Company Quick10K Filing
Quick10K
Cheesecake Factory
Closing Price ($) Shares Out (MM) Market Cap ($MM)
$47.71 45 $2,160
10-Q 2019-07-02 Quarter: 2019-07-02
10-Q 2019-04-02 Quarter: 2019-04-02
10-K 2019-01-01 Annual: 2019-01-01
10-Q 2018-10-02 Quarter: 2018-10-02
10-Q 2018-07-03 Quarter: 2018-07-03
10-Q 2018-04-03 Quarter: 2018-04-03
10-K 2018-01-02 Annual: 2018-01-02
10-Q 2017-10-03 Quarter: 2017-10-03
10-Q 2017-07-04 Quarter: 2017-07-04
10-Q 2017-04-04 Quarter: 2017-04-04
10-K 2017-01-03 Annual: 2017-01-03
10-Q 2016-09-27 Quarter: 2016-09-27
10-Q 2016-06-28 Quarter: 2016-06-28
10-Q 2016-03-29 Quarter: 2016-03-29
10-K 2015-12-29 Annual: 2015-12-29
10-Q 2015-09-29 Quarter: 2015-09-29
10-Q 2015-06-30 Quarter: 2015-06-30
10-Q 2015-03-31 Quarter: 2015-03-31
10-K 2014-12-30 Annual: 2014-12-30
10-Q 2014-09-30 Quarter: 2014-09-30
10-Q 2014-07-01 Quarter: 2014-07-01
10-Q 2014-04-01 Quarter: 2014-04-01
10-K 2013-12-31 Annual: 2013-12-31
8-K 2019-07-25 Earnings, Regulation FD, Other Events, Exhibits
8-K 2019-07-03 Other Events, Exhibits
8-K 2019-05-30 Officers, Shareholder Vote, Other Events, Exhibits
8-K 2019-05-22 Regulation FD, Exhibits
8-K 2019-04-25 Earnings, Other Events, Exhibits
8-K 2019-04-02 Other Events, Exhibits
8-K 2019-03-05 Other Events, Exhibits
8-K 2019-02-13 Earnings, Officers, Regulation FD, Other Events, Exhibits
8-K 2019-01-22 Other Events, Exhibits
8-K 2018-11-06 Other Events, Exhibits
8-K 2018-10-25 Earnings, Other Events, Exhibits
8-K 2018-10-02 Other Events, Exhibits
8-K 2018-07-26 Earnings, Other Events, Exhibits
8-K 2018-07-09 Other Events, Exhibits
8-K 2018-06-12 Other Events, Exhibits
8-K 2018-05-31 Shareholder Vote, Other Events, Exhibits
8-K 2018-04-23 Earnings, Other Events, Exhibits
8-K 2018-03-28 Other Events, Exhibits
8-K 2018-03-06 Other Events, Exhibits
8-K 2018-03-01 Accountant, Exhibits
8-K 2018-02-20 Other Events, Exhibits
8-K 2018-02-15 Earnings, Officers, Other Events, Exhibits
8-K 2018-01-24 Other Events, Exhibits
8-K 2018-01-04 Officers
FCX Freeport-McMoran 16,360
VIA Viacom 13,660
EQC Equity Commonwealth 3,890
CWT California Water Service Group 2,360
CMC Commercial Metals 1,980
NVRO Nevro 1,910
AGS PlayAGS 746
CSLT Castlight Health 546
PTN Palatin Technologies 284
SREV ServiceSource 98
CAKE 2019-07-02
Part I - Financial Information
Item 1. Financial Statements.
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations.
Item 3. Quantitative and Qualitative Disclosures About Market Risk.
Item 4. Controls and Procedures.
Part II - Other Information
Item 1. Legal Proceedings.
Item 1A. Risk Factors.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.
Item 5. Other Information.
Item 6. Exhibits
EX-31.1 cake-20190702ex31131ab36.htm
EX-31.2 cake-20190702ex3127ada4f.htm
EX-32.1 cake-20190702ex32168b1c0.htm
EX-32.2 cake-20190702ex322d0fee8.htm

Cheesecake Factory Earnings 2019-07-02

CAKE 10Q Quarterly Report

Balance SheetIncome StatementCash Flow

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Table of Contents

 

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 July 2, 2019

or

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

Commission File Number: 0-20574

THE CHEESECAKE FACTORY INCORPORATED

(Exact name of registrant as specified in its charter)

Delaware

51-0340466

(State or other jurisdiction

(I.R.S. Employer

of incorporation or organization)

Identification No.)

