Tableof Contents

 

 

 

**UNITEDSTATES**

**SECURITIESAND EXCHANGE COMMISSION**

**Washington,D.C. 20549**

 

**FORM 10-Q**

 
| **x**                                                       | ** ** | **QUARTERLY  REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE  ACT OF 1934**  |
|-------------------------------------------------------------|------------|----------------------------------------------------------------------------------------------------------|
|                                                        |       |                                                                                                     |
| **For  the quarterly period ended September 23, 2008** |
|                                                        |       |                                                                                                     |
| **OR**                                                      |
|                                                        |       |                                                                                                     |
| **o**                                                       | ** ** | **TRANSITION  REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE  ACT OF 1934** |

** **

**Forthe transition periodfrom                            to**

 

**CommissionFile Number 000-50972**

 

**TexasRoadhouse, Inc.**

(Exact name ofregistrant specified in its charter)

 

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

 

**6040Dutchmans Lane, Suite 200**

**Louisville,Kentucky 40205**

(Address ofprincipal executive offices) (Zip Code)

 

**(502)426-9984**

(Registrant’stelephone number, including area code)

 

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

 

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

 

Large accelerated filer  x     Acceleratedfiler  o     Non-acceleratedfiler  o     Smallerreporting company  o

 

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

 

The number of shares of Class Aand Class B common stock outstanding were 64,834,808 and 5,265,376, respectively, on October 24, 2008.

 

 

 

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Table of Contents

 

**TABLEOF CONTENTS**

 
| PART I.  FINANCIAL INFORMATION                                                                                                   |   |
|---------------------------------------------------------------------------------------------------------------------------------------|--------|
|                                                                                                                                  |   |
| Item 1 —  Financial Statements — Texas Roadhouse, Inc. and Subsidiaries                                                | 3      |
| Condensed  Consolidated Balance Sheets — September 23, 2008 and December 25,  2007                                     | 3      |
| Condensed Consolidated Statements of Income — For the  13 and 39 Weeks Ended September 23, 2008 and September 25, 2007 | 4      |
| Condensed  Consolidated Statements of Cash Flows — For the 39 Weeks Ended  September 23, 2008 and September 25, 2007   | 5      |
| Notes to Condensed Consolidated Financial Statements                                                                                  | 6      |
| Item 2 — Management’s Discussion and Analysis of  Financial Condition and Results of Operations                             | 15     |
| Item 3 — Quantitative and Qualitative Disclosures  About Market Risk                                                             | 23     |
| Item 4 — Controls and Procedures                                                                                                 | 23     |
|                                                                                                                                  |   |
| PART II.  OTHER INFORMATION                                                                                                      |   |
|                                                                                                                                  |   |
| Item  1 — Legal Proceedings                                                                                                      | 24     |
| Item  1A — Risk Factors                                                                                                          | 24     |
| Item 2 — Unregistered Sales of Equity Securities and  Use of Proceeds                                                            | 24     |
| Item 3 — Defaults Upon Senior Securities                                                                                         | 24     |
| Item 4 — Submission of Matters to a Vote of Security  Holders                                                                    | 25     |
| Item  5 — Other Information                                                                                                      | 25     |
| Item 6 —  Exhibits                                                                                                               | 25     |
|                                                                                                                                  |   |
| Signatures                                                                                                                            | 26     |

 

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Table of Contents

 

**PART I — FINANCIAL INFORMATION**

 

**ITEM1 — FINANCIAL STATEMENTS**

 

**TexasRoadhouse, Inc. and Subsidiaries**

**Condensed Consolidated Balance Sheets**

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

 
| ** **                                                                                                                                                                                                    | ** ** | **(unaudited)**                  | ** ** | ** **                      | ** ** |
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|----------------------------------|------------|---------------------------------|------------|
| ** **                                                                                                                                                                                                    | ** ** | **September 23, 2008** | ** ** | **December 25, 2007** | ** ** |
| **Assets**                                                                                                                                                                                                    |       |                             |       |                            |       |
| Current assets:                                                                                                                                                                                               |       |                             |       |                            |       |
| Cash and cash  equivalents                                                                                                                                                                                    |       | $                                | 13,719     |                            | $          | 11,564 |   |
| Receivables, net  of allowance for doubtful accounts of $208 at September 23, 2008 and $8  at December 25, 2007                                                                                     |       | 10,999                           |       | 18,303                          |       |
| Inventories, net                                                                                                                                                                                              |       | 7,737                            |       | 7,277                           |       |
| Prepaid expenses                                                                                                                                                                                              |       | 2,068                            |       | 3,646                           |       |
| Deferred tax  assets                                                                                                                                                                                          |       | 907                              |       | 841                             |       |
| Total current  assets                                                                                                                                                                                         |       | 35,430                           |       | 41,631                          |       |
| Property and  equipment, net                                                                                                                                                                                  |       | 440,865                          |       | 390,378                         |       |
| Goodwill                                                                                                                                                                                                      |       | 115,742                          |       | 101,856                         |       |
| Intangible  asset, net                                                                                                                                                                                        |       | 12,765                           |       | 8,414                           |       |
| Other assets                                                                                                                                                                                                  |       | 4,075                            |       | 3,750                           |       |
| Total assets                                                                                                                                                                                                  |       | $                                | 608,877    |                            | $          | 546,029 |   |
|                                                                                                                                                                                                          |       |                             |       |                            |       |
| **Liabilities  and Stockholders’ Equity**                                                                                                                                                                |       |                             |       |                            |       |
| Current  liabilities:                                                                                                                                                                                         |       |                             |       |                            |       |
| Current  maturities of long-term debt and obligations under capital leases                                                                                                                                    |       | $                                | 232        |                            | $          | 302 |   |
| Accounts payable                                                                                                                                                                                              |       | 22,989                           |       | 23,716                          |       |
| Deferred revenue  — gift cards/certificates                                                                                                                                                              |       | 13,692                           |       | 32,088                          |       |
| Accrued wages                                                                                                                                                                                                 |       | 15,759                           |       | 14,561                          |       |
| Income tax  payable                                                                                                                                                                                           |       | 479                              |       | 721                             |       |
| Accrued taxes  and licenses                                                                                                                                                                                   |       | 10,299                           |       | 6,439                           |       |
| Other accrued  liabilities                                                                                                                                                                                    |       | 12,257                           |       | 10,432                          |       |
| Total current  liabilities                                                                                                                                                                                    |       | 75,707                           |       | 88,259                          |       |
| Long-term debt  and obligations under capital leases, excluding current maturities                                                                                                                            |       | 151,537                          |       | 66,482                          |       |
| Stock option and  other deposits                                                                                                                                                                              |       | 5,133                            |       | 4,916                           |       |
| Deferred rent                                                                                                                                                                                                 |       | 9,179                            |       | 7,472                           |       |
| Deferred tax  liabilities                                                                                                                                                                                     |       | 2,058                            |       | 4,900                           |       |
| Other  liabilities                                                                                                                                                                                            |       | 5,177                            |       | 4,235                           |       |
| Total  liabilities                                                                                                                                                                                            |       | 248,791                          |       | 176,264                         |       |
| Minority  interest in consolidated subsidiaries                                                                                                                                                               |       | 2,743                            |       | 2,384                           |       |
| Stockholders’  equity:                                                                                                                                                                                   |       |                             |       |                            |       |
| Preferred stock  ($0.001 par value, 1,000,000 shares authorized; no shares issued or outstanding)                                                                                                             |       | —                           |       | —                          |       |
| Common stock, Class A,  ($0.001 par value, 100,000,000 shares authorized, 64,872,166 and 69,582,602 shares  issued and outstanding at September 23, 2008 and December 25, 2007,  respectively) |       | 65                               |       | 70                              |       |
| Common stock,  Class B, ($0.001 par value, 8,000,000 shares authorized, 5,265,376 shares issued and outstanding)                                                                                         |       | 5                                |       | 5                               |       |
| Additional paid  in capital                                                                                                                                                                                   |       | 222,172                          |       | 264,234                         |       |
| Retained  earnings                                                                                                                                                                                            |       | 135,101                          |       | 103,072                         |       |
| Total  stockholders’ equity                                                                                                                                                                              |       | 357,343                          |       | 367,381                         |       |
| Total  liabilities and stockholders’ equity                                                                                                                                                              |       | $                                | 608,877    |                            | $          | 546,029 |   |

 

See accompanyingnotes to condensed consolidated financial statements.

 

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**TexasRoadhouse, Inc. and Subsidiaries**

**Condensed Consolidated Statements ofIncome**

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

**(unaudited)**

 
| ** **                                                   | ** ** | **13 Weeks  Ended**          | ** ** | **39 Weeks  Ended**          | ** ** |
|--------------------------------------------------------------|------------|------------------------------|------------|------------------------------|------------|
| ** **                                                   | ** ** | **September 23,  2008** | ** ** | **September 25,  2007** | ** ** | **September 23,    2008** | ** ** | **September 25,    2007** | ** ** |
| Revenue:                                                     |       |                         |       |                         |       |   |   |   |   |
| Restaurant sales                                             |       | $                            | 215,739    |                         | $          | 186,879 |   | $ | 639,127 |   | $ | 540,452 |   |
| Franchise royalties and  fees                                |       | 1,996                        |       | 2,575                        |       | 7,132 |   | 8,325 |   |
|                                                         |       |                         |       |                         |       |   |   |   |   |
| Total revenue                                                |       | 217,735                      |       | 189,454                      |       | 646,259 |   | 548,777 |   |
|                                                         |       |                         |       |                         |       |   |   |   |   |
| Costs and expenses:                                          |       |                         |       |                         |       |   |   |   |   |
| Restaurant operating  costs:                                 |       |                         |       |                         |       |   |   |   |   |
| Cost of sales                                                |       | 76,845                       |       | 65,850                       |       | 225,205 |   | 189,197 |   |
| Labor                                                        |       | 63,750                       |       | 53,702                       |       | 183,996 |   | 152,281 |   |
| Rent                                                         |       | 4,248                        |       | 2,913                        |       | 11,138 |   | 8,544 |   |
| Other operating                                              |       | 36,772                       |       | 29,600                       |       | 105,368 |   | 86,267 |   |
| Pre-opening                                                  |       | 2,935                        |       | 2,616                        |       | 8,973 |   | 9,301 |   |
| Depreciation and  amortization                               |       | 9,444                        |       | 8,028                        |       | 27,056 |   | 21,903 |   |
| Impairment and closure                                       |       | 43                           |       | —                       |       | 777 |   | — |   |
| General and  administrative                                  |       | 10,277                       |       | 9,552                        |       | 32,585 |   | 29,489 |   |
|                                                         |       |                         |       |                         |       |   |   |   |   |
| Total costs and  expenses                                    |       | 204,314                      |       | 172,261                      |       | 595,098 |   | 496,982 |   |
|                                                         |       |                         |       |                         |       |   |   |   |   |
| Income from operations                                       |       | 13,421                       |       | 17,193                       |       | 51,161 |   | 51,795 |   |
|                                                         |       |                         |       |                         |       |   |   |   |   |
| Interest expense, net                                        |       | 974                          |       | 830                          |       | 2,336 |   | 1,427 |   |
| Minority interest                                            |       | (58                          | )          | 98                           |       | 482 |   | 617 |   |
| Equity  income from investments in unconsolidated affiliates |       | (45                          | )          | (66                          | )          | (184 | ) | (256 | ) |
|                                                         |       |                         |       |                         |       |   |   |   |   |
| Income before taxes                                          |       | 12,550                       |       | 16,331                       |       | 48,527 |   | 50,007 |   |
| Provision for income  taxes                                  |       | 3,906                        |       | 5,779                        |       | 16,498 |   | 17,902 |   |
| Net income                                                   |       | $                            | 8,644      |                         | $          | 10,552 |   | $ | 32,029 |   | $ | 32,105 |   |
|                                                         |       |                         |       |                         |       |   |   |   |   |
| Net income per common  share:                                |       |                         |       |                         |       |   |   |   |   |
| Basic                                                        |       | $                            | 0.12       |                         | $          | 0.14 |   | $ | 0.43 |   | $ | 0.43 |   |
|                                                         |       |                         |       |                         |       |   |   |   |   |
| Diluted                                                      |       | $                            | 0.12       |                         | $          | 0.14 |   | $ | 0.43 |   | $ | 0.42 |   |
|                                                         |       |                         |       |                         |       |   |   |   |   |
| Weighted-average shares  outstanding:                        |       |                         |       |                         |       |   |   |   |   |
| Basic                                                        |       | 71,947                       |       | 74,729                       |       | 73,649 |   | 74,556 |   |
|                                                         |       |                         |       |                         |       |   |   |   |   |
| Diluted                                                      |       | 73,303                       |       | 76,794                       |       | 75,242 |   | 76,846 |   |

 

See accompanyingnotes to condensed consolidated financial statements.

