**UNITEDSTATESSECURITIES AND EXCHANGE COMMISSION****Washington, D.C. 20549**

**FORM 10-Q**
| **x** | ** ** | **QUARTERLY REPORT PURSUANT TO SECTION 13 OR  15(D) OF THE SECURITIES EXCHANGE ACT OF 1934** |
|-------|------------|--------------------------------------------------------------------------------------------------------|

 

**Forthe quarterly period ended June 26, 2007**

**OR**
| **o** | ** ** | **TRANSITION REPORT PURSUANT TO SECTION 13 OR  15(D) OF THE SECURITIES EXCHANGE ACT OF 1934** |
|-------|------------|---------------------------------------------------------------------------------------------------------|

 

**Forthe transition periodfrom                            to**

**CommissionFile Number 000-50972**

**Texas Roadhouse, Inc.**(Exact name of registrant specified in its charter)

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

 

**6040Dutchmans Lane, Suite 200Louisville, Kentucky 40205**(Address of principal executive offices) (Zip Code)**(502) 426-9984**(Registrant’s telephone number, including area code)

Indicate by check markwhether registrant (1) has filed all reports required to be filed bySection 13 or 15(d) of the Securities Exchange Act of 1934 during thepreceding 12 months (or for such shorter period that the registrant wasrequired to file such reports), and (2) has been subject to such filingrequirements for the past 90 days.    Yes   x No  o.

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

| Large accelerated  filer x |   | Accelerated  filer o |   | Non-accelerated  filer 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 ofClass A and Class B common stock outstanding were 69,481,128 and5,265,376, respectively, on July 27, 2007.

 

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**TABLEOF CONTENTS**

 
| PART I. FINANCIAL  INFORMATION                                                                               |   |   |   |
|-------------------------------------------------------------------------------------------------------------------|--------|--------|--------|
|                                                                                                              |   |   |   |
| Item  1 — Financial Statements — Texas Roadhouse, Inc. and Subsidiaries                            |   | 3      |   |
| Condensed Consolidated Balance Sheets — June 26, 2007  and December 26, 2006                            |   | 3      |   |
| Condensed Consolidated Statements of Income — For the  13 and 26 Weeks Ended June 26, 2007 and June 27, 2006 |   | 4      |   |
| Condensed Consolidated Statements of Cash Flows — For  the 26 Weeks Ended June 26, 2007 and June 27, 2006    |   | 5      |   |
| Notes to Condensed Consolidated Financial Statements                                                              |   | 6      |   |
| Item 2 — Management’s Discussion and Analysis of  Financial Condition and Results of Operations         |   | 11     |   |
| Item 3 — Quantitative and Qualitative Disclosures  About Market Risk                                         |   | 18     |   |
| Item 4 — Controls and Procedures                                                                             |   | 18     |   |
|                                                                                                              |   |   |   |
| PART II.  OTHER INFORMATION                                                                                  |   |   |   |
|                                                                                                              |   |   |   |
| Item  1 — Legal Proceedings                                                                                  |   | 19     |   |
| Item  1A — Risk Factors                                                                                      |   | 19     |   |
| Item 2 — Unregistered Sales of Equity Securities and  Use of Proceeds                                        |   | 19     |   |
| Item 3 — Defaults Upon Senior Securities                                                                     |   | 19     |   |
| Item 4 — Submission of Matters to a Vote of Security  Holders                                                |   | 19     |   |
| Item  5 — Other Information                                                                                  |   | 20     |   |
| Item 6 —  Exhibits                                                                                           |   | 20     |   |
|                                                                                                              |   |   |   |
| Signatures                                                                                                        |   | 21     |   |

 

2

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**PART I — FINANCIAL INFORMATION**

**ITEM1 — FINANCIAL STATEMENTS**

**Texas Roadhouse, Inc. andSubsidiariesCondensed Consolidated Balance Sheets(in thousands, except share and per share data)(unaudited)**
| ** **                                                                                                                                                                                         | ** ** | **June 26, 2007** | ** ** | **December 26, 2006** | ** ** |
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|-----------------------------|------------|---------------------------------|------------|
| **Assets**                                                                                                                                                                                         | ** ** | ** **                  | ** ** | ** **                      | ** ** |
| Current assets:                                                                                                                                                                                    |       |                        |       |                            |       |
| Cash and cash  equivalents                                                                                                                                                                         |       | $                           | 57,791     |                            | $          | 33,784 |   |
| Receivables, net of  allowance for doubtful accounts of $53 and $69 at June 26, 2007 and December  26, 2006, respectively                                                                          |       | 8,572                       |       | 8,299                           |       |
| Inventories                                                                                                                                                                                        |       | 6,471                       |       | 6,436                           |       |
| Prepaid expenses                                                                                                                                                                                   |       | 1,866                       |       | 2,920                           |       |
| Deferred tax assets                                                                                                                                                                                |       | 640                         |       | 1,066                           |       |
| Total current assets                                                                                                                                                                               |       | 75,340                      |       | 52,505                          |       |
| Property and equipment,  net                                                                                                                                                                       |       | 340,353                     |       | 305,731                         |       |
| Goodwill                                                                                                                                                                                           |       | 86,649                      |       | 86,649                          |       |
| Intangible asset, net                                                                                                                                                                              |       | 4,702                       |       | 4,880                           |       |
| Other assets                                                                                                                                                                                       |       | 3,105                       |       | 2,823                           |       |
| Total assets                                                                                                                                                                                       |       | $                           | 510,149    |                            | $          | 452,588 |   |
|                                                                                                                                                                                               |       |                        |       |                            |       |
| **Liabilities and Stockholders’  Equity**                                                                                                                                                     | ** ** | ** **                  | ** ** | ** **                      | ** ** |
| Current liabilities:                                                                                                                                                                               |       |                        |       |                            |       |
| Current maturities of  long-term debt and obligations under capital leases                                                                                                                         |       | $                           | 288        |                            | $          | 653 |   |
| Accounts payable                                                                                                                                                                                   |       | 18,277                      |       | 18,794                          |       |
| Deferred revenue — gift  certificates                                                                                                                                                         |       | 13,065                      |       | 26,205                          |       |
| Accrued wages                                                                                                                                                                                      |       | 13,865                      |       | 12,653                          |       |
| Income tax payable                                                                                                                                                                                 |       | 1,449                       |       | 3,725                           |       |
| Accrued taxes and  licenses                                                                                                                                                                        |       | 7,587                       |       | 6,726                           |       |
| Other accrued  liabilities                                                                                                                                                                         |       | 7,692                       |       | 8,139                           |       |
| Total current  liabilities                                                                                                                                                                         |       | 62,223                      |       | 76,895                          |       |
| Long-term debt and  obligations under capital leases, excluding current maturities                                                                                                                 |       | 79,637                      |       | 35,362                          |       |
| Stock option deposits                                                                                                                                                                              |       | 4,350                       |       | 4,102                           |       |
| Deferred rent                                                                                                                                                                                      |       | 6,611                       |       | 5,829                           |       |
| Deferred tax  liabilities                                                                                                                                                                          |       | 5,652                       |       | 7,823                           |       |
| Other liabilities                                                                                                                                                                                  |       | 3,780                       |       | 2,198                           |       |
| Total liabilities                                                                                                                                                                                  |       | 162,253                     |       | 132,209                         |       |
| Minority interest in  consolidated subsidiaries                                                                                                                                                    |       | 1,612                       |       | 1,305                           |       |
| Stockholders’ equity:                                                                                                                                                                         |       |                        |       |                            |       |
| Preferred stock ($0.001  par value, 1,000,000 shares authorized; no shares issued or outstanding)                                                                                                  |       | —                      |       | —                          |       |
| Common stock,  Class A, ($0.001 par value, 100,000,000 shares authorized, 69,465,644  and 69,002,925 shares issued and outstanding at June 26, 2007 and  December 26, 2006, respectively |       | 69                          |       | 69                              |       |
| Common stock,  Class B, ($0.001 par value, 8,000,000 shares authorized, 5,265,376  shares issued and outstanding)                                                                             |       | 5                           |       | 5                               |       |
| Additional paid in  capital                                                                                                                                                                        |       | 260,910                     |       | 255,253                         |       |
| Retained earnings                                                                                                                                                                                  |       | 85,300                      |       | 63,747                          |       |
| Total stockholders’  equity                                                                                                                                                                   |       | 346,284                     |       | 319,074                         |       |
| Total liabilities and stockholders’ equity                                                                                                                                                    |       | $                           | 510,149    |                            | $          | 452,588 |   |

 

See accompanying notes to condensed consolidatedfinancial statements.