26901 Malibu Hills Road

Calabasas Hills, California

91301

(Address of principal executive offices)

(Zip Code)

(818) 871-3000

(Registrant’s telephone number, including area code)

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

Title of Each Class

    

Trading Symbol

    

Name of Each Exchange on which Registered

Common Stock, par value $.01 per share

CAKE

Nasdaq Global Select Market

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

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

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

Large accelerated filer

     

Accelerated filer

Non-accelerated filer

Smaller reporting company

Emerging growth company

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

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

As of July 29, 2019, 44,631,522 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.

Unaudited Financial Statements:

3

Condensed Consolidated Balance Sheets

3

Condensed Consolidated Statements of Income

4

Condensed Consolidated Statements of Comprehensive Income

5

Condensed Consolidated Statement of Stockholders’ Equity

6

Condensed Consolidated Statements of Cash Flows

8

Notes to Condensed Consolidated Financial Statements

9

Item 2.

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

21

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

32

Item 4.

Controls and Procedures

33

PART II

OTHER INFORMATION

33

Item 1.

Legal Proceedings

33

Item 1A.

Risk Factors

33

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

35

Item 5.

Other Information

Item 6.

Exhibits

38

Signatures

39

2

Table of Contents

PART I — FINANCIAL INFORMATION

Item 1.        Financial Statements.

THE CHEESECAKE FACTORY INCORPORATED

CONDENSED CONSOLIDATED BALANCE SHEETS

(In thousands, except share data)

(Unaudited)

July 2,

January 1,

    

2019

    

2019

ASSETS

Current assets:

Cash and cash equivalents

$

22,604

$

26,578

Accounts receivable

 

16,874

 

20,928

Income taxes receivable

2,382

Other receivables

 

30,797

 

68,193

Inventories

 

46,011

 

38,886

Prepaid expenses

 

39,524

 

40,645

Total current assets

 

158,192

 

195,230

Property and equipment, net

 

758,496

913,275

Other assets:

Intangible assets, net

 

20,157

 

26,209

Prepaid rent

 

 

34,961

Operating lease assets

963,724

Investments in unconsolidated affiliates

79,674

79,767

Other

 

93,547

 

64,691

Total other assets

 

1,157,102

 

205,628

Total assets

$

2,073,790

$

1,314,133

LIABILITIES AND STOCKHOLDERS’ EQUITY

Current liabilities:

Accounts payable

$

35,960

$

49,071

Income taxes payable

712

Gift card liabilities

142,361

172,336

Operating lease liabilities

 

85,669

 

Other accrued expenses

 

172,973

 

194,381

Total current liabilities

 

436,963

 

416,500

Deferred income taxes

 

38,902

 

52,123

Deferred rent liabilities

 

 

79,697

Deemed landlord financing liabilities

 

 

113,095

Long-term debt

35,000

10,000

Operating lease liabilities

942,586

Other noncurrent liabilities

 

80,060

 

71,659

Commitments and contingencies (Note 7)

Stockholders’ equity:

Preferred stock, $.01 par value, 5,000,000 shares authorized; none issued

 

 

Common stock, $.01 par value, 250,000,000 shares authorized; 97,480,423 and 96,621,990 issued at July 2, 2019 and January 1, 2019, respectively

 

975

 

967

Additional paid-in capital

 

845,461

 

828,676

Retained earnings

 

1,375,671

 

1,384,494

Treasury stock, 52,643,252 and 51,791,941 shares at cost at July 2, 2019 and January 1, 2019, respectively

 

(1,681,304)

 

(1,642,140)

Accumulated other comprehensive loss

(524)

(938)

Total stockholders’ equity

 

540,279

 

571,059

Total liabilities and stockholders’ equity

$

2,073,790

$

1,314,133

See the accompanying notes to the condensed consolidated financial statements.