 

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**TexasRoadhouse, Inc. and Subsidiaries**

**Condensed Consolidated Statements ofCash Flows**

**(inthousands)**

**(unaudited)**

 
| ** **                                                                         | ** ** | **39 Weeks Ended**     | ** **    |
|------------------------------------------------------------------------------------|------------|----------------------------------|---------------|
| ** **                                                                         | ** ** | **September 23, 2008** | ** **    | **September 25, 2007** | ** ** |
| **Cash  flows from operating activities:**                                         |       |                             |          |   |   |
| Net income                                                                         |       | $                                | 32,029        |   | $ | 32,105 |   |
| Adjustments to  reconcile net income to net cash provided by operating activities: |       |                             |          |   |   |
| Depreciation and  amortization                                                     |       | 27,056                           |          | 21,903 |   |
| Deferred income  taxes                                                             |       | (2,908                           | )             | (1,386 | ) |
| Loss on  disposition of assets                                                     |       | 827                              |          | 140 |   |
| Impairment and  closure                                                            |       | 611                              |          | — |   |
| Minority  interest                                                                 |       | 482                              |          | 617 |   |
| Equity income  from investments in unconsolidated affiliates                       |       | (184                             | )             | (256 | ) |
| Distributions  received from investments in unconsolidated affiliates              |       | 302                              |          | 303 |   |
| Provision for  doubtful accounts                                                   |       | 200                              |          | (16 | ) |
| Share-based  compensation expense                                                  |       | 5,578                            |          | 3,871 |   |
| Changes in  operating working capital:                                             |       |                             |          |   |   |
| Receivables                                                                        |       | 7,104                            |          | 891 |   |
| Inventories                                                                        |       | (112                             | )             | (147 | ) |
| Prepaid expenses                                                                   |       | 1,614                            |          | 1,338 |   |
| Other assets                                                                       |       | (443                             | )             | (237 | ) |
| Accounts payable                                                                   |       | (2,621                           | )             | (526 | ) |
| Deferred revenue  — gift cards/certificates                                   |       | (19,040                          | )             | (14,954 | ) |
| Accrued wages                                                                      |       | 621                              |          | 1,103 |   |
| Excess tax  benefits from share-based compensation                                 |       | (2,930                           | )             | (1,661 | ) |
| Prepaid income  taxes and income taxes payable                                     |       | 2,688                            |          | 233 |   |
| Accrued taxes  and licenses                                                        |       | 3,716                            |          | 1,702 |   |
| Other accrued  liabilities                                                         |       | 1,622                            |          | 319 |   |
| Deferred rent                                                                      |       | 1,707                            |          | 1,037 |   |
| Other  liabilities                                                                 |       | 331                              |          | 1,691 |   |
|                                                                               |       |                             |          |   |   |
| Net cash  provided by operating activities                                         |       | $                                |  58,250  |   | $ |  48,070 |   |
|                                                                               |       |                             |          |   |   |
| **Cash  flows from investing activities:**                                         |       |                             |          |   |   |
| Capital  expenditures — property and equipment                                |       | (75,413                          | )             | (76,673 | ) |
| Acquisitions of  franchise restaurants, net of cash acquired                       |       | (18,405                          | )             | (32,976 | ) |
| Proceeds from  sale of property and equipment, including insurance proceeds        |       | 289                              |          | 433 |   |
|                                                                               |       |                             |          |   |   |
| Net cash used in  investing activities                                             |       | $                                |  (93,529 | ) | $ |  (109,216 | ) |
|                                                                               |       |                             |          |   |   |
| **Cash  flows from financing activities:**                                         |       |                             |          |   |   |
| Net proceeds  from revolving credit facility                                       |       | 86,000                           |          | 41,000 |   |
| Proceeds from  minority interest contributions and other                           |       | 878                              |          | 982 |   |
| Distributions to  minority interest holders                                        |       | (957                             | )             | (850 | ) |
| Excess tax  benefits from share-based compensation                                 |       | 2,930                            |          | 1,661 |   |
| Repurchase  shares of common stock                                                 |       | (52,578                          | )             | — |   |
| Proceeds from  stock option and other deposits                                     |       | 321                              |          | 783 |   |
| Principal  payments on long-term debt and capital lease obligations                |       | (1,015                           | )             | (2,159 | ) |
| Payments for  debt issuance costs                                                  |       | —                           |          | (459 | ) |
| Proceeds from  exercise of stock options                                           |       | 1,855                            |          | 1,740 |   |
|                                                                               |       |                             |          |   |   |
| Net cash  provided by financing activities                                         |       | $                                | 37,434        |   | $ | 42,698 |   |
|                                                                               |       |                             |          |   |   |
| Net  increase/(decrease) in cash                                                   |       | 2,155                            |          | (18,448 | ) |
| Cash and cash  equivalents — beginning of period                              |       | 11,564                           |          | 33,784 |   |
| Cash and cash  equivalents — end of period                                    |       | $                                | 13,719        |   | $ | 15,336 |   |
|                                                                               |       |                             |          |   |   |
| Supplemental  disclosures of cash flow information:                                |       |                             |          |   |   |
| Interest, net of  amounts capitalized                                              |       | $                                | 2,540         |   | $ | 1,562 |   |
| Income taxes                                                                       |       | $                                | 16,753        |   | $ | 19,055 |   |
|                                                                                    |            |                                  |               |  |  |  |  |  |  |

 

See accompanyingnotes to condensed consolidated financial statements.

 

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**TexasRoadhouse, Inc. and Subsidiaries**

**Notes to Condensed ConsolidatedFinancial Statements**

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

**(unaudited)**

 

**(1)****   Basis of Presentation**

 

The accompanyingunaudited condensed consolidated financial statements include the accounts ofTexas Roadhouse, Inc. (the “Company”) and its wholly-owned subsidiaries,Texas Roadhouse Holdings LLC (“Holdings”), Texas Roadhouse DevelopmentCorporation (“TRDC”) and Texas Roadhouse Management Corp. (“ManagementCorp.”), as of and for the 13 and 39 weeks ended September 23, 2008 and September 25,2007.  The Company and its wholly-owned subsidiaries operate TexasRoadhouse restaurants. Holdings also provides supervisory and administrativeservices for certain other franchise and license restaurants. TRDC sellsfranchise rights and collects the franchise royalties and fees. Management Corp. provides management services to the Company, Holdings andcertain other license and franchise restaurants.

 

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

 

In the opinion ofmanagement, the accompanying unaudited financial statements reflect alladjustments, consisting only of normal recurring adjustments, necessary topresent fairly the financial position, results of operations and cash flows ofthe Company for the periods presented.  The financial statements have beenprepared in accordance with GAAP, except that certain information and footnoteshave been condensed or omitted pursuant to rules and regulations of theSecurities and Exchange Commission (“SEC”).  Operating results for the 13and 39 weeks ended September 23, 2008 are not necessarily indicative ofthe results that may be expected for the year ending December 30,2008.  The financial statements should be read in conjunction with theconsolidated financial statements and notes thereto included in the Company’sAnnual Report on Form 10-K for the year ended December 25, 2007.

 

Our significant interimaccounting policies include the recognition of income taxes using an estimatedannual effective tax rate.

 

**(2)****   Share-based Compensation**

 

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

 

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

 
| ** **                              | ** ** | **13 Weeks Ended** | ** ** | **39 Weeks Ended** | ** ** |
|-----------------------------------------|------------|------------------------------|------------|------------------------------|------------|
| ** **                              | ** ** | **September 23,  2008** | ** ** | **September 25,  2007** | ** ** | **September 23,  2008** | ** ** | **September 25,  2007** | ** ** |
| ** **                              | ** ** | ** **                   | ** ** | ** **                   | ** ** | ** ** | ** ** | ** ** | ** ** |
| Labor expense                           |       | $                            | 702        |                         | $          | 583 |   | $ | 1,870 |   | $ | 1,608 |   |
| General and  administrative expense     |       | 1,294                        |       | 851                          |       | 3,708 |   | 2,263 |   |
| Total  share-based compensation expense |       | $                            | 1,996      |                         | $          | 1,434 |   | $ | 5,578 |   | $ | 3,871 |   |

 

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A summary of share-basedcompensation activity by type of grant as of September 23, 2008 andchanges during the period then ended is presented below.

 

*Summary Details for Plan ShareOptions*

 
| ** **                              | ** ** | **Shares** | ** ** | **Weighted-  Average  Exercise Price** | ** ** | **Weighted-Average  Remaining Contractual  Term (years)** | ** ** | **Aggregate  Intrinsic  Value** | ** ** |
|-----------------------------------------|------------|------------|------------|---------------------------------------------|------------|---------------------------------------------------------------------|------------|---------------------------------|------------|
|                                    |       |       |       |                                        |       |                                                                |       |                            |       |
| Outstanding at  December 25, 2007  |       | 7,356,978  |       | $                                           | 9.11       |                                                                |       |                            |       |   |
| Granted                                 |       | —     |       | —                                      |       |                                                                |       |                            |       |
| Forfeited                               |       | (84,617    | )          | 12.40                                       |       |                                                                |       |                            |       |
| Exercised                               |       | (994,471   | )          | 1.95                                        |       |                                                                |       |                            |       |
| Outstanding at  September 23, 2008 |       | 6,277,890  |       | $                                           | 10.20      |                                                                | 6.27       |                            | $          | 9,353 |   |
|                                    |       |       |       |                                        |       |                                                                |       |                            |       |
| Exercisable at  September 23, 2008 |       | 5,302,100  |       | $                                           | 9.59       |                                                                | 5.92       |                            | $          | 9,326 |   |

 

No stock options weregranted during the 39 weeks ended September 23, 2008.  The weighted-average grant date fair value ofoptions granted during the 13 and 39 weeks ended September 25, 2007 were$3.92 and $4.77, respectively, using the Black-Scholes option-pricing modelwith the following weighted-average assumptions:

 

| ** **               | ** ** | **13 Weeks Ended** | ** ** | **39 Weeks Ended** | ** ** |
|--------------------------|------------|------------------------------|------------|------------------------------|------------|
| ** **               | ** ** | **September 25,  2007** | ** ** | **September 25,  2007** | ** ** |
|                     |       |                         |       |                         |       |
| Risk-free  interest rate |       | 4.52                         | %          | 4.56                         | %          |
| Expected term  (years)   |       | 3.0 – 5.0               |       | 3.0 – 5.0               |       |
| Expected  volatility     |       | 35.9                         | %          | 35.6                         | %          |
| Expected  dividend yield |       | 0.0                          | %          | 0.0                          | %          |

 

The total intrinsic valueof options exercised during the 13 weeks ended September 23, 2008 and September 25,2007 was $7.0 million and $0.5 million, respectively.  The total intrinsic value of optionsexercised during the 39 weeks ended September 23, 2008 and September 25,2007 was $8.1 million and $5.5 million, respectively.   As of September 23, 2008, with respectto unvested stock options, there was $1.9 million of unrecognized compensationcost that is expected to be recognized over a weighted-average period of 1.0year.  The total grant date fair value ofstock options vested for both 13 week periods ended September 23, 2008 andSeptember 25, 2007 was $1.6 million and $0.7 million, respectively, andfor the 39 week periods ended September 23, 2008 and September 25,2007 was $5.0 million and $3.1 million, respectively.

