Table of Contents

 

 

 

**UNITED STATES**

**SECURITIES AND EXCHANGECOMMISSION**

**Washington,D.C. 20549**

 

**FORM 10-Q**

 

**x****      QUARTERLY REPORT PURSUANT TOSECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934**

 

**For thequarterly period ended June 29, 2010**

 

**OR**

 

**o****         TRANSITION REPORTPURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF1934**

 

**For thetransition 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 200**

**Louisville,Kentucky 40205**

(Address of principal executive offices) (Zip Code)

 

**(502)426-9984**

(Registrant’s telephone number, including area code)

 

Indicateby check mark whether registrant (1) has filed all reports required to befiled by Section 13 or 15(d) of the Securities Exchange Act of 1934during the preceding 12 months (or for such shorter period that the registrantwas required to file such reports), and (2) has been subject to suchfiling requirements for the past 90 days. Yes x   No o.

 

Indicateby check mark whether the registrant has submitted electronically and posted onits corporate Web site, if any, every Interactive Data File required to besubmitted and posted pursuant to Rule 405 of Regulations S-T during thepreceding 12 months (or for such shorter period that the registrant wasrequired to submit and post such files). Yes o   No o.

 

Indicateby check mark whether the registrant is a large accelerated filer, anaccelerated filer, a non-accelerated filer or a smaller reporting company.  See the definitions of “large acceleratedfiler”, “accelerated filer”, and “smaller reporting company” in Rule 12b-2of the Exchange Act.  (Check one):

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

 

Indicateby check mark whether the registrant is a shell company (as defined in Rule12b-2 of the Exchange Act). Yes o   No x.

 

Thenumber of shares of common stock outstanding were 71,618,651 on July 30, 2010.

 

 

 

----

Table of Contents

 

**TABLEOF CONTENTS**

 
| PART I.  FINANCIAL INFORMATION                                                                                                        |   |   |
|--------------------------------------------------------------------------------------------------------------------------------------------|--------|--------|
|                                                                                                                                       |   |   |
| Item  1 — Financial Statements — Texas Roadhouse, Inc. and Subsidiaries                                                     |   | 3      |
| Condensed Consolidated Balance Sheets — June 29, 2010  and December 29, 2009                                                     |   | 3      |
| Condensed Consolidated Statements of Income — For the  13 and 26 Weeks Ended June 29, 2010 and June 30, 2009                          |   | 4      |
| Condensed Consolidated Statements of Stockholders’  Equity and Comprehensive Income — For the 26 Weeks Ended June 29,  2010 |   | 5      |
| Condensed Consolidated Statements of Cash Flows — For  the 26 Weeks Ended June 29, 2010 and June 30, 2009                             |   | 6      |
| Notes to  Condensed Consolidated Financial Statements                                                                                      |   | 7      |
| Item 2 —  Management’s Discussion and Analysis of Financial Condition and Results of  Operations                                 |   | 14     |
| Item 3 —  Quantitative and Qualitative Disclosures About Market Risk                                                                  |   | 22     |
| Item 4 — Controls  and Procedures                                                                                                     |   | 22     |
|                                                                                                                                       |   |   |
| PART II. OTHER  INFORMATION                                                                                                           |   |   |
|                                                                                                                                       |   |   |
| Item 1 — Legal  Proceedings                                                                                                           |   | 23     |
| Item 1A —  Risk Factors                                                                                                          |   | 23     |
| Item 2 —  Unregistered Sales of Equity Securities and Use of Proceeds                                                                 |   | 23     |
| Item 3 —  Defaults Upon Senior Securities                                                                                             |   | 23     |
| Item 4 — (Removed and  Reserved)                                                                                                      |   | 23     |
| Item 5 — Other  Information                                                                                                           |   | 23     |
| Item 6 — Exhibits                                                                                                                     |   | 23     |
|                                                                                                                                       |   |   |
| Signatures                                                                                                                                 |   | 24     |

 

2

----

 

Table of Contents

 

**PART I — FINANCIAL INFORMATION**

 

**ITEM 1 — FINANCIAL STATEMENTS**

 

**TexasRoadhouse, Inc. and Subsidiaries**

**Condensed Consolidated Balance Sheets**

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

 
| ** **                                                                                                                                                                                | ** ** | **(unaudited)**             | ** ** | ** **                      | ** ** |
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|-----------------------------|------------|---------------------------------|------------|
| ** **                                                                                                                                                                                | ** ** | **June 29, 2010** | ** ** | **December 29, 2009** | ** ** |
| **Assets**                                                                                                                                                                                |       |                        |       |                            |       |
| Current assets:                                                                                                                                                                           |       |                        |       |                            |       |
| Cash and cash equivalents                                                                                                                                                                 |       | $                           | 60,235     |                            | $          | 46,858 |   |
| Receivables, net of allowance for doubtful  accounts of $880 at June 29, 2010 and $911 at December 29, 2009                                                                     |       | 12,428                      |       | 12,312                          |       |
| Inventories, net                                                                                                                                                                          |       | 7,602                       |       | 8,004                           |       |
| Prepaid expenses                                                                                                                                                                          |       | 5,495                       |       | 5,611                           |       |
| Deferred tax assets                                                                                                                                                                       |       | 2,238                       |       | 1,531                           |       |
| Total current assets                                                                                                                                                                      |       | 87,998                      |       | 74,316                          |       |
| Property and equipment, net                                                                                                                                                               |       | 453,365                     |       | 456,281                         |       |
| Goodwill                                                                                                                                                                                  |       | 113,465                     |       | 113,465                         |       |
| Intangible asset, net                                                                                                                                                                     |       | 10,656                      |       | 11,194                          |       |
| Fair value of derivative financial instruments                                                                                                                                            |       | —                      |       | 31                              |       |
| Other assets                                                                                                                                                                              |       | 7,103                       |       | 6,786                           |       |
| Total assets                                                                                                                                                                              |       | $                           | 672,587    |                            | $          | 662,073 |   |
|                                                                                                                                                                                      |       |                        |       |                            |       |
| **Liabilities  and Stockholders’ Equity**                                                                                                                                            |       |                        |       |                            |       |
| Current liabilities:                                                                                                                                                                      |       |                        |       |                            |       |
| Current maturities of long-term debt and  obligations under capital leases                                                                                                                |       | $                           | 260        |                            | $          | 247 |   |
| Accounts payable                                                                                                                                                                          |       | 25,009                      |       | 27,882                          |       |
| Deferred revenue — gift cards/certificates                                                                                                                                           |       | 17,023                      |       | 34,443                          |       |
| Accrued wages                                                                                                                                                                             |       | 22,199                      |       | 20,186                          |       |
| Income tax payable                                                                                                                                                                        |       | 4,245                       |       | 6,194                           |       |
| Accrued taxes and licenses                                                                                                                                                                |       | 10,952                      |       | 8,579                           |       |
| Other accrued liabilities                                                                                                                                                                 |       | 11,988                      |       | 10,672                          |       |
| Total current liabilities                                                                                                                                                                 |       | 91,676                      |       | 108,203                         |       |
| Long-term debt and obligations under capital  leases, excluding current maturities                                                                                                        |       | 79,046                      |       | 101,179                         |       |
| Stock option and other deposits                                                                                                                                                           |       | 3,740                       |       | 3,653                           |       |
| Deferred rent                                                                                                                                                                             |       | 13,180                      |       | 12,089                          |       |
| Deferred tax liabilities                                                                                                                                                                  |       | 7,920                       |       | 6,660                           |       |
| Fair value of derivative financial instruments                                                                                                                                            |       | 2,794                       |       | —                          |       |
| Other liabilities                                                                                                                                                                         |       | 8,708                       |       | 7,339                           |       |
| Total liabilities                                                                                                                                                                         |       | 207,064                     |       | 239,123                         |       |
| Texas Roadhouse, Inc. and subsidiaries  stockholders’ equity:                                                                                                                   |       |                        |       |                            |       |
| Preferred stock ($0.001 par value, 1,000,000  shares authorized; no shares issued or outstanding)                                                                                         |       | —                      |       | —                          |       |
| Common stock, ($0.001 par value, 100,000,000  shares authorized, 71,571,384 and 70,384,915 shares issued and outstanding at  June 29, 2010 and December 29, 2009, respectively) |       | 72                          |       | 70                              |       |
| Additional paid in capital                                                                                                                                                                |       | 241,483                     |       | 231,564                         |       |
| Retained earnings                                                                                                                                                                         |       | 222,996                     |       | 188,719                         |       |
| Accumulated other comprehensive (loss) gain                                                                                                                                               |       | (1,716                      | )          | 19                              |       |
| Total Texas Roadhouse, Inc. and subsidiaries  stockholders’ equity                                                                                                              |       | 462,835                     |       | 420,372                         |       |
| Noncontrolling interests                                                                                                                                                                  |       | 2,688                       |       | 2,578                           |       |
| Total equity                                                                                                                                                                              |       | 465,523                     |       | 422,950                         |       |
| Total liabilities and equity                                                                                                                                                              |       | $                           | 672,587    |                            | $          | 662,073 |   |

 

See accompanying notes to condensed consolidatedfinancial statements.

 

3

----

Table ofContents

 

**TexasRoadhouse, Inc. and Subsidiaries**

**Condensed Consolidated Statements of Income**

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

**(unaudited)**

 
| ** **                                                                           | ** ** | **13 Weeks Ended** | ** ** | **26 Weeks Ended** | ** ** |
|--------------------------------------------------------------------------------------|------------|------------------------------|------------|------------------------------|------------|
| ** **                                                                           | ** ** | **June 29, 2010**  | ** ** | **June 30, 2009**  | ** ** | **June 29, 2010** | ** ** | **June 30, 2009** | ** ** |
| Revenue:                                                                             |       |                         |       |                         |       |   |   |   |   |
| Restaurant sales                                                                     |       | $                            | 252,835    |                         | $          | 240,301 |   | $ | 510,177 |   | $ | 484,391 |   |
| Franchise royalties and fees                                                         |       | 2,327                        |       | 2,122                        |       | 4,609 |   | 4,105 |   |
|                                                                                 |       |                         |       |                         |       |   |   |   |   |
| Total revenue                                                                        |       | 255,162                      |       | 242,423                      |       | 514,786 |   | 488,496 |   |
|                                                                                 |       |                         |       |                         |       |   |   |   |   |
| Costs and expenses:                                                                  |       |                         |       |                         |       |   |   |   |   |
| Restaurant operating costs:                                                          |       |                         |       |                         |       |   |   |   |   |
| Cost of sales                                                                        |       | 82,660                       |       | 80,314                       |       | 165,459 |   | 163,355 |   |
| Labor                                                                                |       | 74,497                       |       | 71,074                       |       | 149,406 |   | 142,573 |   |
| Rent                                                                                 |       | 5,287                        |       | 4,929                        |       | 10,557 |   | 9,841 |   |
| Other operating                                                                      |       | 42,767                       |       | 39,812                       |       | 85,365 |   | 80,672 |   |
| Pre-opening                                                                          |       | 1,307                        |       | 933                          |       | 2,412 |   | 3,217 |   |
| Depreciation and amortization                                                        |       | 10,262                       |       | 10,616                       |       | 20,599 |   | 21,087 |   |
| Impairment and closures                                                              |       | 100                          |       | 14                           |       | 258 |   | (72 | ) |
| General and administrative                                                           |       | 14,953                       |       | 13,237                       |       | 27,295 |   | 24,046 |   |
|                                                                                 |       |                         |       |                         |       |   |   |   |   |
| Total costs and expenses                                                             |       | 231,833                      |       | 220,929                      |       | 461,351 |   | 444,719 |   |
|                                                                                 |       |                         |       |                         |       |   |   |   |   |
| Income from operations                                                               |       | 23,329                       |       | 21,494                       |       | 53,435 |   | 43,777 |   |
|                                                                                 |       |                         |       |                         |       |   |   |   |   |
| Interest expense, net                                                                |       | 704                          |       | 876                          |       | 1,434 |   | 1,733 |   |
| Equity income from investments in unconsolidated  affiliates                         |       | (92                          | )          | (64                          | )          | (200 | ) | (149 | ) |
|                                                                                 |       |                         |       |                         |       |   |   |   |   |
| Income before taxes                                                                  |       | 22,717                       |       | 20,682                       |       | 52,201 |   | 42,193 |   |
| Provision for income taxes                                                           |       | 7,049                        |       | 6,436                        |       | 16,655 |   | 13,151 |   |
| Net income including noncontrolling interests                                        |       | $                            | 15,668     |                         | $          | 14,246 |   | $ | 35,546 |   | $ | 29,042 |   |
| Less: Net income attributable to noncontrolling  interests                           |       | 632                          |       | 505                          |       | 1,269 |   | 967 |   |
|                                                                                 |       |                         |       |                         |       |   |   |   |   |
| Net income attributable to Texas  Roadhouse, Inc. and subsidiaries              |       | $                            | 15,036     |                         | $          | 13,741 |   | $ | 34,277 |   | $ | 28,075 |   |
|                                                                                 |       |                         |       |                         |       |   |   |   |   |
| Net income per common share attributable to Texas  Roadhouse, Inc. and subsidiaries: |       |                         |       |                         |       |   |   |   |   |
| Basic                                                                                |       | $                            | 0.21       |                         | $          | 0.20 |   | $ | 0.48 |   | $ | 0.40 |   |
|                                                                                 |       |                         |       |                         |       |   |   |   |   |
| Diluted                                                                              |       | $                            | 0.21       |                         | $          | 0.19 |   | $ | 0.47 |   | $ | 0.40 |   |
|                                                                                 |       |                         |       |                         |       |   |   |   |   |
| Weighted-average shares outstanding:                                                 |       |                         |       |                         |       |   |   |   |   |
| Basic                                                                                |       | 71,471                       |       | 69,909                       |       | 71,076 |   | 69,666 |   |
|                                                                                 |       |                         |       |                         |       |   |   |   |   |
| Diluted                                                                              |       | 72,961                       |       | 71,361                       |       | 72,587 |   | 70,948 |   |

