UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended
or
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
Commission File Number:
(Exact name of registrant as specified in its charter)
(State or other jurisdiction | (I.R.S. Employer | |
of incorporation or organization) | Identification No.) |
(Address of principal executive offices) | (Zip Code) |
(
(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 |
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.
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).
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.
☒ | 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
As of April 26, 2021,
THE CHEESECAKE FACTORY INCORPORATED
INDEX
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 | $ | | $ | |||
Accounts and other receivable | | | ||||
Income taxes receivable |
| |
| | ||
Inventories |
| |
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Prepaid expenses |
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Total current assets |
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Property and equipment, net |
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Other assets: | ||||||
Intangible assets, net |
| |
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Operating lease assets |
| |
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Other | | | ||||
Total other assets | | | ||||
Total assets | $ | | $ | | ||
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 | | | ||||
Long-term debt |
| |
| | ||
Operating lease liabilities |
| |
| | ||
Other noncurrent liabilities | | | ||||
Commitments and contingencies (Note 8) | ||||||
Series A convertible preferred stock, $ |
| |
| | ||
Stockholders’ equity: | ||||||
Preferred stock, $ | — | — | ||||
Common stock, $ | | | ||||
Additional paid-in capital |
| |
| | ||
Retained earnings |
| |
| | ||
Treasury stock, |
| ( |
| ( | ||
Accumulated other comprehensive loss |
| ( |
| ( | ||
Total stockholders’ equity |
| |
| | ||
Total liabilities, Series A convertible preferred stock and stockholders’ equity | $ | $ | ||||
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 | $ | | $ | | ||
Costs and expenses: | ||||||
Cost of sales |
| |
| | ||
Labor expenses |
| |
| | ||
Other operating costs and expenses |
| |
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General and administrative expenses |
| |
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Depreciation and amortization expenses |
| |
| | ||
Impairment of assets and lease termination expenses |
| |
| | ||
Acquisition-related costs | — | | ||||
Acquisition-related contingent consideration, compensation and amortization expenses/(benefit) | | ( | ||||
Preopening costs |
| |
| | ||
Total costs and expenses |
| |
| | ||
Income/(loss) from operations |
| |
| ( | ||
Interest and other expense, net |
| ( |
| ( | ||
Income/(loss) before income taxes |
| |
| ( | ||
Income tax provision/(benefit) |
| |
| ( | ||
Net income/(loss) | | ( | ||||
Dividends on Series A preferred stock |
| ( |
| | ||
Net loss available to common stockholders | $ | ( | $ | ( | ||
Net loss per common share: | ||||||
Basic | $ | ( | $ | ( | ||
Diluted | $ | ( | $ | ( | ||
Weighted-average common shares outstanding: | ||||||
Basic |
| |
| | ||
Diluted |
| |
| | ||
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) | $ | | $ | ( | ||
Other comprehensive gain/(loss): |
|
| ||||
Foreign currency translation adjustment |
| |
| ( | ||
Unrealized gain/(loss) on derivative, net of tax | | ( | ||||
Other comprehensive gain/(loss) |
| |
| ( | ||
Total comprehensive income/(loss) | $ | | $ | ( | ||
Comprehensive income attributable to preferred stockholders | ( | — | ||||
Total comprehensive income/(loss) available to common stockholders | $ | | $ | ( | ||
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:
|
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| 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 |
| | $ | | | $ | | $ | | $ | | $ | ( | $ | ( | $ | | |||||||||
Cumulative effect of adopting ASU 2020-06 | — | ( | — | — | — | | — | — | | |||||||||||||||||
Balance, December 29, 2020, as adjusted | | | | | | | ( | ( | | |||||||||||||||||
Net income | — | — | — | — | — | | — | — | | |||||||||||||||||
Foreign currency translation adjustment | — | — | — | — | — | — | — | | | |||||||||||||||||
Change in derivative, net of tax |
| — | — | — |
| — |
| — |
| — |
| — |
| |
| | ||||||||||
Cash dividends declared Common stock, net of forfeitures | — | — | — | — | — | | — | — | | |||||||||||||||||
Stock-based compensation |
| — | — | |
| |
| |
| — | — |
| — |
| | |||||||||||
Common stock issued under stock-based compensation plans |
| — | — | |
| |
| | — |
| — |
| — | | ||||||||||||
Treasury stock purchases | — | — | — | — | — | — | ( | — | ( | |||||||||||||||||
Cash dividend declared Series A preferred stock, $ | — | — | — | — | — | ( | — | — | ( | |||||||||||||||||
Balance, March 30, 2021 | | $ | | | $ | | $ | | $ | | $ | ( | $ | ( | $ | | ||||||||||
For the thirteen weeks ended March 31, 2020:
|
|
|
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|
|
|
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| 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 |
| — | $ | — | | $ | | $ | | $ | | $ | ( | $ | ( | $ | | |||||||||
