)
(961)
(5,510)
8,376
The following reconciles the U.S. federal statutory rate to the effective tax rate:
2020
Fiscal Year
2019
2018
U.S. federal statutory rate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21.0 % 21.0 % 21.0 %
2.6
State and district income taxes, net of federal benefit . . . . . . . . . . . . . . .
2.1
Credit for FICA taxes paid on tips . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
0.3
Other credits and incentives . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
3.4
Impact of net operating loss carryback . . . . . . . . . . . . . . . . . . . . . . . . . . . .
0.6
Deferred compensation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(0.4)
Equity compensation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (0.8)
Effective tax rate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28.8 %
6.1
(16.5)
(2.5)
—
0.8
(1.5)
0.4
7.8 %
4.9
(12.8)
(1.4)
—
(1.7)
(0.2)
(0.5)
9.3 %
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”). We expect to carry back our fiscal 2020 net operating loss and claim accelerated
depreciation on QIP placed in service during fiscal 2018 and 2019. We expect to file carryback claims during fiscal
2021, and we estimate that these claims will generate cash refunds of approximately $36 million. The effects of these
claims were included in our provision for income taxes using estimates based on the best information available at the
time we prepared our consolidated financial statements. Legislative and judicial developments relating to these
provisions may evolve and the actual effects of these claims may differ from our estimates, which, in turn, may result in
adjustments to our effective tax rate.
The CARES Act also allowed eligible employers to defer the remittance of certain FICA taxes otherwise
payable during calendar year 2020 and remit half of such deferred amounts on or before December 31, 2021 and half on
or before December 31, 2022. We deferred approximately $36.6 million of FICA tax remittances under this provision.
We plan to remit the first half of the deferred amount within 8.5 months of year-end 2020 (or by the date we file our
2020 tax return, if earlier) in order to secure a fiscal 2020 tax deduction. The effects of this planned remittance have been
included in our fiscal 2020 provision for income taxes. We may, however, elect to remit the total amount of deferred
FICA tax within 8.5 months of year-end 2020 (or by the date we file our 2020 tax return, if earlier), in which case the
actual benefit of our net operating loss carryback will differ from our estimate. This, in turn, would result in an
adjustment to our fiscal 2021 effective tax rate.
95
Following are the temporary differences that created our deferred tax assets and liabilities (in thousands):
December 29, 2020 December 31, 2019
Deferred tax assets:
Staff member benefits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Insurance reserves . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Operating lease liability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Deferred income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Tax credit carryforwards . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Goodwill . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Stock-based compensation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
State and foreign net operating loss carryforwards . . . . . . . . . . . .
Derivative asset . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Subtotal . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Less: Valuation allowance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
33,419 $
11,460
319,274
31,119
37,107
15,632
9,937
3,536
1,409
1,466
464,359
(1,041)
463,318 $
27,059
14,157
311,043
22,725
15,754
—
8,794
—
—
1,958
401,490
(713)
400,777
Deferred tax liabilities:
Property and equipment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Prepaid expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Inventory . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accrued rent . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Operating lease asset . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
(124,634) $
(7,027)
(7,766)
(4,947)
(280,845)
(214)
(425,433) $
(133,206)
(8,819)
(7,713)
(4,955)
(276,420)
(136)
(431,249)
Net deferred tax asset/(liability) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
37,885 $
(30,472)
At December 29, 2020 and December 31, 2019, we had $35.6 million and $14.3 million, respectively, of U.S.
federal credit carryforwards which begin to expire in 2038. This increase was driven primarily by our fiscal 2020 net
operating loss. At December 29, 2020, we had $79.5 million of state net operating loss carryforwards, resulting primarily
from our fiscal 2020 loss, with statutory carryforward periods ranging from 5 years to no expiration period. The earliest
year that a material state new operating loss will expire in 2030. At both December 29, 2020 and December 31, 2019, we
had $1.9 million of state hiring and investment credits which begin to expire in 2024. At December 29, 2020 and
December 31, 2019, we had $2.7 million and $2.9 million, respectively, of foreign net operating loss carryforwards
which begin to expire in 2038.