3

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

    

July 2, 2019

    

July 3, 2018

    

July 2, 2019

    

July 3, 2018

Revenues

$

602,645

$

587,319

$

1,202,126

$

1,172,016

Costs and expenses:

Cost of sales

 

134,438

 

131,671

 

270,625

265,891

Labor expenses

 

217,921

 

211,408

 

435,231

420,983

Other operating costs and expenses

 

149,106

 

140,515

 

302,327

285,491

General and administrative expenses

 

37,247

 

41,423

 

76,370

80,697

Depreciation and amortization expenses

 

21,659

 

23,727

 

43,021

47,729

Impairment of assets and lease terminations

 

 

2,583

 

2,583

Preopening costs

 

2,175

 

1,449

 

4,305

2,548

Total costs and expenses

 

562,546

 

552,776

 

1,131,879

1,105,922

Income from operations

 

40,099

 

34,543

 

70,247

66,094

Loss on investment in unconsolidated affiliates

(1,644)

(1,039)

(3,094)

(1,128)

Interest and other expense, net

 

(25)

 

(1,869)

 

(23)

(3,286)

Income before income taxes

 

38,430

 

31,635

 

67,130

61,680

Income tax provision

 

2,920

 

3,282

 

4,636

7,298

Net income

$

35,510

$

28,353

$

62,494

$

54,382

Net income per share:

Basic

$

0.80

$

0.62

$

1.41

$

1.20

Diluted

$

0.79

$

0.61

$

1.39

$

1.17

Weighted average shares outstanding:

Basic

 

44,165

 

45,383

 

44,210

45,467

Diluted

 

44,786

 

46,426

 

44,871

46,469

See the accompanying notes to the condensed consolidated financial statements.

4

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

    

July 2, 2019

    

July 3, 2018

    

July 2, 2019

    

July 3, 2018

Net income

$

35,510

$

28,353

$

62,494

$

54,382

Other comprehensive gain/(loss):

Foreign currency translation adjustment

175

(249)

414

(495)

Other comprehensive gain/(loss)

175

(249)

414

(495)

Total comprehensive income

$

35,685

$

28,104

$

62,908

$

53,887

See the accompanying notes to the condensed consolidated financial statements

5

Table of Contents

THE CHEESECAKE FACTORY INCORPORATED

CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS’ EQUITY

(In thousands)

(Unaudited)

For the twenty-six weeks ended July 2, 2019:

    

    

    

    

    

    

Accumulated

    

Shares of

Additional

Other

Common

Common

Paid-in

Retained

Treasury

Comprehensive

Stock

Stock

Capital

Earnings

Stock

Loss

Total

Balance, January 1, 2019

 

96,622

$

967

$

828,676

$

1,384,494

$

(1,642,140)

$

(938)

$

571,059

Cumulative effect of adopting the pronouncement related to lease accounting, net of tax

(41,466)

(41,466)

Balance, January 1, 2019, as adjusted

96,622

967

828,676

1,343,028

(1,642,140)

(938)

529,593

Net income

 

 

 

 

26,984

 

 

 

26,984

Foreign currency translation adjustment

239

239

Cash dividends declared Common stock, $0.33 per share

 

 

 

 

(14,952)

 

 

 

(14,952)

Stock-based compensation

 

350

 

3

 

5,907

 

 

 

5,910

Common stock issued under stock-based compensation plans

412

4

5,537

5,541

Treasury stock purchases

(11,071)

(11,071)

Balance, April 2, 2019

97,384

$

974

$

840,120

$

1,355,060

$

(1,653,211)

$

(699)

$

542,244

Net income

35,510

35,510

Foreign currency translation adjustment

175

175

Cash dividends declared Common stock, $0.33 per share

(14,899)

(14,899)

Stock-based compensation

47

1

4,691

4,692

Common stock issued under stock-based compensation plans

49

0

650

650

Treasury stock purchases

(28,093)

(28,093)

Balance, July 2, 2019

 

97,480

$

975

$

845,461

$

1,375,671

$

(1,681,304)

$

(524)

$

540,279

See the accompanying notes to the condensed consolidated financial statements.

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THE CHEESECAKE FACTORY INCORPORATED

CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS’ EQUITY

(In thousands)

(Unaudited)

For the twenty-six weeks ended July 3, 2018:

    

    

    

    

    

    

Accumulated

    

Shares of

Additional

Other

Common

Common

Paid-in

Retained

Treasury

Comprehensive

Stock

Stock

Capital

Earnings

Stock

Loss

Total

Balance, January 2, 2018

 

95,412

$

954

$

799,862

$

1,345,666

$

(1,532,864)

$

(88)

$

613,530

Cumulative effect of adopting the pronouncement related to revenue recognition, net of tax

(3,560)

(3,560)