 

See accompanying notes to condensed consolidatedfinancial statements.

 

4

----

Table of Contents

 

**TexasRoadhouse, Inc. and Subsidiaries**

**Condensed Consolidated Statements of Stockholders’ Equity andComprehensive Income**

**(inthousands, except share data)**

**(unaudited)**

 
| ** **                                                  | ** ** | **Shares** | ** ** | **Par  Value** | ** ** | **Paid in  Capital** | ** ** | **Retained  Earnings** | ** ** | **Accumulated  Other  Comprehensive  Income (Loss)** | ** ** | **Noncontrolling  Interests** | ** ** | **Total** | ** ** |
|-------------------------------------------------------------|------------|------------|------------|----------------|------------|---------------------------|------------|------------------------|------------|------------------------------------------------------|------------|-------------------------------|------------|-----------|------------|
|                                                        |       |       |       |           |       |                      |       |                   |       |                                                 |       |                          |       |      |       |
| Balance, December 29, 2009                             |       | 70,384,915 |       | $              | 70         |                      | $          | 231,564                |       | $                                                    | 188,719    |                          | $          | 19        |       | $ | 2,578 |   | $ | 422,950 |   |
|                                                        |       |       |       |           |       |                      |       |                   |       |                                                 |       |                          |       |      |       |
| Comprehensive income:                                       |       |       |       |           |       |                      |       |                   |       |                                                 |       |                          |       |      |       |
| Unrealized loss on derivatives, net of tax of $1.1 million  |       | —     |       | —         |       | —                    |       | —                 |       | (1,735                                               | )          | —                        |       | (1,735    | )          |
| Net income                                                  |       | —     |       | —         |       | —                    |       | 34,277                 |       | —                                               |       | 1,269                         |       | 35,546    |       |
|                                                        |       |       |       |           |       |                      |       |                   |       |                                                 |       |                          |       |      |       |
| Total comprehensive income                                  |       |       |       |           |       |                      |       |                   |       |                                                 |       |                          |       | 33,811    |       |
|                                                        |       |       |       |           |       |                      |       |                   |       |                                                 |       |                          |       |      |       |
| Distributions to noncontrolling interests                   |       | —     |       | —         |       | —                    |       | —                 |       | —                                               |       | (1,159                        | )          | (1,159    | )          |
| Shares issued under stock option plan including tax effects |       | 894,218    |       | 1              |       | 7,908                     |       | —                 |       | —                                               |       | —                        |       | 7,909     |       |
| Settlement of restricted stock units, net of tax            |       | 292,251    |       | 1              |       | (1,725                    | )          | —                 |       | —                                               |       | —                        |       | (1,724    | )          |
| Share-based compensation                                    |       | —     |       | —         |       | 3,736                     |       | —                 |       | —                                               |       | —                        |       | 3,736     |       |
|                                                        |       |       |       |           |       |                      |       |                   |       |                                                 |       |                          |       |      |       |
| Balance, June 29, 2010                                 |       | 71,571,384 |       | $              | 72         |                      | $          | 241,483                |       | $                                                    | 222,996    |                          | $          | (1,716    | )          | $ | 2,688 |   | $ | 465,523 |   |

 

See accompanying notes to condensed consolidatedfinancial statements.

 

5

----

Table of Contents

 

**TexasRoadhouse, Inc. and Subsidiaries**

**Condensed Consolidated Statements of Cash Flows**

**(inthousands)**

**(unaudited)**

 
| ** **                                                                  | ** ** | **26 Weeks Ended** | ** ** |
|-----------------------------------------------------------------------------|------------|------------------------------|------------|
| ** **                                                                  | ** ** | **June 29, 2010**  | ** ** | **June 30, 2009** | ** ** |
| **Cash  flows from operating activities:**                                  |       |                         |       |   |   |
| Net income including noncontrolling interests                               |       | $                            | 35,546     |   | $ | 29,042 |   |
| Depreciation and amortization                                               |       | 20,599                       |       | 21,087 |   |
| Deferred income taxes                                                       |       | 1,643                        |       | 2,664 |   |
| Loss on disposition of assets                                               |       | 630                          |       | 443 |   |
| Impairment and closures                                                     |       | 141                          |       | (104 | ) |
| Equity income from investments in unconsolidated  affiliates                |       | (200                         | )          | (149 | ) |
| Distributions received from investments in  unconsolidated affiliates       |       | 212                          |       | 187 |   |
| Provision for doubtful accounts                                             |       | (31                          | )          | 200 |   |
| Share-based compensation expense                                            |       | 3,736                        |       | 3,814 |   |
| Excess tax benefits from share-based compensation                           |       | (2,095                       | )          | (1,744 | ) |
| Changes in operating working capital:                                       |       |                         |       |   |   |
| Receivables                                                                 |       | (85                          | )          | 759 |   |
| Inventories                                                                 |       | 402                          |       | 266 |   |
| Prepaid expenses and other current assets                                   |       | 116                          |       | 1,525 |   |
| Other assets                                                                |       | (301                         | )          | (775 | ) |
| Accounts payable                                                            |       | (2,873                       | )          | (8,619 | ) |
| Deferred revenue — gift cards/certificates                             |       | (17,420                      | )          | (16,540 | ) |
| Accrued wages                                                               |       | 2,013                        |       | 3,301 |   |
| Prepaid income taxes and income taxes payable                               |       | 146                          |       | 7,316 |   |
| Accrued taxes and licenses                                                  |       | 2,373                        |       | 1,650 |   |
| Other accrued liabilities                                                   |       | 1,316                        |       | 591 |   |
| Deferred rent                                                               |       | 1,091                        |       | 1,046 |   |
| Other liabilities                                                           |       | 1,369                        |       | 566 |   |
|                                                                        |       |                         |       |   |   |
| Net cash provided by operating activities                                   |       | $                            | 48,328     |   | $ | 46,526 |   |
|                                                                        |       |                         |       |   |   |
| **Cash  flows from investing activities:**                                  |       |                         |       |   |   |
| Capital expenditures — property and equipment                          |       | (17,967                      | )          | (22,526 | ) |
| Acquisitions of franchise restaurants, net of cash  acquired                |       | —                       |       | 50 |   |
| Proceeds from sale of property and equipment,  including insurance proceeds |       | 51                           |       | 120 |   |
|                                                                        |       |                         |       |   |   |
| Net cash used in investing activities                                       |       | $                            | (17,916    | ) | $ | (22,356 | ) |
|                                                                        |       |                         |       |   |   |
| **Cash  flows from financing activities:**                                  |       |                         |       |   |   |
| Repayments of revolving credit facility, net                                |       | (22,000                      | )          | (6,000 | ) |
| Investments in unconsolidated affiliates                                    |       | (28                          | )          | (19 | ) |
| Distributions to noncontrolling interest holders                            |       | (1,159                       | )          | (1,137 | ) |
| Excess tax benefits from share-based compensation                           |       | 2,095                        |       | 1,744 |   |
| Repayments of stock option and other deposits                               |       | (536                         | )          | (938 | ) |
| Proceeds from stock option and other deposits                               |       | 623                          |       | 670 |   |
| Settlement of restricted stock units, net of tax                            |       | (1,724                       | )          | (892 | ) |
| Principal payments on long-term debt and capital  lease obligations         |       | (120                         | )          | (171 | ) |
| Proceeds from exercise of stock options                                     |       | 5,814                        |       | 2,294 |   |
|                                                                        |       |                         |       |   |   |
| Net cash used in financing activities                                       |       | $                            | (17,035    | ) | $ | (4,449 | ) |
|                                                                        |       |                         |       |   |   |
| Net increase in cash and cash equivalents                                   |       | 13,377                       |       | 19,721 |   |
| Cash and cash equivalents — beginning of period                        |       | 46,858                       |       | 5,258 |   |
| Cash and cash equivalents — end of period                              |       | $                            | 60,235     |   | $ | 24,979 |   |
|                                                                        |       |                         |       |   |   |
| Supplemental disclosures of cash flow information:                          |       |                         |       |   |   |
| Interest, net of amounts capitalized                                        |       | $                            | 1,390      |   | $ | 1,866 |   |
| Income taxes, net of refunds                                                |       | $                            | 14,864     |   | $ | 3,180 |   |

 

See accompanying notes to condensed consolidatedfinancial statements.

 

6

----

 

Table of Contents

 

**TexasRoadhouse, Inc. and Subsidiaries**

**Notes to Condensed Consolidated Financial Statements**

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

**(unaudited)**

 

**(1)   Basis ofPresentation**

 

Theaccompanying unaudited condensed consolidated financial statements include theaccounts of Texas Roadhouse, Inc. (the “Company”, “we” and/or “our”), ourwholly-owned subsidiaries and subsidiaries in which we own more than 50 percentinterest, as of and for the 13 and 26 weeks ended June 29, 2010 and June 30,2009.  Our wholly-owned subsidiariesinclude: Texas Roadhouse Holdings LLC (“Holdings”), Texas Roadhouse DevelopmentCorporation (“TRDC”), Texas Roadhouse Management Corp. (“Management Corp”) andAspen Creek, LLC (“Aspen Creek”).  We and our subsidiaries operaterestaurants under the names Texas Roadhouse and Aspen Creek. Holdings alsoprovides supervisory and administrative services for certain other franchiseand license restaurants. TRDC sells franchise rights and collects the franchiseroyalties and fees.  Management Corp. provides management services to theCompany, Holdings, Aspen Creek and certain other license and franchiserestaurants.  All material balances andtransactions between the consolidated entities have been eliminated.