We assess the available evidence to estimate if these carryforwards and our other deferred tax assets will be
realized. We concluded that a substantial portion of our deferred tax assets are more likely than not to be realized by
reversals of existing taxable temporary differences and that forecasted future taxable income, exclusive of reversing
temporary differences, will result in realization of a substantial portion of the remainder. We did not need to consider tax
planning strategies in this analysis. Based on this evaluation, at December 29, 2020 and December 31, 2019 we recorded
a valuation allowance of $1.0 million and $0.7 million, respectively, to reflect the amount that we will likely not realize.
This assessment could change if estimates of future taxable income during the carryforward period are revised. The
earliest tax year still subject to examination by a significant taxing jurisdiction is 2010.
96
At December 29, 2020, we had a reserve of $0.7 million for uncertain tax positions. If recognized, this amount
would impact our effective income tax rate. A reconciliation of the beginning and ending amount of our uncertain tax
positions is as follows (in thousands):
2020
Fiscal Year
2019
2018
Balance at beginning of year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Additions related to current period tax positions . . . . . . . . . . .
Reductions related to settlements with taxing authorities and
lapses of statutes of limitations . . . . . . . . . . . . . . . . . . . . . . . . . .
Balance at end of year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
704 $
(49)
830 $
13
843
104
—
655 $
(139)
704 $
(117)
830
At December 29, 2020 and December 31, 2019, we had $0.3 million and $0.2 million, respectively of accrued
interest and penalties related to uncertain tax positions. None of the balance of uncertain tax positions at December 29,
2020 relates 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.
21. 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. Unallocated corporate
expenses, capital expenditures and assets, which were previously classified in a separate Corporate line, are also
combined in Other. In addition, gift card costs, which were previously classified in The Cheesecake Factory restaurants
reportable segment, are combined in Other. Corresponding prior year balances were reclassified to conform to the
current year presentation.
97
Segment information is presented below (in thousands):
Revenues:
2020 (1)
Fiscal Year
2019 (1)
2018
The Cheesecake Factory . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 1,585,008 $ 2,180,882 $ 2,127,347
—
North Italia . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
—
Other FRC . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
204,984
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 1,983,225 $ 2,482,692 $ 2,332,331
35,268
39,335
227,207
102,585
96,856
198,776
(Loss)/income from operations:
The Cheesecake Factory . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
North Italia . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other FRC . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other (2) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
45,540 $
(77,371)
(77,026)
(238,580)
258,374 $
1,608
5,309
(161,693)
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ (347,437) $
103,598 $
270,829
—
—
(151,881)
118,948
Depreciation and amortization:
The Cheesecake Factory . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
North Italia . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other FRC . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
67,514 $
3,608
4,090
16,203
91,415 $
70,971 $
829
1,037
15,296
88,133 $
80,646
—
—
15,330
95,976
Impairment of assets and lease termination:
The Cheesecake Factory . . . . . . . . . . . . . . . . . . . . . . . . . . . $
North Italia . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other FRC . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
3,261 $
71,782
73,049
71,241
219,333 $
8,888 $
—
—
9,359
18,247 $
6,580
—
—
11,281
17,861
Preopening costs:
The Cheesecake Factory . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
North Italia . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other FRC . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
4,206 $
2,578
1,324
2,348
10,456 $
9,967 $
1,297
49
1,836
13,149 $
9,247
—
—
1,690
10,937
Capital expenditures:
The Cheesecake Factory . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
North Italia . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other FRC . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
33,154 $
8,436
3,754
4,985
50,329 $
59,045 $
2,318
5,072
7,330
73,765 $
71,880
—
—
31,029
102,909
Total assets:
The Cheesecake Factory . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 1,671,733 $ 1,701,418 $
North Italia . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other FRC . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
928,345
—
—
385,788
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 2,747,054 $ 2,840,593 $ 1,314,133
297,840
310,414
530,921
270,218
308,866
496,237
(1) We completed the acquisition of North Italia and the remaining business of FRC on October 2, 2019. The
results of the acquired businesses are included in our consolidated financial statements as of the acquisition
date. (See Note 2 for further discussion of the Acquisition.)
(2) Fiscal 2020 and fiscal 2019 include ($1.2) million and $6.3 million, respectively, of acquisition-related
(benefit)/expenses. These amounts were recorded in acquisition-related costs and acquisition-related contingent
consideration, compensation and amortization (benefit)/expenses in the consolidated statements of income. (See
Note 2 for further discussion of the Acquisition.)