Balance, January 2, 2018, as adjusted

95,412

954

799,862

1,342,106

(1,532,864)

(88)

609,970

Net income

 

 

 

 

26,029

 

 

 

26,029

Foreign currency translation adjustment

(246)

(246)

Cash dividends declared Common stock, $0.29 per share

 

 

 

 

(13,280)

 

 

 

(13,280)

Stock-based compensation

 

334

 

4

 

6,079

 

 

 

6,083

Common stock issued under stock-based compensation plans

211

2

538

540

Treasury stock purchases

(34,903)

(34,903)

Balance, April 3, 2018

95,957

$

960

$

806,479

$

1,354,855

$

(1,567,767)

$

(334)

$

594,193

Net income

28,353

28,353

Foreign currency translation adjustment

(249)

(249)

Cash dividends declared Common stock, $0.29 per share

(13,296)

(13,296)

Stock-based compensation

45

5,130

5,130

Common stock issued under stock-based compensation plans

227

2

5,775

5,777

Treasury stock purchases

(7,126)

(7,126)

Balance, July 3, 2018

 

96,229

$

962

$

817,384

$

1,369,912

$

(1,574,893)

$

(583)

$

612,782

See the accompanying notes to the condensed consolidated financial statements.

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THE CHEESECAKE FACTORY INCORPORATED

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

(Unaudited)

Twenty-Six

Twenty-Six

Weeks Ended

Weeks Ended

    

July 2, 2019

    

July 3, 2018

Cash flows from operating activities:

Net income

$

62,494

$

54,382

Adjustments to reconcile net income to cash provided by operating activities:

Depreciation and amortization expenses

 

43,021

 

47,729

Deferred income taxes

 

(2,289)

 

805

Impairment of assets and lease terminations

2,493

Stock-based compensation

 

10,488

 

11,075

Loss from investments in unconsolidated affiliates

3,094

1,128

Changes in assets and liabilities:

Accounts and other receivable

 

43,123

 

37,750

Income taxes receivable/payable

 

(3,095)

 

12,583

Inventories

 

(7,122)

 

7,865

Prepaid expenses

 

(3,372)

 

4,717

Operating lease assets/liabilities

 

(5,504)

 

Other assets

 

(7,984)

 

1,089

Accounts payable

 

(13,417)

 

(4,839)

Gift card liabilities

 

(29,980)

 

(30,328)

Other accrued expenses

 

(5,688)

 

(5,901)

Cash provided by operating activities

 

83,769

 

140,548

Cash flows from investing activities:

Additions to property and equipment

 

(29,371)

 

(51,870)

Additions to intangible assets

 

(198)

 

(735)

Investments in unconsolidated affiliates

(3,000)

(14,000)

Loans made to unconsolidated affiliates

(18,000)

Proceeds from variable life insurance contract

540

Cash used in investing activities

 

(50,569)

 

(66,065)

Cash flows from financing activities:

Deemed landlord financing proceeds

3,631

Deemed landlord financing payments

(2,509)

Borrowings on credit facility

35,000

30,000

Repayments on credit facility

(10,000)

(20,000)

Proceeds from exercise of stock options

6,191

6,317

Cash dividends paid

 

(29,287)

 

(26,521)

Treasury stock purchases

 

(39,164)

 

(42,029)

Cash used in financing activities

 

(37,260)

 

(51,111)

Foreign currency translation adjustment

86

(11)

Net change in cash and cash equivalents

 

(3,974)

 

23,361

Cash and cash equivalents at beginning of period

 

26,578

 

6,008

Cash and cash equivalents at end of period

$

22,604

$

29,369

Supplemental disclosures:

Interest paid

$

636

$

4,145

Income taxes paid

$

9,939

$

5,291

Construction payable

$

4,023

$

4,250

Non-cash operating:

Settlement of sale-leaseback accounting

$

$

471

Non-cash investing:

Settlement of landlord sale-leaseback accounting

$

$

(4,056)

Non-cash financing:

Settlement of landlord financing obligation for sale-leaseback leases

$

$

3,585

Deemed landlord financing proceeds

$

$

3,756

See the accompanying notes to the condensed consolidated financial statements.

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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 January 1, 2019 filed with the SEC on March 4, 2019 (“fiscal 2018 10-K”).