3

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**Texas Roadhouse, Inc. andSubsidiariesCondensed Consolidated Statements of Income(in thousands, except per share data)(unaudited)**
| ** **                                                   | ** ** | **13 Weeks Ended** | ** ** | **26 Weeks Ended** | ** ** |
|--------------------------------------------------------------|------------|------------------------------|------------|------------------------------|------------|
| ** **                                                   | ** ** | **June 26, 2007**  | ** ** | **June 27, 2006**  | ** ** | **June 26, 2007** | ** ** | **June 27, 2006** | ** ** |
| Revenue:                                                     |       |                         |       |                         |       |   |   |   |   |
| Restaurant sales                                             |       | $                            | 178,129    |                         | $          | 144,071 |   | $ | 353,573 |   | $ | 290,945 |   |
| Franchise  royalties and fees                                |       | 2,857                        |       | 2,649                        |       | 5,750 |   | 5,174 |   |
|                                                         |       |                         |       |                         |       |   |   |   |   |
| Total revenue                                                |       | 180,986                      |       | 146,720                      |       | 359,323 |   | 296,119 |   |
|                                                         |       |                         |       |                         |       |   |   |   |   |
| Costs and  expenses:                                         |       |                         |       |                         |       |   |   |   |   |
| Restaurant  operating costs:                                 |       |                         |       |                         |       |   |   |   |   |
| Cost of sales                                                |       | 62,250                       |       | 50,460                       |       | 123,347 |   | 102,092 |   |
| Labor                                                        |       | 50,282                       |       | 40,309                       |       | 98,579 |   | 80,166 |   |
| Rent                                                         |       | 2,846                        |       | 2,433                        |       | 5,631 |   | 4,809 |   |
| Other operating                                              |       | 28,779                       |       | 23,299                       |       | 56,686 |   | 46,893 |   |
| Pre-opening                                                  |       | 3,102                        |       | 3,229                        |       | 6,685 |   | 5,811 |   |
| Depreciation and  amortization                               |       | 7,230                        |       | 5,155                        |       | 13,875 |   | 10,061 |   |
| General and  administrative                                  |       | 11,595                       |       | 7,554                        |       | 19,918 |   | 17,909 |   |
|                                                         |       |                         |       |                         |       |   |   |   |   |
| Total costs and  expenses                                    |       | 166,084                      |       | 132,439                      |       | 324,721 |   | 267,741 |   |
|                                                         |       |                         |       |                         |       |   |   |   |   |
| Income from  operations                                      |       | 14,902                       |       | 14,281                       |       | 34,602 |   | 28,378 |   |
|                                                         |       |                         |       |                         |       |   |   |   |   |
| Interest  expense, net                                       |       | 361                          |       | 125                          |       | 597 |   | 469 |   |
| Minority  interest                                           |       | 230                          |       | 78                           |       | 519 |   | 285 |   |
| Equity income  from investments in unconsolidated affiliates |       | 93                           |       | 47                           |       | 190 |   | 135 |   |
|                                                         |       |                         |       |                         |       |   |   |   |   |
| Income before  taxes                                         |       | 14,404                       |       | 14,125                       |       | 33,676 |   | 27,759 |   |
| Provision for  income taxes                                  |       | 5,147                        |       | 5,294                        |       | 12,123 |   | 10,746 |   |
| Net income                                                   |       | $                            | 9,257      |                         | $          | 8,831 |   | $ | 21,553 |   | $ | 17,013 |   |
|                                                         |       |                         |       |                         |       |   |   |   |   |
| Net income per  common share:                                |       |                         |       |                         |       |   |   |   |   |
| Basic                                                        |       | $                            | 0.12       |                         | $          | 0.12 |   | $ | 0.29 |   | $ | 0.23 |   |
|                                                         |       |                         |       |                         |       |   |   |   |   |
| Diluted                                                      |       | $                            | 0.12       |                         | $          | 0.12 |   | $ | 0.28 |   | $ | 0.22 |   |
|                                                         |       |                         |       |                         |       |   |   |   |   |
| Weighted average  shares outstanding:                        |       |                         |       |                         |       |   |   |   |   |
| Basic                                                        |       | 74,613                       |       | 73,907                       |       | 74,500 |   | 73,634 |   |
|                                                         |       |                         |       |                         |       |   |   |   |   |
| Diluted                                                      |       | 76,912                       |       | 76,540                       |       | 76,879 |   | 76,478 |   |

 

See accompanying notes to condensed consolidatedfinancial statements.

4

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**Texas Roadhouse, Inc. andSubsidiariesCondensed Consolidated Statements of Cash Flows(in thousands)(unaudited)**
| ** **                                                                         | ** ** | **26 Weeks Ended** | ** ** | ** **                  |
|------------------------------------------------------------------------------------|------------|------------------------------|------------|-----------------------------|
| ** **                                                                         | ** ** | **June 26, 2007**  | ** ** | **June 27, 2006** | ** ** | ** ** |
| **Cash flows from operating  activities:**                                         | ** ** | ** **                   | ** ** | ** **                  | ** ** | ** ** |
| Net income                                                                         |       | $                            | 21,553     |                        | $ | 17, 013 |   |   |
| Adjustments to  reconcile net income to net cash provided by operating activities: |       |                         |       |                        |   |   |
| Depreciation and  amortization                                                     |       | 13,875                       |       | 10,061                      |   |   |
| Deferred income  taxes                                                             |       | (1,745                       | )          | (1,193                      | ) |   |
| Loss/(gain) on  disposition of assets                                              |       | 112                          |       | (17                         | ) |   |
| Minority  interest                                                                 |       | 519                          |       | 285                         |   |   |
| Equity income  from investments in unconsolidated affiliates                       |       | (190                         | )          | (135                        | ) |   |
| Distributions  received from investments in unconsolidated affiliates              |       | 208                          |       | 172                         |   |   |
| Provision for  doubtful accounts                                                   |       | (16                          | )          | —                      |   |   |
| Share-based  compensation expense                                                  |       | 2,436                        |       | 3,514                       |   |   |
| Changes in operating  working capital:                                             |       |                         |       |                        |   |   |
| Receivables                                                                        |       | (257                         | )          | 1,218                       |   |   |
| Inventories                                                                        |       | (35                          | )          | 145                         |   |   |
| Prepaid expenses  and other current assets                                         |       | 1,054                        |       | 810                         |   |   |
| Other assets                                                                       |       | 146                          |       | 105                         |   |   |
| Accounts payable                                                                   |       | (517                         | )          | (1,238                      | ) |   |
| Deferred revenue  — gift certificates                                         |       | (13,140                      | )          | (10,782                     | ) |   |
| Accrued wages                                                                      |       | 1,212                        |       | 1,275                       |   |   |
| Excess tax  benefits from share-based compensation                                 |       | (1,479                       | )          | (3,208                      | ) |   |
| Prepaid income  taxes and income taxes payable                                     |       | (797                         | )          | 4,112                       |   |   |
| Accrued taxes  and licenses                                                        |       | 861                          |       | 2,477                       |   |   |
| Other accrued  liabilities                                                         |       | (447                         | )          | (1,337                      | ) |   |
| Deferred rent                                                                      |       | 782                          |       | 534                         |   |   |
| Other  liabilities                                                                 |       | 1,582                        |       | (52                         | ) |   |
|                                                                               |       |                         |       |                        |   |   |
| Net cash provided by  operating activities                                         |       | $                            | 25,717     |                        | $ | 23,759 |   |   |
|                                                                               |       |                         |       |                        |   |   |
| **Cash flows from investing  activities:**                                         | ** ** | ** **                   | ** ** | ** **                  | ** ** | ** ** |
| Capital expenditures —  property and equipment                                |       | (48,732                      | )          | (40,052                     | ) |   |
| Proceeds from sale of  property and equipment, including insurance proceeds        |       | 301                          |       | 1,313                       |   |   |
| Acquisitions of  franchise restaurants, net of cash acquired                       |       | —                       |       | (13,203                     | ) |   |
|                                                                               |       |                         |       |                        |   |   |
| Net cash used in  investing activities                                             |       | $                            | (48,431    | )                           | $ | (51,942 | ) |   |
|                                                                               |       |                         |       |                        |   |   |
| **Cash flows from financing  activities:**                                         | ** ** | ** **                   | ** ** | ** **                  | ** ** | ** ** |
| Proceeds from revolving  credit facility, net                                      |       | 46,000                       |       | 10,000                      |   |   |
| Principal payments on  long-term debt and capital lease obligations                |       | (2,090                       | )          | (3,478                      | ) |   |
| Payments for debt  issuance costs                                                  |       | (459                         | )          | —                      |   |   |
| Distributions to  minority interest holders                                        |       | (591                         | )          | (395                        | ) |   |
| Proceeds from minority  interest contributions and other                           |       | 347                          |       | 737                         |   |   |
| Excess tax benefits  from share-based compensation                                 |       | 1,479                        |       | 3,208                       |   |   |
| Repayments of stock  option deposits                                               |       | —                       |       | (170                        | ) |   |
| Proceeds from stock  option deposits                                               |       | 478                          |       | 745                         |   |   |
| Proceeds from exercise  of stock options                                           |       | 1,557                        |       | 2,908                       |   |   |
|                                                                               |       |                         |       |                        |   |   |
| Net cash provided by  financing activities                                         |       | $                            | 46,721     |                        | $ | 13,555 |   |   |
|                                                                               |       |                         |       |                        |   |   |
| Net increase/(decrease)  in cash                                                   |       | 24,007                       |       | (14,628                     | ) |   |
| Cash and cash  equivalents — beginning of period                              |       | 33,784                       |       | 28,987                      |   |   |
| Cash and cash  equivalents — end of period                                    |       | $                            | 57,791     |                        | $ | 14,359 |   |   |
|                                                                               |       |                         |       |                        |   |   |
| Supplemental  disclosures of cash flow information:                                |       |                         |       |                        |   |   |
| Interest, net of  amounts capitalized                                              |       | $                            | 695        |                        | $ | 631 |   |   |
| Income taxes                                                                       |       | $                            | 14,666     |                        | $ | 7,809 |   |   |
| Supplemental schedule  for non-cash investing and financing activities:            |       |                         |       |                        |   |   |
| Stock  acquisition of franchise restaurants                                        |       | $                            | —     |                        | $ | 39,394 |   |   |
| Assumption of debt —  acquisitions                                            |       | $                            | —     |                        | $ | 2,291 |   |   |

 

See accompanyingnotes to condensed consolidated financial statements.