98
22. Quarterly Financial Data (unaudited)
Summarized unaudited quarterly financial data for fiscal 2020 and 2019 is as follows (in thousands, except per
share data):
Quarter Ended:
March 31, 2020 (1) June 30, 2020 (1) September 29, 2020 (1) December 29, 2020 (1)
Revenues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Loss from operations (2)(3) . . . . . . . . . . . . . . . . . . . . . $
Net loss (2)(3). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Net loss available to common stockholders (2)(3) . . . $
Basic net loss per share (4) . . . . . . . . . . . . . . . . . . . . . $
Diluted net loss per share (4) . . . . . . . . . . . . . . . . . . . $
Cash dividends declared per common share . . . . . . $
615,106 $
(190,058) $
(136,163) $
(136,163) $
(3.11) $
(3.11) $
0.36 $
295,851 $
(83,710) $
(56,539) $
(70,490) $
(1.61) $
(1.61) $
— $
517,716 $
(34,858) $
(28,346) $
(33,184) $
(0.76) $
(0.76) $
— $
554,552
(38,811)
(32,317)
(37,270)
(0.85)
(0.85)
—
Quarter Ended:
April 2, 2019
July 2, 2019
October 1, 2019 December 31, 2019 (1)
Revenues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Income from operations (2)(3) . . . . . . . . . . . . . . . . . . . $
Net income (2)(3) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Basic net income per share (4) . . . . . . . . . . . . . . . . . . $
Diluted net income per share (4) . . . . . . . . . . . . . . . . $
Cash dividends declared per common share . . . . . . $
599,481 $
30,148 $
26,984 $
0.61 $
0.60 $
0.33 $
602,645 $
40,099 $
35,510 $
0.80 $
0.79 $
0.33 $
586,536 $
26,964 $
16,090 $
0.37 $
0.36 $
0.36 $
694,030
6,387
48,709
1.11
1.10
0.36
(1) We completed the acquisition of North Italia and the remaining business of FRC on October 2, 2019. The
results of the acquired businesses are included in our consolidated financial statements as of the acquisition
date. (See Note 2 for further discussion of the Acquisition.)
(2) In the first, second, third and fourth quarters of fiscal 2020, loss from operations included acquisition-related
(benefit)/expenses of ($3.2) million, $0.1 million, $1.4 million and $0.5 million, with a corresponding impact to
net loss of ($2.4) million, $0.1 million, $1.1 million and $0.4 million, respectively. Income from operations for
the third and fourth quarters of fiscal 2019 included $3.2 million and $3.1 million of acquisition-related
expenses, respectively, with a corresponding impact to net income of $2.4 million and $2.3 million,
respectively. These amounts were recorded in acquisition-related costs and acquisition-related contingent
consideration, compensation and amortization (benefit)/expenses in the consolidated statements of income. (See
Note 2 for further discussion of the Acquisition.)
(3) In the first, second, third and fourth quarters of fiscal 2020, loss from operations included impairment of assets
and lease termination expenses of $191.9 million, $2.4 million, $10.4 million and $14.6 million, with a
corresponding impact to net loss of $142.0 million, $1.8 million, $7.7 million and $10.8 million, respectively.
In the fourth quarter of fiscal 2019, income from operations included impairment of assets and lease termination
expenses of $18.2 million, with a corresponding impact to net income of $13.5 million. (See Note 1 for further
discussion of these charges.)
(4) Net (loss)/income per share calculations for each quarter are based on the weighted-average diluted shares
outstanding for that quarter and may not total to the full year amount.
While seasonal fluctuations generally do not have a material impact on our quarterly results, year-over-year
comparisons can be significantly impacted by the number and timing of new restaurant openings and associated
preopening costs, the timing of holidays, the impact from inclement weather, other variations in revenues and expenses,
and for the fiscal 2020 versus fiscal 2019 comparisons, by the impact of the COVID-19 pandemic and results of the
Acquisition. Because of these and other factors, our financial results for any quarter are not necessarily indicative of the
results that may be achieved for the full fiscal year.
23. Subsequent Events
None.
99
EXHIBIT INDEX
Exhibit
No.
