Forward-Looking Statements

Certain information included in this Form 10-Q and other materials filed or to be filed by us with the SEC (as well as information included in oral or written statements made by us or on our behalf), may contain forward-looking statements about our current and expected performance trends, growth plans, business goals and other matters. These statements may be contained in our filings with the SEC, in our press releases, in other written communications, and in oral statements made by or with the approval of one of our authorized officers. 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 "Acts").

In connection with the "safe harbor" provisions of the Acts, we have identified and are disclosing important factors, risks and uncertainties that could cause our actual results to differ materially from those projected in forward-looking statements made by us, or on our behalf (see Part II, Item 1A of this report and Part I, Item 1A, "Risk Factors" included in our Annual Report on Form 10-K for the fiscal year ended December 30, 2008). These cautionary statements are to be used as a reference in connection with any forward-looking statements. The factors, risks and uncertainties identified in these cautionary statements are in addition to those contained in any other cautionary statements, written or oral, which may be made or otherwise addressed in connection with a forward-looking statement or contained in any of our subsequent filings with the SEC. Because of these factors, risks and uncertainties, we caution against placing undue reliance on forward-looking statements. Although we believe that the assumptions underlying forward-looking statements are 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. Except as may be required by law, we do not undertake any obligation to modify or revise any forward-looking statement to take into account or otherwise reflect subsequent events or circumstances arising after the date that the forward-looking statement was made.

General

This discussion and analysis should be read in conjunction with our interim unaudited consolidated financial statements and related notes included in this Form 10-Q and the audited consolidated financial statements and related notes thereto included in our Annual Report on Form 10-K for the fiscal year ended December 30, 2008. 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.

As of November 5, 2009, we operated 160 upscale, full-service, casual dining restaurants: 146 under The Cheesecake Factory† mark, 13 under the Grand Lux Cafe† mark and one under the RockSugar Pan Asian Kitchen® mark. We also operated two bakery production facilities and licensed two limited menu bakery cafes under The Cheesecake Factory Bakery Cafe† mark to another foodservice operator.

The Cheesecake Factory is an upscale casual dining concept offering an extensive menu of approximately 200 menu items including appetizers, pizza, seafood, steaks, chicken, burgers, pasta, specialty items, salads, sandwiches, omelets and desserts, including approximately 40 varieties of cheesecake and other baked desserts. Grand Lux Cafe and RockSugar Pan Asian Kitchen are also upscale casual dining concepts. Grand Lux Cafe offers a broad menu of approximately 150 menu items, while RockSugar Pan Asian Kitchen offers a Southeast Asian focused menu with approximately 80 items. In contrast to many chain restaurant operations, substantially all of our menu items (except desserts at The Cheesecake Factory that are manufactured at our bakery production facilities) are prepared on the restaurant premises using high quality, fresh ingredients based on innovative and proprietary recipes. We believe our restaurants are recognized by consumers for offering value with menu options across a wide range of moderate price points and portions designed for sharing. Our restaurants' distinctive, contemporary design and decor create a high-energy ambiance in a casual setting. Our restaurants currently range in size from 5,400 to 21,000 interior square feet, provide full alcoholic beverage service and are generally open seven days a week for lunch and dinner, as well as Sunday brunch. Our staff members are focused on guest service and hospitality, and strive to deliver an excellent overall experience to our guests.

Overview

In addition to being highly competitive, the restaurant industry is affected by changes in consumer tastes and discretionary spending patterns; general economic conditions; public safety conditions; demographic trends; weather conditions; the cost and availability of food products, labor and energy; purchasing power; and government regulations. Accordingly, as part of our strategy we must constantly evolve and refine the critical elements of our restaurant concepts to protect our competitiveness and to maintain and enhance the strength of our brand.

