Tableof Contents

 

 

 

**UNITEDSTATES**

**SECURITIESAND 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 September 29, 2009**                                                                                                                                                                                                    |
|   |                                                                                                                                                                                                                                                           |
|   | **OR**                                                                                                                                                                                                                                                         |
|   |                                                                                                                                                                                                                                                           |
| **o**  | **TRANSITION  REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE  ACT OF 1934**                                                                                                                                                       |
|   |                                                                                                                                                                                                                                                           |
|   | **For the  transition period  from                  to                  ** |

 

**CommissionFile Number 000-50972**

 

**TexasRoadhouse, Inc.**

(Exact name ofregistrant specified in its charter)

 

| **Delaware**                     | ** ** | **20-1083890**          |
|----------------------------------|------------|-------------------------|
| (State or other  jurisdiction of |       | (IRS Employer           |
| incorporation or  organization)  |       | Identification  Number) |

 

**6040Dutchmans Lane, Suite 200**

**Louisville,Kentucky 40205**

(Address ofprincipal executive offices) (Zip Code)

 

**(502)426-9984**

(Registrant’stelephone number, including area code)

 

Indicate by check markwhether registrant (1) has filed all reports required to be filed by Section 13or 15(d) of the Securities Exchange Act of 1934 during the preceding 12months (or for such shorter period that the registrant was required to filesuch reports), and (2) has been subject to such filing requirements forthe past 90 days.  Yes x  No o.

 

Indicate by check markwhether the registrant has submitted electronically and posted on its corporateWeb site, if any, every Interactive Data File required to be submitted andposted pursuant to Rule 405 of Regulations S-T during the preceding 12months (or for such shorter period that the registrant was required to submitand post such files).  Yes o  No o.

 

Indicate by check markwhether the registrant is a large accelerated filer, an accelerated filer, anon-accelerated filer or a smaller reporting company.  See the definitions of “large acceleratedfiler”, “accelerated filer”, and “smaller reporting company” in Rule 12b-2of the Exchange Act.  (Check one):

 

| Large  accelerated filer o |   | Accelerated  filer x        |
|---------------------------------|--------|----------------------------------|
|                            |   |                             |
| Non-accelerated  filer o   |   | Smaller reporting company o |

 

Indicate by check markwhether the registrant is a shell company (as defined in Rule 12b-2 of theExchange Act).  Yes o  No x.

 

The number of shares ofcommon stock outstanding were 70,309,121 on October 30, 2009.

 

 

 

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Tableof Contents

 

**TABLE OFCONTENTS**

 
| PART I.  FINANCIAL INFORMATION                                                                                                             |   |   |
|-------------------------------------------------------------------------------------------------------------------------------------------------|--------|--------|
|                                                                                                                                            |   |   |
| Item  1 — Financial Statements — Texas Roadhouse, Inc. and Subsidiaries                                                          |   | 3      |
| Condensed  Consolidated Balance Sheets — September 29, 2009 and December 30,  2008                                               |   | 3      |
| Condensed  Consolidated Statements of Income — For the 13 and 39 Weeks Ended  September 29, 2009 and September 23, 2008          |   | 4      |
| Condensed Consolidated Statements of Stockholders’  Equity and Comprehensive Income — For the 39 Weeks Ended September 29,  2009 |   | 5      |
| Condensed  Consolidated Statements of Cash Flows — For the 39 Weeks Ended  September 29, 2009 and September  23, 2008            |   | 6      |
| Notes to Condensed Consolidated Financial Statements                                                                                            |   | 7      |
| Item 2 — Management’s Discussion and Analysis of  Financial Condition and Results of Operations                                       |   | 16     |
| Item 3 — Quantitative and Qualitative Disclosures  About Market Risk                                                                       |   | 24     |
| Item 4 — Controls and Procedures                                                                                                           |   | 24     |
|                                                                                                                                            |   |   |
| PART II.  OTHER INFORMATION                                                                                                                |   |   |
|                                                                                                                                            |   |   |
| Item  1 — Legal Proceedings                                                                                                                |   | 25     |
| Item  1A — Risk Factors                                                                                                                    |   | 25     |
| Item 2 — Unregistered Sales of Equity Securities and  Use of Proceeds                                                                      |   | 25     |
| Item 3 — Defaults Upon Senior Securities                                                                                                   |   | 25     |
| Item 4 — Submission of Matters to a Vote of Security  Holders                                                                              |   | 25     |
| Item  5 — Other Information                                                                                                                |   | 25     |
| Item 6 —  Exhibits                                                                                                                         |   | 26     |
|                                                                                                                                            |   |   |
| Signatures                                                                                                                                      |   | 27     |

 

2

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Table of Contents

 

**PART I — FINANCIAL INFORMATION**

 

**ITEM 1 —FINANCIAL STATEMENTS**

 

**TexasRoadhouse, Inc. and Subsidiaries**

**Condensed Consolidated Balance Sheets**

**(inthousands, except share and per share data)**

 
| ** **                                                                                                                                                                                                   | ** ** | **(unaudited)**              | ** ** | ** **                  | ** ** |
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|------------------------------|------------|-----------------------------|------------|
| ** **                                                                                                                                                                                                   | ** ** | **September 29,  2009** | ** ** | **December 30,  2008** | ** ** |
| **Assets**                                                                                                                                                                                                   |       |                         |       |                        |       |
| Current  assets:                                                                                                                                                                                             |       |                         |       |                        |       |
| Cash  and cash equivalents                                                                                                                                                                                   |       | $                            | 35,833     |                        | $          | 5,258 |   |
| Receivables,  net of allowance for doubtful accounts of $810 at September 29, 2009 and  $524 at December 30, 2008                                                                                  |       | 8,471                        |       | 9,922                       |       |
| Inventories,  net                                                                                                                                                                                            |       | 7,046                        |       | 8,140                       |       |
| Prepaid  income taxes                                                                                                                                                                                        |       | —                       |       | 3,429                       |       |
| Prepaid  expenses                                                                                                                                                                                            |       | 3,919                        |       | 6,097                       |       |
| Deferred  tax assets                                                                                                                                                                                         |       | 1,378                        |       | 1,962                       |       |
| Total  current assets                                                                                                                                                                                        |       | 56,647                       |       | 34,808                      |       |
| Property  and equipment, net                                                                                                                                                                                 |       | 457,267                      |       | 456,132                     |       |
| Goodwill                                                                                                                                                                                                     |       | 114,859                      |       | 114,807                     |       |
| Intangible  asset, net                                                                                                                                                                                       |       | 11,958                       |       | 12,807                      |       |
| Other  assets                                                                                                                                                                                                |       | 5,901                        |       | 4,109                       |       |
| Total  assets                                                                                                                                                                                                |       | $                            | 646,632    |                        | $          | 622,663 |   |
|                                                                                                                                                                                                         |       |                         |       |                        |       |
| **Liabilities and Stockholders’ Equity**                                                                                                                                                                |       |                         |       |                        |       |
| Current  liabilities:                                                                                                                                                                                        |       |                         |       |                        |       |
| Current  maturities of long-term debt and obligations under capital leases                                                                                                                                   |       | $                            | 240        |                        | $          | 228 |   |
| Accounts  payable                                                                                                                                                                                            |       | 19,808                       |       | 32,175                      |       |
| Deferred  revenue — gift cards/certificates                                                                                                                                                             |       | 13,303                       |       | 32,265                      |       |
| Accrued  wages                                                                                                                                                                                               |       | 19,072                       |       | 15,500                      |       |
| Income  tax payable                                                                                                                                                                                          |       | 2,623                        |       | —                      |       |
| Accrued  taxes and licenses                                                                                                                                                                                  |       | 11,154                       |       | 8,544                       |       |
| Other  accrued liabilities                                                                                                                                                                                   |       | 10,219                       |       | 10,931                      |       |
| Total  current liabilities                                                                                                                                                                                   |       | 76,419                       |       | 99,643                      |       |
| Long-term  debt and obligations under capital leases, excluding current maturities                                                                                                                           |       | 126,243                      |       | 132,482                     |       |
| Stock  option and other deposits                                                                                                                                                                             |       | 3,527                        |       | 3,784                       |       |
| Deferred  rent                                                                                                                                                                                               |       | 11,534                       |       | 9,920                       |       |
| Deferred  tax liabilities                                                                                                                                                                                    |       | 9,832                        |       | 6,205                       |       |
| Fair  value of derivative financial instruments                                                                                                                                                              |       | 816                          |       | 2,704                       |       |
| Other  liabilities                                                                                                                                                                                           |       | 6,668                        |       | 5,128                       |       |
| Total  liabilities                                                                                                                                                                                           |       | 235,039                      |       | 259,866                     |       |
| Texas  Roadhouse, Inc. and subsidiaries stockholders’ equity:                                                                                                                                      |       |                         |       |                        |       |
| Preferred  stock ($0.001 par value, 1,000,000 shares authorized; no sharesissued or outstanding)                                                                                                             |       | —                       |       | —                      |       |
| Common  stock, Class A, ($0.001 par value, 100,000,000 shares authorized,65,030,353 and 64,070,620 shares issued  and outstanding at September 29, 2009 and December 30, 2008,  respectively) |       | 65                           |       | 64                          |       |
| Common  stock, Class B, ($0.001 par value, 8,000,000 shares authorized,  5,265,376shares  issued and outstanding)                                                                                       |       | 5                            |       | 5                           |       |
| Additional  paid in capital                                                                                                                                                                                  |       | 229,489                      |       | 220,385                     |       |
| Retained  earnings                                                                                                                                                                                           |       | 180,010                      |       | 141,240                     |       |
| Accumulated  other comprehensive loss                                                                                                                                                                        |       | (501                         | )          | (1,704                      | )          |
| Total  Texas Roadhouse, Inc. and subsidiaries stockholders’ equity                                                                                                                                 |       | 409,068                      |       | 359,990                     |       |
| Noncontrolling  interests                                                                                                                                                                                    |       | 2,525                        |       | 2,807                       |       |
| Total  equity                                                                                                                                                                                                |       | 411,593                      |       | 362,797                     |       |
| Total  liabilities and equity                                                                                                                                                                                |       | $                            | 646,632    |                        | $          | 622,663 |   |

 

See accompanyingnotes to condensed consolidated financial statements.

 

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**TexasRoadhouse, Inc. and Subsidiaries**

**Condensed Consolidated Statements of Income**

**(inthousands, except per share data)**

**(unaudited)**

** **
| ** **                                                                            | ** ** | **13 Weeks  Ended**          | ** ** | **39 Weeks  Ended**          | ** ** |
|---------------------------------------------------------------------------------------|------------|------------------------------|------------|------------------------------|------------|
| ** **                                                                            | ** ** | **September 29,  2009** | ** ** | **September 23,  2008** | ** ** | **September 29,  2009** | ** ** | **September 23,  2008** | ** ** |
| Revenue:                                                                              |       |                         |       |                         |       |   |   |   |   |
| Restaurant  sales                                                                     |       | $                            | 224,417    |                         | $          | 215,739 |   | $ | 708,808 |   | $ | 639,127 |   |
| Franchise  royalties and fees                                                         |       | 2,050                        |       | 1,996                        |       | 6,155 |   | 7,132 |   |
|                                                                                  |       |                         |       |                         |       |   |   |   |   |
| Total  revenue                                                                        |       | 226,467                      |       | 217,735                      |       | 714,963 |   | 646,259 |   |
|                                                                                  |       |                         |       |                         |       |   |   |   |   |
| Costs  and expenses:                                                                  |       |                         |       |                         |       |   |   |   |   |
| Restaurant  operating costs:                                                          |       |                         |       |                         |       |   |   |   |   |
| Cost  of sales                                                                        |       | 74,489                       |       | 76,845                       |       | 237,844 |   | 225,205 |   |
| Labor                                                                                 |       | 67,630                       |       | 63,750                       |       | 210,203 |   | 183,996 |   |
| Rent                                                                                  |       | 5,029                        |       | 4,248                        |       | 14,870 |   | 11,138 |   |
| Other  operating                                                                      |       | 38,778                       |       | 36,772                       |       | 119,450 |   | 105,368 |   |
| Pre-opening                                                                           |       | 1,194                        |       | 2,935                        |       | 4,411 |   | 8,973 |   |
| Depreciation  and amortization                                                        |       | 10,395                       |       | 9,444                        |       | 31,482 |   | 27,056 |   |
| Impairment  and closure                                                               |       | (201                         | )          | 43                           |       | (273 | ) | 777 |   |
| General  and administrative                                                           |       | 11,872                       |       | 10,277                       |       | 35,918 |   | 32,585 |   |
|                                                                                  |       |                         |       |                         |       |   |   |   |   |
| Total  costs and expenses                                                             |       | 209,186                      |       | 204,314                      |       | 653,905 |   | 595,098 |   |
|                                                                                  |       |                         |       |                         |       |   |   |   |   |
| Income  from operations                                                               |       | 17,281                       |       | 13,421                       |       | 61,058 |   | 51,161 |   |
|                                                                                  |       |                         |       |                         |       |   |   |   |   |
| Interest  expense, net                                                                |       | 784                          |       | 974                          |       | 2,517 |   | 2,336 |   |
| Equity  income from investments in unconsolidated affiliates                          |       | (36                          | )          | (45                          | )          | (185 | ) | (184 | ) |
|                                                                                  |       |                         |       |                         |       |   |   |   |   |
| Income  before taxes                                                                  |       | 16,533                       |       | 12,492                       |       | 58,726 |   | 49,009 |   |
| Provision  for income taxes                                                           |       | 5,431                        |       | 3,906                        |       | 18,582 |   | 16,498 |   |
| Net  income including noncontrolling interests                                        |       | $                            | 11,102     |                         | $          | 8,586 |   | $ | 40,144 |   | $ | 32,511 |   |
| Less:  Net income (loss) attributable to noncontrolling interests                     |       | 407                          |       | (58                          | )          | 1,374 |   | 482 |   |
|                                                                                  |       |                         |       |                         |       |   |   |   |   |
| Net  income attributable to Texas Roadhouse, Inc. and subsidiaries               |       | $                            | 10,695     |                         | $          | 8,644 |   | $ | 38,770 |   | $ | 32,029 |   |
|                                                                                  |       |                         |       |                         |       |   |   |   |   |
| Net  income per common share attributable to Texas Roadhouse, Inc. and  subsidiaries: |       |                         |       |                         |       |   |   |   |   |
| Basic                                                                                 |       | $                            | 0.15       |                         | $          | 0.12 |   | $ | 0.56 |   | $ | 0.43 |   |
|                                                                                  |       |                         |       |                         |       |   |   |   |   |
| Diluted                                                                               |       | $                            | 0.15       |                         | $          | 0.12 |   | $ | 0.54 |   | $ | 0.43 |   |
|                                                                                  |       |                         |       |                         |       |   |   |   |   |
| Weighted-average  shares outstanding:                                                 |       |                         |       |                         |       |   |   |   |   |
| Basic                                                                                 |       | 70,204                       |       | 71,947                       |       | 69,847 |   | 73,649 |   |
|                                                                                  |       |                         |       |                         |       |   |   |   |   |
| Diluted                                                                               |       | 71,550                       |       | 73,303                       |       | 71,151 |   | 75,242 |   |

 

See accompanyingnotes to condensed consolidated financial statements.