Net loss |
| — | — | — |
| — |
| — |
| ( |
| — |
| — |
| ( | ||||||||||
Foreign currency translation adjustment | — | — | — | — | — | — | ( | ( | ||||||||||||||||||
Change in derivative, net of tax | — | — | — | — | — | — | — | ( | ( | |||||||||||||||||
Cash dividends declared Common stock, $ |
| — | — | — |
| — |
| — |
| ( |
| — |
| — |
| ( | ||||||||||
Stock-based compensation |
| — | — | |
| |
| |
| — |
| — |
| — | | |||||||||||
Common stock issued under stock-based compensation plans | — | — | | | | — | — | — | | |||||||||||||||||
Treasury stock purchases | — | — | — | — | — | — | ( | — | ( | |||||||||||||||||
Balance, March 31, 2020 | — | $ | — | | $ | $ | | $ | | $ | ( | $ | ( | $ | | |||||||||||
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) | $ | | $ | ( | ||
Adjustments to reconcile net income/(loss) to cash provided by/(used in) operating activities: | ||||||
Depreciation and amortization expenses | | |||||
Impairment of assets and lease termination expense |
| |
| | ||
Deferred income taxes | ( | ( | ||||
Stock-based compensation |
| |
| | ||
Changes in assets and liabilities: | ||||||
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/(used in) operating activities |
| |
| ( | ||
Cash flows from investing activities: | ||||||
Additions to property and equipment |
| ( |
| ( | ||
Additions to intangible assets |
| ( |
| ( | ||
Other | ( | — | ||||
Cash used in investing activities |
| ( |
| ( | ||
Cash flows from financing activities: | ||||||
Borrowings on credit facility | — | | ||||
Proceeds from exercise of stock options |
| |
| | ||
Cash dividends paid |
| ( |
| ( | ||
Treasury stock purchases |
| ( |
| ( | ||
Cash provided by 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 | $ | | $ | | ||
Supplemental disclosures: | ||||||
Interest paid | $ | | $ | | ||
Income taxes paid | $ | | $ | | ||
Construction payable | $ | | $ | | ||
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
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 $
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 | $ | | $ | — | $ | — | |||
Non-qualified deferred compensation liabilities | ( | — | — | ||||||
Acquisition-related deferred consideration | — | ( | — | ||||||
Acquisition-related contingent consideration and compensation liabilities | — | — | ( | ||||||
Interest rate swap | — | ( | — | ||||||
December 29, 2020 | |||||||||
| Level 1 |
| 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 | — | — | ( | ||||||
Interest rate swap | — | ( | — | ||||||
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 $
| Thirteen |
| Thirteen | |||
Weeks Ended | Weeks Ended | |||||
March 30, 2021 | March 31, 2020 | |||||
Beginning balance | $ | | $ | | ||
Change in fair value |
| |
| ( | ||
Ending balance | $ | | $ | | ||
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 | $ | | $ | | ||
Bakery finished goods and work in progress |
| |
| | ||
Bakery raw materials and supplies |
| |
| | ||
Total | $ | | $ | | ||
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 | $ | |
| $ | | |
Activations |
| |
| | ||
Redemptions and breakage |
| ( |
| ( | ||
Ending balance | $ | |
| $ | | |
Thirteen | Thirteen | |||||
Weeks Ended | Weeks Ended | |||||
| March 30, 2021 |
| March 31, 2020 | |||
Gift card contract assets: | ||||||
Beginning balance | $ | |
| $ | | |
Deferrals |
| |
| | ||
Amortization |
| ( |
| ( | ||
Ending balance | $ | |
| $ | | |
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 $
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 $
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
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
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 $
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 | Thirteen | |||||
| March 30, 2021 |
| March 31, 2020 | |||
Operating | $ | | $ | | ||
Variable | | | ||||
Short-term | | | ||||
Total | $ | | $ | | ||
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 | $ | | $ | | |||
Right-of-use assets obtained in exchange for new operating lease liabilities | | | |||||
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
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 $
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 | $ | ( | $ | |||
Other comprehensive loss before reclassifications |
| | ( | |||
Amounts reclassified from AOCL |
| | — | |||
Other comprehensive loss, net of tax |
| | ( | |||
Ending balance | $ | ( | $ | ( | ||
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 $
On June 22, 2018, the Internal Revenue Service issued a Notice of Deficiency in which they disallowed $
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 $
Under authorization by our Board to repurchase up to
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
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 $
Dividend Rights
The holders of Series A preferred stock are entitled to dividends on the Liquidation Preference at the rate of
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 $
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
Upon adoption of ASU 2020-06 in the first quarter of fiscal 2021, we recorded a $
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)
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
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.
