CHEESECAKE FACTORY INCORPORATED - 10-Q Quarterly Report

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-Q

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

For the quarterly period ended March 29, 2005

or

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

Commission File Number 0-20574

THE CHEESECAKE FACTORY INCORPORATED

(Exact Name of Registrant as Specified in its Charter)

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

26950 Agoura Road Calabasas Hills, California		91301
(Address of principal executive offices)		(Zip Code)

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

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 x No o

Indicate by check mark whether the Registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act).
Yes x No o

As of May 4, 2005, 78,081,045 shares of the Registrant’s Common Stock, $.01 par value, were outstanding.

THE CHEESECAKE FACTORY INCORPORATED AND SUBSIDIARIES

INDEX

			Page Number

PART I.	FINANCIAL INFORMATION
	Item 1.	Financial Statements:
		Consolidated Balance Sheets	1
		Consolidated Statements of Operations	2
		Consolidated Statement of Stockholders’ Equity	3
		Consolidated Statements of Cash Flows	4
		Notes to Consolidated Financial Statements	5
	Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	12
	Item 3.	Quantitative and Qualitative Disclosures about Market Risk	19
	Item 4.	Controls and Procedures	19

PART II.	OTHER INFORMATION
	Item 1.	Legal Proceedings	21
	Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	21
	Item 6.	Exhibits	21

Signatures			22
Index to Exhibits			23

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

THE CHEESECAKE FACTORY INCORPORATED AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In thousands, except share data)

	March 29, 2005			December 28, 2004

	(Unaudited)
ASSETS
Current assets:
Cash and cash equivalents	$	18,301		$	14,041
Investments and marketable securities		38,618			31,369
Accounts receivable		6,535			8,492
Other receivables		20,620			23,103
Inventories		26,271			22,527
Prepaid expenses		10,282			9,646
Deferred income taxes		5,727			5,368

Total current assets		126,354			114,546

Property and equipment, net		491,475			485,972

Other assets:
Marketable securities		105,545			106,102
Trademarks		2,445			2,327
Prepaid rent		36,894			33,885
Other		16,301			15,885

Total other assets		161,185			158,199

Total assets	$	779,014		$	758,717

LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable	$	22,392		$	32,041
Income taxes payable		11,297			3,411
Other accrued expenses		76,671			74,394

Total current liabilities		110,360			109,846

Deferred income taxes		51,989			51,990
Deferred rent		29,866			28,564
Deemed landlord financing liability		13,755			17,025
Other noncurrent liabilities		8,588			8,440
Commitments and contingencies (Note C)
Stockholders’ equity:
Preferred stock, $.01 par value, 5,000,000 shares authorized; none issued		—			—
Junior participating cumulative preferred stock, $.01 par value, 150,000 shares authorized; none issued		—			—
Common stock, $.01 par value, 150,000,000 shares authorized; 80,047,384 and 79,884,285 issued at March 29, 2005 and December 28, 2004, respectively		800			799
Additional paid-in capital		262,141			258,812
Retained earnings		329,583			310,624
Unrealized loss on available-for-sale securities		(1,582	)		(897	)
Treasury stock, 1,950,967 shares at cost at both March 29, 2005 and December 28, 2004		(26,486	)		(26,486	)

Total stockholders’ equity		564,456			542,852

Total liabilities and stockholders’ equity	$	779,014		$	758,717

The accompanying notes are an integral part of these consolidated financial statements.

THE CHEESECAKE FACTORY INCORPORATED AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(In Thousands, Except Net Income Per Share Data)
(Unaudited)

	Thirteen Weeks Ended March 29, 2005		Thirteen Weeks Ended March 30, 2004

				(restated)
Revenues	$	268,224	$	220,534
Costs and expenses:
Cost of sales		68,918		57,066
Labor expenses		83,019		69,038
Other operating costs and expenses		61,947		49,805
General and administrative expenses		11,609		9,770
Depreciation and amortization expenses		10,193		8,326
Preopening costs		4,393		2,061

Total costs and expenses		240,079		196,066

Income from operations		28,145		24,468
Interest income, net		796		518
Other income, net		137		581

Income before income taxes		29,078		25,567
Income tax provision		10,119		8,974

Net income	$	18,959	$	16,593

Net income per share:
Basic	$	0.24	$	0.22

Diluted	$	0.24	$	0.21

Weighted average shares outstanding:
Basic		78,006		77,094
Diluted		79,925		79,284

The accompanying notes are an integral part of these consolidated financial statements.

THE CHEESECAKE FACTORY INCORPORATED AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
(In Thousands)
(Unaudited)

	Common Stock		Additional Paid-in Capital		Retained Earnings		Unrealized Loss on Available-for-Sale Securities			Treasury Stock			Total

Balance, December 28, 2004	$	799	$	258,812	$	310,624	$	(897	)	$	(26,486	)	$	542,852
Comprehensive income:
Net income		—		—		18,959		—			—
Net unrealized loss		—		—		—		(685	)		—
Total comprehensive income														18,274
Issuance of common stock pursuant to stock option plan		1		1,959		—		—			—			1,960
Tax benefit related to stock options exercised		—		1,370		—		—			—			1,370

Balance, March 29, 2005	$	800	$	262,141	$	329,583	$	(1,582	)	$	(26,486	)	$	564,456

The accompanying notes are an integral part of these consolidated financial statements.

THE CHEESECAKE FACTORY INCORPORATED AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)

	Thirteen Weeks Ended March 29, 2005			Thirteen Weeks Ended March 30, 2004

				(restated)
Cash flows from operating activities:
Net income	$	18,959		$	16,593
Adjustments to reconcile net income to cash provided by operating activities:
Depreciation and amortization expenses		10,193			8,326
(Gain)/loss on sale of available-for-sale securities		7			(271	)
Deferred income taxes		23			(114	)
Tax benefit related to stock options exercised		1,370			8,966
Changes in assets and liabilities:
Accounts receivable		1,957			661
Other receivables		2,483			296
Inventories		(3,744	)		(1,632	)
Prepaid expenses		(636	)		2,987
Other		(3,587	)		(738	)
Accounts payable		(9,649	)		(12,636	)
Income taxes payable		7,886			—
Other accrued expenses		3,696			4,321

Cash provided by operating activities		28,958			26,759

Cash flows from investing activities:
Additions to property and equipment		(21,139	)		(19,364	)
Investments in available-for-sale securities		(15,388	)		(36,140	)
Sales of available-for-sale securities		7,619			64,551

Cash provided by/(used in) investing activities		(28,908	)		9,047

Cash flows from financing activities:
Deemed landlord financing proceeds		2,250			2,219
Proceeds from exercise of employee stock options		1,960			10,925
Purchase of treasury stock		—			(476	)

Cash provided by financing activities		4,210			12,668

Net change in cash and cash equivalents		4,260			48,474
Cash and cash equivalents at beginning of period		14,041			15,167

Cash and cash equivalents at end of period	$	18,301		$	63,641

Supplemental disclosures:
Interest paid	$	169		$	102

Income taxes paid	$	694		$	33

The accompanying notes are an integral part of these consolidated financial statements.