We utilize a 52/53-week fiscal year ending on the Tuesday closest to December 31 for financial reporting purposes. Fiscal 2019 consists of 52 weeks and will end on December 31, 2019. Fiscal 2018, which ended on January 1, 2019, was also a 52-week year.

Beginning with our fiscal 2018 10-K, we separately disclosed our investments in unconsolidated affiliates on the consolidated balance sheet and our related share of losses on the consolidated statement of income and statement of cash flow. Corresponding balances for the thirteen and twenty-six weeks ended July 2, 2018 were reclassified to conform to the current presentation.

Beginning with our fiscal 2018 10-K, we corrected an error in our consolidated statements of income by reclassifying complimentary meals out of revenue and other operating expenses. We also reclassified the associated cost of complimentary meals from other operating expenses to cost of sales and labor. The reclassifications had no impact on previously reported income from operations or net income. Corresponding balances for the first two fiscal quarters of 2018 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.

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Recent Accounting Pronouncements

We adopted FASB Accounting Standards Codification (“ASC”) Topic 842, “Leases,” as of January 2, 2019, using the alternative transition method and recorded a cumulative effect adjustment to beginning retained earnings without restating prior periods. We elected the package of practical expedients which allowed us to carry forward our historical lease classification, our assessment of whether a contract is or contains a lease and our initial direct costs for any leases that existed prior to adoption of the new standard. In addition, we elected the hindsight practical expedient, which lengthened the lease term for certain of our leases to include renewal options, and the short-term lease exclusion. Adoption of the new standard resulted in the recognition of operating lease assets and liabilities of $975.1 million and $1,045.4 million, respectively, and a reduction to retained earnings of $41.5 million, net of tax. All prior lease-related balances of $39.2 million of prepaid rent, $140.2 million in property and equipment, net, $6.2 million of intangible assets, net, $82.1 million of deferred rent liabilities and $118.7 million of deemed landlord financing have been reclassified into operating lease assets or eliminated upon ASC 842 adoption.

Leases

We currently lease all our restaurant locations, generally with initial terms of 20 years plus two five-year renewal options. Our leases typically require contingent rent above the minimum base rent payments based on a percentage of revenues, have escalating minimum rent requirements over the term of the lease and require payment for various expenses incidental to the use of the property. A majority of our leases provide for a reduced level of overall rent obligation should specified co-tenancy requirements not be satisfied. We expend cash for leasehold improvements and furniture, fixtures, and equipment to build out and equip our leased premises. We may also expend cash for structural additions that we make to leased premises. Generally, a portion of the leasehold improvements and building costs are reimbursed to us by our landlords as construction contributions. If obtained, landlord construction contributions usually take the form of up-front cash, full or partial credits against our future minimum or percentage rents, or a combination thereof. We do not meet any of the accounting criteria for being the owner of the asset under construction. Many of our leases provide early termination rights permitting us to terminate the lease prior to expiration in the event our revenues are below a stated level for a period of time, generally conditioned upon repayment of the unamortized landlord contributions.

In addition to leases for our restaurant locations, we also lease automobiles and certain equipment that is used in the restaurants, bakeries and corporate office. The automobile leases are the only non-real estate leases included in our operating lease assets and liabilities. All other leases are immaterial or qualify for the short-term lease exclusion.

The assessment of whether a contract is or contains a lease is performed at contract inception. A lease is defined as a contract that conveys the right to control the use of an identified asset for a period of time in exchange for consideration. Control is defined as having both the right to obtain substantially all the economic benefits from the use of the asset and to direct how and for what purpose the asset is used.

At lease commencement, we evaluate each lease to determine its appropriate classification as an operating or finance lease. All our restaurant and automobile leases are classified as operating leases. For restaurant leases existing at transition, we will continue to apply our historical practice of excluding executory costs, and only minimum base rent will be factored into the initial operating lease liability and corresponding lease asset. For restaurant leases beginning after adoption of ASC 842, we have elected the single lease component practical expedient. Operating lease assets and liabilities are recorded on the balance sheet at lease commencement based on the present value of minimum base rent and other fixed payments over the reasonably certain lease term. The difference between the amounts we expend for structural costs and the construction contributions received from our landlords is recorded as an adjustment to the operating lease asset. Lease terms include the build-out period for our leases where no rent payments are typically due under the terms of the lease, as well as options to renew when we deem we have significant economic incentive to exercise the extension. When determining if we have a significant economic incentive, we consider relevant factors, such as contractual, asset, entity and market-based considerations. Option periods are included in the lease term for the majority of our leases. Termination rights have not been factored into the lease terms since based on our probability assessment we are reasonably certain we will not terminate our leases.