Our strategy is driven by our commitment to guest satisfaction and is focused primarily on menu innovation and operational execution to continue to differentiate ourselves from other restaurant concepts, as well as drive competitively strong performance that is sustainable. Financially, we are focused on prudently managing expenses at our restaurants, bakery facilities and corporate support center. We are also committed to allocating capital in a way that will maximize profitability and returns. Investing in our restaurants is our top capital allocation priority with a focus on continuing to develop our concepts in premier locations within both existing and new markets. Near-term, we will also continue to focus on reducing our outstanding debt balance.

In evaluating and assessing the performance of our business, we believe the following are key performance indicators that should be taken into consideration:

† Comparable Restaurant Sales and Overall Revenue Growth. Increases in comparable restaurant sales come from gains in guest traffic, as well as a higher check average (as a result of menu price increases and/or changes in menu
mix). Comparable restaurant sales growth, in addition to revenue from new restaurant openings and increases in third-party bakery sales, generally contribute to our overall revenue growth.

† Income from Operations Expressed as a Percentage of Revenues ("Operating Margins"). Operating margins are subject to fluctuations in commodity costs, labor, restaurant-level occupancy expenses, general and administrative expenses, and preopening expenses. Our objective is to gradually increase our operating margins by capturing fixed cost leverage from comparable restaurant sales increases; maximizing our purchasing power as our business grows; and operating our restaurants as productively as possible by retaining the efficiencies we gained through cost management initiatives that have been implemented.

In addition, by efficiently scaling our restaurant and bakery support infrastructure and improving our internal processes, we strive to grow general and administrative expenses at a slower rate than revenue growth over the long-term, which should also contribute to operating margin expansion.

† Return on Investment. Return on investment measures our ability to make the best decisions regarding our allocation of capital. Returns are affected by the cost to build restaurants, the level of revenues that each restaurant can deliver and our ability to maximize the profitability of restaurants through operational execution and strict cost management. Our objective is to deploy capital in a manner that will maximize our return on investment.

Results of Operations

The following table sets forth, for the periods indicated, our consolidated statements of operations expressed as percentages of 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              Thirteen            Thirty-Nine           Thirty-Nine
                                   Weeks Ended           Weeks Ended           Weeks Ended           Weeks Ended
                                September 29, 2009    September 30, 2008    September 29, 2009    September 30, 2008

Revenues                                     100.0 %               100.0 %               100.0 %               100.0 %

Costs and expenses:
Cost of sales                                 23.9                  25.7                  24.4                  25.7
Labor expenses                                32.9                  33.2                  33.3                  33.2
Other operating costs and
expenses                                      25.5                  25.6                  25.3                  24.5
General and administrative
expenses                                       6.0                   5.3                   5.9                   5.1
Depreciation and
amortization expenses                          4.7                   4.5                   4.7                   4.5
Preopening costs                               0.2                   0.5                   0.2                   0.8
Total costs and expenses                      93.2                  94.8                  93.8                  93.8
Income from operations                         6.8                   5.2                   6.2                   6.2
Interest expense                              (1.4 )                (1.0 )                (1.5 )                (1.0 )
Interest income                                  -                   0.1                     -                   0.1
Other income/(expense), net                    0.1                     -                   0.1                     -
Income before income taxes                     5.5                   4.3                   4.8                   5.3
Income tax provision                           1.4                   1.4                   1.2                   1.6
Net income                                     4.1 %                 2.9 %                 3.6 %                 3.7 %

Thirteen Weeks Ended September 29, 2009 Compared to Thirteen Weeks Ended September 30, 2008

Revenues

Revenues decreased 1% to $400.6 for the thirteen weeks ended September 29, 2009 compared to $405.1 for the thirteen weeks ended September 30, 2008.

Restaurant sales decreased 1% to $386.5 compared to $390.8 for the same period of the prior year. This decline consisted of a $10.4 million, or a 2.8% decrease, in comparable restaurant sales and a $6.1 million increase from newer restaurants not yet in the comparable sales base. At September 29, 2009, there were nine restaurants not included in the comparable sales base. New restaurants become eligible to enter our comparable sales calculations in their 19th month of operation.