 

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**TexasRoadhouse, Inc. and Subsidiaries**

**Condensed Consolidated Statements of Stockholders’Equity and ComprehensiveIncome**

**(in thousands,except share data)**

**(unaudited)**

** **
| ** **                                                   | ** ** | **Class A** | ** ** | **Class B**     | ** ** | ** ** | ** ** | ** **           | ** ** | **Accumulated********Other** | ** ** | ** **                   | ** ** | ** **                              | ** ** |
|--------------------------------------------------------------|------------|------------------|------------|----------------------|------------|------------|------------|----------------------|------------|------------------------------|------------|------------------------------|------------|-----------------------------------------|------------|
| ** **                                                   | ** ** | **Shares**       | ** ** | **Par********Value** | ** ** | **Shares** | ** ** | **Par********Value** | ** ** | **Paid in********Capital**   | ** ** | **Retained********Earnings** | ** ** | **Comprehensive********Income  (Loss)** | ** ** | **Noncontrolling  Interests** | ** ** | **Total** | ** ** |
|                                                         |       |             |       |                 |       |       |       |                 |       |                         |       |                         |       |                                    |       |   |   |   |   |
| Balance,  December 30, 2008                             |       | 64,070,620       |       | $                    | 64         |       | 5,265,376  |                 | $          | 5                            |       | $                            | 220,385    |                                    | $          | 141,240 |   | $ | (1,704 | ) | $ | 2,807 |   | $ | 362,797 |   |
|                                                         |       |             |       |                 |       |       |       |                 |       |                         |       |                         |       |                                    |       |   |   |   |   |
| Comprehensive  income:                                       |       |             |       |                 |       |       |       |                 |       |                         |       |                         |       |                                    |       |   |   |   |   |
| Unrealized  gain on derivatives, net of tax                  |       | —           |       | —               |       | —     |       | —               |       | —                       |       | —                       |       | 1,203                                   |       | — |   | 1,203 |   |
| Net  income                                                  |       | —           |       | —               |       | —     |       | —               |       | —                       |       | 38,770                       |       | —                                  |       | 1,374 |   | 40,144 |   |
|                                                         |       |             |       |                 |       |       |       |                 |       |                         |       |                         |       |                                    |       |   |   |   |   |
| Total  comprehensive income                                  |       |             |       |                 |       |       |       |                 |       |                         |       |                         |       |                                    |       |   |   | 41,347 |   |
|                                                         |       |             |       |                 |       |       |       |                 |       |                         |       |                         |       |                                    |       |   |   |   |   |
| Distributions  to noncontrolling interests                   |       | —           |       | —               |       | —     |       | —               |       | —                       |       | —                       |       | —                                  |       | (1,656 | ) | (1,656 | ) |
| Shares  issued under stock option plan including tax effects |       | 681,188          |       | 1                    |       | —     |       | —               |       | 4,828                        |       | —                       |       | —                                  |       | — |   | 4,829 |   |
| Settlement  of restricted stock units, net of tax            |       | 278,545          |       | —               |       | —     |       | —               |       | (1,366                       | )          | —                       |       | —                                  |       | — |   | (1,366 | ) |
| Share-based  compensation                                    |       | —           |       | —               |       | —     |       | —               |       | 5,642                        |       | —                       |       | —                                  |       | — |   | 5,642 |   |
|                                                         |       |             |       |                 |       |       |       |                 |       |                         |       |                         |       |                                    |       |   |   |   |   |
| Balance,  September 29, 2009                            |       | 65,030,353       |       | $                    | 65         |       | 5,265,376  |                 | $          | 5                            |       | $                            | 229,489    |                                    | $          | 180,010 |   | $ | (501 | ) | $ | 2,525 |   | $ | 411,593 |   |

 

See accompanyingnotes to condensed consolidated financial statements.

 

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**TexasRoadhouse, Inc. and Subsidiaries**

**Condensed Consolidated Statements of Cash Flows**

**(inthousands)**

**(unaudited)**

 
| ** **                                                                  | ** ** | **39 Weeks Ended**          | ** ** |
|-----------------------------------------------------------------------------|------------|-----------------------------|------------|
| ** **                                                                  | ** ** | **September 29, 2009** | ** ** | **September 23, 2008** | ** ** |
| **Cash flows from operating  activities:**                                  |       |                        |       |   |   |
| Net income including noncontrolling interests                               |       | $                           | 40,144     |   | $ | 32,511 |   |
| Depreciation and amortization                                               |       | 31,482                      |       | 27,056 |   |
| Deferred income taxes                                                       |       | 3,526                       |       | (2,908 | ) |
| Loss on disposition of assets                                               |       | 918                         |       | 827 |   |
| Impairment and closure                                                      |       | (305                        | )          | 611 |   |
| Equity income from investments in unconsolidated  affiliates                |       | (185                        | )          | (184 | ) |
| Distributions received from investments in  unconsolidated affiliates       |       | 261                         |       | 302 |   |
| Provision for doubtful accounts                                             |       | 286                         |       | 200 |   |
| Share-based compensation expense                                            |       | 5,642                       |       | 5,578 |   |
| Changes in operating working capital:                                       |       |                        |       |   |   |
| Receivables                                                                 |       | 1,165                       |       | 7,104 |   |
| Inventories                                                                 |       | 1,094                       |       | (112 | ) |
| Prepaid expenses and other current assets                                   |       | 2,160                       |       | 1,614 |   |
| Other assets                                                                |       | (1,860                      | )          | (443 | ) |
| Accounts payable                                                            |       | (12,367                     | )          | (2,621 | ) |
| Deferred revenue — gift cards/certificates                             |       | (18,962                     | )          | (19,040 | ) |
| Accrued wages                                                               |       | 3,572                       |       | 621 |   |
| Excess tax benefits from share-based compensation                           |       | (1,671                      | )          | (2,930 | ) |
| Prepaid income taxes and income taxes payable                               |       | 8,288                       |       | 2,688 |   |
| Accrued taxes and licenses                                                  |       | 2,590                       |       | 3,716 |   |
| Other accrued liabilities                                                   |       | (740                        | )          | 1,622 |   |
| Deferred rent                                                               |       | 1,614                       |       | 1,707 |   |
| Other liabilities                                                           |       | 1,644                       |       | 331 |   |
|                                                                        |       |                        |       |   |   |
| Net cash provided by operating activities                                   |       | $                           | 68,296     |   | 58,250 |   |
|                                                                        |       |                        |       |   |   |
| **Cash flows from investing  activities:**                                  |       |                        |       |   |   |
| Capital expenditures — property and equipment                          |       | (34,814                     | )          | (75,413 | ) |
| Acquisitions of franchise restaurants, net of cash  acquired                |       | 25                          |       | (18,405 | ) |
| Proceeds from sale of property and equipment,  including insurance proceeds |       | 2,329                       |       | 289 |   |
|                                                                        |       |                        |       |   |   |
| Net cash used in investing activities                                       |       | $                           | (32,460    | ) | $ | (93,529 | ) |
|                                                                        |       |                        |       |   |   |
| **Cash flows from financing  activities:**                                  |       |                        |       |   |   |
| (Repayments of) proceeds from revolving credit  facility, net               |       | (6,000                      | )          | 86,000 |   |
| Proceeds from noncontrolling interests  contributions and other             |       | —                      |       | 878 |   |
| Investments in unconsolidated affiliates                                    |       | (19                         | )          | — |   |
| Distributions to noncontrolling interest holders                            |       | (1,656                      | )          | (957 | ) |
| Excess tax benefits from share-based compensation                           |       | 1,671                       |       | 2,930 |   |
| Repurchase shares of common stock                                           |       | —                      |       | (52,578 | ) |
| Repayments of stock option and other deposits                               |       | (1,182                      | )          | — |   |
| Proceeds from stock option and other deposits                               |       | 925                         |       | 321 |   |
| Settlement of restricted stock units, net of tax                            |       | (1,366                      | )          | — |   |
| Principal payments on long-term debt and capital  lease obligations         |       | (227                        | )          | (1,015 | ) |
| Proceeds from exercise of stock options                                     |       | 2,593                       |       | 1,855 |   |
|                                                                        |       |                        |       |   |   |
| Net cash (used in)/provided by financing activities                         |       | $                           | (5,261     | ) | $ | 37,434 |   |
|                                                                        |       |                        |       |   |   |
| Net increase in cash and cash equivalents                                   |       | 30,575                      |       | 2,155 |   |
| Cash and cash equivalents — beginning of period                        |       | 5,258                       |       | 11,564 |   |
| Cash and cash equivalents — end of period                              |       | $                           | 35,833     |   | $ | 13,719 |   |
|                                                                        |       |                        |       |   |   |
| Supplemental disclosures of cash flow information:                          |       |                        |       |   |   |
|   Interest,  net of amounts capitalized                                |       | $                           | 2,603      |   | $ | 2,540 |   |
|   Income  taxes, net of refunds                                        |       | $                           | 6,784      |   | $ | 16,753 |   |

 

See accompanyingnotes to condensed consolidated financial statements.

 

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**TexasRoadhouse, Inc. and Subsidiaries**

**Notes to Condensed Consolidated FinancialStatements**

**(Tabulardollar amounts in thousands, except per share data)**

**(unaudited)**

 

**(1)   Basis ofPresentation**

 

The accompanyingunaudited condensed consolidated financial statements include the accounts ofTexas Roadhouse, Inc. (the “Company”), its wholly-owned subsidiaries andsubsidiaries in which it owns more than 50 percent interest, as of and for the13 and 39 weeks ended September 29, 2009 and September 23, 2008.  Texas Roadhouse, Inc.’s wholly-ownedsubsidiaries include: Texas Roadhouse Holdings LLC (“Holdings”), TexasRoadhouse Development Corporation (“TRDC”) and Texas Roadhouse ManagementCorp. (“Management Corp”).  The Company and its subsidiaries operate TexasRoadhouse restaurants. Holdings also provides supervisory and administrativeservices for certain other franchise and license restaurants. TRDC sellsfranchise rights and collects the franchise royalties and fees. Management Corp. provides management services to the Company, Holdings andcertain other license and franchise restaurants.  All material balances and transactionsbetween the consolidated entities have been eliminated.  In accordance with the Company’s adoption ofFinancial Accounting Standards Board (“FASB”) Accounting Standards Codification(“ASC”) 810-10-50, *Consolidation*,  noncontrolling interests (previously shown as“minority interest in consolidated subsidiaries”) are reported below net incomeunder the heading “Net income attributable to the noncontrolling interests” inthe condensed consolidated statements of income and shown as a component ofequity in the condensed consolidated balance sheets.

 

Management of the Companyhas made a number of estimates and assumptions relating to the reporting ofassets and liabilities, the disclosure of contingent assets and liabilities atthe date of the condensed consolidated financial statements and the reportingof revenue and expenses during the period to prepare these condensedconsolidated financial statements in conformity with U.S. generally acceptedaccounting principles (“GAAP”). Significant items subject to such estimates andassumptions include the carrying amount of property and equipment, goodwill,obligations related to insurance reserves, income taxes and share-basedcompensation expense. Actual results could differ from those estimates.

 

In the opinion ofmanagement, the accompanying unaudited financial statements reflect alladjustments, consisting only of normal recurring adjustments, necessary topresent fairly the financial position, results of operations and cash flows ofthe Company for the periods presented.  The financial statements have beenprepared in accordance with GAAP, except that certain information and footnoteshave been condensed or omitted pursuant to rules and regulations of theSecurities and Exchange Commission (“SEC”).  Operating results for the 13and 39 weeks ended September 29, 2009 are not necessarily indicative ofthe results that may be expected for the year ending December 29,2009.  The financial statements should be read in conjunction with theconsolidated financial statements and notes thereto included in the Company’sAnnual Report on Form 10-K for the year ended December 30, 2008.

 

The Company’s significantinterim accounting policies include the recognition of income taxes using anestimated annual effective tax rate.

 

The Company has performedan evaluation of subsequent events through November 6, 2009, which is thedate the financial statements were issued.

 

**(2)   Share-basedCompensation**

 

The Company may grantincentive and non-qualified stock options to purchase shares of Class Acommon stock, stock bonus awards (restricted stock unit awards (“RSUs”)) andrestricted stock awards under the Texas Roadhouse, Inc. 2004 EquityIncentive Plan (the “Plan”).  Beginningin 2008, the Company changed the method by which it provides share-basedcompensation to its employees by eliminating stock option grants and, instead,granting RSUs as a form of share-based compensation.   An RSU is the conditional right to receiveone share of Class A common stock upon satisfaction of the vestingrequirement.