5

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**Texas Roadhouse, Inc. andSubsidiariesNotes to Condensed Consolidated Financial Statements(Tabular dollar amounts in thousands, except per share data)(unaudited)**

**(1)   Basisof Presentation**

The accompanyingunaudited condensed consolidated financial statements include the accounts ofTexas Roadhouse, Inc. (the “Company”) and its wholly-owned subsidiaries,Texas Roadhouse Holdings LLC (“Holdings”), Texas Roadhouse DevelopmentCorporation (“TRDC”) and Texas Roadhouse Management Corp. (“ManagementCorp.”), as of and for the 13 and 26 weeks ended June 26, 2007 and June 27,2006.  The Company and its wholly-owned 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.

Management of theCompany has made a number of estimates and assumptions relating to thereporting of assets and liabilities, the disclosure of contingent assets andliabilities at the date of the condensed consolidated financial statements andthe reporting of revenue and expenses during the period to prepare thesecondensed consolidated financial statements in conformity with U.S. generallyaccepted accounting principles. 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, the results of operations and cash flowsof the Company for the periods presented.  The financial statements havebeen prepared in accordance with U.S. generally accepted accounting principles,except that certain information and footnotes have been condensed or omittedpursuant to rules and regulations of the Securities and ExchangeCommission (“SEC”).  Operating results for the 13 and 26 weeks ended June26, 2007 are not necessarily indicative of the results that may be expected forthe year ending December 25, 2007.  The financial statements shouldbe read in conjunction with the consolidated financial statements and notesthereto included in the Company’s Annual Report on Form 10-K for the yearended December 26, 2006.

**(2)   Share-basedCompensation**

Thefollowing table summarizes the share-based compensation recorded in theaccompanying condensed consolidated statements of income:
| ** **                              | ** ** | **13 Weeks Ended** | ** ** | **26 Weeks Ended** | ** ** |
|-----------------------------------------|------------|------------------------------|------------|------------------------------|------------|
| ** **                              | ** ** | **June 26, 2007**  | ** ** | **June 27, 2006**  | ** ** | **June 26, 2007** | ** ** | **June 27, 2006** | ** ** |
|                                    | ** ** | ** **                   | ** ** | ** **                   | ** ** | ** ** | ** ** | ** ** | ** ** |
| Labor expense                           |       | $                            | 532        |                         | $          | 806 |   | $ | 1,024 |   | $ | 1,693 |   |
| General and  administrative expense     |       | 750                          |       | 868                          |       | 1,412 |   | 1,821 |   |
| Total  share-based compensation expense |       | $                            | 1,282      |                         | $          | 1,674 |   | $ | 2,436 |   | $ | 3,514 |   |
|                                    |       |                         |       |                         |       |   |   |   |   |
| Basic earnings  per share               |       | $                            | 0.01       |                         | $          | 0.02 |   | $ | 0.03 |   | $ | 0.04 |   |
| Diluted earnings per  share             |       | $                            | 0.01       |                         | $          | 0.02 |   | $ | 0.03 |   | $ | 0.04 |   |

 

6

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Asummary of option activity as of June 26, 2007 and changes during the periodthen 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  26, 2006 |       | 6,933,236  |       | $                                           | 7.98       |                                                            |       |                            |       |   |
| Granted                           |       | 572,230    |       | 15.68                                       |       |                                                            |       |                            |       |
| Forfeited                         |       | (48,334    | )          | 13.54                                       |       |                                                            |       |                            |       |
| Exercised                         |       | (462,719   | )          | 3.86                                        |       |                                                            |       |                            |       |
| Outstanding at June 26,  2007     |       | 6,994,413  |       | $                                           | 8.86       |                                                            | 6.53       |                            | $          | 30,106 |   |
|                              |       |       |       |                                        |       |                                                            |       |                            |       |
| Exercisable at June 26, 2007      |       | 4,383,870  |       | $                                           | 6.98       |                                                            | 5.77       |                            | $          | 24,629 |   |

 

Theweighted-average grant date fair value of options granted during the 13 weeksended June 26, 2007 and June 27, 2006 was $5.34 and $5.67, respectively.  The weighted-average grant date fair value ofoptions granted during the 26 weeks ended June 26, 2007 and June 27, 2006 was$5.31 and $5.88, respectively, using the Black-Scholes option-pricing modelwith the following weighted-average assumptions:

|                          | ** ** | **13 Weeks Ended** | ** ** | **26 Weeks Ended** | ** ** |
|--------------------------|------------|------------------------------|------------|------------------------------|------------|
| ** **               | ** ** | **June 26, 2007**  | ** ** | **June 27, 2006**  | ** ** | **June 26, 2007** | ** ** | **June 27, 2006** | ** ** |
|                     |       |                         |       |                         |       |   |   |   |   |
| Risk-free  interest rate |       | 4.55                         | %          | 4.99                         | %          | 4.58 | % | 4.82 | % |
| Expected term  (years)   |       | 3.0 — 5.0               |       | 3.0 — 5.0               |       | 3.0 — 5.0 |   | 3.0 — 5.0 |   |
| Expected  volatility     |       | 35.2                         | %          | 43.1                         | %          | 35.5 | % | 43.2 | % |
| Expected dividend yield  |       | 0.0                          | %          | 0.0                          | %          | 0.0 | % | 0.0 | % |

 

The totalintrinsic value of options exercised during the 13 weeks ended June 26, 2007and June 27, 2006 was $1.8 million and $3.2 million, respectively.  The total intrinsic value of optionsexercised during the 26 weeks ended June 26, 2007 and June 27, 2006 was $5.0million and $12.2 million, respectively.  As of June 26, 2007, with respect to unvested stock options, there was$6.0 million of unrecognized compensation cost that is expected to berecognized over a weighted-average period of 1.4 years.  The total grant date fair value of stockoptions vested for both 13 week periods ended June 26, 2007 and June 27, 2006was $1.2 million, and for the 26 week periods ended June 26, 2007 and June 27,2006 was $2.4 million and $2.7 million, respectively.

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

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

|                                          | ** ** | **June 26 , 2007** | ** ** | **December 26, 2006** | ** ** |
|------------------------------------------|------------|-----------------------------------|------------|---------------------------------|------------|
| Installment  loans, due 2007 — 2016 |       | $                                 | 3,324      |                            | $          | 5,388 |   |
| Obligations  under capital leases        |       | 601                               |       | 627                             |       |
| Revolver                                 |       | 76,000                            |       | 30,000                          |       |
|                                     |       | 79,925                            |       | 36,015                          |       |
| Less current  maturities                 |       | 288                               |       | 653                             |       |
|                                     |       | $                                 | 79,637     |                            | $          | 35,362 |   |

 

7

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The weighted averageinterest rate for installment loans outstanding at June 26, 2007 and December26, 2006 was 9.92% and 9.67%, respectively. The debt is secured by certain land, buildings and equipment.

On May 31, 2007,the Company amended and restated its existing five-year revolving creditfacility dated October 8, 2004 with a syndicate of commercial lenders led byBank of America, N.A., Banc of America Securities LLC and National CityBank.  The facility was increased from$150.0 million to $250.0 million and the term was extended to 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% and to pay a commitment fee of 0.10% to 0.175% per year on anyunused portion of the facility, in both cases depending on the Company’sleverage ratio.   The weighted averageinterest rate for the revolver at June 26, 2007 and December 26, 2006 was 7.09%and 6.08%, respectively.  At June 26,2007, the Company had $76.0 million outstanding under the credit facility and $170.8million of availability, net of $3.2 million of outstanding letters of credit.

The lenders’obligation to extend credit under the facility depends on the Companymaintaining certain financial covenants, including a minimum consolidated fixedcharge coverage ratio of 2.00 to 1.00 and a maximum consolidated leverage ratioof 3.00 to 1.00.  The new credit facilitypermits the Company to incur additional secured or unsecured indebtednessoutside the facility, except for the incurrence of secured indebtedness that inthe aggregate 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 is currently in compliance withsuch covenants.

** (4)   Recent AccountingPronouncements**

In September 2006,the Financial Accounting Standards Board (“FASB”) issued Statement of FinancialAccounting Standards (“SFAS”) No. 157, *Fair Value Measurements*(“SFAS157”), which defines fair value, establishes a framework for measuring fairvalue and expands disclosures about fair value measurements.  The provisions of SFAS 157 are effective asof the beginning of the Company’s 2008 fiscal year.  The Company is currently evaluating theimpact of adopting SFAS 157 on its consolidated financial position, results ofoperations or cash flows.

In February 2007,the FASB issued SFAS No. 159, *The Fair Value Option forFinancial Assets and Financial Liabilities* (“SFAS 159”). SFAS 159 permitsentities to choose to measure many financial assets and financial liabilitiesat fair value. Unrealized gains and losses on items for which the fair valueoption has been elected are reported in earnings. The provisions of SFAS 159are effective as of the beginning of the Company’s 2008 fiscal year. TheCompany is currently evaluating the impact of SFAS 159 on its consolidatedfinancial position, results of operations or cash flows.

**(5)   Commitmentsand Contingencies**

The estimated costof completing capital project commitments at June 26, 2007 and December 26,2006 was approximately $73.8 million and $81.0 million, respectively.

