Paraphrase each note from the annual report given, accounting homework help

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Make sure everything is summarized using your own words. NO PLAGIARISM. Pages 59-77! Notes 1-18 will be show. If the charts are significant please briefly summarize them as well. I need a summary of each note given which is 18 notes in total from the annual report!

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the chees eca ke facto ry incor por ated 2 0 1 6 A N N U A L R E P O RT 2 0 1 6 an n ua l re po rt 26901 Malibu Hills Road Calabasas Hills, California 91301 www.thecheesecake fac tor DIRECTORS AND OFFICERS FINANCIAL HIGHLIGHTS Board of Directors Revenues (in millions) $2,276 $2,101 $1,977 $1,878 $1,809 2016 2015 2014 2013 2012 Comparable restaurant sales (1) 1.2% 2.6% 1.5% 1.1% 2.2% 2016 2015 2014 2013 2012 Adjusted operating income margin Edie A. Ames President The Counter® and BUILT® Custom Burgers Alexander L. Cappello Chairman and Chief Executive Officer Cappello Group, Inc. (2) 8.8% 8.2% 7.3% 8.6% 8.2% 2016 2015 2014 2013 2012 Adjusted diluted net income per share (3) $2.83 $2.37 $1.97 $2.10 $1.88 2016 2015 2014 2013 2012 Cash flow from operations (in millions) $303 $235 $240 $205 $195 2016 2015 2014 2013 2012 Restaurants open at fiscal year-end (4) 208 200 189 180 177 2016 2015 2014 2013 2012 (1) The Cheesecake Factory restaurants. (2) Operating income margin in fiscal 2016, 2015, 2014, 2013 and 2012 excludes $114, $6,011, $696, ($561) and $9,536, respectively (in thousands), related to a number of items that we do not consider indicative of our ongoing operations. Please refer to the section entitled “Non-GAAP Measures” included in Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” of the Form 10-K in this Annual Report and in Item 6, “Selected Financial Data,” of the Form 10-K in the 2013 Annual Report for more information on these items. The Cheesecake Factory Valencia, California David Overton Chairman of the Board and Chief Executive Officer The Cheesecake Factory Incorporated (3) Diluted net income per share in fiscal 2015, 2014, 2013 and 2012 excludes $0.07, $0.01, ($0.01) and $0.10, respectively, related to a number of items that we do not consider indicative of our ongoing operations. Impairment charge recorded in fiscal 2016 did not impact diluted net income per share. Please refer to the section entitled “Non-GAAP Measures” included in Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” of the Form 10-K in this Annual Report and in Item 6, “Selected Financial Data,” of the Form 10-K in the 2013 Annual Report for more information on these items. (4) The Cheesecake Factory restaurants, Grand Lux Cafe and Rock Sugar Pan Asian Kitchen. Jerome I. Kransdorf President Emeritus JaK Direct Laurence B. Mindel Managing Partner Poggio Trattoria David B. Pittaway Senior Managing Director, Senior Vice President and Secretary Castle Harlan, Inc. Herbert Simon Chairman Emeritus Simon Property Group, Inc. Executive Officers David Overton Chairman of the Board and Chief Executive Officer David M. Gordon President W. Douglas Benn Executive Vice President and Chief Financial Officer Debby R. Zurzolo Executive Vice President, General Counsel and Secretary Max S. Byfuglin President – Bakery Division Operating and Staff Officers Donald C. Moore Executive Vice President and Chief Culinary Officer Spero G. Alex Senior Vice President – Operations, The Cheesecake Factory Restaurants Dina R. Barmasse-Gray Senior Vice President – Human Resources Keith T. Carango Senior Vice President and Chief Operating Officer – Bakery Operations SHAREHOLDER INFORMATION Corporate Counsel Matthew E. Clark Senior Vice President – Finance and Strategy Sidney M. Greathouse Vice President and Senior Counsel – Legal Services Donald C. Evans Senior Vice President and Chief Marketing Officer Anthony R. Gressak, Jr. Vice President – Bakery Distributor Sales Stan D. Harvey Senior Vice President – Global Procurement Ronald Isack Vice President – Bakery Supply Chain PricewaterhouseCoopers LLP Los Angeles, California Marina Lubinsky Senior Vice President and Chief Information Officer Laurie A. Lambert-Gaffney Vice President – Staff Relations Transfer Agent, Registrar and Dividend Payments Brian MacKellar Senior Vice President – Development Kurt E. Leisure Vice President – Risk Services Computershare Shareholder Services P.O. Box 30170 College Station, TX 77845 (800) 962-4284 Lisa A. McDowell Senior Vice President – Global Development Etienne Marcus Vice President – Strategy and Finance Inquiries Cheryl M. Slomann Senior Vice President – Finance and Corporate Controller Philip Mardirossian Vice President – Bakery Marketing Charles G. Wensing Senior Vice President – Operations Services, Performance Development and New Restaurant Operations Jack K. Belk Senior Regional Vice President – Restaurant Operations Jeffrey Nemet Regional Vice President – Restaurant Operations Joseph T. Phillips Regional Vice President – Restaurant Operations Steve M. Polce Regional Vice President – Restaurant Operations Michael Pereira Divisional Vice President – Restaurant Operations, Grand Lux Cafe Atallah A. Baroudi, Ph.D. Vice President – Food Safety and Quality Assurance Heather M. Berry Vice President – Beverage and Bakery Operations Gregory A. Breland Vice President – Development Linda J. Candioty Vice President – Guest Experience Richard J. Frings Vice President – Compensation and Benefits Kix McGinnis Nystrom Vice President – Kitchen Operations Robert Okura Vice President – Culinary Development and Corporate Executive Chef Alan B. Phillips Vice President – Internal Audit Chris M. Radovan Vice President – Bakery Research and Development J. Suzanne Reed Vice President – Bakery Sales and Marketing Richard H. Reinach Vice President – Facilities Management John Scott Vice President – Bakery Food Safety and Quality Assurance Joel E. Shafer Vice President and Senior Counsel – Contracts Jeff Stepler Vice President – Talent Selection and Organizational Engagement Roman L. Wasylyn Vice President – Tax Robert T. West Vice President – Information Technology Sheppard Mullin Richter & Hampton Los Angeles, California Independent Accountants Communications regarding lost certificates, and name and address changes should be directed to our Transfer Agent. Other investor inquiries should be directed to: Stacy J. Feit Senior Director, Investor Relations The Cheesecake Factory Incorporated 26901 Malibu Hills Road Calabasas Hills, CA 91301 (818) 871-3000 Common Stock Trading Our stock began trading on The NASDAQ Stock Market on September 18, 1992 under the symbol CAKE at the initial public offering price of $2.63 (adjusted for five three-for-two stock splits in March 1994, April 1998, June 2000, June 2001 and December 2004). We completed follow-on public offerings of common stock in January 1994 and November 1997. The market price of our common stock has not closed below $2.63 and has closed as high as $64.41 through January 3, 2017, our last fiscal year-end. Website To learn more about our Company, please visit and our related websites at and To learn about our sustainability initiatives, please visit corporate-social-responsibility/ sustainability. 2016 Annual Report 1 Truffle-Honey Chicken TO OUR SHAREHOLDERS This year will mark the 25th anniversary of our initial public offering, a milestone not too many companies are able to achieve these days and something that makes us extremely proud. Our relentless focus on menu innovation, service, hospitality and operational excellence enables us to maintain broad demographic appeal and enduring relevance. In fact, The Cheesecake Factory was named the #1 Casual Dining Chain by Nation’s Restaurant News and the #1 Casual Dining Chain for Millennials by research firm Technomic in 2016, underscoring our broad consumer appeal and that our concept is as relevant as ever. At the company level, we are honored to have been named to Fortune magazine’s 100 Best Companies to Work For® list for the fourth consecutive year in 2017. This award acknowledges the hard work and commitment of our team, and we believe it will help us continue to attract and retain the best talent in the industry. Avocado Toast Over the years, we have also developed a track record of consistent and predictable financial performance, further exemplified by very strong results in 2016. 2016 In Review We significantly outperformed the casual dining industry in 2016 and delivered on all of our objectives, with solid unit growth, comparable sales performance, operating margin expansion and earnings growth. We opened eight Company-owned restaurants domestically, ending the year with 208 restaurants across our three concepts. We brought The Cheesecake Factory to new markets including Albuquerque, New Mexco; Greenville, South Carolina; and New York City with our first location in Queens - while continuing to infill existing markets that still had unmet demand. We will continue to focus on securing premier locations for our future development as we maintain our disciplined, returns-focused growth strategy. Cheesecake Factory Queens, New York 2 2016 Annual Report We hit our stride in 2016 with regard to our global expansion as all three of our licensee partners opened restaurants during the year. Following four openings in 2016, we now have 15 Cheesecake Factory restaurants operating internationally in Mexico, the Middle East and China, where our first location at Disneytown, part of the Shanghai Disney resort, opened last June. Our licensees also opened restaurants in Qatar, another new market, as well as additional locations in Dubai and Mexico City. The Cheesecake Factory brand continues to resonate well internationally, and we look forward to continued growth of our international presence. At the end of 2016, we made an investment in two restaurant concepts, North Italia® and Flower Child®. We believe this is a great opportunity to extend our operational and development expertise to help fuel the growth of two successful but young brands that share a number of parallels with us in terms of culture and philosophy, and we believe they have significant runway for growth. Financially, we completed our seventh consecutive year of positive quarterly comparable sales growth. This solid sales performance, coupled with 60 basis points of adjusted margin expansion, contributed to 19% adjusted earnings per share growth in 2016, exceeding our expectations. And we nearly doubled adjusted earnings per share during this seven-year period. We continue to generate a substantial amount of free cash flow and returned approximately $190 million in cash to our shareholders through share repurchases and dividends in 2016. Our share repurchase program meaningfully reduced our weighted average shares outstanding, contributing to our earnings growth for the year. We also increased our dividend by 20% in 2016, and with this increase, we doubled the dividend in the four years since we initiated it. The Cheesecake Factory Stamford, Connecticut Continuous Innovation We are constantly working on all aspects of our business to ensure we are providing our guests with what they are looking for. We are leveraging technology more than ever to further enhance our guest experience and drive sales. Advancements 2016 Annual Report 3 Buffalo Chicken Rolls™ in mobile technology are enabling us to further capture delivery sales through our partnership with a third-party partner, and we completed a nationwide rollout of our mobile payment app, CakePay™, in 2016. We completed a training redesign, utilizing technology to enhance the learning experience, and we remain at the cutting edge of kitchen management technology, vital to effectively and efficiently synchronizing order completion. We also are leveraging technology to manage our complex operations and reduce operating costs. Our efforts are focused on opportunities to increase both labor productivity and food efficiency. Our commitment to sustainability was further enhanced when we introduced our Sustainable Sourcing Policy to build on our existing efforts to source environmentally and socially responsible ingredients. From the treatment of livestock, including providing every animal with basic freedoms during their entire life cycle, to the conditions of those individuals working in and around the farms and factories from which we source, this policy communicates our values and expectations to our guests, suppliers and staff members. Chocolate Hazelnut Crunch Cheesecake Looking Ahead We anticipate 2017 to be another solid year as we expect to open as many as eight company-owned restaurants, in both new and existing markets. Our international expansion will continue with as many as four to five openings planned by our licensee partners. As we have done in years past, we will return substantially all of our free cash flow to shareholders in the form of share repurchases and dividends. We continue to effectively allocate our capital to achieve our targeted returns and maximize shareholder value. Looking further ahead, we are pursuing a number of incremental growth opportunities to complement the continued domestic and international expansion of our restaurants. We will support the growth of North Italia and Flower Child, both of which are being developed and operated by our partner. We are also working on the development of a fast casual concept with internal resources and are actively looking for an appropriate location to test the 4 2016 Annual Report concept and evaluate its future growth potential. Beyond opening restaurants, we believe there is opportunity to further leverage the power of The Cheesecake Factory® brand in the consumer packaged goods channel and are pursuing opportunities in this area as well. In Conclusion We are the leader in upscale casual dining with highly differentiated, well positioned concepts that deliver a unique guest experience. This is what has fueled our growth since our founding and what will continue to carry us forward in the future as we remain committed to excellence in everything we do. In closing, I extend my sincere gratitude to our management team and all of our staff members for the incredible work they do every day taking care of our guests and fostering our commitment to quality and excellence. And to our community of shareholders, restaurant guests, bakery customers, suppliers and international licensees, thank you for your ongoing support and spirit of partnership. Best regards, David Overton Founder, Chairman and Chief Executive Officer Grand Lux Cafe Austin, Texas FORTUNE and FORTUNE 100 Best Companies to Work For® are registered trademarks of Time Inc. and are used under license. From FORTUNE Magazine, March 15, 2017 ©2017 Time Inc. Used under license. FORTUNE and Time Inc. are not affiliated with, and do not endorse products or services of, The Cheesecake Factory Incorporated. UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-K ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended January 3, 2017 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 (State or other jurisdiction of incorporation or organization) 26901 Malibu Hills Road Calabasas Hills, California (Address of principal executive offices) 51-0340466 (I.R.S. Employer Identification No.) 91301 (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 Name of each exchange on which registered Common Stock, par value $.01 per share Preferred Stock Purchase Rights The NASDAQ Stock Market LLC (NASDAQ Global Select Market) (Currently attached to and trading with the Common Stock) 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 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 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 and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted 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 and post such files). Yes No Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. Large accelerated filer Non-accelerated filer (Do not check if a smaller reporting company) Accelerated filer Smaller reporting company 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, June 28, 2016, was $2,102,161,347 (based on the last reported sales on The NASDAQ Stock Market on that date). As of February 22, 2017, 47,725,557 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 to be held on June 8, 2017. TABLE OF CONTENTS Page PART I Item 1. Item 1A. Item 1B. Item 2. Item 3. Item 4. PART II Item 5. Item 6. Item 7. Item 7A. Item 8. Item 9. Item 9A. Item 9B. PART III Item 10. Item 11. Item 12. Business ......................................................................................................................................... Risk Factors ................................................................................................................................... Unresolved Staff Comments .......................................................................................................... Properties ....................................................................................................................................... Legal Proceedings .......................................................................................................................... Mine Safety Disclosures ................................................................................................................ 1 15 30 30 32 32 Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities ............................................................................................................................ Selected Financial Data .................................................................................................................. Management’s Discussion and Analysis of Financial Condition and Results of Operations ......... Quantitative and Qualitative Disclosures About Market Risk ....................................................... Financial Statements and Supplementary Data .............................................................................. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure......... Controls and Procedures ................................................................................................................ Other Information .......................................................................................................................... 33 36 37 49 49 49 50 50 51 51 Item 13. Item 14. Directors, Executive Officers and Corporate Governance ............................................................. Executive Compensation................................................................................................................ Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters ........................................................................................................................................... Certain Relationships and Related Transactions, and Director Independence ............................... Principal Accounting Fees and Services ........................................................................................ PART IV Item 15. Exhibits, Financial Statement Schedules ....................................................................................... 52 51 51 51 PART I Forward-Looking Statements Certain information included in this Form 10-K and other materials filed or to be filed by us with the Securities and Exchange Commission (“SEC”), as well as information included in oral or written statements made by us or on our behalf, may contain forward-looking statements about our current and presently expected performance trends, growth plans, business goals and other matters. These statements may be contained in our filings with the SEC, in our press releases, in other written communications, and in oral statements made by or with the approval of one of our authorized officers. Statements set forth in or incorporated into this report regarding our expectations for growth in companyowned and licensed locations, comparable sales, diluted net earnings per share, and operating margins, our intention to repurchase stock and pay dividends, and all other statements that are not historical facts, including without limitation, statements with respect to future financial condition, results of operations, plans, objectives, performance and business of The Cheesecake Factory Incorporated and its subsidiaries, as well as statements that are preceded by, followed by or that include words or phrases such as “believe,” “plan,” “will likely result,” “expect,” “intend,” “will continue,” “is anticipated,” “estimate,” “project,” “may,” “could,” “would,” “should” and similar expressions, are forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995, as codified in Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended (the Acts”). These statements are based on our current expectations and involve risks and uncertainties which may cause results to differ materially from those set forth in such statements. In connection with the “safe harbor” provisions of the Acts, we have identified and are disclosing important factors, risks and uncertainties that could cause our actual results to differ materially from those projected in forwardlooking statements made by us, or on our behalf. (See Item 1A — Risk Factors). These cautionary statements are to be used as a reference in connection with any forward-looking statements. The factors, risks and uncertainties identified in these cautionary statements are in addition to those contained in any other cautionary statements, written or oral, which may be made or otherwise addressed in connection with a forward-looking statement or contained in any of our subsequent filings with the SEC. Because of these factors, risks and uncertainties, we caution against placing undue reliance on forward-looking statements. Although we believe that the assumptions underlying forward-looking statements are currently reasonable, any of the assumptions could be incorrect or incomplete, and there can be no assurance that forward-looking statements will prove to be accurate. Forward-looking statements speak only as of the date on which they are made. Except as may be required by law, we do not undertake any obligation to modify or revise any forward-looking statement to take into account or otherwise reflect subsequent events, corrections in underlying assumptions, or changes in circumstances arising after the date that the forward-looking statement was made. ITEM 1. BUSINESS General Our business originated in 1972 when Oscar and Evelyn Overton founded a small bakery in the Los Angeles area. In 1978, their son, David Overton, our Chairman of the Board and Chief Executive Officer, led the creation and opening of the first The Cheesecake Factory restaurant in Beverly Hills, California. In 1992, the Company was incorporated in Delaware as The Cheesecake Factory Incorporated (referred to herein as the “Company” or as “we,” “us” and “our”) to consolidate the restaurant and bakery businesses of its predecessors operating under The Cheesecake Factory® mark. Our executive offices are located at 26901 Malibu Hills Road, Calabasas Hills, California 91301, and our telephone number is (818) 871-3000. As of March 2, 2017, we operated 208 Company-owned restaurants: 194 under The Cheesecake Factory® mark, 13 under the Grand Lux Cafe® mark and one currently under the Rock Sugar Pan Asian Kitchen® mark (which is in the process of a tradename change to RockSugar Southeast Asian KitchenTM). Internationally, 15 The Cheesecake Factory branded restaurants operated in the Middle East, China and Mexico under licensing agreements. We also operated two bakery production facilities that produce desserts for our restaurants, international licensees and third-party bakery customers. We are selectively pursuing other means to leverage our competitive strengths, including developing, investing in or acquiring other restaurant concepts and expanding The Cheesecake Factory brand to other retail opportunities. 