 

Asof June 29, 2010 and June 30, 2009, we owned 5.0% to 10.0% equityinterest in 21 and 19 franchise restaurants, respectively.  While we exercise significant control overthese franchise restaurants, we do not consolidate their financial position,results of operations or cash flows as it is immaterial to our consolidatedfinancial position, results of operations and/or cash flows. Our investment inthese unconsolidated affiliates is included in Other assets in our condensedconsolidated balance sheets and we record our percentage share of net incomeearned by these unconsolidated affiliates on our condensed consolidatedstatements of income under Equity income from investments in unconsolidatedaffiliates.

 

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

 

Inthe opinion of management, the accompanying unaudited financial statementsreflect all adjustments, consisting only of normal recurring adjustments,necessary to present fairly our financial position, results of operations andcash flows for the periods presented.  The financial statements have beenprepared in accordance with GAAP, except that certain information and footnoteshave been condensed or omitted pursuant to rules and regulations of theSecurities and Exchange Commission (“SEC”).  Operating results for the 26weeks ended June 29, 2010 are not necessarily indicative of the resultsthat may be expected for the year ending December 28, 2010.  Thefinancial statements should be read in conjunction with the consolidatedfinancial statements and notes thereto included in our Annual Report on Form 10-Kfor the year ended December 29, 2009.

 

Oursignificant interim accounting policies include the recognition of income taxesusing an estimated annual effective tax rate.

 

**(2)   Share-basedCompensation**

 

Wemay grant incentive and non-qualified stock options to purchase shares ofcommon stock, stock bonus awards (restricted stock unit awards (“RSUs”)) andrestricted stock awards under the Texas Roadhouse, Inc. 2004 EquityIncentive Plan (the “Plan”).  Beginningin 2008, we changed the method by which we provide share-based compensation toour employees by eliminating stock option grants and, instead, granting RSUs asa form of share-based compensation.   AnRSU is the conditional right to receive one share of common stock uponsatisfaction of the vesting requirement.

 

Thefollowing table summarizes the share-based compensation recorded in theaccompanying condensed consolidated statements of income:

 
| ** **                             | ** ** | **13 Weeks Ended**     | ** ** | **26 Weeks Ended**     | ** ** |
|----------------------------------------|------------|------------------------|------------|------------------------|------------|
| ** **                             | ** ** | **June 29, 2010** | ** ** | **June 30, 2009** | ** ** | **June 29, 2010** | ** ** | **June 30, 2009** | ** ** |
|                                   |       |                   |       |                   |       |   |   |   |   |
| Labor expense                          |       | $                      | 842        |                   | $          | 695 |   | $ | 1,603 |   | $ | 1,422 |   |
| General and administrative expense     |       | 1,064                  |       | 1,158                  |       | 2,133 |   | 2,392 |   |
| Total share-based compensation expense |       | $                      | 1,906      |                   | $          | 1,853 |   | $ | 3,736 |   | $ | 3,814 |   |

 

A summary of share-based compensation activity bytype of grant as of June 29, 2010 and changes during the period then endedis presented below.

 

7

----

Table of Contents

 

*SummaryDetails for Plan Share Options*

 
| ** **                            | ** ** | **Shares** | ** ** | **Weighted-  Average  Exercise Price** | ** ** | **Weighted-Average  Remaining Contractual  Term (years)** | ** ** | **Aggregate  Intrinsic  Value** | ** ** |
|---------------------------------------|------------|------------|------------|----------------------------------------|------------|-----------------------------------------------------------|------------|---------------------------------|------------|
|                                  |       |       |       |                                   |       |                                                      |       |                            |       |
| Outstanding at December 29, 2009 |       | 5,439,030  |       | $                                      | 10.86      |                                                      |       |                            |       |   |
| Granted                               |       | —     |       | —                                 |       |                                                      |       |                            |       |
| Forfeited                             |       | (23,169    | )          | 14.34                                  |       |                                                      |       |                            |       |
| Exercised                             |       | (894,218   | )          | 6.50                                   |       |                                                      |       |                            |       |
| Outstanding at June 29, 2010     |       | 4,521,643  |       | $                                      | 11.71      |                                                      | 5.04       |                            | $          | 10,297 |   |
|                                  |       |       |       |                                   |       |                                                      |       |                            |       |
| Exercisable at June 29, 2010     |       | 4,282,364  |       | $                                      | 11.60      |                                                      | 4.94       |                            | $          | 10,191 |   |

 

Nostock options were granted during the 26 weeks ended June 29, 2010.

 

Thetotal intrinsic value of options exercised during the 13 weeks ended June 29,2010 and June 30, 2009 was $1.9 million and $4.0 million,respectively.  The total intrinsic valueof options exercised during the 26 weeks ended June 29, 2010 and June 30,2009 was $6.6 million and $4.2 million, respectively.  As of June 29, 2010, with respect tounvested stock options, there was an immaterial amount of  unrecognized compensation cost that isexpected to be recognized over a weighted-average period of less than a year.  The total grant date fair value of stockoptions vested for both 13 week periods ended June 29, 2010 and June 30,2009 was $0.2 million.  The total grantdate fair value of stock options vested for the 26 week periods ended June 29,2010 and June 30, 2009 was $1.0 million and $0.7 million, respectively.

 

*SummaryDetails for RSUs*

 

| ** **                            | ** ** | **Shares** | ** ** | **Weighted-  Average  Grant Date  Fair Value** | ** ** |
|---------------------------------------|------------|------------|------------|------------------------------------------------|------------|
|                                  |       |       |       |                                           |       |
| Outstanding at December 29, 2009 |       | 1,362,427  |       | $                                              | 9.90       |   |
| Granted                               |       | 285,375    |       | 13.82                                          |       |
| Forfeited                             |       | (13,852    | )          | 10.70                                          |       |
| Vested                                |       | (430,843   | )          | 9.71                                           |       |
| Outstanding at June 29, 2010     |       | 1,203,107  |       | $                                              | 10.85      |   |

 

Asof June 29, 2010, with respect to unvested RSUs, there was $8.0 million ofunrecognized compensation cost that is expected to be recognized over aweighted-average period of 1.6 years. The vesting terms of the RSUs range from approximately 1.0 to 5.0years.  The total grant date fair valueof RSUs vested for the 13 week periods ended June 29, 2010 and June 30,2009 was $1.1 million and $0.8 million, respectively.  The total grant date fair value of RSUsvested for the 26 week periods ended June 29, 2010 and June 30, 2009was $4.2 million and $3.4 million, respectively.

 

 

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

 

Long-termdebt and obligations under capital leases consisted of the following:

 
| ** **                              | ** ** | **June 29,  2010** | ** **   | **December 29,  2009** | ** ** |
|-----------------------------------------|------------|-------------------------|--------------|-----------------------------|------------|
| Installment loans, due 2010 – 2020 |       | $                       | 1,949        |                        | $          | 2,030 |   |
| Obligations under capital leases        |       | 357                     |         | 396                         |       |
| Revolver                                |       | 77,000                  |         | 99,000                      |       |
|                                    |       | 79,306                  |         | 101,426                     |       |
| Less current maturities                 |       | 260                     |         | 247                         |       |
|                                    |       | $                       |  79,046 |                        | $          | 101,179 |   |

 

Theweighted-average interest rate for installment loans outstanding at June 29,2010 and December 29, 2009 was 10.58%. The debt is secured by certain land and buildings.

 

Wehave a $250.0 million five-year revolving credit facility with a syndicate ofcommercial lenders led by Bank of America, 

 

8

----

Table of Contents

 

N.A.,Banc of America Securities LLC and PNC Bank. The facility expires on May 31, 2012.  The terms of the facility require us to payinterest on outstanding borrowings at LIBOR plus a margin of 0.50% to 0.875%,depending on our leverage ratio, or the Base Rate, which is the higher of theissuing bank’s prime lending rate or the Federal Funds rate plus 0.50%.  We are also required to pay a commitment feeof 0.10% to 0.175% per year on any unused portion of the facility, depending onour leverage ratio.  The weighted-averageinterest rate for the revolver at June 29, 2010 and December 29, 2009was 2.75% and 2.36%, respectively, including interest rate swaps.  At June 29, 2010, we had $77.0 millionoutstanding under the credit facility and $169.3 million of availability, netof $3.7 million of outstanding letters of credit.

 

Thelenders’ obligation to extend credit under the facility depends on usmaintaining 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 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 circumstances wherethe incurrence of secured or unsecured indebtedness would prevent us fromcomplying with our financial covenants. We were in compliance with all covenants as of June 29, 2010.

 

**(4)   Derivative and Hedging Activities**

 

We enter into derivative instruments for riskmanagement purposes only, including derivatives designated as hedginginstruments under Financial Accounting Standards Board (“FASB”) AccountingStandards Codification (“ASC”) 815, *Derivatives and Hedging*(“ASC815”)*. *Weuse interest rate-related derivative instruments to manage our exposure tofluctuations of interest rates.  By usingthese instruments, we expose ourselves, from time to time, to credit risk andmarket risk.  Credit risk is the failureof the counterparty to perform under the terms of the derivative contract. Whenthe fair value of a derivative contract is positive, the counterparty owes us,which creates credit risk for us.  Weminimize the credit risk by entering into transactions with high-qualitycounterparties whose credit rating is evaluated on a quarterly basis.  Our counterparty in the interest rate swapsis J.P. Morgan Chase, N.A.  Market riskis the adverse effect on the value of a financial instrument that results froma change in interest rates, commodity prices or the market price of our commonstock.  We minimize market risk byestablishing and monitoring parameters that limit the types and degree ofmarket risk that may be taken.

 

*Interest Rate Swaps*

 

OnOctober 22, 2008, we entered into an interest rate swap, starting on November 7,2008, with a notional amount of $25.0 million to hedge a portion of the cashflows of our variable rate credit facility. We have designated the interest rate swap as a cash flow hedge of ourexposure to variability in future cash flows attributable to interest paymentson a $25.0 million tranche of floating rate debt borrowed under our revolvingcredit facility.  Under the terms of theswap, we pay a fixed rate of 3.83% on the $25.0 million notional amount andreceive payments from the counterparty based on the 1-month LIBOR rate for aterm ending on November 7, 2015, effectively resulting in a fixed rateLIBOR component of the $25.0 million notional amount.

 

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

 

Weentered into the above interest rate swaps with the objective of eliminatingthe variability of our interest cost that arises because of changes in thevariable interest rate for the designated interest payments.  Changes in the fair value of the interestrate swap will be reported as a component of accumulated other comprehensiveincome.  We will reclassify any gain orloss from accumulated other comprehensive income, net of tax, on ourconsolidated balance sheet to interest expense on our consolidated statement ofincome when the interest rate swap expires or at the time we choose toterminate the swap.  See note 10 for fairvalue discussion of these interest rate swaps.

 

9

----

Table of Contents

 

Thefollowing table summarizes the fair value and presentation in the condensedconsolidated balance sheets for derivatives designated as hedging instrumentsunder FASB ASC 815:

 
| ** **                                                            | ** ** | **Balance**         | ** ** | **Derivative Assets**  | ** ** | **Derivative Liabilities**  | ** ** |
|-----------------------------------------------------------------------|------------|---------------------|------------|------------------------|------------|-----------------------------|------------|
| ** **                                                            | ** ** | **Sheet  Location** | ** ** | **June 29, 2010** | ** ** | **December 29,  2009** | ** ** | **June 29, 2010** | ** ** | **December 29,  2009** | ** ** |
|                                                                  |       |                |       |                   |       |                        |       |   |   |   |   |
| Derivative Contracts  Designated as Hedging Instruments under ASC 815 |       | (1)                 |       |                   |       |                        |       |   |   |   |   |
| Interest rate swaps                                                   |       |                |       | $                      | —     |                        | $          | 31 |   | $ | 2,794 |   | $ | — |   |
|                                                                  |       |                |       |                   |       |                        |       |   |   |   |   |
| Total Derivative  Contracts                                           |       |                |       | $                      | —     |                        | $          | 31 |   | $ | 2,794 |   | $ | — |   |
|                                                                  |       |                |       |                   |       |                        |       |   |   |   |   |

 

----

(1)                             Derivative assets and liabilities are included in fair value ofderivative financial instruments on the condensed consolidated balance sheets.