The Companyentered into real estate lease agreements for franchise restaurants located inEverett, MA, Longmont, CO, Montgomeryville, PA and Fargo, ND 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 inOctober 2003 and expires in May 2014, the Everett lease was assignedin September 2002 and expires in February 2018, the Montgomeryvillelease was assigned in October 2004 and expires in June 2021 and the Fargo leasewas assigned in February 2006 and expires in July 2016.  As the fair value of the guarantees is notconsidered significant, no liability has been recorded.  As discussed in note 6, the Everett, MA, Longmont,CO, and Fargo, ND restaurants are owned, in whole or part, by certain officers,directors and 5% stockholders of the Company.

The Company isinvolved in various claims and legal actions arising in the normal course ofbusiness. In the opinion of management, the ultimate disposition of thesematters will not have a material effect on the Company’s consolidated resultsof operations, financial position or liquidity.

On March 26, 2007,a civil case styled as a class action complaint titled *Nicole M.Ehrheart v. Texas Roadhouse, Inc. and Does 1 through 10 (“Ehrheart”)*,Case Number CA 07-54, was filed against the Company in the United StatesDistrict Court for the Western District of Pennsylvania Erie Division.  The case alleges liability under the Fair andAccurate Credit Transactions Act (“FACTA”) based on the alleged practice ofunlawfully including more information on the electronically printed credit ordebit card receipts provided to customers than is permitted.  The plaintiff seeks monetary damages,including statutory damages, punitive damages, costs and attorneys’ fees, and apermanent injunction against the alleged unlawful practice.  Statutory damages range from $100 to $1,000for each willful violation.  The Companyhas filed an answer to the complaint denying the material allegations of thecomplaint; discovery has not yet begun.

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OnJuly 20, 2007, a civil case styled as a class action complaint titled *Mario Aliano v. Texas Roadhouse Holdings LLC, Texas Roadhouse, Inc. andDoes 1-10**(“Aliano”),*Case Number 07cv4108, was filed against the Company in the United States DistrictCourt for the Northern District of Illinois Eastern Division.  The case alleges liability under FACTA.  The plaintiff seeks statutory damages of $100to $1,000 per violation, attorney’s fees, litigation expenses and costs.

The Companybelieves it has meritorious defenses to the *Ehrheart* and *Aliano* claims and intends to vigorously defend against theclaims, including the plaintiffs’ efforts to certify a nationwide classaction.  However, if either court bothgranted class action status and imposed statutory penalties, the resolution ofthe case would be likely to have a material adverse effect on the Company’sbusiness and its consolidated financial position, results of operation and cashflows.

The Companycurrently buys most of its beef from four suppliers.  Although there are a limited number of beefsuppliers, management believes that other suppliers could provide a similarproduct on comparable terms.  A change insuppliers, however, could cause supply shortages and a possible loss of sales,which would affect operating results adversely. The Company has no material minimum purchase commitments with itsvendors that extend beyond a year.

** (6)   Related PartyTransactions**

The Longview,Texas restaurant, which was acquired by the Company in connection with thecompletion of the initial public offering, leases the land and restaurantbuilding from an entity controlled by Steven L. Ortiz, the Company’s ChiefOperating Officer. The lease term is 15 years and will terminate inNovember 2014. The lease can be renewed for two additional terms of fiveyears each. Rent is approximately $16,000 per month and will increase by 5% onthe 11th anniversary date of the lease. The lease can be terminated if thetenant fails to pay the rent on a timely basis, fails to maintain the insurancespecified in the lease, fails to maintain the building or property or becomesinsolvent. Total rent payments were approximately $50,000 for both 13 weekperiods ended June 26, 2007 and June 27, 2006.  For the 26 weeks ended June 26, 2007 and June 27, 2006, rentpayments were $0.1 million.

The Bossier City,Louisiana restaurant, of which Steven L. Ortiz, the Company’s Chief OperatingOfficer, beneficially owns 66.0% and the Company owns 5.0%, leases the land andbuilding from an entity owned by Mr. Ortiz. The lease term is 15 years and will terminate on March 31, 2020.  The lease can be renewed for three additionalterms of five years each.  Rent isapproximately $15,100 per month for the first five years of the lease andescalates 10% each five year period during the term.  The lease can be terminated if the tenantfails to pay rent on a timely basis, fails to maintain insurance, abandons theproperty or becomes insolvent.  Totalrent payments were approximately $45,000 for each of the 13 week periods endedJune 26, 2007 and June 27, 2006.  For the26 weeks ended June 26, 2007 and June 27, 2006, rent payments wereapproximately $0.1 million.

The Company had 14and 13 franchise and license restaurants owned, in whole or part, by certain officers,directors and 5% stockholders of the Company at June 26, 2007 and June 27,2006, respectively. These entities paid the Company fees of approximately  $0.5 million during each of the 13 weekperiods ended June 26, 2007 and June 27, 2006. For the 26 weeks ended June 26, 2007 and June 27, 2006, these entitiespaid the Company fees of approximately $1.1 million and $1.0 million,respectively.  As disclosed in note 5,the Company is contingently liable on leases which are related to three ofthese restaurants.

The Companyemploys Juli Miller Hart, the wife of G.J. Hart, the Company’s Chief ExecutiveOfficer, as Director of Public Relations. Ms. Hart does not report to Mr.Hart.

**(7)   EarningsPer Share**

The share and netincome per 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 andrestricted stock awards outstanding from the Company’s equity incentive plan.  For the 13 and 26 weeks ended June 26, 2007,options to purchase 2,005,858 and 2,045,858 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 26 weeks endedJune 27, 2006, options to purchase 1,618,675 shares of common stock wereoutstanding but not included in the computation of diluted earnings pershare because their inclusion would have had an anti-dilutive effect.

The followingtable sets forth the calculation of weighted average shares outstanding aspresented in the accompanying condensed consolidated statements of income:

9

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|                                             | ** ** | **13 Weeks Ended** | ** ** | **26 Weeks Ended** | ** ** |
|---------------------------------------------|------------|------------------------------|------------|------------------------------|------------|
| ** **                                  | ** ** | **June 26, 2007**  | ** ** | **June 27, 2006**  | ** ** | **June 26, 2007** | ** ** | **June 27, 2006** | ** ** |
| Net income                                  |       | $                            | 9,257      |                         | $          | 8,831 |   | $ | 21,553 |   | $ | 17,013 |   |
|                                        |       |                         |       |                         |       |   |   |   |   |
| Basic EPS:                                  |       |                         |       |                         |       |   |   |   |   |
| Weighted-average  common shares outstanding |       | 74,613                       |       | 73,907                       |       | 74,500 |   | 73,634 |   |
|                                        |       |                         |       |                         |       |   |   |   |   |
| Basic EPS                                   |       | $                            | 0.12       |                         | $          | 0.12 |   | $ | 0.29 |   | $ | 0.23 |   |
|                                        |       |                         |       |                         |       |   |   |   |   |
| Diluted EPS:                                |       |                         |       |                         |       |   |   |   |   |
| Weighted-average  common shares outstanding |       | 74,613                       |       | 73,907                       |       | 74,500 |   | 73,634 |   |
| Dilutive effect  of stock options           |       | 2,299                        |       | 2,633                        |       | 2,379 |   | 2,844 |   |
| Shares — diluted                       |       | 76,912                       |       | 76,540                       |       | 76,879 |   | 76,478 |   |
|                                        |       |                         |       |                         |       |   |   |   |   |
| Diluted EPS                                 |       | $                            | 0.12       |                         | $          | 0.12 |   | $ | 0.28 |   | $ | 0.22 |   |

 

**(8)   Income Taxes**

In June 2006, FASBInterpretation No. 48, *Accounting for Uncertaintyin Income Taxes — an Interpretation of FAS 109* (“FIN 48”), wasissued.  FIN 48 clarifies the accountingfor uncertainty in income taxes recognized in an entity’s financial statementsin accordance with FASB Statement No. 109, *Accounting for IncomeTaxes.*  FIN 48 prescribes arecognition threshold and measurement attribute for the financial statementrecognition and measurement of a tax position taken or expected to be taken ina tax return.  The Company adopted theprovisions of FIN 48 on December 27, 2006, the first day of the Company’s 2007fiscal year.

As a result of theimplementation of FIN 48, the Company recognized no material adjustment in theliability for unrecognized income tax benefits. At the adoption date of December 27, 2006 and as of June 26, 2007, theCompany had no significant unrecognized income tax benefits or accrued interestor penalties related to uncertain tax positions.

The Company mayfrom time to time be assessed interest or penalties by major tax jurisdictions,although any such assessments historically have been minimal and immaterial tothe Company’s financial results.  In theevent the Company receives an assessment for interest and/or penalties, it hasbeen classified in the financial statements as income tax expense.

The tax years 2003- 2006 remain open to examination by the major taxing jurisdictions to which weare subject.

**(9)   SubsequentEvent**

On June 27, 2007,the first day of the Company’s third fiscal quarter, the Company completed theacquisitions of nine franchise restaurants located in Indiana, Kentucky andMissouri.  Pursuant to the terms of theacquisition agreements, the Company paid an aggregate purchase price ofapproximately $22.6 million.  Inconjunction with these acquisitions, the Company acquired land and buildingsleased by seven of the nine franchisees from parties related to thosefranchisees for an aggregate purchase price of approximately $12.1 million.

The Companyexpects to complete its purchase price allocation relating to this transactionin the fourth quarter of fiscal 2007.