Thirteen | Thirteen | |||||
Weeks Ended | Weeks Ended | |||||
| March 30, 2021 |
| March 31, 2020 | |||
Labor expenses | $ | | $ | | ||
Other operating costs and expenses |
| |
| | ||
General and administrative expenses |
| |
| | ||
Total stock-based compensation |
| |
| | ||
Income tax benefit |
| |
| | ||
Total stock-based compensation, net of taxes | $ | | $ | | ||
Capitalized stock-based compensation (1) | $ | | $ | | ||
| (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 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 $
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 | | $ | | $ | | |||||
Granted |
| — | — | |||||||
Exercised |
| ( | | |||||||
Forfeited or cancelled |
| — | — | |||||||
Outstanding at March 30, 2021 | | $ | | $ | | |||||
Exercisable at March 30, 2021 |
| | $ | | $ | | ||||
| (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 $
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 | | $ | | ||
Granted |
| | | ||
Vested |
| ( | | ||
Forfeited |
| ( | | ||
Outstanding at March 30, 2021 | | $ | | ||
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 $
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,
Holders of our Series A Convertible Preferred Stock, par value $
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) | $ | | $ | ( | ||
Dividends on Series A preferred stock |
| ( |
| — | ||
Net loss available to common stockholders |
| ( |
|
| ( | |
Basic weighted-average shares outstanding | | | ||||
Basic net loss per common share | $ | ( | $ | ( | ||
Diluted net income/(loss) per common share: | ||||||
Net loss available to common stockholders | $ | ( | $ | ( | ||
Basic weighted-average shares outstanding | | | ||||
Dilutive effect of equity awards (1) | — | — | ||||
Diluted weighted-average shares outstanding | | | ||||
Diluted net loss per common share | $ | ( | $ | ( | ||
| (1) | Shares of common stock equivalents of |
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.
15
Segment information is presented below (in thousands):
Thirteen | Thirteen | |||||
Weeks Ended | Weeks Ended | |||||
| March 30, 2021 | March 31, 2020 | ||||
Revenues: | ||||||
The Cheesecake Factory | $ | | $ | | ||
North Italia | | | ||||
Other FRC | | | ||||
Other |
| |
| | ||
Total | $ | | $ | | ||
Income/(loss) from operations: | ||||||
The Cheesecake Factory | $ | | $ | | ||
North Italia | | ( | ||||
Other FRC | | ( | ||||
Other |
| ( |
| ( | ||
Total | $ | $ | ( | |||
Depreciation and amortization expenses: | ||||||
The Cheesecake Factory | $ | | $ | | ||
North Italia | | | ||||
Other FRC | | | ||||
Other |
| |
| | ||
Total | $ | | $ | | ||
Impairment of assets and lease termination expenses: | ||||||
The Cheesecake Factory | $ | — | $ | | ||
North Italia | — | | ||||
Other FRC | — | | ||||
Other | | | ||||
Total | $ | | $ | | ||
Preopening costs: | ||||||
The Cheesecake Factory | $ | | $ | | ||
North Italia | | | ||||
Other FRC | | ( | ||||
Other |
| |
| | ||
Total | $ | | $ | | ||
Capital expenditures: | ||||||
The Cheesecake Factory | $ | | $ | | ||
North Italia | | | ||||
Other FRC | | | ||||
Other | | | ||||
Total | $ | | $ | | ||
| March 30, 2021 |
| December 29, 2020 | |||
Total assets: | ||||||
The Cheesecake Factory | $ | | $ | | ||
North Italia | | | ||||
Other FRC |
| |
| | ||
Other |
| |
| | ||
Total | $ | | $ | | ||
16
13. Subsequent Events
On March 30, 2021, the Audit Committee of our Board declared a cash dividend of $
17
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
Forward-Looking Statements
Certain information included in this Form 10-Q and other materials 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 corporate social responsibility (CSR) report, the effects of the COVID-19 pandemic on our financial condition and our results of operation, including our expectation 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 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 the FRC brands; 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, the FRC brands and our 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; the resolutions of uncertain tax positions with the Internal Revenue Service and the 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.
18
In connection with the “safe harbor” provisions of the Acts, we have identified and are disclosing important factors, risks and uncertainties that could cause our actual results to differ materially from those projected in forward-looking statements made by us, or on our behalf. (See Part II, Item 1A of this report, “Risk Factors,” and Part I, Item 1A, “Risk Factors,” included in our Annual Report on Form 10-K for the fiscal year ended December 29, 2020.) 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.