 

The following table summarizes the effect ofderivative instruments on the condensed consolidated statements of income forthe 26 weeks ended June 29, 2010 and June 30, 2009:

 
| ** **           | ** ** | **Amount  of (Loss) Gain  Recognized in AOCI  (effective portion)** | ** ** | **Location  of  Gain (Loss)  Reclassified  from AOCI** | ** ** | **Amount  of Gain (Loss)  Reclassified from AOCI  to Income (effective  portion)** | ** ** | **Location  of  Gain (Loss)  Recognized  in Income  (ineffective** | ** ** | **Amount  of Gain (Loss)  Recognized in Income  (ineffective portion)** | ** ** |
|----------------------|------------|---------------------------------------------------------------------|------------|--------------------------------------------------------|------------|------------------------------------------------------------------------------------|------------|--------------------------------------------------------------------|------------|-------------------------------------------------------------------------|------------|
| ** **           | ** ** | **2010**                                                            | ** ** | **2009**                                               | ** ** | **Income**                                                                         | ** ** | **2010**                                                           | ** ** | **2009**                                                                | ** ** | **portion)** | ** ** | **2010** | ** ** | **2009** | ** ** |
|                 |       |                                                                |       |                                                   |       |                                                                               |       |                                                               |       |                                                                    |       |   |   |   |   |   |   |
| Interest  rate swaps |       | $                                                                   | (1,735     | )                                                      | $          | 152                                                                                |       | —                                                             |       | $                                                                       | —     |   | $ | — |   | — |   | $ | — |   | $ | — |   |
|                      |            |                                                                     |            |                                                        |            |                                                                                    |            |                                                                    |            |                                                                         |            |  |  |  |  |  |  |  |  |  |  |  |  |

 

**(5)****          ****RecentAccounting Pronouncements**

 

***Fair Value Measures and Disclosures***

*(Accounting Standards Update (“ASU”) 2010-06)*

 

In January 2010, the FASB issued ASU 2010-06which amends Accounting Standards Codification (“ASC”) topic 820, *Fair Value Measures and Disclosures*.  ASU No. 2010-06 amends the ASC torequire disclosure of transfer into and out of Level 1 and Level 2 fair valuemeasurements, and also requires more detailed disclosure about the activitywithin Level 3 fair value measurements. The changes as a result of this update are effective for annual andinterim reporting periods beginning after December 15, 2009 (our 2010fiscal year), except for requirements related to Level 3 disclosures, which areeffective for annual and interim reporting periods beginning after December 15,2010 (our 2011 fiscal year).  Thisguidance requires new disclosures only, and will have no impact on ourconsolidated financial position, results of operations or cash flows.

 

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

*(To beincluded in ASC 810, “Consolidation”, previously SFAS 167, “Amendments to FASBInterpretation No. 46(R)”)*

 

ASC810 provides guidance for determining the primary beneficiary of a variableinterest entity.  In addition, ASC 810requires ongoing assessments of whether an enterprise is the primarybeneficiary of a variable interest entity. ASC 810 is effective for the first annual and interim reporting periodsthat begin after November 15, 2009 (our fiscal year 2010).  The adoption of ASC 810 had no impact on ourconsolidated financial position, results of operations and cash flows.

 

**(6)****          ****Commitmentsand Contingencies**

 

Theestimated cost of completing capital project commitments at June 29, 2010and December 29, 2009 was approximately $31.0 million and $18.5 million,respectively.

 

Weentered into real estate lease agreements for franchise restaurants located inEverett, MA, Longmont, CO, Montgomeryville, PA, Fargo, ND and Logan, UT beforegranting franchise rights for those restaurants. We have subsequently assignedthe leases to the franchisees, but remain 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 assigned inSeptember 2002 and expires in February 2018, the Montgomeryvillelease was assigned in October 2004 and expires in June 2021, theFargo lease was assigned in February 2006 and expires in July 2016and the Logan lease was assigned in January 2009 and expires in August 2019.  As the fair value of the guarantees is notconsidered significant, no liability has been recorded.  As discussed in note 7, the Everett, MA,Longmont, CO, and Fargo, ND restaurants are owned, in whole or part, by certainof our officers, directors or 5% shareholders.

 

10

----

Table of Contents

 

Weare involved in various claims and legal actions arising in the normal courseof business. In the opinion of management, the ultimate disposition of thesematters will not have a material effect on our consolidated financial position,results of operations or cash flows.

 

Wecurrently buy most of our beef from two to four suppliers. Although there are alimited number of beef suppliers, management believes that other supplierscould provide a similar product on comparable terms. A change in suppliers,however, could cause supply shortages and a possible loss of sales, which wouldaffect operating results adversely. We have no material minimum purchasecommitments with our vendors that extend beyond a year.

 

**(7)   RelatedParty Transactions**

 

TheLongview, Texas restaurant, which was acquired by us in connection with thecompletion of our initial public offering, leases the land and restaurantbuilding from an entity controlled by Steven L. Ortiz, our Chief OperatingOfficer. 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 $19,000 per month. The lease can beterminated if the tenant fails to pay the rent on a timely basis, fails tomaintain the insurance specified in the lease, fails to maintain the buildingor property or becomes insolvent. Total rent payments were approximately$55,000 and $50,000 for the 13 week periods ending June 29, 2010 and June 30,2009, respectively.   For each of the 26week periods ended June 29, 2010 and June 30, 2009, rent paymentswere $0.1 million.

 

TheBossier City, Louisiana restaurant, of which Steven L. Ortiz owns 65.0% and weown 5.0%, leases the land and building from an entity owned by Mr. Ortiz.  The lease term is 15 years and will terminateon March 31, 2020.  The lease can berenewed for three additional terms of five years each.    Rent is approximately $16,600 per month andescalates 10% each five year period during the term.  The next rent escalation is in the secondquarter of 2015.  The lease can beterminated if the tenant fails to pay rent on a timely basis, fails to maintaininsurance, abandons the property or becomes insolvent.  Total rent payments were approximately$50,000 and $45,000 for the 13 week periods ended June 29, 2010 and June 30,2009, respectively.  For each of the 26week periods ended June 29, 2010 and June 30, 2009, rent paymentswere $0.1 million.

 

Wehave 14 franchise and license restaurants owned, in whole or part, by certainof our officers, directors or 5% shareholders at June 29, 2010 and June 30,2009. These entities paid us fees of approximately $0.5 million during each ofthe 13 week periods ended June 29, 2010 and June 30, 2009,respectively.  For each of the 26 weekperiods ended June 29, 2010 and June 30, 2009, these entities paid usfees of $1.0 million.  As disclosed innote 6, we are contingently liable on leases which are related to three ofthese restaurants.

 

**(8)   Earnings PerShare**

 

Theshare and net income per share data for all periods presented are based on thehistorical weighted-average shares outstanding.  The diluted earnings pershare calculations show the effect of the weighted-average stock options, RSUsand restricted stock awards outstanding from our equity incentive plan asdiscussed in note 2.

 

Thefollowing table summarizes the options and nonvested stock that wereoutstanding but not included in the computation of diluted earnings per sharebecause their inclusion would have had an anti-dilutive effect:

 
| ** **      | ** ** | **13 Weeks Ended**     | ** ** | **26 Weeks Ended**     | ** ** |
|-----------------|------------|------------------------|------------|------------------------|------------|
| ** **      | ** ** | **June 29, 2010** | ** ** | **June 30, 2009** | ** ** | **June 29, 2010** | ** ** | **June 30, 2009** | ** ** |
|            |       |                   |       |                   |       |   |   |   |   |
| Options         |       | 1,810,876              |       | 2,864,095              |       | 2,195,747 |   | 3,074,123 |   |
| Nonvested stock |       | 44                     |       | 80                     |       | 2,909 |   | 351,983 |   |
|            |       |                   |       |                   |       |   |   |   |   |
| Total           |       | 1,810,920              |       | 2,864,175              |       | 2,198,656 |   | 3,426,106 |   |

 

11

----

Table of Contents

 

Thefollowing table sets forth the calculation of weighted-average sharesoutstanding (in thousands) as presented in the accompanying condensedconsolidated statements of income:

 
| ** **                                                              | ** ** | **13  Weeks Ended**     | ** ** | **26  Weeks Ended**     | ** ** |
|-------------------------------------------------------------------------|------------|-------------------------|------------|-------------------------|------------|
| ** **                                                              | ** ** | **June 29,  2010** | ** ** | **June 30,  2009** | ** ** | **June 29,  2010** | ** ** | **June 30,  2009** | ** ** |
| Net income attributable to Texas  Roadhouse, Inc. and subsidiaries |       | $                       | 15,036     |                    | $          | 13,741 |   | $ | 34,277 |   | $ | 28,075 |   |
|                                                                    |       |                    |       |                    |       |   |   |   |   |
| Basic EPS:                                                              |       |                    |       |                    |       |   |   |   |   |
| Weighted-average common shares outstanding                              |       | 71,471                  |       | 69,909                  |       | 71,076 |   | 69,666 |   |
|                                                                    |       |                    |       |                    |       |   |   |   |   |
| Basic EPS                                                               |       | $                       | 0.21       |                    | $          | 0.20 |   | $ | 0.48 |   | $ | 0.40 |   |
|                                                                    |       |                    |       |                    |       |   |   |   |   |
| Diluted EPS:                                                            |       |                    |       |                    |       |   |   |   |   |
| Weighted-average common shares outstanding                              |       | 71,471                  |       | 69,909                  |       | 71,076 |   | 69,666 |   |
| Dilutive effect of stock options and restricted  stock                  |       | 1,490                   |       | 1,452                   |       | 1,511 |   | 1,282 |   |
| Shares — diluted                                                   |       | 72,961                  |       | 71,361                  |       | 72,587 |   | 70,948 |   |
|                                                                    |       |                    |       |                    |       |   |   |   |   |
| Diluted EPS                                                             |       | $                       | 0.21       |                    | $          | 0.19 |   | $ | 0.47 |   | $ | 0.40 |   |

 

**(9)****        ****Acquisitions**

 

Duringthe fourth quarter of 2009, we terminated our franchise agreement with afranchisee which operated one restaurant. Pursuant to the terms of the franchise agreement, we acquired therestaurant from the franchisee for an immaterial amount.  As a result, there was no purchase priceallocation or subsequent goodwill associated with this acquisition.  We now operate the restaurant as a jointventure.

 

**(10)  Fair Value Measurement**

 

ASC 820, *Fair Value Measurementsand Disclosures* (“ASC 820”), establishes a framework for measuringfair value and expands disclosures about fair value measurements.  ASC 820 establishes a three-level hierarchy,which requires an entity to maximize the use of observable inputs and minimizethe use of unobservable inputs in measuring fair value.  The valuation hierarchy is based upon thetransparency of inputs to the valuation of an asset or liability on themeasurement date.

 

Level 1                                  Inputsbased on quoted prices in active markets for identical assets.

Level 2                                  Inputs other than quoted prices included within Level 1 that areobservable for the assets, either directly or indirectly.

Level 3                                  Inputsthat are unobservable for the asset.

 

There were no transfers among levels within the fairvalue hierarchy during the 13 and 26 week periods ended June 29, 2010.

 

Thefollowing table presents the fair values for our financial assets andliabilities measured on a recurring basis:

 
| ** **                               | ** ** | **Fair Value Measurements** | ** ** |
|------------------------------------------|------------|-----------------------------|------------|
| ** **                               | ** ** | **Level**                   | ** ** | **June 29, 2010** | ** ** | **December 29, 2009** | ** ** |
|                                     |       |                        |       |   |   |   |   |
| Interest rate swaps                      |       | 2                           |       | $ | (2,794 | ) | $ | 31 |   |
| Deferred compensation plan — assets |       | 1                           |       | 4,286 |   | 3,390 |   |
| Deferred compensation plan - liabilities |       | 1                           |       | (4,271 | ) | (3,389 | ) |
|                                     |       |                        |       |   |   |   |   |
| Total                                    |       |                        |       | $ | (2,779 | ) | $ | 32 |   |

 

Thefair value of our interest rate swaps were determined based on the presentvalue of expected future cash flows considering the risks involved, includingnonperformance risk, and using discount rates appropriate for the duration. Seenote 4 for discussion of our interest rate swaps.

