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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 30, 2021

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

51-0340466

(State or other jurisdiction

(I.R.S. Employer

of incorporation or organization)

Identification No.)

26901 Malibu Hills Road

Calabasas Hills, California

91301

(Address of principal executive offices)

(Zip Code)

(818) 871-3000

(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Securities Exchange Act of 1934:

Title of Each Class

    

Trading Symbol

    

Name of Each Exchange on which Registered

Common Stock, par value $.01 per share

CAKE

Nasdaq Global Select Market

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 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

Accelerated filer

Non-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 is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes  No 

As of April 26, 2021, 46,479,297 shares of the registrant’s Common Stock, $.01 par value per share, were outstanding.

THE CHEESECAKE FACTORY INCORPORATED

INDEX

 

Page
Number

PART I

FINANCIAL INFORMATION

Item 1.

Unaudited Financial Statements:

Condensed Consolidated Balance Sheets

1

Condensed Consolidated Statements of Income/(Loss)

2

Condensed Consolidated Statements of Comprehensive Income/(Loss)

6

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

4

Condensed Consolidated Statements of Cash Flows

5

Notes to Condensed Consolidated Financial Statements

6

Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

18

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

27

Item 4.

Controls and Procedures

28

PART II

OTHER INFORMATION

28

Item 1.

Legal Proceedings

28

Item 1A.

Risk Factors

28

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds.

29

Item 6.

Exhibits

30

Signatures

31

PART I — FINANCIAL INFORMATION

Item 1.        Financial Statements.

THE CHEESECAKE FACTORY INCORPORATED

CONDENSED CONSOLIDATED BALANCE SHEETS

(In thousands, except share data)

(Unaudited)

March 30,

December 29,

    

2021

    

2020

ASSETS

Current assets:

Cash and cash equivalents

$

181,345

$

154,085

Accounts and other receivable

57,815

75,787

Income taxes receivable

 

34,973

 

36,889

Inventories

 

38,955

 

39,288

Prepaid expenses

 

30,727

 

35,310

Total current assets

 

343,815

 

341,359

Property and equipment, net

 

760,722

 

774,137

Other assets:

Intangible assets, net

 

253,152

 

253,160

Operating lease assets

 

1,245,892

 

1,251,027

Other

131,858

127,371

Total other assets

1,630,902

1,631,558

Total assets

$

2,735,439

$

2,747,054

LIABILITIES, SERIES A CONVERTIBLE PREFERRED STOCK AND STOCKHOLDERS’ EQUITY

Current liabilities:

Accounts payable

$

56,047

$

58,432

Gift card liabilities

 

166,178

 

184,655

Operating lease liabilities

132,521

132,519

Other accrued expenses

203,211

210,461

Total current liabilities

557,957

586,067

Long-term debt

 

280,000

 

280,000

Operating lease liabilities

 

1,216,473

 

1,224,321

Other noncurrent liabilities

151,010

149,725

Commitments and contingencies (Note 8)

Series A convertible preferred stock, $.01 par value, 200,000 shares authorized; 200,000 and 200,000 shares issued and outstanding at March 30, 2021 and December 29, 2020, respectively

 

213,485

 

218,248

Stockholders’ equity:

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; 99,508,470 and 98,645,147 shares issued at March 30, 2021 and December 29, 2020, respectively

995

986

Additional paid-in capital

 

904,045

 

878,148

Retained earnings

 

1,114,047

 

1,110,087

Treasury stock, 53,101,293 and 53,026,409 shares at cost at March 30, 2021 and December 29, 2020, respectively

 

(1,700,700)

 

(1,696,743)

Accumulated other comprehensive loss

 

(1,873)

 

(3,785)

Total stockholders’ equity

 

316,514

 

288,693

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

$

2,735,439

$

2,747,054

See the accompanying notes to the condensed consolidated financial statements

1

THE CHEESECAKE FACTORY INCORPORATED

CONDENSED CONSOLIDATED STATEMENTS OF INCOME/(LOSS)

(In thousands, except per share data)

(Unaudited)

Thirteen

Thirteen

Weeks Ended

Weeks Ended

    

March 30, 2021

    

March 31, 2020

Revenues

$

627,417

$

615,106

Costs and expenses:

Cost of sales

 

135,875

 

140,905

Labor expenses

 

229,732

 

236,982

Other operating costs and expenses

 

181,533

 

167,970

General and administrative expenses

 