THE CHEESECAKE FACTORY INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

NOTE A – BASIS OF PRESENTATION

The accompanying consolidated financial statements include the accounts of The Cheesecake Factory Incorporated (referred to herein as the “Company” or in the first person notations “we”, “us” and “our”) and its wholly owned subsidiaries prepared in accordance with generally accepted accounting principles and with the instructions to Form 10-Q and Article 10 of Regulation S-X. The financial statements presented herein have not been audited by an independent registered public accounting firm, but include all material adjustments (consisting of normal recurring adjustments) which are, in the opinion of management, necessary for a fair statement of the financial condition, results of operations and cash flows for the period. However, these results are not necessarily indicative of results for any other interim period or for the full fiscal year. The consolidated balance sheet data presented herein for December 28, 2004 was derived from our audited consolidated financial statements for the fiscal year then ended, but does not include all disclosures required by generally accepted accounting principles. The preparation of financial statements in accordance with generally accepted accounting principles requires us to make certain 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. Actual amounts could differ from these estimates.

Certain information and footnote disclosures normally included in financial statements in accordance with generally accepted accounting principles have been omitted pursuant to the rules of the Securities and Exchange Commission. The accompanying consolidated financial statements should be read in conjunction with the consolidated financial statements and notes thereto included in our Form 10-K/A for the fiscal year ended December 28, 2004.

Reclassifications:

Certain reclassifications have been made to prior year amounts to conform to the current year presentation.

Restatement of Previously Issued Consolidated Financial Statements:

The fiscal 2004 amounts presented in this Form 10-Q have been restated to correct our historical accounting for operating leases and the treatment of leasehold improvements and landlord construction allowances related to these operating leases.

We began a review of our lease accounting policies following announcements in December 2004 that several restaurant companies were revising their accounting practices for leases. In February 2005, the Chief Accountant of the Securities and Exchange Commission (“SEC”) issued a letter to the American Institute of Certified Public Accountants expressing the SEC staff’s views relating to certain lease accounting issues. As a result of our review, we changed our accounting for leases in 2004 and restated our historical financial statements and certain financial information for prior periods to correct errors in our lease accounting policies. The restatement adjustments are non-cash and had no impact on revenues or net cash flows. The changes to our lease accounting policies fall into several different categories.

Contingent Rent

We lease all of our restaurant locations under operating lease agreements with terms of approximately 15 to 20 years. Most of these agreements require us to pay contractual annual rent (“minimum base rent”) plus contingent rent based on a percentage of restaurant sales to the extent this amount exceeds the minimum base rent. The lease agreements also generally include scheduled increases in the minimum base rent.

In prior periods, we recorded rent expense for the greater of the minimum base rent, as adjusted for scheduled increases over the lease term, or the contingent rent based on a percentage of sales. As our restaurants have consistently operated at very high volumes, contingent rent was historically in excess of such minimum base rent. Consequently, with respect to leases requiring contingent rent payment, our accounting for rent expense reflected the contingent rent amount. We have determined that in accordance with Statement of Financial Accounting Standards (“SFAS”) No. 29, “Determining Contingent Rentals,” we should have recorded the straight-lined minimum base rent over the lease term plus contingent rent to the extent it exceeded minimum base rent per the lease agreement. Total rent expense over the term of the lease will not change as a result of this correction in accounting treatment. Based on our experience of consistently achieving sales requiring the payment of contingent rent, this adjustment will increase rent expense in the first half of the lease term and likewise decrease rent expense in the second half of the lease term.

THE CHEESECAKE FACTORY INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)

Rent Holiday

Historically, we began the recognition of rent expense with the stated rent commencement date (generally the date we open to the public) according to the lease. We have determined that in accordance with SFAS No. 13, “Accounting for Leases,” we should have included the rent holiday period, which is defined as the date from when we began our tenant improvements to the property until the stated rent commencement date per the lease, as part of the lease term for purposes of straight-lining minimum base rent. Of the rent allocated to the rent holiday period, the portion incurred during the tenant improvement construction phase can be capitalized. Once construction is complete and the building is ready for its intended use, rent for the remainder of the holiday period should be expensed.

Landlord Contributions

We often receive landlord contributions of monies to offset the costs of constructing structural components for the leased space. These monies can be direct cash reimbursements or offsets to minimum or percentage rent payments over the term of the lease. Historically, we have netted these reimbursements against the cost incurred by the Company for the structural components and depreciated the net amount over the lease term. In accordance with SFAS No. 13, “Accounting for Leases,” Emerging Issues Task Force (“EITF”) No. 97-10, “The Effect of Lessee Involvement in Asset Construction” and SFAS No. 98, “Accounting for Leases: Sale-Leaseback Transactions Involving Real Estate, Sales-Type Leases of Real Estate, Definition of the Lease Term, and Initial Direct Costs of Direct Financing Leases,” we should have accounted for each operating lease based on the following criteria:

	•	Landlord contributions received in the form of offsets to percentage rent should be recorded as a reduction to rent expense in the period earned.

	•	In those cases where we did not meet the criteria of EITF 97-10 for being deemed the owner of the structural components of the building during the construction period, we should have recorded the amounts incurred for those structural components as increases to prepaid rent and the associated landlord contributions earned as deductions to prepaid rent. Upon completion of construction, the net balance should have been amortized over the term of the lease as an increase or decrease to rent expense.

	•	In those cases where we did meet the criteria of EITF 97-10 for being deemed the owner of the structural components of the building, we should have been considered the owner of those structural components during the construction period and we should have recorded amounts paid for these components as construction-in-progress and the associated landlord construction contributions as a deemed landlord financing liability. Upon completion of construction, for those leases that qualified for sale-leaseback treatment in accordance with SFAS No. 98, we should have removed the deemed landlord financing liability and the associated construction-in-progress and the difference should have been reclassified to prepaid or deferred rent and amortized over the lease term as an increase or decrease to rent expense. For those leases that did not qualify for sale-leaseback treatment in accordance with SFAS No. 98, we should have amortized the deemed landlord financing liability over the lease term based on the rent payments designated in the lease agreement.