10

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

**OVERVIEW**

Texas Roadhouse isa growing, 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 each of ourrestaurants as the local hometown destination for a broad segment of consumersseeking high quality, affordable meals served with friendly, attentive service.As of June 26, 2007, there were 270 Texas Roadhouse restaurants operating in 44states, including:

• 180“company restaurants,” of which 175 were wholly-owned and five weremajority-owned.  The results of operations of company restaurants areincluded in our condensed consolidated operating results. The portion of incomeattributable to minority interests in company restaurants that are notwholly-owned is reflected in the line item entitled “Minority interest” in ourcondensed consolidated statements of income.

• 90“franchise restaurants,” of which 87 were franchise restaurants and three werelicense restaurants. We have a 5.0% to 10.0% ownership interest in 18 franchiserestaurants.  The income derived from ourminority interests in these franchise restaurants is reported in the line itementitled “Equity income from investments in unconsolidated affiliates” inour condensed consolidated statements of income. Additionally, we providevarious management services to these franchise restaurants, as well as twoadditional franchise restaurants in which we have no ownership interest.

We havecontractual arrangements which grant us the right to acquire at pre-determinedvaluation formulas (i) the remaining equity interests in the five openmajority-owned company restaurants, and (ii) 66 of the franchiserestaurants.

**Presentationof Financial and Operating Data**

Throughout thisreport, the 13 weeks ended June 26, 2007 and June 27, 2006 are referred to asQ2 2007 and Q2 2006, respectively, and the 26 weeks ended June 26, 2007 andJune 27, 2006 are referred to as 2007 YTD and 2006 YTD, respectively.

**Long-termStrategies to Grow Earnings Per Share**

Our long-termstrategies with respect to increasing net income and earnings per share includethe following:

*ExpandingOur Restaurant Base.*   We will continue to evaluateopportunities to develop Texas Roadhouse restaurants in existing and newmarkets. We will remain focused primarily on mid-sized markets where we believethere exists a significant demand for our restaurants because of populationsize, income levels and the presence of shopping and entertainment centers anda significant employment base.

We may, at ourdiscretion, add franchise restaurants primarily with franchisees who havedemonstrated prior success with the Texas Roadhouse or other restaurantconcepts and in markets in which the franchisee demonstrates superior knowledgeof the demographics and restaurant operating conditions.  We may also look to acquire franchiserestaurants under terms favorable to the Company and our stockholders.  Additionally, from time to time, we mayevaluate potential mergers, acquisitions, joint ventures or other strategicinitiatives to acquire or develop additional concepts.

*ImprovingRestaurant Level Profitability.*   We plan to increaserestaurant level profitability through a combination of increased comparablerestaurant sales and operating cost management.

*LeveragingOur Scalable Infrastructure.*   Over the past severalyears, we have made significant investments in our infrastructure, includinginformation systems, real estate, human resources, legal, marketing andoperations. As a result, we believe that our general and administrative costswill increase at a slower growth rate than our revenue.

**KeyMeasures We Use To Evaluate Our Company**

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

*Numberof Restaurant Openings.*   Number of restaurant openingsreflects the number of restaurants opened during a particular fiscal period.For company restaurant openings we incur pre-opening costs, which are definedbelow, before the restaurant opens. Typically new restaurants open with aninitial start-up period of higher than normalized sales volumes, which decreaseto a steady

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level approximately three to six months after opening.However, although sales volumes are generally higher, so are initial costs,resulting in restaurant operating margins that are generally lower during thestart-up period of operation and increase to a steady level approximately threeto six months after opening.

*ComparableRestaurant Sales Growth.  *Comparable restaurant salesgrowth reflects the change in year-over-year sales for all company restaurantsfor the comparable restaurant base. We define the comparable restaurant base toinclude those restaurants open for a full 18 months before the beginning of thelater fiscal period. Comparable restaurant sales growth can be generated by anincrease in guest traffic counts or by increases in the per person averagecheck amount. Menu price changes and the mix of menu items sold can affect theper person average check amount.

*AverageUnit Volume.*   Average unit volume represents the averageannual restaurant sales for all company restaurants open for a fullsix months before the beginning of the period measured. Growth in averageunit volumes in excess of comparable restaurant sales growth is generally anindication that newer restaurants are operating with sales levels in excess ofthe company average. Conversely, growth in average unit volumes less thangrowth in comparable restaurant sales growth is generally an indication thatnewer restaurants are operating with sales levels lower than the systemaverage.

*StoreWeeks.*   Store weeks represent the number of weeks thatour company restaurants were open during the reporting period.

**OtherKey Definitions**

*RestaurantSales.*   Restaurant sales include gross food and beveragesales, net of promotions and discounts.

*FranchiseRoyalties and Fees.*   Franchisees typically pay a $40,000initial franchise fee for each new restaurant and a franchise renewal fee equalto the greater of 30% of the then-current initial franchise fee or $10,000 to$15,000. Franchise royalties consist of royalties in the amount of 2.0% to 4.0%of gross sales paid to us by our franchisees.

*RestaurantCost of Sales.*   Restaurant cost of sales consists offood and beverage costs.

*RestaurantLabor Expenses.*   Restaurant labor expenses include alldirect and indirect labor costs incurred in operations except for profitsharing incentive compensation expenses earned by our managing partners andmarket partners. These profit sharing expenses are reflected in restaurantother operating expenses.  Restaurantlabor expenses also include share-based compensation expense related torestaurant-level employees.

*RestaurantRent Expense.*   Restaurant rent expense includes all rentassociated with the leasing of real estate and includes base, percentage andstraight-line rent expense.

*RestaurantOther Operating Expenses.*   Restaurant other operatingexpenses consist of all other restaurant-level operating costs, the majorcomponents of which are utilities, supplies, advertising, repair andmaintenance, property taxes, credit card fees and general liability insurance.Profit sharing allocations to managing partners and market partners are also includedin restaurant other operating expenses.

*Pre-openingExpenses.*   Pre-opening expenses, which are charged tooperations as incurred, consist of expenses incurred before the opening of anew restaurant and are comprised principally of opening team and trainingsalaries, travel expenses, rent, and food, beverage and other initial suppliesand expenses.

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

*Generaland Administrative Expenses.*   General and administrativeexpenses (“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 received fromcertain franchise restaurants and license restaurants are offset againstG&A. G&A also includes share-based compensation expense related tocorporate office employees.

*InterestExpense, Net.*   Interest expense includes the cost of ourdebt obligations including the amortization of loan fees, reduced by interestincome and capitalized interest. Interest income includes earnings on cash and cash equivalents.

*MinorityInterest.*   Our consolidated subsidiaries at June 26,2007 included ten majority-owned restaurants, five of which were open. Our consolidated subsidiaries at June 27, 2006 included five majority-ownedrestaurants, four of which were open. Minority interest represents the portion of income attributable to theother owners of the majority-owned or controlled restaurants.

*EquityIncome from Unconsolidated Affiliates.*   We own a 5.0% to10.0% equity interest in 18 franchise restaurants. Equity income fromunconsolidated affiliates represents our percentage share of net income earnedby these unconsolidated affiliates.

