CHEESECAKE FACTORY INC [CAKE] Filings

10-Q 1 cake-20220329x10q.htm FORM 10-Q

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q


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

For the quarterly period ended June 28, 2022


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

Commission File Number: 0-20574

THE CHEESECAKE FACTORY INCORPORATED

(Exact name of registrant as specified in its charter)

Delaware		51-0340466
(State or other jurisdiction		(I.R.S. Employer
of incorporation or organization)		Identification No.)

26901 Malibu Hills Road
Calabasas Hills, California		91301
(Address of principal executive offices)		(Zip Code)

(818) 871-3000

(Registrant’s telephone number, including area code)

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


Title of Each Class	Trading Symbol	Name of Each Exchange on which Registered
Common Stock, par value $.01 per share	CAKE	The Nasdaq Stock Market LLC

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.


Large accelerated filer	☒	Accelerated filer	☐

Non-accelerated filer	☐	Smaller reporting company	☐
		Emerging growth company	☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒

As of July 25, 2022, 52,228,497 shares of the registrant’s Common Stock, $.01 par value per share, were outstanding.

Table of Contents

THE CHEESECAKE FACTORY INCORPORATED

INDEX

			Page Number

PART I	FINANCIAL INFORMATION
	Item 1.	Financial Statements:
		Condensed Consolidated Balance Sheets (Unaudited)	1
		Condensed Consolidated Statements of Income (Unaudited)	2
		Condensed Consolidated Statements of Comprehensive Income (Unaudited)	3
		Condensed Consolidated Statements of Stockholders’ Equity and Series A Convertible Preferred Stock (Unaudited)	4
		Condensed Consolidated Statements of Cash Flows (Unaudited)	5
		Notes to Condensed Consolidated Financial Statements (Unaudited)	6
	Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	19
	Item 3.	Quantitative and Qualitative Disclosures About Market Risk	31
	Item 4.	Controls and Procedures	32

PART II	OTHER INFORMATION		32
	Item 1.	Legal Proceedings	32
	Item 1A.	Risk Factors	32
	Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	33
	Item 6.	Exhibits	34

Signatures			35

Table of Contents

PART I — FINANCIAL INFORMATION

Item 1. Financial Statements.

THE CHEESECAKE FACTORY INCORPORATED

CONDENSED CONSOLIDATED BALANCE SHEETS

(In thousands, except share data)


	June 28,		December 28,
	2022		2021
	(Unaudited)
ASSETS
Current assets:
Cash and cash equivalents	$	194,891	$	189,627
Accounts and other receivables		71,338		100,504
Income taxes receivable		39,791		36,173
Inventories		52,286		42,839
Prepaid expenses		33,373		36,446
Total current assets		391,679		405,589
Property and equipment, net		745,251		741,746
Other assets:
Intangible assets, net		251,618		251,701
Operating lease assets		1,241,699		1,241,237
Other		142,186		157,852
Total other assets		1,635,503		1,650,790
Total assets	$	2,772,433	$	2,798,125

LIABILITIES, SERIES A CONVERTIBLE PREFERRED STOCK AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable	$	58,927	$	54,086
Gift card liabilities		182,295		211,182
Operating lease liabilities		144,829		131,818
Other accrued expenses		237,453		239,187
Total current liabilities		623,504		636,273

Long-term debt		467,025		466,017
Operating lease liabilities		1,195,912		1,218,269
Other noncurrent liabilities		124,308		147,400
Commitments and contingencies (Note 8)
Series A convertible preferred stock, $.01 par value, 200,000 shares authorized; none issued		—		—
Stockholders’ equity:
Preferred stock, $.01 par value, other than Series A convertible preferred stock, 4,800,000 shares authorized; none issued		—		—
Common stock, $.01 par value, 250,000,000 shares authorized; 106,029,780 and 105,365,678 shares issued at June 28, 2022 and December 28, 2021, respectively		1,060		1,054
Additional paid-in capital		874,551		862,758
Retained earnings		1,203,731		1,169,150
Treasury stock, 53,596,559 and 53,139,172 shares at cost at June 28, 2022 and December 28, 2021, respectively		(1,717,326)		(1,702,509)
Accumulated other comprehensive loss		(332)		(287)
Total stockholders’ equity		361,684		330,166
Total liabilities, Series A convertible preferred stock and stockholders’ equity	$	2,772,433	$	2,798,125