Comparable sales at The Cheesecake Factory restaurants decreased 2.4% from the prior year third quarter. We implemented an effective menu price increase of approximately 1.2% during our winter menu change in the first quarter of fiscal 2009 and an effective menu price increase of approximately 0.8% during our summer menu change in the third quarter of fiscal 2009. The decrease in comparable sales for the third quarter of fiscal 2009 was due to reduced guest traffic at our restaurants, which we believe was primarily driven by the macroeconomic factors affecting the restaurant industry in general. The decrease in guest traffic was partially offset by a slightly higher average check.

Comparable sales at the Grand Lux Cafe restaurants decreased 6.0% compared to the prior year third quarter. We implemented an effective menu price increase of approximately 0.3% in April 2009 and expect to implement an approximate effective price increase of 0.6% during the fourth quarter of fiscal 2009. The decrease in Grand Lux Cafe comparable sales is also attributable to a decline in guest traffic, which we believe was primarily caused by the macroeconomic factors impacting the restaurant industry in general. The decrease in guest traffic was partially offset by a slightly higher average check. Factors outside of our control, such as macroeconomic conditions, inclement weather, timing of holidays, and competitive and other factors, including those referenced in our Annual Report on Form 10-K for the year ended December 30, 2008, can impact comparable sales.

We generally update and reprint the menus in our restaurants twice a year. As part of these menu updates, we evaluate the need for price increases based on those operating cost and expense increases of which we are aware or can reasonably expect. While menu price increases can facilitate increased comparable restaurant sales in addition to offsetting margin pressure, we carefully consider all potential price increases in light of the extent to which we believe they will be accepted by our restaurant guests.

Total restaurant operating weeks increased 2% to 2,080 for the thirteen weeks ended September 29, 2009 primarily from the opening of three new restaurants during the trailing 15-month period. Average sales per restaurant operating week decreased 2% to $185,839 compared to the third quarter of fiscal 2008. This decrease in average weekly sales is due principally to a decline in guest traffic.

In fiscal 2009, we opened one The Cheesecake Factory restaurant in the first quarter and do not plan to open any additional restaurants during the remainder of the year.

Bakery sales to other foodservice operators, retailers and distributors ("bakery sales") decreased 1% to $14.1 million for the thirteen weeks ended September 29, 2009 compared to $14.3 million for the comparable period of last year. Warehouse clubs, our largest sales channel for bakery sales, accounted for 69% of total bakery sales in the current quarter compared to 67% for the third quarter of fiscal 2008.

We strive to develop and maintain long-term, growing relationships with our bakery customers, based largely on our 35-year reputation for producing high quality and creative baked desserts. However, it is difficult to predict the timing of bakery product shipments and contribution margins on a quarterly basis, as the purchasing plans of our large-account customers may fluctuate. 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

Cost of sales consists of food, beverage, retail and bakery production supply costs incurred in conjunction with our restaurant and bakery revenues, and excludes depreciation, which is reflected separately in depreciation and amortization expenses.

As a percentage of revenues, cost of sales decreased to 23.9% in the third quarter of fiscal 2009 compared to 25.7% in the comparable period of last year. Approximately half of this decrease was attributable to savings associated with our cost of sales initiatives, including the development of new menu items with lower food costs, negotiating more favorable pricing for commodities and optimizing our supply chain. The majority of the remaining cost of sales favorability stemmed primarily from commodity price

spikes that occurred in the summer of 2008. During this time frame, prices were significantly higher for certain grocery, produce and dairy items. Additionally, our bakery benefited from a favorable year-over-year contracted price for cream cheese.

Our restaurant menus are among the most diversified in the foodservice industry and, accordingly, are not overly dependent on a few select 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 produce, poultry, meat, fish and seafood, cheese, other dairy products, bread and general grocery items.

Currently we are able to contract for the majority of the food commodities used in our operations for periods of up to one year. However, with the exception of cream cheese used in our bakery operations, we are currently not able to contract for many fresh commodities, such as fish, dairy, and produce products for periods longer than 30 days in most cases. As a result, these commodities may be subject to unforeseen supply and cost fluctuations due principally to weather, fuel costs and other agricultural conditions. Cream cheese is the most significant commodity used in our bakery products. We have contracted for a majority of our fiscal 2009 cream cheese requirements and will also purchase cream cheese on the spot market as necessary to supplement our contracted amounts.