 

12

----

Table of Contents

 

TheSecond Amended and Restated Deferred Compensation Plan of Texas RoadhouseManagement Corp., as amended, (the “Deferred Compensation Plan”) is anonqualified deferred compensation plan which allows highly compensatedemployees to defer receipt of a portion of their compensation and contributesuch amounts to one or more investment funds held in a rabbi trust. We reportthe accounts of the rabbi trust in our condensed consolidated financialstatements. These investments are considered trading securities and arereported at fair value based on third-party broker statements.  The realized and unrealized holding gains andlosses related to these investments, as well as the offsetting compensationexpense, are recorded in general and administrative expense on the condensedconsolidated statements of income.

 

Thefollowing table presents the fair values for our financial assets andliabilities measured on a nonrecurring basis:

 
| ** **                      | ** ** | **Fair Value Measurements** | ** ** |
|---------------------------------|------------|-----------------------------|------------|
| ** **                      | ** ** | **Level**                   | ** ** | **June 29, 2010** | ** ** | **December 29, 2009** | ** ** |
|                            |       |                        |       |   |   |   |   |
| Long-lived assets held for sale |       | 2                           |       | $ | 1,598 |   | $ | 1,598 |   |
| Long-lived assets held for use  |       | 2                           |       | 1,176 |   | 1,230 |   |
| Goodwill                        |       | 3                           |       | 651 |   | 651 |   |
|                            |       |                        |       |   |   |   |   |
| Total                           |       |                        |       | $ | 3,425 |   | $ | 3,479 |   |

 

Long-lived assets held for sale include land andbuilding and are valued using Level 2 inputs, primarily an independent thirdparty appraisal.  These assets areincluded in Property and equipment in our condensed consolidated balance sheetsas we do not expect to sell these assets in the next 12 months.  Costs to market and/or sell the assets arefactored into the estimates of fair value.

 

Long-lived assets held for use include building,equipment and furniture and fixtures and are valued using Level 2 inputs,primarily independent third party appraisal. These assets are included in Property and equipment in our condensedconsolidated balance sheets.

 

Goodwill in the table above relates to twounderperforming restaurants in which the carrying value of the associatedgoodwill was reduced to fair value, based on their historical results andanticipated future trends of operations.

 

At June 29, 2010 and December 29, 2009,the fair value of cash and cash equivalents, accounts receivable and accountspayable approximated their carrying value based on the short-term nature ofthese instruments. The fair value of our long-term debt is estimated based onthe current rates offered to us for instruments of similar terms andmaturities. The carrying amounts and related estimated fair values for our debtare as follows:

 
| ** **        | ** ** | **June 29,  2010** | ** ** | **December 29,  2009** | ** ** |
|-------------------|------------|-------------------------|------------|-----------------------------|------------|
| ** **        | ** ** | **Carrying  Amount**    | ** ** | **Fair  Value**             | ** ** | **Carrying  Amount** | ** ** | **Fair  Value** | ** ** |
| Installment loans |       | $                       | 1,949      |                        | $          | 2,460 |   | $ | 2,030 |   | $ | 2,592 |   |
| Revolver          |       | 77,000                  |       | 77,000                      |       | 99,000 |   | 99,000 |   |
|                   |            |                         |            |                             |            |  |  |  |  |  |  |  |  |

 

**(11)  Stock Repurchase Program**

 

OnFebruary 14, 2008, our Board of Directors approved a stock repurchaseprogram under which it authorized us to repurchase up to $25.0 million of ourcommon stock.  On July 8, 2008, ourBoard of Directors approved a $50.0 million increase in our stock repurchaseprogram.  Our total stock repurchaseauthorization increased to $75.0 million. Under this program, we were authorized to repurchase outstanding sharesof our common stock from time to time in open market transactions through February 14,2010.  On November 19, 2009, theBoard of Directors extended the expiration date on the stock repurchase programto February 14, 2011.  The timingand the amount of any repurchases will be determined by management underparameters established by our Board of Directors, based on its evaluation ofour stock price, market conditions and other corporate considerations.

 

Forthe 26 weeks ended June 29, 2010 and June 30, 2009, we did notrepurchase any shares of our common stock. The approximate dollar value of shares that may yet be purchased underthe plan is $18.2 million.

 

13

----

Table of Contents

 

**ITEM 2.  MANAGEMENT’SDISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS**

 

**OVERVIEW**

 

TexasRoadhouse is a growing, moderately priced, full-service restaurant chain. Ourfounder and chairman, W. Kent Taylor, started the business in 1993. Our missionstatement is “Legendary Food, Legendary Service®.” Our operating strategy isdesigned to position each of our restaurants as the local hometown destinationfor a broad segment of consumers seeking high quality, affordable meals servedwith friendly, attentive service. As of June 29, 2010, there were 335restaurants operating in 46 states, including:

 

·  264 “company restaurants,” ofwhich 253 were wholly-owned and 11 were majority-owned.  The results ofoperations of company restaurants are included in our condensed consolidatedstatements of income. The portion of income attributable to minority interestsin company restaurants that are not wholly-owned is reflected in the line itementitled “Net income attributable to noncontrolling interests” in our condensedconsolidated statements of income.

 

· 71 “franchise restaurants,” of which 68 were franchise restaurantsand three were license restaurants. We have a 5.0% to 10.0% ownership interestin 21 franchise restaurants.  The incomederived from our minority interests in these franchise restaurants is reportedin the line item entitled “Equity income from investments inunconsolidated affiliates” in our condensed consolidated statements of income.Additionally, we provide various management services to these franchiserestaurants, as well as five additional franchise restaurants in which we haveno ownership interest.

 

Wehave contractual arrangements which grant us the right to acquire atpre-determined valuation formulas (i) the remaining equity interests innine of the 11 majority-owned company restaurants, and (ii) 64 of thefranchise restaurants.

 

**Presentation of Financial andOperating Data**

 

Throughoutthis report, the 13 weeks ended June 29, 2010 and June 30, 2009 arereferred to as Q2 2010 and Q2 2009, respectively, and the 26 weeks ended June 29,2010 and June 30, 2009 are referred to as 2010 YTD and 2009 YTD.

 

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

 

Ourlong-term strategies with respect to increasing net income and earnings pershare include the following:

 

*Expanding Our Restaurant Base.*   We will continue to evaluate opportunities to developTexas Roadhouse restaurants in existing and new domestic and internationalmarkets. Domestically, we will remain focused primarily on mid-sized marketswhere we believe a significant demand for our restaurants exists because ofpopulation size, income levels, the presence of shopping and entertainmentcenters and a significant employment base. Our ability to expand our restaurant base is influenced by factorsbeyond our control and therefore we may not be able to achieve our anticipatedgrowth.  Due, in part, to increasingrestaurant development costs, we moderated our restaurant development plans for2009 and 2010.  For 2010, we expect ouraverage capital investment for developing our prototype restaurant to decreaseby $0.2 million to $0.4 million from our $4.0 million average in 2009.  These decreases are a result of buildingdesign modifications and lower site work costs, as landlords are becoming moreresponsible for a higher portion of certain of these costs.  We will also be implementing a slightlysmaller prototype late in the second half of 2010.  We continue to focus on driving sales anddecreasing restaurant development costs in order to increase our restaurantdevelopment in the future.

 

Wemay, at our discretion, add franchise restaurants, domestically and/orinternationally, primarily with franchisees who have demonstrated prior successwith the Texas Roadhouse or other restaurant concepts and in markets in whichthe franchisee demonstrates superior knowledge of the demographics and restaurantoperating conditions.  In conjunctionwith this strategy, we signed our first international franchise agreement on April 26,2010 for the development of Texas Roadhouse restaurants in eight countries overthe next ten years, the first of which is expected to open in early 2011.  We may also look to acquire franchiserestaurants under terms favorable to us and our stockholders.  Additionally, from time to time, we mayevaluate potential mergers, acquisitions, joint ventures or other strategicinitiatives to acquire or develop additional concepts.  Of the 264 restaurants we owned and operatedat June 29, 2010, 263 operated as Texas Roadhouse restaurants, while oneoperated under the name of Aspen Creek. The majority of our restaurant growth in 2010 will be Texas Roadhouserestaurants; however, we plan to open two additional Aspen Creek restaurantsduring the second half of 2010 as we continue testing the viability of theconcept.

 

*Maintaining and/or Improving Restaurant Level Profitability.*   We plan to maintain, or possibly increase, restaurantlevel profitability through a combination of increased comparable restaurantsales and operating cost management.

 

*Leveraging Our Scalable Infrastructure.*   Over the past several years, we have made significantinvestments in our infrastructure, including information systems, real estate,human resources, legal, marketing and operations. Historically, general andadministrative costs have increased at a slower growth rate than ourrevenue.  Whether we are able to leverageour infrastructure in the future will depend, in part, on our new restaurantopenings and our comparable restaurant sales growth rate going forward.

 

14

----

Table of Contents

 

*StockRepurchase Program. *We continue to look at opportunities to repurchase our common stock atfavorable market prices under our stock repurchase program.  Currently, our Board of Directors hasauthorized us to repurchase up to $75.0 million of our common stock.  As of June 29, 2010, $18.2 million worthof common stock remains authorized for repurchase.  We made no purchases of our common stockduring the 26 weeks ended June 29, 2010.

 

**Key Measures We Use to EvaluateOur Company**

 

Keymeasures we use to evaluate and assess our business include the following:

 

*Number of Restaurant Openings.*   Number of restaurant openings reflects the number ofrestaurants opened during a particular fiscal period. For company restaurantopenings we incur pre-opening costs, which are defined below, before therestaurant opens. Typically new restaurants open with an initial start-upperiod of higher than normalized sales volumes, which decrease to a steadylevel approximately three to six months after opening. However, although salesvolumes are generally higher, so are initial costs, resulting in restaurantoperating margins that are generally lower during the start-up period of operationand increase to a steady level approximately three to six months after opening.

 

*Comparable Restaurant Sales Growth. *  Comparable restaurant sales growth reflects the change inyear-over-year sales for all company restaurants for the comparable restaurantbase. We define the comparable restaurant base to include those restaurantsopen for a full 18 months before the beginning of the current interim periodexcluding restaurants closed during the period. Comparable restaurant salesgrowth can be impacted by changes in guest traffic counts or by changes in theper person average check amount. Menu price changes and the mix of menu itemssold can affect the per person average check amount.

 

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

 

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

 

**Other Key Definitions**

 

*Restaurant Sales.*   Restaurantsales include gross food and beverage sales, net of promotions anddiscounts.  Sales taxes collected fromcustomers and remitted to governmental authorities are accounted for on a netbasis and therefore are excluded from restaurant sales in the consolidatedstatements of income.

 

*Franchise Royalties and Fees.*   Domesticfranchisees typically pay a $40,000 initial franchise fee for each newrestaurant and a one-time fee payable for each renewal period equal to thegreater of 30% of the then-current initial franchise fee or $10,000 to $15,000.Franchise royalties consist of royalties in an amount up to 4.0% of grosssales, as defined in our franchise agreement, paid to us by our domesticfranchisees.

 

*Restaurant Cost of Sales.*   Restaurantcost of sales consists of food and beverage costs.

 

*Restaurant Labor Expenses.*   Restaurantlabor expenses include all direct and indirect labor costs incurred inoperations except for profit sharing incentive compensation expenses earned byour restaurant managers (“managing partners”). These profit sharing expensesare reflected in restaurant other operating expenses.  Restaurant labor expenses also includeshare-based compensation expense related to restaurant-level employees.

