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Commitments and Contingencies | 12 Months Ended
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Dec. 29, 2015
Commitments and Contingencies |
Commitments and Contingencies | 9. Commitments and Contingencies We currently lease all of our restaurant locations under operating leases, with remaining terms ranging from less than one year to 20 years, excluding unexercised renewal options. The restaurant leases typically include land and building shells, require contingent rent above the minimum base rent payments based on a percentage of sales ranging from 3% to 10%, have escalating minimum rent requirements over the term of the lease and require various expenses incidental to the use of the property. A majority of our leases provide for a reduced level of overall rent obligation should specified co-tenancy requirements not be satisfied. Most leases have renewal options. Many of our leases also provide early termination rights permitting us to terminate the lease prior to expiration in the event our sales are below a stated level for a period of time, generally conditioned upon repayment of the unamortized allowances contributed by landlords to the build-out of the leased premises. We also lease automobiles and certain equipment under operating lease agreements. Rent expense is included in other operating costs and expenses in the consolidated statements of income. As of December 29, 2015, the aggregate minimum annual lease payments under operating leases, including amounts characterized as deemed landlord financing payments are as follows (in thousands):
2016 |  | $ | 81,890 |
2017 |  | 83,836 |
2018 |  | 83,797 |
2019 |  | 84,002 |
2020 |  | 81,762 |
Thereafter |  | 599,026 |
Total |  | $ | 1,014,313 |
Rent expense on all operating leases was as follows (in thousands):
|  | Fiscal Year |
|  | 2015 |  | 2014 |  | 2013 |
Straight-lined minimum base rent |  | $ | 74,981 |  | $ | 71,828 |  | $ | 69,427 |
Contingent rent |  | 21,160 |  | 19,895 |  | 20,698 |
Common area maintenance and taxes |  | 34,602 |  | 31,074 |  | 29,552 |
Total |  | $ | 130,743 |  | $ | 122,797 |  | $ | 119,677 |
We enter into various obligations for the purchase of goods and for the construction of restaurants. At December 29, 2015, our purchase obligations approximated $151.0 million, $90.0 million of which is due in fiscal 2016. (See Contractual Obligations and Commercial Commitments in Part II, Item 7 — Management’s Discussion and Analysis of Financial Condition and Results of Operations for more information on our purchase obligations.) As credit guarantees to insurers, we have $20.0 million in standby letters of credit related to our self-insurance liabilities. All standby letters of credit are renewable annually. We retain the financial responsibility for a significant portion of our risks and associated liabilities with respect to workers’ compensation, general liability, employee health benefits, employment practices and other insurable risks. The accrued liabilities associated with these programs are based on our estimate of the ultimate costs to settle known claims as well as claims incurred but not yet reported to us (“IBNR”) as of the balance sheet date. Our estimated liabilities are not discounted and are based on information provided by our insurance brokers and insurers, combined with our judgment regarding a number of assumptions and factors, including the frequency and severity of claims, claims development history, case jurisdiction, applicable legislation and our claims settlement practices. We maintain stop-loss coverage with third-party insurers to limit our individual claim exposure for many of our programs. Significant judgment is required to estimate IBNR amounts as parties have yet to assert such claims. If actual claims trends, including the severity or frequency of claims, differ from our estimates, our financial results could be impacted. At December 29, 2015, the total accrued liability for our self-insured plans was $60.0 million. On April 11, 2013, a former restaurant hourly employee filed a class action lawsuit in the California Superior Court, Placer County, alleging that the Company violated the California Labor Code and California Business and Professions Code, by requiring employees to purchase uniforms for work (Sikora v. The Cheesecake Factory Restaurants, Inc., et al; Case No SCV0032820). A similar lawsuit covering a different time period was also filed in Placer County (Reed v. The Cheesecake Factory Restaurants, Inc. et al; Case No. SCV27073). By stipulation the parties agreed to transfer the Reed and Sikora cases to Los Angeles County. Both cases (Case Nos. SCV0032820 and SCV27073) were subsequently coordinated together in Los Angeles County by order of the Judicial Council. On November 15, 2013, the Company filed a motion to enforce judgment and to preclude the prosecution of certain claims under the California Private Attorney General Act and California Business and Professions Code Section 17200. On March 11, 2015, the Court granted the Company’s motion in Case No. SCV0032820. The parties participated in voluntary mediation on June 25, 2015 and have executed a memorandum of understanding with respect to the terms of settlement, which is subject to Court approval and is intended to be a full and final resolution of the actions. On January 29, 2016, the court granted the parties’ Motion for Preliminary Approval of Class Action Settlement. The final approval hearing is scheduled for June 3, 2016. Based on the current status of this matter, we have reserved an immaterial amount in anticipation of settlement. On November 26, 2014, a former restaurant hourly employee filed a class action lawsuit in the San Diego County Superior Court, alleging that the Company violated the California Labor Code and California Business and Professions Code, by failing to pay overtime, to permit required rest breaks and to provide accurate wage statements, among other claims. (Masters v. The Cheesecake Factory Restaurants, Inc., et al; Case No 37-2014-00040278). By stipulation, the parties agreed to transfer Case No. 37-2014-00040278 to the Orange