 

The following tablesummarizes the share-based compensation recorded in the accompanying condensedconsolidated statements of income:

 
| ** **                              | ** ** | **13  Weeks Ended**          | ** ** | **39  Weeks Ended**          | ** ** |
|-----------------------------------------|------------|------------------------------|------------|------------------------------|------------|
| ** **                              | ** ** | **September 29,  2009** | ** ** | **September 23,  2008** | ** ** | **September 29,  2009** | ** ** | **September 23,  2008** | ** ** |
|                                    |       |                         |       |                         |       |   |   |   |   |
| Labor  expense                          |       | $                            | 694        |                         | $          | 702 |   | $ | 2,116 |   | $ | 1,870 |   |
| General  and administrative expense     |       | 1,134                        |       | 1,294                        |       | 3,526 |   | 3,708 |   |
| Total  share-based compensation expense |       | $                            | 1,828      |                         | $          | 1,996 |   | $ | 5,642 |   | $ | 5,578 |   |

 

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A summary ofshare-based compensation activity by type of grant as of September 29,2009 and changes during the period then ended is presented below.

 

*Summary Details for Plan ShareOptions*

 

| ** **                              | ** ** | **Shares** | ** ** | **Weighted-  Average  Exercise Price** | ** ** | **Weighted-Average  Remaining Contractual  Term (years)** | ** ** | **Aggregate  Intrinsic  Value** | ** ** |
|-----------------------------------------|------------|------------|------------|---------------------------------------------|------------|-----------------------------------------------------------|------------|---------------------------------|------------|
|                                    |       |       |       |                                        |       |                                                      |       |                            |       |
| Outstanding  at December 30, 2008  |       | 6,276,323  |       | $                                           | 10.14      |                                                      |       |                            |       |   |
| Granted                                 |       | —     |       | —                                      |       |                                                      |       |                            |       |
| Forfeited                               |       | (114,414   | )          | 13.55                                       |       |                                                      |       |                            |       |
| Exercised                               |       | (681,188   | )          | 3.85                                        |       |                                                      |       |                            |       |
| Outstanding  at September 29, 2009 |       | 5,480,721  |       | $                                           | 10.85      |                                                      | 5.56       |                            | $          | 10,421 |   |
|                                    |       |       |       |                                        |       |                                                      |       |                            |       |
| Exercisable  at September 29, 2009 |       | 4,997,026  |       | $                                           | 10.55      |                                                      | 5.39       |                            | $          | 10,392 |   |

 

No stock options weregranted during the 39 weeks ended September 29, 2009.

 

The total intrinsic valueof options exercised during the 13 weeks ended September 29, 2009 and September 23,2008 was $0.8 million and $7.0 million, respectively.  The total intrinsic value of optionsexercised during the 39 weeks ended September 29, 2009 and September 23,2008 was $4.9 million and $8.1 million, respectively.  As of September 29, 2009, with respectto unvested stock options, there was $0.1 million of unrecognized compensationcost that is expected to be recognized over a weighted-average period of 0.3year.  The total grant date fair value ofstock options vested for the 13 week periods ended September 29, 2009 and September 23,2008 was $0.2 million and $1.6 million, respectively.  The total grant date fair value of stockoptions vested for both 39 week periods ended September 29, 2009 and September 23,2008 was $1.0 million and $5.0 million, respectively.

 

*SummaryDetails for RSUs*

 
| ** **                              | ** ** | **Shares** | ** ** | **Weighted-  Average  Grant Date  Fair Value** | ** ** |
|-----------------------------------------|------------|------------|------------|------------------------------------------------|------------|
|                                    |       |       |       |                                           |       |
| Outstanding  at December 30, 2008  |       | 1,253,530  |       | $                                              | 9.63       |   |
| Granted                                 |       | 505,174    |       | 9.94                                           |       |
| Forfeited                               |       | (39,276    | )          | 8.97                                           |       |
| Vested                                  |       | (409,393   | )          | 10.21                                          |       |
| Outstanding  at September 29, 2009 |       | 1,310,035  |       | $                                              | 9.59       |   |

 

As of September 29,2009, with respect to unvested RSUs, there was $8.5 million of unrecognizedcompensation cost that is expected to be recognized over a weighted-averageperiod of 1.7 years.  The vesting termsof the RSUs range from approximately 1.0 to 5.0 years.  The total grant date fair value of RSUsvested for the 13 and 39 week periods ended September 29, 2009 was $0.8million and $4.2 million.

 

**(3)   Long-termDebt and Obligations Under Capital Leases**

 

Long-term debt andobligations under capital leases consisted of the following:

 
| ** **                               | ** ** | **September 29,  2009** | ** **    | **December 30,  2008** | ** ** |
|------------------------------------------|------------|------------------------------|---------------|-----------------------------|------------|
| Installment  loans, due 2009 – 2020 |       | $                            | 2,069         |                        | $          | 2,194 |   |
| Obligations  under capital leases        |       | 414                          |          | 516                         |       |
| Revolver                                 |       | 124,000                      |          | 130,000                     |       |
|                                     |       | 126,483                      |          | 132,710                     |       |
| Less  current maturities                 |       | 240                          |          | 228                         |       |
|                                     |       | $                            |  126,243 |                        | $          | 132,482 |   |

 

The weighted-averageinterest rate for installment loans outstanding at September 29, 2009 and December 30,2008 was 10.58% and 10.55%, respectively. The debt is secured by certain land and buildings.

 

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The Company has a $250.0million five-year revolving credit facility with a syndicate of commerciallenders led by Bank of America, N.A., Banc of America Securities LLC andNational City Bank which, in December 2008, was acquired by PNC Bank.  The facility expires on May 31,2012.  The terms of the facility requirethe Company to pay interest on outstanding borrowings at LIBOR plus a margin of0.50% to 0.875%, depending on its leverage ratio, or the Base Rate, which isthe higher of the issuing bank’s prime lending rate or the Federal Funds rateplus 0.50%.  The Company is also requiredto pay a commitment fee of 0.10% to 0.175% per year on any unused portion ofthe facility, depending on its leverage ratio. The weighted-average interest rate for the revolver at September 29,2009 and December 30, 2008 was 2.07% and 2.73%, respectively.  At September 29, 2009, the Company had$124.0 million outstanding under the credit facility and $122.0 million ofavailability, net of $4.0 million of outstanding letters of credit.

 

The lenders’ obligationto extend credit under the facility depends on the Company maintaining certainfinancial covenants, including a minimum consolidated fixed charge coverageratio of 2.00 to 1.00 and a maximum consolidated leverage ratio of 3.00 to1.00.  The credit facility permits theCompany to incur additional secured or unsecured indebtedness outside thefacility, except for the incurrence of secured indebtedness that in theaggregate exceeds 20% of the Company’s consolidated tangible net worth orcircumstances where the incurrence of secured or unsecured indebtedness wouldprevent the Company from complying with its financial covenants.  The Company was in compliance with allcovenants as of September 29, 2009.

 

**(4)   Derivative and HedgingActivities**

 

The Company entersinto derivative instruments for risk management purposes only, includingderivatives designated as hedging instruments under FASB ASC 815, *Derivatives and Hedging*(“ASC 815”)*. *The Company uses interestrate-related derivative instruments to manage its exposure to fluctuations ofinterest rates.  By using theseinstruments, the Company exposes itself, from time to time, to credit risk andmarket risk.  Credit risk is the failureof the counterparty to perform under the terms of the derivative contract. Whenthe fair value of a derivative contract is positive, the counterparty owes theCompany, which creates credit risk for the Company.  The Company minimizes the credit risk by enteringinto transactions with high-quality counterparties whose credit rating isevaluated on a quarterly basis.  TheCompany’s counterparty in the interest rate swaps is J.P. Morgan Chase,N.A.  Market risk is the adverse effecton the value of a financial instrument that results from a change in interestrates, commodity prices, or the market price of the Company’s commonstock.  The Company minimizes market riskby establishing and monitoring parameters that limit the types and degree ofmarket risk that may be taken.

 

*InterestRate Swaps*

 

On October 22, 2008,the Company entered into an interest rate swap, starting on November 7,2008, with a notional amount of $25.0 million to hedge a portion of the cashflows of its variable rate credit facility. The Company has designated the interest rate swap as a cash flow hedgeof its exposure to variability in future cash flows attributable to interestpayments on a $25.0 million tranche of floating rate debt borrowed under itsrevolving credit facility.  Under theterms of the swap, the Company pays a fixed rate of 3.83% on the $25.0 millionnotional amount and receives payments from the counterparty based on the1-month LIBOR rate for a term ending on November 7, 2015, effectivelyresulting in a fixed rate LIBOR component of the $25.0 million notional amount.

 

On January 7, 2009,the Company entered into an interest rate swap, starting on February 7,2009, with a notional amount of $25.0 million to hedge a portion of the cashflows of its variable rate credit facility. The Company has designated the interest rate swap as a cash flow hedgeof its exposure to variability in future cash flows attributable to interestpayments on a $25.0 million tranche of floating rate debt borrowed under itsrevolving credit facility.  Under theterms of the swap, the Company pays a fixed rate of 2.34% on the $25.0 millionnotional amount and receives payments from the counterparty based on the1-month LIBOR rate for a term ending on January 7, 2016, effectivelyresulting in a fixed rate LIBOR component of the $25.0 million notional amount.

 

The Company entered intothe above interest rate swaps with the objective of eliminating the variabilityof its interest expense that arises because of changes in the variable interestrate for the designated interest payments. Changes in the fair value of the interest rate swap will be reported asa component of accumulated other comprehensive income.  The Company will reclassify any gain or lossfrom accumulated other comprehensive income, net of tax, on the Company’sconsolidated balance sheet to interest expense on the Company’s consolidatedstatement of income when the interest rate swap expires or at the time theCompany chooses to terminate the swap. See note 10 for fair value discussion of these interest rate swaps.

 

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The following tablesummarizes the fair value and presentation in the condensed consolidatedbalance sheets for derivatives designated as hedging instruments under FASB ASC815:

 
| ** **                                                            | ** ** | **Balance**         | ** ** | **Derivative Assets**        | ** ** | **Derivative Liabilities**  | ** ** |
|-----------------------------------------------------------------------|------------|---------------------|------------|------------------------------|------------|-----------------------------|------------|
| ** **                                                            | ** ** | **Sheet  Location** | ** ** | **September 29,  2009** | ** ** | **December 30,  2008** | ** ** | **September 29,  2009** | ** ** | **December 30,  2008** | ** ** |
|                                                                  |       |                |       |                         |       |                        |       |   |   |   |   |
| Derivative Contracts Designated as Hedging  Instruments under ASC 815 |       | (1)                 |       |                         |       |                        |       |   |   |   |   |
| Interest rate swaps                                                   |       |                |       | $                            | —     |                        | $          | — |   | $ | 816 |   | $ | 2,704 |   |
|                                                                  |       |                |       |                         |       |                        |       |   |   |   |   |
| Total Derivative Contracts                                            |       |                |       | $                            | —     |                        | $          | — |   | $ | 816 |   | $ | 2,704 |   |

 

----

(1)          Derivative assets and liabilities areincluded in fair value of derivative financial instruments on the condensedconsolidated balance sheets.

 

The followingtable summarizes the effect of derivative instruments on the condensedconsolidated statements of income for the 39 weeks ended September 29,2009 and September 23, 2008:

 
| ** **          | ** ** | **Amount of Gain (Loss)  Recognized in AOCI  (effective portion)** | ** ** | **Location of  Gain (Loss)  Reclassified  from AOCI** | ** ** | **Amount of Gain (Loss)  Reclassified from AOCI  to Income (effective   portion)** | ** ** | **Location of  Gain (Loss)  Recognized  in Income  (ineffective** | ** ** | **Amount of Gain (Loss)  Recognized in Income  (ineffective portion)** | ** ** |
|---------------------|------------|--------------------------------------------------------------------|------------|-------------------------------------------------------|------------|------------------------------------------------------------------------------------|------------|-------------------------------------------------------------------|------------|------------------------------------------------------------------------|------------|
| ** **          | ** ** | **2009**                                                           | ** ** | **2008**                                              | ** ** | **Income**                                                                         | ** ** | **2009**                                                          | ** ** | **2008**                                                               | ** ** | **portion)** | ** ** | **2009** | ** ** | **2008** | ** ** |
|                |       |                                                               |       |                                                  |       |                                                                               |       |                                                              |       |                                                                   |       |   |   |   |   |   |   |
| Interest rate swaps |       | $                                                                  | 1,203      |                                                  | $          | —                                                                             |       | —                                                            |       | $                                                                      | —     |   | $ | — |   | — |   | $ | — |   | $ | — |   |
|                     |            |                                                                    |            |                                                       |            |                                                                                    |            |                                                                   |            |                                                                        |            |  |  |  |  |  |  |  |  |  |  |  |  |

 

**(5)****          ****Recent Accounting Pronouncements**

 

***FASB Accounting Standards Codification***

*(AccountingStandards Update (“ASU”) 2009-01)*

 

InJune 2009, the FASB approved the FASB Accounting Standards Codification (“theCodification”) as the single source of authoritative, nongovernmental U.S.generally accepted accounting principle (“GAAP”). The Codification did not change GAAP but reorganizes theliterature.  The Codification iseffective for interim and annual periods ending after September 15, 2009(the Company’s fiscal 2009 third quarter) and impacts the Company’s financial statementsas all future references to authoritative accounting literature will bereferenced in accordance with the Codification. There have been no changes to the content of the Company’s financialstatements or disclosures as a result of implementing the Codification duringthe quarter ended September 29, 2009.

 

Asa result of the Company’s implementation of the Codification during the quarterended September 29, 2009, previous references to new accounting standardsand literature are no longer applicable. In the current quarter financial statements, the Company will providereference to both new and old guidance to assist in understanding the impactsof recently adopted accounting literature.