We did not amend our previously filed Quarterly Reports on Form 10-Q for the restatement since none of the differences in the prior years’ financial statements are considered by management to be material.

THE CHEESECAKE FACTORY INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)

The following table reflects the effect of the restatement on the Consolidated Statements of Operations (in thousands, except per share data):

	Thirteen Weeks Ended March 30, 2004		Thirteen Weeks Ended March 30, 2004

	(as previously reported)			(restated)
Selected Statement of Operations Data:
Other operating costs and expenses	$	49,990	$	49,805
Depreciation and amortization expenses		8,187		8,326
Preopening costs		2,021		2,061
Total costs and expenses		196,072		196,066
Income from operations		24,462		24,468
Interest income, net		620		518
Income before income taxes		25,663		25,567
Income tax provision		9,008		8,974
Net income	$	16,655	$	16,593
Net income per share:
Basic	$	0.22	$	0.22
Diluted	$	0.21	$	0.21

The following table reflects the effect of the restatement on the Consolidated Statements of Cash Flows (in thousands):

	Thirteen Weeks Ended March 30, 2004			Thirteen Weeks Ended March 30, 2004

	(as previously reported)			(restated)
Selected Cash Flow Data:
Net income	$	16,655		$	16,593
Depreciation and amortization		8,187			8,326
Deferred income taxes		(81	)		(114	)
Other receivables		1,031			296
Prepaid expenses		3,001			2,987
Other		(867	)		(738	)
Other accrued expenses		2,430			4,321
Cash provided by operating activities		25,403			26,759
Additions to property and equipment		(15,789	)		(19,364	)
Cash provided by investing activities		12,622			9,047
Deemed landlord financing liability		—			2,219
Cash provided by financing activities	$	10,449		$	12,668

THE CHEESECAKE FACTORY INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)

NOTE B – INVESTMENTS AND MARKETABLE SECURITIES

Investments and marketable securities, all classified as available-for-sale, consisted of the following as of March 29, 2005 (in thousands):

Classification	Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value		Maturity

Current assets:
Available-for-sale securities:
Corporate debt securities	$	28,914	$	1	$	(177	)	$	28,738		April 2005 to March 2006
U.S. Treasury securities		9,915		—		(35	)		9,880		April 2005 to October 2005

Total	$	38,829	$	1	$	(212	)	$	38,618

Other assets:
Available-for-sale securities:
Corporate debt securities	$	49,022	$	7	$	(669	)	$	48,360		March 2006 to August 2009
U.S. Treasury securities		58,738		—		(1,553	)		57,185		April 2006 to January 2010

Total	$	107,760	$	7	$	(2,222	)	$	105,545

NOTE C – INVENTORIES

Inventories consisted of (in thousands):

	March 29, 2005		December 28, 2004

Restaurant smallware	$	11,744	$	11,163
Restaurant food and supplies		8,393		8,007
Bakery finished goods		3,667		1,225
Bakery raw materials		2,467		2,132

Total	$	26,271	$	22,527

NOTE D – STOCK-BASED EMPLOYEE COMPENSATION

We maintain performance incentive plans under which incentive stock options, non-qualified stock options, stock appreciation rights, restricted shares, deferred shares, performance shares and performance units may be granted to employees, consultants and non-employee directors. We account for stock-based compensation using the intrinsic value method prescribed in Accounting Principles Board (“APB”) Opinion No. 25, “Accounting for Stock Issued to Employees,” and related interpretations. Our policy is to grant all stock options at the fair market value of the underlying stock at the date of grant. Accordingly, we do not recognize compensation expense for company-issued stock options in our financial statements.

THE CHEESECAKE FACTORY INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)

The Company has determined pro forma amounts as if the fair value method required by SFAS No. 123, “Accounting for Stock-Based Compensation” had been applied to its stock-based compensation. The pro forma effect on net income as if the fair value of stock-based compensation had been recognized as compensation expense on a straight-line basis over the vesting period of the stock option was as follows for the thirteen-week periods ended March 29, 2005 and March 30, 2004 (in thousands, except net income per share):

	Thirteen Weeks Ended March 29, 2005			Thirteen Weeks Ended March 30, 2004

				(restated)
Net income, as reported	$	18,959		$	16,593
Total stock-based employee compensation expense determined under the fair value method for all awards, net of related tax effects		(2,751	)		(2,549	)

Net income, pro forma	$	16,208		$	14,044

Basic net income per share, as reported	$	0.24		$	0.22
Basic net income per share, pro forma	$	0.21		$	0.18
Diluted net income per share, as reported	$	0.24		$	0.21
Diluted net income per share, pro forma	$	0.20		$	0.18

For stock options issued during the first quarter of fiscal 2005, the Company employed the binomial lattice pricing model to determine the fair value of options at the date of grant using the following weighted average assumptions: (a) no dividend yield on our stock, (b) expected volatility of our stock of 37.4%, (c) risk-free interest rates ranging from 2.81% to 4.36%, (d) a termination rate of 0.6%, and (e) an exercise multiple of 1.35. The weighted average fair value at date of grant for options issued in the first quarter of fiscal 2005 was $12.57.

NOTE E – STOCK SPLIT

We effected a three-for-two stock split in the form of a 50% stock dividend on December 8, 2004. In connection with this stock split, $266,000 was transferred to common stock from retained earnings and $83,000 was paid to stockholders for fractional shares. All references in the Consolidated Financial Statements to shares of common stock, weighted average number of shares, per share amounts and stock option plan data have been adjusted to reflect the stock split.

NOTE F – NET INCOME PER SHARE

In accordance with the provisions of SFAS No. 128, “Earnings Per Share”, basic net income per share is computed by dividing net income available to common stockholders by the weighted average number of common shares outstanding during the period. Diluted net income per share includes the dilutive effect of potential stock option exercises, calculated using the treasury stock method. Outstanding stock options issued by the Company represent the only dilutive effect reflected in diluted weighted average shares outstanding. Options do not impact the numerator of the diluted net income per share computation.

