The Cheesecake Factory Incorporated (CAKE) 10-K/A 2019 FY Annual report (amended)

UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-K/A

(Amendment No. 1)

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

For the fiscal year ended December 31, 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)

Registrant’s telephone number, including area code: (818) 871-3000

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

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 (NASDAQ Global Select Market)

Securities registered pursuant to Section 12(g) of the Act: None

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes  ☒ No  ☐

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes  ☐ No  ☒

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 (§232.405 of this chapter) 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 Act). Yes  ☐ No ☒ 

The aggregate market value of the voting stock held by non-affiliates of the registrant as of the last business day of the second fiscal quarter, July 2, 2019, was $1,787,355,740 (based on the last reported sales on The Nasdaq Stock Market on that date).

As of June 15, 2020, 45,462,133 shares of the registrant’s Common Stock, $.01 par value per share, were outstanding.

DOCUMENTS INCORPORATED BY REFERENCE

Part III of this Form 10-K incorporates by reference information from the registrant’s proxy statement for the annual meeting of stockholders held on May 28, 2020.

EXPLANATORY NOTE

This Amendment No. 1 on Form 10-K/A (this “Amendment”) amends the Annual Report on Form 10-K of The Cheesecake Factory Incorporated (the “Company”) for the fiscal year ended December 31, 2019, as filed with the Securities and Exchange Commission (“SEC”) on March 12, 2020 (the “Form 10-K”). In the Form 10-K, the Company inadvertently omitted the “Report of Independent Registered Public Accounting Firm” (the “Audit Report”) of its prior auditors (PricewaterhouseCoopers LLP) for the fiscal year ended January 2, 2018. The Audit Report was signed by PricewaterhouseCoopers LLP and delivered to the Company prior to the original filing of the Form 10-K, but the Audit Report was inadvertently omitted from the Form 10-K.

This Form 10-K/A is being filed solely to include the inadvertently omitted Audit Report for PricewaterhouseCoopers LLP relating to the Company’s consolidated financial statements. No other changes were made to the Audit Report or to the Form 10-K. The consolidated financial statements and notes to consolidated financial statements have remained the same as that previously filed in the Form 10-K.

This Amendment reflects information as of the filing date of the Form 10-K, does not reflect events occurring after that date and does not modify or update in any way disclosures made in the Form 10-K, except as specifically noted above.

In accordance with Rule 12b-15 of the Securities Exchange Act of 1934, as amended, this Amendment includes new certifications required by Sections 302 and 906 of the Sarbanes-Oxley Act of 2002, as amended, dated as of the filing date of this Amendment.

1

ITEM 8.FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

The consolidated financial statements required to be filed hereunder are set forth in Part IV, Item 15 of this report.

PART IV

ITEM 15.EXHIBITS, FINANCIAL STATEMENT SCHEDULES

The following documents are filed as a part of this Report:

(a)    1.   Financial statements:

The consolidated financial statements required to be filed hereunder are listed in the Index to Consolidated Financial Statements on page 3 of this report.

2.   Financial statement schedules:

All schedules have been omitted because they are not applicable, not required or the information has been otherwise supplied in the financial statements or notes to the financial statements.

3.   Exhibits:

The Exhibits required to be filed hereunder are listed in the exhibit index included herein at page 36.

2

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

	Page
Report of Independent Registered Public Accounting Firm	4
Consolidated Balance Sheets	9
Consolidated Statements of Income	10
Consolidated Statements of Comprehensive Income	11
Consolidated Statements of Stockholders’ Equity	12
Consolidated Statements of Cash Flows	13
Notes to Consolidated Financial Statements	14

3

Report of Independent Registered Public Accounting Firm

To the Stockholders and Board of Directors

The Cheesecake Factory Incorporated:

Opinions on the Consolidated Financial Statements and Internal Control Over Financial Reporting

We have audited the accompanying consolidated balance sheets of The Cheesecake Factory Incorporated and subsidiaries (the Company) as of December 31, 2019 and January 1, 2019, the related consolidated statements of income, comprehensive income, stockholders’ equity, and cash flows for each of the years in the two-year period ended December 31, 2019, and the related notes (collectively, the consolidated financial statements). We also have audited the Company’s internal control over financial reporting as of December 31, 2019, based on criteria established in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission.

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of the Company as of December 31, 2019 and January 1, 2019, and the results of its operations and its cash flows for each of the years in the two-year period ended December 31, 2019, in conformity with U.S. generally accepted accounting principles. Also in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2019 based on criteria established in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission.

The Company acquired North Italia and the remaining business of Fox Restaurant Concepts LLC (FRC) during 2019, and management excluded from its assessment of the effectiveness of the Company’s internal control over financial reporting as of December 31, 2019, North Italia’s and FRC’s internal control over financial reporting associated with 28.3% of total assets and 3.7% of total revenues included in the consolidated financial statements of the Company as of and for the year ended December 31, 2019. Our audit of internal control over financial reporting of the Company also excluded an evaluation of the internal control over financial reporting of North Italia and FRC.

Change in Accounting Principles

As discussed in Note 1 to the consolidated financial statements, the Company has changed its method of accounting for revenue from contracts with customers as of January 3, 2018 due to the adoption of Accounting Standards Codification Topic 606, Revenue from Contracts with Customers, and has changed its method of accounting for leases as of January 2, 2019 due to the adoption of Accounting Standards Codification Topic 842, Leases.

Basis for Opinions

The Company’s management is responsible for these consolidated financial statements, for maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management’s Report on Internal Control over Financial Reporting. Our responsibility is to express an opinion on the Company’s consolidated financial statements and an opinion on the Company’s internal control over financial reporting based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud, and whether effective internal control over financial reporting was maintained in all material respects.

Our audits of the consolidated financial statements included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audits also included performing such other procedures as we considered necessary in the circumstances. We believe that our audits provide a reasonable basis for our opinions.

4

Definition and Limitations of Internal Control Over Financial Reporting

A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

Critical Audit Matters

The critical audit matters communicated below are matters arising from the current period audit of the consolidated financial statements that were communicated or required to be communicated to the audit committee and that: (1) relate to accounts or disclosures that are material to the consolidated financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate.

Assessment of carrying value of property and equipment

As discussed in Notes 1 and 6 to the consolidated financial statements, the property and equipment, net, and impairment of assets and lease termination balances as of and for the year ended December 31, 2019 were $832 million and $18 million, respectively. The Company assesses the potential impairment of long-lived assets, which includes property and equipment, net, on an annual basis or whenever events or changes in circumstances indicate the carrying value of the asset or asset group may not be recoverable.

We identified the assessment of the carrying value of property and equipment, net, as a critical audit matter. For some restaurant asset groups, the estimated undiscounted cash flow of the asset groups were less than their carrying values, which indicated potential impairment. This required the Company to estimate the fair value of the asset groups in order to measure the amount of impairment expense. The estimates of undiscounted cash flow and fair value resulted in the application of greater auditor judgment. In particular, the revenue growth rate and the operating margin assumptions used to estimate both the undiscounted cash flow and the fair value of the restaurant asset groups were challenging to evaluate as minor changes to those assumptions had a potential significant effect on the Company’s assessment of the carrying value of the restaurant asset groups, and the amount of the related impairment expense.

The primary procedures we performed to address the critical audit matter included the following. We tested certain internal controls over the Company’s long-lived asset impairment assessment process. This included controls related to the determination of the undiscounted cash flow and fair value of the restaurant asset groups, and the related revenue growth rate and operating margin assumptions. We performed sensitivity analyses over the revenue growth rate and operating margin assumptions to assess their impact on the Company’s determination of the undiscounted cash flow and fair value of the restaurant assets groups. We evaluated the Company’s forecasted revenue growth rate and operating margin assumptions for the restaurant asset groups by comparing the assumptions to the restaurant asset groups’ historical and peer group performance. We compared the Company’s revenue growth rate and operating margin forecasts to actual results to assess the Company’s ability to accurately forecast.

5

Evaluation of the acquisition-date fair values of trade names and trademarks and remeasurement of previously held equity interests

As discussed in Notes 1, 2 and 7 to the consolidated financial statements, on October 2, 2019, the Company acquired North Italia and the remaining business of Fox Restaurant Concepts LLC (FRC). As a result of the transaction, the Company acquired trade names and trademarks representing the names of the restaurant concepts acquired. The acquisition-date fair value for the trade names and trademark assets are included in intangibles acquired of $337 million. The Company also remeasured previously held equity interests in North Italia and Flower Child immediately before the acquisition to acquisition-date fair value of $122 million and recognized a gain of $53 million which is included in gain on investments in unconsolidated affiliates in the consolidated statements of operations.

We identified the evaluation of the acquisition-date fair value of the North Italia, Flower Child and other FRC trade names and trademark assets and the remeasurement of previously held equity interests in North Italia and Flower Child as a critical audit matter. A high degree of subjective auditor judgment was involved in evaluating certain inputs to the relief from royalty model used to determine the fair value of the trade names and trademarks, and the discounted cash flow model used to determine the enterprise value of North Italia and Flower Child. The key inputs used in the relief from royalty model included royalty rates, discount rates, and revenue growth rates. The key inputs used in the discounted cash flow model included revenue growth rates, EBITDA as a percentage of revenue, and discount rates. There was limited observable market information and the calculated fair value of such assets was sensitive to possible changes in these key inputs.

The primary procedures we performed to address this critical audit matter included the following. We tested certain internal controls over the Company’s acquisition-date valuation process, including controls over the key inputs listed above. In connection with our assessment of the inputs used in the valuation, we compared forecasted revenue growth rates and EBITDA as a percentage of revenue to historical actual results and performing sensitivity analyses to assess the impact of changes to the forecasted revenue growth rates. In addition, we involved valuation professionals with specialized skills and knowledge, who assisted in:

●evaluating the selected discount rates by comparing them against discount rate ranges that were independently developed using publicly available market data;

●assessing the forecasted revenue growth rates and EBITDA as a percentage of revenue by comparing them against revenue growth rates and EBITDA as a percentage of revenue of publicly available market data for comparable companies;

●evaluating the selected royalty rates by comparing them against publicly available royalty rates of comparable companies; and

●testing the estimates of fair values of the trade name and trademark assets and enterprise values using independently obtained market data and comparing the results to the Company’s fair value estimates.

Evaluation of the acquisition-date fair value of contingent consideration

As discussed in Notes 1, 2 and 13 to the consolidated financial statements, on October 2, 2019, the Company acquired North Italia and the remaining business of Fox Restaurant Concepts LLC. The acquisition agreement included a contingent consideration provision, a portion of which was considered part of the acquisition consideration, and the remainder of which was considered future compensation expense. The acquisition-date fair values for the acquisition consideration and future compensation expense were $13 million and $7 million, respectively.

We identified the evaluation of the acquisition-date fair value of the contingent consideration as a critical audit matter. A high degree of subjective auditor judgment was required in evaluating certain inputs to the Monte Carlo model used to determine the fair value of the contingent consideration. Specifically, the key inputs included forecasted revenue growth rates, EBITDA as a percentage of revenue and volatility rate. There was limited observable market information, and the calculated fair value of the contingent consideration was sensitive to possible changes to these key inputs.