County Superior Court. On March 2, 2015, Case No. 37-2014-00040278 was officially transferred and assigned a new Case No. 30-2015-00775529 in the Orange County Superior Court. The lawsuit seeks unspecified amounts of fees, penalties and other monetary payments on behalf of the Plaintiff and other purported class members. We intend to vigorously defend this action. Based on the current status of this matter, we have not reserved for any potential future payments. On January 14, 2015, a former restaurant hourly employee filed a class action lawsuit in the San Diego County Superior Court, alleging that the Company violated the California Labor Code and California Business and Professions Code, by failing to permit required meal and rest breaks, and to provide accurate wage statements, among other claims. (Garcia v. The Cheesecake Factory Incorporated, et al; Case No 37-2015-00001408). On February 19, 2015, the Company filed an ex parte application to stay the litigation pending a hearing on the Company’s motion to compel arbitration. The Court granted the Company’s application, stayed the litigation, and held a hearing on the motion to compel arbitration in July 2015. On August 12, 2015, the Court granted the Company’s motion to compel individual arbitration. On October 9, 2015, the Plaintiff filed a Petition for a Writ of Mandamus with the California Court of Appeal seeking a review and stay of the Court’s decision to compel arbitration on an individual basis. On October 15, 2015 the Court of Appeal denied the Plaintiff’s Petition. We intend to vigorously defend this action. On February 4, 2016, the parties reached a tentative settlement agreement for an immaterial amount. On May 28, 2015, a group of current and former restaurant hourly employees filed a class action lawsuit in the U.S. District Court for the Eastern District of New York, alleging that the Company violated the Fair Labor Standards Act and New York Labor Code, by requiring employees to purchase uniforms for work and violated the State of New York’s minimum wage and overtime provisions. (Guglielmo v. The Cheesecake Factory Restaurants, Inc., et al; Case No 2:15-CV-03117). On September 8, 2015, the Company filed its response to the Complaint, requesting the Court to compel arbitration against opt-in Plaintiffs with valid arbitration agreements. The Plaintiffs are seeking unspecified amounts of penalties and other monetary payments. We intend to vigorously defend this action. Based upon the current status of this matter, we have not reserved for any potential future payments. On November 10, 2015, a current restaurant hourly employee filed a class action lawsuit in the Marin County Superior Court alleging that the Company failed to provide complete and accurate wage statements as set forth in the California Labor Code. On January 26, 2016, the Plaintiff filed a First Amended Complaint. The lawsuit seeks unspecified penalties under the California Private Attorneys General Act in addition to other monetary payments. (Brown v. The Cheesecake Factory Restaurants, Inc.; Case No. CIV1504091). We intend to vigorously defend against this action. Based upon the current status of this matter, we have not reserved for any potential future payments. On December 10, 2015 a former restaurant management employee filed a class action lawsuit in the Los Angeles County Superior Court alleging that the Company improperly classified its managerial employees, failed to pay overtime, and failed to provide accurate wage statements, in addition to other claims. The lawsuit seeks unspecified penalties under the California Private Attorneys General Act in addition to other monetary payments. (Tagalogon v. The Cheesecake Factory Restaurants, Inc., Case No. BC603620). We intend to vigorously defend against this action. Based upon the current status of this matter, we have not reserved for any potential future payments. Within the ordinary course of our business, we are subject to private lawsuits, government audits, administrative proceedings and other claims. These matters typically involve claims from customers, staff members and others related to operational and employment issues common to the foodservice industry. A number of these claims may exist at any given time, and some of the claims may be pled as class actions. From time to time, we are also involved in lawsuits with respect to infringements of, or challenges to, our registered trademarks and other intellectual property, both domestically and abroad. We could be affected by adverse publicity and litigation costs resulting from such allegations, regardless of whether they are valid or whether we are legally determined to be liable. At this time, we believe that the final disposition of any pending lawsuits, audits, proceedings and claims will not have a material adverse effect individually or in the aggregate on our financial position, results of operations or liquidity. It is possible, however, that our future results of operations for a particular quarter or fiscal year could be impacted by changes in circumstances relating to lawsuits, audits, proceedings or claims. We have employment agreements with certain of our executive officers that provide for payments to those officers in the event of an actual or constructive termination of their employment, including in the event of a termination without cause, an acquirer failure to assume or continue equity awards following a change in control of the Company or, otherwise, in the event of death or disability as defined in those agreements. Aggregate payments totaling approximately $2.2 million, excluding accrued potential bonuses of $2.6 million, which are subject to approval by the Compensation Committee, would have been required by those agreements had all such officers terminated their employment for reasons requiring such payments as of December 29, 2015. In addition, the employment agreement with our Chief Executive Officer, which is in effect through April 1, 2017, specifies an annual founder’s retirement benefit of $650,000 for ten years after termination of his full time employment.

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