2.1
2.2
Form of Reorganization Agreement(P)
Item
File Number
33-479336
Form
Amend.
No. 1
to
Form S-1
Incorporated by
Reference from
Exhibit Number
2.1
Filed with
SEC
8/17/92
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#
10-Q
000-20574
2.1
11/8/19
2.3
First Amendment to Option Exercise
10-Q
000-20574
2.2
11/8/19
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#
2.4
Membership Interest Purchase Agreement,
10-Q
000-20574
2.3
11/8/19
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#†
2.5
First Amendment to Membership Interest
10-Q
000-20574
2.4
11/8/19
Purchase Agreement, dated as of October 2,
2019, by and among The Cheesecake Factory
Restaurants, Inc., Fox Restaurant Concepts
LLC, and SWF Posse LLC, as Seller’s
representative#
3.1
Restated Certificate of Incorporation of The
10-Q
000-20574
Cheesecake Factory Incorporated
3.2
Bylaws of The Cheesecake Factory
8-K
000-20574
3.2
3.8
8/6/18
5/27/09
Incorporated (Amended and Restated on
May 20, 2009)
3.3
Certificate of Elimination of Series A Junior
Participating Cumulative Preferred Stock of
The Cheesecake Factory Incorporated
10-Q
000-20574
3.1
8/6/18
3.4
Certificate of Designations of The
8-K
000-20574
3.1
4/20/20
Cheesecake Factory Incorporated, dated
April 20, 2020
4.1
Description of The Cheesecake Factory
10-K
000-20574
4.1
3/11/20
Incorporated’s Securities Registered Pursuant
to Section 12 of the Securities Exchange Act
100
Exhibit
No.
Item
Form
File Number
Incorporated by
Reference from
Exhibit Number
Filed with
SEC
10.1.1 Employment Agreement, effective as of
April 1, 2017, between The Cheesecake
Factory Incorporated and David M. Overton*
8-K
000-20574
99.2
2/22/17
10.1.2 First Amendment to Employment
8-k
000-20574
99.2
2/21/19
Agreement, effective as of April 1, 2018,
between The Cheesecake Factory
Incorporated and David M. Overton*
10.2
10.3
10.4
Employment Agreement, effective as of
March 3, 2016, between The Cheesecake
Factory Incorporated and David M. Gordon*
Employment Agreement, effective as of
July 7, 2017, between The Cheesecake
Factory Incorporated and Matthew E. Clark*
Employment Agreement, effective as of
May 14, 2018, between The Cheesecake
Factory Incorporated and Scarlett May*
10-K
000-20574
10.6
3/2/17
8-K
000-25074
99.1
6/13/17
10-Q
000-25074
10.10
5/11/18
10.5
Employment Agreement, effective as of
10-K
000-20574
10.8
3/4/19
February 13, 2019, between The Cheesecake
Factory Incorporated and Keith T. Carango*
10.6.1 Amended and Restated The Cheesecake
Factory Incorporated Executive Savings
Plan*
10-K
000-25074
10.20
3/2/17
10.6.2 First Amendment to The Cheesecake Factory
10-K
000-25074
10.11.1
2/28/18
Incorporated Executive Savings Plan as
amended and restated November 7, 2016*
10.7.1 Form of Indemnification Agreement*
10.7.2 Indemnification Agreement, dates as of April
20, 2020, between The Cheesecake Factory
Incorporated and Paul D. Ginsberg*
8-K
8-K
000-25074
000-25074
99.1
10.2
12/14/07
6/22/20
10.8.1 Inducement Agreement dated as of July 27,
8-K
000-25074
99.3
8/2/05
2005
10.8.2 First Amendment to Inducement Agreement
10-K
000-25074
10.36
2/23/11
dated as of March 1, 2010
10.8.3 Second Amendment to Inducement
Agreement dated as of May 7, 2015
10-K
000-25704
10.24
3/2/17
10.9.1 The Cheesecake Factory Incorporated 2010
DEF 14A
000-20574
Appendix A
4/21/11
Stock Incentive Plan as amended April 7,
2011*
10.9.2 The Cheesecake Factory Incorporated 2010
DEF 14A
000-20574
Appendix A
04/19/13
Stock Incentive Plan as amended effective as
of February 27, 2013*
101
Exhibit
No.