NOTE G – COMPREHENSIVE INCOME

Comprehensive income consisted of (in thousands):

	Thirteen Weeks Ended March 29, 2005			Thirteen Weeks Ended March 30, 2004

				(restated)
Net income	$	18,959		$	16,593
Net unrealized gain (loss) on available-for-sale securities		(685	)		346

Total comprehensive income	$	18,274		$	16,939

THE CHEESECAKE FACTORY INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)

NOTE H – COMMITMENTS AND CONTINGENCIES

In December 2002, two former hourly restaurant employees in California filed a lawsuit in the Superior Court in Orange County, California against the Company alleging violations of California labor laws with respect to providing meal and rest breaks. In October 2003, an hourly restaurant employee in California filed a lawsuit in Superior Court in Orange County, California against the Company alleging violations of California labor laws with respect to the providing of meal and rest breaks and improper deductions, among other claims. In May 2004, an hourly restaurant employee filed a lawsuit alleging similar violations in Superior Court in Los Angeles County, California. These cases were filed on behalf of the named plaintiffs and other purported class members. The parties have completed settlement negotiations, and the designated plaintiffs in all three cases and their attorneys have e xecuted a settlement agreement with the Company. Approval of such settlement will be sought from the Superior Court. A number of former and current employees also filed individual wage and hour claims, based upon alleged similar violations, directly with various offices of the California Division of Labor Standards Enforcement (DLSE). Hearings on most of these claims are currently being deferred by the various offices of the DLSE pending approval of the litigation settlement by the Superior Court. The DLSE claims filed by employees who joined the approved settlement will also be resolved by such settlement. In the third quarter of 2004, the Company recorded a $4.5 million reserve based on an estimate of the ultimate costs, expenses and fees that may be incurred in connection with these matters. Revisions to this estimate may be made in the future and will be reported in the periods in which additional information is known.

The Company is subject to various legal proceedings that are discussed in the Company’s Annual Report on Form 10-K/A for the fiscal year ended December 28, 2004.

NOTE I – SEGMENT INFORMATION

The Company operates in two business segments. Restaurants include both The Cheesecake Factory and Grand Lux Cafe, which have similar investment criteria and economic and operating characteristics. The bakery segment produces baked desserts and other products for our restaurants and for other foodservice operators, retailers and distributors. Bakery sales to the restaurants are recorded at prices similar to third-party national accounts. Unallocated corporate expenses are presented below as reconciling items to the amounts presented in the consolidated financial statements. Segment information is presented below in thousands:

	Thirteen Weeks Ended March 29, 2005			Thirteen Weeks Ended March 30, 2004

				(restated)
Revenue:
Restaurants	$	254,790		$	211,216
Bakery		22,324			16,485
Intercompany bakery sales		(8,890	)		(7,167	)

	$	268,224		$	220,534

Income from operations:
Restaurants	$	35,861		$	31,852
Bakery		3,882			2,079
Corporate		(11,598	)		(9,463	)

	$	28,145		$	24,468

Depreciation and amortization:
Restaurants	$	9,019		$	7,505
Bakery		435			363
Corporate		739			458

	$	10,193		$	8,326

THE CHEESECAKE FACTORY INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)

NOTE J – RECENT ACCOUNTING PRONOUNCEMENTS

In November 2004, the FASB issued Statement of Financial Accounting Standards (“SFAS”) No. 151, “Inventory Costs – an amendment of ARB No. 43, Chapter 4.” SFAS No. 151 clarifies that abnormal amounts of idle facility expense, freight, handling costs, and wasted materials (spoilage) should be recognized as current-period charges and requires the allocation of fixed production overheads to inventory based on the normal capacity of the production facilities. SFAS No. 151 is effective for fiscal years beginning after June 15, 2005. The Company does not expect the adoption of SFAS No. 151 to have a significant impact on its consolidated financial position or results of operations.

In December 2004, the FASB issued SFAS No. 123 (revised 2004), “Share-Based Payment” (“SFAS 123R”), which replaces SFAS No. 123, “Accounting for Stock-Based Compensation,” (“SFAS 123”) and supercedes APB Opinion No. 25, “Accounting for Stock Issued to Employees.” SFAS 123R requires all share-based payments to employees, including grants of employee stock options, to be recognized in the financial statements based on their fair value. The pro forma disclosures previously permitted under SFAS 123 will no longer be an alternative to financial statement recognition. The Company is required to adopt SFAS 123R in the first quarter of fiscal 2006. Under SFAS 123R, the Company must determine the appropriate fair value model to be used for valuing share-based payments, the amortization method for compensation cost and the transition method to be used at the date of adoption. The transition methods include prospective and retroactive adoption options. The prospective method requires that compensation expense be recorded for all unvested stock options at the beginning of the first quarter of adoption of SFAS 123R, while the retroactive method would restate prior periods to record compensation expense for all unvested stock options beginning with the first period restated. The Company is evaluating the requirements of SFAS 123R and expects that the adoption of SFAS 123R will have a material impact on our consolidated results of operations and earnings per share. The Company has not yet determined the method of adoption or the effect of adopting SFAS 123R, and it has not determined whether the adoption will result in amounts that are similar to the current pro forma disclosures under SFAS 123.

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

General

The following discussion should be read in conjunction with our interim unaudited consolidated financial statements and notes thereto included in this Form 10-Q and the audited consolidated financial statements and notes thereto included in our Form 10-K/A for the fiscal year ended December 28, 2004. The inclusion of supplementary analytical and related information herein may require us to make appropriate estimates and assumptions to enable us to fairly present, in all material respects, our analysis of trends and expectations with respect to our results of operations and financial position taken as a whole.

The fiscal 2004 amounts included in this discussion have been restated to correct our historical accounting for operating leases and the treatment of leasehold improvements and landlord construction allowances related to these operating leases. See Note A of the Notes to Consolidated Financial Statements in Item 1 of this Form 10-Q.

As of May 6, 2005, we operated 92 upscale, high-volume, casual dining restaurants under The Cheesecake Factory® mark. We also operated five upscale casual dining restaurants under the Grand Lux Cafe® mark; one self-service, limited menu “express” foodservice operation under The Cheesecake Factory Express® mark inside the DisneyQuest® family entertainment center in Orlando, Florida; and a bakery production facility. We also licensed two limited menu bakery cafes under The Cheesecake Factory Bakery Cafe® mark to another foodservice operator.

Our revenues consist of sales from our restaurant operations and sales from our bakery operations to other foodservice operators, retailers and distributors. Revenue from restaurant sales is recognized when payment is tendered at the point of sale. Revenue from our gift cards (also known as stored value cards) is recognized upon redemption in our restaurants. Until the redemption of gift cards occurs, all outstanding balances on such cards are included as a liability in our consolidated balance sheets. Revenue from bakery sales to other foodservice operators, retailers and distributors is recognized when the products are shipped.

New restaurants become eligible to enter our comparable sales comparison in their nineteenth month of operation. We utilize a 52/53 week fiscal year ending on the Tuesday closest to December 31 for financial reporting purposes. Fiscal 2004 consisted of 52 weeks. Fiscal 2005 will consist of 53 weeks and will end on January 3, 2006.

Results of Operations

The following table sets forth, for the periods indicated, our consolidated statements of operations expressed as percentages of total revenues. The results of operations for the interim periods presented are not necessarily indicative of the results to be expected for the full fiscal year.