 

*Summary Details for RSUs*

 

| ** **                              | ** ** | **Shares** | ** ** | **Weighted-  Average  Grant Date  Fair Value** | ** ** |
|-----------------------------------------|------------|------------|------------|----------------------------------------------------------|------------|
| ** **                              | ** ** | ** ** | ** ** | ** **                                               | ** ** |
| Outstanding at  December 25, 2007  |       | —     |       | $                                                        | —     |   |
| Granted                                 |       | 1,097,719  |       | 10.39                                                    |       |
| Forfeited                               |       | (5,978     | )          | 10.27                                                    |       |
| Vested                                  |       | —     |       | —                                                   |       |
| Outstanding at  September 23, 2008 |       | 1,091,741  |       | $                                                        | 10.39      |   |

 

During the third quarterof 2008, the Company recorded pre-tax compensation expense in connection withthese RSUs of $0.3 million in labor expense and $0.7 million in general andadministrative expense.  For the 39 weeksended September 23, 2008, the Company recorded pre-tax compensationexpense in connection with these RSUs of $0.6 million in labor expense and $1.8million in general and administrative expense. As of September 23, 2008, with respect to unvested RSUs, there was$8.5 million of unrecognized compensation cost that is expected to berecognized over a weighted-average period of 2.0 years.  The vesting terms of the RSUs range fromapproximately 1.0 to 5.0 years.

 

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In the fourth quarter of2006, the Company awarded 36,000 restricted shares, at a weighted-average priceof $14.55 per share, to two corporate office employees under the terms of thePlan.  The restricted shares vest afterthree years.  At September 23, 2008,the unrecognized compensation expense related to the restricted stock grantstotaled approximately $0.2 million and will be recognized over the remainingvesting period.

 

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

 

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

 

| ** **                              | ** ** | **September 23, 2008** | ** ** | **December 25, 2007** | ** ** |
|-----------------------------------------|------------|----------------------------------|------------|---------------------------------|------------|
| Installment loans, due 2008 – 2020 |       | $                                | 2,238      |                            | $          | 3,210 |   |
| Obligations  under capital leases       |       | 531                              |       | 574                             |       |
| Revolver                                |       | 149,000                          |       | 63,000                          |       |
|                                    |       | 151,769                          |       | 66,784                          |       |
| Less current  maturities                |       | 232                              |       | 302                             |       |
|                                    |       | $                                | 151,537    |                            | $          | 66,482 |   |

 

The weighted-averageinterest rate for installment loans outstanding at September 23, 2008 and December 25,2007 was 10.52% and 9.95%, respectively. The debt is secured by certain land, buildings and equipment.

 

On May 31, 2007, theCompany amended and restated its existing five-year revolving credit facilitydated October 8, 2004 with a syndicate of commercial lenders led by Bankof America, N.A., Banc of America Securities LLC and National City Bank.  The facility was increased from $150.0million to $250.0 million and the term was extended to May 31, 2012.  The terms of the facility require the Companyto pay interest on outstanding borrowings at LIBOR plus a margin of 0.50% to0.875%, depending on its leverage ratio, or the Base Rate, which is the higherof the issuing bank’s prime lending rate or the Federal Funds rate plus0.50%.  The Company is also required topay a commitment fee of 0.10% to 0.175% per year on any unused portion of thefacility, depending on its leverage ratio. The weighted-average interest rate for the revolver at September 23,2008 and December 25, 2007 was 3.29% and 5.73%, respectively.  At September 23, 2008, the Company had$149.0 million outstanding under the credit facility and $97.7 million ofavailability, net of $3.3 million of outstanding letters of credit.

 

The lenders’ obligationto extend credit under the facility depends on the Company maintaining certainfinancial covenants, including a minimum consolidated fixed charge coverageratio of 2.00 to 1.00 and a maximum consolidated leverage ratio of 3.00 to1.00.  The new credit facility permitsthe Company to incur additional secured or unsecured indebtedness outside thefacility, except for the incurrence of secured indebtedness that in theaggregate exceeds 20% of the Company’s consolidated tangible net worth orcircumstances where the incurrence of secured or unsecured indebtedness would preventthe Company from complying with its financial covenants.  The Company was in compliance with allcovenants as of September 23, 2008.

 

**(4)****    Recent AccountingPronouncements**

 

In September 2006,the Financial Accounting Standards Board (“FASB”) issued Statement of FinancialAccounting Standards (“SFAS”) No. 157, *Fair Value Measurements*(“SFAS157”), which defines fair value, establishes a framework for measuring fairvalue and expands disclosures about fair value measurements.  The provisions of SFAS 157 for financialassets and liabilities, as well as any other assets and liabilities that arecarried at fair value on a recurring basis in financial statements areeffective for financial statements issued for fiscal years beginning after November 15,2007 (fiscal year 2008 for the Company). FASB Staff Position FAS 157-2, *Effective Date of FASBStatement No. *157, delayed the effective date of SFAS 157 formost nonfinancial assets and nonfinancial liabilities until fiscal yearsbeginning after November 15, 2008 (fiscal year 2009 for the Company).  The implementation of SFAS 157 for financialassets and financial liabilities, effective December 26, 2007, did nothave a material impact on the Company’s consolidated financial position,results of operations or cash flows.  TheCompany is currently assessing the impact of SFAS 157 for nonfinancial assetsand liabilities on its consolidated financial position, results of operationsor cash flows.  See note 10 foradditional fair value discussions.

 

In February 2007,the FASB issued SFAS No. 159, *The Fair Value Option forFinancial Assets and Financial Liabilities* (“SFAS 159”). SFAS 159permits entities to choose to measure selected financial assets and financialliabilities at fair value. Unrealized gains and losses on items for which thefair value option has been elected are reported in earnings at each subsequentreporting date. The provisions of SFAS 159 are effective as of the beginning ofthe Company’s 2008 fiscal year. The adoption of SFAS 159 did not have a materialimpact on the Company’s consolidated financial position, results of operationsor cash flows.

 

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In December 2007,the FASB issued SFAS No. 141 (revised 2007), *BusinessCombinations* (“SFAS 141R”). SFAS 141R establishes the principles and requirements for how anacquirer: 1) recognizes and measures in its financial statements theidentifiable assets acquired, the liabilities assumed, and any noncontrollinginterest in the acquiree; 2) recognizes and measures the goodwill acquired inthe business combination or gain from a bargain purchase;  and 3) determines what information todisclose to enable users of the financial statements to evaluate the nature andfinancial effects of the business combination. SFAS 141R is to be applied prospectively to business combinationsconsummated on or after the beginning of the first annual reporting period onor after December 15, 2008 (fiscal year 2009 for the Company).  The Company is currently evaluating theimpact SFAS 141R will have on any potential future business combinations.

 

In December 2007,the FASB issued SFAS No. 160, *Noncontrolling Interestsin Consolidated Financial Statements — an amendment of ARB No. 51*(“SFAS 160”).  SFAS 160 establishesaccounting and reporting standards that require: 1) noncontrolling interests tobe reported as a component of equity; 2) changes in a parent’s ownershipinterest while the parent retains its controlling interest to be accounted foras equity transactions; and 3) any retained noncontrolling equity investmentupon the deconsolidation of a subsidiary to be initially measured at fairvalue.  SFAS 160 is to be appliedprospectively to business combinations consummated on or after the beginning ofthe first annual reporting period on or after December 15, 2008 (fiscalyear 2009 for the Company).  The Companyis currently evaluating the impact of adopting SFAS 160 on its consolidated financialposition, results of operations and cash flows.

 

In May 2008, theFASB issued SFAS No. 162, *The Hierarchy of GenerallyAccepted Accounting Principles* (“SFAS 162”).  SFAS 162 identifies the sources of accountingprinciples and the framework for selecting the principles used in thepreparation of financial statements of nongovernmental entities that arepresented in conformity with GAAP in the United States.  This statement will be effective 60 daysfollowing the SEC’s approval of the Public Company Accounting Oversight Boardamendments to AU Section 411, *The Meaning of PresentFairly in Conformity with Generally Accepted Accounting Principles*.  The Company does not expect the adoption ofSFAS 162 to have a significant impact on its consolidated financial position,results of operations or cash flows.

 

**(5)****  Commitments and Contingencies**

 

The estimated cost ofcompleting capital project commitments at September 23, 2008 and December 25,2007 was approximately $55.9 million and $90.0 million, respectively.

 

The Company entered intoreal estate lease agreements for franchise restaurants located in Everett, MA,Longmont, CO, Montgomeryville, PA and Fargo, ND before granting franchiserights for those restaurants. The Company has subsequently assigned the leasesto the franchisees, but remains contingently liable if a franchisee defaultsunder the terms of a lease.  The Longmont lease was assigned in October 2003and expires in May 2014, the Everett lease was assigned in September 2002and expires in February 2018, the Montgomeryville lease was assigned in October 2004and expires in June 2021 and the Fargo lease was assigned in February 2006and expires in July 2016.  As thefair value of the guarantees is not considered significant, no liability hasbeen recorded.  As discussed in note 6,the Everett, MA, Longmont, CO, and Fargo, ND restaurants are owned, in whole orpart, by certain officers, directors or 5% shareholders of the Company.

 

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

 

 The Companycurrently buys most of its beef from three 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. The Company has no material minimumpurchase commitments with its vendors that extend beyond a year.

 

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**(6)****   Related Party Transactions**

 

The Longview, Texasrestaurant, which was acquired by the Company in connection with the completionof the initial public offering, leases the land and restaurant building from anentity controlled by Steven L. Ortiz, the Company’s Chief Operating Officer.The lease term is 15 years and will terminate in November 2014. Thelease can be renewed for two additional terms of five years each. Rent isapproximately $16,000 per month and will increase by 5% on the11th anniversary date of the lease. The lease can be terminated if thetenant fails to pay the rent on a timely basis, fails to maintain the insurancespecified in the lease, fails to maintain the building or property or becomesinsolvent. Total rent payments were approximately $50,000 for each of the 13week periods ended September 23, 2008 and September 25, 2007.  For the 39 weeks ended September 23,2008 and September 25, 2007, rent payments were $0.1 million.