10.9.3 The Cheesecake Factory Incorporated 2010
Item
Form
DEF 14A
File Number
000-20574
Stock Incentive Plan as amended April 3,
2014*
Incorporated by
Reference from
Exhibit Number
Appendix A
Filed with
SEC
4/17/14
10.9.4 The Cheesecake Factory Incorporated 2010
DEF 14A
000-20574
Appendix A
4/17/15
Stock Incentive Plan as amended May 28,
2015*
10.9.5 The Cheesecake Factory Incorporated 2010
DEF 14A
000-20574
Appendix A
4/25/17
Stock Incentive Plan as amended April 5,
2017*
10.10
Form of Grant Agreement for Executive
10-Q
000-20574
Officers under 2010 Stock Incentive Plan*
10.11
Form of Grant Agreement for Executive
10-Q
000-20574
10.1
10.1
11/4/10
8/10/12
Officers under the 2010 Stock Incentive Plan,
for equity grants made after August 2, 2012*
10.12
Form of Notice of Stock Option Grant and
Agreement and/or Restricted Stock Grant
Agreement for Executive Officers under the
2010 Stock Incentive Plan, for equity grants
made after March 6, 2014*
10.13
Form of Notice of Grant and Stock Option
Agreement and/or Stock Unit Agreement
under the 2010 Stock Incentive Plan, for
equity grants made after March 3, 2016*
10.14.1 Form of Notice of Grant and Stock Option
Agreement and/or Restricted Share
Agreement for MEP I under the 2010 Stock
Incentive Plan, for equity grants made after
February 15, 2018*
10.14.2 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*
10.14.3 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*
10.14.4 Form of Notice of Grant and Stock Option
Agreement and/or Restricted Share
Agreement for MEP IV under the 2010 Stock
Incentive Plan, for equity grants made after
February 15, 2018*
8-K
000-20574
99.1
3/7/14
8-K
000-20574
99.2
3/4/16
10-K
000-25074
10.24.1
2/28/18
10-K
000-25074
10.24.2
2/28/18
10-K
000-25074
10.24.3
2/28/18
10-K
000-25074
10.24.4
2/28/18
102
Item
Exhibit
No.
10.14.5 Form of Notice of Grant and Stock Option
Agreement and/or Restricted Share
Agreement for MEP V under the 2010 Stock
Incentive Plan, for equity grants made after
February 15, 2018*
Form
10-K
File Number
000-25074
Incorporated by
Reference from
Exhibit Number
10.24.5
Filed with
SEC
2/28/18
10.14.6 Form of Standard Notice of Grant and
10-K
000-25074
10.24.6
2/28/18
Restricted Share Agreement I under the 2010
Stock Incentive Plan, for equity grants made
after February 15, 2018*
10.14.7 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*
10.14.8 Form of Notice of Grant and Stock Option
Agreement and/or Restricted Share
Agreement under the 2010 Stock Incentive
Plan, for equity grants made on or after
February 13, 2019*
8-K
000-20574
99.3
2/21/18
10-Q
000-20574
10.2
5/6/19
10.15.1 The Cheesecake Factory Incorporated Stock
8-K
000-20574
Incentive Plan*
10.15.2 Form of Notice of Grant and Stock Unit
10-Q
000-20574
10.1
10.1
Grant Agreement for Directors under The
Cheesecake Factory Incorporated Stock
Incentive Plan*
10.15.3 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*
10.15.4 Form of Notice of Grant and Stock Option
Agreement and/or Restricted Share
Agreement under The Cheesecake Factory
Incorporated Stock Incentive Plan*
—
—
—
—
—
—
—
10.15.5 Form of Notice of Grant and Restricted Share
Agreement for MEP I under The Cheesecake
Factory Incorporated Stock Incentive Plan*
—
—
10.16
2015 Amended and Restated Performance
Incentive Plan (Amended and Restated on
September 2, 2020)*
8-K
000-20574
10.1
9/8/20
10.17.1 Third Amended and Restated Loan
10-Q
000-20574
10.1
11/8/19
Agreement with JPMorgan Chase Bank,
National Association dated as of July 30,
2019
103
6/5/19
6/22/20
Filed
herewith
Filed
herewith
Filed
herewith
Item
Exhibit
No.