** **

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** **

**Resultsof Operations**
| ** **                                                   | ** ** | **13 Weeks Ended** | ** ** | **26 Weeks Ended** | ** ** |
|--------------------------------------------------------------|------------|------------------------------|------------|------------------------------|------------|
| ** **                                                   | ** ** | **June 26, 2007**  | ** ** | **June 27, 2006**  | ** ** | **June 26, 2007** | ** ** | **June 27, 2006** | ** ** |
| **($ in thousands)**                               | ** ** | **$**                        | ** ** | **%**                        | ** ** | **$** | ** ** | **%** | ** ** | **$** | ** ** | **%** | ** ** | **$** | ** ** | **%** | ** ** |
|                                                         |       |                         |       |                         |       |   |   |   |   |   |   |   |   |   |   |   |   |
| Revenue:                                                     |       |                         |       |                         |       |   |   |   |   |   |   |   |   |   |   |   |   |
| Restaurant sales                                             |       | 178,129                      |       | 98.4                         |       | 144,071 |   | 98.2 |   | 353,573 |   | 98.4 |   | 290,945 |   | 98.3 |   |
| Franchise royalties and fees                                 |       | 2,857                        |       | 1.6                          |       | 2,649 |   | 1.8 |   | 5,750 |   | 1.6 |   | 5,174 |   | 1.7 |   |
|                                                         |       |                         |       |                         |       |   |   |   |   |   |   |   |   |   |   |   |   |
| Total revenue                                                |       | 180,986                      |       | 100.0                        |       | 146,720 |   | 100.0 |   | 359,323 |   | 100.0 |   | 296,119 |   | 100.0 |   |
|                                                         |       |                         |       |                         |       |   |   |   |   |   |   |   |   |   |   |   |   |
| Costs and  expenses:                                         |       |                         |       |                         |       |   |   |   |   |   |   |   |   |   |   |   |   |
| *(As a  percentage of restaurant sales)*                     | * *   | * *                     | * *   | * *                     | * *   | * * | * * | * * | * * | * * | * * | * * | * * | * * | * * | * * | * * |
| Restaurant operating costs:                                  |       |                         |       |                         |       |   |   |   |   |   |   |   |   |   |   |   |   |
| Cost of sales                                                |       | 62,250                       |       | 34.9                         |       | 50,460 |   | 35.0 |   | 123,347 |   | 34.9 |   | 102,092 |   | 35.1 |   |
| Labor                                                        |       | 50,282                       |       | 28.2                         |       | 40,309 |   | 28.0 |   | 98,579 |   | 27.9 |   | 80,166 |   | 27.6 |   |
| Rent                                                         |       | 2,846                        |       | 1.6                          |       | 2,433 |   | 1.7 |   | 5,631 |   | 1.6 |   | 4,809 |   | 1.7 |   |
| Other operating                                              |       | 28,779                       |       | 16.2                         |       | 23,299 |   | 16.2 |   | 56,686 |   | 16.0 |   | 46,893 |   | 16.1 |   |
| *(As a  percentage of total revenue)*                        | * *   | * *                     | * *   | * *                     | * *   | * * | * * | * * | * * | * * | * * | * * | * * | * * | * * | * * | * * |
| Pre-opening                                                  |       | 3,102                        |       | 1.7                          |       | 3,229 |   | 2.2 |   | 6,685 |   | 1.9 |   | 5,811 |   | 2.0 |   |
| Depreciation and amortization                                |       | 7,230                        |       | 4.0                          |       | 5,155 |   | 3.5 |   | 13,875 |   | 3.9 |   | 10,061 |   | 3.4 |   |
| General and administrative                                   |       | 11,595                       |       | 6.4                          |       | 7,554 |   | 5.1 |   | 19,918 |   | 5.5 |   | 17,909 |   | 6.0 |   |
|                                                         |       |                         |       |                         |       |   |   |   |   |   |   |   |   |   |   |   |   |
| Total costs and  expenses                                    |       | 166,084                      |       | 91.8                         |       | 132,439 |   | 90.3 |   | 324,721 |   | 90.4 |   | 267,741 |   | 90.4 |   |
| Income from  operations                                      |       | 14,902                       |       | 8.2                          |       | 14,281 |   | 9.7 |   | 34,602 |   | 9.6 |   | 28,378 |   | 9.6 |   |
| Interest  expense, net                                       |       | 361                          |       | 0.2                          |       | 125 |   | 0.1 |   | 597 |   | 0.2 |   | 469 |   | 0.2 |   |
| Minority  interest                                           |       | 230                          |       | 0.1                          |       | 78 |   | NM |   | 519 |   | 0.1 |   | 285 |   | 0.1 |   |
| Equity income  from investments in unconsolidated affiliates |       | 93                           |       | 0.1                          |       | 47 |   | NM |   | 190 |   | 0.1 |   | 135 |   | 0.1 |   |
|                                                         |       |                         |       |                         |       |   |   |   |   |   |   |   |   |   |   |   |   |
| Income before  taxes                                         |       | 14,404                       |       | 8.0                          |       | 14,125 |   | 9.6 |   | 33,676 |   | 9.4 |   | 27,759 |   | 9.4 |   |
| Provision for  income taxes                                  |       | 5,147                        |       | 2.8                          |       | 5,294 |   | 3.6 |   | 12,123 |   | 3.4 |   | 10,746 |   | 3.6 |   |
| Net income                                                   |       | 9,257                        |       | 5.2                          |       | 8,831 |   | 6.0 |   | 21,553 |   | 6.0 |   | 17,013 |   | 5.8 |   |

 

**Restaurant Unit Activity**
| ** **                         | ** ** | **Company** | ** ** | **Franchise** | ** ** | **Total** | ** ** |
|------------------------------------|------------|-------------|------------|---------------|------------|-----------|------------|
| Balance at  December 26, 2006 |       | 163         |       | 88            |       | 251       |       |
| Openings                           |       | 10          |       | —        |       | 10        |       |
| Closures                           |       | —      |       | —        |       | —    |       |
|                               |       |        |       |          |       |      |       |
| Balance at  March 27, 2007    |       | 173         |       | 88            |       | 261       |       |
| Opening                            |       | 7           |       | 2             |       | 9         |       |
| Closures                           |       | —      |       | —        |       | —    |       |
|                               |       |        |       |          |       |      |       |
| Balance at June 26,  2007          |       | 180         |       | 90            |       | 270       |       |

 

 

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**Q2 2007 (13weeks) Compared to Q2 2006 (13 weeks) and 2007 YTD (26 weeks) Compared to 2006YTD (26 weeks)**

*RestaurantSales.*   Restaurant sales increased by 23.6%  in Q2 2007 as compared to Q2 2006 and by21.5% in 2007 YTD as compared to 2006 YTD. This increase was primarily attributable to the opening of newrestaurants.

Thefollowing table summarizes certain key drivers and/or attributes of restaurantsales at company restaurants for the periods.
| ** **                          | ** ** | **Q2 2007** | ** ** | **Q2 2006** | ** ** | **2007 YTD** | ** ** | **2006 YTD** | ** ** |
|-------------------------------------|------------|------------------|------------|------------------|------------|-------------------|------------|-------------------|------------|
|                                |       |             |       |             |       |              |       |              |       |
| Store weeks                         |       | 2,278            |       | 1,853            |       | 4,439             |       | 3,661             |       |
| Comparable restaurant  sales growth |       | 1.9              | %          | 1.2              | %          | 1.5               | %          | 3.9               | %          |
| Average unit volume (in  thousands) |       | $                | 1,012      |             | $          | 1,003             |       | $                 | 2,065      |   | $ | 2,057 |   |
|                                     |            |                  |            |                  |            |                   |            |                   |            |  |  |  |  |

 

The amounts in the table above include the impact of increased menupricing of approximately 0.8% implemented in October 2006 and approximately 2%implemented in phases starting in December 2006 through February 2007.  The October 2006 menu price increase wasprincipally driven by industry wide increases in commodity costs, while themost recent increase was principally driven by increases in minimum and tipwages which took effect in numerous states at the beginning of 2007.

On June 27, 2007, we acquired nine franchise restaurants.  We estimate that these acquisitions will beslightly accretive to fiscal 2007 diluted earnings per share as we will haveonly six months of operating results and we will be recording a pre-taxacquisition-related charge of $0.5 million during the third quarter of fiscal2007, in accordance with Emerging Issues Task Force Issue 04-1, *Accounting for Preexisting Relationships between theParties to a Business Combination*. On an on-going annual basis, we estimate these acquisitions will beaccretive to diluted earnings per share by approximately $0.015.

*FranchiseRoyalties and Fees.*   Franchise royalties and feesincreased by $0.2 million, or by 7.9%, in Q2 2007 from Q2 2006 and increased by$0.6 million, or by 11.1%, in 2007 YTD as compared to 2006 YTD.  These increases were primarily attributableto the opening of new franchise restaurants in the latter half of fiscal 2006,increasing royalty rates in conjunction with the renewal of certain franchiseagreements and comparable restaurant sales growth of 1.8%.  Franchise restaurant count activity is shownin the restaurant unit activity table above.

The nine acquiredfranchise restaurants generated approximately $1.0 million in franchiseroyalties in fiscal 2006.  As theserestaurants are now company-owned, royalties related to these restaurants willno longer be earned post-acquisition.

*RestaurantCost of Sales.*   Restaurant cost of sales, as apercentage of restaurant sales, decreased to 34.9% in Q2 2007 from 35.0% in Q22006 and to 34.9% in 2007 YTD from 35.1% in 2006 YTD.  The decreases in Q2 2007 and 2007 YTD wereprimarily attributable to the impact of menu price increases as discussedabove, partially offset by higher commodity costs, principally dairy costs inQ2 2007 and produce costs in Q2 2007 and 2007 YTD.

*RestaurantLabor Expenses  * Restaurant labor expenses, as a percentageof restaurant sales, increased to 28.2% in Q2 2007 from 28.0% in Q2 2006 and to27.9% in 2007 YTD from 27.6% in 2006 YTD. These increases were primarily attributable to higher average hourlywage rates resulting from several state-mandated increases in minimum and tipwage rates at the beginning of 2007 and restaurants opened in 2007 YTD as wegenerally incur higher labor costs during the first few months after theopening of a new restaurant.  These increaseswere partially offset by the impact of menu price increases as discussed aboveand lower share-based compensation expense.

*RestaurantRent Expense.*   Restaurant rent expense, as a percentageof restaurant sales, was basically flat with the prior year as it decreased to1.6% in Q2 2007 and 2007 YTD from 1.7% in Q2 2006 and 2006 YTD.

*RestaurantOther Operating Expenses**.  ***Restaurantother operating expenses, as a percentage of restaurant sales, was unchanged at16.2% in Q2 2007 and Q2 2006 and decreased to 16.0% in 2007 YTD from 16.1% in2006 YTD. ** **InQ2 2007, a decrease in equipment rent was offset by a net gain from insuranceproceeds recorded in Q2 2006 relating to Hurricane Katrina for which there wasno corresponding benefit in Q2 2007.  Thedecrease in 2007 YTD was primarily due to lower equipment rent, partiallyoffset by higher credit card charges and the net gain from insurance proceedsrecorded in Q2 2006 relating to Hurricane Katrina.  Equipment rent decreased 0.3% as a percentageof restaurant sales in both Q2 2007 and 2007 YTD due to our discontinuance ofleasing arrangements for equipment packages in restaurants.

*RestaurantPre-opening Expenses.*   Pre-opening expenses decreasedslightly to $3.1 million in Q2 2007 from $3.2 million in Q2 2006 andincreased to $6.7 million in 2007 YTD from $5.8 million in 2006 YTD.Pre-opening expenses in Q2 2007 were relatively unchanged compared toQ2 2006 as the number of restaurants being opened and/or in the developmentpipeline were comparable.  The increasein 2007 YTD was primarily due to seven more restaurants being opened in 2007YTD compared to 2006 YTD.  Pre-openingcosts will fluctuate from period to period based on the number and timing ofrestaurant openings and the number and timing

 

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of restaurant managers hired.