1 In contrast to many restaurant chains, substantially all of our menu items, except those desserts produced at our bakery facilities, are prepared from scratch at our restaurants with high quality, fresh ingredients using innovative and proprietary recipes. One of our competitive strengths is our ability to anticipate consumer preferences and adapt our expansive menu to the latest trends. We regularly update our ingredients and cooking methods, as well as create new menu items, to improve the variety, quality and consistency of our food and keep our menu relevant to consumers. We review and selectively update our entire menu twice a year for customer appeal and pricing. All new menu items are selected based on anticipated sales popularity and profitability. We place significant emphasis on the contemporary interior design and décor of our restaurants, which create a high energy ambiance in a casual setting and contribute to the distinctive dining experience enjoyed by our customers. Our restaurants feature large, open dining areas, a contemporary kitchen design and where feasible, both exterior and interior patios. These features require a higher investment per square foot than is typical for the casual dining industry. However, our restaurants have historically generated annual sales per square foot that are also typically higher than our competitors. We maintain a general website at Our annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, all amendments to those reports, and our proxy statements are available on our website at no charge, as soon as reasonably practicable after these materials are filed with or furnished to the SEC. Our filings are also available on the SEC’s website at The content of our website is not incorporated by reference into this Form 10-K. We utilize a 52/53-week fiscal year ending on the Tuesday closest to December 31 for financial reporting purposes. Fiscal year 2016 consisted of 53 weeks, and fiscal years 2015 and 2014 each consisted of 52 weeks. Fiscal year 2017 will consist of 52 weeks. For segment information, see Note 16 of Notes to Consolidated Financial Statements in Part IV, Item 15. The Cheesecake Factory Concept The Cheesecake Factory restaurants provide a distinctive, high quality dining experience at moderate prices by offering an extensive, innovative and evolving menu in an upscale casual, high energy setting with attentive, efficient and friendly service. As a result, The Cheesecake Factory restaurants appeal to a diverse consumer base across a broad demographic range. Our extensive menu and strategic selection of locations enable us to compete for substantially all dining preferences and occasions, from the key lunch and dinner day parts to the mid-afternoon and late-night day parts, which are traditionally weaker times for most casual dining restaurants, as well as special occasion dining. The Cheesecake Factory restaurants are open seven days a week for lunch and dinner, and we offer additional menu items on Sundays for brunch. Most of our locations are closed on Thanksgiving and Christmas. All items on our menu are available for take-out, which represented approximately 11% of our restaurant sales for fiscal year 2016. In 2016, we partnered with a third party to provide delivery service. At January 3, 2017, approximately 40% of our restaurants were covered by this service, and we plan to expand to additional locations over time. All of our restaurants offer a fullservice bar where our entire menu is served. Our alcoholic beverage sales represented approximately 13% of The Cheesecake Factory restaurant sales for fiscal year 2016. The Cheesecake Factory menu features more than 200 items in addition to items presented on supplemental menus, such as our SkinnyLicious® menu, which offers approximately 50 innovative items at 590 calories or less. Our core menu offerings include appetizers, pizza, seafood, steaks, chicken, burgers, small plates, pastas, salads, sandwiches and omelettes, including “Super” food choices and a selection of gluten-free items. Examples of menu offerings include Chicken Madeira, Cajun Jambalaya Pasta, Thai Lettuce Wraps, Avocado Eggrolls, California Guacamole Salad and our Bacon-Bacon Cheeseburger. Our ability to create, promote and attractively display our unique line of desserts is also important to the competitive positioning and financial success of our restaurants. We offer approximately 50 varieties of proprietary cheesecake and other baked desserts in our restaurants. Our brand identity and reputation for offering premium desserts results in a significant level of dessert sales, approximately 16% of The Cheesecake Factory restaurant sales for fiscal year 2016. 2 Competitive Positioning The restaurant industry is comprised of multiple segments, including fine dining, casual dining and quick-service. Casual dining can be sub-divided further into upscale casual, core casual and fast casual dining. Our restaurants operate in the upscale casual dining segment, which is differentiated by freshly prepared and innovative food, flavorful recipes with creative presentations, unique restaurant layouts, eye-catching design elements and more personalized service. Upscale casual dining is positioned above core casual dining, with standards that are closer to fine dining. We believe that we are a leader in upscale casual dining given the high average sales per square foot of our restaurants as compared to others in this segment. The restaurant industry is highly competitive with respect to menu and food quality, service, access to qualified operations personnel, location, décor and value. We compete directly and indirectly for customer traffic with national and regional casual dining restaurant chains, as well as independently-owned restaurants. We also compete with other restaurants and retail establishments for quality site locations and qualified staff and managers to operate our restaurants. In addition, we face competition from quick-service restaurants, home delivery services, mobile food service and grocery stores that increasingly offer higher quality and greater variety of prepared food products in response to consumer demand. (See Item 1A — Risk Factors — “Our financial performance may be materially adversely affected if we are unable to grow comparable restaurant sales.”) The key elements that drive our total customer experience and position us favorably from a competitive standpoint include the following: Extensive and Innovative Menu. Our restaurants offer one of the broadest menus in casual dining and feature a wide array of flavors with portions designed for sharing. Substantially all of our menu items, except desserts produced at our bakery facilities, are prepared daily at each restaurant using high quality, fresh ingredients based on innovative and proprietary recipes. We generally update our menus twice each year to respond to evolving consumer dining preferences and food trends, as well as to update pricing. We continue to innovate new menu items and new categories of food offerings at our restaurants, such as the addition of our SkinnyLicious® menu, “Super” food selections and gluten-free choices, further enhancing the variety and price points offered to our customers. We regularly introduce new and innovative cheesecakes and other baked desserts. In conjunction with National Cheesecake Day, each year we introduce a special cheesecake, including Chocolate Hazelnut Crunch in 2016, Salted Caramel in 2015 and Lemon Meringue in 2014. Commitment to Excellent Service and Hospitality through the Selection, Training and Retention of High Quality Staff Members. Our mission is to “create an environment where absolute guest satisfaction is our highest priority.” We strive to consistently exceed the expectations of our customers in all aspects of their experience in our restaurants. One of the most important aspects of delivering a consistent and dependable level of service is having a team of experienced managers who can successfully operate our high volume, highly complex restaurants. Our recruitment, selection, training, retention and internal promotion programs are among the most comprehensive in the restaurant industry, enabling us to attract and retain qualified staff members who are motivated to consistently provide excellence in customer hospitality. In 2016, we completed a redesign of our training, with an enhanced focus on service and hospitality to deliver a higher level of service that is tailored to our customers’ needs. By providing extensive training, our goal is to encourage our staff members to develop a sense of personal commitment to our core values and culture of excellence in restauranteuring and customer hospitality. (See “Restaurant Operations, Management and Staffing” below.) Our focus on the development and engagement of our staff and managers contributed to the Company being named in 2016, for the third year in a row, to Fortune magazine’s list of “100 Best Companies to Work For.” High Quality, High Profile Restaurant Locations and Flexible Site Layouts. We target restaurant sites in high quality, high profile locations with a balanced mix of retail shopping, entertainment, residences, tourism and businesses. We have the flexibility to design our restaurants to accommodate a wide array of urban and suburban site layouts, including multi-level locations. Our restaurants feature large, open dining areas, high ceilings where available and a contemporary kitchen design. The layouts are flexible, permitting tables and seats to be easily rearranged to accommodate both small and large parties, thus permitting more effective utilization of seating capacity. Interior and exterior patio seating, either or both available at approximately 90% of our restaurants, allow for additional customer capacity at a comparatively low occupancy cost per seat. Exterior patio seating is available as weather permits. (See “New Restaurant Site Selection and Development” below.) 3 Distinctive Restaurant Design and Décor. Our restaurants’ distinctive contemporary design and décor create a high energy, upscale ambiance in a casual setting. We have evolved our restaurants’ design over time to remain current while retaining a similar look and feel to our earlier restaurants. We apply high standards to the maintenance of our restaurants to keep them in “like new” condition. Value Proposition. We believe our restaurants are recognized by consumers for offering value with a large variety of freshly prepared menu items across a broad array of price points and generous food portions at moderate prices. The average check for each customer, including beverages and desserts, was approximately $21.40, $20.80 and $20.20 for fiscal 2016, 2015 and 2014, respectively. Integration of our Bakery Operations. The primary role of our bakery operations is to produce innovative, high quality cheesecakes and other baked desserts for sale at our restaurants and those of our international licensees, which is important to our competitive positioning. Integration of this vital part of our brand gives us control over the creativity and quality of our desserts and is also more profitable than buying from a third party. New Restaurant Site Selection and Development The Cheesecake Factory concept has demonstrated success in a variety of layouts (i.e., single or multi-level, varying interior square feet), site locations (i.e., urban or suburban shopping malls, lifestyle centers, retail strip centers, office complexes and entertainment centers — either freestanding or in-line) and trade areas. Accordingly, we intend to continue developing The Cheesecake Factory restaurants in high quality, high profile locations that meet our rigorous site standards. We plan to open as many locations in any given year as there are sites available that meet our site selection criteria and are regularly negotiating leases for potential future locations. It is difficult for us to precisely predict the timing of our new restaurant openings due to many factors that are outside of our control. (See Item 1A — Risk Factors — “If we are unable to secure an adequate number of high quality sites for future restaurant openings, the growth of our concepts may be adversely impacted, which could materially adversely affect our financial performance.”) We have the flexibility in our restaurant designs to penetrate a wide variety of markets across varying population densities in both existing and new markets. We continue to expect that there is potential to grow the concept to approximately 300 Company-owned and operated restaurants domestically over time, and we are also evaluating Company-owned expansion to Canada. The locations of our restaurants are critical to our long-term success, and we devote significant time and resources to analyzing each prospective site. We consider many factors when assessing the suitability of a site, including the demographics of the trade area such as average household income, and historical and anticipated population growth. Since our restaurants can be successfully executed within a variety of site locations and layouts, we are highly flexible in choosing suitable locations. We focus on high quality, high profile sites and scale the appropriate restaurant size to each location. While there are common décor elements within each of our restaurant sites, the designs are customized for the specifics of each location, including the building type, square footage and layout of available space. Our existing restaurants range from 5,000 to 21,000 interior square feet, and we expect the majority of our new restaurants to vary between 8,000 and 12,000 interior square feet, generally with additional exterior and/or interior patio seating, selected appropriately for each market and specific site. The relatively high sales productivity of our restaurants provides opportunities to obtain competitive leasing terms from landlords. Due to the flexible and customized nature of our restaurant operations and the complex design, construction and preopening processes for each new location, our lease negotiation and restaurant development time frames vary. The development and opening process usually ranges from six to eighteen months, depending largely on the availability of the leased space we intend to occupy, and can be subject to delays either due to factors outside of our control or to our selective timing of restaurant openings. (See Item 1A — Risk Factors — “If we are unable to secure an adequate number of high quality sites for future restaurant openings, the growth of our concepts may be adversely impacted, which could materially adversely affect our financial performance.”) Unit Economics The operation of high quality restaurants and the selection of premier locations that fit our criteria contribute to the continuing appeal of The Cheesecake Factory to consumers. This popularity is reflected in our average sales per restaurant and per square foot, which are among the highest of any publicly held restaurant company. 4 Average sales per location for The Cheesecake Factory restaurants open for the full year on a 52-week basis were approximately $10.7 million, $10.6 million and $10.5 million for fiscal 2016, 2015 and 2014, respectively. Since each of our restaurants has a customized layout and differs in size, an effective method to measure the unit economics of our sites is by square foot. Average sales per productive square foot (defined as all interior square footage plus seasonally adjusted exterior patio square footage) for restaurants open for the full year on a 52-week basis were approximately $971, $967 and $942 for fiscal 2016, 2015 and 2014, respectively. We currently lease all of our restaurant locations and utilize capital for leasehold improvements and furnishings, fixtures and equipment (“FF&E”) to build out our restaurant premises. Total costs are targeted at approximately $900 per interior square foot for The Cheesecake Factory restaurants. The construction costs to build our restaurant premises vary from restaurant to restaurant, depending on a number of factors, including geography, the complexity of our buildout, site characteristics, governmental fees and permits, labor and material conditions in the local market, weather and the amount, if any, of construction contributions obtained from our landlords for structural additions and other leasehold improvements. In selecting sites for our restaurants, an important objective is to earn an appropriate return on investment. We measure returns using a fully capitalized cash return on investment calculated by dividing restaurant-level EBITDAR (earnings before interest, taxes, depreciation, amortization and rent expense) by our cash investment plus capitalized rent (computed as eight times annual rent). We target an average return of approximately 20% for new restaurants. Average fully capitalized cash return on investment for The Cheesecake Factory restaurants in our comparable sales base was 24%, 24% and 23% in fiscal 2016, 2015 and 2014, respectively. Investing in new restaurant development that meets our return on investment criteria supports achieving a Company-level return on invested capital (“ROIC”) of approximately 15%. ROIC was 17%, 15% and 14% at fiscal year-end 2016, 2015 and 2014, respectively. Our new restaurants typically open with initial sales volumes well in excess of their sustainable run-rate levels. This initial “honeymoon” effect usually results from grand opening publicity and other consumer awareness activities that generate higher than usual customer traffic, particularly in new markets. During the three to six months following the opening of new restaurants, customer traffic generally settles into its normal pattern, resulting in sales volumes that gradually adjust downward to their sustainable run-rate level. Additionally, our new restaurants usually require a period of time after reaching sustainable traffic levels to achieve their targeted restaurant-level operating margins due to cost of sales and labor inefficiencies commonly associated with new, highly complex casual dining restaurants such as ours. Restaurant Operations, Management and Staffing Our ability to consistently execute a complex menu offering items prepared daily with high quality, fresh ingredients in an upscale casual, high-volume dining environment is critical to our overall success. We employ detailed operating procedures, standards, controls, food line management systems, and cooking methods and processes to accommodate our extensive menu and to drive sales productivity. However, the successful day-to-day operation of our restaurants remains critically dependent on the ability, dedication and engagement of our General Managers (“GM”), Executive Kitchen Managers (“EKM”) and all other management and hourly staff members working at our restaurants. Competition among restaurant companies for qualified management and staff remains very high. (See Item 1A — Risk Factors — “If we are unable to successfully recruit and retain qualified restaurant management and operating personnel in an increasingly competitive market, we may be unable to effectively operate and grow our business and revenues, including executing on our plans for domestic and international expansion, which could materially adversely affect our financial performance.”) We believe that the high average sales volumes and popularity of our restaurants allow us to attract and retain high quality, experienced restaurant-level management and other operational personnel. Each restaurant is staffed with one GM, one EKM and an average of six to ten additional kitchen and front-of-the-house managers, depending on the size and sales volume of each restaurant. Our GMs possess an average of more than ten years of experience with the Company. This tenure and knowledge drives our high productivity and helps us operationally in executing an exceptional customer experience. All newly-recruited restaurant managers complete an extensive training program during which they receive both classroom and on-the-job instruction in areas such as food quality and safety, customer service, financial management and cost controls, staff relations and liquor liability avoidance. Managers continue their development by participating in and completing a variety of training and development activities to assess their skills and knowledge necessary for continued upward progression through our management levels. Our GMs regularly meet to 5 receive hands on training, share best practices and celebrate Company successes, which in turn, assists in maintaining the unique culture of our brand. Each restaurant GM reports to an Area Director of Operations (“ADO”) who supervises the operations of six to ten restaurants in a region. In turn, each ADO reports to one of four Regional Vice Presidents of Restaurant Operations. Our EKMs report to their GMs, but are also supervised by an Area Kitchen Operations Manager responsible for between eight and ten restaurants. Our restaurant field supervision organization also includes our Senior Vice President of Operations, Chief Culinary Officer, an operations services team and a performance development department who are collectively responsible for day-to-day operations, managing new restaurant openings and training for all operational managers and staff. To enable us to more effectively compete for, and retain, the highest quality restaurant management personnel, we offer an innovative and comprehensive compensation program for our restaurant GMs and EKMs. Each participant receives a competitive base salary and has the opportunity to earn a cash bonus based on quantitative restaurant performance metrics. GMs are also eligible to use a Company-leased vehicle. In addition, we provide a longer-term, equity incentive program to our GMs and EKMs based on their extended service with us in their respective positions and their achievement of certain established performance objectives during that period. We believe that these awards encourage our GMs and EKMs to think and act as business owners, assist in retention of restaurant management and align our managers’ interests with those of our stockholders. (See Item 1A — Risk Factors — “Any inability to offer long-term equity incentive compensation may harm our ability to retain key employees, which could materially adversely affect our operations and financial performance.”) Our restaurant GMs are responsible for selecting and training hourly staff members for their respective restaurants. Each restaurant is staffed, on average, with approximately 170 hourly staff members. We require each hourly staff member to participate in a formal training program for his or her respective position in the restaurant, under the supervision of other experienced staff members and restaurant management. We strive to foster enthusiasm and commitment in our staff members through daily staff meetings and dedicated time for training. We solicit suggestions concerning restaurant operations and other aspects of our business through an annual engagement survey, GM and workgroup meetings, a website dedicated to receiving staff member input and other means, resulting in a highly engaged workforce. Our focus on development, engagement and retention of our staff and managers led to our being named in 2016, for the third year in a row, to Fortune magazine’s list of the “100 Best Companies to Work For,” which is published annually based on a culture review and surveys of current employees to identify and recognize companies that create positive work environments with high employee morale and fulfillment. In 2016, we were also named to the Fortune “100 Best Workplaces for Millennials.” In addition, for the third year in a row, we were awarded the Best Practices Award in January 2017 recognizing best overall performance among the Transforming Data into Knowledge (TDn2K)/People Report consortium based on restaurant management retention, hourly employee retention, composite diversity, year-over-year improvement and community involvement. Preopening Costs for New Restaurants Due to the highly customized and operationally complex nature of our upscale, high volume concept and the investment we make in properly training our staff to operate our restaurants, our preopening process is more extensive, time consuming and costly than that of most restaurant chains. Preopening costs for a typical restaurant in an established market average approximately $1.5 million to $1.7 million and include all costs to relocate and compensate restaurant management employees during the preopening period, costs to recruit and train hourly restaurant employees, and wages, travel and lodging costs for our opening training team and other support staff members. Also included are expenses for maintaining a roster of trained managers for pending openings, the associated temporary housing and other costs necessary to relocate managers in alignment with future restaurant opening and operating needs, and corporate travel and support activities. Preopening costs are generally higher for larger restaurants and initial entry into new markets and lower when we relocate a restaurant within its local market. We usually incur the most significant portion of preopening costs within the two months immediately preceding and the month of a restaurant’s opening. Preopening costs can fluctuate significantly from period to period, based on the number and timing of restaurant openings and the specific preopening costs incurred for each restaurant. Preopening costs vary by location depending on a number of factors, including the proximity of our existing restaurants, the size and physical layout of each location, the number of management and hourly employees required to operate each restaurant, the availability of qualified restaurant 6 staff members, the cost of travel and lodging for different metropolitan areas, the timing of the restaurant opening and the extent of unexpected delays, if any, in obtaining final licenses and permits to open the restaurant, which may also depend on our landlords obtaining their licenses and permits and completing their construction activities. Expansion of Licensed Locations We currently have licensing agreements with three restaurant operators to develop and operate The Cheesecake Factory® brand restaurants in selected international markets. These arrangements include initial development fees, site and design fees and ongoing royalties based on our licensees’ restaurant sales. In addition, these licensees purchase bakery products branded under The Cheesecake Factory® trademark from us. We do not invest capital to build the restaurants for our licensed locations. As of the end of fiscal 2016, our international licensees operated the following The Cheesecake Factory restaurants: Licensee Location Kuwait (1) ............. Mexico (2) ............ Hong Kong (3) ...... Total ................ Restaurant Location Kingdom of Saudi Arabia Kuwait Lebanon Qatar United Arab Emirates Mexico People’s Republic of China # of Restaurants 1 3 1 1 5 3 1 15 (1) This licensee, or its affiliates, also has the right to develop restaurants in Bahrain and Egypt, with the opportunity to expand the agreement to include other markets in the Middle East, North Africa, Central and Eastern Europe, Russia and Turkey. (2) This licensee, or its affiliates, also has the right to develop restaurants in Chile, with the opportunity to expand the agreement to include other markets in Argentina, Brazil, Colombia and Peru. (3) This licensee, or its affiliates, also has the right to develop restaurants in Hong Kong, Macao and Taiwan, with the opportunity to expand the agreement to include other markets in Japan, South Korea, Malaysia, Singapore and Thailand. In addition to the licenses we have in place today, we are assessing other international markets and potential licensees for future expansion opportunities. Our corporate infrastructure includes a dedicated Global Development team that works with our international licensees and coordinates the initial training, ongoing quality control, product specifications and brand oversight at our licensed locations. As we evaluate other international markets, we will consider opportunities to directly operate certain locations and/or enter into licensing, joint venture or partnership arrangements with established third party companies. We are selective in our assessment of potential partners and licensees, focusing on well-capitalized companies that have established business infrastructures, expertise in multiple countries, experience in operating upscale casual dining restaurants and sound governance practices. We look to associate with companies who will protect The Cheesecake Factory® brand and operate the concept in a high quality, consistent manner. Due to the complexities of opening The Cheesecake Factory restaurants in other countries, including, but not limited to, the selection and design of appropriate sites, construction of our complex restaurant designs, training of licensees’ employees, approval of supply sources and exportation of our bakery products to new countries, the number and timing of new openings in foreign countries may vary from expectations. For more discussion of certain risks related to our international expansion efforts, see Item 1A — Risk Factors — “We face a variety of risks related to our international expansion and global brand development efforts that could negatively affect our brand, require additional infrastructure to support such efforts, and expose us to additional liabilities under foreign laws, any of which could materially adversely affect our financial performance.” 7 Bakery Operations We own and operate two bakery production facilities, one in Calabasas Hills, California, and one in Rocky Mount, North Carolina. Our facility in California accommodates both production operations and corporate support personnel, while our facility in North Carolina houses production operations and a distribution center. We produce approximately 70 varieties of proprietary cheesecakes and other baked desserts using high quality ingredients for our The Cheesecake Factory and Grand Lux Cafe restaurants, and for international licensees and thirdparty customers. Some of our most popular cheesecakes include the Original Cheesecake, Ultimate Red Velvet Cake Cheesecake™, Chocolate Hazelnut Crunch Cheesecake, Godiva® Chocolate Cheesecake, Oreo® Dream Extreme Cheesecake, Fresh Strawberry and Salted Caramel. Other popular baked desserts include Chocolate Tower Truffle Cake™, Carrot Cake, Black-Out Cake and Lemoncello Cream Torte. The primary role of our bakery operations is to produce innovative, high quality cheesecakes and other baked desserts for sale at our restaurants and those of our international licensees. Integration of this vital part of our brand gives us control over the creativity and quality of our desserts and is also more profitable than buying from a third party. Offering our cheesecakes and other baked desserts internationally is important to our branding, creating awareness and driving demand, not only for bakery products but for the international expansion of our The Cheesecake Factory restaurant footprint. We also leverage The Cheesecake Factory brand identity and profitably utilize our bakery production capacity by selling cheesecakes and other baked products to external foodservice operators, retailers and distributors. Items produced for outside accounts are or will be marketed under The Cheesecake Factory®, The Dream Factory®, The Cheesecake Factory Bakery® and The Cheesecake Factory At HomeTM trademarks and other private labels. Current large-account customers include leading national warehouse club operators, foodservice distributors, supermarkets and other restaurants, a national retail bookstore cafe and foodservice operators. We sell baked goods internationally under The Cheesecake Factory®, The Cheesecake Factory At HomeTM and The Dream Factory® trademarks and have entered over 30 countries with our brands. We also currently sell a selection of our The Cheesecake Factory branded cakes online and in catalogs domestically through an agreement with an upscale retailer. Incremental Growth Opportunities We are pursuing a number of incremental growth opportunities that would complement the continued domestic and international expansion of The Cheesecake Factory concept. Grand Lux Cafe Concept Grand Lux Cafe is an upscale casual dining concept that offers globally-inspired cuisine with an ambiance of modern sophistication. Using fresh ingredients, the menu of approximately 150 items at Grand Lux Cafe offers classic American dishes and international favorites, including appetizers, pasta, seafood, steaks, chicken, burgers, salads, specialty items and desserts. Examples of menu offerings include our Crispy Caramel Chicken, Buffalo Chicken Rolls and Shrimp Scampi. Each Grand Lux Cafe features an on-site bakery which produces a selection of signature desserts, and a full-service bar. The average check for each customer, including beverages and desserts, was approximately $21.50, $21.10 and $20.40 for fiscal 2016, 2015 and 2014, respectively. We plan to engage in measured growth of Grand Lux Cafe. With strong average unit volumes, we continue seeking to reduce investment costs and increase operating margins to position Grand Lux Cafe as a growth driver in our portfolio. Rock Sugar Pan Asian Kitchen and RockSugar Southeast Asian Kitchen Concept Rock Sugar Pan Asian Kitchen features a Southeast Asian menu and design elements in an upscale casual dining setting. Rock Sugar Pan Asian Kitchen showcases the cuisines of Thailand, Vietnam, Malaysia, Singapore, Indonesia and India with approximately 75 dishes served “family-style” to create an atmosphere that encourages sharing and conversation. Examples of menu offerings include Lacquered BBQ Ribs, Thai Basil Cashew Chicken, Ginger Fried Rice and Crispy Samosas. Rock Sugar Pan Asian Kitchen also features a full-service bar with an extensive wine list and exotic cocktails and offers freshly-made desserts that infuse traditional French flair into nearly a dozen Asian-influenced items. 8 Rock Sugar Pan Asian Kitchen is a unique concept with high consumer appeal and is particularly on-trend with increasing consumer interest in ethnic cuisines. We currently operate one location in Los Angeles and plan to open a second location in 2017 in order to evaluate the opportunity of the concept beyond the Southern California market. We are in the process of rebranding this concept as RockSugar Southeast Asian KitchenTM to better reflect the geographic origins of this concept’s menu offerings. (See Item 1A — Risk Factors — “Inability to successfully operate or expand our Grand Lux Cafe and Rock Sugar Pan Asian Kitchen/RockSugar Southeast Asian Kitchen brands could materially adversely affect our financial performance.”) Investments in North Italia® and Flower Child® During fiscal 2016, we entered into a strategic relationship with Fox Restaurant Concepts LLC (“FRC”) with respect to two of its brands, North Italia and Flower Child, that share a number of parallels with us in terms of culture and philosophy, and that we believe have significant opportunity for growth: • North Italia is a modern interpretation of Italian cooking in the upscale casual dining segment. All dishes are handmade from scratch daily. We see a number of synergistic attributes, including operations and real estate development, as well as significant market opportunity for an on-trend Italian offering. • Flower Child is a fast casual concept offering a customizable menu, made fresh from scratch, featuring locally sourced, all natural and organic ingredients in salads, plates, bowls and wraps. This is a potential opportunity for us to diversify our portfolio in a strong and growing niche. FRC, or its affiliates, will continue to own the intellectual property, manage day-to-day operations and provide infrastructure support to facilitate the near-term growth of both of these concepts. We made initial minority equity investments in these concepts during fiscal 2016 and will provide ongoing growth capital over time. We have the right, and an obligation if certain financial, legal and operational conditions are met, to acquire the remaining interest in either or both of these concepts in the next three to five years. These transactions are not expected to have a material impact on our financial condition over the next several years, and we do not anticipate that we will need to incur debt to fund our ongoing growth capital commitments during the investment period. Should we ultimately acquire one or both concepts, we would evaluate the appropriate capital structure at that time. (See Item 1A — Risk Factors — “Our strategic relationship with Fox Restaurant Concepts LLC (“FRC”) might not yield the anticipated benefits and could result in a loss of our investment, which could materially adversely affect our financial performance.”) Internal Development of a Fast Casual Concept We are currently developing a fast casual concept utilizing internal resources. We are actively looking for an appropriate location to test the concept and evaluate its future growth potential. Consumer Packaged Goods Given the strong affinity for The Cheesecake Factory® brand, we believe there is opportunity to further leverage it in the consumer packaged goods channel. We are actively evaluating synergistic, on-brand licensing opportunities to add an incremental revenue stream to our business. Categories under consideration include cake mixes, confections and ice cream, as well as other food and non-food items, excluding grocery frozen foods at this time. Purchasing and Distribution We strive to obtain quality menu ingredients, bakery raw materials and other supplies and services for our operations from reliable sources at competitive prices and consistent with our sustainability goals. We continually research and evaluate various ingredients and products in an effort to maintain high quality levels, to be responsive to changing consumer tastes and to manage our costs. In order to maximize purchasing efficiencies and to provide the freshest ingredients for our menu items while obtaining competitive prices for the required quality and consistency, each restaurant’s management determines the quantities of food and supplies required and orders the items from local, regional and national suppliers based upon specifications established by our corporate office and on terms negotiated by our central purchasing staff. We strive to 9 maintain restaurant-level inventories at a minimum dollar level in relation to sales due to the high concentration and relatively rapid turnover of the perishable produce, poultry, meat, fish and dairy commodities that we use in our operations, coupled with the limited storage space at our restaurants. Independent foodservice distributors, including the largest foodservice distributor in North America, deliver most items multiple times per week to our restaurants. We purchase food and other commodities for use in our operations, based on market prices established with our suppliers. Many of the commodities purchased by us can be subject to volatility due to market supply and demand factors outside of our control. Substantially all of our ingredients and supplies are available from multiple qualified suppliers, which helps mitigate our risk of commodity availability and obtain competitive prices. We negotiate shortterm and long-term agreements for some of our principal commodity, supply and equipment requirements, such as cream cheese, depending on market conditions and expected demand. Historically, we were unable to contract directly for extended periods of time for certain of our commodities such as certain produce items, wild-caught fresh fish and certain dairy products. During 2015, we began entering into longer-term fixed pricing agreements for additional dairy items, and we continue to evaluate the possibility of entering into similar arrangements for additional commodities. We also periodically evaluate hedging vehicles, such as direct financial instruments, to assist us in managing our risk and variability in these categories. Although these vehicles and markets may be available to us, we may choose not to enter into contracts due to pricing volatility, excessive risk premiums, hedge inefficiencies or other factors. Where we had not entered into long-term contracts, commodities can be subject to unforeseen supply and cost fluctuations, which at times may be significant. Additionally, the cost of commodities subject to governmental regulation, such as dairy and corn, can be even more susceptible to price fluctuation than other products. (See Item 1A — Risk Factors — “Our inability to anticipate and react effectively to changes in the costs of key operating resources, including food, utilities, and other supplies and services, may increase our cost of doing business, which may materially adversely affect our financial performance.”) Sustainability At the heart of our business is a set of guiding principles based on excellence and quality in everything we do. As a part of this commitment, we are continuing to develop a sustainability program that is aligned with our culture and values, is feasible given the complexity of our restaurant operations and is financially responsible. We are examining all aspects of our business in an effort to identify, create and implement meaningful and sustained change. Because much of our environmental impact comes from the ingredients we use in our menu items and bakery products, we are initially focusing our efforts on our suppliers. In 2016, our management team introduced our Sustainable Sourcing Policy to communicate our values and expectations to our customers, suppliers and staff members. Our commitment addresses all aspects of our food supply chain while placing emphasis on those areas in which we believe we can have the most impact, either because of the amount we directly order or because of the leadership role we believe we can play in the casual dining industry. From the treatment of livestock, including providing every animal with basic freedoms during their entire life cycle, to the conditions of those individuals working in and around the farms and factories from which we source, our Sustainable Sourcing Policy builds on our existing efforts to source environmentally and socially responsible ingredients. Our sustainability commitment also extends to environmental practices with respect to reducing energy and natural resources consumption. With respect to particular programs aimed at reducing our environmental footprint, we are engaged in efforts to both build and maintain more energy-efficient restaurants by conserving water and reducing waste. This includes installing low wattage light bulbs, energy-efficient heating, ventilation and air conditioning units and water flow control valves. We have two restaurant programs underway in which we use technology to collect data about how we can better control energy usage in our restaurants. We have identified a number of areas of opportunity, which we will be sharing across our footprint. As of the end of fiscal 2016, nearly 40% of our restaurants utilized variable-speed fan hoods that automatically adjust velocity in accordance with the temperature on the cook line. We plan to install these fans in the remaining restaurants where we expect to gain measurable energy efficiencies from this technology. We utilize highly recyclable resins in our takeout packaging and recycled material in our paper napkins and towels, and as of the end of fiscal 2016, we implemented composting at approximately 25% of our restaurants with a number of additional locations in progress. We also maintain a guide to educate our restaurant operators on ways to minimize energy consumption in their restaurants. We continue to explore green construction techniques and materials. To this end, we installed solar panels at our corporate office, added solar hot water heaters in several of our California locations and built our training center in a manner that achieved Platinum Leadership in Energy & Environmental Design (LEED) certification. 10 We believe our commitment to the goals within our Sustainable Sourcing Policy will help us build our customers’ trust and lower costs, while supporting continued growth of our brands. To learn more about our sustainability and supply chain practices, please visit the “Sustainability” page and the “Supply Chain” page on our website at The contents of our website are not incorporated by reference into this Form 10-K. Information Technology Our technology-enabled business solutions are designed to provide effective financial controls, cost management, improved efficiencies and enhanced customer experience. Our business intelligence solution and data warehouse architecture provide corporate and restaurant management with information and insights into key operational metrics and performance indicators. This framework delivers enterprise reporting, dashboards and analytics, and allows access to metrics such as quote and wait time accuracy, employee retention trends, and restaurant quality and service analyses. Our restaurant point of sale and back-office systems provide information regarding daily sales, cash receipts, inventory, food and beverage costs, labor costs and other controllable operating expenses. Our kitchen management system provides automated routing and cook line balancing, and synchronizes order completion, ticket time and cook time data, promoting more efficient levels of labor and productivity without sacrificing quality. We leverage our recipe viewer system to ensure timely and accurate recipe updates, and to provide instructional media content and detailed procedures enabling our staff to consistently prepare our highly complex, diverse menu across all locations. We utilize a web-based labor scheduling solution to enhance scheduling precision and staff satisfaction. We also employ a web-based notification and tracking solution to contact our restaurants and monitor our progress in the event of a needed product withdrawal or recall. In 2016, we rolled out our mobile payment application, CakePay®, nationally to all The Cheesecake Factory restaurants. CakePay provides convenience to our customers, enabling them to complete the payment process at any time during their dining experience using their mobile device. Restaurant hardware and software support for all of our concepts is provided by both our internal support services team at our corporate center as well as third-party vendors for remote and on-site restaurant support. Each restaurant has a private high-speed wide area connection to send and receive critical business data as well as to access web-based applications securely. We implemented a failover capability whereby a secondary public circuit is used to automatically establish a secure connection to our private network if the primary connection becomes unavailable. We employ modern restaurant switching and routing technology that provides agility in leveraging and supporting contemporary security standards and practices. Most of our core and critical applications are now housed in an external tier III data center. To mitigate business interruptions, we implemented a disk-based data backup and replication infrastructure between our onsite and external data centers so all data is replicated nightly between the two sites. We employ a multi-discipline security incident response plan to recognize, manage and resolve cyber security threats, and we maintain cyber risk insurance coverage to further reduce our risk profile. Security of our financial data and other personal information remains a high priority for us, led by our information technology department in conjunction with an interdepartmental information security council representing all of our key functional areas. Enhancements to our cyber security profile include continued testing of our Cyber Incident Response Plan and cybersecurity awareness training for our staff members with access to our cyber systems, migrating additional key applications to secure cloud environments, securing our assets through a Private Key Infrastructure (“PKI”) infrastructure ensuring only trusted devices can access our network, encrypting data flowing between users and applications, enhancing our security event logging and monitoring, and further securing our elevated privileged account access. Also, in an effort to further secure our customers’ credit card information, we implemented a robust encryption and tokenization platform for all credit card transactions in our restaurants, ensuring that no credit card data is stored in our internal systems. This included the installation of equipment that can also process smart payment cards, commonly referred to as EMV (Europay, Mastercard, Visa). We completed the EMV certification and pilot process in late fiscal 2016 and implemented it at all of our restaurants early in fiscal 2017. For a discussion of the risks related to our use of computer networks and technology in the operation of our business, see Item 1A — Risk Factors — “Information technology system failures or breaches of our network security could interrupt our operations and subject us to increased operating costs, as well as to litigation and other liabilities, all of which could materially adversely affect our financial performance.” 