SecProbe.io

CORRESP
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filename1.htm

VIA
EDGAR

September 25,
2009

Ms. Linda
Cvrkel

Branch
Chief

Securities
and Exchange Commission100 F Street NE

Washington,
D.C. 20549

  Re:

  Correspondence from you dated September 15,
  2009 concerning

  The Cheesecake Factory Incorporated

  Form 10-K for the Fiscal Year Ended December 30,
  2008

  Filed February 27, 2009

  File No. 000-20574

Ladies
and Gentlemen:

On behalf of The Cheesecake Factory Incorporated (the “Company”), this
letter is being transmitted in response to comments received from the staff
(the “Staff”) of the Securities and Exchange Commission (“SEC”) by letter dated
September 15, 2009 with respect to the Company’s Annual Report on Form 10-K
for the fiscal year ended December 30, 2008, filed on February 27,
2009.  The numbering of the paragraphs below corresponds to the numbering
of the comments which, for the Staff’s convenience, we have incorporated into
this response letter.

Form 10-K for the year ended December 30,
2008

Statement of Operations, page 55

1.              We note
from the statement of operations that you recorded a $2,952 impairment of
assets during 2008.  Please provide us
with, and disclose in future filings, a description of the impaired long-lived
asset (asset group) and the facts and circumstances leading to the impairment,
as required by paragraph 26 of SFAS No. 144.

Statement of Financial Accounting
Standard No. 144, “Accounting for the Impairment or Disposal of Long-Lived
Assets” (“FAS 144”), states that “a long-lived asset (asset group) shall be
tested for recoverability whenever events or changes in circumstances indicate
that its carrying amount may not be recoverable”.  We determined that due to the decline in
economic conditions, coupled with decreasing same store sales versus the
comparable prior year period (“comparable sales”), that a triggering event for
testing impairment of long-lived assets occurred in the fourth quarter of
fiscal 2008.  In the fourth quarter of
2008, comparable sales declined 7.1% due primarily to the macro economic downturn.

For purposes of recognition and
measurement of an impairment loss, long-lived assets shall be grouped with
other assets and liabilities at the lowest level for which identifiable cash
flows are largely independent of the cash flows of other assets and
liabilities.  Based on this criterion, we
grouped our assets for impairment testing by individual restaurant.

Estimates of future cash flows used to
test the recoverability of a long-lived asset (asset group) shall be made for
the remaining useful life of the asset (asset group).  The remaining useful life of an asset group
shall be based on the remaining useful life of the primary asset of the
group.  We identified leasehold
improvements as the primary asset as they are the most significant component of
our restaurant assets and the principal asset from which our restaurants derive
their cash flow generating capacity.
Additionally, leasehold improvements have the longest remaining useful
life and require the greatest level of investment to replace.

In performing the FAS 144 step 1
assessment, we compared the carrying value of each restaurant’s assets to
undiscounted estimated future cash flows over the remaining useful life of our
leasehold improvements (which typically matches the lease term for that
restaurant).  The cash flows exclude
future capital improvements and other expenditures that would increase the
service potential of the long-lived asset, but include future expenditures to
maintain the long-lived assets, such as normal repairs and maintenance.  Based on this analysis, three Cheesecake
Factory restaurants had estimated future cash flows that were less than the
carrying value of their assets.  Two of these
restaurants have remaining lease terms of less than four years, which is insufficient
time to recover the carrying value of the assets at these locations.

In performing step 2 of the FAS 144 assessment,
we calculated the amount of the impairment loss for each of these restaurants
by measuring the excess of the carrying amount of the long-lived asset (asset
group) over its fair value.  To estimate
fair value, we performed a discounted cash flow analysis, which according to
FAS 144, paragraph 23 is often the appropriate technique with which to estimate
fair value for long-lived assets that have uncertainties both in timing and
amount.  The excess of the carrying value
of the asset group over the estimated fair value was recorded as an impairment
charge against leasehold improvements.

In future filings, we will
expand our impairment of long-lived assets disclosure in both the Critical
Accounting Policies section of Management’s Discussion and Analysis of
Financial Condition and Results of Operations and in the Summary of Significant
Accounting Policies footnote in our Notes to Consolidated Financial Statements
to include the required disclosures outlined in paragraph 26 of FAS 144.

Notes to the Financial Statements

Note 7, Long Term Debt, page 65

2.              We note
your disclosure that you modified the revolving credit facility on March 5,
2008 and January 5, 2009.  Please tell
us how you accounted for these modifications in accordance with EITF
98-14.  As part of your response, please
tell us the amount of any fees or third party costs that were paid as part of
the modification and explain to us how you accounted for these costs.