 

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

 

*Restaurant Other Operating Expenses.*   Restaurant other operating expenses consist of allother restaurant-level operating costs, the major components of which areutilities, supplies, advertising, repair and maintenance, property taxes,credit card fees and general liability insurance. Profit sharing allocations tomanaging partners and market partners are also included in restaurant otheroperating expenses.

 

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

 

*Depreciation and Amortization Expenses.*   Depreciation and amortization expenses (“D&A”)includes the depreciation of fixed 

 

15

----

Table of Contents

 

assetsand amortization of intangibles with definite lives.

 

*Impairment and closure costs. *Impairment and closure costs include any impairmentof long-lived assets associated with restaurants where the carrying amount ofthe asset is not recoverable and exceeds the fair value of the asset andexpenses associated with the closure of a restaurant.  Closure costs also include any gains orlosses associated with the sale of a closed restaurant and/or assets held forsale.

 

*General and Administrative Expenses.*   General and administrative expenses (“G&A”) arecomprised of expenses associated with corporate and administrative functions thatsupport development and restaurant operations and provide an infrastructure tosupport future growth.   Supervision andaccounting fees received from certain franchise restaurants and licenserestaurants are offset against G&A. G&A also includes share-based compensation expense related toexecutive officers, support center employees and area managers (“marketpartners”).

 

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

 

*Equity Income from Unconsolidated Affiliates.*   As of June 29, 2010 and June 30, 2009, weowned a 5.0% to 10.0% equity interest in 21 franchise restaurants and 19franchise restaurants, respectively. Equity income from unconsolidatedaffiliates represents our percentage share of net income earned by theseunconsolidated affiliates.

 

*Net Income Attributable to Noncontrolling Interests.*   Net income attributable to noncontrolling interestsrepresents the portion of income attributable to the other owners of themajority-owned or controlled restaurants. Our consolidated subsidiaries at June 29, 2010 and June 30,2009 included 11 and 10 majority-owned restaurants, respectively, all of whichwere open.

 

**Resultsof Operations**

** **
| ** **                                                              | ** ** | **13  Weeks Ended**     | ** ** | **26  Weeks Ended**     | ** ** |
|-------------------------------------------------------------------------|------------|-------------------------|------------|-------------------------|------------|
| ** **                                                              | ** ** | **June 29,  2010** | ** ** | **June 30,  2009** | ** ** | **June 29,  2010** | ** ** | **June 30,  2009** | ** ** |
| **($ in thousands)**                                               | ** ** | **$**                   | ** ** | **%**                   | ** ** | **$** | ** ** | **%** | ** ** | **$** | ** ** | **%** | ** ** | **$** | ** ** | **%** | ** ** |
|                                                                    |       |                    |       |                    |       |   |   |   |   |   |   |   |   |   |   |   |   |
| Revenue:                                                                |       |                    |       |                    |       |   |   |   |   |   |   |   |   |   |   |   |   |
| Restaurant sales                                                        |       | 252,835                 |       | 99.1                    |       | 240,301 |   | 99.1 |   | 510,177 |   | 99.1 |   | 484,391 |   | 99.2 |   |
| Franchise royalties and fees                                            |       | 2,327                   |       | 0.9                     |       | 2,122 |   | 0.9 |   | 4,609 |   | 0.9 |   | 4,105 |   | 0.8 |   |
|                                                                    |       |                    |       |                    |       |   |   |   |   |   |   |   |   |   |   |   |   |
| Total revenue                                                           |       | 255,162                 |       | 100.0                   |       | 242,423 |   | 100.0 |   | 514,786 |   | 100.0 |   | 488,496 |   | 100.0 |   |
|                                                                    |       |                    |       |                    |       |   |   |   |   |   |   |   |   |   |   |   |   |
| Costs and expenses:                                                     |       |                    |       |                    |       |   |   |   |   |   |   |   |   |   |   |   |   |
| *(As a percentage of restaurant sales)*                                 |       |                    |       |                    |       |   |   |   |   |   |   |   |   |   |   |   |   |
| Restaurant operating costs:                                             |       |                    |       |                    |       |   |   |   |   |   |   |   |   |   |   |   |   |
| Cost of sales                                                           |       | 82,660                  |       | 32.7                    |       | 80,314 |   | 33.4 |   | 165,459 |   | 32.4 |   | 163,355 |   | 33.7 |   |
| Labor                                                                   |       | 74,497                  |       | 29.5                    |       | 71,074 |   | 29.6 |   | 149,406 |   | 29.3 |   | 142,573 |   | 29.4 |   |
| Rent                                                                    |       | 5,287                   |       | 2.1                     |       | 4,929 |   | 2.1 |   | 10,557 |   | 2.1 |   | 9,841 |   | 2.0 |   |
| Other operating                                                         |       | 42,767                  |       | 16.9                    |       | 39,812 |   | 16.6 |   | 85,365 |   | 16.7 |   | 80,672 |   | 16.7 |   |
| *(As a percentage of total revenue)*                                    |       |                    |       |                    |       |   |   |   |   |   |   |   |   |   |   |   |   |
| Pre-opening                                                             |       | 1,307                   |       | 0.5                     |       | 933 |   | 0.4 |   | 2,412 |   | 0.5 |   | 3,217 |   | 0.7 |   |
| Depreciation and amortization                                           |       | 10,262                  |       | 4.0                     |       | 10,616 |   | 4.4 |   | 20,599 |   | 4.0 |   | 21,087 |   | 4.3 |   |
| Impairment and closure                                                  |       | 100                     |       | NM                      |       | 14 |   | NM |   | 258 |   | NM |   | (72 | ) | NM |   |
| General and administrative                                              |       | 14,953                  |       | 5.9                     |       | 13,237 |   | 5.5 |   | 27,295 |   | 5.3 |   | 24,046 |   | 4.9 |   |
|                                                                    |       |                    |       |                    |       |   |   |   |   |   |   |   |   |   |   |   |   |
| Total costs and expenses                                                |       | 231,833                 |       | 90.9                    |       | 220,929 |   | 91.1 |   | 461,351 |   | 89.6 |   | 444,719 |   | 91.0 |   |
| Income from operations                                                  |       | 23,329                  |       | 9.1                     |       | 21,494 |   | 8.9 |   | 53,435 |   | 10.4 |   | 43,777 |   | 9.0 |   |
| Interest expense, net                                                   |       | 704                     |       | 0.3                     |       | 876 |   | 0.4 |   | 1,434 |   | 0.3 |   | 1,733 |   | 0.4 |   |
| Equity income from investments in unconsolidated  affiliates            |       | (92                     | )          | NM                      |       | (64 | ) | NM |   | (200 | ) | NM |   | (149 | ) | NM |   |
|                                                                    |       |                    |       |                    |       |   |   |   |   |   |   |   |   |   |   |   |   |
| Income before taxes                                                     |       | 22,717                  |       | 8.9                     |       | 20,682 |   | 8.5 |   | 52,201 |   | 10.1 |   | 42,193 |   | 8.6 |   |
| Provision for income taxes                                              |       | 7,049                   |       | 2.8                     |       | 6,436 |   | 2.6 |   | 16,655 |   | 3.2 |   | 13,151 |   | 2.7 |   |
| Net income including noncontrolling interests                           |       | 15,668                  |       | 6.1                     |       | 14,246 |   | 5.9 |   | 35,546 |   | 6.9 |   | 29,042 |   | 5.9 |   |
| Net income attributable to noncontrolling  interests                    |       | 632                     |       | 0.2                     |       | 505 |   | 0.2 |   | 1,269 |   | 0.2 |   | 967 |   | 0.2 |   |
| Net income attributable to Texas Roadhouse, Inc.  and subsidiaries |       | 15,036                  |       | 5.9                     |       | 13,741 |   | 5.7 |   | 34,277 |   | 6.7 |   | 28,075 |   | 5.7 |   |

 

16

----

Table of Contents

 

NM— Not meaningful

 

**RestaurantUnit Activity**

** **
| ** **                        | ** ** | **Company** | ** ** | **Franchise** | ** ** | **Total** | ** ** |
|-----------------------------------|------------|-------------|------------|---------------|------------|-----------|------------|
| Balance at December 29, 2009 |       | 261         |       | 70            |       | 331       |       |
| Openings                          |       | 4           |       | 1             |       | 5         |       |
| Acquisitions (Dispositions)       |       | —      |       | —        |       | —    |       |
| Closures                          |       | (1          | )          | —        |       | (1        | )          |
|                              |       |        |       |          |       |      |       |
| Balance at June 29, 2010     |       | 264         |       | 71            |       | 335       |       |

 

**Q2 2010 (13 weeks) Comparedto Q2 2009 (13 weeks) and 2010 YTD (26 weeks) Compared to 2009 YTD (26 weeks)**

 

*Restaurant Sales.*   Restaurantsales increased by 5.2% in Q2 2010 as compared to Q2 2009 and by 5.3% in 2010YTD compared to 2009 YTD.  Theseincreases were primarily attributable to the opening of new restaurants and anincrease in average unit volumes and comparable restaurant sales.

 

Thefollowing table summarizes certain key drivers and/or attributes of restaurantsales at company restaurants for the periods.

** **
| ** **                          | ** ** | **Q2 2010** | ** ** | **Q2 2009** | ** ** | **22010 YTD** | ** ** | **2009 YTD** | ** ** |
|-------------------------------------|------------|------------------|------------|------------------|------------|--------------------|------------|-------------------|------------|
|                                |       |             |       |             |       |               |       |              |       |
| Store  weeks                        |       | 3,432            |       | 3,313            |       | 6,844              |       | 6,562             |       |
| Comparable  restaurant sales growth |       | 1.4              | %          | (3.7             | )%         | 0.9                | %          | (2.4              | )%         |
| Average  unit volume (in thousands) |       | $                |       | 952              |       | $                  |       | 939               |       | $ |   | 1,925 |   | $ |   | 1,914 |   |
|                                     |            |                  |            |                  |            |                    |            |                   |            |  |  |  |  |  |  |  |  |

 

We have implemented certain menu pricing increasesto partially offset impacts from higher operating costs and other inflationarypressures.  The following tablesummarizes our menu pricing actions for the periods shown.

 

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

 

As some guests are purchasing fewer alcoholicbeverages and/or shifting their selections to lower priced menu items, averageguest check has not increased in line with the menu price increases above.  While we have not taken any pricing increasesin 2010 due to the favorable commodities environment, we will continue toevaluate the need for and test further menu price increases as we assess thecurrent inflationary and competitive environment.

 

In 2010, we plan to open 14 to 15 companyrestaurants, four of which opened during 2010 YTD.  We have either begun construction or havesites currently under contract for purchase or lease for all of the remainingrestaurants.  In addition, we willcontinue to evaluate opportunities for international development and possiblyacquiring additional franchise restaurants in 2010.

 

*Franchise Royalties and Fees.*   Franchiseroyalties and fees increased by $0.2 million, or by 9.7% in Q2 2010 from Q22009 and by $0.5 million, or by 12.3% in 2010 YTD from 2009 YTD.  These increases were primarily attributableto increasing royalty rates in conjunction with the renewal of certainfranchise agreements, the opening of new restaurants in 2009 and an increase inaverage unit volumes.  Franchisecomparable restaurant sales increased 2.0% and 1.4% in Q2 2010 and 2010 YTD,respectively.  Franchise restaurant countactivity is shown in the restaurant unit activity table above.

 

*Restaurant Cost of Sales.*   Restaurantcost of sales, as a percentage of restaurant sales, decreased to 32.7% in Q22010 from 33.4% in Q2 2009 and to 32.4% in 2010 YTD from 33.7% in 2009YTD.  These decreases were primarilyattributable to the benefit of lower beef costs and lower food costs on itemssuch as wheat and oil-based ingredients, partially offset by higher producecosts.  Due to the way we purchasecertain proteins (mainly beef) during 2010, we anticipate our benefit fromcommodity cost deflation in Q2 2010 will be less than in any other quarter offiscal 2010.  Additionally, we continueto expect commodity cost deflation of approximately 2.5-3.0% in 2010.  For the remainder of 2010, we have fixedprice contracts for approximately 75% of our overall food costs with theremainder subject to fluctuating market prices.