6

The primary procedures we performed to address this critical audit matter included the following. We tested certain internal controls over the Company’s acquisition-date valuation process, including controls over the key inputs listed above. In connection with our assessment of the revenue and EBITDA forecasts used in the valuation, we compared forecasted revenue growth rates and EBITDA as a percentage of revenue to historical actual results. In addition, we involved valuation professionals with specialized skills and knowledge, who assisted in:

●assessing the selected volatility rate by comparing it against publicly available volatility rate of comparable companies;

●developing estimates of the fair values of the contingent consideration using independently obtained external information and comparing the results to the Company’s fair value estimates; and

●performing sensitivity analyses to assess the impact of reasonably possible changes to the forecasted revenue growth rates and EBITDA.

/s/ KPMG LLP

We have served as the Company’s auditor since 2018.

Los Angeles, California

March 11, 2020

7

Report of Independent Registered Public Accounting Firm

To the Board of Directors and Stockholders of The Cheesecake Factory Incorporated

Opinion on the Financial Statements

We have audited the consolidated statement of income, comprehensive income, stockholders’ equity and cash flows of The Cheesecake Factory Incorporated (the “Company”) for the year ended January 2, 2018, including the related notes (collectively referred to as the “consolidated financial statements”). In our opinion, the consolidated financial statements present fairly, in all material respects, the results of operations and cash flows of the Company for the year ended January 2, 2018 in conformity with accounting principles generally accepted in the United States of America.

Basis for Opinion

These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the Company’s consolidated financial statements based on our audit. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audit of these consolidated financial statements in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud.

Our audit included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audit also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that our audit provides a reasonable basis for our opinion.

/s/ PricewaterhouseCoopers LLP

Los Angeles, California

February 28, 2018

We served as the Company’s auditor from at least 1992 to 2018. We have not been able to determine the specific year we began serving as auditor of the Company.

8

THE CHEESECAKE FACTORY INCORPORATED

CONSOLIDATED BALANCE SHEETS

(In thousands, except share data)

	December 31, 2019		January 1, 2019
ASSETS
Current assets:
Cash and cash equivalents	$	58,416	$	26,578
Accounts receivable		25,619		20,928
Income taxes receivable		4,626		—
Other receivables		64,683		68,193
Inventories		47,225		38,886
Prepaid expenses		43,946		40,645
Total current assets		244,515		195,230
Property and equipment, net		831,599		913,275
Other assets:
Intangible assets, net		437,207		26,209
Prepaid rent		—		34,961
Operating lease assets		1,240,976		—
Investments in unconsolidated affiliates		—		79,767
Other		86,296		64,691
Total other assets		1,764,479		205,628
Total assets	$	2,840,593	$	1,314,133
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable	$	61,946	$	49,071
Income taxes payable		—		712
Gift card liabilities		187,978		172,336
Operating lease liabilities		128,081		—
Other accrued expenses		236,582		194,381
Total current liabilities		614,587		416,500
Deferred income taxes		33,847		52,123
Deferred rent liabilities		—		79,697
Deemed landlord financing liabilities		—		113,095
Long-term debt		290,000		10,000
Operating lease liabilities		1,189,869		—
Other noncurrent liabilities		140,548		71,659
Commitments and contingencies (Note 14)
Stockholders’ equity:
Preferred stock, $.01 par value, 5,000,000 shares authorized; NaN issued		—		—
Common stock, $.01 par value, 250,000,000 shares authorized; 97,685,178 and 96,621,990 shares issued at December 31, 2019 and January 1, 2019, respectively		977		967
Additional paid-in capital		855,989		828,676
Retained earnings		1,408,333		1,384,494
Treasury stock, 52,916,434 and 51,791,941 shares at cost at December 31, 2019 and January 1, 2019, respectively		(1,693,122)		(1,642,140)
Accumulated other comprehensive loss		(435)		(938)
Total stockholders’ equity		571,742		571,059
Total liabilities and stockholders’ equity	$	2,840,593	$	1,314,133

See the accompanying notes to the consolidated financial statements.

9

THE CHEESECAKE FACTORY INCORPORATED

CONSOLIDATED STATEMENTS OF INCOME

(In thousands, except per share data)

	Fiscal Year
	2019		2018		2017
Revenues	$	2,482,692	$	2,332,331	$	2,260,502
Costs and expenses:
Cost of sales		561,783		532,880		519,388
Labor expenses		899,667		834,134		777,595
Other operating costs and expenses		631,613		566,825		552,791
General and administrative expenses		160,199		154,770		141,533
Depreciation and amortization expenses		88,133		95,976		92,729
Impairment of assets and lease terminations		18,247		17,861		10,343
Acquisition-related costs		5,270		—		—
Acquisition-related contingent consideration, compensation and amortization expenses		1,033		—		—
Preopening costs		13,149		10,937		13,278
Total costs and expenses		2,379,094		2,213,383		2,107,657
Income from operations		103,598		118,948		152,845
Gain/(loss) on investments in unconsolidated affiliates		39,233		(4,754)		(479)
Interest and other expense, net		(2,497)		(6,783)		(5,900)
Income before income taxes		140,334		107,411		146,466
Income tax provision/(benefit)		13,041		8,376		(10,926)
Net income	$	127,293	$	99,035	$	157,392
Net income per share:
Basic	$	2.90	$	2.19	$	3.35
Diluted	$	2.86	$	2.14	$	3.27
Weighted average shares outstanding:
Basic		43,949		45,263		46,930
Diluted		44,545		46,215		48,152

See the accompanying notes to the consolidated financial statements.

10

THE CHEESECAKE FACTORY INCORPORATED

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(In thousands)

	Fiscal Year
	2019		2018		2017
Net income	$	127,293	$	99,035	$	157,392
Other comprehensive gain/(loss):
Foreign currency translation adjustment		503		(850)		(88)
Other comprehensive gain/(loss)		503		(850)		(88)
Total comprehensive income	$	127,796	$	98,185	$	157,304

See the accompanying notes to the consolidated financial statements.

11

THE CHEESECAKE FACTORY INCORPORATED

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

(In thousands)

										Accumulated
	Shares of			Additional						Other
	Common	Common		Paid-in		Retained		Treasury		Comprehensive
	Stock	Stock		Capital		Earnings		Stock		Loss		Total
Balance, January 3, 2017	94,672	$	947	$	774,137	$	1,238,012	$	(1,409,889)	$	—	$	603,207
Net income	—		—		—		157,392		—		—		157,392
Foreign currency translation adjustment	—		—		—		—		—		(88)		(88)
Cash dividends declared Common stock, $1.06 per share	—		—		—		(49,738)		—		—		(49,738)
Stock-based compensation	—		—		16,696		—		—		—		16,696
Common stock issued under stock-based compensation plans	740		7		9,029		—		—		—		9,036
Treasury stock purchases	—		—		—		—		(122,975)		—		(122,975)
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	—		—		—		99,035		—		—		99,035
Foreign currency translation adjustment	—		—		—		—		—		(850)		(850)
Cash dividends declared Common stock, $1.24 per share	—		—		—		(56,647)		—		—		(56,647)
Stock-based compensation	554		6		20,245		—		—		—		20,251
Common stock issued under stock-based compensation plans	656		7		8,569		—		—		—		8,576
Treasury stock purchases	—		—		—		—		(109,276)		—		(109,276)
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	—		—		—		127,293		—		—		127,293
Foreign currency translation adjustment	—		—		—		—		—		503		503
Cash dividends declared Common stock, $1.38 per share	—		—		—		(61,988)		—		—		(61,988)
Stock-based compensation	476		4		19,595		—		—		—		19,599
Common stock issued under stock-based compensation plans	587		6		7,718		—		—		—		7,724
Treasury stock purchases	—		—		—		—		(50,982)		—		(50,982)
Balance, December 31, 2019	97,685	$	977	$	855,989	$	1,408,333	$	(1,693,122)	$	(435)	$	571,742

See the accompanying notes to the consolidated financial statements.

12

THE CHEESECAKE FACTORY INCORPORATED

CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

	Fiscal Year
	2019		2018		2017
Cash flows from operating activities:
Net income	$	127,293	$	99,035	$	157,392
Adjustments to reconcile net income to cash provided by operating activities:
Depreciation and amortization expenses		88,133		95,976		92,729
Deferred income taxes		(2,197)		(5,510)		(25,180)
Impairment of assets and lease terminations		16,223		16,411		10,586
Stock-based compensation		19,373		19,988		16,457
(Gain)/loss from investments in unconsolidated affiliates		(39,233)		4,754		479
Changes in assets and liabilities, net of acquired amounts:
Accounts and other receivables		3,777		3,680		(7,188)
Income taxes receivable/payable		(5,338)		15,729		(17,315)
Inventories		(5,766)		3,667		(7,634)
Prepaid expenses		(4,133)		6,262		(5,227)
Operating lease assets/liabilities		5,019		—		—
Other assets		(11,989)		7,406		(9,034)
Accounts payable		2,326		5,601		3,771
Gift card liabilities		9,695		8,395		10,200
Other accrued expenses		15,578		9,921		18,760
Cash provided by operating activities		218,761		291,315		238,796
Cash flows from investing activities:
Additions to property and equipment		(73,765)		(102,909)		(120,779)
Additions to intangible assets		(2,100)		(3,020)		(1,654)
Acquisition, net of cash acquired		(261,695)		—		—
Investments in unconsolidated affiliates		(3,000)		(25,000)		(18,000)
Loans made to unconsolidated affiliates		(22,500)		—		—
Proceeds from variable life insurance contract		—		540		—
Cash used in investing activities		(363,060)		(130,389)		(140,433)
Cash flows from financing activities:
Deemed landlord financing proceeds		—		21,788		12,128
Deemed landlord financing payments		—		(5,128)		(4,391)
Borrowings on credit facility		335,000		70,000		85,000
Repayments on credit facility		(55,000)		(70,000)		(75,000)
Proceeds from exercise of stock options		7,724		8,576		9,036
Cash dividends paid		(60,722)		(56,251)		(49,889)
Treasury stock purchases		(50,982)		(109,276)		(122,975)
Cash provided by/(used in) financing activities		176,020		(140,291)		(146,091)
Foreign currency translation adjustment		117		(65)		(103)
Net change in cash and cash equivalents		31,838		20,570		(47,831)
Cash and cash equivalents at beginning of period		26,578		6,008		53,839
Cash and cash equivalents at end of period	$	58,416	$	26,578	$	6,008
Supplemental disclosures:
Interest paid	$	1,646	$	8,156	$	7,128
Income taxes paid	$	20,778	$	10,149	$	31,582
Construction payable	$	6,504	$	4,585	$	12,145
Non-cash operating:
Settlement of sale-leaseback accounting	$	—	$	11,863	$	—
Non-cash investing:
Settlement of landlord sale-leaseback accounting	$	—	$	6,824	$	—
Acquisition-related deferred consideration and compensation	$	(66,257)	$	—	$	—
Fair value of previously-held equity investments	$	(122,000)	$	—	$	—
Loans repaid by unconsolidated affiliates as a reduction of acquisition cash	$	12,500	$	—	$	—
Loan to unconsolidated affiliate assumed in acquisition	$	10,000	$	—	$	—
Non-cash financing:
Settlement of landlord financing obligation for sale-leaseback leases	$	—	$	(18,687)	$	—
Deemed landlord financing proceeds	$	—	$	13,748	$	—

See the accompanying notes to the consolidated financial statements.