We
considered Emerging Issues Task Force 98-14, “Debtor’s Accounting for Changes
in Line-of-Credit or Revolving-Debt Arrangements” (“EITF 98-14”), in accounting
for the March 5, 2008 and January 5, 2008 modifications of our
revolving credit facility (“Facility”).
Per EITF 98-14, paragraph 4a, if the borrowing capacity (i.e. remaining
term and the maximum available credit) of the new arrangement is greater than
or equal to the borrowing capacity of the old arrangement, then any unamortized
deferred costs, any fees paid to the creditors, and any third-party costs
incurred should be associated with the new arrangement (that is, deferred and
amortized over the term of the new arrangement).

The March 5, 2008
amendment increased the maximum available borrowing commitment from $200
million to $300 million and did not extend the remaining term of the Facility
(still matures on April 2, 2012).
Therefore, the borrowing capacity of the new arrangement is greater than
the old arrangement.

Our Facility involves
multiple lenders who are members of a syndicate, each holding a specified level
of debt.  Accordingly, we allocated the
debt issuance costs amongst all the creditors in the original line-of-credit
syndicate.  Any new costs paid to
creditors and third parties for the modified facility were also allocated to
each creditor, provided they met the criterion to be capitalized.  We believe that the application of EITF 98-14
should be performed on a creditor by creditor basis.   In making this determination we have
analogized to Exhibit A of EITF 96-19 which notes that separate debt
instruments exist between the debtor and the individual creditors participating
in the syndication.  As such, the
application of EITF 96-19 must be performed on a creditor by creditor basis. As
a result, the conclusions reached under EITF 96-19 for each creditor in the
term loan syndicate can be different (i.e., one creditor loan may be considered
to be modified, while another may be considered extinguished).  Similarly, under EITF 98-14, issue costs may
require write-off for one member of the line-of-credit but not another.  The original borrowing capacity was either
unchanged or increased for each member of the syndicate, thus no creditors were
extinguished as a result of the amendment.

Based on the above
information, we retained the unamortized portion of the previously capitalized
cost ($353,000 at March 5, 2008) and capitalized the new costs associated
with the modification ($200,000).  We are
amortizing these capitalized costs over the term of the new arrangement, which
was unchanged.

The January 5, 2009
amendment reset our minimum financial covenants and pricing and also limits
cash distributions with respect to our equity interests based on a liquidity
threshold.   In addition, the amended
Facility restricts unsecured borrowings and includes a pledge of outstanding
equity interests in two of our subsidiaries.
The amendment did not change the remaining term or impact our borrowing
capacity.

Based on the above
information, we performed our EITF 98-14 analysis on a creditor by creditor
basis and retained the unamortized portion of the previously capitalized cost ($440,000
at January 5, 2009) and capitalized the new costs associated with the
modification ($1,350,000).  We are amortizing
these capitalized costs over the term of the new arrangement, which was
unchanged.

Note 10, Commitments and Contingencies, page 67

3.              We note
your disclosure that implementation of the terms of the settlement of the “Option
Derivative Actions” is ongoing.  Please
tell us if the terms of the settlement include any payments to be made by the
Company, and if that amount is material, please disclose the amount and any
related accruals in future filings.

As
previously disclosed by us in our Quarterly Report on Form 10-Q for the
quarter ended April 1, 2008 as filed with the SEC on April 24, 2008
(the “Q108 10-Q”), a Stipulated Settlement of the Option Derivative Actions was
approved by the federal court on April 14, 2008, and “[i]n
consideration for the full settlement and release of all released claims (as
defined in the stipulation), the stipulation provides for certain corporate
governance reforms, consisting principally of the following: (i) additional
processes for the approval of stock option grants; (ii) adoption of
additional standards for director independence; (iii) the addition of one
new independent director; (iv) additional insider trading controls; (v) provisions
for recovery of performance-based cash bonus payments made to executive
officers that were predicated on later-restated financial statements; and (vi) provisions
for director education.  The stipulation also includes the agreement of
each of David Overton, our Chief Executive Officer, Gerald Deitchle, a former
Chief Financial Officer, Thomas Gregory, a director, Wayne White, a director,
and Jerome Kransdorf, a director, that an aggregate of $940,000 in cash or
stock options with equivalent value will be repaid to the Company by them,
contingent upon the occurrence of the effective date of the stipulation.
In addition, the stipulation requires that the Company shall have an internal
auditor to provide continuous auditing and oversight functions.”  We
further disclosed that we had $2.1 million accrued at April 1, 2008
for settlement of this matter.  (See Note 10 (Commitments
and Contingencies) on page 10 and Legal Proceedings on page 21 of the Q108 10-Q.)