10.17.2 First Amendment, dates 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
Form
8-K
File Number
000-20574
Incorporated by
Reference from
Exhibit Number
10.1
Filed with
SEC
5/5/20
10.18.1 Subscription Agreement, dated April 20,
2020, but and between The Cheesecake
Factory Incorporated and RC Cake Holdings
LLC
10.18.2 Registration Rights Agreement, dated April
20, 2020, by and between The Cheesecake
Factory Incorporated and RC Cake Holdings
LLC
10.18.3 Acknowledgement and Support Agreement,
dated April 20, 2020, by and between David
Overton and RC Cake Holdings LLC
21.1
List of Subsidiaries
23.1
Consent of Independent Registered Public
Accounting Firm — KPMG LLP
—
—
31.1
Rule 13a-14(a)/15d-14(a) Certification of the
—
Principal Executive Officer
31.2
Rule 13a-14(a)/15d-14(a) Certification of the
—
Principal Financial Officer
32.1
Certification Pursuant to 18 U.S.C.
—
Section 1350, as Adopted Pursuant to
Section 906 of the Sarbanes-Oxley Act of
2002 for Principal Executive Officer
8-K
000-20574
10.1
4/20/20
8-K
000-20574
10.2
4/20/20
8-K
000-20574
10.3
4/20/20
—
—
—
—
—
—
—
—
—
—
—
Filed
herewith
Filed
herewith
Filed
herewith
Filed
herewith
Filed
herewith
Filed
herewith
32.2
Certification Pursuant to 18 U.S.C.
—
—
Section 1350, as Adopted Pursuant to
Section 906 of the Sarbanes-Oxley Act of
2002 for Principal Financial Officer
104
Exhibit
No.
Item
Form
File Number
Incorporated by
Reference from
Exhibit Number
101.1
The following materials from The
—
—
—
Cheesecake Factory Incorporated’s Annual
Report on Form 10-K for the year ended
December 29, 2020, formatted in Inline
eXtensible Business Reporting Language
(iXBRL): (i) consolidated balance sheets, (ii)
consolidated statements of income, (iii)
consolidated statements of comprehensive
income, (iv) consolidated statement of
stockholders’ equity, (v) consolidated
statements of cash flows, and (vi) the notes to
the consolidated financial statements
104.1
The cover page of The Cheesecake Factory
—
—
—
Incorporated’s Annual Report on Form 10-K
for the year ended December 29, 2020,
formatted in iXBRL (included with Exhibit
101.1)
Filed with
SEC
Filed
herewith
Filed
herewith
* Management contract or compensatory plan or arrangement required to be filed as an exhibit.
# The schedules (or similar attachments) to this exhibit have been omitted from this filing pursuant to Item 601(a)(5)
of Regulation S-K. The Company will furnish copies of any such schedules or similar attachments to the SEC upon
request.
† Certain confidential information contained in this agreement has been omitted because it (i) is not material and (ii)
would be competitively harmful if publicly disclosed.
(P) This exhibit has been paper filed and is not subject to the hyperlinking requirements of Item 601 of Regulation S-K.
105
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has
duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized on the 24th day of
February, 2021.
THE CHEESECAKE FACTORY INCORPORATED
By:
/s/ DAVID OVERTON
David Overton
Chairman of the Board and Chief Executive Officer
(Principal Executive Officer)
106
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears below constitutes
and appoints David Overton and Matthew E. Clark, and each of them, as his or her true and lawful attorneys-in-fact and
agents, each with full power of substitution and resubstitution, for him or her and in his or her name, place and stead, in
any and all capacities, to sign any and all amendments to this Annual Report on Form 10-K, and to file the same, with all
exhibits thereto, and other documents in connection therewith, with the Securities and Exchange Commission, granting
unto said attorneys-in-fact and agents full power and authority to do and perform each and every act and thing requisite
and necessary to be done in connection therewith, as fully to all intents and purposes as he or she might or could do in
person, hereby ratifying and confirming all that said attorney-in-fact and agent, or his substitute or substitutes, may
lawfully do or cause to be done by virtue hereof.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the
following persons on behalf of the Registrant in the capacities and on the dates indicated.