*Depreciationand Amortization Expense.*   D&A, as a percentage ofrevenue, increased to 4.0% in Q2 2007 from 3.5% in Q2 2006 and increased to3.9% in 2007 YTD from 3.4% in 2006 YTD. These increases were related to capitalspending on new restaurants.

*Generaland Administrative Expenses.*   G&A increased to 6.4%of revenue in Q2 2007 from 5.1% of revenue in Q2 2006 and decreased in 2007 YTDto 5.5% of revenue from 6.0% of revenue in 2006 YTD.  The increase in Q2 2007 was due to the timingof our annual managing partner conference, offset by lower share-basedcompensation costs and leveraging of the base business.  The decrease in 2007 YTD was due to lowershare-based compensation costs, a $0.8 million charge in the first quarter offiscal 2006 relating to****theacquisition of 11 franchise restaurants on the first day of fiscal 2006 andleveraging of the base business, offset by higher annual managing partnerconference costs.  Our annual managingpartner conference took place during the second quarter of fiscal 2007, versusthe first quarter of fiscal 2006.  Q22007 included $3.4 million (1.9% of revenue) of annual conference costsand 2007 YTD included $3.6 million (1.0% of revenue) of annual conference costscompared to 2006 YTD which included $2.4 million (0.8% of revenue).

*InterestExpense, Net.*   Interest expense increased to $0.4million in Q2 2007 from $0.1 million in Q2 2006 and increased to $0.6 millionin 2007 YTD from $0.5 million 2006 YTD. The increase in Q2 2007 was primarily due to increased borrowings underour credit facility, partially offset by an increase in interest income.  The increase in 2007 YTD was primarily due toincreased borrowings under our credit facility, partially offset by an increasein capitalized interest, an increase in interest income, the payoff of certaininstallment loans in the first quarter of fiscal 2006 and the prepaymentpenalties of $0.1 million associated with those loans.

In conjunctionwith our acquisitions of nine franchise restaurants on June 27, 2007 for anaggregate purchase price of approximately $22.6 million, we acquired land andbuildings leased by seven of the nine franchisees from parties related to thosefranchisees for an aggregate price of approximately $12.1 million.  The purchase price for all transactions waspaid in cash, funded through borrowings under the Company’s creditfacility.  We expect our interest expensefor fiscal 2007 to increase as a result of these borrowings.

*IncomeTax Expense.  *Our effective tax rate decreased to 35.7%in Q2 2007 from 37.5% in Q2 2006 and in 2007 YTD to 36.0% from 38.7% in 2006YTD.  The decrease in the rate in Q2 2007was primarily due to higher tax credits and a decrease in the non-deductibleportion of certain incentive stock options due to lower share-basedcompensation costs, partially offset by an increase in the non-deductibleportion of costs relating to the 2007 managing partner conference and increasedstate income tax rates.  The decrease inthe rate for 2007 YTD was primarily due to higher tax credits, thenon-deductibility of a $0.8 million charge related to franchise acquisitions inthe first quarter of fiscal 2006 and a decrease in the non-deductible portionof certain incentive stock options relating to share-based compensation costs,partially offset increased state income tax rates.  We expect the effective tax rate to beapproximately 36.0% for fiscal 2007.

**Liquidityand Capital Resources**

Thefollowing table presents a summary of our net cash provided by (used in)operating, investing and financing activities:
| ** **                                 | ** ** | **26 Weeks Ended** | ** ** | ** **                  |
|--------------------------------------------|------------|------------------------------|------------|-----------------------------|
| ** **                                 | ** ** | **June 26, 2007**  | ** ** | **June 27, 2006** | ** ** | ** ** |
| Net cash  provided by operating activities |       | $                            | 25,717     |                        | $ | 23,759 |   |   |
| Net cash used in  investing activities     |       | (48,431                      | )          | (51,942                     | ) |   |
| Net cash provided  by financing activities |       | 46,721                       |       | 13,555                      |   |   |
|                                       |       |                         |       |                        |   |   |
| Net increase (decrease)  in cash           |       | $                            | 24,007     |                        | $ | (14,628 | ) |   |

 

Net cash providedby operating activities was $25.7 million in 2007 YTD compared to $23.8 millionin 2006 YTD.  The increase was driven by higher net income anddepreciation, partially offset by higher gift card redemptions, changes inother working capital and lower share-based compensation costs.  Our operations have not required significantworking capital and, like many restaurant companies, we have been able tooperate with negative working capital. Sales are primarily for cash, and restaurant operations do not requiresignificant inventories or receivables. In addition, we received trade credit for the purchase of food,beverages and supplies, thereby reducing the need for incremental workingcapital to support growth.

Net cash used ininvesting activities was $48.4 million in 2007 YTD compared to $51.9 million in2006 YTD.  The decrease was primarily due to the $13.2 million use of cashassociated with the acquisitions of the 11 franchise restaurants in the firstquarter of fiscal 2006, partially offset by higher capital spending in 2007 YTDassociated with increased restaurant development.

 

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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(including renewal periods) or purchase the land where it is cost effective. Asof June 26, 2007, there were 91 restaurants developed on land which we owned.

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 2007, we expect our capital expenditures tobe approximately $90.0 million to $100.0 million, excluding any cashused for franchise acquisitions, substantially all of which will relate toplanned restaurant openings. We continue to evaluate opportunities to acquirefranchise restaurants under terms which would create value for us and ourstockholders.  In the third quarter offiscal 2007, we completed the acquisitions of nine franchise restaurants for anaggregate purchase price of approximately $22.6 million, and the land andbuildings leased by seven of the nine franchisees from parties related to thosefranchisees for an aggregate purchase price of approximately $12.1million.  In conjunction with these acquisitions,we borrowed $36.0 million under our credit facility primarily to fund thepurchase price.  See note 9 to thecondensed consolidated financial statements. We intend to satisfy our capital requirements over the next12 months with cash on hand, net cash provided by operating activities andfunds available under our credit facility.

Net cash providedby financing activities was $46.7 million in 2007 YTD as compared to net cashprovided by financing activities of $13.6 million in 2006 YTD.  The increase was primarily due to borrowingsunder our credit facility of $36.0 million in conjunction with the acquisitionof nine franchise restaurants, which took place on June 27, 2007, the first dayof our third fiscal quarter.  Thisincrease was partially offset by a decrease in principal payments on otherlong-term debt.  Principal payments onlong-term debt includes $2.0 million relating to various other installment debtrepaid in full in 2007 YTD compared to $3.1 million relating to various otherinstallment debt repaid in full in 2006 YTD.

In 2007 YTD, wepaid distributions of $0.6 million to equity holders of five of ourmajority-owned company restaurants. Currently, our intent is to retain our future earnings, if any,primarily to finance the future development and operation of our business.

On May 31, 2007, weamended and restated our existing five-year revolving credit facility datedOctober 8, 2004 with a syndicate of commercial lenders led by Bank of America,N.A., Banc of America Securities LLC and National City Bank. The facility wasincreased from $150.0 million to $250.0 million and the term was extended toMay 31, 2012.  The terms of the facilityrequire us to pay interest on outstanding borrowings at LIBOR plus a margin of0.50% to 0.875% and to pay a commitment fee of 0.10% to 0.175% per year on any unusedportion of the facility, in both cases depending on our leverage ratio.  The weighted average interest rate for therevolver at June 26, 2007 and December 26, 2006 was 7.09% and 6.08%,respectively.  The weighted averageinterest rate at June 26, 2007 was negatively impacted by short-term interestrates on fundings related to the franchise acquisitions.  For the remainder of 2007, we anticipate theweighted average interest rate under the credit facility will be approximately6.00%.

The lenders’obligation to extend credit under the facility depends on us maintainingcertain financial covenants, including a minimum consolidated fixed chargecoverage ratio of 2.00 to 1.00 and a maximum consolidated leverage ratio of3.00 to 1.00.  The new credit facilitypermits us to incur additional secured or unsecured indebtedness outside thefacility, except for the incurrence of secured indebtedness that in theaggregate exceeds 20% of our consolidated tangible net worth or circumstanceswhere the incurrence of secured or unsecured indebtedness would prevent us fromcomplying with its financial covenants.  We are currently in compliance with such covenants.

At June 26, 2007,we had $76.0 million of outstanding borrowings under our credit facility and$170.8 million of availability net of $3.2 million of outstanding letters ofcredit.  In addition, we had various other notes payable totaling$3.3 million with interest rates ranging from 4.35% to 10.80%.  Eachof these notes related to the financing of specific restaurants. Our totalweighted average effective interest rate at June 26, 2007 was 7.20%.

 

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**ContractualObligations**

Thefollowing table summarizes the amount of payments due under specifiedcontractual obligations as of June 26, 2007:

|                                | ** ** | **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    |       | $                                         | 79,324     |   | $ | 233 |   | $ | 491 |   | $ | 76,559 |   | $ | 2,041 |   |
| Capital lease  obligations     |       | 601                                       |       | 55 |   | 129 |   | 161 |   | 256 |   |
| Interest (1)                   |       | 2,343                                     |       | 383 |   | 678 |   | 566 |   | 716 |   |
| Operating lease  obligations   |       | 117,734                                   |       | 14,159 |   | 21,591 |   | 21,733 |   | 60,251 |   |
| Capital  obligations           |       | 73,816                                    |       | 73,816 |   | — |   | — |   | — |   |
| Total contractual  obligations |       | $                                         | 273,818    |   | $ | 88,646 |   | $ | 22,889 |   | $ | 99,019 |   | $ | 63,264 |   |

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(1)          Assumes constant rateuntil maturity for our fixed and variable rate debt and capital leaseobligations.