 

*Restaurant Labor Expenses.*  Restaurantlabor expenses, as a percentage of restaurant sales, decreased to 29.5% in Q22010 from 29.6% in Q2 2009 and to 29.3% in 2010 YTD from 29.4% in 2009YTD.  These decreases were primarilyattributable to an increase in average unit volumes and lower stateunemployment tax expense, partially offset by higher average wage rates.  Higher average 

 

17

----

Table of Contents

 

hourlywage rates resulted from several state-mandated increases in minimum and tipwage rates throughout 2009, including increases in federal minimum wage rate inJuly 2009.  We anticipate our laborcosts will continue to be pressured by inflation, which is primarily caused byfederal and state-mandated increases in minimum and tip wage rates.  However, we expect that this pressure willnot be as much as it has been in the past. These increases may or may not be offset by additional menu priceadjustments.

 

*Restaurant Rent Expense.*   Restaurant rent expense, as a percentage of restaurantsales, remained the same in Q2 2010 compared to Q2 2009 at 2.1% and remainedrelatively unchanged in 2010 YTD at 2.1% compared to 2.0% in 2009 YTD. Thebenefit from an increase in average unit volumes was offset by the impact ofleasing more land and buildings than we have in the past.

 

*Restaurant Other Operating Expenses**. ****** ***Restaurant other operating expenses, as a percentage of restaurant sales,increased slightly to 16.9% in Q2 2010 from 16.6% in Q2 2009 and remained thesame at 16.7% in 2010 YTD compared to 2009 YTD. The increase in Q2 2010 was primarily attributable to higher costs formanaging partner and market partner bonuses (as a percentage of sales), highergeneral liability insurance costs and higher costs associated with remodelingsat several restaurants, partially offset by an increase in average unitvolumes.  In 2010 YTD, higher costs formanaging partner and market partner bonuses, as a percentage of sales, andhigher general liability insurance costs were offset by an increase in averageunit volumes and lower costs for utilities and supplies.  Managing partner and market partner bonusexpenses were higher in Q2 2010 and 2010 YTD as a result of improved restaurantsales and margins.  In Q2 2010, werecorded $0.3 million of general liability insurance expense related tounfavorable claims experience.

 

*Restaurant Pre-opening Expenses.*   Pre-opening expenses increased to $1.3 million in Q22010 from $0.9 million in Q2 2009 and decreased to $2.4 million in 2010 YTDfrom $3.2 million in 2009 YTD.  Theincrease in Q2 2010 was primarily attributable to more restaurants being in thedevelopment pipeline during the second quarter of 2010 as compared to thesecond quarter of 2009.  The decrease in2010 YTD was primarily attributable to fewer restaurant openings in thebeginning of 2010 compared to 2009.  In2010, we plan to open 14 to 15 company restaurants, four of which opened in2010 YTD.  In 2009, we opened 17 companyrestaurants, 11 of which opened in 2009 YTD. Pre-opening costs will fluctuate from period to period based on thenumber and timing of restaurant openings and the number and timing of restaurantmanagers hired.

 

*Depreciation and Amortization Expense (“**D&A”)**.*   D&A,as a percentage of total revenue, decreased to 4.0% in Q2 2010 from 4.4% in Q22009 and to 4.0% in 2010 YTD from 4.3% in 2009 YTD.  These decreases were primarily attributableto an increase in average unit volumes and lower depreciation expense on olderrestaurants, partially offset by higher construction costs and other capitalspending on new restaurants.

 

*Impairmentand Closure Expenses.*  Impairment and closure expenses increased to$0.1 million in Q2 2010 compared to $14,000 in Q2 2009 and $0.3 million in 2010YTD compared to ($72,000) in 2009 YTD. The activity in Q2 2010 and 2010 YTD included costs of $0.1 millionrelated to various restaurant closures and impairment expense of $0.1 millionrelated to the write-down of equipment associated with one restaurant, whichwas closed in Q2 2010.  The activity inQ2 2009 and 2009 YTD was a result of the favorable settlement of a leasereserve for a restaurant closed in the first quarter of 2008 and ongoingclosure costs related to that restaurant.

 

*General and Administrative Expenses (“**G&A”)****.***** **G&A, as a percentage of total revenue,increased to 5.9% in Q2 2010 from 5.5% in Q2 2009 and to 5.3% in 2010 YTD from4.9% in 2009 YTD.  These increases wereprimarily attributable to higher costs related to our annual managing partnerconference in Q2 2010.  Additionally,higher performance-based bonus expense as a result of higher profitabilityimpacted 2010 YTD. Costs associated with our annual conference were $3.4million in 2010 YTD compared to $2.0 million in 2009 YTD.  The majority of these costs were incurredduring our second fiscal quarter in each year. We anticipate that the costs associated with our 2011 annual conferencewill be approximately $2.0-$2.5 million.

 

*Interest Expense, Net.*   Interestexpense decreased to $0.7 million in Q2 2010 from $0.9 million in Q2 2009 and$1.4 million in 2010 YTD from $1.7 million in 2009 YTD.  These decreases were primarily attributableto the decrease in outstanding borrowings under our credit facility and lowerinterest rates, partially offset by lower capitalized interest.  Lower capitalized interest was primarily dueto slower restaurant development in Q1 2010 compared to Q1 2009.

 

*Income Tax Expense. * We account for income taxes in accordancewith Financial Accounting Standards Board (“FASB”) Accounting StandardsCodification (“ASC”) 740, *Income Taxes (“ASC 740”). *Our effective tax rate remainedthe same at 31.9% in Q2 2010 compared to Q2 2009, and increased to 32.7% in2010 YTD from 31.9% in 2009 YTD.  Theincrease in 2010 YTD was primarily attributable to higher profitability, whichled to a lower benefit, on a percentage basis, of federal tax credits.  In addition, the non-deductibility ofofficers’ compensation was higher in 2010 YTD due to better performance versusour original plan for 2010.  Theseimpacts were partially offset by lower non-deductible stock compensationexpense.  We expect the effective taxrate to be approximately 32.7% for fiscal 2010.

 

18

----

Table of Contents

 

**Liquidity and Capital Resources**

 

Thefollowing table presents a summary of our net cash provided by (used in)operating, investing and financing activities:

 
| ** **                                | ** ** | **26  Weeks Ended**     | ** ** |
|-------------------------------------------|------------|-------------------------|------------|
| ** **                                | ** ** | **June 29,  2010** | ** ** | **June 30,  2009** | ** ** |
| ** **                                | ** ** | ** **              | ** ** | ** ** | ** ** |
| Net cash provided by operating activities |       | $                       | 48,328     |   | $ | 46,526 |   |
| Net cash used in investing activities     |       | (17,916                 | )          | (22,356 | ) |
| Net cash used in financing activities     |       | (17,035                 | )          | (4,449 | ) |
|                                      |       |                    |       |   |   |
| Net increase in cash and cash equivalents |       | $                       | 13,377     |   | $ | 19,721 |   |

 

Netcash provided by operating activities was $48.3 million in 2010 YTD compared to$46.5 million in 2009 YTD.  This increasewas primarily due to higher net income, partially offset by other changes inworking capital and deferred income taxes. Net income was $6.2 million higher as a result of having morerestaurants open, average unit volume growth and higher margins.

 

Ouroperations have not required significant working capital and, like manyrestaurant companies, we have been able to operate with negative workingcapital.  Sales are primarily for cash,and restaurant operations do not require significant inventories orreceivables.  In addition, we receivetrade credit for the purchase of food, beverages and supplies, thereby reducingthe need for incremental working capital to support growth.

 

Netcash used in investing activities was $17.9 million in 2010 YTD compared to$22.4 million in 2009 YTD.  This decreasewas primarily due to lower spending on capital expenditures as a result of thetiming of openings in 2010 YTD, in which we opened four company restaurants,compared to 2009 YTD, in which we opened 11 company restaurants.

 

Werequire capital principally for the development of new company restaurants andthe refurbishment 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 29, 2010, 117 of the 264 company restaurants had been developed onland which we owned.

 

Ourfuture capital requirements will primarily depend on the number of newrestaurants we open and the timing of those openings and the restaurant prototypedeveloped in a given fiscal year. These requirements will include costsdirectly related to opening new restaurants and may also include costsnecessary to ensure that our infrastructure is able to support a largerrestaurant base. In fiscal 2010, we expect our capital expenditures to beapproximately $50.0 million, the majority of which will relate to plannedrestaurant openings.  This amountexcludes any cash used for franchise acquisitions.  We intend to satisfy our capital requirementsover the next 12 months with cash on hand, net cash provided by operatingactivities and, if needed, funds available under our credit facility.  For 2010, we anticipate net cash provided byoperating activities will exceed capital expenditures, which we currently planto use to repay borrowings under our credit facility and/or increase our cashbalance. Currently, our intent is to retain our future earnings, if any,primarily to finance the future development and operation of our business.

 

Netcash used in financing activities was $17.0 million in 2010 YTD as compared to$4.4 million in 2009 YTD.  This increasewas primarily due to paying down more on borrowings under our credit facility.

 

On February 14, 2008, our Board of Directorsapproved a stock repurchase program to repurchase up to $25.0 million of commonstock.  On July 8, 2008, our Boardof Directors approved a $50.0 million increase in our stock repurchase program,thereby increasing our total stock repurchase authorization to $75.0million.  Under this program, we wereauthorized to repurchase outstanding shares from time to time in open markettransactions through February 14, 2010. On November 19, 2009, our Board of Directors approved the extensionof this date to February 14, 2011. No repurchases were made during 2010 YTD or 2009 YTD.  The timing and the amount of any repurchaseswill be determined by our management under parameters established by our Boardof Directors, based on its evaluation of our stock price, market conditions andother corporate considerations. The approximate dollar value of shares that mayyet be purchased under the plan is $18.2 million.

 

In2010 YTD, we paid distributions of $1.2 million to equity holders of 10 of ourmajority-owned company restaurants.  In2009 YTD, we paid distributions of $1.1 million to equity holders of nine ofour majority-owned company restaurants.

 

Wehave a $250.0 million five-year revolving credit facility with a syndicate ofcommercial lenders led by Bank of America, N.A., Banc of America Securities LLCand PNC Bank.  The facility expires on May 31,2012.  The terms of the facility requireus to pay interest on outstanding borrowings at LIBOR plus a margin of 0.50% to0.875%, depending on our leverage ratio, or the Base

 

19

----

Table of Contents

 

Rate,which is the higher of the issuing bank’s prime lending rate or the Federalfunds rate plus 0.50%.  We are alsorequired to pay a commitment fee of 0.10% to 0.175% per year on any unusedportion of the facility, depending on our leverage ratio.  The weighted-average interest rate for therevolver at June 29, 2010 and December 29, 2009 was 2.75% and 2.36%,respectively, including interest rate swaps.

 

Thelenders’ obligation to extend credit under the facility depends on usmaintaining 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 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 our financial covenants. We were in compliance with all covenants as of June 29, 2010.

 

AtJune 29, 2010, we had $77.0 million of outstanding borrowings under ourcredit facility and $169.3 million of availability net of $3.7 million ofoutstanding letters of credit.  In addition, we had various other notespayable totaling $1.9 million with interest rates ranging from 10.46% to10.80%.  Each of these notes related to the financing of specificrestaurants. Our total weighted-average effective interest rate at June 29,2010 was 2.94%, including interest rate swaps.