 

***Fair Value of Financial Instruments***

*(Includedin ASC 825, “Financial Instruments”, previously FAS 107-1 and APB 28-1*, “*Interim Disclosures aboutFair Value of Financial Instruments”)*

 

FSP FAS 107-1 requiresfair value disclosures on an interim basis for financial instruments that arenot reflected in the condensed consolidated balance sheets at fair value.  Prior to the issuance of FSP FAS 107-1, thefair values of those financial instruments were only disclosed on an annualbasis.  FSP FAS 107-1 is effective forinterim reporting periods that end after June 15, 2009 (the Company’sfiscal 2009 second quarter).  Theadoption of FSP FAS 107-1 did not have a material impact on the Company’sconsolidated financial position, results of operations or cash flows.

 

***SubsequentEvents***

*(Included in ASC 855, “Subsequent Events”,previously SFAS No. 165*, “*SubsequentEvents”)*

 

SFAS165 establishes general standards of accounting for and disclosure of eventsthat occur after the balance sheet date but before financial statements areissued or are available to be issued. SFAS 165 also requires disclosure of the date through which an entityhas evaluated subsequent events and the basis for that date.  SFAS 165 is effective for interim or annualperiods ending after 

 

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June 15,2009 (the Company’s fiscal 2009 second quarter).  The adoption of SFAS 165 did not materiallyimpact the Company.  The Company hasperformed an evaluation of subsequent events through November 6, 2009,which is the date the financial statements were issued.

 

***Consolidationof Variable Interest Entities — Amended***

*(To be included in ASC 810, “Consolidation”,previously SFAS 167, “Amendments to FASB Interpretation No. 46(R)”)*

 

SFAS167 amends FASB Interpretation No. 46(R), *Consolidationof Variable Interest Entities*, regarding certain guidance fordetermining the primary beneficiary of a variable interest entity.  In addition, SFAS 167 requires ongoingassessments of whether an enterprise is the primary beneficiary of a variableinterest entity.  SFAS 167 is effectivefor the first annual reporting period that begins after November 15, 2009(fiscal year 2010 for the Company).  TheCompany is currently evaluating the impact of the adoption of SFAS 167 on itsconsolidated financial position, results of operations and cash flows.

 

**(6)****          ****Commitments and Contingencies**

 

The estimated cost ofcompleting capital project commitments at September 29, 2009 and December 30,2008 was approximately $17.9 million and $34.0 million, respectively.

 

The Company entered intoreal estate lease agreements for franchise restaurants located in Everett, MA,Longmont, CO, Montgomeryville, PA, Fargo, ND and Logan, UT before grantingfranchise rights for those restaurants. The Company has subsequently assignedthe leases to the franchisees, but remains contingently liable if a franchiseedefaults under the terms of a lease.  The Longmont lease was assigned in October 2003and expires in May 2014, the Everett lease was assigned in September 2002and expires in February 2018, the Montgomeryville lease was assigned in October 2004and expires in June 2021, the Fargo lease was assigned in February 2006and expires in July 2016 and the Logan lease was assigned in January 2009and expires in August 2019.  As thefair value of the guarantees is not considered significant, no liability hasbeen recorded.  As discussed in note 7,the Everett, MA, Longmont, CO, and Fargo, ND restaurants are owned, in whole orpart, by certain officers, directors or 5% shareholders of the Company.

 

The Company is involvedin various claims and legal actions arising in the normal course of business.In the opinion of management, the ultimate disposition of these matters willnot have a material effect on the Company’s consolidated financial position,results of operations, or cash flows.

 

The Company currentlybuys most of its beef from two suppliers. Although there are a limited numberof beef suppliers, management believes that other suppliers could provide asimilar product on comparable terms. A change in suppliers, however, couldcause supply shortages and a possible loss of sales, which would affectoperating results adversely. The Company has no material minimum purchasecommitments with its vendors that extend beyond a year.

 

**(7)   RelatedParty Transactions**

 

The Longview, Texasrestaurant leases the land and restaurant building from an entity controlled bySteven L. Ortiz, the Company’s Chief Operating Officer. The lease term is15 years and will terminate in November 2014. The lease can berenewed for two additional terms of five years each. Rent is approximately$16,000 per month and will increase by 5% on the 11th anniversary date ofthe lease. The lease can be terminated if the tenant fails to pay the rent on atimely basis, fails to maintain the insurance specified in the lease, fails tomaintain the building or property or becomes insolvent. Total rent paymentswere approximately $50,000 for each of the 13 week periods ended September 29,2009 and September 23, 2008.   Forthe 39 weeks ended September 29, 2009 and September 23, 2008, rentpayments were $0.1 million.

 

The Bossier City,Louisiana restaurant, of which Steven L. Ortiz beneficially owns 66.0% and theCompany owns 5.0%, leases the land and building from an entity owned by Mr. Ortiz.  The lease term is 15 years and will terminateon March 31, 2020.  The lease can berenewed for three additional terms of five years each.  Rent is approximately $15,000 per month forthe first five years of the lease and escalates 10% each five year periodduring the term.  The lease can beterminated if the tenant fails to pay rent on a timely basis, fails to maintaininsurance, abandons the property or becomes insolvent.  Total rent payments were approximately$45,000 for each of the 13 week periods ended September 29, 2009 and September 23,2008.  For the 39 weeks ended September 29,2009 and September 23, 2008, rent payments were $0.1 million.

 

The Company has 14franchise and license restaurants owned, in whole or part, by certain officers,directors or 5% shareholders of the Company at September 29, 2009 and September 23,2008. These entities paid the Company fees of approximately $0.5 million duringeach of the 13 week periods ended September 29, 2009 and September 23,2008, respectively.  For the 39 weeksended September 29, 2009 and September 23, 2008, these entities paidthe Company fees of $1.5 million and $1.6 million, respectively.  As disclosed in note 6, the Company iscontingently liable on leases which are related to three of these restaurants.

 

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**(8)   EarningsPer Share**

 

The share and net incomeper share data for all periods presented are based on the historicalweighted-average shares outstanding.  The diluted earnings per sharecalculations show the effect of the weighted-average stock options, RSUs andrestricted stock awards outstanding from the Plan as discussed in note 2.  For the 13 and 39 weeks ended September 29,2009, options to purchase 2,841,558 and 3,057,085 shares of common stock,respectively, were outstanding, but not included in the computation of dilutedearnings per share because their inclusion would have had an anti-dilutiveeffect.  For the 13 and 39 weeks ended September 23,2008, options to purchase 3,721,689 and 3,251,267  shares of common stock, respectively, wereoutstanding, but not included in the computation of diluted earnings per sharebecause their inclusion would have had an anti-dilutive effect.

 

The following table setsforth the calculation of weighted-average shares outstanding (in thousands) aspresented in the accompanying condensed consolidated statements of income:

 
| ** **                                                              | ** ** | **13 Weeks  Ended**          | ** ** | **39 Weeks  Ended**          | ** ** |
|-------------------------------------------------------------------------|------------|------------------------------|------------|------------------------------|------------|
| ** **                                                              | ** ** | **September 29,  2009** | ** ** | **September 23,  2008** | ** ** | **September 29,  2009** | ** ** | **September 23,  2008** | ** ** |
| Net  income attributable to Texas Roadhouse, Inc. and subsidiaries |       | $                            | 10,695     |                         | $          | 8,644 |   | $ | 38,770 |   | $ | 32,029 |   |
|                                                                    |       |                         |       |                         |       |   |   |   |   |
| Basic  EPS:                                                             |       |                         |       |                         |       |   |   |   |   |
| Weighted-average  common shares outstanding                             |       | 70,204                       |       | 71,947                       |       | 69,847 |   | 73,649 |   |
|                                                                    |       |                         |       |                         |       |   |   |   |   |
| Basic  EPS                                                              |       | $                            | 0.15       |                         | $          | 0.12 |   | $ | 0.56 |   | $ | 0.43 |   |
|                                                                    |       |                         |       |                         |       |   |   |   |   |
| Diluted  EPS:                                                           |       |                         |       |                         |       |   |   |   |   |
| Weighted-average  common shares outstanding                             |       | 70,204                       |       | 71,947                       |       | 69,847 |   | 73,649 |   |
| Dilutive  effect of stock options and restricted stock                  |       | 1,346                        |       | 1,356                        |       | 1,304 |   | 1,593 |   |
| Shares  – diluted                                                  |       | 71,550                       |       | 73,303                       |       | 71,151 |   | 75,242 |   |
|                                                                    |       |                         |       |                         |       |   |   |   |   |
| Diluted  EPS                                                            |       | $                            | 0.15       |                         | $          | 0.12 |   | $ | 0.54 |   | $ | 0.43 |   |

 

**(9)   Acquisitions**

 

On September 24,2008, the Company acquired one franchise restaurant.  Pursuant to the terms of the acquisitionagreement, the Company paid a purchase price of approximately $1.4million.  This acquisition is consistentwith the Company’s long-term strategy to increase net income and earnings pershare.

 

This transaction wasaccounted for using the purchase method as defined in SFAS No. 141, *Business Combinations* (“SFAS 141”).  Based on a purchase price of $1.4 million,including approximately $0.1 million of direct acquisition costs and net of $0.1million of cash acquired, and the Company’s estimates of the fair value of netassets acquired, $1.1 million of goodwill was generated by the acquisition,which is not amortizable for book purposes, but is deductible for tax purposes.

 

The purchase price hasbeen allocated as follows:

 
| Current  assets              |   | $      | 20     |   |
|------------------------------|--------|--------|--------|--------|
| Property  and equipment, net |   | 204    |   |
| Goodwill                     |   | 1,069  |   |
| Intangible  asset            |   | 270    |   |
| Current  liabilities         |   | (120   | )      |
|                         |   |   |   |
|                         |   | $      | 1,443  |   |

 

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If the acquisitionhad been completed as of the beginning of the year ended December 30,2008, pro forma revenue, net income and earnings per share would have been asfollows:

 

| ** **   | ** ** | **13  Weeks Ended**          | ** ** | **39  Weeks Ended**          | ** ** |
|--------------|------------|------------------------------|------------|------------------------------|------------|
| ** **   | ** ** | **September 23,  2008** | ** ** | **September 23,  2008** | ** ** |
|         |       |                         |       |                         |       |
| Revenue      |       | $                            | 218,503    |                         | $          | 648,884 |   |
| Net  income  |       | $                            | 8,593      |                         | $          | 32,050 |   |
| Basic  EPS   |       | $                            | 0.12       |                         | $          | 0.44 |   |
| Diluted  EPS |       | $                            | 0.12       |                         | $          | 0.43 |   |

 

As a result of thisacquisition, the Company recorded an intangible asset relating to certainreacquired franchise rights of $0.3 million in accordance with Emerging IssuesTask Force (“EITF”) Issue No. 04-1, *Accounting for PreexistingRelationships between the Parties to a Business Combination* (“EITF04-1”).  EITF 04-1 requires that abusiness combination between two parties that have a preexisting relationshipbe evaluated to determine if a settlement of a preexisting relationship exists.EITF 04-1 also requires that certain reacquired rights (including therights to the acquirer’s trade name under a franchise agreement) be recognizedas intangible assets apart from goodwill. However, if a contract giving rise tothe reacquired rights includes terms that are favorable or unfavorable when comparedto pricing for current market transactions for the same or similar items,EITF 04-1 requires that a settlement gain or loss be measured as thelesser of (i) the amount by which the contract is favorable or unfavorableunder market terms from the perspective of the acquirer or (ii) the statedsettlement provisions of the contract available to the counterparty to whichthe contract is unfavorable.

 

The intangible asset of$0.3 million has a weighted-average life of approximately 15 years.  When calculating this intangible asset, theCompany considered the remaining term of the existing franchise agreementincluding renewals.  The Company recordedamortization expense relating to the intangible asset of approximately $4,300and $13,000 for the 13 and 39 weeks ended September 29, 2009,respectively.  The Company expects theannual expense for each of the next five years to be approximately $17,000.

 

Effective July 23,2008, the Company completed the acquisitions of nine franchise restaurantslocated in Tennessee.  Pursuant to theterms of the acquisition agreements, the Company paid an aggregate purchaseprice of approximately $8.4 million. These acquisitions are consistent with the Company’s long-term strategyto increase net income and earnings per share.

 

These transactions wereaccounted for using the purchase method as defined in SFAS 141.  Based on a purchase price of $8.4 million,including approximately $0.2 million of direct acquisition costs and net of the$0.1 million of cash acquired and the $0.1 million charge related to EITF 04-1and the Company’s estimates of the fair value of net assets acquired, $5.7million of goodwill was generated by the acquisitions, which is not amortizablefor book purposes, but is deductible for tax purposes.

 

The purchase price hasbeen allocated as follows:

 
| Current  assets              |   | $      | 264    |   |
|------------------------------|--------|--------|--------|--------|
| Property  and equipment, net |   | 1,741  |   |
| Goodwill                     |   | 5,698  |   |
| Intangible  asset            |   | 3,465  |   |
| Current  liabilities         |   | (2,778 | )      |
|                         |   |   |   |
|                         |   | $      | 8,390  |   |

 

If the acquisitions hadbeen completed as of the beginning of the year ended December 30, 2008,pro forma revenue, net income and earnings per share would have been asfollows:

 
| ** **   | ** ** | **13  Weeks Ended**          | ** ** | **39  Weeks Ended**          | ** ** |
|--------------|------------|------------------------------|------------|------------------------------|------------|
| ** **   | ** ** | **September 23,  2008** | ** ** | **September 23,  2008** | ** ** |
|         |       |                         |       |                         |       |
| Revenue      |       | $                            | 219,758    |                         | $          | 662,563 |   |
| Net  income  |       | $                            | 8,499      |                         | $          | 31,739 |   |
| Basic  EPS   |       | $                            | 0.12       |                         | $          | 0.43 |   |
| Diluted  EPS |       | $                            | 0.12       |                         | $          | 0.42 |   |

 

As a result of theseacquisitions, the Company incurred a charge of $0.1 million and recorded anintangible asset relating to certain reacquired franchise rights of $3.5million in accordance with EITF 04-1.