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THE CHEESECAKE FACTORY INCORPORATED

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1.    Summary of Significant Accounting Policies

Description of Business

The Cheesecake Factory Incorporated is a leader in experiential dining. We are culinary forward and relentlessly focused on hospitality. We currently own and operate 294 restaurants throughout the United States and Canada under brands including The Cheesecake Factory^®, North Italia^® and a collection within the Fox Restaurant Concepts ("FRC") subsidiary. Internationally, 26 The Cheesecake Factory^® restaurants operate under licensing agreements. Our bakery division operates 2 facilities that produce quality cheesecakes and other baked products for our restaurants, international licensees and third-party bakery customers.

Basis of Presentation

The accompanying 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.

On October 2, 2019, we completed the acquistion of North Italia and the remaining business of FRC, including Flower Child and all other FRC brands. The results of operations, financial position and cash flows of the acquired businesses are included in our consolidated financial statements as of the acquisition date. See Note 2 for further discussion of the Acquisition.

We utilize a 52/53-week fiscal year ending on the Tuesday closest to December 31 for financial reporting purposes. Fiscal years 2019, 2018 and 2017 each consisted of 52 weeks.

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.

Business Combination

On October 2, 2019, we completed the acquisition of North Italia and the remaining business of FRC. Since the Acquisition represents a business combination achieved in stages, we remeasured our previously-held equity interests in North Italia and Flower Child immediately before the acquisition to acquisition-date fair value and recognized a resulting gain. In accordance with the acquisition method of accounting for business combinations, we allocated the purchase price of acquired businesses to the tangible and intangible assets acquired and liabilities assumed based on preliminary estimated fair values. We estimated the fair value of assets and liabilities based upon widely-accepted valuation techniques, including discounted cash flow, relief from royalty and Monte Carlo methods, depending on the nature of the assets acquired or liabilities assumed. We expect minor adjustments to our purchase accounting in the first quarter of fiscal 2020 as we finalize our valuation of the acquired intangible assets. (See Note 2 for further discussion of the Acquisition.)

Cash and Cash Equivalents

Amounts receivable from credit card processors, totaling $21.2 million and $17.3 million at December 31, 2019 and January 1, 2019, respectively, are considered cash equivalents because they are both short-term and highly liquid in nature and are typically converted to cash within three days of the sales transaction. Our cash management system provides for the funding of all major bank disbursement accounts on a daily basis as checks are presented for payment. Under this system, outstanding checks are in excess of the cash balances at certain banks, which creates book overdrafts. Book overdrafts are presented as a current liability in other accrued expenses on our consolidated balance sheet.

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Accounts and Other Receivables

Our accounts receivable principally result from credit sales to bakery customers. Other receivables consist primarily of amounts due from our gift card distributors and landlords.

Concentration of Credit Risk

Financial instruments that potentially subject us to a concentration of credit risk are cash and cash equivalents and receivables. We maintain our day-to-day operating cash balances in non-interest-bearing transaction accounts, which are insured by the Federal Deposit Insurance Corporation (“FDIC”) up to $250,000. We invest our excess cash in a money market deposit account, which is insured by the FDIC up to $250,000. Although we maintain balances that exceed the federally insured limit, we have not experienced any losses related to this balance, and we believe credit risk to be minimal.

We consider the concentration of credit risk for accounts receivable to be minimal due to the payment histories and general financial condition of our larger bakery customers. Concentration of credit risk related to other receivables is limited as this balance is comprised primarily of amounts due from our gift card distributors and landlords.

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):

	December 31, 2019
	Level 1		Level 2		Level 3
Assets (Liabilities)
Non-qualified deferred compensation assets	$	77,228	$	—	$	—
Non-qualified deferred compensation liabilities		(76,255)		—		—
Acquisition-related deferred consideration		—		(53,933)		—
Acquisition-related contingent consideration and compensation liabilities		—		—		(13,218)

	January 1, 2019
	Level 1		Level 2		Level 3
Assets (Liabilities)
Non-qualified deferred compensation assets	$	57,606	$	—	$	—
Non-qualified deferred compensation liabilities		(57,551)		—		—
Deemed landlord financing liabilities		—		(118,600)		—

Changes in the fair value of non-qualified deferred compensation assets and liabilities and deemed landlord financing liabilities are recognized in interest and other expense, net in our consolidated statements of income. Changes in the fair value of the acquisition-related deferred and contingent consideration and compensation liabilities are recognized in acquisition-related contingent consideration, compensation and amortization expenses in our consolidated statements of income.

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The fair value of the acquisition-related contingent consideration and compensation liabilities was determined utilizing a Monte Carlo model based on estimated future revenues, margins and volatility factors, among other variables and estimates and has no minimum or maximum payment. The undiscounted range of outcomes per the Monte Carlo model was $0 to $69.2 million. Results could change materially if different estimates and assumptions were used. The following table presents a reconciliation of the beginning and ending amounts of the fair value of the acquisition-related contingent consideration and compensation liabilities, categorized as Level 3 (in thousands):

Balance, January 1, 2019	$	—
Acquisition-date fair value		12,786
Change in fair value		432
Balance, December 31, 2019	$	13,218

The fair values of our cash and cash equivalents, accounts receivable, income taxes receivable, other receivables, prepaid expenses, accounts payable, income taxes payable and other accrued expenses approximate their carrying amounts due to their short duration.

Inventories

Inventories consist of restaurant food and other supplies, bakery raw materials and bakery finished goods and are stated at the lower of cost or net realizable value on an average cost basis at the restaurants and on a first-in, first-out basis at the bakeries.

Property and Equipment

We record property and equipment at cost less accumulated depreciation. Improvements are capitalized while repairs and maintenance costs are expensed as incurred. Depreciation and amortization are calculated using the straight-line method over the estimated useful life of the assets or the lease term, whichever is shorter. Leasehold improvements include the cost of our internal development and construction department. Depreciation and amortization periods are as follows:

Buildings and land improvements	25 to 30 years
Leasehold improvements	10 to 30 years
Furnishings, fixtures and equipment	3 to 15 years
Computer software and equipment	5 years

Gains and losses related to property and equipment disposals are recorded in depreciation and amortization expenses.

Intangible Assets

Our intangible assets consist primarily of goodwill, indefinite-lived trade names, trademarks and transferable alcoholic beverage licenses and definite-lived licensing agreements and non-transferable alcoholic beverage licenses. Definite-lived intangible assets are amortized on a straight-line basis over their estimated useful lives and reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset or asset group may not be recoverable based on estimated undiscounted future cash flows. If impaired, the asset or asset group is written down to fair value based on discounted future cash flows. Amortization is recorded in acquisition-related contingent consideration, compensation and amortization expenses in our consolidated statements of income.

Goodwill and other indefinite-lived intangible assets are not amortized but are instead tested for impairment annually as of the first day of our fiscal fourth quarter or on an interim basis if events or changes in circumstances between annual tests indicate a potential impairment. First, we determine if, based on qualitative factors, it is more likely than not that an impairment exists. Factors considered include, but are not limited to historical financial performance, a significant decline in expected future cash flows, unanticipated competition, changes in management or key personnel, macroeconomic and industry conditions and the legal and regulatory environment. If the qualitative assessment indicates that it is more likely than not that an impairment exists, then a quantitative assessment is performed. The quantitative assessment requires an analysis of several best estimates and assumptions, including future sales and operating results and other factors that could affect fair value or otherwise indicate potential impairment. We also consider our reporting units’ projected ability to generate income from operations and positive cash flow in future periods.

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We evaluate the useful lives of our intangible assets, other than goodwill, at each reporting period to determine if they are definite or indefinite-lived. A determination on useful life requires judgments and assumptions regarding the future effects of obsolescence, demand, competition, other economic factors (such as the stability of the industry, legislative action that results in an uncertain or changing regulatory environment and expected changes in distribution channels), the level of required maintenance expenditures and the expected lives of other related groups of assets.

Impairment of Long-Lived Assets and Lease Terminations

We assess the potential impairment of our long-lived assets on an annual basis or whenever events or changes in circumstances indicate the carrying value of the assets or asset group may not be recoverable. Factors considered include, but are not limited to, negative cash flow, significant underperformance relative to historical or projected future operating results, significant changes in the manner in which an asset is being used, an expectation that an asset will be disposed of significantly before the end of its previously estimated useful life and significant negative industry or economic trends. At any given time, we may be monitoring a small number of locations, and future impairment charges could be required if individual restaurant performance does not improve or we make the decision to close or relocate a restaurant.

We have determined that our asset group for impairment testing is comprised of the assets and liabilities of each of our individual restaurants, as this is the lowest level of identifiable cash flows. We have identified leasehold improvements as the primary asset because it is the most significant component of our restaurant assets, it is the principal asset from which our restaurants derive their cash flow generating capacity and it has the longest remaining useful life. The recoverability is assessed by comparing the carrying value of the assets to the undiscounted cash flows expected to be generated by these assets. Impairment losses are measured as the amount by which the carrying values of the assets exceed their fair value, which is determined based on discounted future net cash flows expected to be generated by the assets.

In fiscal 2019, we recorded $18.2 million of impairment of assets and lease termination expense related to the impairment of 2 The Cheesecake Factory restaurants, one Grand Lux Cafe and Social Monk Asian Kitchen and the closure of 1 Grand Lux Cafe and 1 RockSugar Southeast Asian Kitchen. In fiscal 2018, we recorded $17.9 million of impairment of assets and lease termination expense related to the impairment of one The Cheesecake Factory restaurant, one Grand Lux Cafe and one RockSugar Southeast Asian Kitchen and the closure of two The Cheesecake Factory restaurants. In fiscal 2017, we recorded $10.3 million of impairment of assets and lease termination expense related to 3 The Cheesecake Factory restaurants, including one relocation and one lease expiration, and one Grand Lux Cafe. These amounts are recorded in impairment of assets and lease terminations on the consolidated statements of income.

Investments in Unconsolidated Affiliates

During fiscal years 2018, 2017 and until the Acquisition on October 2, 2019, we made minority equity investments in 2 restaurant concepts, North Italia and Flower Child, bringing our percentage of ownership to 49% in both concepts immediately prior to the Acquisition. Since we held a number of rights with regard to participation in policy-making processes, but did not control these entities prior to the Acquisition, we accounted for these investments under the equity method. Accordingly, we recognized our proportionate share of the reported earnings or losses of these entities on the consolidated statements of income and as an adjustment to our investments on the consolidated balance sheets.

Prior to the Acquisition, we assessed the potential impairment of our equity investments whenever events or changes in circumstances indicated that a decrease in value of the investment had occurred that was other than temporary, in which case we would recognize the decrease even though it is in excess of what would otherwise be recognized by application of the equity method. NaN impairment losses were recorded for these assets during fiscal years 2019, 2018 and 2017.

Revenue Recognition

Our revenues consist of sales at our Company-owned restaurants, sales from our bakery operations to our licensees and other third-party customers, royalties from our licensees’ restaurant sales and from consumer packaged goods sales, and licensee development and site fees. Revenues are presented net of sales taxes. Sales tax collected is included in other accrued expenses until the taxes are remitted to the appropriate taxing authorities.

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Revenues from restaurant sales are recognized when payment is tendered at the point of sale. Revenues from bakery sales are recognized upon transfer of title and risk to customers. Royalty revenues are recognized in the period the related sales occur, utilizing the sale-based royalty exception available under current accounting guidance. Our consumer packaged goods minimum guarantees do not require distinct performance obligations. Therefore, related revenue is recognized on a straight-line basis over the life of the applicable agreements, ranging from one to three years. As our development and site fee agreements do not contain distinct performance obligations, related revenue is recognized on a straight-line basis over the life of the applicable agreements, ranging from eight to 30 years.