44,427

 

43,960

Depreciation and amortization expenses

 

22,006

 

23,562

Impairment of assets and lease termination expenses

 

594

 

191,896

Acquisition-related costs

1,236

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

550

(4,466)

Preopening costs

 

3,856

 

3,119

Total costs and expenses

 

618,573

 

805,164

Income/(loss) from operations

 

8,844

 

(190,058)

Interest and other expense, net

 

(2,694)

 

(1,518)

Income/(loss) before income taxes

 

6,150

 

(191,576)

Income tax provision/(benefit)

 

2,282

 

(55,413)

Net income/(loss)

3,868

(136,163)

Dividends on Series A preferred stock

 

(5,070)

 

Net loss available to common stockholders

$

(1,202)

$

(136,163)

Net loss per common share:

Basic

$

(0.03)

$

(3.11)

Diluted

$

(0.03)

$

(3.11)

Weighted-average common shares outstanding:

Basic

 

44,189

 

43,773

Diluted

 

44,189

 

43,773

See the accompanying notes to the condensed consolidated financial statements.

2

THE CHEESECAKE FACTORY INCORPORATED

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME/(LOSS)

(In thousands)

(Unaudited)

Thirteen

Thirteen

   

Weeks Ended

   

Weeks Ended

March 30, 2021

March 31, 2020

Net income/(loss)

$

3,868

$

(136,163)

Other comprehensive gain/(loss):

 

 

Foreign currency translation adjustment

 

174

 

(936)

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

1,738

(2,370)

Other comprehensive gain/(loss)

 

1,912

 

(3,306)

Total comprehensive income/(loss)

$

5,780

$

(139,469)

Comprehensive income attributable to preferred stockholders

(5,070)

Total comprehensive income/(loss) available to common stockholders

$

710

$

(139,469)

See the accompanying notes to the condensed consolidated financial statements

3

THE CHEESECAKE FACTORY INCORPORATED

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

(In thousands)

(Unaudited)

For the thirteen weeks ended March 30, 2021:

    

    

    

    

    

    

    

Accumulated

    

Series A Convertible

Additional

Other

Preferred Stock

Common Stock

Paid-in

Retained

Treasury

Comprehensive

Shares

  

  

Amount

  

  

Shares

Amount

Capital

Earnings

Stock

Loss

Total

Balance, December 29, 2020

 

200

$

218,248

98,645

$

986

$

878,148

$

1,110,087

$

(1,696,743)

$

(3,785)

$

288,693

Cumulative effect of adopting ASU 2020-06

(4,763)

4,763

4,763

Balance, December 29, 2020, as adjusted

200

213,485

98,645

986

878,148

1,114,850

(1,696,743)

(3,785)

293,456

Net income

3,868

3,868

Foreign currency translation adjustment

174

174

Change in derivative, net of tax

 

 

 

 

 

 

1,738

 

1,738

Cash dividends declared Common stock, net of forfeitures

399

399

Stock-based compensation

 

293

 

3

 

5,480

 

 

 

5,483

Common stock issued under stock-based compensation plans

 

570

 

6

 

20,417

 

 

20,423

Treasury stock purchases

(3,957)

(3,957)

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

(5,070)

(5,070)

Balance, March 30, 2021

200

$

213,485

99,508

$

995

$

904,045

$

1,114,047

$

(1,700,700)

$

(1,873)

$

316,514

For the thirteen weeks ended March 31, 2020:

    

    

 

 

    

    

    

    

    

Accumulated

    

Series A Convertible

Additional

Other

Preferred Stock

Common Stock

Paid-in

Retained

Treasury

Comprehensive

Shares

Amount

Shares

Amount

Capital

Earnings

Stock

Loss

Total

Balance, December 31, 2019

 

$

97,685

$

977

$

855,989

$

1,408,333

$

(1,693,122)

$

(435)

$

571,742

Net loss

 

 

 

 

(136,163)

 

 

 

(136,163)

Foreign currency translation adjustment

(936)

(936)

Change in derivative, net of tax

(2,370)

(2,370)

Cash dividends declared Common stock, $0.36 per share

 

 

 

 

(16,376)

 

 

 

(16,376)

Stock-based compensation

 

566

 

6

 

5,541

 

 

 

5,547

Common stock issued under stock-based compensation plans

203

2

111

113

Treasury stock purchases

(2,586)

(2,586)

Balance, March 31, 2020

$

98,454

$

985

$

861,641

$

1,255,794

$

(1,695,708)

$

(3,741)

$

418,971

See the accompanying notes to the condensed consolidated financial statements.