 

The Bossier City,Louisiana restaurant, of which Steven L. Ortiz, the Company’s Chief OperatingOfficer, beneficially owns 66.0% and the Company owns 5.0%, leases the land andbuilding from an entity owned by Mr. Ortiz.  The lease term is 15 years and will terminateon March 31, 2020.  The lease can berenewed for three additional terms of five years each.  Rent is approximately $15,000 per month forthe first five years of the lease and escalates 10% each five year periodduring the term.  The lease can be terminatedif the tenant fails to pay rent on a timely basis, fails to maintain insurance,abandons the property or becomes insolvent. Total rent payments were approximately $45,000 for each of the 13 weekperiods ended September 23, 2008 and September 25, 2007.  For the 39 weeks ended September 23,2008 and September 25, 2007, rent payments were $0.1 million.

 

 The Company had 14franchise and license restaurants owned, in whole or part, by certain officers,directors or 5% shareholders of the Company at September 23, 2008 and September 25,2007. These entities paid the Company fees of approximately $0.5 million duringeach of the 13 week periods ended September 23, 2008 and September 25,2007, respectively.  For the 39 weeksended September 23, 2008 and September 25, 2007, these entities paidthe Company fees of approximately $1.6 million. As disclosed in note 5, the Company is contingently liable on leaseswhich are related to three of these restaurants.

 

From 2000 to December 2007,the Company employed Juli Miller Hart, who, during this time, was the wife ofG.J. Hart, the Company’s President and Chief Executive Officer. Ms. Hartdid not report to Mr. Hart.  In December 2007,Ms. Hart’s status changed from employee to consultant.

 

**(7)****   Earnings Per Share**

 

The share and net incomeper share data for all periods presented are based on the historicalweighted-average shares outstanding.  The diluted earnings per sharecalculations show the effect of the weighted-average stock options, RSUs andrestricted stock awards outstanding from the Plan.  For the 13 and 39 weeks ended September 23,2008, options to purchase 3,721,689 and 3,251,267 shares of common stock,respectively, were outstanding, but not included in the computation of dilutedearnings per share because their inclusion would have had an anti-dilutiveeffect.  For the 13 and 39 weeks ended September 25,2007, options to purchase 2,337,943 and 2,146,911 shares of common stock,respectively, were outstanding, but not included in the computation of diluted earnings pershare because their inclusion would have had an anti-dilutive effect.

 

The following table setsforth the calculation of weighted-average shares outstanding as presented inthe accompanying condensed consolidated statements of income:

 
| ** **                                             | ** ** | **13 Weeks Ended** | ** ** | **39 Weeks Ended** | ** ** |
|--------------------------------------------------------|------------|------------------------------|------------|------------------------------|------------|
| ** **                                             | ** ** | **September 23,  2008**      | ** ** | **September 25,  2007**      | ** ** | **September 23,  2008** | ** ** | **September 25,  2007** | ** ** |
| Net income                                             |       | $                            | 8,644      |                         | $          | 10,552 |   | $ | 32,029 |   | $ | 32,105 |   |
|                                                   |       |                         |       |                         |       |   |   |   |   |
| Basic EPS:                                             |       |                         |       |                         |       |   |   |   |   |
| Weighted-average  common shares outstanding            |       | 71,947                       |       | 74,729                       |       | 73,649 |   | 74,556 |   |
|                                                   |       |                         |       |                         |       |   |   |   |   |
| Basic EPS                                              |       | $                            | 0.12       |                         | $          | 0.14 |   | $ | 0.43 |   | $ | 0.43 |   |
|                                                   |       |                         |       |                         |       |   |   |   |   |
| Diluted EPS:                                           |       |                         |       |                         |       |   |   |   |   |
| Weighted-average  common shares outstanding            |       | 71,947                       |       | 74,729                       |       | 73,649 |   | 74,556 |   |
| Dilutive effect  of stock options and restricted stock |       | 1,356                        |       | 2,065                        |       | 1,593 |   | 2,290 |   |
| Shares – diluted                                  |       | 73,303                       |       | 76,794                       |       | 75,242 |   | 76,846 |   |
|                                                   |       |                         |       |                         |       |   |   |   |   |
| Diluted EPS                                            |       | $                            | 0.12       |                         | $          | 0.14 |   | $ | 0.43 |   | $ | 0.42 |   |

 

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** **

**(8)****   Acquisitions**

 

Effective July 23,2008, the Company completed the acquisitions of nine franchise restaurantslocated in Tennessee.  Pursuant to theterms of the acquisition agreements, the Company paid an aggregate purchaseprice of approximately $10.2 million. These acquisitions are consistent with the Company’s long-term strategyto increase net income and earnings per share.

 

These transactions wereaccounted for using the purchase method as defined in SFAS No. 141, *Business Combinations* (“SFAS 141”).  Based on a purchase price of $10.2 million,including approximately $0.3 million of direct acquisition costs and net of the$0.1 million of cash acquired and the $0.1 million charge related to EmergingIssues Task Force (“EITF”) Issue No. 04-1, *Accountingfor Preexisting Relationships between the Parties to a Business Combination*(“EITF 04-1”), and the Company’s estimates of the fair value of net assetsacquired, $7.6 million of goodwill was generated by the acquisitions, which isnot amortizable for book purposes, but is deductible for tax purposes.

 

The purchase price hasbeen preliminarily allocated as follows:

 

| Current assets               |   | $      | 264    |   |
|------------------------------|--------|--------|--------|--------|
| Property and  equipment, net |   | 1,741  |   |
| Goodwill                     |   | 7,590  |   |
| Intangible asset             |   | 3,409  |   |
| Current  liabilities         |   | (2,761 | )      |
|                         |   |   |   |
|                         |   | $      | 10,243 |   |

 

If the acquisitions hadbeen completed as of the beginning of the year ended December 25, 2007,pro forma revenue, net income and earnings per share would have been asfollows:

 

| ** **  | ** ** | **13 Weeks Ended** | ** ** | **39 Weeks Ended**       | ** ** |
|-------------|------------|------------------------------|------------|------------------------------------|------------|
| ** **  | ** ** | **September 23,  2008** | ** ** | **September 25,   2007** | ** ** | **September 23,   2008** | ** ** | **September 25,   2007** | ** ** |
|        |       |                         |       |                               |       |   |   |   |   |
| Revenue     |       | $                            | 219,758    |                               | $          | 197,352 |   | $ | 662,563 |   | $ | 570,348 |   |
| Net income  |       | $                            | 8,499      |                               | $          | 10,816 |   | $ | 31,739 |   | $ | 32,648 |   |
| Basic EPS   |       | $                            | 0.12       |                               | $          | 0.14 |   | $ | 0.43 |   | $ | 0.44 |   |
| Diluted EPS |       | $                            | 0.12       |                               | $          | 0.14 |   | $ | 0.42 |   | $ | 0.42 |   |

 

As a result of theseacquisitions, the Company incurred a charge of $0.1 million and recorded anintangible asset relating to certain reacquired franchise rights of $3.4million in accordance with EITF 04-1. EITF 04-1 requires that a business combination between two parties thathave a preexisting relationship be evaluated to determine if a settlement of apreexisting relationship exists. EITF 04-1 also requires that certainreacquired rights (including the rights to the acquirer’s trade name under afranchise agreement) be recognized as intangible assets apart from goodwill.However, if a contract giving rise to the reacquired rights includes terms thatare favorable or unfavorable when compared to pricing for current markettransactions for the same or similar items, EITF 04-1 requires that asettlement gain or loss should be measured as the lesser of (i) the amountby which the contract is favorable or unfavorable under market terms from theperspective of the acquirer or (ii) the stated settlement provisions ofthe contract available to the counterparty to which the contract isunfavorable.

 

The intangible asset of$3.4 million has a weighted-average life of approximately 13 years.  When calculating this intangible asset, theCompany considered the remaining term of the existing franchise agreementsincluding renewals.  The remaining termsranged from 10 to 19 years.  The Companyrecorded amortization expense relating to the intangible asset of approximately$48,000 for the 13 weeks ended September 23, 2008.  The Company expects the annual expense foreach of the next five years to be $0.3 million.

 

On March 26, 2008,the first day of the Company’s second fiscal quarter, the Company completed theacquisitions of three restaurants located in Kentucky and Missouri.  Pursuant to the terms of the acquisitionagreements, the Company paid an aggregate purchase price of approximately $8.7million.  These acquisitions are consistentwith the Company’s long-term strategy to increase net income and earnings pershare.

 

These transactions wereaccounted for using the purchase method as defined in SFAS 141.  Based on a purchase price of $8.4 million,including approximately $0.1 million of direct acquisition costs and net of the$0.3 million of cash acquired and the $47,000 charge related to EITF 04-1, andthe Company’s estimates of the fair value of net assets acquired, $6.5 millionof goodwill was generated by the acquisitions, which is not amortizable forbook purposes, but is deductible for tax purposes.

 

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The purchase price hasbeen preliminarily allocated as follows:

 

| Current assets               |   | $      | 84     |   |
|------------------------------|--------|--------|--------|--------|
| Property and  equipment, net |   | 867    |   |
| Goodwill                     |   | 6,502  |   |
| Intangible asset             |   | 1,579  |   |
| Current  liabilities         |   | (675   | )      |
|                         |   |   |   |
|                         |   | $      | 8,357  |   |

 

If the acquisitions hadbeen completed as of the beginning of the year ended December 25, 2007,pro forma revenue, net income and earnings per share would have been asfollows:

 

| ** **  | ** ** | **13 Weeks Ended**       | ** ** | **39 Weeks Ended**       | ** ** |
|-------------|------------|------------------------------------|------------|------------------------------------|------------|
| ** **  | ** ** | **September 23,   2008** | ** ** | **September 25,   2007** | ** ** | **September 23,   2008** | ** ** | **September 25,   2007** | ** ** |
|        |       |                               |       |                               |       |   |   |   |   |
| Revenue     |       | $                                  | 217,735    |                               | $          | 192,571 |   | $ | 649,573 |   | $ | 558,352 |   |
| Net income  |       | $                                  | 8,644      |                               | $          | 10,704 |   | $ | 32,150 |   | $ | 32,523 |   |
| Basic EPS   |       | $                                  | 0.12       |                               | $          | 0.14 |   | $ | 0.44 |   | $ | 0.44 |   |
| Diluted EPS |       | $                                  | 0.12       |                               | $          | 0.14 |   | $ | 0.43 |   | $ | 0.42 |   |

 

As a result of theseacquisitions, the Company incurred a charge of $47,000 and recorded anintangible asset relating to certain reacquired franchise rights of $1.6million in accordance with EITF 04-1.

 

The intangible asset of$1.6 million has a weighted-average life of approximately 13 years.  When calculating this intangible asset, theCompany considered the remaining term of the existing franchise agreementsincluding renewals.  The remaining termsranged from ten to 16 years.  The Companyrecorded amortization expense relating to the intangible asset of approximately$31,000 and $63,000 for the 13 and 39 weeks ended September 23, 2008,respectively.  The Company expects theannual expense for each of the next five years to be $0.1 million.

 

On June 27, 2007,the first day of the Company’s third fiscal quarter, the Company completed theacquisitions of nine restaurants located in Indiana, Kentucky andMissouri.  Pursuant to the terms of theacquisition agreements, the Company paid an aggregate purchase price of approximately$22.9 million.  In conjunction with theseacquisitions, the Company acquired land and buildings leased by seven of thenine franchisees from parties related to those franchisees for an aggregatepurchase price of approximately $12.1 million. These acquisitions are consistent with the Company’s long-term strategyto increase net income and earnings per share.