See the accompanying notes to the condensed consolidated financial statements

Table of Contents

THE CHEESECAKE FACTORY INCORPORATED

CONDENSED CONSOLIDATED STATEMENTS OF INCOME

(In thousands, except per share data)

(Unaudited)


	Thirteen		Thirteen		Twenty-Six		Twenty-Six
	Weeks Ended		Weeks Ended		Weeks Ended		Weeks Ended
	June 28, 2022		June 29, 2021		June 28, 2022		June 29, 2021

Revenues	$	832,643	$	768,956	$	1,626,353	$	1,396,373

Costs and expenses:
Cost of sales		204,182		168,944		392,683		304,819
Labor expenses		304,519		274,812		600,282		504,544
Other operating costs and expenses		219,200		199,495		426,835		381,028
General and administrative expenses		50,191		48,228		99,314		92,655
Depreciation and amortization expenses		22,608		22,223		44,113		44,229
Impairment of assets and lease termination expenses		106		—		313		594
Acquisition-related contingent consideration, compensation and amortization expenses		948		11,357		1,839		11,907
Preopening costs		2,947		2,779		4,711		6,635
Total costs and expenses		804,701		727,838		1,570,090		1,346,411
Income from operations		27,942		41,118		56,263		49,962
Interest and other expense, net		(1,130)		(4,706)		(2,591)		(7,400)
Income before income taxes		26,812		36,412		53,672		42,562
Income tax provision		1,156		2,697		4,853		4,979
Net income		25,656		33,715		48,819		37,583
Dividends on Series A preferred stock		—		(13,591)		—		(18,661)
Undistributed earnings allocated to Series A preferred stock		—		(3,051)		—		(3,123)
Net income available to common stockholders	$	25,656	$	17,073	$	48,819	$	15,799

Net income per common share:
Basic	$	0.51	$	0.38	$	0.97	$	0.35
Diluted (Note 11)	$	0.50	$	0.37	$	0.96	$	0.35

Weighted-average common shares outstanding:
Basic		50,387		45,471		50,360		44,830
Diluted		50,929		46,777		50,966		45,975

See the accompanying notes to the condensed consolidated financial statements.

Table of Contents

THE CHEESECAKE FACTORY INCORPORATED

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(In thousands)

(Unaudited)


	Thirteen		Thirteen		Twenty-Six		Twenty-Six
	Weeks Ended		Weeks Ended		Weeks Ended		Weeks Ended
	June 28, 2022		June 29, 2021		June 28, 2022		June 29, 2021

Net income	$	25,656	$	33,715	$	48,819	$	37,583
Other comprehensive (loss)/gain:
Foreign currency translation adjustment		(300)		219		(45)		393
Unrealized gain on derivative, net of tax		—		1,726		—		3,464
Other comprehensive (loss)/gain		(300)		1,945		(45)		3,857
Total comprehensive income		25,356		35,660		48,774		41,440
Comprehensive income attributable to Series A preferred stockholders		—		(16,937)		—		(22,421)
Total comprehensive income available to common stockholders	$	25,356	$	18,723	$	48,774	$	19,019

See the accompanying notes to the condensed consolidated financial statements

Table of Contents

THE CHEESECAKE FACTORY INCORPORATED

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

(In thousands)

(Unaudited)

For the twenty-six weeks ended June 28, 2022:


													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 28, 2021	—	$	—	105,366	$	1,054	$	862,758	$	1,169,150	$	(1,702,509)	$	(287)	$	330,166
Net income	—		—	—		—		—		23,163		—		—		23,163
Foreign currency translation adjustment	—		—	—		—		—		—		—		255		255
Cash dividends declared common stock, net of forfeitures	—		—	—		—		—		22		—		—		22
Stock-based compensation	—		—	608		6		5,569		—		—		—		5,575
Common stock issued under stock-based compensation plans	—		—	55		0		83		—		—		—		83
Treasury stock purchases	—		—	—		—		—		—		(3,938)		—		(3,938)
Balance, March 29, 2022	—	$	—	106,029	$	1,060	$	868,410	$	1,192,335	$	(1,706,447)	$	(32)	$	355,326
Net income	—		—	—		—		—		25,656		—		—		25,656
Foreign currency translation adjustment	—		—	—		—		—		—		—		(300)		(300)
Cash dividends declared common stock, net of forfeitures, $0.27 per share	—		—	—		—		—		(14,260)		—		—		(14,260)
Stock-based compensation	—		—	(40)		0		6,141		—		—		—		6,141
Common stock issued under stock-based compensation plans	—		—	41		0		0		—		—		—		0
Treasury stock purchases	—		—	—		—		—		—		(10,879)		—		(10,879)
Balance, June 28, 2022	—	$	—	106,030	$	1,060	$	874,551	$	1,203,731	$	(1,717,326)	$	(332)	$	361,684

For the twenty-six weeks ended June 29, 2021:


													Accumulated
	Series A Convertible						Additional						Other
	Preferred Stock			Common Stock			Paid-in		Retained		Treasury		Comprehensive
	Shares	Amount		Shares	Amount		Capital		Earnings		Stock		Loss		Total
Balance, December 29, 2020	200	$	218,248	98,645	$	986	$	878,148	$	1,110,087	$	(1,696,743)	$	(3,785)	$	288,693
Cumulative effect of adopting ASU 2020-06	—		(4,763)	—		—		—		4,763		—		—		4,763
Balance, December 29, 2020, as adjusted	200		213,485	98,645		986		878,148		1,114,850		(1,696,743)		(3,785)		293,456
Net income	—		—	—		—		—		3,868		—		—		3,868
Foreign currency translation adjustment	—		—	—		—		—		—		—		174		174
Change in derivative, net of tax	—		—	—		—		—		—		—		1,738		1,738
Cash dividends declared common stock, net of forfeitures	—		—	—		—		—		399		—		—		399
Stock-based compensation	—		—	293		3		5,480		—		—		—		5,483
Common stock issued under stock-based compensation plans	—		—	570		6		20,417		—		—		—		20,423
Treasury stock purchases	—		—	—		—		—		—		(3,957)		—		(3,957)
Cash dividends declared Series A preferred stock, $25.35 per share	—		—	—		—		—		(5,070)		—		—		(5,070)
Balance, March 30, 2021	200	$	213,485	99,508	$	995	$	904,045	$	1,114,047	$	(1,700,700)	$	(1,873)	$	316,514
Net income	—		—	—		—		—		33,715		—		—		33,715
Foreign currency translation adjustment	—		—	—		—		—		—		—		219		219
Change in derivative, net of tax	—		—	—		—		—		—		—		1,726		1,726
Cash dividends declared common stock, net of forfeitures	—		—	—		—		—		15		—		—		15
Stock-based compensation	—		—	44		1		5,540		—		—		—		5,541
Common stock issued under stock-based compensation plans	—		—	118		1		4,361		—		—		—		4,362
Common stock issuance	—		—	3,125		31		167,019		—		—		—		167,050
Treasury stock purchases	—		—	—		—		—		—		(603)		—		(603)
Series A preferred stock cash-settled conversion	(150)		(160,114)	—		—		(283,637)		—		—		—		(283,637)
Series A preferred stock conversion to common stock	(50)		(53,371)	2,401		24		53,273		—		—		—		53,297
Deemed dividends on Series A preferred stock	—		—	—		—		—		(13,591)		—		—		(13,591)
Balance, June 29, 2021	—	$	—	105,196	$	1,052	$	850,601	$	1,134,186	$	(1,701,303)	$	72	$	284,608

See the accompanying notes to the condensed consolidated financial statements.