4

THE CHEESECAKE FACTORY INCORPORATED

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

(Unaudited)

Thirteen

Thirteen

    

Weeks Ended

Weeks Ended

March 30, 2021

    

March 31, 2020

Cash flows from operating activities:

Net income/(loss)

$

3,868

$

(136,163)

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

Depreciation and amortization expenses

22,006

23,562

Impairment of assets and lease termination expense

 

431

 

191,571

Deferred income taxes

(1,508)

(11,231)

Stock-based compensation

 

5,444

 

5,507

Changes in assets and liabilities:

Accounts and other receivables

15,517

38,312

Income taxes receivable/payable

 

1,916

 

(44,553)

Inventories

 

408

 

(605)

Prepaid expenses

 

4,584

 

1,452

Operating lease assets/liabilities

 

(2,684)

 

1,851

Other assets

(2,113)

13,279

Accounts payable

 

(1,588)

 

(3,464)

Gift card liabilities

 

(18,480)

 

(26,753)

Other accrued expenses

(6,159)

(85,745)

Cash provided by/(used in) operating activities

 

21,642

 

(32,980)

Cash flows from investing activities:

Additions to property and equipment

 

(7,227)

 

(15,775)

Additions to intangible assets

 

(480)

 

(128)

Other

(1,000)

Cash used in investing activities

 

(8,707)

 

(15,903)

Cash flows from financing activities:

Borrowings on credit facility

90,000

Proceeds from exercise of stock options

 

20,423

 

113

Cash dividends paid

 

(2,179)

 

(15,791)

Treasury stock purchases

 

(3,957)

 

(2,586)

Cash provided by financing activities

 

14,287

 

71,736

Foreign currency translation adjustment

 

38

 

(246)

Net change in cash and cash equivalents

27,260

22,607

Cash and cash equivalents at beginning of period

 

154,085

 

58,416

Cash and cash equivalents at end of period

$

181,345

$

81,023

Supplemental disclosures:

Interest paid

$

1,742

$

253

Income taxes paid

$

327

$

352

Construction payable

$

4,206

$

3,945

See the accompanying notes to the condensed consolidated financial statements.

5

THE CHEESECAKE FACTORY INCORPORATED

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

1.   Significant Accounting Policies

Basis of Presentation

The accompanying condensed 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. The unaudited financial statements presented herein include all material adjustments (consisting of normal recurring adjustments) which are, in the opinion of management, necessary for the fair statement of the financial condition, results of operations and cash flows for the period. However, these results are not necessarily indicative of results that may be achieved for any other interim period or for the full fiscal year. Certain information and footnote disclosures normally included in financial statements prepared in accordance with GAAP have been omitted pursuant to the rules of the Securities and Exchange Commission (“SEC”). The accompanying condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and notes thereto included in our Annual Report on Form 10-K for the fiscal year ended December 29, 2020 filed with the SEC on February 24, 2021 ("fiscal 2020 10-K").

We utilize a 52/53-week fiscal year ending on the Tuesday closest to December 31 for financial reporting purposes. Fiscal 2021 consists of 52 weeks and will end on December 28, 2021. Fiscal 2020, which ended on December 29, 2020, was also a 52-week year.

Beginning with our fiscal 2020 10-K, we combined accounts receivable and other receivable on the consolidated balance sheet and statement of cash flow. Corresponding balances for the thirteen weeks ended March 31, 2020 were reclassified to conform to the current 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.

COVID-19 Pandemic

The Company is subject to continued 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 in March 2020. We experienced significant disruptions to our business as suggested and mandated social distancing and shelter-in-place orders led to the temporary closure of a number of restaurants across our portfolio while the remaining locations shifted to an off-premise only operating model on an interim basis. In the second quarter of fiscal 2020, certain jurisdictions began allowing the reopening of restaurant dining rooms, and we began to reopen dining rooms across our concepts. However, restrictions on the type of permitted operating model and occupancy capacity continue to change. 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 continued significance of the impact of the COVID-19 pandemic to our operating results and financial position.