11 Marketing and Advertising We rely on our reputation, as well as our high profile locations, media exposure and positive “word of mouth,” to maintain and grow market share rather than using traditional paid advertising through television, radio or print, or using significant discounting to attract consumers. We utilize a social media and digital marketing strategy that allows us to engage regularly with our customers outside of our restaurants, including communication on Facebook®, Twitter®, Pinterest®, Instagram® and other social media platforms, as well as direct email to customers. Public relations is another important aspect of our marketing approach, and we frequently appear on local and national television for cooking demonstrations and other brand-building exposure, such as National Cheesecake Day. We generated approximately two billion media impressions in fiscal 2016 at minimal cost to us. We partner with several premiere third-party gift card retailers, contributing to our brand awareness and building gift card sales. We also attempt to build awareness and relationships with retailers located in the same developments, shopping center operators, local hotel concierges, neighborhood groups and others in the community. In addition, for restaurants opening in new markets, we strive to obtain local television, radio station and newspaper coverage in order to benefit from publicity at low or no cost. At times, we also engage in marketing and advertising opportunities in selective local markets. In 2016, our mobile payment application, CakePay, was chosen by MasterCard® to be featured in a national television advertising campaign for their MasterPass® digital wallet solution. Our international licensees are committed to opening each new restaurant with marketing that can be comprised of a mix of elements including print, billboards, digital and radio. We maintain final approval of our licensees’ marketing campaigns to promote consistency in the look and feel of marketing efforts including our brand, domestically and abroad. We also work with a global intelligence consultant to gain a better understanding of local perceptions and media coverage of restaurants, generally, and our brand, in particular, in international markets. (See Item 1A — Risk Factors — “If we are unable to protect the value of our brands and our reputation, sales at our restaurants may be negatively impacted, which may materially adversely affect our financial performance.”) Seasonality and Quarterly Results 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, the additional week in a 53-week fiscal year 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. Food Safety and Quality Assurance Our risk, food safety and quality assurance teams oversee food safety, nutritional and regulatory compliance in direct support of our restaurants and bakeries to ensure that safe, high quality foods are produced in a clean and safe environment. Our food safety systems are focused on preventing contamination and illness and executing to all regulatory requirements as well as industry standards. Our work and management processes are verified by routine internal and third party health inspection audits and regulatory agency inspections. In addition, our manufacturing plants conduct daily food safety and quality inspections and our plants operate under certified food safety and quality systems. In selecting suppliers, we look for key performance indicators relating to sanitation, operations and facility management, good manufacturing and agricultural practices, product protection, recovery and food security. In addition to measuring and testing food safety and security practices, we strive to ensure that all our food suppliers have annual food safety and quality system audits. Our restaurants and bakery facilities also follow regulatory guidelines required for conducting and managing ingredient and product traceability. We utilize a web-based notification and tracking solution to efficiently contact our restaurants and monitor our progress in the event of a voluntary or mandatory product withdrawal or recall. We utilize ozone cleaning systems for certain ingredients in approximately one-half of our prep kitchens, and plan to further roll out this program in order to provide an effective “green” sanitizing method that is consistent with our sustainability goals. (See Item 1A — Risk Factors — “Concerns relating to food safety, food-borne illness, pandemics and other diseases could reduce customer traffic to our restaurants, or cause us to be the target of litigation, which could materially adversely affect our financial performance.”) 12 Government Regulation As a restaurant company, we are subject to numerous federal, state and local laws affecting our business. Each of our restaurants is subject to licensing and regulation by a number of government authorities, which may include alcoholic beverage control, health, sanitation, environmental, labor, zoning and public safety agencies in the state or municipality in which the restaurant is located. We are also subject to federal and state environmental regulations, including water usage, sanitation disposal and transportation mitigation. During fiscal 2016, there were no material capital expenditures for environmental control facilities and no material expenditures for this purpose are anticipated. In addition to domestic regulations, our international business exposes us to additional regulations, including antitrust and tax requirements, anti-boycott legislation, import/export and customs regulations and other international trade regulations, the USA Patriot Act and the Foreign Corrupt Practices Act. For a discussion of the potential impact on our business of a failure by us to comply with applicable laws and regulations, see Item 1A — Risk Factors — “Changes in, or any failure to comply with, applicable laws or regulations could materially adversely affect our ability to operate our restaurants and/or increase our cost to do so, which could materially adversely affect our financial performance.” As a manufacturer and distributor of food products, we are subject to a comprehensive regulatory framework that governs the manufacture (including composition and ingredients), labeling, packaging and safety of food in the United States, including the Federal Food, Drug and Cosmetic Act, the Public Health Security and Bioterrorism Preparedness Response Act of 2002, the Federal Food Safety Modernization Act and regulations concerning nutritional labeling under the Patient Protection and Affordable Care Act of 2010 (“PPACA”). PPACA requires restaurant operators with twenty or more locations to make certain nutritional information available to customers. The nutritional disclosure requirements under PPACA are intended to preempt a patchwork of state and local laws regarding nutritional content disclosures that became prevalent over the past several years. Establishments covered by the nutritional disclosure requirements under PPACA currently have until May 5, 2017 to comply with the new rules. In order to serve alcoholic beverages in our restaurants, we must comply with alcoholic beverage control regulations which require each of our restaurants to apply to a state authority and, in certain locations, county and municipal authorities, for licenses and permits to sell alcoholic beverages on the premises. Typically, licenses must be renewed annually and may be subject to penalties, temporary suspension or revocation for cause at any time. Alcoholic beverage control regulations impact many aspects of the daily operations of our restaurants, including the minimum ages of our patrons who consume and our staff members who serve these beverages, staff member alcoholic beverage training and certification requirements, hours of operation, advertising, wholesale purchasing and inventory control of these beverages, the seating of minors and the serving of food within our bar areas, special menus and events, such as happy hours, and the storage and dispensing of alcoholic beverages. State and local authorities in many jurisdictions routinely monitor compliance with alcoholic beverage laws. In addition, we are subject to dram shop statutes in most of the states in which we operate, which generally provide a person injured by an intoxicated person the right to recover damages from an establishment that wrongfully served alcoholic beverages to the intoxicated person. We carry liquor liability coverage as part of our existing comprehensive general liability insurance. For a discussion of the potential impact of a settlement or judgment in excess of our liability insurance coverage, see Item 1A — Risk Factors — “If we are unable to manage our business risks, costs associated with litigation and insurance could increase, which could materially adversely affect our financial performance.” Various federal, state and local laws govern our operations and our relationships with our staff members, including such matters as minimum wages, breaks, exempt classifications, equal pay, overtime, tip credits, fringe benefits, leaves, safety, working conditions, provision of health insurance and citizenship or work authorization requirements. We are also subject to the regulations of the Department of Homeland Security, the U.S. Citizenship and Immigration Services and U.S. Immigration and Customs Enforcement. Our facilities must comply with the applicable requirements of the Americans with Disabilities Act of 1990 (“ADA”) and related federal and state statutes which prohibit discrimination on the basis of disability with respect to public accommodations and employment. Under the ADA and related state and local laws, we take steps to make our new or significantly remodeled restaurants, our corporate and bakery facilities and our websites readily accessible to disabled persons. We make reasonable accommodations for the employment of disabled persons as required by applicable laws. 13 A significant number of our hourly restaurant staff members receive income from gratuities. We participate voluntarily in a Tip Reporting Alternative Commitment (“TRAC”) agreement with the Internal Revenue Service (“IRS”). By complying with the educational and other requirements of the TRAC agreement, we reduce the likelihood of potential employer-only FICA tax assessments for unreported or underreported tips. We do not require tip pooling and rely on our staff members to accurately disclose the full amount of their tip income. Our reporting is based on the disclosures provided to us by such tipped staff members. We are subject to laws relating to information security, privacy, cashless payments and consumer credit, protection and fraud. An increasing number of governments and industry groups worldwide have established data privacy laws and standards for the protection of personal information (including social security numbers), financial information (including credit card numbers) and health information. We must continually update our information technology systems and staff member training in order to comply with these laws. (See Item 1A — Risk Factors — “Information technology system failures or breaches of our network security could interrupt our operations and subject us to increased operating costs, as well as to litigation and other liabilities, all of which could materially adversely affect our financial performance.”) Trade Names, Trademarks and Other Intellectual Property We own various types of intellectual property and have applied to register trade names, logos, service marks, trademarks and copyrights (collectively, “Intellectual Property”) in the United States and in additional countries throughout the world in restaurant and bakery goods categories, among others. We regard our Intellectual Property, including “The Cheesecake Factory,” “Grand Lux Cafe,” “Rock Sugar Pan Asian Kitchen,” “RockSugar Southeast Asian Kitchen,” “The Cheesecake Factory Bakery,” “The Cheesecake Factory At Home” and “The Dream Factory,” as well as our trade dress, as having substantial value and as being important to our marketing efforts. Our policy is to pursue registration of our important Intellectual Property whenever commercially feasible and to vigorously oppose infringements of our Intellectual Property. The duration of Intellectual Property registrations varies from country to country. However, registrations of Intellectual Property are generally valid and may be renewed indefinitely as long as they are in use and/or their registrations are properly maintained. We have also registered various internet domain names, including “,” “,” “” and “” as well as derivations of these and other domain names to include international country codes. Charitable Giving In 2001, we sponsored the formation of The Cheesecake Factory Oscar and Evelyn Overton Charitable Foundation (“Foundation”), a 501(c)(3) qualified, non-profit charitable organization. The Foundation was created as a means to give back to the communities that our restaurants serve, as well as to unite our staff members in charitable causes. Since the inception of its annual Invitational Charity Golf Tournament, the Foundation has raised $2.9 million, including $0.2 million in fiscal 2016, for the City of Hope Comprehensive Cancer Center, a leading research and treatment center for cancer, diabetes and other life-threatening diseases in Southern California. In fiscal 2016, over 3,000 of our staff members volunteered their time to the Foundation to serve more than 6,000 holiday meals to lowincome individuals and families in 13 Salvation Army centers across the country at our annual Thanksgiving Day Feast. Additionally, the Foundation provides sponsorships for teams comprised of our staff members who work directly with non-profit organizations in their communities to support a variety of local and national initiatives selected by our staff members. In addition to the efforts of the Foundation, the Company directly participates in the Harvest Food Donation Program by donating surplus food from many of our restaurants to local food rescue operations for distribution to soup kitchens and shelters to aid those in need. In fiscal 2016, we donated approximately 450,000 pounds of food through this program. Additionally, in fiscal 2016, we donated $0.5 million to Feeding America®, the nation’s largest domestic hunger-relief organization through sales of our Pumpkin, Pumpkin Pecan and Salted Caramel cheesecakes, bringing our total contributions to Feeding America® to $4.2 million over the past nine years. Our staff members also collected more than 225,000 pounds of peanut butter nationwide in 2016 to support Feeding America’s annual campaign to bring awareness to and help fight domestic hunger by donating peanut butter to local food banks. We also partnered with the California Community Foundation to provide a method for our staff members to assist other staff members in need through our The Cheesecake Factory “HELP” fund. 14 Employees As of January 3, 2017, we employed approximately 38,800 people, of which approximately 37,700 worked in our restaurants, approximately 650 worked in our bakery operations and approximately 450 worked in our corporate center and restaurant field supervision organization. Our staff members are not covered by any collective bargaining agreements, and we consider our relations with our staff members to be favorable. Our focus on the development, engagement and retention of our staff and managers contributed to The Cheesecake Factory being named in 2016, for the third year in a row, to Fortune magazine’s list of “100 Best Companies to Work For,” among other human resources awards. (See “Restaurant Operations, Management and Staffing.”) Executive Officers of the Registrant David Overton, age 70, serves as our Chairman of the Board and Chief Executive Officer. Mr. Overton cofounded our predecessor company in 1972 with his parents, Oscar and Evelyn Overton. He is also a founding member and director of our Foundation. David M. Gordon, age 52, was appointed President of the Company in February 2013. Mr. Gordon joined our Company in 1993 as a Manager and held operational positions, including General Manager, Area Director of Operations, Regional Vice President and Chief Operating Officer prior to his appointment as President. He is also a director of our Foundation. W. Douglas Benn, age 62, was appointed Executive Vice President and Chief Financial Officer in 2009. Mr. Benn is a veteran of the restaurant industry having spent more than 20 years in management roles with restaurant companies. Prior to joining the Company, he served as Executive Vice President and Chief Financial Officer of RARE Hospitality International, owner of the LongHorn Steakhouse and The Capital Grille concepts, prior to that company’s sale to another multi-concept, public restaurant company in 2007. He is also a director of our Foundation. Max S. Byfuglin, age 71, serves as President of The Cheesecake Factory Bakery Incorporated, our bakery subsidiary. Mr. Byfuglin joined our bakery operations in 1982 and worked closely with our founders, serving in nearly every capacity in our bakery operations over the past 34 years. Debby R. Zurzolo, age 60, serves as our Executive Vice President, Secretary and General Counsel. Ms. Zurzolo joined our Company as Senior Vice President and General Counsel in 1999 and was appointed to her current positions in 2003. From 1982 until joining the Company, she practiced law at Greenberg Glusker Fields Claman & Machtinger LLP in Los Angeles, California. As a partner with that firm, Ms. Zurzolo represented us on various real estate and other business matters. She is also a founding member and director of our Foundation. ITEM 1A. RISK FACTORS An investment in our common stock involves risks and uncertainties. In addition to the information contained elsewhere in this Annual Report on Form 10-K and other filings that we make with the SEC, you should carefully read and consider the risks described below before making an investment decision. The occurrence of any of the following risks could materially harm our business, operating results, earnings per share (EPS), financial position, cash flows and/or trading price of our common stock (individually and collectively referred to as our “financial performance”). In addition, our actual results could vary materially from any results expressed or implied by forward-looking statements contained in this report, in any of our other filings with the SEC and other communications by us, both written and oral, depending on a variety of factors, including the risks and uncertainties described below. It is not possible for us to predict all possible risks or the impact these factors could have on us or the extent to which any one factor, or combination of factors, may materially adversely affect our financial performance. Risks Related to Our Financial Performance The impact global and domestic economic conditions have on consumer discretionary spending could negatively impact our business and financial performance. Dining out is a discretionary expenditure that historically has been influenced by domestic and global economic conditions, including, but not limited to: unemployment, general and food-specific inflation, consumer confidence, 15 consumer purchasing and saving habits, credit conditions, stock market performance, home values, population growth and wage rates. Material changes to governmental policy related to domestic and international fiscal concerns, and/or changes in central bank policies with respect to monetary policy, also could affect consumer discretionary spending, which could affect our customer traffic and average check per customer, thus potentially having a material impact on our financial performance. General economic conditions are broadly expected to continue steady but slow GDP growth, similar to the growth experienced in recent years; however, recent changes in the political landscape could cause fiscal policy, and ultimately economic conditions, to differ from recent years and/or the existing forecasts. Additionally, interest rates are widely expected to continue to increase in the United States going forward. These potential changes to the recent fiscal and monetary trends could alter consumer behavior, which in turn could materially affect our sales and overall financial performance. Our financial performance may be materially adversely affected if we are unable to grow comparable restaurant sales. Changes in comparable restaurant sales occur because of (i) customer traffic increases or decreases, (ii) menu price increases or decreases, and (iii) menu mix shifts. If we fail to achieve comparable restaurant sales growth and our costs increase, if comparable restaurant sales decrease and costs remain flat or increase or if costs decrease but less than the decrease in comparable restaurant sales, the effect, over time, is to spread costs across a lower level of sales, which could materially adversely affect our financial performance. If we are unable to increase customer traffic in our restaurants, our ability to grow our comparable restaurant sales could be hindered. Changes in customer traffic are impacted by a variety of factors, including macroeconomic conditions that impact customer discretionary spending, consumer perception of our concepts’ offerings in terms of quality, price, value and service, changes in consumer eating habits, irregular and increasingly volatile weather, demographic, economic and other adverse changes in the trade areas in which our restaurants are located and changes in the regulatory environment. We derive a significant amount of our revenue from gift card redemptions. Any factor that substantially impacts our ability to sell gift cards, including, without limitation, loss of, or significant change in contractual terms of, key gift card sales vendor contracts, gift card vendor or processor failures, technology failures or other similar occurrence could materially adversely affect our customer traffic. Competition from other restaurants (both in the upscale casual dining segment and in other...
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Student’s Name
Professor’s Name
Course Details
Book Summary
Significant Accounting Policies
Since March, the 2nd, 2017, the Cheesecake Factor Limited has been running 208 private
restaurants under the banner of The Cheesecakes Factory, The Rock Sugar Pan Asian Kitchen,
and The Grand Lux Café marks. Globally, 15 of the restaurants branded the branches that
operated mainly in the Middle East, Mexico and China, all of licensing agreements.