	Thirteen Weeks Ended March 29, 2005			Thirteen Weeks Ended March 30, 2004

				(restated)
Revenues		100.0	%		100.0	%

Costs and expenses:
Cost of sales		25.7			25.9
Labor expenses		31.0			31.3
Other operating costs and expenses		23.1			22.6
General and administrative expenses		4.3			4.4
Depreciation and amortization expenses		3.8			3.8
Preopening costs		1.6			0.9

Total costs and expenses		89.5			88.9

Income from operations		10.5			11.1
Interest income, net		0.3			0.2
Other income, net		0.1			0.3

Income before income taxes		10.9			11.6
Income tax provision		3.8			4.1

Net income		7.1	%		7.5	%

Thirteen Weeks Ended March 29, 2005 Compared to Thirteen Weeks Ended March 30, 2004

Revenues

For the thirteen weeks ended March 29, 2005, the Company’s total revenues increased 22% to $268.2 million compared to $220.5 million for the thirteen weeks ended March 30, 2004. Restaurant sales increased 21% to $254.8 million compared to $211.2 million for the same period of the prior year. The $43.6 million increase in restaurant sales consisted of a $37.5 million increase from the openings of new restaurants and a $6.1 million, or approximate 3.4%, increase in comparable restaurant sales. Sales in comparable restaurants benefited from an approximate 1% effective menu price increase implemented in Cheesecake Factory restaurants during January and February 2005 and an approximate 1% effective menu price increase implemented at Cheesecake Factory restaurants during July and August 2004. Since most of our established restaurants currently operate close to full capacity during the peak demand periods of lunch and dinner, we generally do not expect to achieve increases in comparable restaurant sales other than our effective menu price increases. Comparable sales for the first quarter of fiscal 2005 were slightly higher than our menu price increases due primarily to increased guest traffic associated with the Easter holiday falling in the first quarter of 2005 versus the second quarter of 2004. As a result of the openings of new restaurants during the past twelve months, total restaurant operating weeks increased 20% to 1,218 for the thirteen weeks ended March 29, 2005. Average sales per restaurant operating week increased 1% to $209,200 compared to $207,900 for the same period last year.

The percentage increase in comparable restaurant sales for the thirteen weeks ended March 29, 2005 slightly exceeded the percentage increase in average weekly sales for the same period due principally to the weekly sales volumes at several newer restaurants that are gradually decreasing, as expected, from their initial grand opening or “honeymoon” sales levels to their sustainable and expected run-rate levels. It is common in the restaurant industry for new locations to open with sales volumes well in excess of their sustainable run-rate levels due to grand opening promotional and consumer awareness activities that generate abnormally high customer traffic for a period of several months.

We currently expect to open as many as 18 new restaurants during fiscal 2005, consisting of approximately 16 Cheesecake Factory restaurants and as many as two Grand Lux Cafes. Five new Cheesecake Factory restaurants were opened during the first quarter of fiscal 2005. We currently expect to open as many as one, three and nine new restaurants during the second, third and fourth quarters of fiscal 2005, respectively. However, due to the nature of the leased spaces that we select for our upscale restaurants and their highly customized layouts, it is difficult to predict, by quarter, the exact timing of our restaurant openings. As a result, it is not uncommon to have planned openings move due to various factors outside of our control.

Bakery sales to other foodservice operators, retailers and distributors increased 44% to $13.4 million for the thirteen weeks ended March 29, 2005 compared to $9.3 million for the same period of the prior year. This increase primarily represents a continuation of the strong sales in the warehouse club channel, which began in the fourth quarter of fiscal 2004, and increased sales of The Dream Factory product line. Sales to warehouse clubs comprised approximately 64% of total bakery sales in the current period compared to approximately 58% for the same period of the prior year.

We strive to develop and maintain long-term, growing relationships with our bakery customers, based largely on our 32-year reputation for producing high quality, creative baked desserts. However, bakery sales volumes will always be less predictable than our restaurant sales. It is difficult to predict the timing of bakery product shipments and contribution margins on a quarterly basis. Additionally, the purchasing plans of our large-account customers may fluctuate from quarter to quarter. Due to the highly competitive nature of the bakery business, we are unable to enter into long-term contracts with our large-account bakery customers, who may discontinue purchasing our products without advance notice at any time for any reason.

Cost of Sales

During the thirteen weeks ended March 29, 2005, cost of sales increased 21% to $68.9 million compared to $57.1 million for the comparable period last year. The related increase of $11.8 million was primarily attributable to new restaurant openings and the increase in bakery sales over the first quarter of fiscal 2004. As a percentage of sales, these costs decreased to 25.7% versus 25.9% for the same period of the prior year.

The menu at our restaurants is one of the most diversified in the foodservice industry and, accordingly, is not overly dependent on a single commodity. Changes in costs for one commodity are often, but not always, counterbalanced by cost changes in other commodity categories. The principal commodity categories for our restaurants include fresh produce, poultry, meat, fish and seafood, cheese, other fresh dairy products, bread and general grocery items. Compared to the same period of the prior year, we experienced lower costs in most of these commodity categories during the first quarter of fiscal 2005.

We are currently able to contract for the majority of the food commodities used in our operations for periods up to one year. With the exception of cream cheese used in our bakery operations, many of the fresh commodities, such as fish, dairy, and certain produce and poultry products are not currently contractible for periods longer than 30 days in most cases. As a result, these fresh commodities can be subject to unforeseen supply and cost fluctuations due principally to weather and other general agricultural conditions. During the first quarter of fiscal 2005, we executed agreements for substantially all of our bakery operation’s cream cheese requirements for the first five months of fiscal 2005 at a fixed cost per pound that is slightly higher than the actual cost per pound in fiscal 2004. We plan to contract the remainder of our cream cheese requirements for fiscal 2005 as appropriate based on market conditions and prices. We will also purchase cream cheese on the spot market as necessary to supplement our agreements.

We currently expect cost of sales as a percentage of revenues for fiscal 2005 to be less than fiscal 2004. Based on contracts we have in place and current and expected market conditions, we expect generally flat costs for the majority of our commodities, including produce, meat, seafood and general grocery items. We also expect slightly lower costs for our poultry and dairy commodities and higher costs for our cream cheese and fresh fish commodities.

As has been our past practice, we will carefully consider opportunities to introduce new menu items and implement selected menu price increases to help offset expected cost increases for key commodities and other goods and services utilized by our operations. While we have been successful in the past in reacting to inflation and other changes in the costs of key operating resources by gradually increasing prices for our menu items, coupled with more efficient purchasing practices, productivity improvements and greater economies of scale, there can be no assurance that we will be able to continue to do so in the future.

