10-Q 1 cake-20220329x10q.htm FORM 10-Q
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

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

For the quarterly period ended June 28, 2022

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

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.

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

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

1

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.

2

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

3

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.

4

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.

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 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.

6