Name
Title
Date
/s/ DAVID OVERTON
David Overton
/s/ MATTHEW E. CLARK
Matthew E. Clark
Chairman of the Board and
Chief Executive Officer
(Principal Executive Officer)
Executive Vice President and
Chief Financial Officer
(Principal Financial Officer)
February 24, 2021
February 24, 2021
/s/ CHERYL M. SLOMANN
Cheryl M. Slomann
Senior Vice President, Controller
February 24, 2021
and Chief Accounting Officer
(Principal Accounting Officer)
/s/ EDIE A. AMES
Edie A. Ames
Director
February 24, 2021
/s/ ALEXANDER L. CAPPELLO
Alexander L. Cappello
Director
February 24, 2021
/s/ PAUL D. GINSBERG
Paul D. Ginsberg
Director
February 24, 2021
/s/ JEROME I. KRANSDORF
Jerome I. Kransdorf
Director
February 24, 2021
/s/ JANICE MEYER
Janice Meyer
Director
February 24, 2021
/s/ LAURENCE B. MINDEL
Laurence B. Mindel
Director
/s/ DAVID B. PITTAWAY
David B. Pittaway
Director
February 24, 2021
February 24, 2021
/s/ HERBERT SIMON
Herbert Simon
Director
February 24, 2021
107
LIST OF SUBSIDIARIES
The Cheesecake Factory Restaurants, Inc., a California corporation
Fox Restaurant Concepts LLC, an Arizona limited liability company
North Restaurants LLC, an Arizona limited liability company
EXHIBIT 21.1
Consent of Independent Registered Public Accounting Firm
EXHIBIT 23.1
The Board of Directors
The Cheesecake Factory Incorporated:
We consent to the incorporation by reference in the registration statement (Nos. 333-118757, 333-167298, 333-176115,
333-190110, 333-198042, 333-206278, 333-219789 and 333-232949) on Form S-8 and No. 333-239361 on Form S-3 of
The Cheesecake Factory Incorporated of our report dated February 24, 2021, with respect to the consolidated balance
sheets of The Cheesecake Factory Incorporated as of December 29, 2020 and December 31, 2019, the related
consolidated statements of (loss)/income, comprehensive (loss)/income, stockholders’ equity and Series A convertible
preferred stock, and cash flows for each of the years in the three-year period ended December 29, 2020, and the related
notes (collectively, the consolidated financial statements), and the effectiveness of internal control over financial
reporting as of December 29, 2020, which report appears in the December 29, 2020 annual report on Form 10-K of The
Cheesecake Factory Incorporated.
Our report dated February 24, 2021 refers to a change in the method of accounting for leases as of January 2, 2019 due
to the adoption of Accounting Standards Codification Topic 842, Leases.
/s/ KPMG LLP
Los Angeles, California
February 24, 2021
THE CHEESECAKE FACTORY INCORPORATED
CERTIFICATION OF PRINCIPAL EXECUTIVE OFFICER
PURSUANT TO EXCHANGE ACT RULES 13a-14(a) AND 15d-14(a)
AS ADOPTED PURSUANT TO
SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
I, David Overton, certify that:
EXHIBIT 31.1
1.
2.
3.
4.
I have reviewed this annual report on Form 10-K of The Cheesecake Factory Incorporated;
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state
a material fact necessary to make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by this report;
Based on my knowledge, the financial statements, and other financial information included in this report,
fairly present in all material respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this report;
The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure
controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control
over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and
have:
(a)
(b)
(c)
(d)
designed such disclosure controls and procedures, or caused such disclosure controls and
procedures to be designed under our supervision, to ensure that material information relating to
the registrant, including its consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this report is being prepared;
designed such internal control over financial reporting, or caused such internal control over
financial reporting to be designed under our supervision, to provide reasonable assurance
regarding the reliability of financial reporting and the preparation of financial statements for
external purposes in accordance with generally accepted accounting principles;
evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in
this report our conclusions about the effectiveness of the disclosure controls and procedures, as of
the end of the period covered by this report based on such evaluation; and
disclosed in this report any change in the registrant’s internal control over financial reporting that
occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in
the case of an annual report) that has materially affected, or is reasonably likely to materially
affect, the registrant’s internal control over financial reporting; and
5.