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, varying menu mix, 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 restaurant and bakery operations, there can be no assurance that future supplies and costs for these commodities 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 sales volumes at the new restaurant.

Labor Expenses

As a percentage of revenues, labor expenses for the third quarter of fiscal 2009 decreased to 32.9% versus 33.2% for the comparable period last year. This decrease was driven by a reduction in direct operating labor costs as a result of our operational initiatives, such as increased automation of our expediting process, which improved our overall productivity. This labor favorability was partially offset by higher health insurance costs in the third quarter of fiscal 2009 as compared to the third quarter of last year. Stock-based compensation included in labor expenses was $1.4 million in the third quarter of fiscal 2009 as compared to $1.5 million in the third quarter of fiscal 2008.

Other Operating Costs and Expenses

Other operating costs and expenses consist of restaurant-level occupancy expenses (rent, common area expenses, insurance, licenses, taxes and utilities), other operating expenses (excluding food costs and labor expenses, which are reported separately) and bakery production overhead, selling and distribution expenses. As a percentage of revenues, other operating costs and expenses decreased slightly to 25.5% for the thirteen weeks ended September 29, 2009 versus 25.6% for the comparable period of fiscal 2008. Higher marketing expenses in the third quarter of fiscal 2009 were offset by a decrease in utility costs. Savings from cost management initiatives slightly more than offset deleverage from lower sales levels.

General and Administrative Expenses

General and administrative ("G&A") expenses consist of our restaurant management recruiting and training program, as well as the restaurant field supervision, bakery administrative and corporate support organizations. As a percentage of revenues, G&A expenses increased to 6.0% for the thirteen weeks ended September 29, 2009 compared to 5.3% for the comparable period of fiscal 2008. The majority of this variance is due to an increase in the accrual for corporate performance bonuses in the third quarter of fiscal 2009 as compared to the comparable prior year period. Stock-based compensation included in G&A expenses was $1.9 million in the third quarter of fiscal 2009 as compared to $2.2 million in the third quarter of fiscal 2008.

Depreciation and Amortization Expenses

As a percentage of revenues, depreciation and amortization increased to 4.7% for the third quarter of fiscal 2009 compared to 4.5% for the same period of fiscal 2008. The increase is primarily attributable to de-leveraging from the lower average weekly sales at our restaurants.

Preopening Costs

Preopening costs include all costs to relocate and compensate restaurant management employees during the preopening period; costs to recruit and train hourly restaurant employees; wages, travel and lodging costs for our opening training team and other support employees; and straight-line minimum base rent during the build-out and in-restaurant training periods. Also included in preopening costs are expenses allocated to each restaurant opening, which include costs for maintaining a roster of trained managers for pending openings; the associated temporary housing and other relocation costs necessary to align with future opening and operating needs; and corporate travel and support activities. Preopening costs can fluctuate significantly from period to period, based on the number and timing of restaurant openings and the specific preopening costs incurred for each restaurant.

Preopening costs decreased to $0.6 million for the thirteen weeks ended September 29, 2009 compared to $2.1 million in the comparable period of the prior year. We had no restaurant openings in either the third quarter of fiscal 2009 or fiscal 2008. The primary cause of the decline in the third quarter of fiscal 2009 as compared to the third quarter of fiscal 2008 is that in 2008, costs were incurred in support of the two The Cheesecake Factory restaurants we opened in the fourth quarter of fiscal 2008, while we are not planning to open any restaurants in the fourth quarter of fiscal 2009.