In fiscal 2019, we deferred revenue of $0.2 million for new minimum guarantees for consumer packaged goods and recognized minimum guarantee revenue of $0.5 million. In fiscal 2019, we deferred revenue of $0.3 million for new site and development agreements and recognized revenue of $0.5 million. In fiscal 2018, we deferred revenue of $0.9 million for new minimum guarantees for consumer packaged goods and recognized minimum guarantee revenue of $0.8 million. In fiscal 2018, we deferred revenue of $0.2 million for new site and development agreements and recognized revenue of $0.4 million. Prior to the adoption of the new revenue recognition standard in 2018, we recognized revenue for development fees upon execution of new development agreements and for site fees upon our approval of new restaurant sites.

We recognize a liability upon the sale of our gift cards and recognize revenue when these gift cards are redeemed in our restaurants. Based on our historical redemption patterns, we can reasonably estimate the amount of gift cards for which redemption is remote, which is referred to as “breakage.” Breakage is recognized over a three-year period in proportion to historical redemption trends and is classified as revenues in our consolidated statements of income. We recognized $8.0 million, $8.0 million and $7.9 million of gift card breakage in fiscal years 2019, 2018 and 2017, respectively. Incremental direct costs related to gift card sales, including commissions and credit card fees, are deferred and recognized in earnings in the same pattern as the related gift card revenue. There were no changes to our accounting for gift card revenue and related costs upon adoption of the new revenue recognition standard.

Certain of our promotional programs include multiple element arrangements that incorporate various performance obligations. We allocate revenue using the relative selling price of each performance obligation considering the likelihood of redemption and recognize revenue upon satisfaction of each performance obligation. During fiscal 2019, we deferred revenue of $7.9 million related to promotional programs and recognized $7.3 million of previously deferred revenue related to promotional programs. During fiscal 2018, we deferred revenue of $7.0 million related to promotional programs and recognized $5.9 million of previously deferred revenue related to promotional programs.

(See Recent Accounting Pronouncements for further discussion of our adoption of the new revenue recognition accounting guidance.)

Leases

We currently lease all of our restaurant locations, generally with initial terms of 10 to 20 years plus 2 five-year renewal options. Our leases typically require contingent rent above the minimum base rent payments based on a percentage of revenues ranging from 2% to 10%, 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 under Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) Topic 842, Leases, 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.

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At lease commencement, we evaluate each lease to determine its appropriate classification as an operating or finance lease. All of 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.

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, Property, Plant, and Equipment: Impairment or disposal on long-lived assets.

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. Variable lease payments, which primarily consist of real estate taxes, common area maintenance charges, insurance cost and other operating expenses, are not included in the operating lease right-of-use asset or operating lease liability balances and are 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. Rent expense is included in other operating costs and expenses in the consolidated statements of income.

Self-Insurance Liabilities

We retain the financial responsibility for a significant portion of our risks and associated liabilities with respect to workers’ compensation, general liability, staff member health benefits, employment practices and other insurable risks. The accrued liabilities associated with these programs are based on our estimate of the ultimate costs to settle known claims, as well as claims incurred but not yet reported to us (“IBNR”) as of the balance sheet date and are recorded in other accrued expenses. Our estimated liabilities, which are not discounted, are based on information provided by our insurance brokers and insurers, combined with our judgment regarding a number of assumptions and factors, including the frequency and severity of claims, claims development history, case jurisdiction, applicable legislation and our claims settlement practices.

Stock-Based Compensation

We maintain stock-based incentive plans under which equity awards may be granted to staff members and consultants. We account for the awards based on fair value measurement guidance and amortize to expense over the vesting period using a straight-line or graded-vesting schedule, as applicable. (See Note 16 for further discussion of our stock-based compensation.)

Advertising Costs

We expense advertising production costs at the time the advertising first takes place. All other advertising costs are expensed as incurred. Most of our advertising costs are included in other operating costs and expenses and were $10.6 million, $6.1 million and $6.1 million in fiscal 2019, 2018 and 2017, respectively.

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Preopening Costs

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. We expense preopening costs as incurred.

Income Taxes

We provide for federal, state and foreign income taxes currently payable and for deferred taxes that result from differences between financial accounting rules and tax laws governing the timing of recognition of various income and expense items. We recognize deferred income tax assets and liabilities for the future tax effects of such temporary differences based on the difference between the financial statement and tax bases of existing assets and liabilities using the statutory rates expected in the years in which the differences are expected to reverse. The effect on deferred taxes of any enacted change in tax rates is recognized in income in the period that includes the enactment date. Income tax credits are recorded as a reduction of tax expense.

Uncertain tax positions taken or expected to be taken in a tax return are recognized (or derecognized) in the financial statements when it is more likely than not (i.e., a likelihood of more than 50%) that the position would be sustained on its technical merits upon examination by tax authorities, taking into account available administrative remedies and litigation. A recognized tax position is then measured at the largest amount of benefit that is greater than 50% likely of being realized upon ultimate resolution. We recognize interest related to uncertain tax positions in income tax expense. Penalties related to uncertain tax positions are recorded in general and administrative expenses.

Net Income per Share

Basic net income per share is computed by dividing net income available to common stockholders by the weighted average number of common shares outstanding during the period, reduced by unvested restricted stock awards. At December 31, 2019, January 1, 2019 and January 2, 2018, 1.8 million shares, 1.7 million shares and 1.7 million shares, respectively, of restricted stock issued to staff members were unvested and, therefore, excluded from the calculation of basic earnings per share for the fiscal years ended on those dates. Diluted net income per share includes the dilutive effect of outstanding equity awards, calculated using the treasury stock method. Shares of common stock equivalents of 2.3 million, 1.5 million and 1.6 million for fiscal 2019, 2018 and 2017, respectively, were excluded from the diluted calculation due to their anti-dilutive effect.

	Fiscal Year
	2019		2018		2017
	(In thousands, except per share data)
Net income	$	127,293	$	99,035	$	157,392
Basic weighted average shares outstanding		43,949		45,263		46,930
Dilutive effect of equity awards		596		952		1,222
Diluted weighted average shares outstanding		44,545		46,215		48,152
Basic net income per share	$	2.90	$	2.19	$	3.35
Diluted net income per share	$	2.86	$	2.14	$	3.27

Comprehensive Income

Comprehensive income includes all changes in equity during a period except those resulting from investment by and distribution to owners. Our comprehensive income consists of net income and translation gains and losses related to our Canadian restaurant operations.

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Foreign Currency

The Canadian dollar is the functional currency for our Canadian restaurant operations. Revenue and expense accounts are translated into U.S. dollars using the average exchange rates during the reporting period. Assets and liabilities are translated using the exchange rates in effect at the reporting period end date. Equity accounts are translated at historical rates, except for the change in retained earnings which is the result of the income statement translation process. Translation gains and losses are reported as a separate component in our consolidated statements of comprehensive income and would only be realized upon the sale or upon complete or substantially complete liquidation of the business. Gains and losses from foreign currency transactions are recognized in our consolidated statements of income in interest and other expense, net.

Recent Accounting Pronouncements

Recently Adopted Accounting Standards

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 short-term lease exclusion and the hindsight practical expedient, which lengthened the lease term for certain of our leases to include renewal options. 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 were reclassified into operating lease assets or eliminated upon ASC 842 adoption.

We adopted ASC Topic 606, Revenue from Contracts with Customers, as of January 3, 2018. This accounting guidance provides a comprehensive new revenue recognition model that supersedes most of the existing revenue recognition requirements and requires entities to recognize revenue at an amount that reflects the consideration to which a company expects to be entitled in exchange for transferring goods or services to a customer. Utilizing the cumulative-effect method of adoption, we recorded a $4.8 million increase to deferred revenue and a corresponding reduction of $3.6 million, net of tax, to retained earnings to reverse a portion of the previously-recognized development and site fees from our international licensees. Whereas previously we recognized income and received payment upon execution of the agreements and approval of new restaurant sites, respectively, future revenue for these items will be recorded on a straight-line basis over the life of the applicable license agreements as the agreements do not contain distinct performance obligations. Comparative financial information has not been restated and continues to be reported under the accounting standards in effect for those periods. The impact of adopting this standard as compared to the previous revenue recognition guidance was not material to our consolidated balance sheet and consolidated statements of income and comprehensive income.

Recently Issued Accounting Standards

In August 2018, the FASB issued ASU 2018-13, Fair Value Measurement (Topic 820): Disclosure Framework - Changes to the Disclosure Requirements for Fair Value Measurement. The update eliminates, adds and modifies certain disclosure requirements for fair value measurements. The new standard is effective for us on January 1, 2020. We have substantially completed our assessment of the new standard and do not expect its adoption to have a significant impact on our consolidated financial statement disclosures.

2.    Acquisition

On October 2, 2019 (the “Closing Date” or “Closing”), we completed the acquisition of North Italia and the remaining business of Fox Restaurant Concepts LLC, including Flower Child and all other FRC brands. North Italia is a restaurant company that operated 21 locations across 10 states and Washington D.C. as of the Closing Date. FRC is a multi-concept restaurant company that operated 10 concepts with 47 locations across 8 states and Washington D.C. as of the Closing Date. The results of operations, financial position and cash flows of the acquired businesses are included in our consolidated financial statements as of the acquisition date.

We have concluded that the Acquisition represents a single business combination of related businesses under common control within the scope of ASC Topic 805, Business Combinations. The acquisition date was determined to be the Closing Date, which was the date we obtained control by legally transferring the consideration for the remaining ownership interests, acquiring the assets and assuming the liabilities of North Italia and the remaining FRC business.

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The Acquisition, which we expect will accelerate and diversify our revenue growth, was completed for consideration consisting of the following components: $288.1 million in cash at Closing, which was primarily funded by drawing on the New Facility; assumption of $10.0 million in debt previously owed by FRC to us; a $12.0 million indemnity escrow amount specifically related to North Italia due ratably over the next two years; and $45.0 million of deferred consideration due ratably over the next four years (including a $13.0 million indemnity escrow amount specifically related to the remaining FRC businesses).

The acquisition agreement also included a contingent consideration provision, a portion of which was considered part of the acquisition consideration, and the remainder of which was considered future compensation expense. The acquisition-date fair values for the acquisition consideration and future compensation expense were $12.8 million and $7.3 million, respectively. The contingent consideration is payable on the fifth anniversary of the Closing Date and is based on achievement of revenue and profitability targets for the FRC brands other than North Italia and Flower Child with considerations made in the event we undergo a change in control or divest any FRC brand (other than North Italia and Flower Child) during the five years after Closing. We are also required to provide financing to FRC in an amount sufficient to support achievement of these targets during the five years after Closing. The fair value of the contingent consideration and compensation liabilities was determined utilizing a Monte Carlo model based on estimated future revenues and volatility factors, among other variables and estimates, and has no maximum payment. The undiscounted range of outcomes per the Monte Carlo model was $0 to $69.2 million. The fair value will be evaluated each reporting period and the contingent consideration will be adjusted accordingly. The assumption of debt previously owed by North Italia to us represents the effective settlement of a preexisting relationship. Since we determined the loans were at market terms, the debt assumed was treated as purchase consideration, and no gain or loss was recorded.