The below discussion and analysis, which contains forward-looking statements, should be read in conjunction with our interim unaudited condensed consolidated financial statements and related notes in Part I, Item 1 of this report and with the following items included in our Annual Report on Form 10-K for the fiscal year ended December 29, 2020: the audited consolidated financial statements and related notes in Part IV, Item 15; the "Risk Factors" included in Part I, Item 1A; the "Management's Discussion and Analysis of Financial Condition and Results of Operations" included in Part II, Item 7; and the cautionary statements included throughout this Form 10-Q. The inclusion of supplementary analytical and related information herein may require us to make estimates and assumptions to enable us to fairly present, in all material respects, our analysis of trends and expectations with respect to our results of operations and financial position.
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. While restrictions on the type of permitted operating model and occupancy capacity continue to change, as of April 27, 2021, nearly all of the Company’s restaurants were operating with limited indoor dining capacity with The Cheesecake Factory restaurants with reopened dining rooms operating on average at 60% indoor capacity. As of April 27, 2021, one The Cheesecake Factory location was operating an off-premise only model and two Other FRC locations were temporarily closed and plan to reopen in the second quarter of fiscal 2021.
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.
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 298 restaurants throughout the United States and Canada under brands including The Cheesecake Factory®, North Italia® and a collection within our FRC business. Internationally, 28 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.
19
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.
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 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 acquisitions of North Italia and FRC, including Flower Child , which we expect will further accelerate and diversify our revenue following the COVID-19 pandemic.
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 Revolving Facility (as defined below) 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 common dividends and repurchase shares in the future will be subject to financial covenants under the Amended Credit Agreement (as defined below), 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.
20
Results of Operations
The following table presents, for the periods indicated, information from our condensed consolidated statements of income/(loss) expressed as percentages of revenues. The results of operations for the interim periods presented are not necessarily indicative of the results to be expected for any other interim period or for the full fiscal year.
| Thirteen |
| Thirteen | ||
Weeks Ended | Weeks Ended | ||||
March 30, 2021 | March 31, 2020 | ||||
Revenues |
| 100.0 | % | 100.0 | % |
Costs and expenses: |
|
| |||
Cost of sales |
| 21.7 |
| 22.9 | |
Labor expenses |
| 36.6 |
| 38.6 | |
Other operating costs and expenses |
| 28.9 |
| 27.3 | |
General and administrative expenses |
| 7.1 |
| 7.1 | |
Depreciation and amortization expenses |
| 3.5 |
| 3.8 | |
Impairment of assets and lease termination expenses |
| 0.1 | 31.2 | ||
Acquisition-related costs | — | 0.2 | |||
Acquisition-related contingent consideration, compensation and amortization expenses/(benefit) | 0.1 | (0.7) | |||
Preopening costs |
| 0.6 |
| 0.5 | |
Total costs and expenses |
| 98.6 |
| 130.9 | |
Income/(loss) from operations |
| 1.4 |
| (30.9) | |
Interest and other expense, net |
| (0.4) |
| (0.2) | |
Income/(loss) before income taxes |
| 1.0 |
| (31.1) | |
Income tax provision/(benefit) |
| 0.4 |
| (9.0) | |
Net income/(loss) |
| 0.6 | (22.1) | ||
Dividends on Series A preferred stock | (0.8) | — | |||
Net loss available to common stockholders | (0.2) | % | (22.1) | % |
Thirteen Weeks Ended March 30, 2021 Compared to Thirteen Weeks Ended March 31, 2020
Revenues
Revenues increased 2.0% to $627.4 million for the fiscal quarter ended March 30, 2021 compared to $615.1 million for the comparable prior year period, primarily due to an increase in comparable restaurant sales, new restaurant openings and third-party bakery sales, partially offset by permanent and temporary restaurant closures.
The Cheesecake Factory comparable sales increased by 2.8%, or $13.0 million, from the first quarter of fiscal 2020 and decreased 10.4% from the first quarter of fiscal 2019. The increase from fiscal 2020 was primarily driven by average check growth of 19.6% (based on an increase of 3.0% in menu pricing and a 16.6% positive change in mix), partially offset by decline in customer traffic of 16.8% primarily due to the COVID-19 pandemic. We implemented effective menu price increases of approximately 1.5% in both the first quarter of fiscal 2021 and third quarter of fiscal 2020. Sales through the off-premise channel comprised approximately 43% of our restaurant sales during the first quarter of fiscal 2021 as compared to 22% in the first quarter of fiscal 2020 as consumer behavior shifted towards off-premise dining throughout the pandemic. We account for each off-premise order as one guest 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 had a corresponding impact on the in the reported traffic. The Cheesecake Factory average sales per restaurant operating week increased 2.1% to $186,478 in the first quarter of fiscal 2021 from $182,674 in the first quarter of fiscal 2020. Total operating weeks at The Cheesecake Factory restaurants increased 0.1% to 2,678 in the first quarter of fiscal 2021 compared to 2,674 in the prior year.