While we have taken steps to qualify multiple suppliers and enter into agreements for some of the key commodities used in our operations, there can be no assurance that future supplies and costs for commodities used in our operations will not fluctuate due to weather and other market conditions outside of our control. For new restaurants, cost of sales will typically be higher than normal during the first 90 to 120 days of operations until our management team at each new restaurant becomes more accustomed to optimally predicting, managing and servicing the high sales volumes typically experienced by our restaurants.

Labor Expenses

Labor expenses, which include restaurant-level labor costs and bakery direct production labor costs (including associated fringe benefits), increased 20% to $83.0 million for the thirteen weeks ended March 29, 2005 compared to $69.0 million for the same period of the prior year. This increase was principally due to the impact of new restaurant openings. As a percentage of total revenues, labor expenses decreased to 31.0% versus 31.3% for the comparable period last year. This percentage decrease was primarily due to the leveraging of the fixed portion of our labor costs with the 22% increase in revenues.

Other Operating Costs and Expenses

Other operating costs and expenses consist of restaurant-level occupancy expenses (rent, insurance, licenses, taxes and utilities), other operating expenses (excluding food costs and labor expenses reported separately) and bakery production overhead, selling and distribution expenses. Other operating costs and expenses increased 24% to $61.9 million for the thirteen weeks ended March 29, 2005 compared to $49.8 million for the same period of the prior year. This increase was principally attributable to new restaurant openings. As a percentage of total revenues, other operating costs and expenses increased to 23.1% for the thirteen weeks ended March 29, 2005 versus 22.6% for the same period of fiscal 2004. This 0.5% increase was primarily attributable to increased costs for our electric and natural gas services to our restaurants of approximately 20 basis points of revenues and increased rent expense for our restaurant locations based on the amount and timing of construction allowances earned as reductions to percentage rent. We currently expect the increased costs of our natural gas and electric services to continue throughout fiscal 2005.

General and Administrative Expenses

General and administrative (“G&A”) expenses consist of the restaurant management recruiting and training program, the restaurant field supervision organization, the bakery administrative organization and the corporate support organization. G&A expenses increased 18% to $11.6 million for the thirteen weeks ended March 29, 2005 compared to $9.8 million for the same period of fiscal 2004. As a percentage of total revenues, G&A expenses decreased to 4.3% for the thirteen weeks ended March 29, 2005 versus 4.4% for the same period of fiscal 2004. This decrease was principally attributable to the leveraging of the fixed component of these costs with the 22% increase in revenues.

During the remainder of fiscal 2005, we plan to continue to add resources to the corporate support and field supervision activities of our operations. Commensurate with the planned openings of as many as 18 new restaurants during fiscal 2005, we expect that our absolute G&A expenses per quarter will also reflect the ramp-up of restaurant management recruiting and training activities. Accordingly, we expect absolute G&A expense to progressively increase from quarter to quarter during the remainder of fiscal 2005.

Depreciation and Amortization Expenses

Depreciation and amortization expenses were $10.2 million for the thirteen weeks ended March 29, 2005 compared to $8.3 million for the thirteen weeks ended March 30, 2004. This increase was principally due to increases in property and equipment associated with new restaurant openings. As a percentage of total revenues, depreciation and amortization expenses were 3.8% for both the thirteen weeks ended March 29, 2005 and March 30, 2004.

Preopening Costs

Incurred preopening costs were $4.4 million for the thirteen weeks ended March 29, 2005 compared to $2.1 million for the same period of the prior year. We opened five Cheesecake Factory restaurants during the thirteen weeks ended March 29, 2005 compared to two Cheesecake Factory restaurant openings for the same quarter last year. In addition, preopening costs were incurred in both periods for restaurant openings in progress.

Our direct preopening costs for an 11,000 square foot, single-story restaurant in an established Company market averages approximately $775,000. There will also be other preopening costs associated with each restaurant opening, including costs for corporate travel and support activities. Preopening costs will usually be higher for larger restaurants, our initial entry into new markets and for new concepts such as Grand Lux Cafe. We usually incur the most significant portion of preopening costs for a typical restaurant opening within the two-month period immediately preceding and the month of the restaurant’s opening. Preopening costs will fluctuate from period to period, based on the number and timing of restaurant openings and the specific preopening costs incurred for each restaurant, and the fluctuations could be significant. We expense preopening costs as incurred.

We also expect to incur preopening costs of approximately $1.0 million in fiscal 2005 in connection with our planned opening of a second bakery production facility. Based on our planned openings of this bakery production facility and as many as thirteen new restaurants during the remaining three quarters of the year (including as many as two Grand Lux Cafes), preopening costs will be higher during the remainder of fiscal 2005 compared to the prior year. However, due to the nature of the leased spaces that we select for our upscale restaurants and their highly customized layouts, it is difficult to predict, by quarter, the exact timing of our restaurant openings. As a result, it is not uncommon to have planned openings and the associated preopening costs move due to various factors outside of our control.

Income Tax Provision

Our effective income tax rate was 34.8% for the thirteen weeks ended March 29, 2005 compared with 35.1% for the comparable prior year period. We currently estimate our effective tax rate to remain at 34.8% for the rest of fiscal 2005. However, the actual effective tax rate for fiscal 2005 may be different than our current estimate due to actual revenues, pretax income and tax credits achieved during the year.

Liquidity and Capital Resources

The following tables set forth a summary of the Company’s key liquidity measurements (dollar amounts in millions):

	March 29, 2005		December 28, 2004

Cash and marketable securities on hand	$	162.5	$	151.5
Net working capital	$	16.0	$	4.7
Adjusted net working capital (1)	$	121.5	$	110.8
Current ratio		1.1:1		1.0:1
Adjusted current ratio (1)		2.1:1		2.0:1
Long-term debt (2)	$	13.8	$	17.0


	(1)	Includes all marketable securities classified as either current assets ($38.6 million and $31.4 million at March 29, 2005 and December 28, 2004, respectively) or noncurrent assets ($105.5 million and $106.1 million at March 29, 2005 and December 28, 2004, respectively).
	(2)	Represents deemed landlord financing liability.

	Thirteen Weeks Ended March 29, 2005		Thirteen Weeks Ended March 30, 2004

			(restated)
Cash provided by operating activities	$	29.0	$	26.8
Capital expenditures	$	21.1	$	19.4

During the thirteen weeks ended March 29, 2005, our cash and marketable securities on hand increased by $11.0 million to $162.5 million from the December 28, 2004 balance. This increase was primarily attributable to cash provided by operating activities, partially offset by purchases of property and equipment. In the table above, we also present adjusted net working capital and current ratio calculations that include all marketable securities classified as either current or noncurrent assets. We believe these adjusted calculations provide investors with useful information regarding our overall liquidity position because all marketable securities are readily available to meet our liquidity requirements. We continue to target a weighted average maturity for our marketable securities investment portfolio between one and two years. Accordingly, a substantial portion of our investments is classified as noncurrent assets, but remains available for our liquidity requirements.