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We cannot determine the interest rate implicit in our leases because we do not have access to the lessor's estimated residual value or the amount of the lessor's deferred initial direct costs. Therefore, we use our incremental borrowing rate as the discount rate for our leases. Our incremental borrowing rate for a lease is the rate of interest we would have to pay on a collateralized basis to borrow an amount equal to the lease payments under similar terms. Because we do not generally borrow on a collateralized basis, we derive an appropriate incremental borrowing rate using the interest rate we pay on our non-collateralized borrowings, adjusted for the amount of the lease payments, the lease term and the effect of designating specific collateral with a value equal to the unpaid lease payments for that lease. We apply the incremental borrowing rate on a portfolio basis given the impact of applying it on a lease by lease basis would be immaterial.

We monitor for events or changes in circumstances that require reassessment of our leases. When a reassessment results in the re-measurement of a lease liability, a corresponding adjustment is made to the carrying amount of the operating lease asset. We also assess the potential impairment of our operating lease assets under long-lived asset impairment guidance in ASC 360.

Rent expense included in our operating lease assets is recognized on a straight-line basis. Contingent rent expense is recorded as incurred to the extent it exceeds minimum base rent per the lease agreement. Other variable rent expense is recognized as incurred. The reasonably certain lease term and the incremental borrowing rate for each restaurant location require judgment by management and can impact the classification and accounting for a lease as operating or finance, as well as the value of the operating lease asset and liability. These judgments may produce materially different amounts of rent expense than would be reported if different assumptions were used.

2.  Inventories

Inventories consisted of (in thousands):

    

July 2, 2019

    

January 1, 2019

Restaurant food and supplies

$

19,881

$

18,362

Bakery finished goods and work in progress

 

20,125

 

13,845

Bakery raw materials and supplies

 

6,005

 

6,679

Total

$

46,011

$

38,886

3.  Gift Cards

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

Gift card liabilities:

Thirteen

Thirteen

Twenty-Six

Twenty-Six

Weeks Ended

Weeks Ended 

Weeks Ended

Weeks Ended

    

July 2, 2019

    

July 3, 2018

    

July 2, 2019

    

July 3, 2018

 

  

 

  

Beginning balance

$

145,745

$

138,134

$

172,336

$

163,951

Activations

 

28,999

 

28,451

 

49,372

 

50,195

Redemptions and breakage

 

(32,383)

 

(32,968)

 

(79,347)

 

(80,529)

Ending balance

$

142,361

$

133,617

$

142,361

$

133,617

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Gift card contract assets: (1)

Thirteen

Thirteen

Twenty-Six

Twenty-Six

Weeks Ended

Weeks Ended 

Weeks Ended

Weeks Ended

    

July 2, 2019

    

July 3, 2018

    

July 2, 2019

    

July 3, 2018

Beginning balance

$

21,273

$

21,718

$

23,388

$

23,814

Deferrals

 

3,468

 

3,680

 

6,064

 

6,402

Amortization

 

(4,649)

 

(4,779)

 

(9,360)

 

(9,597)

Ending balance

$

20,092

$

20,619

$

20,092

$

20,619

(1)Included in prepaid expenses on the condensed consolidated balance sheets.

4. Other Assets

Other assets consisted of (in thousands):

    

July 2, 2019

    

January 1, 2019

Executive Savings Plan trust assets

$

65,885

$

57,605

Loans receivable from unconsolidated affiliates

 

18,000

 

Deposits

 

5,466

 

5,489

Deferred income taxes

 

4,196

 

1,597

Total

$

93,547

$

64,691

5. Leases

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

    

Thirteen
Weeks Ended

    

Twenty-Six
Weeks Ended

July 2, 2019

July 2, 2019

Operating

$

25,842

$

51,604

Variable

 

16,426

 

32,761

Short-term

 

76

 

153

Total

$

42,344

$

84,518

Rent expense on all operating leases (under ASC 840) was as follows (in thousands):

    

Thirteen
Weeks Ended

    

Twenty-Six
Weeks Ended

July 3, 2018

July 3, 2018

Straight-lined minimum base rent

$

20,514

$

41,261

Contingent rent

 

5,113

 

10,207

Common area maintenance and taxes

 