21
North Italia comparable sales increased approximately 5% from the first quarter of fiscal 2020 and decreased approximately 5% compared to the first quarter of fiscal 2019. North Italia average sales per restaurant operating week increased 3.0% to $108,327 in the first quarter of fiscal 2021 from $105,214 in the first quarter of fiscal 2020. Total operating weeks at North Italia increased 4.5% to 303 in the first quarter of fiscal 2021 compared to 290 in the prior year.
Restaurants become eligible to enter the comparable sales base in their 19th month of operation. At March 30, 2021, there were four The Cheesecake Factory restaurants and three 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.
External bakery sales were $16.7 million for the first quarter of fiscal 2021 compared to $13.8 million in the comparable prior year period.
Cost of Sales
Cost of sales consists of food, beverage 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 21.7% and 22.9% in the first quarters of fiscal 2021 and 2020, respectively, reflecting a shift in sales mix within the restaurants, a higher proportion of third-party bakery revenues and pricing leverage.
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 36.6% and 38.6% in the first quarters of fiscal 2021 and 2020, respectively. This decrease was primarily due to deleverage in the prior year when costs associated with the COVID-19 pandemic, including maintaining our full restaurant management team and healthcare benefits for our furloughed staff members, were incurred in the reduced sales environment.
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 28.9% and 27.3% in the first quarters of fiscal 2021 and 2020, respectively. This variance was primarily driven by increased restaurant-level incentive compensation expense, costs associated with COVID-19, such as additional sanitation and personal protective equipment, and marketing expenses, partially offset by decreased occupancy costs.
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 7.1% in both the first quarters of fiscal 2021 and 2020 as higher corporate incentive compensation expense was offset by cost management efforts.
Depreciation and Amortization Expenses
As a percentage of revenues, depreciation and amortization expenses decreased to 3.5% in the first quarter of fiscal 2021 from 3.8% in the comparable prior year period.
22
Impairment of Assets and Lease Terminations
During the first quarter of fiscal 2021, we recorded impairment of assets and lease terminations expense of $0.6 million related to lease termination costs for two Other restaurants, one of which closed during the fourth quarter of fiscal 2020 and one that closed at the beginning of the first quarter of fiscal 2021. In the first quarter of fiscal 2020, we recorded $8.9 million of impairment of assets and lease terminations expense primarily related to the impairment of one The Cheesecake Factory, one North Italia, two Other FRC and four Other restaurants. In addition, during the first quarter of fiscal 2020, we determined it was necessary to perform an interim assessment of our goodwill, trade names, trademarks and licensing agreements due to the decrease in our stock price coupled with the dining room closures related to the COVID-19 pandemic and significant decline to the equity value of our peers and overall U.S. stock market. Based on the results of this assessment, we recorded $191.9 million of impairment expense. 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.
Acquisition-Related Contingent Consideration, Compensation and Amortization Expenses/(Benefit)
In the first quarter of fiscal 2021, we recorded $0.6 million of acquisition-related contingent consideration, compensation and amortization, primarily reflecting changes in the fair value of the deferred and contingent consideration and compensation liabilities. In the first quarter of fiscal 2020, we recorded a benefit of $4.5 million, reflecting a $6.0 million decrease in the fair value of the contingent consideration and compensation liabilities related to the impact of the COVID-19 pandemic, partially offset by an increase of $1.5 million in the deferred consideration liability.
Preopening Costs
Preopening costs were $3.9 million and $3.1 million in the first quarters of fiscal 2021 and 2020, respectively. We opened one The Cheesecake Factory, one North Italia and one Other FRC location in the first quarter of fiscal 2021 compared to one North Italia and one Flower Child location in the comparable prior year period. 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. 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.
Interest and Other Expense, Net
Interest and other expense, net was $2.7 million and $1.5 million for the first quarters of fiscal 2021 and 2020, respectively. This variance was primarily due to lower gains on our investments used to support our non-qualified executive deferred compensation plan.