6

Recent Accounting Pronouncements

In August 2020, the FASB issued Accounting Standards Update ("ASU") 2020-06, Accounting for Convertible Instruments and Contracts in an Entity's Own Equity, which is intended to simplify the accounting and measurement of convertible instruments and the settlement assessment for contracts in an entity's own equity. This pronouncement is effective for fiscal years beginning after December 15, 2021 and early adoption is permitted. The guidance allows for either full retrospective adoption or modified retrospective adoption. We adopted this guidance in the first quarter of fiscal 2021 utilizing the modified retrospective method and, accordingly, recorded a $4.8 million cumulative adjustment to retained earnings to reverse previously recorded beneficial conversion features.

2.   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

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):

March 30, 2021

    

Level 1

    

Level 2

    

Level 3

Assets/(Liabilities)

 

Non-qualified deferred compensation assets

$

85,596

$

$

Non-qualified deferred compensation liabilities

(84,418)

Acquisition-related deferred consideration

(38,326)

Acquisition-related contingent consideration and compensation liabilities

(7,706)

Interest rate swap

(2,288)

December 29, 2020

    

Level 1

    

Level 2

    

Level 3

Assets/(Liabilities)

Non-qualified deferred compensation assets

$

83,485

$

$

Non-qualified deferred compensation liabilities

(83,702)

 

Acquisition-related deferred consideration

(38,119)

Acquisition-related contingent consideration and compensation liabilities

(7,465)

Interest rate swap

(4,591)

7

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. 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):

    

Thirteen

    

Thirteen

Weeks Ended

Weeks Ended

March 30, 2021

March 31, 2020

Beginning balance

$

7,465

$

13,218

Change in fair value

 

241

 

(5,938)

Ending balance

$

7,706

$

7,280

The change in the fair value of the contingent consideration during the first quarter of 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 and other receivable, income taxes receivable, prepaid expenses, accounts payable, income taxes payable and other accrued expenses approximate their carrying amounts due to their short duration.

3.  Inventories

Inventories consisted of (in thousands):

    

March 30, 2021

    

December 29, 2020

Restaurant food and supplies

$

24,190

$

24,282

Bakery finished goods and work in progress

 

7,642

 

7,861

Bakery raw materials and supplies

 

7,123

 

7,145

Total

$

38,955

$

39,288

4.  Gift Cards

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

Thirteen

Thirteen

Weeks Ended

Weeks Ended

    

March 30, 2021

    

March 31, 2020

Gift card liabilities:

Beginning balance

$

184,655

 

$

187,978

Activations

 

16,465

 

17,340

Redemptions and breakage

 

(34,942)

 

(44,103)

Ending balance

$

166,178

 

$

161,215

Thirteen

Thirteen

Weeks Ended

Weeks Ended

    

March 30, 2021

    

March 31, 2020

Gift card contract assets:

Beginning balance

$

17,955

 

$

23,172

Deferrals

 

2,295

 

2,203

Amortization

 

(3,995)

 

(4,690)

Ending balance

$

16,255

 

$

20,685

The significant declines in redemptions and breakage during the first quarter of 2021 compared to 2020 stem from the impact of the COVID-19 pandemic on our business.

8

5.  Long-Term Debt

On March 30, 2021, we entered into a Second Amendment (the “Second Amendment”) to our existing Third Amended and Restated Loan Agreement, dated July 30, 2019 (as amended by that certain First Amendment, dated as of May 1, 2020 and by the Second Amendment, collectively, the “Amended Credit Agreement”). The Amended Credit Agreement, which terminates on July 30, 2024, consists of a $400 million revolving loan facility (the “Revolving Facility”), including a $40 million sublimit for letters of credit.The Amended Credit Agreement also provides the ability to increase the Revolving Facility in an amount not to exceed (a) during the Covenant Relief Period (as defined below) $125 million and (b) thereafter, $200 million. The funding of any such increases are subject to receipt of lender commitments and satisfaction of customary conditions precedent. Certain of our material subsidiaries have guaranteed our obligations under the Amended Credit Agreement.