 

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The intangible asset of$3.5 million has a weighted-average life of approximately 13 years.  When calculating this intangible asset, theCompany considered the remaining term of the existing franchise agreementsincluding renewals.  The remaining termsranged from 10 to 19 years.  The Companyrecorded amortization expense relating to the intangible asset of approximately$0.1 million and $0.2 million for the 13 and 39 weeks ended September 29,2009, respectively.  The Company expectsthe annual expense for each of the next five years to be $0.3 million.

 

**(10) Fair Value Measurement**

 

The following tablepresents the fair values for the Company’s financial assets and liabilitiesmeasured on a recurring basis as of September 29, 2009:

 
| ** **                               | ** ** | ** ** | ** ** | **Fair  Value Measurements**                                           | ** ** |
|------------------------------------------|------------|------------|------------|------------------------------------------------------------------------|------------|
| ** **                               | ** ** | **Total**  | ** ** | **Quoted  Prices in  Active Markets  for Identical  Assets (Level 1)** | ** ** | **Significant  Other  Observable  Inputs (Level 2)** | ** ** | **Significant  Unobservable  Inputs (Level 3)** | ** ** |
|                                     |       |       |       |                                                                   |       |   |   |   |   |
| Interest rate swaps                      |       | $          | (816       | )                                                                      | $          | — |   | $ | (816 | ) | $ | — |   |
| Deferred compensation plan – assets |       | 3,112      |       | 3,112                                                                  |       | — |   | — |   |
| Deferred compensation plan - liabilities |       | (3,084     | )          | (3,084                                                                 | )          | — |   | — |   |
|                                     |       |       |       |                                                                   |       |   |   |   |   |
| Total                                    |       | $          | (788       | )                                                                      | $          | 28 |   | $ | (816 | ) | $ | — |   |

 

The fair value of theCompany’s interest rate swaps were determined based on the present value ofexpected future cash flows considering the risks involved, includingnonperformance risk, and using discount rates appropriate for the duration. Seenote 4 for discussion of the Company’s interest rate swaps.

 

The Second Amended andRestated Deferred Compensation Plan of Texas Roadhouse Management Corp., asamended, (the “Deferred Compensation Plan”) is a nonqualified deferredcompensation plan which allows highly compensated employees to defer receipt ofa portion of their compensation and contribute such amounts to one or moreinvestment funds held in a rabbi trust. The Company reports the accounts of therabbi trust in its condensed consolidated financial statements. Theseinvestments are considered trading securities and are reported at fair valuebased on third-party broker statements. The realized and unrealized holding gains and losses related to theseinvestments, as well as the offsetting compensation expense, are recorded ingeneral and administrative expense on the condensed consolidated statements ofincome.

 

The following tablepresents the fair values for the Company’s financial assets and liabilitiesmeasured on a nonrecurring basis as of September 29, 2009:

 
| ** **                      | ** ** | ** ** | ** ** | **Fair  Value Measurements**                                           | ** ** |
|---------------------------------|------------|------------|------------|------------------------------------------------------------------------|------------|
| ** **                      | ** ** | **Total**  | ** ** | **Quoted  Prices in  Active Markets  for Identical  Assets (Level 1)** | ** ** | **Significant  Other  Observable  Inputs (Level 2)** | ** ** | **Significant  Unobservable  Inputs (Level 3)** | ** ** |
|                            |       |       |       |                                                                   |       |   |   |   |   |
| Long-lived assets held for sale |       | $          | 1,598      |                                                                   | $          | — |   | $ | 1,598 |   | $ | — |   |
|                            |       |       |       |                                                                   |       |   |   |   |   |
| Total                           |       | $          | 1,598      |                                                                   | $          | — |   | $ | 1,598 |   | $ | — |   |

 

Long-lived assetsheld for sale including land and buildings and are valued using Level 2 inputs,primarily an independent third party appraisal. These assets are included in Property and equipment in the Company’scondensed consolidated balance sheets as the Company does not expect to sellthese assets in the next 12 months. Costs to market and/or sell the assets are factored into the estimatesof fair value.  During the 13 weeks endedSeptember 29, 2009,  long-livedassets held for sale with a carrying amount of $2.0 million were written downto their fair value of $1.6 million, resulting in a loss of $0.4 million, whichis included in Impairment and closure in the Company’s condensed consolidatedstatements of income.

 

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At September 29,2009 and December 30, 2008, the fair value of cash and cash equivalents,accounts receivable and accounts payable approximated their carrying valuebased on the short-term nature of these instruments. The fair value of theCompany’s long-term debt is estimated based on the current rates offered to theCompany for instruments of similar terms and maturities. The carrying amountsand related estimated fair values for the Company’s debt are as follows:

 
| ** **        | ** ** | **September 29, 2009** | ** ** | **December 30, 2008** | ** ** |
|-------------------|------------|-----------------------------|------------|----------------------------|------------|
| ** **        | ** ** | **Carrying********Amount**  | ** ** | **Fair Value**             | ** ** | **Carrying********Amount** | ** ** | **Fair Value** | ** ** |
| Installment loans |       | $                           | 2,069      |                       | $          | 2,658 |   | $ | 2,194 |   | $ | 2,866 |   |
| Revolver          |       | 124,000                     |       | 124,000                    |       | 130,000 |   | 130,000 |   |
|                   |            |                             |            |                            |            |  |  |  |  |  |  |  |  |

 

**(11)  Stock Repurchase Program**

 

On February 14,2008, the Company’s Board of Directors approved a stock repurchase programunder which it authorized the Company to repurchase up to $25.0 million of its Class Acommon stock.  On July 8, 2008, theCompany’s Board of Directors approved a $50.0 million increase in the Company’sstock repurchase program.  The Company’stotal stock repurchase authorization increased to $75.0 million.  Under this program, the Company mayrepurchase outstanding shares of its Class A common stock from time totime in open market transactions during the two-year period ending February 14,2010.  The timing and the amount of anyrepurchases will be determined by management of the Company under parametersestablished by its Board of Directors, based on its evaluation of the Company’sstock price, market conditions and other corporate considerations.

 

For the 13 and 39 weeksended September 29, 2009, the Company did not repurchase any shares of itsClass A common stock.  For the 13weeks ended September 23, 2008 the Company paid approximately $37.4million to repurchase and retire 4,080,707 shares at an average price of $9.17per share.   For the 39 weeks ended September 23,2008, the Company paid approximately $52.5 million to repurchase and retire5,704,907 shares at an average price of $9.20 per share.

 

**(12)  Subsequent Events**

 

On September 30,2009, pursuant to a provision in the Company’s Amended and Restated Certificateof Incorporation (the “Certificate”), each share of the Company’s Class BCommon Stock converted (the “Conversion”) automatically into one share of theCompany’s Class A Common Stock. Prior to the Conversion, our founder and chairman, W. Kent Taylor,beneficially owned all of the Company’s Class B common stock.  The Class Bcommon stock had ten votes per share, while the Class A common stock hasone vote per share.  Immediatelyfollowing the Conversion, and also pursuant to the Certificate, the Company’s Class ACommon Stock was redesignated as “Common Stock”.

 

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**ITEM2.  MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION ANDRESULTS OF OPERATIONS**

 

**OVERVIEW**

 

Texas Roadhouse is agrowing, moderately priced, full-service restaurant chain. Our founder andchairman, W. Kent Taylor, started the business in 1993. Our mission statementis “Legendary Food, Legendary Service®.” Our operating strategy is designed to position eachof our restaurants as the local hometown destination for a broad segment ofconsumers seeking high quality, affordable meals served with friendly,attentive service. As of September 29, 2009, there were 326 TexasRoadhouse restaurants operating in 46 states, including:

 

· 255 “company restaurants,” of which245 were wholly-owned and 10 were majority-owned.  The results ofoperations of company restaurants are included in our condensed consolidatedstatements of income. The portion of income attributable to minority interestsin company restaurants that are not wholly-owned is reflected in the line itementitled “Net income attributable to noncontrolling interests” in our condensedconsolidated statements of income.

 

· 71 “franchise restaurants,” ofwhich 68 were franchise restaurants and three were license restaurants. We havea 5.0% to 10.0% ownership interest in 21 franchise restaurants.  The income derived from our minorityinterests in these franchise restaurants is reported in the line item entitled “Equity incomefrom investments in unconsolidated affiliates” in our condensed consolidatedstatements of income. Additionally, we provide various management services tothese franchise restaurants, as well as seven additional franchise restaurantsin which we have no ownership interest.

 

We have contractualarrangements which grant us the right to acquire at pre-determined valuationformulas (i) the remaining equity interests in eight of the 10majority-owned company restaurants, and (ii) 63 of the franchiserestaurants.

 

**Presentation of Financial andOperating Data**

 

Throughout this report,the 13 weeks ended September 29, 2009 and September 23, 2008 arereferred to as Q3 2009 and Q3 2008, respectively, and the 39 weeks ended September 29,2009 and September 23, 2008 are referred to as 2009 YTD and 2008 YTD,respectively.

 

**Long-term Strategies to GrowEarnings Per Share**

 

Our long-term strategieswith respect to increasing net income and earnings per share include the following:

 

*ExpandingOur Restaurant Base.*   Wewill continue to evaluate opportunities to develop Texas Roadhouse restaurantsin existing and new domestic or international markets. We will remain focusedprimarily on mid-sized markets where we believe a significant demand for ourrestaurants exists because of population size, income levels and the presenceof shopping and entertainment centers and a significant employment base.

 

We may, at ourdiscretion, add franchise restaurants, domestically and/or internationally,primarily with franchisees who have demonstrated prior success with the TexasRoadhouse or other restaurant concepts and in markets in which the franchiseedemonstrates superior knowledge of the demographics and restaurant operatingconditions.  We may also look to acquirefranchise restaurants under terms favorable to us and our stockholders.  Additionally, from time to time, we mayevaluate potential mergers, acquisitions, joint ventures or other strategicinitiatives to acquire or develop additional concepts.  On February 24, 2009, we opened a newrestaurant, Aspen Creek, which is wholly-owned by Texas Roadhouse, Inc.

 

*Maintainingand/or Improving Restaurant Level Profitability.*   We plan to maintain, or possiblyincrease, restaurant level profitability through a combination of increasedcomparable restaurant sales and operating cost management.

 

*LeveragingOur Scalable Infrastructure.*   Over the past several years, we havemade significant investments in our infrastructure, including informationsystems, real estate, human resources, legal, marketing and operations. As aresult, we believe that our general and administrative costs will increase at aslower growth rate than our revenue.

 

*StockRepurchase Program. *We continue to look at opportunities torepurchase our Class A common stock at favorable market prices under ourstock repurchase program.  Currently, ourBoard of Directors has authorized us to repurchase up to $75.0 million of our Class Acommon stock.  As of September 29,2009, $18.2 million worth of Class A common stock remains authorized forrepurchase.

 

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**Key Measures We Use to EvaluateOur Company**

 

Key measures we use toevaluate and assess our business include the following:

 

*Numberof Restaurant Openings.*   Number of restaurant openings reflects the number ofrestaurants opened during a particular fiscal period. For company restaurant openingswe incur pre-opening costs, which are defined below, before the restaurantopens. Typically new restaurants open with an initial start-up period of higherthan normalized sales volumes, which decrease to a steady level approximatelythree to six months after opening. However, although sales volumes aregenerally higher, so are initial costs, resulting in restaurant operatingmargins that are generally lower during the start-up period of operation andincrease to a steady level approximately three to six months after opening.

 

*ComparableRestaurant Sales Growth. *  Comparable restaurant sales growthreflects the change in year-over-year sales for all company restaurants for thecomparable restaurant base. We define the comparable restaurant base to includethose restaurants open for a full 18 months before the beginning of the laterfiscal period excluding restaurants closed during the period. Comparablerestaurant sales growth can be impacted by changes in guest traffic counts orby changes in the per person average check amount. Menu price changes and themix of menu items sold can affect the per person average check amount.

 

*AverageUnit Volume.*   Averageunit volume represents the average annual restaurant sales for all companyrestaurants open for a full six months before the beginning of the periodmeasured. Average unit volume excludes sales on restaurants closed during theperiod.  Growth in average unit volumesin excess of comparable restaurant sales growth is generally an indication thatnewer restaurants are operating with sales levels in excess of the companyaverage. Conversely, growth in average unit volumes less than growth incomparable restaurant sales growth is generally an indication that newerrestaurants are operating with sales levels lower than the system average.

 

*StoreWeeks.*   Storeweeks represent the number of weeks that our company restaurants were openduring the reporting period.

 

**Other Key Definitions**

 

*RestaurantSales.*   Restaurantsales include gross food and beverage sales, net of promotions and discounts.

 

*FranchiseRoyalties and Fees.*   Franchiseestypically pay a $40,000 initial franchise fee for each new restaurant and afranchise renewal fee equal to the greater of 30% of the then-current initialfranchise fee or $10,000 to $15,000. Franchise royalties consist of royaltiestypically in the amount of 2.0% to 4.0% of gross sales, as defined in ourfranchise agreement, paid to us by our franchisees.

 

*RestaurantCost of Sales.*   Restaurantcost of sales consists of food and beverage costs.

 

*RestaurantLabor Expenses.*   Restaurantlabor expenses include all direct and indirect labor costs incurred inoperations except for profit sharing incentive compensation expenses earned byour managing partners. These profit sharing expenses are reflected inrestaurant other operating expenses. Restaurant labor expenses also include share-based compensation expenserelated to restaurant-level employees.

 

*RestaurantRent Expense.*   Restaurantrent expense includes all rent associated with the leasing of real estate andincludes base, percentage and straight-line rent expense.

 

*RestaurantOther Operating Expenses.*   Restaurant other operating expenses consist of allother restaurant-level operating costs, the major components of which are utilities,supplies, advertising, repair and maintenance, property taxes, credit card feesand general liability insurance. Profit sharing allocations to managingpartners and market partners are also included in restaurant other operatingexpenses.