Since the Acquisition represents a business combination achieved in stages, we remeasured our previously-held equity interests in North Italia and Flower Child immediately before the acquisition to acquisition-date fair value of $122.0 million and recognized a resulting gain of $52.7 million which is included in gain/(loss) on investments in unconsolidated affiliates in our consolidated statements of operations. The fair value of the previously-held interests was determined using a discounted cash flow model based on estimated future revenues, margins and discount rates, among other variables and estimates.

The following table summarizes the preliminary calculation of goodwill based on the excess of consideration transferred and the fair value of the previously held equity interests over the fair value of the assets acquired and liabilities assumed (in thousands).

	December 31, 2019
Purchase consideration:
Cash at closing	$	288,089
Assumption of debt previously owed by FRC		10,000
Deferred payments		53,471
Contingent consideration		12,786
Consideration transferred		364,346
Fair value of previously-held equity interests		122,000
Total		486,346
Less net assets acquired:
Current assets		23,682
Property and equipment		84,360
Intangible assets		338,782
Operating lease assets		223,455
Other assets		5,842
Current liabilities		(64,814)
Operating lease liabilities		(202,433)
Other noncurrent liabilities		(883)
Total net assets acquired		407,991
Goodwill	$	78,355

Goodwill is related to the benefits expected as result of the Acquisition, including acceleration and diversification of our revenue growth, and of the $78.4 million recorded as preliminary goodwill, $73.1 million is expected to be deductible for tax purposes. $29.2 million of the goodwill recorded relates to North Italia.

Property and equipment will be depreciated over useful lives of 3 years to 30 years. The fair value of acquired property and equipment was determined under a trended original cost approach utilizing variables and estimates such as useful lives, hold factors and economic obsolescence.

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Intangible assets acquired primarily consist of trade names and trademarks that were assigned indefinite lives based on the expected use of the assets and the regulatory and economic environment within which they are being used. The fair value of the acquired intangible assets was determined utilizing the relief from royalty method based on estimated future revenues, royalty rates and discount rates, among other variables and estimates. We expect minor adjustments to our purchase accounting in the first quarter of fiscal 2020 as we finalize our valuation of the acquired intangible assets.

Operating lease assets include values associated with favorable and unfavorable market leases that will amortize over a weighted-average period of 15.2 years. The fair value of the operating lease assets was derived using an income approach based on market transaction data and estimated discount rates, among other variables and estimates.

During fiscal 2019, we incurred $5.3 million of costs to effect and integrate the Acquisition, which were expensed in accordance with ASC 805 and are included in acquisition-related costs in our consolidated statements of operations. In addition, we incurred $1.0 million related to changes in the fair value of the deferred and contingent consideration and compensation liabilities, as well as amortization of acquired definite-lived licensing agreements, which are included in acquisition-related contingent consideration, compensation and amortization expenses in our consolidated statements of operations.

Pro Forma Results of Operations (unaudited)

The following pro forma results of operations for fiscal 2019 and 2018 give effect to the Acquisition as if it had occurred on January 2, 2018 (in thousands):

	Fiscal Year
	2019		2018
Revenues	$	2,732,901	$	2,579,019
Net income		74,949		80,800
Net income per share:
Basic		1.71		1.79
Diluted	$	1.68	$	1.75

The above pro forma information includes combined North Italia and FRC actual revenues and net loss of $92.0 million and $1.5 million, respectively, contributed post acquisition in fiscal 2019. The most significant adjustments included in the pro forma financial information are the elimination of the gain/(loss) on our previously-held equity interests in North Italia and Flower Child, elimination of transaction costs, increased interest expense associated with debt incurred to fund the Acquisition, elimination of historical FRC interest expense and corresponding income tax effects.

In the opinion of the Company’s management, the unaudited pro forma financial information includes all significant necessary adjustments that can be factually supported to reflect the effects of the Acquisition and related transactions. The unaudited pro forma financial information is provided for informational purposes only and are not necessarily indicative of what our actual results of operations would have been had the Acquisition and related transactions been completed as of January 2, 2018 or that may be achieved in the future.

3.    Other Receivables

Other receivables consisted of (in thousands):

	December 31, 2019		January 1, 2019
Gift card distributors	$	38,947	$	41,996
Insurance providers		9,646		9,020
Landlord construction contributions		3,501		4,976
Other		12,589		12,201
Total	$	64,683	$	68,193

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4.    Inventories

Inventories consisted of (in thousands):

	December 31, 2019		January 1, 2019
Restaurant food and supplies	$	25,057	$	18,362
Bakery finished goods and work in progress		16,000		13,845
Bakery raw materials and supplies		6,168		6,679
Total	$	47,225	$	38,886

5.    Prepaid Expenses

Prepaid expenses consisted of (in thousands):

	December 31, 2019		January 1, 2019
Gift card contract assets	$	23,172	$	23,388
Other		20,774		17,257
Total	$	43,946	$	40,645

6.    Property and Equipment

Property and equipment consisted of (in thousands):

	December 31, 2019		January 1, 2019
Land and related improvements	$	15,852	$	15,852
Buildings		44,049		44,036
Leasehold improvements		1,158,467		1,283,233
Furnishings, fixtures and equipment		548,075		467,051
Computer software and equipment		55,614		55,434
Restaurant smallwares		34,653		30,268
Construction in progress		23,732		27,975
Property and equipment, total		1,880,442		1,923,849
Less: Accumulated depreciation		(1,048,843)		(1,010,574)
Property and equipment, net	$	831,599	$	913,275

Depreciation expenses related to property and equipment for fiscal 2019, 2018 and 2017 were $88.0 million, $93.3 million and $89.6 million, respectively. Repair and maintenance expenses for fiscal 2019, 2018 and 2017 were $56.3 million, $55.2 million and $54.1 million, respectively. Net expense for property and equipment disposals was $0.9 million, $2.1 million and $2.5 million, in fiscal 2019, 2018 and 2017, respectively.

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7.    Intangible Assets, net

The following table presents components of intangible assets, net (in thousands):

	December 31, 2019			January 1, 2019
Indefinite-lived intangible assets:
Goodwill	$	78,355		—
Trade names and trademarks		337,027	$	9,922
Transferable alcoholic beverage licenses		8,575		7,164
Total indefinite-lived intangible assets		423,957		17,086
Definite-lived intangible assets, net:
Licensing agreements		10,060		—
Non-transferable alcoholic beverage licenses		3,190		2,951
Leasehold acquisition assets		—		6,172
Total definite-lived intangible assets		13,250		9,123
Total intangible assets, net	$	437,207	$	26,209

Amortization expenses related to our definite-lived intangible assets was $0.3 million, $0.6 million and $0.6 million for fiscal 2019, 2018 and 2017, respectively. Definite-lived intangible assets will be amortized over one to 56 years. We performed our annual assessment of indefinite-lived intangible assets and concluded as of the date of the test, there was no impairment of these assets.

8.    Leases

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

	Fiscal Year
	2019
Operating	$	112,048
Variable		66,689
Short-term		368
Total	$	179,105

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

	Fiscal Year
	2018		2017
Straight-lined minimum base rent	$	83,999	$	83,387
Contingent rent		20,147		19,559
Common area maintenance and taxes		39,961		38,103
Total	$	144,107	$	141,049

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

	Fiscal Year
	2019
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows from operating leases	$	103,210
Right-of-use assets obtained in exchange for new operating lease liabilities		262,421	(1)
Weighted-average remaining lease term — operating leases (in years)		16.6
Weighted-average discount rate — operating leases		5.2	%

(1) Includes $223.5 million in right-of-use assets related to the Acquisition. (See Note 2 for further discussion of the Acquisition.)

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As of December 31, 2019, the maturities of our operating lease liabilities are as follows (in thousands):

2020	$	122,250
2021		124,383
2022		125,427
2023		121,855
2024		120,772
Thereafter		1,415,777
Total future lease payments		2,030,464
Less: Interest		(712,514)
Present value of lease liabilities	$	1,317,950

Operating lease liabilities include $867.2 million related to options to extend lease terms that are reasonably certain of being exercised and exclude $136.2 million of legally binding minimum lease payments for leases signed but not yet commenced.

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

9.    Other Assets

Other assets consisted of (in thousands):

	December 31, 2019		January 1, 2019
Non-qualified deferred compensation assets	$	77,228	$	57,605
Deposits		5,693		5,489
Deferred income taxes		3,375		1,597
Total	$	86,296	$	64,691

10.    Gift Cards

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

	December 31, 2019		January 1, 2019
Gift card liabilities:
Beginning balance	$	172,336	$	163,951
Activations		158,099		151,084
Redemptions and breakage		(142,457)		(142,699)
Ending balance	$	187,978	$	172,336

	December 31, 2019		January 1, 2019
Gift card contract assets (1):
Beginning balance	$	23,388	$	23,814
Deferrals		18,378		18,669
Amortization		(18,594)		(19,095)
Ending balance	$	23,172	$	23,388

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

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11.    Other Accrued Expenses

Other accrued expenses consisted of (in thousands):

	December 31, 2019		January 1, 2019
Self-insurance	$	68,881	$	72,631
Salaries and wages		56,774		39,102
Staff member benefits		25,044		22,946
Payroll and sales taxes		22,822		15,684
Deferred consideration		16,740		—
Other		46,321		44,018
Total	$	236,582	$	194,381

12.    Long-Term Debt

On July 30, 2019, we entered into a Third Amended and Restated Loan Agreement (the “New Facility”), which amends and restates in its entirety our prior Second Amended and Restated Loan Agreement dated as of December 22, 2015. The New Facility, which terminates on July 30, 2024, provides us with revolving loan commitments that total $400 million (of which $40 million may be used for issuances of letters of credit). The New Facility contains a commitment increase feature that could provide for an additional $200 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 New Facility. At December 31, 2019, we had net availability for borrowings of $90.6 million, based on an outstanding debt balance of $290.0 million and $19.4 million in standby letters of credit. During fiscal 2019, we utilized the New Facility to fund the Acquisition (see Note 2 for further discussion of the Acquisition). During fiscal years 2019, 2018 and 2017, we utilized our previous credit facility to fund a portion of our stock repurchases.

We are subject to certain financial covenants under the New Facility requiring us to maintain (i) a maximum “Net Adjusted Leverage Ratio” of 4.75 and (ii) a minimum EBITDAR to interest and rent expense ratio (“EBITDAR Ratio”) of 1.9, as well as customary events of default that, if triggered, could results in acceleration of the maturity of the New Facility. The New Facility also limits cash distributions with respect to our equity interests, such as cash dividends and share repurchases, based on a defined ratio, and also sets forth negative covenants that restrict indebtedness, liens, investments, sales of assets, fundamental changes and other matters.

Borrowings under the New Facility bear interest, at our option, at a rate equal to either (i) the adjusted LIBO Rate (as customarily defined) (the “Adjusted LIBO Rate”) plus a margin that is based on our net adjusted leverage ratio, or (ii) the sum of (a) the highest of (1) the rate of interest last quoted by The Wall Street Journal as the prime rate in effect in the United States, (2) the greater of the rate calculated by the Federal Reserve Bank of New York as the effective federal funds rate or the rate that is published by the Federal Reserve Bank of New York as an overnight bank funding rate, in either case plus 0.5%, and (3) the one-month Adjusted LIBO Rate plus 1.0%, plus (b) a margin that is based on our net adjusted leverage ratio. Letters of credit issued under the New Facility 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. Under the New Facility, we paid certain customary loan origination fees and will pay an unused fee on the unused portion of the New Facility that is also based on our Net Adjusted Leverage Ratio. Our Net Adjusted Leverage and EBITDAR Ratios were 3.8 and 2.5, respectively, at December 31, 2019, and we were in compliance with all covenants in effect at that date.