The Second Amendment, among other things, (i) extended the prior covenant relief period during which the testing of the net adjusted debt to EBITDAR ratio covenant (the “Net Adjusted Leverage Ratio”) and the EBITDAR to interest and rent expense ratio covenant (the “EBITDAR Ratio”) is suspended until the quarter ending December 28, 2021 (the “Covenant Relief Period”), (ii) continued to impose a monthly liquidity covenant of $100 million until the Company has demonstrated compliance with the financial covenants as of the quarter ending December 28, 2021, (iii) provided that the obligations thereunder be secured by a first priority security interest in substantially all of our and any guarantor’s property, with such property to be released upon (a) the termination of the Covenant Relief Period, (b) the Company’s compliance with the Net Adjusted Leverage Ratio and the EBITDAR Ratio as of the quarter ending on March 29, 2022, (c) neither the Company nor any of the guarantors having incurred unsecured debt using certain debt baskets under the Revolving Facility unless such debt is convertible debt or subordinated on customary debt subordination terms reasonably acceptable to the administrative agent and (d) no default or event of default having occurred or continuing, (iv) amended certain negative covenants during the Covenant Relief Period, including certain restrictions on capital expenditures, restricted payments, investments and indebtedness, and (v) permitted the payment of cash dividends with respect to our Series A Convertible Preferred Stock, par value $0.1 per share (“Series A preferred stock”) for each fiscal quarter of 2021 in an amount not to exceed $5.25 million per quarter.

Borrowings under the Amended Credit Agreement during the Covenant Relief Period bear interest, at our option, at a rate equal to either: (i) the adjusted LIBO Rate (as customarily defined, the “Adjusted LIBO Rate”) plus 2.5%, or (ii) the sum of (a) the highest of (1) the rate of interest last quoted by The Wall Street Journal as the prime rate in effect in the United States, (2) the greater of the rate calculated by the Federal Reserve Bank of New York as the effective federal funds rate or the rate that is published by the Federal Reserve Bank of New York as an overnight bank funding rate, in either case plus 0.5%, and (3) the one-month Adjusted LIBO Rate plus 1.0%, plus (b) 1.5%. We also pay a fee of 0.4% on the daily amount of unused commitments under the Amended Credit Agreement.

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

Letters of credit bear fees that are equivalent to the interest rate margin that is applicable to revolving loans that bear interest at the adjusted LIBO Rate plus other customary fees charged by the issuing bank. We paid certain customary loan origination fees in conjunction with the Amended Credit Agreement. During the first quarter of fiscal 2021 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 $300.4 million at March 29, 2021, and we were in compliance with all covenants under the Amended Credit Agreement in effect at that date.

9

The Amended Credit Agreement contains customary affirmative and negative covenants, including limits on cash dividends and share repurchases with respect to our equity interests, and restrictions on indebtedness, liens, investments, sales of assets, fundamental changes and other matters. The Amended Credit Agreement also contains customary events of default that include, among others, non-payment of principal, interest or fees, violation of covenants, inaccuracy of representations and warranties, bankruptcy and insolvency events, material judgements, cross defaults to material indebtedness and events constituting a change of control. The occurrence of an event of default could result in the termination of commitments under the Revolving Facility, the declaration that all outstanding loans are immediately due and payable in whole or in part and the requirement of cash collateral deposits in respect of outstanding letters of credit.

6. Leases

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

Thirteen
Weeks Ended

Thirteen
Weeks Ended

    

March 30, 2021

    

March 31, 2020

Operating

$

32,394

$

33,041

Variable

16,481

15,828

Short-term

70

129

Total

$

48,945

$

48,998

Supplemental information related to leases (in thousands):

Thirteen

Thirteen

 

Weeks Ended

    

Weeks Ended

    

March 30, 2021

March 31, 2020

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

Operating cash flows from operating leases

$

33,926

$

30,760

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

7,372

14,929

7. Derivative

The Company has an interest rate swap agreement, which matures on April 1, 2025, to manage our exposure to interest rate movements on our Revolving Facility.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 both March 30, 2021 and March 31, 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. At March 30, 2021 and March 31, 2020, the fair value of our interest rate swap was a liability of $2.3 million and $3.1 million, respectively. We reclassified $0.5 million out of accumulated other comprehensive loss (“AOCL”) in the first quarter of fiscal 2021 and none out of AOCL in the first quarter of 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 in the first quarter of fiscal 2021 or 2020.

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

Thirteen

Thirteen

    

Weeks Ended

    

Weeks Ended

March 30, 2021

March 31, 2020

Beginning balance

$

(3,464)

$

Other comprehensive loss before reclassifications

 

1,270

(2,370)

Amounts reclassified from AOCL

 

468

Other comprehensive loss, net of tax

 

1,738

(2,370)

Ending balance

$

(1,726)

$

(2,370)

10

We classified this interest rate swap within Level 2 of the valuation hierarchy described in Note 2. Our counterparty under this arrangement provided monthly statements of the market values of this instrument based on significant inputs that were observable or could be derived principally from, or corroborated by, observable market data for substantially the full term of the asset or liability. The impact on the derivative liability for the Company’s and the counterparty’s non-performance risk to the derivative trade was considered when measuring the fair value of derivative liability.