 

These transactions wereaccounted for using the purchase method as defined in SFAS 141.  Based on a purchase price of $33.0 million,including $0.2 million of direct acquisition costs and net of the $1.6 millionof cash acquired and the $0.5 million charge related to EITF 04-1 and theCompany’s estimates of the fair value of net assets acquired, $15.0 million ofgoodwill was generated by the acquisitions, which is not amortizable for bookpurposes, but is deductible for tax purposes.

 

The purchase price hasbeen allocated as follows:

 

| Current assets               |   | $      | 427    |   |
|------------------------------|--------|--------|--------|--------|
| Property and  equipment, net |   | 15,629 |   |
| Goodwill                     |   | 15,002 |   |
| Intangible asset             |   | 4,064  |   |
| Other assets                 |   | 12     |   |
| Current  liabilities         |   | (2,091 | )      |
| Other  liabilities           |   | (18    | )      |
|                         |   |   |   |
|                         |   | $      | 33,025 |   |

 

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If the acquisitions hadbeen completed as of the beginning of the year ended December 25, 2007,pro forma revenue, net income and earnings per share would have been asfollows:

 

| ** **  | ** ** | **39 Weeks Ended** | ** ** |
|-------------|------------|------------------------------|------------|
| ** **  | ** ** | **September 23,  2008** | ** ** | **September 25,  2007** | ** ** |
|        |       |                         |       |   |   |
| Revenue     |       | $                            | 646,259    |   | $ | 565,765 |   |
| Net income  |       | $                            | 32,029     |   | $ | 32,547 |   |
| Basic EPS   |       | $                            | 0.43       |   | $ | 0.44 |   |
| Diluted EPS |       | $                            | 0.43       |   | $ | 0.42 |   |

 

As a result of theseacquisitions, the Company incurred a charge of $0.5 million and recorded anintangible asset relating to certain reacquired franchise rights of $4.1million in accordance with EITF 04-1.

 

The intangible asset of$4.1 million has a weighted-average life of approximately 13 years.  When calculating this intangible asset, theCompany considered the remaining term of the existing franchise agreements includingrenewals.  The remaining terms rangedfrom nine to 18 years.  The Companyrecorded amortization expense relating to the intangible asset of approximately$0.1 million and $0.3 million for the 13 and 39 weeks ended September 23,2008, respectively.  The Company expectsthe annual expense for each of the next five years to be $0.3 million.

 

**(9)****   IncomeTaxes**

 

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

 

The adoption of FIN 48 onDecember 27, 2006 did not result in any change to the Company’sunrecognized tax benefits.  The Company’sgross unrecognized tax benefits were $0.7 million at September 23, 2008and December 25, 2007.  In addition,activity related to the Company’s unrecognized tax benefits was not materialduring the 39 weeks ended September 23, 2008.  The Company, consistent with its existingpolicy, recognizes both interest and penalties on recognized tax benefits aspart of income tax expense.  As of September 23,2008 and December 25, 2007, the total amount of accrued penalties andinterest was $0.2 million.  Included inthe balance of total unrecognized tax benefits at September 23, 2008 arepotential benefits of $0.1 million, which, if recognized, would affect theeffective tax rate on income before taxes.

 

All entities for whichunrecognized tax benefits exist as of September 23, 2008 possess a December taxyear-end.  As a result, as of September 23,2008, the tax years ended December 28, 2004, December 27, 2005, December 26,2006 and December 25, 2007 remain subject to examination by taxjurisdictions.  As of September 23,2008, no audits were in process by a tax jurisdiction that, if completed duringthe next 12 months, would be expected to result in a material change to theCompany’s unrecognized tax benefits. Additionally, as of September 23, 2008, no event occurred that islikely to result in a significant increase or decrease in the unrecognized taxbenefits through December 30, 2008.

 

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**(10)****Fair Value Measurement**

 

On December 26,2007, the Company adopted SFAS 157, which defines fair value, establishesa framework for using fair value to measure assets and liabilities, and expandsdisclosures about fair value measurements. SFAS 157 applies whenever other statements require or permit assets orliabilities to be measured at fair value.

 

As of September 23,2008, the Company’s financial assets and financial liabilities that aremeasured at fair value on a recurring basis are comprised of the Second Amendedand Restated Deferred Compensation Plan of Texas Roadhouse Management Corp., asamended, (the “Deferred Compensation Plan”). The Deferred Compensation Plan is a nonqualified deferred compensationplan which allows highly compensated employees to defer receipt of a portion oftheir compensation and contribute such amounts to one or more investment fundsheld in a rabbi trust. The Company reports the accounts of the rabbi trust inits condensed consolidated financial statements. At September 23, 2008,investments totaling $2.0 million are included within other assets andoffsetting obligations of $2.1 million are included within other liabilities onthe condensed consolidated balance sheet. These investments are consideredtrading securities and are reported at fair value based on third-party brokerstatements which represents level 1 in the SFAS 157 fair value hierarchy. Therealized and unrealized holding gains and losses related to these investments,as well as the offsetting compensation expense, is recorded in general andadministrative expense on the condensed consolidated statements of income.

 

**(11)****Stock Repurchase Program**

 

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

 

For the 13 weeks ended September 23,2008, the Company paid approximately $37.4 million to repurchase 4,080,707shares at an average price of $9.17 per share. For the 39 weeks ended September 23, 2008, the Company paidapproximately $52.5 million to repurchase 5,704,907 shares at an average priceof $9.20 per share.

 

**(12)****Subsequent Events**

 

On October 22, 2008,the Company entered into an interest rate swap, starting on November 7, 2008,with a notional amount of $25.0 million to hedge a portion of the cash flows ofour variable rate credit facility.  TheCompany has designated the interest rate swap as a cash flow hedge of itsexposure to variability in future cash flows attributable to interest paymentson a $25.0 million tranche of floating rate debt borrowed under its revolvingcredit facility.  Under the terms of theswap, the Company pays a fixed rate of 3.83% on the $25.0 million notional amountand receives payments from the counterparty based on the 1-month LIBOR rate fora term ending on November 7, 2015, effectively resulting in a fixed rateLIBOR component of the $25.0 million notional amount.  Changes in the fair value of the interestrate swap will be reported as a component of accumulated other comprehensiveincome.

 

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

 

**OVERVIEW**

 

Texas Roadhouse is agrowing, moderately priced, full-service restaurant chain. Our founder andchairman, W. Kent Taylor, started the business in 1993. Our mission statementis “Legendary Food, Legendary Service®.” Our operating strategy is designed to position eachof our restaurants as the local hometown destination for a broad segment ofconsumers seeking high quality, affordable meals served with friendly,attentive service. As of September 23, 2008, there were 308 TexasRoadhouse restaurants operating in 44 states, including:

 

· 238 “company restaurants,” of which228 were wholly-owned and ten 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 “Minority interest” in our condensed consolidated statements ofincome.

 

· 70 “franchise restaurants,” ofwhich 67 were franchise restaurants and three were license restaurants. We havea 5.0% to 10.0% ownership interest in 19 franchise restaurants.  The income derived from our minorityinterests in these franchise restaurants is reported in the line item entitled “Equity incomefrom investments in unconsolidated affiliates” in our condensed consolidatedstatements of income. Additionally, we provide various management services tothese franchise restaurants, as well as four additional franchise restaurantsin which we have no ownership interest.

 

We have contractualarrangements which grant us the right to acquire at pre-determined valuationformulas (i) the remaining equity interests in eight of the tenmajority-owned company restaurants, and (ii) 60 of the franchiserestaurants.

 

**Presentationof Financial and Operating Data**

 

Throughout this report,the 13 weeks ended September 23, 2008 and September 25, 2007 arereferred to as Q3 2008 and Q3 2007, respectively, and the 39 weeks ended September 23,2008 and September 25, 2007 are referred to as 2008 YTD and 2007 YTD,respectively.

 

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

 

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

 

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

 

We may, at ourdiscretion, add franchise restaurants, domestically and/or internationally,primarily with franchisees who have demonstrated prior success with the TexasRoadhouse or other restaurant concepts and in markets in which the franchiseedemonstrates superior knowledge of the demographics and restaurant operatingconditions.  We may also look to acquirefranchise restaurants under terms favorable to us and our stockholders.  Additionally, from time to time, we mayevaluate potential mergers, acquisitions, joint ventures or other strategicinitiatives to acquire or develop additional concepts.

 

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

 

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

 

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

 

**KeyMeasures We Use to Evaluate Our Company**

 

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

 

*Numberof Restaurant Openings.*   Number of restaurant openings reflects the number ofrestaurants opened during a particular 

 

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fiscal period. Forcompany restaurant openings we incur pre-opening costs, which are definedbelow, before the restaurant opens. Typically new restaurants open with aninitial start-up period of higher than normalized sales volumes, which decreaseto a steady level approximately three to six months after opening. However,although sales volumes are generally higher, so are initial costs, resulting inrestaurant operating margins that are generally lower during the start-upperiod of operation and increase to a steady level approximately three to sixmonths after opening.

 

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

 

*AverageUnit Volume.*   Averageunit volume represents the average annual restaurant sales for all companyrestaurants open for a full six months before the beginning of the periodmeasured. Average unit volume excludes sales on restaurants closed during theperiod.  Growth in average unit volumes inexcess 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 newer restaurantsare operating with sales levels lower than the system average.

 

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

 

**OtherKey Definitions**

 

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

 

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

 

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

 

*RestaurantLabor Expenses.*   Restaurantlabor expenses include all direct and indirect labor costs incurred inoperations except for profit sharing incentive compensation expenses earned byour managing partners and market partners. These profit sharing expenses arereflected in restaurant other operating expenses.  Restaurant labor expenses also includeshare-based compensation expense related to restaurant-level employees.

 

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

 

*RestaurantOther Operating Expenses.*   Restaurant other operating expenses consist of allother restaurant-level operating costs, the major components of which 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 other operatingexpenses.

 

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

 

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

 

*Impairmentand closure costs. *Impairment andclosure costs include any impairment of long-lived assets associated withrestaurants where the carrying amount of the asset is not recoverable andexceeds the fair value of the asset and expenses associated with the closure ofa restaurant.

 

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

 

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

 

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*MinorityInterest.*   Minorityinterest represents the portion of income attributable to the other owners ofthe majority-owned or controlled restaurants. Our consolidated subsidiaries at September 23, 2008 included tenmajority-owned restaurants, all of which were open.  Our consolidatedsubsidiaries at September 25, 2007 included seven majority-ownedrestaurants, five of which were open and two of which were under construction.

 

*EquityIncome from Unconsolidated Affiliates.*   We own a 5.0% to 10.0% equityinterest in 19 franchise restaurants. Equity income from unconsolidated affiliatesrepresents our percentage share of net income earned by these unconsolidatedaffiliates.