9,909

 

19,838

Total

$

35,536

$

71,306

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Supplemental cash flow information related to leases (in thousands, except percentages):

    

Twenty-Six
Weeks Ended

July 2, 2019

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

Operating cash flows from operating leases

$

48,634

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

8,580

Weighted-average remaining lease term — operating leases (in years)

 

17.1

Weighted-average discount rate — operating leases

5.2

%

As of July 2, 2019, the maturities of our operating lease liabilities are as follows (in thousands):

2019

    

$

42,258

2020

97,994

2021

95,964

2022

94,896

2023

93,815

Thereafter

1,182,989

Total future lease payments

$

1,607,916

Less: Interest

 

579,661

Present value of lease liabilities

$

1,028,255

As of January 1, 2019, the aggregate minimum annual lease payments under operating leases (under ASC 840), including amounts characterized as deemed landlord financing payments, were as follows (in thousands):

2019

    

$

93,792

2020

 

91,808

2021

 

88,829

2022

 

86,925

2023

 

81,929

Thereafter

 

495,091

Total

$

938,374

During the first two quarters of fiscal 2019, four leases were executed; three have initial terms of 20 years plus two five-year renewal options and one has an initial term of 10 years and four five-year renewal options. All but one include allowances for tenant improvements. The leases are expected to commence in the fourth quarter of fiscal 2019. The undiscounted fixed payments over the initial terms are $30.5 million. We will assess the reasonably certain lease term at lease commencement date.

6.  Long-Term Debt

As of July 2, 2019, we maintained a $200 million unsecured revolving credit facility (the “Facility”), $50 million of which could be used for issuances of letters of credit. Availability under the Facility was reduced by outstanding letters of credit, which are used to support our self-insurance programs. The Facility, which was scheduled to mature on December 22, 2020, contained a commitment increase feature that could provide for an additional $100 million in available credit upon our request and subject to the participating lenders electing to increase their commitments or new lenders being added to the Facility. Certain of our significant subsidiaries guaranteed our obligations under the Facility. During the second quarter of fiscal 2019, we utilized the Facility to fund a portion of our stock repurchases. At July 2, 2019, we had net availability for borrowings of $145.6 million, based on a $35.0 million outstanding debt balance and $19.4 million in standby letters of credit.

We were subject to certain financial covenants under the Facility requiring us to maintain (i) a maximum “Net Adjusted Leverage Ratio” of 4.0 and (ii) a minimum EBITDAR (earnings before interest, taxes, depreciation and

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amortization, and rent) to interest and rental expense ratio (“EBITDAR Ratio”) of 1.9, with each of the capitalized terms in this Note 6 having the same meaning as defined in the Facility. The Facility limited cash distributions with respect to our equity interests, such as cash dividends and share repurchases, based on a defined ratio, and also set forth negative covenants that restrict indebtedness, liens, investments, sales of assets, fundamental changes and other matters. Our Net Adjusted Leverage and EBITDAR Ratios were 3.2 and 2.5, respectively, at July 2, 2019, and we were in compliance with all covenants in effect at that date.

Borrowings under the Facility bore interest, at our option, at a rate per annum equal to either (i) the Adjusted LIBO Rate plus a margin ranging from 1.00% to 1.75% based on our Net Adjusted Leverage Ratio or (ii) the sum of (a) the highest of (1) the rate of interest publicly announced by JPMorgan Chase Bank as its prime rate in effect, (2) the greater of the Federal Funds Effective Rate or the Overnight Bank Funding Rate, in either case plus 0.5%, and (3) the one-month Adjusted LIBO Rate plus 1.0%, plus (b) a margin ranging from 0.00% to 0.75% based on our Net Adjusted Leverage Ratio. We also paid customary fees on the unused portion of the Facility and on our outstanding letters of credit.

(See Note 12 for discussion of our New Facility.)

7.  Commitments and Contingencies

On December 10, 2015, a former restaurant management employee filed a class action lawsuit in the Los Angeles County Superior Court, alleging that the Company improperly classified its managerial employees, failed to pay overtime, and failed to provide accurate wage statements, in addition to other claims. The lawsuit seeks unspecified penalties under the California Labor Code Private Attorney General Act in addition to other monetary payments (Tagalogon v. The Cheesecake Factory Restaurants, Inc.; Case No. BC603620). On July 29, 2016, we filed a response to the complaint. On March 7, 2019, the parties participated in voluntary mediation, which concluded without the parties reaching a resolution. On June 4, 2019, the parties notified the Court that they reached a tentative agreement to settle this case. The settlement agreement is subject to documentation and court approval. Based on the current status of this matter, we have reserved an immaterial amount in anticipation of settlement.