8. Commitments and Contingencies

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.

9.  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 the Amended Credit Agreement, 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. Future decisions to pay or to increase or decrease dividends are at the discretion of the Board and will be dependent on our operating performance, financial condition, capital expenditure requirements, limitations on cash distributions pursuant to the terms and conditions of the Amended Credit Agreement and applicable law, and such other factors that the Board considers relevant. (See Note 5 for further discussion of our long-term debt.)

Under authorization by our Board to repurchase up to 56.0 million shares of our common stock, we have cumulatively repurchased 53.1 million shares at a total cost of $1,700.7 million through March 30, 2021 with 0.1 million shares repurchased at a cost of $4.0 million during the first quarter of fiscal 2021 to satisfy tax withholding obligations on vested restricted share awards. 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.

11

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 acquisitions of North Italia and FRC (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 Credit Agreement that limit share repurchases based on a defined ratio. (See Note 5 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 preferred stock, par value $0.01 per share for an aggregate purchase price of $200 million, or $1,000 per share. In connection with the issuance, we incurred direct and incremental costs of $10.3 million, including financial advisory fees, closing costs, legal expenses, a commitment fee and other offering-related expenses. These direct and incremental costs reduced the Series A preferred stock balance at the issuance date and were recognized through retained earnings on June 30, 2020, the first measurement date.

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 March 30, 2021, the Liquidation Preference was $1,067.42 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. During the first quarter of fiscal 2021, we declared a cash dividend of $5.1 million, or $25.35 per share.

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. At March 30, 2021, the number of common shares that would be required to be issued upon conversion of the outstanding shares of Series A preferred stock was 9.6 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 the then outstanding common stock. We have the right to settle any conversion in cash. As of March 30, 2021, 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.

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

12

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.

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 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.

10.  Stock-Based Compensation

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

Thirteen

Thirteen

Weeks Ended

Weeks Ended

    

March 30, 2021

    

March 31, 2020

Labor expenses

$

2,043

$

1,966

Other operating costs and expenses

 

74

 

70

General and administrative expenses

 

3,327

 

3,471

Total stock-based compensation

 

5,444

 

5,507

Income tax benefit

 

1,337

 

1,353

Total stock-based compensation, net of taxes

$

4,107

$

4,154

Capitalized stock-based compensation (1)

$

39

$

40

(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 condensed consolidated balance sheets.

13

Stock Options

We did not issue any stock options during the first quarter of fiscal 2021. The weighted-average fair value at the grant date for options issued during the first quarter of fiscal 2020 was $6.66 per share. The fair value of options was estimated utilizing the Black-Scholes valuation model with the following weighted-average assumptions for the first quarter of fiscal 2020: (a) an expected option term of 6.9 years, (b) expected stock price volatility of 25.7%, (c) a risk-free interest rate of 1.5% and (d) a dividend yield on our stock of 3.6%.

Stock option activity during the thirteen weeks ended March 30, 2021 was as follows:

Weighted-

Average

Weighted-

Remaining

Aggregate

Average

Contractual

Intrinsic

    

Shares

    

Exercise Price

    

Term

    

Value(1)

(In thousands)

(Per share)

(In years)

(In thousands)

Outstanding at December 29, 2020

2,294

$

45.35

5.0

$

307

Granted

 

Exercised

 

(484)

42.18

Forfeited or cancelled

 

Outstanding at March 30, 2021

1,810

$

46.20

5.7

$

6,914

Exercisable at March 30, 2021

 

953

$

48.80

4.2

$

6,473

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

The total intrinsic value of options exercised during the thirteen weeks ended March 30, 2021 and March 31, 2020 was $5.7 million and $35.6 million, respectively. As of March 30, 2021, total unrecognized stock-based compensation expense related to unvested stock options was $6.5 million, which we expect to recognize over a weighted-average period of approximately 3.2 years.