 

**Resultsof Operations**

 
| ** **                                                   | ** ** | **13 Weeks Ended**     | ** ** | **39 Weeks Ended**     | ** ** |
|--------------------------------------------------------------|------------|----------------------------------|------------|----------------------------------|------------|
| ** **                                                   | ** ** | **September 23, 2008** | ** ** | **September 25, 2007** | ** ** | **September 23, 2008** | ** ** | **September 25, 2007** | ** ** |
| **($ in  thousands)**                                   | ** ** | **$**                            | ** ** | **%**                            | ** ** | **$** | ** ** | **%** | ** ** | **$** | ** ** | **%** | ** ** | **$** | ** ** | **%** | ** ** |
|                                                         |       |                             |       |                             |       |   |   |   |   |   |   |   |   |   |   |   |   |
| Revenue:                                                     |       |                             |       |                             |       |   |   |   |   |   |   |   |   |   |   |   |   |
| Restaurant sales                                             |       | 215,739                          |       | 99.1                             |       | 186,879 |   | 98.6 |   | 639,127 |   | 98.9 |   | 540,452 |   | 98.5 |   |
| Franchise  royalties and fees                                |       | 1,996                            |       | 0.9                              |       | 2,575 |   | 1.4 |   | 7,132 |   | 1.1 |   | 8,325 |   | 1.5 |   |
|                                                         |       |                             |       |                             |       |   |   |   |   |   |   |   |   |   |   |   |   |
| Total revenue                                                |       | 217,735                          |       | 100.0                            |       | 189,454 |   | 100.0 |   | 646,259 |   | 100.0 |   | 548,777 |   | 100.0 |   |
|                                                         |       |                             |       |                             |       |   |   |   |   |   |   |   |   |   |   |   |   |
| Costs and  expenses:                                         |       |                             |       |                             |       |   |   |   |   |   |   |   |   |   |   |   |   |
| *(As a  percentage of restaurant sales)*                     |       |                             |       |                             |       |   |   |   |   |   |   |   |   |   |   |   |   |
| Restaurant  operating costs:                                 |       |                             |       |                             |       |   |   |   |   |   |   |   |   |   |   |   |   |
| Cost of sales                                                |       | 76,845                           |       | 35.6                             |       | 65,850 |   | 35.2 |   | 225,205 |   | 35.2 |   | 189,197 |   | 35.0 |   |
| Labor                                                        |       | 63,750                           |       | 29.5                             |       | 53,702 |   | 28.7 |   | 183,996 |   | 28.8 |   | 152,281 |   | 28.2 |   |
| Rent                                                         |       | 4,248                            |       | 2.0                              |       | 2,913 |   | 1.6 |   | 11,138 |   | 1.7 |   | 8,544 |   | 1.6 |   |
| Other operating                                              |       | 36,772                           |       | 17.0                             |       | 29,600 |   | 15.8 |   | 105,368 |   | 16.5 |   | 86,267 |   | 16.0 |   |
| *(As a  percentage of total revenue)*                        |       |                             |       |                             |       |   |   |   |   |   |   |   |   |   |   |   |   |
| Pre-opening                                                  |       | 2,935                            |       | 1.3                              |       | 2,616 |   | 1.4 |   | 8,973 |   | 1.4 |   | 9,301 |   | 1.7 |   |
| Depreciation and  amortization                               |       | 9,444                            |       | 4.3                              |       | 8,028 |   | 4.2 |   | 27,056 |   | 4.2 |   | 21,903 |   | 4.0 |   |
| Impairment and  closure                                      |       | 43                               |       | NM                               |       | — |   | — |   | 777 |   | 0.1 |   | — |   | — |   |
| General and  administrative                                  |       | 10,277                           |       | 4.7                              |       | 9,552 |   | 5.0 |   | 32,585 |   | 5.0 |   | 29,489 |   | 5.4 |   |
|                                                         |       |                             |       |                             |       |   |   |   |   |   |   |   |   |   |   |   |   |
| Total costs and  expenses                                    |       | 204,314                          |       | 93.8                             |       | 172,261 |   | 90.9 |   | 595,098 |   | 92.1 |   | 496,982 |   | 90.6 |   |
| Income from  operations                                      |       | 13,421                           |       | 6.2                              |       | 17,193 |   | 9.1 |   | 51,161 |   | 7.9 |   | 51,795 |   | 9.4 |   |
| Interest  expense, net                                       |       | 974                              |       | 0.4                              |       | 830 |   | 0.4 |   | 2,336 |   | 0.4 |   | 1,427 |   | 0.2 |   |
| Minority  interest                                           |       | (58                              | )          | NM                               |       | 98 |   | 0.1 |   | 482 |   | 0.1 |   | 617 |   | 0.1 |   |
| Equity income  from investments in unconsolidated affiliates |       | 45                               |       | NM                               |       | 66 |   | NM |   | 184 |   | NM |   | 256 |   | NM |   |
|                                                         |       |                             |       |                             |       |   |   |   |   |   |   |   |   |   |   |   |   |
| Income before  taxes                                         |       | 12,550                           |       | 5.8                              |       | 16,331 |   | 8.6 |   | 48,527 |   | 7.5 |   | 50,007 |   | 9.1 |   |
| Provision for  income taxes                                  |       | 3,906                            |       | 1.8                              |       | 5,779 |   | 3.0 |   | 16,498 |   | 2.5 |   | 17,902 |   | 3.3 |   |
| Net income                                                   |       | 8,644                            |       | 4.0                              |       | 10,552 |   | 5.6 |   | 32,029 |   | 5.0 |   | 32,105 |   | 5.8 |   |

 

NM – Not meaningful

 

**RestaurantUnit Activity**

** **
| ** **                          | ** ** | **Company** | ** ** | **Franchise** | ** ** | **Total** | ** ** |
|-------------------------------------|------------|-------------|------------|---------------|------------|-----------|------------|
| Balance at  December 25, 2007  |       | 204         |       | 81            |       | 285       |       |
| Openings                            |       | 23          |       | 1             |       | 24        |       |
| Acquisitions  (Dispositions)        |       | 12          |       | (12           | )          | —    |       |
| Closures                            |       | (1          | )          | —        |       | (1        | )          |
|                                |       |        |       |          |       |      |       |
| Balance at  September 23, 2008 |       | 238         |       | 70            |       | 308       |       |

 

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**Q32008 (13 weeks) Compared to Q3 2007 (13 weeks) and 2008 YTD (39 weeks)Compared to 2007 YTD (39 weeks)**

 

*RestaurantSales.*   Restaurantsales increased by 15.4% in Q3 2008 as compared to Q3 2007 and by 18.3% in 2008YTD as compared to 2007 YTD.  Theseincreases were primarily attributable to the opening of new restaurants and theacquisitions of franchise restaurants, partially offset by a decrease incomparable restaurant sales and average unit volumes.

 

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

 
| ** **                          | ** ** | **Q3 2008** | ** ** | **Q3 2007** | ** ** | **2008 YTD** | ** ** | **2007 YTD** | ** ** |
|-------------------------------------|------------|------------------|------------|------------------|------------|-------------------|------------|-------------------|------------|
|                                |       |             |       |             |       |              |       |              |       |
| Store weeks                         |       | 3,000            |       | 2,487            |       | 8,472             |       | 6,926             |       |
| Comparable  restaurant sales growth |       | (3.2             | )%         | 2.5              | %          | (1.5              | )%         | 2.0               | %          |
| Average unit  volume (in thousands) |       | $                | 930        |             | $          | 973               |       | $                 | 2,952      |   | $ | 3,041 |   |
|                                     |            |                  |            |                  |            |                   |            |                   |            |  |  |  |  |

 

Theamounts in the table above include the impact of increased menu pricing ofapproximately 1.5% implemented in May and June 2008 and 1.1%implemented during January and February 2008 in response to continuedinflationary pressures.  In conjunctionwith our menu pricing implemented in May 2008, several lower priced entréeswere added to our menu which, based on the preference of these items, resultedin a reduction of average check of approximately 0.3%.  As a result, we currently have approximately2.3% in net menu pricing.  We willcontinue to evaluate the need for and test further menu price increases as weassess the current inflationary environment.

 

EffectiveJuly 23, 2008, we acquired nine franchise restaurants.  On a 12-month basis, the acquisitions areexpected to add approximately $31.0 million of net revenue and have no significantaccretive impact.  In both Q3 2008 and2008 YTD, restaurant sales included $5.2 million from the nine acquiredfranchise restaurants.  Effective March 26,2008, we acquired three franchise restaurants. On an on-going annual basis, we estimate these acquisitions will beaccretive to diluted earnings per share by approximately $0.005.  In Q3 2008 and 2008 YTD, restaurant salesincluded $3.1 million and $6.4 million, respectively, from the three acquiredfranchise restaurants.  On the first dayof Q3 2007, we acquired nine franchise restaurants.  In Q3 2008 and 2008 YTD, restaurant salesincluded $8.3 million and $25.9 million, respectively, from the Q3 2007acquisitions.  In both Q3 2007 and 2007YTD, restaurant sales included $8.3 million from the Q3 2007 acquisitions.  For comparative purposes, average unit volumefor Q3 2007 and 2007 YTD was adjusted to reflect restaurant sales of theseacquired franchise restaurants as part of company-owned restaurants averageunit volume.

 

*FranchiseRoyalties and Fees.*   Franchiseroyalties and fees decreased by $0.6 million, or by 22.5%, in Q3 2008 from Q32007 and by $1.2 million, or by 14.3%, in 2008 YTD from 2007 YTD.  These decreases were primarily attributableto the loss of royalties associated with the nine franchise restaurantsacquired during Q3 2008 and the three franchise restaurants acquired at thebeginning of the second quarter of fiscal 2008 and negative average unit volumegrowth.  These decreases were partiallyoffset by increasing royalty rates in conjunction with the renewal of certainfranchise agreements.  The acquiredfranchise restaurants generated approximately $0.1 million and $0.7 million infranchise royalties in Q3 2008 and 2008 YTD, respectively, compared to $0.4million and $1.1 million in Q3 2007 and 2007 YTD, respectively.  Franchise comparable restaurant salesdecreased 4.5% in Q3 2008.  Franchiserestaurant count activity is shown in the restaurant unit activity table above.  We anticipate our franchise royalties andfees will continue to decrease due to the impact of acquisitions of franchiserestaurants.

 

*RestaurantCost of Sales.*   Restaurantcost of sales, as a percentage of restaurant sales, increased to 35.6% in Q32008 from 35.2% in Q3 2007 and increased to 35.2% in 2008 YTD from 35.0% in2007 YTD.  The increase in Q3 2008 wasprimarily attributable to higher commodity costs on food items, such as wheatand oil-based ingredients, produce costs and dairy costs, partially offset bythe benefit of lower beef costs and menu price increases discussed above.  The increase in 2008 YTD was attributable tothe same items as Q3 2008, with the exception of produce costs, which did nothave as significant an impact on 2008 YTD. Early in Q3 2008, we entered into fixed contracts for the 25% of ourbeef product volume that had been subject to fluctuating market prices.  Currently, we have fixed price contracts for100% of our beef product volume for 2008. For 2008, we remain subject to fluctuating market pricing forcommodities representing approximately 20% of our overall restaurant cost ofsales.

 

*RestaurantLabor Expenses.*   Restaurantlabor expenses, as a percentage of restaurant sales, increased to 29.5% in Q32008 from 28.7% in Q3 2007 and to 28.8% in 2008 YTD from 28.2% in 2007YTD.  These increases were primarilyattributable to negative average unit volume growth combined with higher laborcosts associated with restaurants opened in 2008 YTD and the latter part offiscal 2007 and higher average wage rates, partially offset by menu priceincreases discussed above.  We generallyincur higher labor costs, as a percentage of restaurant sales, during the firstfew months after the opening of a new restaurant.   Higher average hourly wage rates resultedfrom several state-mandated increases in minimum and tip wage rates throughout2007 and into 2008, including an increase in federal minimum wage rate in July 2008.  We anticipate our labor costs will continueto be pressured by inflation, which is primarily caused by federal- andstate-mandated increases in minimum and tip wages rates.  These increases may or may not be offset byadditional menu price adjustments.