Our obligations under the New Facility are unsecured. Certain of our material subsidiaries have guaranteed our obligations under the New Facility. The New Facility will be used for our general corporate purposes, including for the issuance of standby letters of credit to support our self-insurance programs, and to fund dividends, stock repurchases and permitted acquisitions.

We capitalized interest expense related to new restaurant openings and major remodels totaling $0.6 million, $0.4 million and $0.7 million in fiscal 2019, 2018 and 2017, respectively.

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13.   Other Noncurrent Liabilities

Other noncurrent liabilities consisted of (in thousands):

	December 31, 2019		January 1, 2019
Non-qualified deferred compensation liabilities	$	76,255	$	57,551
Deferred consideration		37,193		—
Contingent consideration and compensation liabilities		13,218		—
Other		13,882		14,108
Total	$	140,548	$	71,659

(See Note 17 for further discussion of our non-qualified deferred compensation plan.)

14.   Commitments and Contingencies

Purchase obligations, which include inventory purchases, equipment purchases, information technology and other miscellaneous commitments, were $118.2 million and $149.8 million at December 31, 2019 and January 1, 2019, respectively. These purchase obligations are primarily due within three years and recorded as liabilities when goods are received or services rendered. Real estate obligations, which include construction commitments, net of up-front landlord construction contributions, and legally binding minimum lease payments for leases signed but not yet commenced, were $176.1 million and $12.6 million at December 31, 2019 and January 1, 2019, respectively.

The purchase price of the Acquisition includes a $12 million indemnity escrow amount specifically related to North Italia due ratably over the next two years; and $45 million of deferred consideration due ratably over the next four years (including a $13 million indemnity escrow amount specifically related to the remaining FRC businesses). The acquisition agreement also included a contingent consideration provision which is payable on the fifth anniversary of the Closing Date and is based on achievement of revenue and profitability targets for the FRC brands other than North Italia and Flower Child with considerations made in the event we undergo a change in control or divest any FRC brand (other than North Italia and Flower Child) during the five years after Closing. We are also required to provide financing to FRC in an amount sufficient to support achievement of these targets during the five years after Closing. (See Note 2 for further discussion of the Acquisition.)

As credit guarantees to insurers, we had $19.4 million and $20.7 million at December 31, 2019 and January 1, 2019, respectively, in standby letters of credit related to our self-insurance liabilities. All standby letters of credit are renewable annually.

We retain the financial responsibility for a significant portion of our risks and associated liabilities with respect to workers’ compensation, general liability, staff member health benefits, employment practices and other insurable risks.  The accrued liabilities associated with these programs are based on our estimate of the ultimate costs to settle known claims, as well as claims incurred but not yet reported to us (“IBNR”) as of the balance sheet date. The total accrued liability for our self-insured plans was $67.7 million and $72.2 million at December 31, 2019 and January 1, 2019, respectively.

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 8 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. The Company’s appeal of the wage citation is tentatively scheduled for hearing in July 2020. 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.

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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 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.

We have employment agreements with certain of our executive officers that provide for payments to those officers in the event of an actual or constructive termination of their employment, including in the event of a termination without cause, an acquirer failure to assume or continue equity awards following a change in control of the Company or, otherwise, in the event of death or disability as defined in those agreements. Aggregate payments totaling approximately $2.3 million, excluding accrued potential bonuses of $2.7 million, which are subject to approval by the Compensation Committee, would have been required by those agreements had all such officers terminated their employment for reasons requiring such payments as of December 31, 2019. In addition, the employment agreement with our Chief Executive Officer specifies an annual founder’s retirement benefit of $650,000 for ten years, commencing six months after termination of his full-time employment.

15.   Stockholders’ Equity

Cash dividends of $1.38, $1.24 and $1.06 were declared during fiscal 2019, 2018 and 2017, respectively. 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 New Facility and applicable law, and such other factors that the Board considers relevant. (See Note 12 for further discussion of our long-term debt.)

Under authorization by our Board to repurchase up to 56.0 million shares of our common stock, we have cumulatively repurchased 52.9 million shares at a total cost of $1,693.1 million through December 31, 2019. During fiscal 2019, 2018 and 2017, we repurchased 1.1 million, 2.3 million and 2.6 million shares of our common stock at a cost of $51.0 million, $109.3 million and $123.0 million, respectively. 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 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. (See Note 2 for further discussion of the Acquisition.) The timing and number of shares repurchased are also subject to legal constraints and financial covenants under the New Facility that limit share repurchases based on a defined ratio. (See Note 12 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.

16.   Stock-Based Compensation

We maintain stock-based incentive plans 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. Our current practice is to issue new shares, rather than treasury shares, upon stock option exercises, for restricted share grants and upon vesting of restricted share units. To date, we have only granted non-qualified stock options, restricted shares and restricted share units of common stock under these plans. No grants have been made to non-employee directors under these plans.

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On April 5, 2017, our Board approved an amendment to our 2010 Stock Incentive Plan to increase the number of shares of common stock reserved 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. Approximately 6.5 million of these shares were available for grant as of December 31, 2019.

Stock options generally vest at 20% per year and expire eight years from the date of grant. Restricted shares and restricted share units generally vest between three to five years from the date of grant and require that the staff member remains employed in good standing with the Company as of the vesting date. Certain restricted share units granted to executive officers contain performance-based vesting conditions. Performance goals are determined by the Board of Directors. The quantity of units that will vest ranges from 0% to 150% based on the level of achievement of the performance conditions. Equity awards for certain executive officers may vest earlier in the event of a change of control in which the acquirer fails to assume or continue such awards, as defined in the plan, or under certain circumstances described in such executive officers’ respective employment agreements. Compensation expense is recognized only for those options, restricted shares and restricted share units expected to vest, with forfeitures estimated based on our historical experience and future expectations.

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

	Fiscal Year
	2019		2018		2017(2)
Labor expenses	$	6,233	$	5,681	$	5,236
Other operating costs and expenses		274		287		243
General and administrative expenses		12,866		14,020		10,978
Total stock-based compensation		19,373		19,988		16,457
Income tax benefit		4,760		4,987		6,295
Total stock-based compensation, net of taxes	$	14,613	$	15,001	$	10,162
Capitalized stock-based compensation (1)	$	226	$	262	$	239

(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 consolidated balance sheets.

(2) Fiscal 2017 stock-based compensation expense includes a $3.9 million benefit for an out-of-period adjustment related to a correction in stock-based compensation valuation and forfeitures.

Stock Options

The weighted-average fair value at the grant date for options issued during fiscal 2019, 2018 and 2017 was $9.84, $11.62 and $14.83 per share, respectively. The fair value of options was estimated utilizing the Black-Scholes valuation model with the following weighted-average assumptions for fiscal 2019, 2018 and 2017, respectively: (a) an expected option term of 6.9 years in all fiscal years presented, (b) expected stock price volatility of 26.3%, 27.8% and 24.4%, (c) a risk-free interest rate of 2.6%, 2.8% and 2.3%, and (d) a dividend yield on our stock of 2.9%, 2.5% and 1.6%.

The expected option term represents the estimated period of time until exercise and is based on historical experience of similar options, giving consideration to the contractual terms, vesting schedules and expectations of future staff member behavior. Expected stock price volatility is based on a combination of the historical volatility of our stock and the implied volatility of actively traded options on our common stock. The risk-free interest rate is based on the U.S. Treasury yield curve in effect at the time of grant with an equivalent remaining term. The dividend yield is based on anticipated cash dividend payouts.

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Stock option activity during fiscal 2019 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 beginning of year	1,799	$	45.03	4.1	$	5,606
Granted	307	$	45.90
Exercised	(260)	$	29.72
Forfeited or cancelled	(17)	$	48.38
Outstanding at end of year	1,829	$	47.32	4.3	$	844
Exercisable at end of year	986	$	46.04	2.8	$	844

(1) Aggregate intrinsic value is calculated as the difference between our closing stock price at fiscal year-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 year -end date.

The total intrinsic value of options exercised during fiscal 2019, 2018 and 2017 was $4.3 million, $6.2 million and $11.2 million, respectively. As of December 31, 2019, total unrecognized stock-based compensation expense related to unvested stock options was $7.0 million, which we expect to recognize over a weighted-average period of approximately 3.0 years.

Restricted Shares and Restricted Share Units

Restricted share and restricted share unit activity during fiscal 2019 was as follows:

		Weighted
		Average
		Fair
	Shares	Value
	(In thousands)	(Per share)
Outstanding at beginning of year	1,702	$	48.08
Granted	541	$	45.02
Vested	(349)	$	45.26
Forfeited	(130)	$	47.19
Outstanding at end of year	1,764	$	47.76

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 fiscal 2019, 2018 and 2017 was $45.02, $48.22 and $54.29, respectively. The fair value of shares that vested during fiscal 2019, 2018 and 2017 was $15.8 million, $17.8 million and $18.4 million, respectively. As of December 31, 2019, total unrecognized stock-based compensation expense related to unvested restricted shares and restricted share units was $36.4 million, which we expect to recognize over a weighted-average period of approximately 2.9 years.

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17.   Employee Benefit Plans

We have defined contribution benefit plans in accordance with section 401(k) of the Internal Revenue Code (“401(k) Plans”) that are open to our staff members who meet certain compensation and eligibility requirements. Participation in the 401(k) Plans is currently open to staff members from our restaurant concepts, bakery facilities, corporate office and FRC headquarters. The 401(k) Plans allow participating staff members to defer the receipt of a portion of their compensation and contribute such amount to 1 or more investment options. Our executive officers and a select group of management and/or highly compensated staff members are not eligible to participate in the 401(k) Plans. We currently match in cash a certain percentage of the staff member contributions to the 401(k) Plans and also pay a portion of the administrative costs. Expense recognized in fiscal 2019, 2018 and 2017 was $1.2 million, $1.0 million and $1.0 million, respectively.

We have also established non-qualified deferred compensation plans (“Non-Qualified Plans”) for our executive officers and a select group of management and/or highly compensated staff members. The Non-Qualified Plans allow participating staff members to defer the receipt of a portion of their base compensation and bonuses.  Non-employee directors may also participate in the Non-Qualified Plans and defer the receipt of their earned director fees. We currently match in cash a certain percentage of the staff member contributions to the Non-Qualified Plans and also pay for the administrative costs. We do not match any contributions made by non-employee directors. Expense recognized in fiscal 2019, 2018 and 2017 was $1.2 million, $1.3 million and $1.0 million, respectively.

While we are under no obligation to fund Non-Qualified Plan liabilities (in whole or in part), our current practice is to maintain company-owned life insurance contracts and other investments that are specifically designed to informally fund savings plans of this nature. These contracts are recorded at their cash surrender value as determined by the insurance carrier. Our consolidated balance sheets reflect investments in other assets and our obligation to participants in the Non-Qualified Plans in other noncurrent liabilities. All gains and losses related to our non-qualified deferred compensation assets and liabilities are reflected in interest and other expense, net in our consolidated statements of income.