 

*Pre-openingExpenses.*   Pre-openingexpenses, which are charged to operations as incurred, consist of expensesincurred before the opening of a new restaurant and are comprised principallyof opening team and training salaries, travel expenses, rent, and food, beverageand other initial supplies and expenses.

 

*Depreciationand Amortization Expenses.*   Depreciation and amortizationexpenses (“D&A”) includes the depreciation of fixed assets and amortizationof intangibles with definite lives.

 

*Impairmentand closure costs. *Impairment andclosure costs include any impairment of long-lived assets associated withrestaurants where the carrying amount of the asset is not recoverable andexceeds the fair value of the asset and expenses associated with the closure ofa restaurant.  Closure costs also includeany gains or losses associated with the sale of a closed restaurant and/orassets held for sale.

 

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*Generaland Administrative Expenses.*   General and administrative expenses(“G&A”) are comprised of expenses associated with corporate andadministrative functions that support development and restaurant operations andprovide an infrastructure to support future growth.   Supervision and accounting fees receivedfrom certain franchise restaurants and license restaurants are offset againstG&A.  G&A also includesshare-based compensation expense related to executive officers, support centeremployees and market partners.

 

*InterestExpense, Net.*   Interestexpense includes the cost of our debt obligations including the amortization ofloan fees, reduced by interest income and capitalized interest.  Interest income includes earnings on cash andcash equivalents.

 

*EquityIncome from Unconsolidated Affiliates.*   We own a 5.0% to 10.0% equityinterest in 21 franchise restaurants. Equity income from unconsolidatedaffiliates represents our percentage share of net income earned by these unconsolidatedaffiliates.

 

*NetIncome Attributable to Noncontrolling Interests.*   Net income attributable tononcontrolling interests represents the portion of income attributable to theother owners of the majority-owned or controlled restaurants.  Our consolidated subsidiaries at September 29,2009 and September 23, 2008 included ten majority-owned restaurants, allof which were open.

 

**Resultsof Operations**

 
| ** **                                                              | ** ** | **13 Weeks  Ended**          | ** ** | **39 Weeks  Ended**          | ** ** |
|-------------------------------------------------------------------------|------------|------------------------------|------------|------------------------------|------------|
| ** **                                                              | ** ** | **September 29,  2009** | ** ** | **September 23,  2008** | ** ** | **September 29,  2009** | ** ** | **September 23,  2008** | ** ** |
| **($ in thousands)**                                               | ** ** | **$**                        | ** ** | **%**                        | ** ** | **$** | ** ** | **%** | ** ** | **$** | ** ** | **%** | ** ** | **$** | ** ** | **%** | ** ** |
|                                                                    |       |                         |       |                         |       |   |   |   |   |   |   |   |   |   |   |   |   |
| Revenue:                                                                |       |                         |       |                         |       |   |   |   |   |   |   |   |   |   |   |   |   |
| Restaurant  sales                                                       |       | 224,417                      |       | 99.1                         |       | 215,739 |   | 99.1 |   | 708,808 |   | 99.1 |   | 639,137 |   | 98.9 |   |
| Franchise  royalties and fees                                           |       | 2,050                        |       | 0.9                          |       | 1,996 |   | 0.9 |   | 6,155 |   | 0.9 |   | 7,132 |   | 1.1 |   |
|                                                                    |       |                         |       |                         |       |   |   |   |   |   |   |   |   |   |   |   |   |
| Total  revenue                                                          |       | 226,467                      |       | 100.0                        |       | 217,735 |   | 100.0 |   | 714,963 |   | 100.0 |   | 646,259 |   | 100.0 |   |
|                                                                    |       |                         |       |                         |       |   |   |   |   |   |   |   |   |   |   |   |   |
| Costs  and expenses:                                                    |       |                         |       |                         |       |   |   |   |   |   |   |   |   |   |   |   |   |
| *(As a percentage of restaurant sales)*                                 |       |                         |       |                         |       |   |   |   |   |   |   |   |   |   |   |   |   |
| Restaurant  operating costs:                                            |       |                         |       |                         |       |   |   |   |   |   |   |   |   |   |   |   |   |
| Cost  of sales                                                          |       | 74,489                       |       | 33.2                         |       | 76,845 |   | 35.6 |   | 237,844 |   | 33.6 |   | 225,205 |   | 35.2 |   |
| Labor                                                                   |       | 67,630                       |       | 30.1                         |       | 63,750 |   | 29.5 |   | 210,203 |   | 29.7 |   | 183,996 |   | 28.8 |   |
| Rent                                                                    |       | 5,029                        |       | 2.2                          |       | 4,248 |   | 2.0 |   | 14,870 |   | 2.1 |   | 11,138 |   | 1.7 |   |
| Other  operating                                                        |       | 38,778                       |       | 17.3                         |       | 36,772 |   | 17.0 |   | 119,450 |   | 16.9 |   | 105,368 |   | 16.5 |   |
| *(As a percentage of total revenue)*                                    |       |                         |       |                         |       |   |   |   |   |   |   |   |   |   |   |   |   |
| Pre-opening                                                             |       | 1,194                        |       | 0.5                          |       | 2,935 |   | 1.3 |   | 4,411 |   | 0.6 |   | 8,973 |   | 1.4 |   |
| Depreciation  and amortization                                          |       | 10,395                       |       | 4.6                          |       | 9,444 |   | 4.3 |   | 31,482 |   | 4.4 |   | 27,056 |   | 4.2 |   |
| Impairment  and closure                                                 |       | (201                         | )          | NM                           |       | 43 |   | NM |   | (273 | ) | NM |   | 777 |   | 0.1 |   |
| General  and administrative                                             |       | 11,872                       |       | 5.2                          |       | 10,277 |   | 4.7 |   | 35,918 |   | 5.0 |   | 32,585 |   | 5.0 |   |
|                                                                    |       |                         |       |                         |       |   |   |   |   |   |   |   |   |   |   |   |   |
| Total  costs and expenses                                               |       | 209,186                      |       | 92.4                         |       | 204,314 |   | 93.8 |   | 653,905 |   | 91.5 |   | 595,098 |   | 92.1 |   |
| Income  from operations                                                 |       | 17,281                       |       | 7.6                          |       | 13,421 |   | 6.2 |   | 61,058 |   | 8.5 |   | 51,161 |   | 7.9 |   |
| Interest  expense, net                                                  |       | 784                          |       | 0.3                          |       | 974 |   | 0.4 |   | 2,517 |   | 0.4 |   | 2,336 |   | 0.4 |   |
| Equity  income from investments in unconsolidated affiliates            |       | (36                          | )          | NM                           |       | (45 | ) | NM |   | (185 | ) | NM |   | (184 | ) | NM |   |
|                                                                    |       |                         |       |                         |       |   |   |   |   |   |   |   |   |   |   |   |   |
| Income  before taxes                                                    |       | 16,533                       |       | 7.3                          |       | 12,492 |   | 5.7 |   | 58,726 |   | 8.2 |   | 49,009 |   | 7.6 |   |
| Provision  for income taxes                                             |       | 5,431                        |       | 2.4                          |       | 3,906 |   | 1.8 |   | 18,582 |   | 2.6 |   | 16,498 |   | 2.5 |   |
| Net  income including noncontrolling interests                          |       | 11,102                       |       | 4.9                          |       | 8,586 |   | 3.9 |   | 40,144 |   | 5.6 |   | 32,511 |   | 5.1 |   |
| Net  income (loss) attributable to noncontrolling interests             |       | 407                          |       | 0.2                          |       | (58 | ) | NM |   | 1,374 |   | 0.2 |   | 482 |   | 0.1 |   |
| Net  income attributable to Texas Roadhouse, Inc. and subsidiaries |       | 10,695                       |       | 4.7                          |       | 8,644 |   | 4.0 |   | 38,770 |   | 5.4 |   | 32,029 |   | 5.0 |   |

 

NM — Not meaningful

 

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**RestaurantUnit Activity**

** **
| ** **                          | ** ** | **Company** | ** ** | **Franchise** | ** ** | **Total** | ** ** |
|-------------------------------------|------------|-------------|------------|---------------|------------|-----------|------------|
| Balance  at December 30, 2008  |       | 245         |       | 69            |       | 314       |       |
| Openings                            |       | 12          |       | 3             |       | 15        |       |
| Acquisitions  (Dispositions)        |       | —      |       | —        |       | —    |       |
| Closures                            |       | (2          | )          | (1            | )          | (3        | )          |
|                                |       |        |       |          |       |      |       |
| Balance  at September 29, 2009 |       | 255         |       | 71            |       | 326       |       |

 

**Q3 2009 (13 weeks) Comparedto Q3 2008 (13 weeks) and 2009 YTD (39 weeks) Compared to 2008 YTD (39 weeks)**

 

*RestaurantSales.*   Restaurantsales increased by 4.0% in Q3 2009 as compared to Q3 2008 and by 10.9% in 2009YTD compared to 2008 YTD.  Theseincreases were attributable to the opening of new restaurants and theacquisitions of franchise restaurants in fiscal 2008, partially offset by adecrease in comparable restaurant sales and average unit volumes.

 

The following tablesummarizes certain key drivers and/or attributes of restaurant sales at companyrestaurants for the periods.

 
| ** **                          | ** ** | **Q3 2009** | ** ** | **Q3 2008** | ** ** | **2009 YTD** | ** ** | **2008 YTD** | ** ** |
|-------------------------------------|------------|-------------|------------|-------------|------------|--------------|------------|--------------|------------|
|                                |       |        |       |        |       |         |       |         |       |
| Store  weeks                        |       | 3,331       |       | 3,000       |       | 9,893        |       | 8,472        |       |
| Comparable  restaurant sales growth |       | (4.6        | )%         | (3.2        | )%         | (3.0         | )%         | (1.5         | )%         |
| Average  unit volume (in thousands) |       | $           | 874        |        | $          | 927          |       | $            | 2,792      |   | $ | 2,920 |   |
|                                     |            |             |            |             |            |              |            |              |            |  |  |  |  |

 

Wehave implemented certain menu pricing increases to partially offset impactsfrom higher operating costs and other inflationary pressures.  The following table summarizes our menupricing actions for the periods shown.

 

| ** **                 | ** ** | **Increased  Menu  Pricing** | ** ** |
|----------------------------|------------|------------------------------|------------|
|                       |       |                         |       |
| April 2009            |       | 1.4                          | %          |
| May/June 2008         |       | 1.5                          | %          |
| January/February 2008 |       | 1.1                          | %          |

 

Wewill continue to evaluate the need for and test further menu price increases aswe assess the current inflationary and competitive environment.

 

OnSeptember 24, 2008, we acquired one franchise restaurant, which isexpected to have no significant net revenue or accretive impact on an on-goingannual basis.  In Q3 2009 and 2009 YTD,restaurant sales included $0.8 million and $2.8 million from the acquiredfranchise restaurant.

 

*FranchiseRoyalties and Fees.*   Franchiseroyalties and fees increased slightly by $0.1 million, or by 2.7%, in Q3 2009from Q3 2008 and decreased by $1.0 million, or by 13.7%, in 2009 YTD from 2008YTD.  The slight increase in Q3 2009 wasprimarily attributable to new franchise restaurants in 2009 YTD and increasingroyalty rates and franchise fees in conjunction with the renewal of certainfranchise agreements, partially offset by the reduction of royalties in severalrestaurants and a decrease in average unit volumes.  The decrease in 2009 YTD was primarilyattributable to the loss of royalties associated with the acquisition of 13franchise restaurants in 2008, the reduction of royalties in severalrestaurants and a decrease in average unit volumes.  This decrease was partially offset by newfranchise restaurants in 2009 YTD and increasing royalty rates and franchisefees in conjunction with the renewal of certain franchise agreements.  The acquired franchise restaurants generatedapproximately $0.1 million and $0.8 million in franchise royalties in Q3 2008and 2008 YTD, respectively.  Franchisecomparable restaurant sales decreased 3.6% and 3.0% in Q3 2009 and 2009 YTD,respectively.  Franchise restaurant countactivity is shown in the restaurant unit activity table above.

 

*RestaurantCost of Sales.*   Restaurantcost of sales, as a percentage of restaurant sales, decreased to 33.2% in Q32009 from 35.6% in Q3 2008 and to 33.6% in 2009 YTD from 35.2% in 2008YTD.  These decreases were primarilyattributable to the benefit of lower beef, dairy and produce costs and menuprice increases discussed above, partially offset by higher commodity costs onchicken and food items such as wheat and oil-based ingredients.  Through the second quarter of 2009, we hadfixed price contracts for 90% of our beef product volume with the remainder subjectto fluctuating market prices.  During thethird quarter of 2009, we locked in the 10% remainder and currently have fixedprice contracts on 100% of our beef product volume.  We expect commodity cost deflation ofapproximately 2.5-3.0% in 2009.

 

*RestaurantLabor Expenses.*  Restaurantlabor expenses, as a percentage of restaurant sales, increased to 30.1% in Q32009 from 29.5% in Q3 2008 and to 29.7% in 2009 YTD from 28.8% in 2008YTD.  These increases were primarilyattributable to a decrease in average unit volumes combined with higher averagewage rates, higher payroll tax expense as a result of state unemployment ratechanges that occurred in the first quarter of 2009, and higher workers’compensation expense due to changes in our claims 

 

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development history.  These increases were partially offset by menuprice increases discussed above.  Basedon our most recent actuarial analysis received at the end of Q3 2009, workers’compensation expense increased in Q3 2009 by $0.3 million as compared to adecrease in Q3 2008 of $0.1 million. Higher average hourly wage rates resulted from several state-mandatedincreases in minimum and tip wage rates throughout 2008 and 2009, includingincreases in federal minimum wage rate in July 2008 and July 2009.  We anticipate our labor costs will continueto be pressured by inflation.  Theseincreases may or may not be offset by additional menu price adjustments.