The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of
internal control over financial reporting, to the registrant’s auditors and the audit committee of the
registrant’s board of directors (or persons performing the equivalent functions):
(a)
(b)
All significant deficiencies and material weaknesses in the design or operation of internal control
over financial reporting which are reasonably likely to adversely affect the registrant’s ability to
record, process, summarize and report financial information; and
Any fraud, whether or not material, that involves management or other employees who have a
significant role in the registrant’s internal control over financial reporting.
February 24, 2021
/s/ DAVID OVERTON
David Overton
Chairman of the Board and Chief Executive Officer
(Principal Executive Officer)
THE CHEESECAKE FACTORY INCORPORATED
CERTIFICATION OF PRINCIPAL EXECUTIVE OFFICER
PURSUANT TO EXCHANGE ACT RULES 13a-14(a) AND 15d-14(a)
AS ADOPTED PURSUANT TO
SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
I, Matthew E. Clark, certify that:
EXHIBIT 31.2
1.
2.
3.
4.
I have reviewed this annual report on Form 10-K of The Cheesecake Factory Incorporated;
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state
a material fact necessary to make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by this report;
Based on my knowledge, the financial statements, and other financial information included in this report,
fairly present in all material respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this report;
The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure
controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control
over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and
have:
(a)
(b)
(c)
(d)
designed such disclosure controls and procedures, or caused such disclosure controls and
procedures to be designed under our supervision, to ensure that material information relating to
the registrant, including its consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this report is being prepared;
designed such internal control over financial reporting, or caused such internal control over
financial reporting to be designed under our supervision, to provide reasonable assurance
regarding the reliability of financial reporting and the preparation of financial statements for
external purposes in accordance with generally accepted accounting principles;
evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in
this report our conclusions about the effectiveness of the disclosure controls and procedures, as of
the end of the period covered by this report based on such evaluation; and
disclosed in this report any change in the registrant’s internal control over financial reporting that
occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in
the case of an annual report) that has materially affected, or is reasonably likely to materially
affect, the registrant’s internal control over financial reporting; and
5.
The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of
internal control over financial reporting, to the registrant’s auditors and the audit committee of the
registrant’s board of directors (or persons performing the equivalent functions):
(a)
(b)
All significant deficiencies and material weaknesses in the design or operation of internal control
over financial reporting which are reasonably likely to adversely affect the registrant’s ability to
record, process, summarize and report financial information; and
Any fraud, whether or not material, that involves management or other employees who have a
significant role in the registrant’s internal control over financial reporting.
February 24, 2021
/s/ MATTHEW E. CLARK
Matthew E. Clark
Executive Vice President and Chief Financial Officer
(Principal Financial Officer)
THE CHEESECAKE FACTORY INCORPORATED
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
EXHIBIT 32.1
In connection with the Annual Report of The Cheesecake Factory Incorporated (the “Company”) on Form 10-K
for the period ended December 29, 2020 as filed with the Securities and Exchange Commission on the date hereof (the
“Report”), I, David Overton, Chairman of the Board and Chief Executive Officer of the Company, certify, pursuant to 18
U.S.C. § 1350, as adopted pursuant to § 906 of the Sarbanes-Oxley Act of 2002, that:
(1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange
Act of 1934; and
(2) The information contained in the Report fairly presents, in all material respects, the financial condition
and results of operations of the Company.
February 24, 2021
/s/ DAVID OVERTON
David Overton
Chairman of the Board and Chief Executive Officer
THE CHEESECAKE FACTORY INCORPORATED
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
EXHIBIT 32.2
In connection with the Annual Report of The Cheesecake Factory Incorporated (the “Company”) on Form 10-K
for the period ended December 29, 2020 as filed with the Securities and Exchange Commission on the date hereof (the
“Report”), I, Matthew E. Clark, Executive Vice President and Chief Financial Officer of the Company, certify, pursuant
to 18 U.S.C. § 1350, as adopted pursuant to § 906 of the Sarbanes-Oxley Act of 2002, that:
(1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange
Act of 1934; and
(2) The information contained in the Report fairly presents, in all material respects, the financial condition
and results of operations of the Company.
February 24, 2021
/s/ MATTHEW E. CLARK
Matthew E. Clark
Executive Vice President and Chief Financial Officer
26901 Malibu Hills Road
Calabasas Hills, CA 91301
www.thecheesecakefactory.com