 

OnOctober 22, 2008, we entered into an interest rate swap, starting on November 7,2008, with a notional amount of $25.0 million to hedge a portion of the cashflows of our variable rate credit facility. We have designated the interest rate swap as a cash flow hedge of ourexposure to variability in future cash flows attributable to interest paymentson a $25.0 million tranche of floating rate debt borrowed under our revolvingcredit facility.  Under the terms of theswap, we pay a fixed rate of 3.83% on the $25.0 million notional amount andreceive payments from the counterparty based on the 1-month LIBOR rate for aterm ending on November 7, 2015, effectively resulting in a fixed rateLIBOR component of the $25.0 million notional amount. Our counterparty in thisinterest rate swap is J.P. Morgan Chase, N.A.

 

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

 

**Contractual Obligations**

 

Thefollowing table summarizes the amount of payments due under specifiedcontractual obligations as of June 29, 2010:

 
| ** **                        | ** ** | **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        |       | $                                         | 78,949     |   | $ | 176 |   | $ | 77,412 |   | $ | 510 |   | $ | 851 |   |
| Capital lease obligations         |       | 357                                       |       | 84 |   | 197 |   | 76 |   | — |   |
| Interest (1)                      |       | 1,046                                     |       | 231 |   | 372 |   | 240 |   | 203 |   |
| Operating lease obligations       |       | 198,903                                   |       | 20,198 |   | 39,899 |   | 37,616 |   | 101,190 |   |
| Capital obligations               |       | 31,044                                    |       | 31,044 |   | — |   | — |   | — |   |
| Total contractual obligations (2) |       | $                                         | 310,299    |   | $ | 51,733 |   | $ | 117,880 |   | $ | 38,442 |   | $ | 102,244 |   |

 

----

(1)          Assumesconstant rate until maturity for our fixed and variable rate debt and capitallease obligations.

Usesinterest rates as of June 29, 2010 for our variable rate debt.  Interest payments on our variable-raterevolving credit facility have been excluded from the amounts shown above,primarily because the balance outstanding under our revolving credit facility,described further in note 3 of the condensed consolidated financial statements,can fluctuate daily.

(2)            Thisamount excludes $0.1 million of unrecognized tax benefits under FASB ASC 740, *Income Taxes*.

 

TheCompany has no material minimum purchase commitments with its vendors thatextend beyond a year.  See note 6 to thecondensed consolidated financial statements for details of contractualobligations.

 

**Off-Balance Sheet Arrangements**

 

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

 

20

----

Table of Contents

 

**Guarantees**

 

Weentered into real estate lease agreements for franchise restaurants located inEverett, MA, Longmont, CO, Montgomeryville, PA, Fargo, ND and Logan, UT priorto our granting franchise rights for those restaurants. We have subsequentlyassigned the leases to the franchisees, but we remain contingently liable if afranchisee defaults under the terms of a lease. The Longmont lease expires inMay 2014, the Everett lease expires in February 2018, theMontgomeryville lease expires in June 2021, the Fargo lease expires in July 2016and the Logan lease expires in August 2019.  As the fair value of these guarantees is notconsidered significant, no liability value has been recorded.

 

**RecentlyIssued Accounting Standards**

 

***Fair Value Measures and Disclosures***

*(Accounting Standards Update (“ASU”) 2010-06)*

 

In January 2010, the FASB issued ASU 2010-06which amends Accounting Standards Codification (“ASC”) topic 820, *Fair Value Measures and Disclosures*.  ASU No. 2010-06 amends the ASC torequire disclosure of transfer into and out of Level 1 and Level 2 fair valuemeasurements, and also require more detailed disclosure about the activitywithin Level 3 fair value measurements. The changes as a result of this update are effective for annual andinterim reporting periods beginning after December 15, 2009 (our 2010fiscal year), except for requirements related to Level 3 disclosures, which areeffective for annual and interim reporting periods beginning after December 15,2010 (our 2011 fiscal year).  Thisguidance requires new disclosures only, and will have no impact on ourconsolidated financial position, results of operations or cash flows.

 

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

*(To beincluded in ASC 810, “Consolidation”, previously SFAS 167, “Amendments to FASBInterpretation No. 46(R)”)*

 

ASC810 provides guidance for determining the primary beneficiary of a variableinterest entity.  In addition, ASC 810requires ongoing assessments of whether an enterprise is the primarybeneficiary of a variable interest entity. ASC 810 is effective for the first annual and interim reporting periodsthat begin after November 15, 2009 (our fiscal year 2010).  The adoption of ASC 810 had no impact on ourconsolidated financial position, results of operations and cash flows.

 

21

----

Table of Contents

 

**ITEM 3. QUANTITATIVE ANDQUALITATIVE DISCLOSURES ABOUT MARKET RISK**

 

Weare exposed to market risk from changes in interest rates on debt and changesin commodity prices. Our exposure to interest rate fluctuations is limited toour outstanding bank debt and dependent on the interest rate option we chooseto utilize under our revolving line of credit. Our options for the rate are the Base Rate, which is the higher of theissuing bank’s prime lending rate or the Federal Funds rate plus 0.50%, or theLondon Interbank Offered Rate (“LIBOR”) plus an applicable margin.  At June 29, 2010 there was $77.0 millionoutstanding under our revolving line of credit which bears interest at approximately50 to 87.5 basis points (depending on our leverage ratios) overLIBOR.   Our various other notes payable totaled $1.9 million at June 29,2010 and had fixed rates ranging from 10.46% to 10.80%.  Should interestrates on our variable rate borrowings increase by one percentage point, ourestimated annual interest expense would increase by $0.8 million.

 

On October 22, 2008, we entered into aninterest rate swap, starting on November 7, 2008, with a notional amountof $25.0 million to hedge a portion of the cash flows of our variable rateborrowings. We have designated the interest rate swap as a cash flow hedge ofour exposure to variability in future cash flows attributable to interestpayments on a $25.0 million tranche of floating rate debt borrowed underour revolving credit facility. Under the terms of the swap, we pay a fixed rateof 3.83% on the $25.0 million notional amount and receive payments fromthe counterparty based on the 1-month LIBOR rate for a term ending on November 7,2015, effectively resulting in a fixed rate on the LIBOR component of the$25.0 million notional amount.

 

On January 7, 2009, we entered into anotherinterest rate swap, starting February 7, 2009, with a notional amount of$25.0 million to hedge a portion of the cash flows of our variable rate creditfacility.  We have designated theinterest rate swap as a cash flow hedge of our exposure to variability infuture cash flows attributable to interest payments on a $25.0 million trancheof floating rate debt borrowed under our revolving credit facility.  Under the terms of the swap, we pay a fixedrate of 2.34% on the $25.0 million notional amount and receive payments fromthe counterparty based on the 1-month LIBOR rate for a term ending on January 7,2016, effectively resulting in a fixed rate LIBOR component of the $25.0million notional amount.

 

By using derivative instruments to hedge exposuresto changes in interest rates, we expose ourselves to credit risk. Credit riskis the failure of the counterparty to perform under the terms of the derivativecontract. We minimize the credit risk by entering into transactions withhigh-quality counterparties whose credit rating is evaluated on a quarterlybasis.  Our counterparty in the interestrate swaps is J.P. Morgan Chase, N.A.

 

Manyof the ingredients used in the products sold in our restaurants are commoditiesthat are subject to unpredictable price volatility. Currently, we do notutilize fixed price contracts for certain commodities such as produce andcheese, therefore, we are subject to prevailing market conditions whenpurchasing those types of commodities. For other commodities, we employ variouspurchasing and pricing contract techniques in an effort to minimize volatility,including fixed price contracts for terms of generally one year or less andnegotiating prices with vendors with reference to fluctuating marketprices.  We currently do not usefinancial instruments to hedge commodity prices, but we will continue toevaluate their effectiveness. Extreme and/or long term increases in commodityprices could adversely affect our future results, especially if we are unable,primarily due to competitive reasons, to increase menu prices. Additionally, ifthere is a time lag between the increasing commodity prices and our ability toincrease menu prices or if we believe the commodity price increase to be shortin duration and we choose not to pass on the cost increases, our short-termfinancial results could be negatively affected.

 

Weare subject to business risk as our beef supply is highly dependent upon two tofour vendors.  If these vendors wereunable to fulfill their obligations under their contracts, we may encountersupply shortages and incur higher costs to secure adequate supplies, any ofwhich would harm our business.

 

**ITEM 4. CONTROLS AND PROCEDURES**

 

**Evaluationof disclosure controls and procedures**

 

Wehave evaluated the effectiveness of the design and operation of our disclosurecontrols and procedures pursuant to, and as defined in Exchange ActRules 13a-15(e) and 15d-15(e) as of the end of the periodcovered by this report. Based on the evaluation, performed under thesupervision and with the participation of our management, including the ChiefExecutive Officer (the “CEO”) and the Chief Financial Officer (the “CFO”), ourmanagement, including the CEO and CFO, concluded that our disclosure controlsand procedures were effective as of the end of the period covered by thisreport.

 

**Changes ininternal control**

 

Duringthe period covered by this report, there were no changes with respect to ourinternal control over financial reporting that materially affected, or arereasonably likely to materially affect, our internal control over financialreporting.

 

22

----

Table of Contents

 

**PART II — OTHER INFORMATION**

 

**ITEM 1.  LEGAL PROCEEDINGS**

 

Occasionally,we are a defendant in litigation arising in the ordinary course of ourbusiness, including “slip and fall’ accidents, employment related claims andclaims from guests or employees alleging illness, injury or food quality,health or operational concerns.  None of these types of litigation, mostof which are covered by insurance, has had a material effect on us and, as ofthe date of this report, we are not party to any litigation that we believewould have a material adverse effect on our business.

 

**ITEM1A.   RISK FACTORS**

 

Information regarding risk factors appears in ourAnnual Report on Form 10-K for the year ended December 29, 2009,under the heading “Special Note Regarding Forward-looking Statements” and inthe Form 10-K Part I, Item 1A, Risk Factors.  There have been no material changes from therisk factors previously disclosed in our Form 10-K.

 

**ITEM 2.  UNREGISTERED SALESOF EQUITY SECURITIES AND USE OF PROCEEDS**

 

OnFebruary 14, 2008, our Board of Directors approved a stock repurchaseprogram under which it authorized us to repurchase up to $25.0 million of ourcommon stock through February 14, 2010.  On July 8, 2008, our Board of Directors approved a $50.0 millionincrease in our stock repurchase program. On November 19, 2009, our Board of Directors extended theexpiration date on the stock repurchase program to February 14, 2011.  We made no repurchases of common stock duringthe 26 weeks ended June 29, 2010. The approximate dollar value of shares that may yet be purchased underthe plan is $18.2 million.

 

**ITEM 3.  DEFAULTS UPONSENIOR SECURITIES**

 

None.

 

**ITEM 4.  (Removed andReserved)**

 

None.

 

**ITEM 5.  OTHER INFORMATION.**

 

None.

 

 

**ITEM 6. EXHIBITS.**

 
| **Exhibit No.** | ** ** | **Description**                                                                                                                                                |
|----------------------|------------|----------------------------------------------------------------------------------------------------------------------------------------------------------------|
| 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. |

 

23

----

Table of Contents

 

 

**SIGNATURES**

 

Pursuantto the requirements of the Securities Exchange Act of 1934, the registrant hasduly caused this report to be signed on its behalf by the undersigned thereuntoduly authorized.

 
|                       | TEXAS  ROADHOUSE, INC. |
|----------------------------|-----------------------------|
|                       |                        |   |
| Date:  August 6, 2010 | By:                         | /s/  G.J. Hart |
|                       |                        | G.J.  Hart |
|                       |                        | President,  Chief Executive Officer |
|                       |                        | (principal  executive officer) |
|                       |                        |   |
| Date:  August 6, 2010 | By:                         | /s/  Scott M. Colosi |
|                       |                        | Scott  M. Colosi |
|                       |                        | Chief  Financial Officer |
|                       |                        | (principal  financial officer) |
|                       |                        | (chief  accounting officer) |

 

24

----