 

*RestaurantRent Expense.*   Restaurantrent expense, as a percentage of restaurant sales, increased to 2.2% in Q3 2009from 2.0% in Q3 2008 and increased to 2.1% in 2009 YTD from 1.7% in 2008YTD.  These increases were primarilyattributable to a decrease in average unit volumes, combined with rent expenseassociated with the franchise restaurants acquired in 2008 and the restaurantsopened in 2009 YTD and fiscal 2008, as we are leasing more land and buildingsthan we have in the past.

 

*RestaurantOther Operating Expenses**. ****** ***Restaurant other operating expenses, as a percentageof restaurant sales, increased to 17.3% in Q3 2009 from 17.0% in Q3 2008 and to16.9% in 2009 YTD from 16.5% in 2008 YTD. These increases were primarily attributable to a reduction in the impactof favorable general liability insurance claims experience, higher costs forrepairs and maintenance, managing partner and market partner bonuses, propertytaxes and credit card charges, as a percentage of restaurant sales, and adecrease in average unit volumes, partially offset by lower utilities. During Q3 2009, a $0.2 million adjustment made to general liabilityinsurance expense due to favorable general liability claims experience based onour most recent quarterly actuarial analysis was lower than a $0.9 millionadjustment made in Q3 2008.  Managingpartner and market partner bonus expense was higher in Q3 2009 and 2009 YTD asa result of improved restaurant margins.

 

*RestaurantPre-opening Expenses.*   Pre-opening expenses decreased to $1.2 million in Q32009 from $2.9 million in Q3 2008 and decreased to $4.4 million in 2009 YTDfrom $9.0 million in 2008 YTD.  Thesedecreases were primarily attributable to fewer openings and fewer restaurantsbeing in the development pipeline in 2009 compared to 2008.  In fiscal 2009, we have reduced our plannedCompany-owned restaurant openings to approximately 17 restaurants, 12 of whichopened in 2009 YTD, compared to 29 restaurants opened in fiscal 2008, 23 ofwhich opened during 2008 YTD. Pre-opening costs will fluctuate from period to period based on thenumber and timing of restaurant openings and the number and timing ofrestaurant managers hired.

 

*Depreciationand Amortization Expense.*   D&A, as a percentage of total revenue, increasedto 4.6% in Q3 2009 from 4.3% in Q3 2008 and to 4.4% in 2009 YTD from 4.2% in 2008YTD.  These increases were primarilyattributable to higher construction costs and other capital spending on newrestaurants and a decrease in average unit volumes, partially offset by lowerdepreciation expense on older restaurants.

 

*Impairmentand Closure Expenses.*  Impairment and closure expensesdecreased to ($0.2) million in Q3 2009 compared to $43,000 in Q3 2008.  Impairment and closure expenses decreased to($0.3) million in 2009 YTD compared to $0.8 million in 2008 YTD.  We recorded a gain of $0.6 million in Q3 2009due to the sale of a restaurant closed during Q3 2009.  Additionally, we recorded $0.4 million in Q32009 due to charges incurred in conjunction with the closure of a secondrestaurant in Q3 2009.  In the firstquarter of 2008, we recorded $0.7 million due to lease reserve and othercharges incurred in conjunction with the closure of a restaurant in Q1 2008.  The lease associated with this restaurant wasfavorably settled in the second quarter of 2009.

 

*Generaland Administrative Expenses**.***** **G&A, as a percentage of total revenue, increasedto 5.2% in Q3 2009 from 4.7% in Q3 2008 and remained the same at 5.0% in 2009YTD compared to 2008 YTD.  The increasein Q3 2009 was primarily attributable to higher performance-based bonus expensefor executive and other support center employees, partially offset by lowerabandoned site costs and the leveraging of costs due to revenue growth.  In 2009 YTD, higher performance-based bonusexpense was offset by the lower abandoned site costs and the leveraging ofcosts due to revenue growth.  Bonusexpense was $1.9 million and $2.3 million higher in Q3 2009 and 2009 YTD,respectively, for two reasons.  First,additional bonus expense of $1.2 million and $1.6 million was recorded in Q32009 and 2009 YTD, respectively in anticipation of exceeding our bonus targetsfor fiscal 2009.  Second, in Q3 2008 and2008 YTD, bonus expense was lower by $0.7 million due to no profit portion ofbonus being earned in Q3 2008.  For theremainder of 2009, we expect bonus expense to be $1.0 - $1.5 million higherthan the same period in 2008 as a result of not meeting our bonus targets infiscal 2008 and exceeding our targets for fiscal 2009.  Abandoned site costs were $0.3 million higherin Q3 2008 as a result of cutting back our planned openings for 2009.

 

*InterestExpense, Net.*   Interestexpense decreased to $0.8 million in Q3 2009 from $1.0 million in Q3 2008 andincreased to $2.5 million in 2009 YTD from $2.3 million in 2008 YTD.  The decrease in Q3 2009 was primarilyattributable to lower interest rates, partially offset by lower interest incomeand capitalized interest.   The increase in2009 YTD was primarily attributable to lower interest income and capitalizedinterest and increased borrowings under our credit facility, partially offsetby lower interest rates.  Lower interestincome and capitalized interest were primarily due to lower interest rates andslower restaurant development in 2009 YTD compared to 2008 YTD.  For 2009 YTD, the increased borrowings wereprimarily related to cash spent on stock repurchases and franchise restaurantacquisitions during 2008.

 

*IncomeTax Expense. * Weaccount for income taxes in accordance with Financial Accounting StandardsBoard (“FASB”) Accounting Standards Codification (“ASC”) 740,  *Income Taxes (“ASC 740”). *Our effective tax rate increasedto 33.7% in Q3 2009 from 31.1% in Q3 2008 and decreased to 32.4% in 2009 YTDfrom 34.0% in 2008 YTD.  The increase inQ3 2009 was primarily 

 

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attributable to lowerfederal tax credits, such as FICA tip credit and Work Opportunity Tax credits,as a percentage of net income before income tax, partially offset by lowernon-deductible stock compensation expense. The decrease in 2009 YTD was primarily attributable to lowernon-deductible stock compensation expense and higher federal tax credits, as apercentage of net income before income tax. We expect the effective tax rate to be approximately 32.4% for fiscal2009.

 

**Liquidity and Capital Resources**

 

The following tablepresents a summary of our net cash provided by (used in) operating, investingand financing activities:

 
| ** **                                           | ** ** | **39 Weeks  Ended**          | ** ** |
|------------------------------------------------------|------------|------------------------------|------------|
| ** **                                           | ** ** | **September 29,  2009** | ** ** | **September 23,  2008** | ** ** |
| ** **                                           | ** ** | ** **                   | ** ** | ** ** | ** ** |
| Net  cash provided by operating activities           |       | $                            | 68,296     |   | $ | 58,250 |   |
| Net  cash used in investing activities               |       | (32,460                      | )          | (93,529 | ) |
| Net  cash (used in)/provided by financing activities |       | (5,261                       | )          | 37,434 |   |
|                                                 |       |                         |       |   |   |
| Net  increase in cash and cash equivalents           |       | $                            | 30,575     |   | $ | 2,155 |   |

 

Net cash provided byoperating activities was $68.3 million in 2009 YTD compared to $58.3 million in2008 YTD.  This increase was primarilydue to higher net income and depreciation, as a result of opening newrestaurants, and deferred income taxes, partially offset by a $7.1 millionreduction in the source of cash from accounts receivable, along with otherdecreases in working capital.  The $7.1million reduction in the source of cash from accounts receivable was driven bytiming issues related to credit card settlements.  Our fiscal year 2007 ended on a bank holiday,therefore we had a larger than normal amount of credit card settlements inaccounts receivable at the end of 2007, which were subsequently received duringthe first quarter of 2008.

 

Our operations have notrequired significant working capital and, like many restaurant companies, wehave been able to operate with negative working capital.  Sales are primarily for cash, and restaurantoperations do not require significant inventories or receivables.  In addition, we receive trade credit for thepurchase of food, beverages and supplies, thereby reducing the need forincremental working capital to support growth.

 

Net cash used ininvesting activities was $32.5 million in 2009 YTD compared to $93.5 million in2008 YTD.  This decrease was due to fewerrestaurants in the development pipeline in Q3 2009, along with the $16.9 millionuse of cash associated with franchise acquisitions in 2008 YTD.  In fiscal 2009, we have reduced our plannedCompany-owned restaurant openings to approximately 17 restaurants, 12 of whichopened in 2009 YTD, compared to 29 restaurants opened in fiscal 2008, 23 ofwhich opened during 2008 YTD.

 

We require capitalprincipally for the development of new company restaurants and therefurbishment of existing restaurants.  We either lease our restaurantsite locations under operating leases for periods of five to 30 years (includingrenewal periods) or purchase the land where it is cost effective. As of September 29,2009, 114 of the 255 company restaurants had been developed on land which weowned.

 

Our future capitalrequirements will primarily depend on the number of new restaurants we open andthe timing of those openings within a given fiscal year. These requirementswill include costs directly related to opening new restaurants and may alsoinclude costs necessary to ensure that our infrastructure is able to support alarger restaurant base. In fiscal 2009, we expect our capital expenditures tobe approximately $50.0 million to $55.0 million, substantially all of whichwill relate to planned restaurant openings. This amount excludes any cash used for franchise acquisitions.  We intend to satisfy our capital requirementsover the next 12 months with cash on hand, net cash provided by operatingactivities and funds available under our credit facility.  For 2009, we anticipate net cash provided byoperating activities will exceed capital expenditures, which we currently planto use to increase our cash balance and/or repay borrowings under our creditfacility.

 

Net cash used infinancing activities was $5.3 million in 2009 YTD as compared to net cashprovided by financing activities of $37.4 million in 2008 YTD.  This decrease was primarily due to decreasedborrowings under our credit facility, offset by stock repurchases of $52.6million in 2008 YTD.  The borrowings in2008 were made in conjunction with stock repurchases in fiscal 2008, theacquisition of three franchise restaurants in the second quarter of 2008 andthe acquisition of nine franchise restaurants in the third quarter of 2009.

 

On February 14,2008, our Board of Directors approved a stock repurchase program to repurchaseup to $25.0 million of Class A common stock.  On July 8, 2008, our Board of Directorsapproved a $50.0 million increase in the Company’s stock repurchase program,thereby increasing the Company’s total stock repurchase authorization to $75.0million.  Under this program, we mayrepurchase outstanding shares from time to time in open market transactionsduring the two-year period ending February 14, 2010.

 

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The timing and theamount of any repurchases will be determined by management under parametersestablished by our Board of Directors, based on its evaluation of our stockprice, market conditions and other corporate considerations.  The approximate dollar value of shares thatmay yet be purchased under the plan is $18.2 million.

 

In 2009 YTD, we paiddistributions of $1.7 million to equity holders of seven of our majority-ownedcompany restaurants.  Currently, ourintent is to retain our future earnings, if any, primarily to finance thefuture development and operation of our business, including the repayment ofindebtedness and possible stock repurchases.

 

We have a $250.0 millionfive-year revolving credit facility with a syndicate of commercial lenders ledby Bank of America, N.A., Banc of America Securities LLC and National City Bankwhich, in December 2008, was acquired by PNC Bank.  The facility expires on May 31,2012.  The terms of the facility require usto pay interest on outstanding borrowings at LIBOR plus a margin of 0.50% to0.875%, depending on our leverage ratio, or the Base Rate, which is the higherof the issuing bank’s prime lending rate or the Federal Funds rate plus0.50%.  We are also required to pay acommitment fee of 0.10% to 0.175% per year on any unused portion of thefacility, depending on our leverage ratio. The weighted-average interest rate for the revolver at September 29,2009 and December 30, 2008 was 2.07% and 2.73%, respectively.  The lenders’ obligation to extend creditunder the facility depends on us maintaining certain financial covenants,including a minimum consolidated fixed charge coverage ratio of 2.00 to 1.00and a maximum consolidated leverage ratio of 3.00 to 1.00.  The credit facility permits us to incuradditional secured or unsecured indebtedness outside the facility, except forthe incurrence of secured indebtedness that in the aggregate exceeds 20% of ourconsolidated tangible net worth or circumstances where the incurrence ofsecured or unsecured indebtedness would prevent us from complying with ourfinancial covenants.  We were incompliance with all covenants as of September 29, 2009.

 

At September 29,2009, we had $124.0 million of outstanding borrowings under our credit facilityand $122.0 million of availability net of $4.0 million of outstanding lettersof credit.  In addition, we had various other notes payable totaling $2.1million with interest rates ranging from 10.46% to 10.80%.  Each of thesenotes related to the financing of specific restaurants. Our totalweighted-average effective interest rate at September 29, 2009 was 2.21%.

 

On October 22, 2008,we entered into an interest rate swap, starting on November 7, 2008, witha notional amount of $25.0 million to hedge a portion of the cash flows of ourvariable rate credit facility.  We havedesignated the interest rate swap as a cash flow hedge of our exposure tovariability in future cash flows attributable to interest payments on a $25.0million tranche of floating rate debt borrowed under our revolving creditfacility.  Under the terms of the swap,we pay a fixed rate of 3.83% on the $25.0 million notional amount and receivepayments from the counterparty based on the 1-month LIBOR rate for a term endingon November 7, 2015, effectively resulting in a fixed rate LIBOR componentof the $25.0 million notional amount. Our counterparty in this interest rateswap is J.P. Morgan Chase, N.A.

 

On January 7, 2009,we entered into another interest rate swap, starting on February 7, 2009,with a notional amount of $25.0 million to hedge a portion of the cash flows ofour variable rate credit facility.  Wehave designated the interest rate swap as a cash flow hedge of our exposure tovariability in future cash flows attributable to interest payments on a $25.0million tranche of floating rate debt borrowed under our revolving creditfacility.  Under the terms of the swap,we pay a fixed rate of 2.34% on the $25.0 million notional amount and receivepayments from the counterparty based on the 1-month LIBOR rate for a termending on January 7, 2016, effectively resulting in a fixed rate LIBORcomponent of the $25.0 million notional amount. Our counterparty in this interest rate swap is J.P. Morgan Chase, N.A.