Income Tax Provision/(Benefit)
Our effective income tax rate was 37.1% and 28.9% for the first quarters of fiscal 2021 and 2020, respectively. The increase resulted primarily from a reserve for an uncertain tax position recorded in the first quarter of fiscal 2021 related to tenant improvement allowances, partially offset by a higher proportion of employment credits in relation to pre-tax income/(loss) in the first quarter of fiscal 2021 and a benefit in the prior year arising from the expected carryback of our anticipated fiscal 2020 loss to prior years when the federal statutory rate was 35%.
23
Non-GAAP Measures
Adjusted net income and adjusted net income per share are supplemental measures of our performance that are not required by or presented in accordance with GAAP. These non-GAAP measures may not be comparable to similarly titled measures used by other companies and should not be considered in isolation or as a substitute for measures of performance prepared in accordance with GAAP. We calculate these non-GAAP measures by eliminating from net loss and diluted net loss 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 assume all convertible preferred shares 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.
Following is a reconciliation from net income/(loss) and diluted net income/(loss) per common share to the corresponding adjusted measures (in thousands, except per share data):
| Thirteen |
| Thirteen | |||
Weeks Ended | Weeks Ended | |||||
March 30, 2021 | March 31, 2020 | |||||
Net loss available to common stockholders | $ | (1,202) | $ | (136,163) | ||
Dividends on Series A preferred stock |
| 5,070 |
| — | ||
COVID-19 related costs (1) | 4,917 | 3,290 | ||||
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) | ||||
Uncertain tax position related to tenant improvement allowances | 2,471 | — | ||||
Tax effect of adjustments (2) | (1,576) | (49,908) | ||||
Adjusted net income | $ | 10,824 | $ | 5,885 | ||
Diluted net loss per common share | $ | (0.03) | $ | (3.11) | ||
Dividends on Series A preferred stock |
| 0.09 |
| — | ||
Assumed impact of potential conversion of Series A preferred stock into common stock (3) | 0.00 | — | ||||
COVID-19 related costs (1) | 0.09 | 0.07 | ||||
Impairment of assets and lease termination expenses | 0.01 | 4.38 | ||||
Acquisition-related costs | — | 0.03 | ||||
Acquisition-related contingent consideration, compensation and amortization expenses/(benefit) | 0.01 | (0.10) | ||||
Uncertain tax position related to tenant improvement allowances | 0.05 | — | ||||
Tax effect of adjustments (2) | (0.03) | (1.14) | ||||
Adjusted net income per share (4) | $ | 0.20 | $ | 0.13 | ||
| (1) | Represents incremental costs associated with the COVID-19 pandemic such as additional sanitation, personal protective equipment, sick and vaccination pay, and healthcare benefits associated with furloughed staff members. For the thirteen weeks ended March 30, 2021, we recorded $4.9 million for these costs with approximately $4.6 million reflected in other operating expenses and $0.3 million in labor expenses. For the thirteen weeks ended March 31, 2020, we recorded $3.3 million for these costs with approximately $2.3 million reflected in labor expenses and $1.0 million in other operating 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 preferred stock into common stock (9,598,559 shares), resulting in an assumption of 53,787,314 weighted-average common shares outstanding for the first quarter of fiscal 2021. |
| (4) | Adjusted net income per share may not add due to rounding. |
Second Quarter Fiscal 2021 Update
Second quarter-to-date through April 27, 2021, The Cheesecake Factory restaurant comparable sales increased approximately 220% and 7% compared to the comparable period in fiscal 2020 and fiscal 2019, respectively. Second quarter-to-date
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through April 27, 2021, North Italia comparable sales increased approximately 336% and 8% compared to the comparable period in fiscal 2020 and fiscal 2019, respectively.
Fiscal 2021 Outlook
For fiscal 2021, we currently estimate commodity cost inflation of approximately 2% and continue to expect government-mandated minimum wage impacts to be more favorable than in recent years. However, there is some uncertainty to overall hourly wage rate inflation given the more competitive current industry labor environment. In addition, we estimate G&A of approximately $47 million per quarter for the remainder of fiscal 2021.
We plan to open as many as 14 new restaurants in fiscal 2021, including two The Cheesecake Factory restaurants, six North Italia restaurants and six restaurants within our FRC business, which includes two Flower Child locations. Internationally, we expect to open as many as three The Cheesecake Factory restaurants under licensing agreements. We currently estimate fiscal 2021 cash capital expenditures to be approximately $100 million. This estimate contemplates a net outlay of approximately $47 million for restaurants expected to open during fiscal 2021, approximately $43 million for replacements, enhancements and capacity additions to our existing restaurants and approximately $10 million for bakery and corporate infrastructure investments.