Uses interest rates as of June 26, 2007 for our variable rate debt.

The Company has nomaterial minimum purchase commitments with its vendors that extend beyond ayear.  See note 5 to the condensedconsolidated financial statements for details of contractual obligations.

**Off-BalanceSheet Arrangements**

Except foroperating leases (primarily restaurant leases), we do not have any off-balancesheet arrangements.

**Guarantees**

We entered intoreal estate lease agreements for franchise restaurants located in Everett, MA,Longmont, CO, Montgomeryville, PA and Fargo, ND prior to our granting franchiserights for those restaurants. We have subsequently assigned the leases to thefranchisees, but we remain contingently liable if a franchisee defaults underthe terms of a lease. The Longmont lease expires in May 2014, the Everettlease expires in February 2018, the Montgomeryville lease expires in June2021 and the Fargo lease expires in July 2016.

**Recently Issued AccountingStandards**

In September 2006,the Financial Accounting Standards Board (“FASB”) issued Statement of FinancialAccounting Standards (“SFAS”) No. 157, *Fair Value Measurements*(“SFAS157”), which defines fair value, establishes a framework for measuring fairvalue and expands disclosures about fair value measurements.  The provisions of SFAS 157 are effective asof the beginning of the Company’s 2008 fiscal year.  The Company is currently evaluating theimpact of adopting SFAS 157 on its consolidated financial position, results ofoperations or cash flows.

In February 2007,the FASB issued SFAS No. 159, *The Fair Value Option forFinancial Assets and Financial Liabilities* (“SFAS 159”). SFAS 159permits entities to choose to measure many financial assets and financialliabilities at fair value. Unrealized gains and losses on items for which thefair value option has been elected are reported in earnings. The provisions ofSFAS 159 are effective as of the beginning of the Company’s 2008 fiscal year.The Company is currently evaluating the impact of SFAS 159 on its consolidatedfinancial position, results of operations or cash flows.

 

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**ITEM3.   QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK**

We are exposed tomarket risk from changes in interest rates on debt and changes in commodityprices. Our exposure to interest rate fluctuations is limited to ouroutstanding bank debt. At June 26, 2007, there was $76.0 million outstandingunder our revolving line of credit which bears interest at approximately 50 to87.5 basis points (depending on our leverage ratios) over the London InterbankOffered Rate.   Our various other notes payable totaled $3.3 millionat June 26, 2007 and had fixed rates ranging from 4.35% to 10.80%.  Shouldinterest rates based on these borrowings increase by one percentage point, ourestimated annual interest expense would increase by $0.8 million.

Many of theingredients used in the products sold in our restaurants are commodities thatare subject to unpredictable price volatility. Although we attempt to minimizethe effect of price volatility by negotiating fixed price contracts for thesupply of key ingredients, there are no established fixed price markets forcertain commodities such as produce and cheese, and we are subject toprevailing market conditions when purchasing those types of commodities. Forcommodities that are purchased under fixed price contracts, the prices arebased on prevailing market prices at the time the contract is entered into anddo not fluctuate during the contract period. We currently do not use financialinstruments to hedge commodity prices, but we will continue to evaluate theireffectiveness. Extreme and/or long term increases in commodity prices couldadversely affect our future results, especially if we are unable, primarily dueto competitive reasons, to increase menu prices. Additionally, if there is atime lag between the increasing commodity prices and our ability to increasemenu prices or if we believe the commodity price increase to be short induration and we choose not to pass on the cost increases, our short-termfinancial results could be negatively affected.

We are subject to businessrisk as our beef supply is highly dependent upon four 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.

**ITEM4.   CONTROLS AND PROCEDURES**

**Evaluation of disclosure controlsand procedures**

We have evaluatedthe effectiveness of the design and operation of our disclosure controls andprocedures pursuant to, and as defined in, Rules 13a-15(e) and15d-15(e) under the Securities Exchange Act of 1934, as amended, as of theend of the period covered by this report. Based on the evaluation, performedunder the supervision and with the participation of our management, includingthe Chief Executive Officer (the “CEO”) and the Chief Financial Officer (the “CFO”),our management, including the CEO and CFO, concluded that our disclosurecontrols and procedures were effective as of the period covered by this report.

**Changes in internal control**

During the periodcovered by this report, there were no significant changes with respect to ourinternal control over financial reporting that materially affected, or arereasonably likely to materially affect, our internal control over financialreporting.

 

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**PART II — OTHER INFORMATION**

**ITEM1.   LEGAL PROCEEDINGS**

Occasionally, weare a defendant 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.

On March 26, 2007,a civil case styled as a class action complaint titled *Nicole M.Ehrheart v. Texas Roadhouse, Inc. and Does 1 through 10 (“Ehrheart”)*,Case Number CA 07-54, was filed against us in the United States District Courtfor the Western District of Pennsylvania Erie Division.  The case alleges liability under the Fair andAccurate Credit Transactions Act (“FACTA”) based on the alleged practice ofunlawfully including more information on the electronically printed credit ordebit card receipts provided to customers than is permitted.  The plaintiff seeks monetary damages,including statutory damages, punitive damages, costs and attorneys’ fees, and apermanent injunction against the alleged unlawful practice.  Statutory damages range from $100 to $1,000for each willful violation.  We havefiled an answer to the complaint denying the material allegations of the complaint;discovery has not yet begun.

OnJuly 20, 2007, a civil case styled as a class action complaint titled *Mario Aliano v. Texas Roadhouse Holdings LLC, Texas Roadhouse, Inc. andDoes 1-10**(“Aliano”),*Case Number 07cv4108, was filed against us in the United States District Courtfor the Northern District of Illinois Eastern Division.  The case alleges liability under FACTA.  The plaintiff seeks statutory damages of $100to $1,000 per violation, attorney’s fees, litigation expenses and costs.

We believe we havemeritorious defenses to the *Ehrheart* and *Aliano* claims, and we intend to vigorously defend againstthe claims, including the plaintiffs’ efforts to certify a nationwide classaction.  However, if either court bothgranted class action status and imposed statutory penalties, the resolution ofthe case would be likely to have a material adverse effect on our business andour consolidated financial position, results of operation and cash flows.

**ITEM 1A.   RISKFACTORS**

Informationregarding risk factors appears in our Annual Report on Form 10-K for the yearended December 26, 2006, under the heading “Special Note RegardingForward-looking Statements” and in the Form 10-K Part I, Item 1A, RiskFactors.  There have been no materialchanges from the risk factors previously disclosed in our Form 10-K.

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

None.

**ITEM3.   DEFAULTS UPON SENIOR SECURITIES**

None.

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

On May 24, 2007, at theAnnual Meeting of Stockholders, the stockholders took the following actions:

1.               Elected alldirectors designated in the proxy statement dated April 23, 2007, as follows:

|                  | ** ** | **Number of Votes** | ** ** |
|------------------|------------|-------------------------------|------------|
| ** **       | ** ** | **For**                       | ** ** | **Withheld** | ** ** |
|             |       |                          |       |   |   |
| G.J. Hart        |       | 115,804,263                   |       | 881,902 |   |
| Gregory N. Moore |       | 115,798,720                   |       | 887,445 |   |
| James F. Parker  |       | 115,789,853                   |       | 896,312 |   |

 

Directors whoseterms continued after the Annual Meeting of Stockholders are as follows: MartinT. Hart, James R. Ramsey, W. Kent Taylor and James R. Zarley.

2.     Ratified the audit committee’s selection ofKPMG LLP as the Company’s independent auditors for the fiscal year endingDecember 25, 2007:  116,434,291 votescast for, 217,170 votes cast against and 34,706 abstained.

** **

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** **

**ITEM5.   OTHER INFORMATION.**

None.

**ITEM 6.   EXHIBITS.**
| **Exhibit No.** | ** ** | **Description**                                                                                                                                                                                                                                                                                            |
|----------------------|------------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| ** **           | ** ** | ** **                                                                                                                                                                                                                                                                                                 |
| 10.1                 |       | Amended and Restated Credit Agreement, dated as of  May 31, 2007, by and among Texas Roadhouse, Inc., the lenders named therein  and Bank of America, N.A., as Administrative Agent (incorporated by reference  to Exhibit 10.1 to Registrant’s Current Report on Form 8-K dated June 6,  2007). |
| 10.2                 |       | Second Amendment to Amended and Restated Lease  Agreement (Two Paragon Centre) dated May 10, 2007 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: August 2, 2007 | By:                   | /s/ G.J.  HART                |   |   |
|                      |                  | G.J. Hart                          |   |
|                      |                  | President, Chief Executive Officer |   |
|                      |                  | (principal executive officer)      |   |
|                      |                  |                               |   |
| Date: August 2, 2007 | By:                   | /s/ SCOTT  M. COLOSI          |   |   |
|                      |                  | Scott M. Colosi                    |   |
|                      |                  | Chief Financial Officer            |   |
|                      |                  | (principal financial officer)      |   |
|                      |                  | (chief accounting  officer)        |   |
|                           |                       |                                    |  |  |  |

 

 

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