We have no funded debt in our capital structure. However, landlord construction allowances related to restaurant locations for which we are deemed, for accounting purposes only, to have an ownership interest are reflected in our balance sheets as deemed landlord financing. This liability is amortized over the lease term based on the rent payments designated in the lease agreement.

We maintain a $35 million revolving credit and term loan facility (the “Credit Facility”), which expires on December 31, 2006. As of May 6, 2005, there were no borrowings outstanding under the Credit Facility. $17.7 million of the Credit Facility has been reserved to support standby letters of credit for our self-insurance programs. Borrowings under the Credit Facility will bear interest at variable rates based, at our option, on either the prime rate of interest, the lending institution’s cost of funds plus 0.75%, or the applicable LIBOR rate plus 0.75%. Upon expiration of the Credit Facility, a maximum of $35 million of any borrowings outstanding under the Credit Facility automatically convert into a four-year term loan, payable in equal quarterly installments at interest rates of 0.5% higher than the applicable revolving credit rates. The Credit Facility is not collateralized and requires us to maintain certain financial ratios and to observe certain restrictive covenants with respect to the conduct of our operations, with which we are currently in compliance.

Our new restaurant development model more closely resembles that of a retail business that occupies leased space in shopping malls, office complexes, strip centers, entertainment centers and other real estate developments. We typically seek to lease our restaurant locations for primary periods of 15 to 20 years under operating lease arrangements. Our rent structures vary from lease to lease, but generally provide for the payment of both minimum and contingent (percentage) rent based on sales, as well as other expenses related to the leases (for example our share of common area maintenance, property tax and insurance expenses). We disburse cash for leasehold improvements and furnishings, fixtures and equipment to build out our leased premises. We may also disburse cash for structural additions that we make to leased premises that generally are reimbursed to us by our landlords as construction contributions pursuant to agreed-upon terms in the respective leases. If obtained, landlord construction contributions usually take the form of up-front cash, full or partial credits against minimum or percentage rents otherwise payable by us, or a combination thereof. In the future, we may also develop more freestanding restaurant locations using both ground leases and built-to-suit leases, which are common arrangements used to finance freestanding locations in the restaurant industry. We do not have any current plans to encumber our existing leasehold interests with secured financing. We own substantially all of the equipment, furniture and trade fixtures in our restaurants and currently plan to do so in the future.

For fiscal 2005, we currently estimate our cash outlays for capital expenditures to range between $158 million and $166 million, net of agreed-upon up-front cash landlord construction contributions, and excluding $18-$19 million of expected noncapitalizable preopening costs for both new restaurants and a second bakery production facility. This amount also excludes approximately $6 million of landlord construction contributions to be paid as reductions to minimum or percentage rent over the term of the lease. The amount reflected as additions to property and equipment in the Consolidated Statements of Cash Flows may vary from this estimate based on the accounting treatment of each operating lease. This estimate contemplates a net outlay of $125-$128 million for as many as 18 new restaurants to be opened during fiscal 2005, estimated construction-in-progress disbursements for anticipated fiscal 2006 openings and estimated collections of up-front cash landlord construction contributions. Expected capital expenditures for fiscal 2005 also include approximately $12-$13 million for maintenance and capacity addition expenditures to our existing restaurants and $7-$8 million for corporate infrastructure investments, including interior build-out of our corporate support and training center. In addition, we expect to spend approximately $1-$2 million for maintenance and enhancements to our existing bakery production facility and approximately $13-$15 million related to establishing a second bakery production facility.

Based on our current expansion objectives, we believe that our cash and short-term investments on hand, combined with expected cash flow provided by operations, available borrowings under our Credit Facility and expected landlord construction contributions should be sufficient in the aggregate to finance our planned capital expenditures and other operating activities through fiscal 2005. We may seek additional funds to finance our growth in the future. However, there can be no assurance that such funds will be available when needed or be available on terms acceptable to us.

During fiscal 2004, our Board of Directors increased the share repurchase authorization to 6,000,000 shares from 2,531,250 shares. Shares may be repurchased in the open market or through privately negotiated transactions at times and prices considered appropriate by us. No shares were repurchased in the first quarter of fiscal 2005, and we have repurchased a total of 1,950,967 shares for a total cost of $26.5 million through March 29, 2005 under this authorization.

Recent Accounting Pronouncements

Under SFAS 123R, the Company must determine the appropriate fair value model to be used for valuing share-based payments, the amortization method for compensation cost and the transition method to be used at the date of adoption. The transition methods include prospective and retroactive adoption options. The prospective method requires that compensation expense be recorded for all unvested stock options at the beginning of the first quarter of adoption of SFAS 123R, while the retroactive method would restate prior periods to record compensation expense for all unvested stock options beginning with the first period restated. The Company is evaluating the requirements of SFAS 123R and expects that the adoption of SFAS 123R will have a material impact on our consolidated results of operations and earnings per share. The Company has not yet determined the method of adoption or the effec t of adopting SFAS 123R, and it has not determined whether the adoption will result in amounts that are similar to the current pro forma disclosures under SFAS 123.

Item 3. Quantitative and Qualitative Disclosures About Market Risk

The following discussion of market risks contains forward-looking statements. Actual results may differ materially from the following discussion based on general conditions in the financial and commodity markets.

We are exposed to market risk from changes in interest rates on funded debt. This exposure relates to our $35 million revolving credit and term loan facility (the “Credit Facility”). There were no borrowings outstanding under the Credit Facility during the first quarter of 2005. Borrowings under the Credit Facility bear interest at variable rates based on either the prime rate of interest, the lending institution’s cost of funds plus 0.75% or LIBOR plus 0.75%. A hypothetical 1% interest rate change would not have any current impact on our results of operations.

A change in market prices also exposes us to market risk related to our investments in marketable securities. As of March 29, 2005, we held $144.2 million in marketable securities. A hypothetical 10% decline in the market value of those securities would result in a $14.4 million unrealized loss and a corresponding decline in their fair value. This hypothetical decline would not affect our cash flows until the securities were disposed of.