company also operated two units of the bakery in the mainly produced desserts for the
restaurants, third party clients, and global licenses. The company is currently on the verge of
pursuing other means of leveraging their competitive strengths that include investment in,
acquiring or developing new concepts in so far as the efficient running of restaurants is
concerned. While at it, the company also looks forward to expanding its brand to other
opportunities that there can be.

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Fundamental Presentation
The consolidated financial statements that include declarations of account for The Cheesecake
Incorporated, plus its subsidiaries prepared by a team of accounting professionals as driven and
guided by the accounting principles accompanies this report. It should be noted that the
intercompany reports on statements have all been eliminated in this report. Instead, the company
makes use of 52/53 financial statements of the period dated December 31 for purposes of
financial accountability. The fiscal years of 2015 and 2014 each having 52 weeks and the 2016
fiscal year with 53 weeks have all been captured in this report. As per the provision of this
report, the exercise of 2017 will have 52 weeks to its stock. The 2016 fiscal year, on the other
hand, was separately discussed in this report section and disclosed the gift card liability concerns
on the accrued expenses.
The application of Estimates
Preparing financial statements in line with the GAAP calls for the players to come up with
estimates and assumptions that would aid in the reporting periods over which the financial
statements cover. This because these assumptions and provisions are very critical in the reported
liabilities, amounts of assets and the overall disclosure of various contingent liabilities. While at
it, the report intimates that there is a likely scenario that the actual results may considerably vary
with the estimates.
Cash and the Cash Equivalents
The amounts receivables in the business from credit cards, in the tune of $12.2 million in 2017
January, 3rd and the $10.3 million in December 29th, 2015 are all captured in this report. This
report considers these entries as cash equivalents because of their liquid and short-term nature.