On June 7, 2018, the California Department of Industrial Relations issued a $4.2 million wage citation jointly against the Company and our vendor that provides janitorial services to eight of our Southern California restaurants, alleging that the janitorial vendor or its subcontractor failed to comply with various provisions of the California Labor Code (Wage Citation Case No. 35-CM-188798-16). The wage citation seeks to recover penalties and other monetary payments on behalf of the employees that worked for this vendor or its subcontractor. On June 28, 2018, we filed an appeal of the wage citation. We intend to vigorously defend this action. However, it is not possible at this time to reasonably estimate the outcome of or any potential liability from this matter and, accordingly, we have not reserved for any potential future payments.

On June 22, 2018, the Internal Revenue Service issued a Notice of Deficiency in which they disallowed $8.0 million of our §199 Domestic Production Activities Deduction for tax years 2010, 2011 and 2012. On September 11, 2018 we petitioned the United States Tax Court for a redetermination of the deficiency. The tax court has assigned docket number 18150-18 to our case. We intend to vigorously defend our position in litigation and based on our analysis of the law, regulations and relevant facts, we have not reserved for any potential future payments.

Within the ordinary course of our business, we are subject to private lawsuits, government audits, 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, proceedings and claims will not have a material adverse effect individually or in the aggregate

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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.

8.  Stockholders’ Equity

On April 25, 2019, our Board of Directors (“Board”) approved a quarterly cash dividend of $0.33 per share that was paid on May 29, 2019 to the stockholders of record at the close of business on May 16, 2019. Future decisions to pay or to increase or decrease dividends are at the discretion of the Board and will be dependent on our operating performance, financial condition, capital expenditure requirements, limitations on cash distributions pursuant to the terms and conditions of the Facility and applicable law, and such other factors that our Board considers relevant. (See Note 6 for further discussion of the Facility.)

Under authorization by our Board to repurchase up to 56.0 million shares of our common stock, we have cumulatively repurchased 52.6 million shares at a total cost of $1,681.3 million through July 2, 2019, including 0.6 million shares at a cost of $28.1 million repurchased during the second quarter of fiscal 2019. Repurchased common stock is reflected as a reduction of stockholders’ equity in treasury stock.

Our share repurchase authorization does not have an expiration date, does not require us to purchase a specific number of shares and may be modified, suspended or terminated at any time. Shares may be repurchased in the open market or through privately negotiated transactions at times and prices considered appropriate by us. We make the determination to repurchase shares based on several factors, including an evaluation of current and future capital needs associated with new restaurant development, current and forecasted cash flows, including dividend payments, growth capital contributions to North Italia® and Flower Child® and pending acquisitions, a review of our capital structure and cost of capital, our share price and current market conditions. (See Note 12 for future discussion of our pending acquisitions.) The timing and number of shares repurchased are also subject to legal constraints and financial covenants under the Facility that limit share repurchases based on a defined ratio. (See Note 6 for further discussion of our long-term debt.) Our objectives regarding share repurchases are to offset the dilution to our shares outstanding that results from equity compensation grants and to supplement our earnings per share growth.

9.  Stock-Based Compensation

On April 5, 2017, our Board approved an amendment to our 2010 Stock Incentive Plan to increase the number of shares of common stock available for grant under the plan to 12.7 million shares from 9.2 million shares. This amendment was approved by our stockholders at our annual meeting held on June 8, 2017. On April 4, 2019, our Board adopted The Cheesecake Factory Incorporated Stock Incentive Plan. This plan was approved by our stockholders at our annual meeting held on May 30, 2019. The maximum number of shares of common stock available for grant under this plan is 4.8 million shares plus 1.8 million shares, which, as of May 30, 2019, were available for issuance under our 2010 Stock Incentive Plan plus 1.9 million shares which may become available for issuance under The Cheesecake Factory Incorporated Stock Incentive Plan due to forfeiture or lapse of awards under our 2010 Stock Incentive Plan following May 30, 2019.

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

Thirteen

Thirteen

Twenty-Six

Twenty-Six

Weeks Ended

Weeks Ended