Restricted Shares and Restricted Share Units

Restricted share and restricted share unit activity during the thirteen weeks ended March 30, 2021 was as follows:

Weighted-

Average

Fair

    

Shares

    

Value

(In thousands)

(Per share)

Outstanding at December 29, 2020

2,008

$

43.70

Granted

 

385

48.38

Vested

 

(199)

47.93

Forfeited

 

(92)

45.34

Outstanding at March 30, 2021

2,102

$

44.08

Fair value of our restricted shares and restricted share units is based on our closing stock price on the date of grant. The weighted average fair value for restricted shares and restricted share units issued during the first quarter of fiscal 2021 and 2020 was $48.38 and $40.01, respectively. The fair value of shares that vested during the thirteen weeks ended March 30, 2021 was $9.5 million. As of March 30, 2021, total unrecognized stock-based compensation expense related to unvested restricted shares and restricted share units was $46.5 million, which we expect to recognize over a weighted-average period of approximately 3.2 years.

14

11. Net Income/(Loss) Per Share

Basic net income/(loss) per share is computed by dividing net income/(loss) available to common stockholders by the weighted-average number of common shares outstanding during the period, reduced by unvested restricted stock awards. At both March 30, 2021 and March 31, 2020, 2.1 million shares of restricted stock issued were unvested and, therefore, excluded from the calculation of basic earnings per share for the fiscal periods ended on those dates. Diluted net income per share is computed by dividing net income available to common stockholders by the weighted-average number of common stock equivalents outstanding for the period.

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.

Thirteen

Thirteen

Weeks Ended

Weeks Ended

    

March 30, 2021

    

March 31, 2020

(In thousands, except per share data)

Basic net income/(loss) per common share:

Net income/(loss)

$

3,868

$

(136,163)

Dividends on Series A preferred stock

 

(5,070)

 

Net loss available to common stockholders

 

(1,202)

 

(136,163)

Basic weighted-average shares outstanding

44,189

43,773

Basic net loss per common share

$

(0.03)

$

(3.11)

Diluted net income/(loss) per common share:

Net loss available to common stockholders

$

(1,202)

$

(136,163)

Basic weighted-average shares outstanding

44,189

43,773

Dilutive effect of equity awards (1)

Diluted weighted-average shares outstanding

44,189

43,773

Diluted net loss per common share

$

(0.03)

$

(3.11)

(1) Shares of common stock equivalents of 1.5 million and 3.8 million as of March 30, 2021 and March 31, 2020, respectively, were excluded from the diluted calculation due to their anti-dilutive effect.

12.  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 are also combined in Other.

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Segment information is presented below (in thousands):

Thirteen

Thirteen

Weeks Ended

Weeks Ended

    

March 30, 2021

March 31, 2020

Revenues:

The Cheesecake Factory

$

499,389

$

488,471

North Italia

32,823

30,512

Other FRC

36,194

35,583

Other

 

59,011

 

60,540

Total

$

627,417

$

615,106

Income/(loss) from operations:

The Cheesecake Factory

$

44,481

$

39,324

North Italia

332

(72,086)

Other FRC

3,880

(69,964)

Other

 

(39,849)

 

(87,332)

Total

$

8,844

$

(190,058)

Depreciation and amortization expenses:

The Cheesecake Factory

$

16,320

$

17,277

North Italia

844

965

Other FRC

1,177

1,201

Other

 

3,665

 

4,119

Total

$

22,006

$

23,562

Impairment of assets and lease termination expenses:

The Cheesecake Factory

$

$

616

North Italia

71,524

Other FRC

72,939

Other

594

46,817

Total

$

594

$

191,896

Preopening costs:

The Cheesecake Factory

$

2,063

$

1,414

North Italia

1,217

953

Other FRC

463

(159)

Other

 

113

 

911

Total

$

3,856

$

3,119

Capital expenditures:

The Cheesecake Factory

$

4,080

$

8,598

North Italia

1,212

2,964

Other FRC

719

1,104

Other

1,216

3,109

Total

$

7,227

$

15,775

    

March 30, 2021

    

December 29, 2020

Total assets:

The Cheesecake Factory

$

1,622,997

$

1,671,733

North Italia

244,345

270,218

Other FRC

 

285,108

 

308,866

Other

 

582,989

 

496,237

Total

$

2,735,439

$

2,747,054

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13.  Subsequent Events

On March 30, 2021, the Audit Committee of our Board declared a cash dividend of $5.1 million, or $25.35 per share, on our Series A preferred stock, which was paid on March 31, 2021 to the holders of record on March 15, 2021.

17