Liquidity and Capital Resources
During the first quarter of fiscal 2021, our cash and cash equivalents increased by $27.3 million to $181.3 million. The following table presents, for the periods indicated, a summary of our key cash flows from operating, investing and financing activities (in millions):
Thirteen | Thirteen | |||||
Weeks Ended | Weeks Ended | |||||
| March 30, 2021 |
| March 31, 2020 | |||
Cash provided by/(used in) operating activities | $ | 21.6 | $ | (33.0) | ||
Additions to property and equipment | (7.2) | (15.8) | ||||
Net borrowings on credit facility | — | 90.0 | ||||
Proceeds from exercise of stock options | 20.4 | 0.0 | ||||
Cash dividends paid | (2.2) | (15.8) | ||||
Treasury stock purchases | (4.0) | (2.6) | ||||
Cash Provided by/(Used in) Operating Activities
Cash flows from operations increased by $54.6 million from the first quarter of fiscal 2020 primarily due to a lesser impact from the COVID-19 pandemic during the first quarter of fiscal 2021. 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.
Property and Equipment
Capital expenditures were $7.2 million and $15.8 million in the first quarter of fiscal 2021 and 2020, respectively. We opened three restaurants in fiscal 2021 comprised of one The Cheesecake Factory, one North Italia and one Other FRC location, of which a significant amount of the development was completed in fiscal 2020, compared to one North Italia and one Flower Child restaurant during the comparable prior year period. We currently estimate fiscal 2021 cash capital expenditures to be approximately $100 million.
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Revolving Facility
On March 30, 2021, we entered into an Amended Credit Agreement, which terminates on July 30, 2024, and 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 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. As of March 30, 2021, we were in compliance with the covenants set forth in the Revolving Facility. (See Note 5 of Notes to Condensed Consolidated Financial Statements in Part I, Item 1 of this report for further discussion of our long-term debt.)
During the first quarter of fiscal 2020, we increased our borrowings under the Revolving Facility by $90.0 million to bolster our cash position and enhance financial flexibility given the impact of the COVID-19 pandemic on our operations. During the third and fourth quarters of fiscal 2020, we repaid $100.0 million of the outstanding balance on the Revolving Facility such that at March 30, 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.
Series A Preferred Stock Issuance
During the second quarter of fiscal 2020, we issued 200,000 shares of Series A 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. (See Note 9 of Notes to Condensed Consolidated Financial Statements in Part I, Item 1 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 the Amended Credit Agreement, in March 2020, our Board suspended the quarterly dividend on our common stock. Prior to this suspension, our Board declared cash dividends of $0.36 per common share for the first quarter of fiscal 2020. Cash dividends of $2.2 million paid in the first quarter of fiscal 2021 represent dividends previously accrued on restricted stock awards that vested during the quarter. 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 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 53.1 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. 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.
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To preserve liquidity during the COVID-19 pandemic and in conjunction with the terms of our Amended Credit Agreement, 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 Credit Agreement that limit share repurchases based on a defined ratio. (See Note 9 of Notes to Condensed Consolidated Financial Statements in Part I, Item 1 of this report for further discussion of our repurchase authorization and methods.)
Cash Flow Outlook
We believe that our cash and cash equivalents, combined with expected cash flows provided by operations and available borrowings under the Revolving Facility, will provide us with adequate liquidity for the next 12 months.
As of March 30, 2021, 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.
Recent Accounting Pronouncements
See Note 1 of Notes to Condensed Consolidated Financial Statements in Part I, Item 1 of this report for a summary of new accounting standards.
Item 3. 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 interim unaudited condensed consolidated financial statements and related notes in Part I, Item 1 of this report and with the following items in our Annual Report on Form 10-K for the fiscal year ended December 30, 2020: the audited consolidated financial statements and related notes in Part IV, Item 15; the “Risk Factors” in Part I, Item 1A; the “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in Part II, Item 7; and the cautionary statements included throughout the 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 March 30, 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. We may or may not have the ability to increase menu prices or vary menu items in response to food commodity price increases. For both the first quarters of fiscal 2021 and 2020, a hypothetical increase of 1% in food costs would have negatively impacted cost of sales by $1.4 million.
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 Revolving Facility that is indexed to market rates. Based on outstanding borrowings at March 30, 2021 and December 29, 2020, a hypothetical 1% rise in interest rates would have increased interest expense by $2.8 million and $2.8 million, respectively, on an annual basis. (See Note 5 of Notes to Condensed Consolidated Financial Statements in Part I, Item 1 of this report for further discussion of our long-term debt.)
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We are also subject to market risk related to our investments in variable life insurance contracts used to support our non-qualified executive deferred compensation plan 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 March 30, 2021 and December 29, 2020, 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 a scenario, net income would have declined by $2.2 million at both March 30, 2021 and December 29, 2020.