In
addition, we disclosed in our Quarterly Report on Form 10-Q for the
quarter ended July 1, 2008 as filed with the SEC on July 24,
2008  (the “Q208 10-Q”) that, “[i]n June, 2008,
we were repaid an aggregate of $940,000 in cash or stock options with
equivalent value by certain current and former directors and officers.
There are no future payments required by us.”
(See Note
11 (Commitments and Contingencies) on page 10 and Legal Proceedings
on page 24 of the Q208 10-Q.)
Following settlement, we paid $2.1 million in plaintiffs’ attorneys’
fees and expenses, all of which had been accrued at April 1, 2008, as
disclosed in our Q108 10-Q (see above).

Our
statement in Note 10 (Commitments and Contingencies) of our Annual Report on Form 10-K
for the year ended December 30, 2008 as filed with the SEC on February 27,
2009 (“2008 10-K”) that implementation of the terms of the settlement “is ongoing”
refers to the corporate governance reforms described above as disclosed in the
Q108 10-Q which, in accordance with the terms of the Stipulated Settlement,
were to be implemented within twelve (12) months of June 4, 2008 and
which, at the time of filing of the 2008 10-K, were in process.  As disclosed in our Q208 10Q, no future
payments are required by us in connection with this matter.

Note 12, Stock-Based Compensation, page 70

4.              We note
your disclosure that capitalized stock-based compensation for fiscal years
2008, 2007, and 2006 was $1.3 million, $1.7 million and $1.3 million,
respectively and was included in property and equipment, net and other assets
on the balance sheet.  Please tell us,
and disclose in future filings, the nature of these costs and your accounting
policy for capitalizing stock compensation costs.

It
is our policy to capitalize certain qualifying costs related to the acquisition
and development of our restaurant properties.  We believe that qualifying costs relate to pre-acquisition
costs (as defined by Statement of Financial Accounting Standard No. 67, “Accounting
for Costs and Initial Rental Operations of Real Estate Projects”), which are
directly identifiable to a specific non-operating (at the date of acquisition)
property and are incurred subsequent to the time that the acquisition of that
specific property was considered probable.
We further analogize to Emerging Issues Task Force 97-11, “Accounting
for Internal Costs Relating to Real Estate Property Acquisitions”, which allows
internal costs to be capitalized as part of the acquisition cost provided that
the above criterion is met.  In
accordance with this policy, we capitalize direct internal acquisition costs
which include the applicable portion of payroll, benefits and stock-based
compensation cost for employees within the development and construction, legal,
and facilities functions.

We
believe that capitalizing qualifying costs from these departments is
appropriate considering the nature and type of work performed.  Our development and construction department
works on the design and construction of new restaurants and the remodeling of
existing restaurants.  Our legal
department engages in lease, intellectual property, including trademarks, and liquor
license acquisition activities, while our facilities department is responsible
for equipment installation at our restaurants.

The
total amount of capitalized stock-based compensation cost was $1.3 million,
$1.7 million and $1.3 million, representing 9%, 8% and 7% of total stock-based
compensation cost in fiscal 2008, 2007 and 2006, respectively, and 2% of
general and administrative expenses in all three fiscal years presented.

In
future filings, we will expand our stock-based compensation disclosure within
the Summary of Significant Accounting Policies footnote in our Notes to
Consolidated Financial Statements to include the following language:

It
is our policy to capitalize the portion of stock-based compensation costs for
our internal development and construction, legal, and facilities departments
that relates to capitalizable activities, such as the design and construction
of new restaurants and remodeling existing locations, lease, intellectual
property and liquor license acquisition activities and equipment installation.

Form 10-Q for the quarter ended June 30,
2009

Note 1.  Basis
of Presentation and Significant Accounting Policies — Impairment of Long-Lived
Assets

5.              We note
your disclosure that you are currently monitoring three Grand Lux Cafe
locations which have a combined carrying value of $29.1 million and that until
you know the full extent of the impact from the sales and cost initiatives
recently implemented throughout the Grand Lux Cafe concept, as well as further
actions taken at these specific locations, it is premature to determine that an
impairment charge is warranted.  Please
tell us if there have been any changes in events or circumstances, such as
those set forth in paragraph 8 of SFAS 144, that indicate the carrying amount
of these locations may not be recoverable.
If any such events or ci