 

**Contractual Obligations**

 

The following tablesummarizes the amount of payments due under specified contractual obligationsas of September 29, 2009:

 
| ** **                         | ** ** | **Payments Due by Period** | ** ** |
|------------------------------------|------------|-------------------------------------------|------------|
| ** **                         | ** ** | **Total**                                 | ** ** | **Less than********1 year** | ** ** | **1-3********Years** | ** ** | **3-5********Years** | ** ** | **More than********5 years** | ** ** |
| ** **                         | ** ** | **(in thousands)**                   | ** ** |
| Long-term  debt obligations        |       | $                                         | 126,069    |   | $ | 162 |   | $ | 381 |   | $ | 124,470 |   | $ | 1,056 |   |
| Capital  lease obligations         |       | 414                                       |       | 78 |   | 182 |   | 154 |   | — |   |
| Interest  (1)                      |       | 1,236                                     |       | 251 |   | 418 |   | 288 |   | 279 |   |
| Operating  lease obligations       |       | 206,618                                   |       | 19,397 |   | 38,864 |   | 38,034 |   | 110,323 |   |
| Capital  obligations               |       | 17,912                                    |       | 17,912 |   | — |   | — |   | — |   |
| Total  contractual obligations (2) |       | $                                         | 352,249    |   | $ | 37,800 |   | 39,845 |   | $ | 162,946 |   | $ | 111,658 |   |
|                                    |            |                                           |            |  |  |  |  |  |  |  |  |  |  |  |  |  |

 

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(1)          Assumes constant rate until maturity forour fixed and variable rate debt and capital lease obligations.

Uses interest rates as ofSeptember 29, 2009 for our variable rate debt.  Interest payments on our variable-raterevolving credit facility have been excluded from the amounts shown above,primarily because the balance outstanding under our revolving credit facility,described further in note 3 of the condensed consolidated financial statements,can fluctuate daily.

(2)            This amount excludes $0.1 million ofunrecognized tax benefits under FASB ASC 740, *Income Taxes*.

 

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The Company has nomaterial minimum purchase commitments with its vendors that extend beyond ayear.  See note 6 to the condensedconsolidated financial statements for details of contractual obligations.

 

**Off-Balance Sheet Arrangements**

 

Except for operatingleases (primarily restaurant leases), we do not have any off-balance sheetarrangements.

 

**Guarantees**

 

We entered into realestate lease agreements for franchise restaurants located in Everett, MA,Longmont, CO, Montgomeryville, PA, Fargo, ND and Logan, UT prior to ourgranting franchise rights for those restaurants. We have subsequently assignedthe leases to the franchisees, but we remain contingently liable if afranchisee defaults under the terms of a lease. The Longmont lease expires in May 2014,the Everett lease expires in February 2018, the Montgomeryville leaseexpires in June 2021, the Fargo lease expires in July 2016 and theLogan lease expires in August 2019. As the fair value of these guarantees is not considered significant, noliability value has been recorded.

 

**RecentlyIssued Accounting Standards**

 

***FASB Accounting Standards Codification***

*(AccountingStandards Update (“ASU”) 2009-01)*

 

InJune 2009, the FASB approved the FASB Accounting Standards Codification (“theCodification”) as the single source of authoritative, nongovernmental U.S.generally accepted accounting principle (“GAAP”). The Codification did not change GAAP but reorganizes the literature.  The Codification is effective for interim andannual periods ending after September 15, 2009 (our fiscal 2009 thirdquarter) and impacts our financial statements as all future references toauthoritative accounting literature will be referenced in accordance with theCodification.  There have been no changesto the content of our financial statements or disclosures as a result ofimplementing the Codification during the quarter ended September 29, 2009.

 

Asa result of our implementation of the Codification during the quarter ended September 29,2009, previous references to new accounting standards and literature are nolonger applicable.  In the currentquarter financial statements, we will provide reference to both new and oldguidance to assist in understanding the impacts of recently adopted accountingliterature.

 

***Fair Value of Financial Instruments***

*(Includedin ASC 825, “Financial Instruments”, previously FAS 107-1 and APB 28-1*, “*Interim Disclosures aboutFair Value of Financial Instruments”)*

 

FSP FAS 107-1 requiresfair value disclosures on an interim basis for financial instruments that arenot reflected in the condensed consolidated balance sheets at fair value.  Prior to the issuance of FSP FAS 107-1, the fairvalues of those financial instruments were only disclosed on an annualbasis.  FSP FAS 107-1 is effective forinterim reporting periods that end after June 15, 2009 (our fiscal 2009second quarter).  The adoption of FSP FAS107-1 did not have a material impact on the our consolidated financialposition, results of operations or cash flows.

 

***SubsequentEvents***

*(Included in ASC 855, “Subsequent Events”,previously SFAS No. 165*, “*SubsequentEvents”)*

 

SFAS165 establishes general standards of accounting for and disclosure of eventsthat occur after the balance sheet date but before financial statements areissued or are available to be issued. SFAS 165 also requires disclosure of the date through which an entityhas evaluated subsequent events and the basis for that date.  SFAS 165 is effective for interim or annualperiods ending after June 15, 2009 (our fiscal 2009 second quarter).  The adoption of SFAS 165 did not materiallyimpact us.  We have performed anevaluation of subsequent events through November 6, 2009, which is thedate the financial statements were issued.

 

***Consolidationof Variable Interest Entities — Amended***

*(To be included in ASC 810, “Consolidation”,previously SFAS 167, “Amendments to FASB Interpretation No. 46(R)”)*

 

SFAS167 amends FASB Interpretation No. 46(R), *Consolidationof Variable Interest Entities*, regarding certain guidance fordetermining the primary beneficiary of a variable interest entity.  In addition, SFAS 167 requires ongoingassessments of whether an enterprise is the primary beneficiary of a variableinterest entity.  SFAS 167 is effectivefor the first annual reporting period that begins after November 15, 2009(our fiscal year 2010).  We are currentlyevaluating the impact of the adoption of SFAS 167 on our consolidated financialposition, results of operations and cash flows.

 

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**ITEM 3.QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK**

 

We are exposed to marketrisk from changes in interest rates on debt and changes in commodity prices.Our exposure to interest rate fluctuations is limited to our outstanding bankdebt and dependent on the interest rate option we choose to utilize under ourrevolving line of credit.  Our optionsfor the rate are the Base Rate, which is the higher of the issuing bank’s primelending rate or the Federal Funds rate plus 0.50%, or the London InterbankOffered Rate (“LIBOR”) plus an applicable margin.  At September 29, 2009 there was $124.0million outstanding under our revolving line of credit which bears interest atapproximately 50 to 87.5 basis points (depending on our leverage ratios) overLIBOR.   Our various other notes payable totaled $2.1 million at September 29,2009 and had fixed rates ranging from 10.46% to 10.80%.  Should interest rates on our variable rate borrowingsincrease by one percentage point, our estimated annual interest expense wouldincrease by $1.2 million.

 

On October 22,2008, we entered into an interest rate swap, starting on November 7, 2008,with a notional amount of $25.0 million to hedge a portion of the cashflows of our variable rate borrowings. We have designated the interest rateswap as a cash flow hedge of our exposure to variability in future cash flowsattributable to interest payments on a $25.0 million tranche of floatingrate debt borrowed under our revolving credit facility. Under the terms of theswap, we pay a fixed rate of 3.83% on the $25.0 million notional amountand receive payments from the counterparty based on the 1-month LIBOR rate fora term ending on November 7, 2015, effectively resulting in a fixed rateon the LIBOR component of the $25.0 million notional amount.

 

On January 7,2009, we entered into another interest rate swap, starting February 7,2009, with a notional amount of $25.0 million to hedge a portion of the cashflows of our variable rate credit facility. We have designated the interest rate swap as a cash flow hedge of ourexposure to variability in future cash flows attributable to interest paymentson a $25.0 million tranche of floating rate debt borrowed under our revolvingcredit facility.  Under the terms of theswap, we pay a fixed rate of 2.34% on the $25.0 million notional amount andreceive payments from the counterparty based on the 1-month LIBOR rate for aterm ending on January 7, 2016, effectively resulting in a fixed rateLIBOR component of the $25.0 million notional amount.

 

By usingderivative instruments to hedge exposures to changes in interest rates, weexpose ourselves to credit risk. Credit risk is the failure of the counterpartyto perform under the terms of the derivative contract. We minimize the creditrisk by entering into transactions with high-quality counterparties whosecredit rating is evaluated on a quarterly basis.  Our counterparty in the interest rate swap isJ.P. Morgan Chase, N.A.

 

Many of the ingredientsused in the products sold in our restaurants are commodities that are subjectto unpredictable price volatility. Currently, we do not utilize fixed pricecontracts for certain commodities such as produce and cheese, therefore, we aresubject to prevailing market conditions when purchasing those types ofcommodities. For other commodities, we employ various purchasing and pricing contracttechniques in an effort to minimize volatility, including fixed price contractsfor terms of generally one year or less and negotiating prices with vendorswith reference to fluctuating market prices. We currently do not use financial instruments to hedge commodity prices,but we will continue to evaluate their effectiveness. Extreme and/or long termincreases in commodity prices could adversely affect our future results,especially if we are unable, primarily due to competitive reasons, to increase menuprices. Additionally, if there is a time lag between the increasing commodityprices and our ability to increase menu prices or if we believe the commodityprice increase to be short in duration and we choose not to pass on the costincreases, our short-term financial results could be negatively affected.

 

We are subject tobusiness risk as our beef supply is highly dependent upon two vendors.  If these vendors were unable to fulfill theirobligations under their contracts, we may encounter supply shortages and incurhigher costs to secure adequate supplies, any of which would harm our business.

 

**ITEM 4.CONTROLS AND PROCEDURES**

 

**Evaluationof disclosure controls and procedures**

 

We have evaluated theeffectiveness of the design and operation of our disclosure controls andprocedures pursuant to, and as defined in Exchange Act Rules 13a-15(e) and15d-15(e) as of the end of the period covered by this report. Based on theevaluation, performed under the supervision and with the participation of ourmanagement, including the Chief Executive Officer (the “CEO”) and the ChiefFinancial Officer (the “CFO”), our management, including the CEO and CFO,concluded that our disclosure controls and procedures were effective as of theend of the period covered by this report.

 

**Changesin internal control**

 

During the period coveredby this report, there were no changes with respect to our internal control overfinancial reporting that materially affected, or are reasonably likely tomaterially affect, our internal control over financial reporting.

 

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**PART II — OTHER INFORMATION**

 

**ITEM1.  LEGAL PROCEEDINGS**

 

Occasionally, we are adefendant in litigation arising in the ordinary course of our business,including “slip and fall’ accidents, employment related claims and claims fromguests or employees alleging illness, injury or food quality, health oroperational concerns.  None of these types of litigation, most of whichare covered by insurance, has had a material effect on us and, as of the dateof this report, we are not party to any litigation that we believe would have amaterial adverse effect on our business.

 

**ITEM1A.   RISK FACTORS**

 

Informationregarding risk factors appears in our Annual Report on Form 10-K for theyear ended December 30, 2008, under the heading “Special Note RegardingForward-looking Statements” and in the Form 10-K Part I, Item 1A,Risk Factors.  There have been nomaterial changes from the risk factors previously disclosed in our Form 10-K,except as follows:

 

*Healthconcerns arising from outbreaks of viruses may have an adverse effect on ourbusiness.*

 

The United Statesand other countries have experienced, or may experience in the future,outbreaks of viruses, such as Avian Flu, SARS and H1N1.  To the extent that a virus is food-borne,future outbreaks may adversely affect the price and availability of certainfood products and cause our guests to eat less of a product.  To the extent that a virus is transmitted byhuman-to-human contact, our employees or guests could become infected, or couldchoose, or be advised, to avoid gathering in public places, any one of which couldadversely affect our business.

 

**ITEM2.  UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS**

 

On February 14,2008, our Board of Directors approved a stock repurchase program under which itauthorized the Company to repurchase up to $25.0 million of its Class Acommon stock during the two-year period ending February 14, 2010.   On July 8, 2008, our Board of Directorsapproved a $50.0 million increase in our stock repurchase program.

 

No purchases ofour common stock were made by us during the 39 weeks ended September 29,2009.  The approximate dollar value ofshares that may yet be purchased under the plan is $18.2 million.

 

**ITEM3.  DEFAULTS UPON SENIOR SECURITIES**

 

None.

 

**ITEM4.  SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.**

 

None.

 

**ITEM5.  OTHER INFORMATION.**

 

None.

 

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**ITEM 6.EXHIBITS.**

 
| **Exhibit No.** | ** ** | **Description**                                                                                                                                                               |
|----------------------|------------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| 10.1                 |       | Fourth Amendment to  Amended and Restated Lease Agreement (Two Paragon Centre) dated July 22,  2009 between Paragon Centre Holdings LLC and Texas Roadhouse Holdings LLC |
| 31.1                 |       | Certification of Chief  Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of  2002.                                                                    |
| 31.2                 |       | Certification of Chief  Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of  2002.                                                                    |
| 32.1                 |       | Certification of Chief  Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted  pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.                |
| 32.2                 |       | Certification of Chief  Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted  pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.                |

 

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**SIGNATURES**

 

Pursuant to therequirements of the Securities Exchange Act of 1934, the registrant has dulycaused this report to be signed on its behalf by the undersigned thereunto dulyauthorized.

 
|                         | TEXAS ROADHOUSE, INC. |
|------------------------------|-----------------------|
|                         |                  |   |
| Date: November 6,  2009 | By:                   | /s/ G.J. Hart |
|                         |                  | G.J. Hart |
|                         |                  | President, Chief  Executive Officer |
|                         |                  | (principal executive  officer) |
|                         |                  |   |
| Date: November 6,  2009 | By:                   | /s/ Scott M. Colosi |
|                         |                  | Scott M. Colosi |
|                         |                  | Chief Financial Officer |
|                         |                  | (principal financial  officer) |
|                         |                  | (chief accounting  officer) |

 

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