Item 4. 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 March 30, 2021.
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 fiscal quarter ended March 30, 2021 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
PART II — OTHER INFORMATION
Item 1. Legal Proceedings.
See Note 8 of Notes to Condensed Consolidated Financial Statements in Part I, Item 1 of this report.
Item 1A. Risk Factors.
A description of the risk factors associated with our business is contained in Part I, Item 1A, “Risk Factors,” of our Annual Report on Form 10-K for the fiscal year ended December 29, 2020 (“Annual Report”). 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.
There have been no material changes in our risk factors since the filing of our Annual Report.
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Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.
The following table presents our purchases of our common stock during the fiscal quarter ended March 30, 2021:
|
|
| Total Number of |
| Maximum Number | ||||
Shares Purchased | of Shares that May | ||||||||
Total Number | as Part of Publicly | Yet be Purchased | |||||||
of Shares | Average Price | Announced Plans | Under the Plans or | ||||||
Period | Purchased (1) | Paid per Share | or Programs | Programs | |||||
December 30, 2021 — February 2, 2021 |
| 2,450 | $ | 37.23 |
| — |
| 2,967,807 | |
February 3 — March 2, 2021 |
| 55,518 |
| 51.49 |
| — |
| 2,912,289 | |
March 3, 2021 — March 30, 2021 |
| 17,332 |
| 58.11 |
| — |
| 2,894,957 | |
Total |
| 75,300 |
|
|
| — |
|
| |
| (1) | The total number of shares purchased represents shares withheld upon vesting of restricted share awards to satisfy tax withholding obligations. |
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 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.
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 for an aggregate purchase price of $200 million. During the first quarter of fiscal 2021, we declared a cash dividend of $5.1 million, or $25.35 per share.
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 the 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 9 of Notes to Consolidated Financial Statements in Part I, Item 1 of this report for further discussion of our stockholders' equity and Series A preferred stock.)
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Item 6. Exhibits
Exhibit |
| Item |
| Form |
| File Number |
| Incorporated by |
| Filed with SEC |
|---|---|---|---|---|---|---|---|---|---|---|
3.1 | Restated Certificate of Incorporation of The Cheesecake Factory Incorporated | 10-Q | 000-20574 | 3.2 | 8/6/18 | |||||
3.2 | Certificate of Designations of The Cheesecake Factory Incorporated, dated April 20, 2020 | 8-K | 000-20574 | 3.1 | 4/20/20 | |||||
3.3 | Bylaws of The Cheesecake Factory Incorporated (Amended and Restated on May 20, 2009) | 8-K | 000-20574 | 3.8 | 5/27/09 | |||||
10.1 | 8-K | 000-20574 | 10.1 | 4/5/21 | ||||||
10.2 | — | — | — | Filed herewith | ||||||
31.1 |
| Rule 13a-14(a)/15d-14(a) Certification of the Principal Executive Officer | — | — | — | Filed herewith | ||||
31.2 |
| Rule 13a-14(a)/15d-14(a) Certification of the Principal Financial Officer | — | — | — | Filed herewith | ||||
32.1 |
| — | — | — | Filed herewith | |||||
32.2 |
| — | — | — | Filed herewith | |||||
101.1 |
| The following materials from The Cheesecake Factory Incorporated’s Quarterly Report on Form 10-Q for the quarter ended March 30, 2021, formatted in Inline eXtensible Business Reporting Language (iXBRL): (i) condensed consolidated balance sheets, (ii) condensed consolidated statements of income, (iii) condensed consolidated statements of comprehensive income, (iv) condensed consolidated statement of stockholders’ equity, (v) condensed consolidated statements of cash flows, and (vi) the notes to the condensed consolidated financial statements |
| — | — | — | Filed herewith | |||
104.1 | The cover page of The Cheesecake Factory Incorporated’s Quarterly Report on Form 10-Q for the quarter ended March 30, 2021, formatted in iXBRL (included with Exhibit 101.1) | — | — | — | Filed herewith |
* 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.
# Management contract or compensatory plan or arrangement required to be filed as an exhibit.
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SIGNATURES
Pursuant to the requirements 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.
Date: May 3, 2021 | THE CHEESECAKE FACTORY INCORPORATED | |
By: | /s/ DAVID OVERTON | |
David Overton | ||
Chairman of the Board and Chief Executive Officer | ||
(Principal Executive Officer) | ||
By: | /s/ MATTHEW E. CLARK | |
Matthew E. Clark | ||
Executive Vice President and Chief Financial Officer | ||
(Principal Financial Officer) | ||
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