 

*RestaurantRent Expense.*   Restaurantrent expense, as a percentage of restaurant sales, increased to 2.0% in Q3 2008from 1.6% in Q3 2007 and to 1.7% in 2008 YTD from 1.6% in 2007 YTD.  These increases are primarily due to rentexpense associated with acquired franchise restaurants and negative averageunit volume growth.

 

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*RestaurantOther Operating Expenses**. ****** ***Restaurant other operating expenses, as a percentageof restaurant sales, increased to 17.0% in Q3 2008 from 15.8% in Q3 2007 and to16.5% in 2008 YTD from 16.0% in 2007 YTD. These increases were primarily attributable to negative average unitvolume growth combined with higher utility costs, partially offset by lowermanaging partner and market partner bonuses, as a percentage of restaurantsales.  In addition, costs relating toweather damage and losses on disposal of assets relating to remodels at tworestaurants further contributed to the increase in Q3 2008.

 

*RestaurantPre-opening Expenses.*   Pre-opening expenses increased to $2.9 millionin Q3 2008 from $2.6 million in Q3 2007 and decreased to $9.0 million 2008 YTDfrom $9.3 million 2007 YTD.   Theincrease in Q3 2008 was primarily due to more restaurants being opened in Q32008 compared to Q3 2007.  The decreasein 2008 YTD was primarily due to fewer restaurants being in the developmentpipeline in fiscal 2008 compared to fiscal 2007.  Pre-opening costs will fluctuate from periodto period based on the number and timing of restaurant openings and the numberand timing of restaurant managers hired. We anticipate that pre-opening costs will decrease in fiscal 2009 as wehave fewer openings planned for fiscal 2009 compared to fiscal 2008.

 

*Depreciationand Amortization Expense.*   D&A, as a percentage of total revenue, increasedto 4.3% in Q3 2008 from 4.2% in Q3 2007 and to 4.2% 2008 YTD from 4.0% 2007YTD.  These increases were primarilyrelated to capital spending on new restaurants and negative average unit volumegrowth, partially offset by lower depreciation expense on older restaurants.

 

*Impairmentand Closure Expenses.*  Impairment and closure expensesincreased to $43,000 in Q3 2008 and $1.0 million in 2008 YTD.  These increases were due to lease reserve andother charges incurred in conjunction with the closure of a restaurant in thefirst quarter of fiscal 2008.  In thefourth quarter of fiscal 2007, an impairment charge was incurred relating tothis restaurant.  No impairment orclosure costs were incurred in Q3 2007.

 

*Generaland Administrative Expenses.*  G&A, as apercentage of total revenue, decreased to 4.7% in Q3 2008 from 5.0% in Q3 2007and decreased to 5.0% in 2008 YTD from 5.4% in 2007 YTD.  These decreases in Q3 2008 and 2008 YTD wereprimarily attributable to lower performance-based bonus expense and loweracquisition-related charges, partially offset by an increase in the write offof costs associated with restaurant sites no longer in development and highershare-based compensation costs combined with negative average unit volumegrowth.  In addition, lower costsassociated with our annual managing partner conference in the second quarter offiscal 2008 versus the second quarter of fiscal 2007 further contributed to thedecrease in 2008 YTD.  The highershare-based compensation costs were a result of the renewals of certainexecutive employment contracts at the beginning of 2008.

 

*InterestExpense, Net.*   Interestexpense increased to $1.0 million in Q3 2008 from $0.8 million in Q3 2007 and$2.3 million in 2008 YTD from $1.4 million in 2007 YTD.  These increases were primarily due to increasedborrowings under our credit facility, partially offset by lower interestrates.  The increased borrowings wereprimarily related to stock repurchases under our stock repurchase program andfranchise restaurant acquisitions.

 

*IncomeTax Expense. * Weaccount for income taxes in accordance with Statement of Financial AccountingStandards (“SFAS”) No. 109, *Accounting for IncomeTaxes. *Our effective tax ratedecreased to 31.1% in Q3 2008 from 35.4% in Q3 2007 and in 2008 YTD to 34.0%from 35.8% in 2007 YTD.  These decreasesare primarily attributable to higher federal tax credits as a percentage of netincome before income tax.  We expect theeffective tax rate to be approximately 34.0% for fiscal 2008.

 

**Liquidityand Capital Resources**

 

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

 
| ** **                                 | ** ** | **39 Weeks Ended**     | ** ** |
|--------------------------------------------|------------|----------------------------------|------------|
| ** **                                 | ** ** | **September 23, 2008** | ** ** | **September 25, 2007** | ** ** |
| ** **                                 | ** ** | ** **                       | ** ** | ** ** | ** ** |
| Net cash  provided by operating activities |       | $                                | 58,250     |   | $ | 48,070 |   |
| Net cash used in  investing activities     |       | (93,529                          | )          | (109,216 | ) |
| Net cash  provided by financing activities |       | 37,434                           |       | 42,698 |   |
|                                       |       |                             |       |   |   |
| Net increase  (decrease) in cash           |       | $                                | 2,155      |   | $ | (18,448 | ) |

 

Net cash provided byoperating activities was $58.3 million in 2008 YTD compared to $48.1 million in2007 YTD.  This increase was primarilydue to an $8.9 million decrease in accounts receivable due to the timing ofcredit card settlements as fiscal year 2007 ended on a bank holiday and higherdepreciation, offset by decreases in other working capital.  Our operations have not required significantworking capital and, like many restaurant companies, we have been able tooperate with negative working capital. Sales are primarily for cash, and restaurant operations do not requiresignificant inventories or receivables. In addition, we received trade credit for the purchase of food,beverages and supplies, thereby reducing the need for incremental workingcapital to support growth.

 

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Net cash used ininvesting activities was $93.5 million in 2008 YTD compared to the $109.2million in 2007 YTD.  This decrease wasprimarily due to higher aggregate purchase prices relating to the acquisitionof franchise restaurants in 2007 YTD than in 2008 YTD.

 

We require capitalprincipally for the development of new company restaurants and therefurbishment of existing restaurants.  We either lease our restaurant sitelocations under operating leases for periods of five to 30 years(including renewal periods) or purchase the land where it is cost effective. Asof September 23, 2008, there were 113 restaurants developed on land whichwe owned.

 

Our future capital requirementswill primarily depend on the number of new restaurants we open and the timingof those openings within a given fiscal year. These requirements will includecosts directly related to opening new restaurants and may also include costsnecessary to ensure that our infrastructure is able to support a largerrestaurant base. In fiscal 2008, we expect our capital expenditures to beapproximately $100.0 million to $110.0 million, substantially all ofwhich will relate to planned restaurant openings.  In fiscal 2009, we have reduced our plannedCompany-owned restaurant openings to approximately 15 restaurants compared toapproximately 30 restaurants in fiscal 2008. This amount excludes any cash used for franchise acquisitions.  We continue to evaluate opportunities toacquire franchise restaurants under terms which would create value for us andour stockholders.  In accordance withthis strategy, we completed the acquisitions of nine franchise restaurants foran aggregate purchase price of approximately $10.2 million during the thirdquarter of 2008.  We intend to satisfyour capital requirements over the next 12 months with cash on hand, netcash provided by operating activities and funds available under our creditfacility, excluding any cash used for franchise acquisitions.

 

Net cash provided byfinancing activities was $37.4 million in 2008 YTD as compared to $42.7 millionin 2007 YTD.  This decrease was primarilydue to increased borrowings under our credit facility offset by stock repurchasesof $52.6 million in fiscal 2008.  Theincreased borrowings under our credit facility are due to borrowings ofapproximately $52.6 million in conjunction with stock repurchases in fiscal2008 and approximately $20.0 million in conjunction with acquisitions of franchiserestaurants in fiscal 2008 compared to borrowings of approximately $36.0million in conjunction with the acquisitions of franchise restaurants in fiscal2007.   The remaining borrowings relateto funding of capital expenditures in excess of net cash provided by operatingactivities.  For 2008, we anticipate netcash provided by operating activities will exceed capital expenditures.

 

On February 14,2008, our Board of Directors approved a stock repurchase program to repurchaseup to $25.0 million of Class A common stock.  On July 8, 2008, our Board of Directorsapproved a $50.0 million increase in the Company’s stock repurchase program,thereby increasing the Company’s total stock repurchase authorization to $75.0million.  Under this program, we may repurchaseoutstanding shares from time to time in open market transactions during thetwo-year period ending February 14, 2010. The timing and the amount of any repurchases will be determined bymanagement under parameters established by our Board of Directors, based on itsevaluation of our stock price, market conditions and other corporateconsiderations.

 

In Q3 2008, we paiddistributions of $1.0 million to equity holders of nine of our majority-ownedcompany restaurants.  Currently, ourintent is to retain our future earnings, if any, primarily to finance thefuture development and operation of our business.

 

On May 31, 2007, weamended and restated our existing five-year revolving credit facility dated October 8,2004 with a syndicate of commercial lenders led by Bank of America, N.A., Bancof America Securities LLC and National City Bank. The facility was increasedfrom $150.0 million to $250.0 million and the term was extended to 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 Rate, which is the higherof the issuing bank’s prime lending rate or the Federal Funds rate plus0.50%.  We are also required to pay acommitment fee of 0.10% to 0.175% per year on any unused portion of thefacility, depending on our leverage ratio. The weighted-average interest rate for the revolver at September 23,2008 and December 25, 2007 was 3.29% and 5.73%, respectively.  The lenders’ obligation to extend creditunder the facility depends on us maintaining certain financial covenants,including a minimum consolidated fixed charge coverage ratio of 2.00 to 1.00and a maximum consolidated leverage ratio of 3.00 to 1.00.  The new credit facility permits us to incuradditional secured or unsecured indebtedness outside the facility, except forthe incurrence of secured indebtedness that in the aggregate exceeds 20% of ourconsolidated tangible net worth or circumstances where the incurrence of securedor unsecured indebtedness would prevent us from complying with our financialcovenants.  We were in compliance withall covenants as of September 23, 2008.

 

At September 23,2008, we had $149.0 million of outstanding borrowings under our credit facilityand $97.7 million of availability net of $3.3 million of outstanding letters ofcredit.  In addition, we had various other notes payable totaling $2.2million with interest rates ranging from 4.35% to 10.80%.  Each of thesenotes related to the financing of specific restaurants. Our totalweighted-average effective interest rate at September 23, 2008 was 3.39%.

 

On October 22, 2008, weentered into an interest rate swap, starting on November 7, 2008, with anotional amount of $25.0 million to hedge a portion of the cash flows of ourvariable rate credit facility.  We havedesignated the interest rate swap as a cash flow hedge of its exposure tovariability in future cash flows attributable to interest payments on a $25.0million tranche of floating rate debt borrowed under its revolving creditfacility.  Under the terms of the swap,we pay a fixed rate of 3.83% on the $25.0 million notional amount and receivepayments from the counterparty based on the 1-month LIBOR rate for a termending on November 7, 2015, effectively resulting in a fixed rate LIBORcomponent of the $25.0 million notional amount.