We purchase food and other commodities for use in our operations, based upon 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. To manage this risk in part, we attempt to enter into fixed price purchase commitments, with terms typically up to one year, for many of our commodity requirements. However, we are currently unable to contract for many of our fresh commodities such as fish and dairy items (except for cream cheese used in our bakery operations) for periods longer than 30 days. Dairy costs can also fluctuate due to government regulation. We believe that substantially all of our food and supplies are available from several sources, which helps to diversify our overall commodity cost risk. We also believe that we have the ability to increase certain menu prices, or vary certain menu items offered, in response to food commodity price increases. Some of our commodity purchase arrangements may contain contractual features that limit the price paid by establishing certain price floors or caps. The Company does not use financial instruments to hedge commodity prices, since our purchase arrangements with suppliers, to the extent that we can enter into such arrangements, help control the ultimate cost that we pay.

Item 4. Controls and Procedures

Evaluation of Disclosure Controls and Procedures

We have established and maintain disclosure controls and procedures that are designed to ensure that material information relating to the Company and our subsidiaries required to be disclosed by us in the reports that we file or submit under the Securities Exchange Act of 1934 is recorded, processed, summarized, and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure. In designing and evaluating the disclosure controls and procedures, management recognized that any controls and procedures, no matter how well designed and operated, can provide only a reasonable assurance of achieving the desired control objectives, and management was necessarily required to apply its judgment in evaluating the cost-benefit relationship of possible controls and procedures.

We carried out an evaluation under the supervision and with the participation of management, including our Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures as of the end of the period covered by this report. Based on that evaluation, the Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were effective at the reasonable assurance level as of the date of such evaluation.

Changes In Internal Control over Financial Reporting

There have been no changes in our internal control over financial reporting during the quarter ended March 29, 2005 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

Forward-looking Statements and Risk Factors

Certain information included in this Form 10-Q and other materials filed or to be filed by us with the Securities and Exchange Commission (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 expected performance trends, growth plans, business goals and other matters. These statements may be contained in our filings with the Securities and Exchange Commission, in our press releases, in other written communications, and in oral statements made by or with the approval of one of our authorized officers. 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 intended to identify forward-looking statements. These statements, and any other statements that are not historical facts, 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 and Section 21E of the Securities Exchange Act of 1934, as amended from time to time (the “Act”).

In connection with the “safe harbor” provisions of the Act, we are filing the following summary to identify important factors, risks and uncertainties that could cause our actual results to differ materially from those projected in forward-looking statements made by us, or on our behalf. 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 Securities and Exchange Commission. 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 reasonable, any of the assumptions could be incorrect, 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. We do not undertake any obligation to modify or revise any forward-looking statement to take into account or otherwise reflect subsequent events, or circumstances arising after the date that the forward-looking statement was made.

The following risk factors may affect our operating results and the environment within which we conduct our business. If our projections and estimates regarding these factors differ materially from what actually occurs, our actual results could vary significantly from any results expressed or implied by forward-looking statements. These risk factors include, but are not limited to, changes in general economic, demographic, geopolitical or public safety conditions which affect consumer behavior and spending for restaurant dining occasions, including the ongoing ramifications of the September 11, 2001 terrorist attacks and the governmental response thereto; the continuing armed conflict in Iraq or in other countries; changes in consumer eating habits as a result of new information regarding diet, nutrition and health that could impact demand for our menu and bakery product offerings; increasing competition in the upscale casual dining segment of the restaurant industry; adverse weather conditions which impact customer traffic at the Company’s restaurants in general and which cause the temporary underutilization of outdoor patio seating available at most of the Company’s restaurants; various factors which increase the cost to develop and/or affect the number and timing of the openings of new restaurants, including factors under the influence and control of government agencies, landlords, construction contractors and others; fluctuations in the availability and/or cost of raw materials, management and hourly labor, energy or other resources necessary to successfully build and operate the Company’s restaurants and bakery production facility; the Company’s ability to raise prices sufficiently to offset cost increases, including increased costs

for minimum wages, employee benefits and insurance arrangements; the success of strategic and operating initiatives, including new restaurant concepts and new bakery product lines; depth of management; adverse publicity about the Company, its restaurants or bakery products resulting from a number of risks that are common to restaurant and bakery businesses; the Company’s current dependence on a single bakery production facility; the Company’s ability to obtain and retain large-account customers for its bakery operations; changes in timing and/or scope of the purchasing plans of large-account bakery customers which can cause fluctuations in bakery sales and the Company’s consolidated operating results; our inability to enter into long-term contracts with large-account bakery customers, who may discontinue purchasing our products without advance notice at any time for any reason; the rate of growth of general and administrative expenses associated with building a strengthened corporate and field supervision infrastructure to support the Company’s growing operations; relations between the Company and its employees; legal claims and litigation against the Company; the availability, amount, type, and cost of capital for the Company and the deployment of such capital, including the amounts of planned capital expenditures; changes in, or any failure to comply with, governmental regulations, including regulations relating to the sale of alcoholic beverages; the amount of, and any changes to, tax rates and the success of various initiatives to minimize taxes; changes in accounting standards or interpretations of existing standards adopted by the Financial Accounting Standards Board, the Securities and Exchange Commission, the Emerging Issues Task Force and the American Institute of Certified Public Accountants that could impact our reported financial results; and other risks and uncertainties referenced in this Form 10-Q or our Annual Report on Form 10-K/A for the fiscal year ended December 28, 2004.

PART II. OTHER INFORMATION

Item 1. Legal Proceedings

The Company is subject to various legal proceedings that are discussed in the Company’s Annual Report on Form 10-K/A for the fiscal year ended December 28, 2004.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

During the quarterly period ended March 29, 2005, the Company made no purchases of equity securities that are registered by us pursuant to Section 12 of the Exchange Act.

Item 6. Exhibits

Exhibit 31.1		Rule 13a-14(a) Certification of Principal Executive Officer.

Exhibit 31.2		Rule 13a-14(a) Certification of Principal Financial Officer.

Exhibit 32.1		Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

Exhibit 32.2		Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

Date: May 6, 2005	THE CHEESECAKE FACTORY INCORPORATED

	By:	/s/ DAVID OVERTON

		David Overton Chairman of the Board and Chief Executive Officer
		(Principal Executive Officer)

	By:	/s/ MICHAEL J. DIXON

		Michael J. Dixon Senior Vice President and Chief Financial Officer
		(Principal Financial Officer)

	By:	/s/ CHERYL M. SLOMANN

		Cheryl M. Slomann Controller and Chief Accounting Officer
		(Principal Accounting Officer)

INDEX TO EXHIBITS

Exhibit Number		Exhibit Title

31.1		Rule 13a-14(a) Certification of Principal Executive Officer

31.2		Rule 13a-14(a) Certification of Principal Financial Officer

32.1		Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

32.2		Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002