Interest Expense, Interest Income and Other Income/(Expense), Net

Interest expense increased to $5.6 million for the thirteen weeks ended September 29, 2009 compared to $3.9 million for the comparable prior year period due primarily to a $2.0 million charge to unwind a portion of an interest rate collar we had in place on our revolving credit facility balance. In addition, we paid a higher interest rate on the outstanding balance of our debt in the third quarter of fiscal 2009 relative to the prior year period as a result of the January 2009 amendment to our revolving credit facility. (See Note 4 of Notes to Consolidated Financial Statements in Part I, Item 1 of this report for further discussion of our long-term debt.) The increase in our interest rate was partially offset by a lower average outstanding debt balance during the third quarter of fiscal 2009 as compared to the prior year third quarter.

Interest income decreased to less than $0.1 million for the third quarter of fiscal 2009 compared to $0.4 million for the comparable period last year due primarily to lower interest rates earned on invested balances during the third quarter of fiscal 2009.

We recorded net other income of $0.2 million for the thirteen weeks ended September 29, 2009 compared to net other expense of $0.1 million for the comparable prior year period. This variance primarily relates to changes in the value of our investments in variable life insurance contracts used to informally fund our Executive Savings Plan, a non-qualified deferred compensation plan.

Income Tax Provision

Our effective income tax rate was 26.2% for the thirteen weeks ended September 29, 2009 compared with 32.3% for the comparable prior year period. This decline was primarily attributable to non-taxable gains on our investments in variable life insurance contracts used to support our Executive Savings Plan and higher deductions allowed on items that fluctuate with taxable income in the third quarter of fiscal 2009.

Thirty-Nine Weeks Ended September 29, 2009 Compared to Thirty-Nine Weeks Ended September 30, 2008

Revenues

Revenues were $1,201.4 million for the thirty-nine weeks ended September 29, 2009 compared to $1,206.1 million in revenues reported for the thirty-nine weeks ended September 30, 2008.

Restaurant sales decreased 0.2% to $1,159.8 million compared to $1,162.1 million for the same period of the prior year. This decline consisted of a $33.1 million, or a 3.1%, decrease in comparable restaurant sales and a $30.8 million increase from newer restaurants not yet in the comparable sales base.

Comparable sales at The Cheesecake Factory restaurants decreased 2.9% in the first three quarters of fiscal 2009 as compared to the first three quarters of fiscal 2008. We implemented an approximate 1.2% effective menu price increase during our winter menu change in the first quarter of fiscal 2009 and an approximate 0.8% effective menu price increase during our summer menu change in the third quarter of fiscal 2009. The decrease in comparable sales was due to reduced guest traffic at our restaurants, which we believe was primarily driven by the macroeconomic factors affecting the restaurant industry in general. The decrease in guest traffic was partially offset by a slightly higher average check.

Comparable sales at the Grand Lux Cafes decreased 5.5% in the thirty-nine weeks ended September 29, 2009 compared to the comparable period last year. We implemented an effective menu price increase of approximately 0.3% in April 2009 and expect to implement an approximate 0.6% increase in the fourth quarter of 2009. The decrease in Grand Lux Cafe comparable sales is also attributable to a decline in guest traffic, which we believe was primarily caused by the macroeconomic factors impacting the restaurant industry in general. The decrease in guest traffic was partially offset by a slightly higher average check.

Bakery sales decreased 5% to $41.6 million for the thirty-nine weeks ended September 29, 2009 compared to $43.9 million for the comparable period of last year. This decrease is due primarily to lower sales to our national accounts and warehouse clubs. Warehouse clubs, our largest sales channel for bakery sales, accounted for 68% of total bakery sales in the thirty-nine weeks ended September 29, 2009 compared to 66% for the comparable period of the prior year.

Cost of Sales

As a percentage of revenues, cost of sales decreased to 24.4% for the thirty-nine weeks ended September 29, 2009 compared to 25.7% in the comparable period of the prior year. Approximately half of this decrease was attributable to savings associated with our cost of sales initiatives, including the development of new menu items with lower food costs, negotiating more favorable pricing for commodities and optimizing our supply chain. The remaining decrease primarily relates to the development of new menu items with lower food costs and favorable year-over-year pricing for certain items such as produce, cheese and dairy.

Labor Expenses

. . .