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The other issue is that the entries can be cashed in a span of three days. As a matter of fact, the
company provides that all the checks that are issued but not made available for payments are
deemed to be a reduction of the cash plus cash equivalents.
Accounts and Other Receivables
The company’s accounts receivables mainly stem from the credit sales to the customers who
mostly consume baked products from the Cheesecake Factory Inc. the other accounts receivables
are realized from those who resell gift cards, landlords, and the insurance providers.
Concentration of Credit Risks
The financial tools that potentially make the company concentrate on credit risk include cash as
well as cash equivalents and the receivables. The company spends its day to day operations
working on balances of non-interest-bearing transactions. This is often insured by Federal
Deposit Insurance Corporation, up to a tune of $250,000. The company then invests extra
accrued cash on market deposit accounts that are also insured by the FDIC to the same tune of
$250, 000. As much as the company maintains the balances that tend to exceed the federally
insured threshold considerably, the company has not witnessed any form of losses that relate to
the balance, and this means that the credit risk is way below minimum.
Fair Value of the Financial Instruments
For money and money equivalents, the carrying quantity approximates fair worth as a result of
the short maturity of those instruments. The good value of deemed property owner finance
liabilities is set exploitation current applicable rates for similar instruments as of the record date
by Level two of a three-level hierarchy established by accounting standards. Level two inputs