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**ContractualObligations**

 

The following tablesummarizes the amount of payments due under specified contractual obligationsas of September 23, 2008:

 

| ** **                         | ** ** | **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        |       | $                                         | 151,238    |   | $ | 169 |   | $ | 343 |   | $ | 149,423 |   | $ | 1,303 |   |
| Capital lease  obligations         |       | 531                                       |       | 63 |   | 148 |   | 184 |   | 136 |   |
| Interest (1)                       |       | 1,562                                     |       | 282 |   | 491 |   | 374 |   | 415 |   |
| Operating lease  obligations       |       | 192,316                                   |       | 17,197 |   | 34,563 |   | 34,177 |   | 106,379 |   |
| Capital  obligations               |       | 55,921                                    |       | 55,921 |   | — |   | — |   | — |   |
| Total  contractual obligations (2) |       | $                                         | 401,568    |   | $ | 73,632 |   | $ | 35,545 |   | $ | 184,158 |   | $ | 108,233 |   |

 

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(1)         Assumes constant rate until maturity forour fixed and variable rate debt and capital lease obligations.  Uses interest rates as of September 23,2008 for our variable rate debt. Interest payments on our variable-rate revolving credit facility havebeen excluded from the amounts shown above, primarily because the balanceoutstanding under our revolving credit facility, described further in note 3 ofthe condensed consolidated financial statements, can fluctuate daily.

 

(2)           This amount excludes $0.7 million ofunrecognized tax benefits under Financial Accounting Standards Board (“FASB”)Interpretation No. 48, *Accounting for Uncertaintyin Income Taxes — an Interpretation of FASB Statement No. 109* (“FIN48”).

 

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

 

**Off-BalanceSheet Arrangements**

 

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

 

**Guarantees**

 

We entered into realestate lease agreements for franchise restaurants located in Everett, MA,Longmont, CO, Montgomeryville, PA and Fargo, ND prior to our granting franchiserights for those restaurants. We have subsequently assigned the leases to thefranchisees, but we remain contingently liable if a franchisee defaults underthe terms of a lease. The Longmont lease expires in May 2014, the Everettlease expires in February 2018, the Montgomeryville lease expires in June 2021and the Fargo lease expires in July 2016.

 

**Recently Issued AccountingStandards**

 

In September 2006,the FASB issued SFAS No. 157, *Fair Value Measurements*(“SFAS157”), which defines fair value, establishes a framework for measuring fairvalue and expands disclosures about fair value measurements.  The provisions of SFAS 157 for financialassets and liabilities, as well as any other assets and liabilities that arecarried at fair value on a recurring basis in financial statements areeffective for financial statements issued for fiscal years beginning after November 15,2007 (our fiscal year 2008).  FASB StaffPosition FAS 157-2, *Effective Date of FASBStatement No. 157,* delayed the effective date of SFAS 157 formost nonfinancial assets and nonfinancial liabilities until fiscal yearsbeginning after November 15, 2008 (our fiscal year 2009).  The implementation of SFAS 157 for financialassets and financial liabilities, effective December 26, 2007, did nothave a material impact on our consolidated financial position, results ofoperations or cash flows.  We arecurrently assessing the impact of SFAS 157 for nonfinancial assets andliabilities on our consolidated financial position, results of operations orcash flows.   See note 10 of thecondensed consolidated financial statements for additional fair valuediscussions.

 

In February 2007,the FASB issued SFAS No. 159, *The Fair Value Option forFinancial Assets and Financial Liabilities* (“SFAS 159”). SFAS 159permits entities to choose to measure selected financial assets and financialliabilities at fair value. Unrealized gains and losses on items for which thefair value option has been elected are reported in earnings at each subsequentreporting date. The provisions of SFAS 159 are effective as of the beginning ofour 2008 fiscal year.  The adoption ofSFAS 159 did not have a material impact on our consolidated financial position,results of operations or cash flows.

 

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In December 2007,the FASB issued SFAS No. 141 (revised 2007), *BusinessCombinations* (“SFAS 141R”). SFAS 141R establishes the principles and requirements for how anacquirer: 1) recognizes and measures in its financial statements theidentifiable assets acquired, the liabilities assumed, and any noncontrollinginterest in the acquiree; 2) recognizes and measures the goodwill acquired inthe business combination or gain from a bargain purchase;  and 3) determines what information todisclose to enable users of the financial statements to evaluate the nature andfinancial effects of the business combination. SFAS 141R is to be applied prospectively to business combinationsconsummated on or after the beginning of the first annual reporting period onor after December 15, 2008 (our fiscal year 2009).  We are currently evaluating the impact SFAS141R will have on any potential future business combinations.

 

In December 2007,the FASB issued SFAS No. 160, *Noncontrolling Interestsin Consolidated Financial Statements — an amendment of ARB No. 51*(“SFAS 160”).  SFAS 160 establishesaccounting and reporting standards that require: 1) noncontrolling interests tobe reported as a component of equity; 2) changes in a parent’s ownershipinterest while the parent retains its controlling interest be accounted for asequity transactions; and 3) any retained noncontrolling equity investment uponthe deconsolidation of a subsidiary to be initially measured at fairvalue.  SFAS 160 is to be appliedprospectively to business combinations consummated on or after the beginning ofthe first annual reporting period on or after December 15, 2008 (ourfiscal year 2009).  We are currentlyevaluating the impact of adopting SFAS 160 on our consolidated financialposition, results of operations and cash flows.

 

In May 2008, theFASB issued SFAS No. 162, *The Hierarchy of GenerallyAccepted Accounting Principles* (“SFAS 162”).  This Statement identifies the sources ofaccounting principles and the framework for selecting the principles used inthe preparation of financial statements of nongovernmental entities that arepresented in conformity with generally accepted accounting principles (“GAAP”)in the United States.  This statementwill be effective 60 days following the SEC’s approval of the Public CompanyAccounting Oversight Board amendments to AU Section 411, *The Meaning of Present Fairly in Conformity with Generally AcceptedAccounting Principles*.  We donot expect the adoption of SFAS 162 to have a significant impact on ourconsolidated financial position, results of operations or cash flows.

 

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

 

We are exposed to marketrisk from changes in interest rates on debt and changes in commodity prices.Our exposure to interest rate fluctuations is limited to our outstanding bankdebt and dependent on the interest rate option we choose to utilize under ourrevolving line of credit.  Our optionsfor the rate are the Base Rate, which is the higher of the issuing bank’s primelending rate or the Federal Funds rate plus 0.50%, or the London InterbankOffered Rate (“LIBOR”) plus an applicable margin.  At September 23, 2008, there was $149.0million outstanding under our revolving line of credit which bears interest atapproximately 0.50% to 0.875% (depending on our leverage ratios) overLIBOR.   Our various other notes payable totaled $2.2 million at September 23,2008 and had fixed rates ranging from 4.35% to 10.80%.  Should interestrates based on these borrowings increase by one percentage point, our estimatedannual interest expense would increase by $1.5 million.

 

On October 22,2008, we entered into an interest rate swap with a notional amount of$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 interest paymentson a $25.0 million tranche of floating rate debt borrowed under ourrevolving credit facility. Under the terms of the swap, we pay a fixed rate of3.83% on the $25.0 million notional amount and receive payments from thecounterparty 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.  Byusing a derivative instrument to hedge exposures to changes in interest rates,we expose ourselves to credit risk. Credit risk is the failure of thecounterparty to perform under the terms of the derivative contract. We minimizethe credit risk by entering into transactions with high-quality counterpartieswhose credit rating is evaluated on a quarterly basis.

 

Many of the ingredientsused in the products sold in our restaurants are commodities that are subjectto unpredictable price volatility. There are no established fixed price marketsfor certain commodities such as produce and cheese, and we are subject toprevailing market conditions when purchasing those types of commodities. Forother commodities, we employ various purchasing and pricing contract techniquesin an effort to minimize volatility, including fixed price contracts for termsof one year or less and negotiating prices with vendors with reference tofluctuating market prices.  We currentlydo not use financial instruments to hedge commodity prices, but we willcontinue to evaluate their effectiveness. Extreme and/or long term increases incommodity prices could adversely affect our future results, especially if weare unable, primarily due to competitive reasons, to increase menu prices.Additionally, if there is a time lag between the increasing commodity pricesand our ability to increase menu prices or if we believe the commodity priceincrease to be short in duration and we choose not to pass on the costincreases, our short-term financial results could be negatively affected.

 

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

 

**ITEM4. CONTROLS AND PROCEDURES**

 

**Evaluation of disclosure controlsand procedures**

 

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

 

**Changes in internal control**

 

During the period coveredby this report, there were no significant changes with respect to our internalcontrol over financial reporting that materially affected, or are reasonablylikely to materially affect, our internal control over financial reporting.

 

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**PART II — OTHER INFORMATION**

 

**ITEM1.  LEGAL PROCEEDINGS**

 

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

 

**ITEM1A.   RISK FACTORS**

 

Informationregarding risk factors appears in our Annual Report on Form 10-K for theyear ended December 25, 2007, under the heading “Special Note RegardingForward-looking Statements” and in the Form 10-K Part I, Item 1A,Risk Factors.  There have been nomaterial changes from the risk factors previously disclosed in our Form 10-K.

 

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

 

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

 

The followingtable includes information regarding purchases of our common stock made by usduring the 13 weeks ended September 23, 2008:

 
| **Period**                           | ** ** | **Total Number  of Shares  Purchased** | ** ** | **Average  Price Paid  per Share** | ** ** | **Total Number of Shares  Purchased as Part of Publicly  Announced Plans or Programs** | ** **    | **Maximum Number (or Approximate  Dollar Value) of Shares that May Yet Be  Purchased Under the Plans or Programs** | ** ** |
|--------------------------------------|------------|--------------------------------------------------|------------|----------------------------------------------|------------|------------------------------------------------------------------------------------------------------------------------------------------|---------------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|
| June 25 to  July 22        | ** ** | **1,346,700**                                    | ** ** | **$**                                        | **9.19**   | ** **                                                                                                                               | **1,346,700** | ** **                                                                                                                                                                                    | **$**      | **47,584,776** | ** ** |
| July 23 to  August 19      | ** ** | **916,907**                                      | ** ** | **9.35**                                     | ** ** | **916,907**                                                                                                                              | ** **    | **39,029,146**                                                                                                                                                                                | ** ** |
| August 20  to September 23 | ** ** | **1,817,100**                                    | ** ** | **9.10**                                     | ** ** | **1,817,100**                                                                                                                            | ** **    | **22,535,510**                                                                                                                                                                                | ** ** |
| Total                                | ** ** | **4,080,707**                                    | ** ** | ** **                                   | ** ** | **4,080,707**                                                                                                                            | ** **    | ** **                                                                                                                                                                                    | ** ** |
|                                      |            |                                                  |            |                                              |            |                                                                                                                                          |               |                                                                                                                                                                                               |            |  |  |

 

**ITEM3.  DEFAULTS UPON SENIOR SECURITIES**

 

None.

 

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

 

None.

 

**ITEM5.  OTHER INFORMATION.**

 

None.

 

**ITEM6. 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. |

 

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**SIGNATURES**

 

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

 
|                         | TEXAS ROADHOUSE, INC. |
|------------------------------|-----------------------|
|                         |                  |   |
| Date: October 31,  2008 | By:                   | /s/ G.J. Hart |
|                         |                  | G.J. Hart |
|                         |                  | President, Chief  Executive Officer |
|                         |                  | (principal executive  officer) |
|                         |                  |   |
| Date: October 31,  2008 | By:                   | /s/ Scott M. Colosi |
|                         |                  | Scott M. Colosi |
|                         |                  | Chief Financial Officer |
|                         |                  | (principal financial  officer) |
|                         |                  | (chief accounting  officer) |

 

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