Table of Contents

THE CHEESECAKE FACTORY INCORPORATED

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

(Unaudited)


	Twenty-Six		Twenty-Six
	Weeks Ended		Weeks Ended
	June 28, 2022		June 29, 2021
Cash flows from operating activities:
Net income	$	48,819	$	37,583
Adjustments to reconcile net income to cash provided by operating activities:
Depreciation and amortization expenses		44,113		44,229
Impairment of assets and lease termination expense		250		394
Deferred income taxes		279		(2,895)
Stock-based compensation		11,607		10,935
Changes in assets and liabilities:
Accounts and other receivables		23,781		17,048
Income taxes receivable/payable		(3,618)		1,106
Inventories		(9,447)		(2,504)
Prepaid expenses		3,071		3,274
Operating lease assets/liabilities		(9,813)		(3,883)
Other assets		14,992		(6,612)
Accounts payable		8,937		(3,072)
Gift card liabilities		(28,887)		(15,562)
Other accrued expenses		(16,567)		50,397
Cash provided by operating activities		87,517		130,438
Cash flows from investing activities:
Additions to property and equipment		(46,382)		(30,902)
Additions to intangible assets		(282)		(312)
Other		646		(1,000)
Cash used in investing activities		(46,018)		(32,214)
Cash flows from financing activities:
Acquisition-related deferred consideration and compensation		(7,187)		—
Repayment on credit facility		—		(150,000)
Convertible debt issuance		—		345,000
Convertible debt direct and incremental costs		—		(10,074)
Series A preferred stock cash-settled conversion		—		(443,751)
Series A preferred stock conversion direct and incremental costs		—		(74)
Series A preferred stock dividends paid		—		(18,661)
Common stock issuance		—		175,000
Common stock issuance direct and incremental costs		—		(7,950)
Proceeds from exercise of stock options		83		24,785
Common stock dividends paid		(14,288)		(337)
Treasury stock purchases		(14,817)		(4,560)
Cash used in financing activities		(36,209)		(90,622)
Foreign currency translation adjustment		(26)		81
Net change in cash and cash equivalents		5,264		7,683
Cash and cash equivalents at beginning of period		189,627		154,085
Cash and cash equivalents at end of period	$	194,891	$	161,768

Supplemental disclosures:
Interest paid	$	2,726	$	6,884
Income taxes paid	$	9,720	$	4,877
Construction payable	$	8,439	$	5,016

See the accompanying notes to the condensed consolidated financial statements.

Table of Contents

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 28, 2021 filed with the SEC on February 22, 2022.

We utilize a 52/53-week fiscal year ending on the Tuesday closest to December 31 for financial reporting purposes. Fiscal year 2022 consists of 53 weeks and will end on January 3, 2023. Fiscal year 2021, which ended on December 28, 2021, was a 52-week year.

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

Beginning in March 2020, COVID-19 and measures to prevent its spread led to temporary closures, shifts to an off-premise only operating model or reduced dining room capacity across our portfolio. While restrictions on the type of permitted operating model and occupancy capacity may continue to change, currently all of our restaurants are operating with no capacity restrictions. The ongoing effects of COVID-19 and its variants, including, but not limited to, consumer behavior, capacity restrictions, mask and vaccination mandates, wage inflation, our ability to continue to staff our restaurants and disruptions in the supply chain, will determine the impact to our operating results and financial position. The impact to our operations has been most notable during the periods of greatest accelerating COVID-19 case counts. We have incurred and will continue to incur additional costs to address government regulations and the safety of our staff members and customers.

Recent Accounting Pronouncements

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

As further discussed in Note 5, we issued certain convertible senior notes due 2026 (“Notes”) during the second quarter of fiscal 2021, and the accounting for these instruments was based on the guidance in ASU 2020-06. Additionally, the impact on diluted earnings per share of the Notes was calculated based on the if-converted method, as further described in Note 11.