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square measure evident for the quality or liability, either directly or indirectly, together with
quoted costs in active markets for similar assets or liabilities. At Jan three, 2017, the good worth
of our deemed property owner finance liabilities is $102.2 million versus a carrying value of
$104.9 million.
The report presents the company’s supplies in the form of food, bakery goods, and raw materials
and then quoted at low costs or even marketed at average costs.
Basis of Presentation
The accompanying consolidated financial statements include the accounts of The Cheesecake
Factory Incorporated and its wholly-owned subsidiaries (referred to herein as the “Company,”
“we,” “us” and “our”) prepared by accounting principles accepted in the United States of
America (“GAAP”). All intercompany accounts and transactions for the periods presented have
been eliminated in consolidation. We utilize a 52/53-week fiscal year ending on the Tuesday
closest to December 31 for financial reporting purposes. Fiscal years 2015 and 2014 each
consisted of 52 weeks, while fiscal 2016 consisted of 53 weeks. The fiscal year 2017 will consist
of 52 weeks. In fiscal 2016, we separately disclosed our gift card liability on the consolidated
balance sheet. To conform to the current year presentation, we reclassified the prior year balance
that was previously combined in other accrued expenses. 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. Cash and Cash

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Equivalents Amounts receivable from credit card processors, totaling $12.2 million and $10.3
million at January 3, 2017, and December 29, 2015, 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. Checks issued, but not yet presented for payment to
our bank, are reflected as a reduction of cash and cash equivalents. Accounts and Other
Receivables Our accounts receivable principally resulting from credit sales to bakery customers.
Other receivables consist of various amounts due from our gift card resellers, insurance
providers, landlords and others in the ordinary course of business. The Concentration of Credit
Risk Financial instruments that potentially subject us to a concentration of credit risk is cash and
cash equivalents and receivables. We maintain our day-to-day operating cash balances in noninterest-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 60
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. The concentration of credit risk related to other receivables is
limited as this balance is comprised primarily of amounts due from our gift card resellers,
insurance providers and landlords for the reimbursement of tenant improvements.
Fair Value of Financial Instruments
For cash and cash equivalents, the carrying amount approximates fair value because of the short
maturity of these instruments. The fair value of deemed landlord financing liabilities is
determined using current applicable rates for similar instruments as of the balance sheet date by