We maintain self-insured medical and dental benefit plans for our staff members. The accrued liabilities associated with these programs are based on our estimate of the ultimate costs to settle known claims as well as claims incurred but not yet reported to us as of the balance sheet date. The accrued liability for our self-insured benefit plans, which is included in other accrued expenses, was $10.8 million and $10.4 million as of December 31, 2019 and January 1, 2019, respectively. (See Note 1 for further discussion of accounting for our self-insurance liabilities.)

18.   Income Taxes

The provision for income taxes consisted of the following (in thousands):

	Fiscal Year
	2019		2018		2017(1)
Income before income taxes	$	140,334	$	107,411	$	146,466
Income tax (benefit)/provision:
Current:
Federal	$	8,211	$	5,082	$	7,148
State		7,027		8,804		7,106
Total current		15,238		13,886		14,254
Deferred:
Federal		(3,695)		(4,549)		(24,570)
State		1,498		(961)		(610)
Total deferred		(2,197)		(5,510)		(25,180)
Total (benefit)/provision	$	13,041	$	8,376	$	(10,926)

(1) The Tax Act, which was enacted on December 22, 2017, made significant changes to how corporations are taxed in the U.S., the most prominent of which affecting us was to lower the U.S. corporate tax rate from 35% to 21%. In addition to the benefit of a lower rate in future years, the enactment of the Tax Act caused us to revalue our deferred tax assets and liabilities to reflect the new rate, resulting in a benefit to our fiscal 2017 income tax provision of $38.5 million.

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The following reconciles the U.S. federal statutory rate to the effective tax rate:

	Fiscal Year
	2019		2018		2017
U.S. federal statutory rate	21.0	%	21.0	%	35.0	%
State and district income taxes, net of federal benefit	4.9		6.1		3.3
Credit for FICA taxes paid on tips	(12.8)		(16.5)		(9.4)
Other credits and incentives	(1.4)		(2.5)		(1.9)
Manufacturing deduction	—		—		(2.3)
Deferred compensation	(1.7)		0.8		(1.5)
Equity compensation	(0.2)		(1.5)		(4.5)
Impact of statutory rate change on deferred taxes	—		—		(26.3)
Other	(0.5)		0.4		0.1
Effective tax rate	9.3	%	7.8	%	(7.5)	%

Following are the temporary differences that created our deferred tax assets and liabilities (in thousands):

	December 31, 2019		January 1, 2019
Deferred tax assets:
Staff member benefits	$	27,059	$	22,925
Insurance reserves		14,157		15,165
Accrued rent		27,582		10,870
Deferred income		22,725		17,288
Stock-based compensation		8,794		8,628
Tax credit carryforwards		15,754		1,880
Other		1,958		1,265
Subtotal		118,029		78,021
Less: Valuation allowance		(713)		(792)
Total	$	117,316	$	77,229
Deferred tax liabilities:
Property and equipment	$	(131,120)	$	(107,513)
Prepaid expenses		(8,819)		(7,929)
Inventory		(7,713)		(6,893)
Other		(136)		(5,420)
Total	$	(147,788)	$	(127,755)
Net deferred tax liability	$	(30,472)	$	(50,526)

At December 31, 2019 and January 1, 2019, we had $1.9 million and $2.4 million, respectively, of state tax credit carryforwards, consisting of hiring and investment credits, which began to expire in 2013, and $0.8 million and $0.7 million, respectively, of foreign net operating losses and $14.3 million and $3.3 million, respectively, of federal credit carryforwards which begin to expire in 2038. We assess the available evidence to estimate if sufficient future taxable income will be generated to use these carryforwards. Based on this evaluation, we recorded a valuation allowance of $0.7 million and $0.8 million at December 31, 2019 and January 1, 2019, respectively, to reflect the amount that we will likely not realize. This assessment could change if estimates of future taxable income during the carryforward period are revised. The earliest tax year still subject to examination by a significant taxing jurisdiction is 2010.

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At December 31, 2019, we had a reserve of $0.7 million for uncertain tax positions. If recognized, this amount would impact our effective income tax rate. A reconciliation of the beginning and ending amount of our uncertain tax positions is as follows (in thousands):

	Fiscal Year
	2019		2018		2017
Balance at beginning of year	$	830	$	843	$	829
Additions related to current period tax positions		13		104		168
Reductions related to settlements with taxing authorities and lapses of statutes of limitations		(139)		(117)		(154)
Balance at end of year	$	704	$	830	$	843

At both December 31, 2019 and January 1, 2019, we had $0.2 million of accrued interest and penalties related to uncertain tax positions. NaN of the balance of uncertain tax positions at December 31, 2019 relates to tax positions for which it is reasonably possible that the total amount could decrease during the next twelve months based on the lapses of statutes of limitations.

19.   Segment Information

Our operating segments are comprised of The Cheesecake Factory, North Italia, Flower Child, the other FRC brands, our bakery division and Grand Lux Cafe, the businesses for which our management reviews discrete financial information for decision-making purposes. 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, including Flower Child, along with our businesses that don’t qualify as operating segments are combined in Other. Unallocated corporate expenses, capital expenditures and assets, which were previously classified in a separate Corporate line, are also combined in Other. In addition, gift card costs, which were previously classified in The Cheesecake Factory restaurants reportable segment, are combined in Other. Corresponding prior year balances were reclassified to conform to the current year presentation.

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Segment information is presented below (in thousands):

	Fiscal Year
	2019 (1)		2018		2017
Revenues:
The Cheesecake Factory restaurants	$	2,180,882	$	2,127,347	$	2,057,816
North Italia		35,268		—		—
Other FRC		39,335		—		—
Other		227,207		204,984		202,686
Total	$	2,482,692	$	2,332,331	$	2,260,502
Income/(loss) from operations:
The Cheesecake Factory restaurants (2)	$	258,374	$	270,829	$	281,715
North Italia		1,608		—		—
Other FRC		5,309		—		—
Other (3)		(161,693)		(151,881)		(128,870)
Total	$	103,598	$	118,948	$	152,845
Depreciation and amortization:
The Cheesecake Factory restaurants	$	70,971	$	80,646	$	76,186
North Italia		829		—		—
Other FRC		1,037		—		—
Other		15,296		15,330		16,543
Total	$	88,133	$	95,976	$	92,729
Preopening costs:
The Cheesecake Factory restaurants	$	9,967	$	9,247	$	10,891
North Italia		1,297		—		—
Other FRC		49		—		—
Other		1,836		1,690		2,387
Total	$	13,149	$	10,937	$	13,278
Capital expenditures:
The Cheesecake Factory restaurants	$	59,045	$	71,880	$	101,142
North Italia		2,318		—		—
Other FRC		5,072		—		—
Other		7,330		31,029		19,637
Total	$	73,765	$	102,909	$	120,779
Total assets:
The Cheesecake Factory restaurants	$	1,701,418	$	928,345	$	937,512
North Italia		297,840		—		—
Other FRC		310,414		—		—
Other		530,921		385,788		395,548
Total	$	2,840,593	$	1,314,133	$	1,333,060

(1) We completed the acquisition of North Italia and the remaining business of FRC on October 2, 2019. The results of the acquired businesses are included in our consolidated financial statements as of the acquisition date. (See Note 2 for further discussion of the Acquisition.)

(2) Fiscal years 2019, 2018 and 2017 include impairment of assets and lease terminations expense of $8.9 million, $6.6 million and $2.5 million, respectively. (See Note 1 for further discussion of these charges.)

(3) Fiscal years 2019, 2018 and 2017 include impairment of assets and lease terminations expense of $9.3 million, $11.3 million and $7.8 million, respectively. (See Note 1 for further discussion of these charges.) Fiscal 2019 included $6.3 million of acquisition-related costs and acquisition-related contingent consideration, compensation and amortization expense. (See Note 2 for further discussion of the Acquisition.)

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20.   Quarterly Financial Data (unaudited)

Summarized unaudited quarterly financial data for fiscal 2019 and 2018 is as follows (in thousands, except per share data):

Quarter Ended:	April 2, 2019		July 2, 2019		October 1, 2019		December 31, 2019
Revenues (1)	$	599,481	$	602,645	$	586,536	$	694,030
Income from operations (1)(2)	$	30,148	$	40,099	$	26,964	$	6,387
Net income (1)(2)	$	26,984	$	35,510	$	16,090	$	48,709
Basic net income per share (4)	$	0.61	$	0.80	$	0.37	$	1.11
Diluted net income per share (4)	$	0.60	$	0.79	$	0.36	$	1.10
Cash dividends declared per common share	$	0.33	$	0.33	$	0.36	$	0.36

Quarter Ended:	April 3, 2018		July 3, 2018		October 2, 2018		January 1, 2019
Revenues	$	584,697	$	587,319	$	575,160	$	585,155
Income from operations (3)	$	31,551	$	34,543	$	33,495	$	19,359
Net income (3)	$	26,029	$	28,353	$	28,475	$	16,178
Basic net income per share (4)	$	0.57	$	0.62	$	0.63	$	0.36
Diluted net income per share (4)	$	0.56	$	0.61	$	0.61	$	0.35
Cash dividends declared per common share	$	0.29	$	0.29	$	0.33	$	0.33

(1) The fourth quarter of fiscal 2019 includes revenues, loss from operations and net loss of $92.0 million, $2.1 million, and $1.5 million, respectively related to the acquired businesses. In addition, income from operations included $3.2 million and $3.1 million of acquisition-related expense in the third and fourth quarters of fiscal 2019, respectively, with a corresponding impact to net income of $2.4 million and $2.3 million, respectively. These amounts were recorded in acquisition-related costs and acquisition-related contingent consideration, compensation and amortization expense in the consolidated statements of income. (See Note 2 for further discussion of the Acquisition.)

(2) In the fourth quarter of fiscal 2019, income from operations included impairment of assets and lease terminations expense of $18.2 million, with an corresponding impact to net income of $13.5 million. (See Note 1 for further discussion of these charges.)

(3) In fiscal 2018, income from operations included $2.6 million, $0.3 million and $15.0 million of impairment of assets and lease terminations expense in the second, third and fourth quarters, respectively, with an corresponding impact to net income of $1.9 million, $0.2 million and $11.1 million, respectively. (See Note 1 for further discussion of these charges.)

(4) Net income per share calculations for each quarter are based on the weighted average diluted shares outstanding for that quarter and may not total to the full year amount.

While seasonal fluctuations generally do not have a material impact on our quarterly results, the year-over-year comparison of our quarterly results can be significantly impacted by the number and timing of new restaurant openings and associated preopening costs, the calendar days of the week on which holidays occur, the impact from inclement weather and other climatic conditions and other variations in revenues and expenses. As a result of these factors, our financial results for any quarter are not necessarily indicative of the results that may be achieved for the full fiscal year.

21.   Subsequent Events

On February 18, 2020, our Board of Directors approved a quarterly cash dividend of $0.36 per share to be paid on March 20, 2020 to the stockholders of record on March 9, 2020.