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Level 2 of a three-level hierarchy established by accounting standards. Level 2 inputs are
observable for the asset or liability, either directly or indirectly, including quoted prices in active
markets for similar assets or liabilities. At January 3, 2017, the fair value of our deemed landlord
financing liabilities is $102.2 million versus a carrying value of $104.9 million.
Inventories consist of restaurant food and other supplies, bakery raw materials, and baking
finished goods and are stated at the lower of cost or market on an average cost basis at the
restaurants and a First-in, first-out basis at the bakeries.
Property and Equipment
We record property and instrumentation at a price less accumulated depreciation. Augmentations
are capitalized whereas repairs and maintenance expenditures are expensed as incurred.
Depreciation and amortization are calculated exploitation the straight-line technique over the
calculable helpful lifetime of the assets or the lease term, whichever is shorter. Acres
enhancements include the value of our internal development and construction department.
Depreciation and amortization periods are as follows:

Land and building improvements 25 to 30 years

The Leasehold improvements 10 to 15 years

Computer equipment and software five years

Furnishings, equipment and fixtures 3 to 15 years

The gains and losses that relate to the property, as well as equipment disposals, are noted down
in other expenses and interest section.

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Indefinite-Lived Assets
The company’s trademark and the transferrable licensees of alcoholic beverages are pitted to be
indefinite entities of lives hence not subjected to amortization. As of January the 3rd, 2017, the
report stipulates that the amounts comprised intangibles, and the net worth of the items deemed
to be $14.6 million and $13.8 million for the period ended December 29th, 2015. The report
indicates tests for the assets that are meant for the impairment of at least an annual comparison of
the fair values with the carrying amount.
Impairment of the Long-Lived Assets and the Lease Terminations
The company assesses the potential impairment of the lasting assets whenever events or changes
in circumstances indicate that the carrying worth of the property or asset combination might not
be retrievable. Factors that are thought to embody the scenario, however, don't seem to be
restricted to, notable underperformance relative to historical or projected future operative results,
necessary changes within the manner within which the asset is being employed, an expectation
that an asset is going to be disposed of considerably before the tip of its antecedently calculable
life benefits and important adverse business or economic trends. The company also tends to often
review restaurants that square measure income negative for the previous four quarters and people
that square measure being thought of for closure or relocation to work out if impairment testing
is bonded.
Assessing whether or not impairment testing is bonded and, if so, determinative the quantity of
expense need the employment of estimates and assumptions concerning future money flows, and
calculable helpful lives, that square measure subject to a big degree of judgment supported our

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expertise and information. These estimates are often considerably compact by changes in the
economic atmosphere, assets market conditions, and capital defrayal selections.
The recognition of Gift Card Revenue
The company acknowledges a liability upon the sale of our gift cards and recognizes revenue
once these gift cards are converted into the company restaurants. Based on the historical
redemption patterns of the company, the company will moderately estimate the quantity of gift
cards that redemption is remote, that is spoken as “breakage.” Breakage is recognized over a
three-year amount in proportion to historical redemption trends and is classed as revenues in our
consolidated statements of financial gain.
Utilizing this technique, the company has a tendency to estimate each the quantity of breakage
and also the fundamental amount of redemption. If actual redemption amounts or patterns vary
from our estimates, actual gift card breakage financial gain might disagree from the amounts
Revenue Recognition
The company revenues contain sales from the company’s edifice operations, sales from their
work operations to the company licensees and different third-party customers and royalties on
the company licensees’ edifice sales. Revenues from edifice sales square measure recognized
once payment is tendered at the purpose of sale. Revenues from work sales square measure
recognized upon transfer of title and risk to customers. Royalties from international licensees
square measure increased as revenues once earned. Revenues square measure gave web of sales
taxes. Excise tax collected is enclosed in various increased expenses till the taxes square measure
remitted to the acceptable onerous authorities.

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We acknowledge a liability upon the sale of the company gift ...

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