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EXHIBIT INDEX

Exhibit No.	Item	Form	File Number	Incorporated by Reference from Exhibit Number	Filed with SEC
2.1	Form of Reorganization Agreement(P)	Amend. No. 1 to Form S-1	33-479336	2.1	8/17/92
2.2	Purchase Agreement, dated as of November 14, 2016, as amended by Amendment & Option Exercise Agreement, dated as of July 30, 2019, by and among The Cheesecake Factory Incorporated and the other Parties thereto#	10-Q	000-20574	2.1	11/8/19
2.3	First Amendment to Option Exercise Agreement and Second Amendment to Purchase Agreement and Operating Agreement, dated as of October 2, 2019, by and among The Cheesecake Factory Incorporated and the other Parties thereto#	10-Q	000-20574	2.2	11/8/19
2.4	Membership Interest Purchase Agreement, dated as of July 30, 2019, by and among The Cheesecake Factory Restaurants, Inc., Fox Restaurant Concepts LLC, the Sellers party thereto, SWF Posse LLC, as Seller’s representative, and, solely for limited purposes set forth therein, The Cheesecake Factory Incorporated#†	10-Q	000-20574	2.3	11/8/19
2.5	First Amendment to Membership Interest Purchase Agreement, dated as of October 2, 2019, by and among The Cheesecake Factory Restaurants, Inc., Fox Restaurant Concepts LLC, and SWF Posse LLC, as Seller’s representative#	10-Q	000-20574	2.4	11/8/19
3.1	Restated Certificate of Incorporation of The Cheesecake Factory Incorporated	10-Q	000-20574	3.2	8/6/18
3.2	Bylaws of The Cheesecake Factory Incorporated (Amended and Restated on May 20, 2009)	8-K	000-20574	3.8	5/27/09
3.3	Certificate of Elimination of Series A Junior Participating Cumulative Preferred Stock of The Cheesecake Factory Incorporated	10-Q	000-20574	3.1	8/6/18
4.1	Description of The Cheesecake Factory Incorporated’s Securities Registered Pursuant to Section 12 of the Securities Exchange Act	10-K	000-20574	4.1	3/12/20
10.1.1	Employment Agreement, effective as of April 1, 2017, between The Cheesecake Factory Incorporated and David M. Overton*	8-K	000-20574	99.2	2/22/17
10.1.2	First Amendment to Employment Agreement, effective as of April 1, 2018, between The Cheesecake Factory Incorporated and David M. Overton*	8-K	000-20574	99.2	2/21/18

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Exhibit No.		Item	Form	File Number	Incorporated by Reference from Exhibit Number	Filed with SEC
10.2		Employment Agreement, effective as of March 3, 2016, between The Cheesecake Factory Incorporated and David M. Gordon*	10-K	000-25074	10.6	3/2/17
10.3		Employment Agreement, effective as of March 3, 2016, between The Cheesecake Factory Incorporated and W. Douglas Benn*	10-K	000-25074	10.7	3/2/17
10.4		Employment Agreement, effective as of March 3, 2016, between The Cheesecake Factory Incorporated and Debby R. Zurzolo*	10-K	000-25074	10.8	3/2/17
10.5		Employment Agreement, effective as of March 3, 2016, between The Cheesecake Factory Incorporated and Max Byfuglin*	10-K	000-25074	10.9	3/2/17
10.6		Employment Agreement, effective as of July 7, 2017, between The Cheesecake Factory Incorporated and Matthew E. Clark*	8-K	000-25074	99.1	6/13/17
10.7	Employment Agreement, effective as of May 14, 2018, between The Cheesecake Factory Incorporated and Scarlett May*		10-Q	000-25074	10.10	5/11/18
10.8	Employment Agreement, effective as of February 13, 2019, between The Cheesecake Factory Incorporated and Keith T. Carango*		10-K	000-20574	10.8	3/4/19
10.9.1	Amended and Restated The Cheesecake Factory Incorporated Executive Savings Plan*		10-K	000-25074	10.20	3/2/17
10.9.2	First Amendment to The Cheesecake Factory Incorporated Executive Savings Plan as amended and restated November 7, 2016*		10-K	000-25074	10.11.1	2/28/18
10.10	Form of Indemnification Agreement*		8-K	000-25074	99.1	12/14/07
10.11.1	Inducement Agreement dated as of July 27, 2005		8-K	000-25074	99.3	8/2/05
10.11.2	First Amendment to Inducement Agreement dated as of March 1, 2010		10-K	000-25074	10.36	2/23/11
10.11.3	Second Amendment to Inducement Agreement dated as of May 7, 2015		10-K	000-25704	10.24	3/2/17
10.12.1	The Cheesecake Factory Incorporated 2010 Stock Incentive Plan as amended April 7, 2011*		DEF 14A	000-20574	Appendix A	4/21/11
10.12.2	The Cheesecake Factory Incorporated 2010 Stock Incentive Plan as amended effective as of February 27, 2013*		DEF 14A	000-20574	Appendix A	04/19/13
10.12.3	The Cheesecake Factory Incorporated 2010 Stock Incentive Plan as amended April 3, 2014*		DEF 14A	000-20574	Appendix A	4/17/14
10.12.4	The Cheesecake Factory Incorporated 2010 Stock Incentive Plan as amended May 28, 2015*		DEF 14A	000-20574	Appendix A	4/17/15

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Exhibit No.		Item	Form	File Number	Incorporated by Reference from Exhibit Number	Filed with SEC
10.12.5	The Cheesecake Factory Incorporated 2010 Stock Incentive Plan as amended April 5, 2017*		DEF 14A	000-20574	Appendix A	4/25/17
10.13	Form of Grant Agreement for Executive Officers under 2010 Stock Incentive Plan*		10-Q	000-20574	10.1	11/4/10
10.14	Form of Grant Agreement for Executive Officers under the 2010 Stock Incentive Plan, for equity grants made after August 2, 2012*		10-Q	000-20574	10.1	8/10/12
10.15	Form of Notice of Stock Option Grant and Agreement and/or Restricted Stock Grant Agreement for Executive Officers under the 2010 Stock Incentive Plan, for equity grants made after March 6, 2014*		8-K	000-20574	99.1	3/7/14
10.16	Form of Notice of Grant and Stock Option Agreement and/or Stock Unit Agreement under the 2010 Stock Incentive Plan, for equity grants made after March 3, 2016*		8-K	000-20574	99.2	3/4/16
10.17.1	Form of Notice of Grant and Stock Option Agreement and/or Restricted Share Agreement for MEP I under the 2010 Stock Incentive Plan, for equity grants made after February 15, 2018*		10-K	000-25074	10.24.1	2/28/18
10.17.2	Form of Notice of Grant and Stock Option Agreement and/or Restricted Share Agreement for MEP II under the 2010 Stock Incentive Plan, for equity grants made after February 15, 2018*		10-K	000-25074	10.24.2	2/28/18
10.17.3	Form of Notice of Grant and Stock Option Agreement and/or Restricted Share Agreement for MEP III under the 2010 Stock Incentive Plan, for equity grants made after February 15, 2018*		10-K	000-25074	10.24.3	2/28/18
10.17.4	Form of Notice of Grant and Stock Option Agreement and/or Restricted Share Agreement for MEP IV under the 2010 Stock Incentive Plan, for equity grants made after February 15, 2018*		10-K	000-25074	10.24.4	2/28/18
10.17.5	Form of Notice of Grant and Stock Option Agreement and/or Restricted Share Agreement for MEP V under the 2010 Stock Incentive Plan, for equity grants made after February 15, 2018*		10-K	000-25074	10.24.5	2/28/18
10.17.6	Form of Standard Notice of Grant and Restricted Share Agreement I under the 2010 Stock Incentive Plan, for equity grants made after February 15, 2018*		10-K	000-25074	10.24.6	2/28/18
10.17.7	Form of Notice of Grant and Stock Option Agreement and/or Restricted Share Agreement for Senior Executive under the 2010 Stock Incentive Plan, for equity grants made after February 15, 2018*		8-K	000-20574	99.3	2/21/18

39

Exhibit No.		Item	Form	File Number	Incorporated by Reference from Exhibit Number	Filed with SEC
10.17.8	Form of Notice of Grant and Stock Option Agreement and/or Restricted Share Agreement under the 2010 Stock Incentive Plan, for equity grants made on or after February 13, 2019*		10-Q	000-20574	10.2	5/6/19
10.18	The Cheesecake Factory Incorporated Stock Incentive Plan*		8-K	000-20574	10.1	6/5/19
10.19	2015 Amended and Restated Annual Performance Incentive Plan, as amended and restated May 28, 2015*		DEF 14A	000-20574	Appendix B	4/17/15
10.20	Third Amended and Restated Loan Agreement with JPMorgan Chase Bank, National Association dated as of July 30, 2019		10-Q	000-20574	10.1	12/24/15
21.1	List of Subsidiaries		10-K	000-20574	21.1	3/12/20
23.1	Consent of Independent Registered Public Accounting Firm — KPMG LLP		—	—	—	Filed herewith
23.2	Consent of Independent Registered Public Accounting Firm — PricewaterhouseCoopers LLP		—	—	—	Filed herewith
31.1	Rule 13a-14(a)/15d-14(a) Certification of the Principal Executive Officer		10-K	000-20574	31.1	3/12/20
31.2	Rule 13a-14(a)/15d-14(a) Certification of the Principal Financial Officer		10-K	000-20574	31.2	3/12/20
31.3	Rule 13a-14(a)/15d-14(a) Certification of the Principal Executive Officer					Filed herewith
31.4	Rule 13a-14(a)/15d-14(a) Certification of the Principal Financial Officer					Filed herewith
32.1	Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 for Principal Executive Officer		10-K	000-20574	32.1	3/12/20
32.2	Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 for Principal Financial Officer		10-K	000-20574	32.2	3/12/20
32.3	Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 for Principal Executive Officer					Filed herewith
32.4	Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 for Principal Financial Officer					Filed herewith

40

Exhibit No.		Item	Form	File Number	Incorporated by Reference from Exhibit Number	Filed with SEC
101.1	The following materials from The Cheesecake Factory Incorporated’s Annual Report on Form 10-K for the year ended December 31, 2019, formatted in Inline eXtensible Business Reporting Language (iXBRL): (i) consolidated balance sheets, (ii) consolidated statements of income, (iii) consolidated statements of comprehensive income, (iv) consolidated statement of stockholders’ equity, (v) consolidated statements of cash flows, and (vi) the notes to the consolidated financial statements		10-K	000-20574	101.1	3/12/20
101.2	The following materials from The Cheesecake Factory Incorporated’s Amendment No. 1 to Annual Report on Form 10-K for the year ended December 31, 2019, formatted in Inline eXtensible Business Reporting Language (iXBRL): (i) consolidated balance sheets, (ii) consolidated statements of income, (iii) consolidated statements of comprehensive income, (iv) consolidated statement of stockholders’ equity, (v) consolidated statements of cash flows, and (vi) the notes to the consolidated financial statements		—	—	—	Filed herewith
104.1	The cover page of The Cheesecake Factory Incorporated’s Annual Report on Form 10-K for the year ended December 31, 2019, formatted in iXBRL (included with Exhibit 101.1)		10-K	000-20574	104.1	3/12/20
104.2	The cover page of The Cheesecake Factory Incorporated’s Amendment No. 1 to Annual Report on Form 10-K for the year ended December 31, 2019, formatted in iXBRL (included with Exhibit 101.2)		—	—	—	Filed herewith

*     Management contract or compensatory plan or arrangement required to be filed as an exhibit.

#     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.

^(P)   This exhibit has been paper filed and is not subject to the hyperlinking requirements of Item 601 of Regulation S-K.

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SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) 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 on the 22nd day of June 2020.

THE CHEESECAKE FACTORY INCORPORATED
	/s/ DAVID OVERTON
By:	David Overton
	Chairman of the Board and Chief Executive Officer
	(Principal Executive Officer)
	/s/ MATTHEW E. CLARK
By:	Matthew E. Clark
	Executive Vice President and Chief Financial Officer
	(Principal Financial Officer)

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