Table of 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** |
|-------|--------------------------------------------------------------------------------------------------------|

** **

**Forthe quarterly period ended March 31, 2009**

** **

**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) |

 

**6040 Dutchmans Lane, Suite 200**

**Louisville, Kentucky 40205**

(Address ofprincipal executive offices) (Zip Code)

 

**(502)426-9984**

(Registrant’stelephone number, including area code)

 

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

 

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

 

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

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

 

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

 

The number of shares of Class Aand Class B common stock outstanding were 64,572,396 and 5,265,376,respectively, on May 1, 2009.

 

 

 

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Table of Contents

 

**TABLE OF CONTENTS**

 
| PART I. FINANCIAL INFORMATION                                                                                                         |   |
|--------------------------------------------------------------------------------------------------------------------------------------------|--------|
|                                                                                                                                       |   |
| Item 1 — Financial Statements — Texas  Roadhouse, Inc. and Subsidiaries                                                     | 3      |
| Condensed Consolidated  Balance Sheets — March 31, 2009 and December 30, 2008                                               | 3      |
| Condensed Consolidated  Statements of Income — For the 13 Weeks Ended March 31, 2009 and  March 25, 2008                    | 4      |
| Condensed  Consolidated Statements of Stockholders’ Equity and Comprehensive Income —  For the 13 Weeks Ended March 31,2009 | 5      |
| Condensed Consolidated  Statements of Cash Flows — For the 13 Weeks Ended March 31, 2009 and  March 25, 2008                | 6      |
| Notes to  Condensed Consolidated Financial Statements                                                                                      | 7      |
| Item 2 —  Management’s Discussion and Analysis of Financial Condition and Results of  Operations                                 | 16     |
| Item 3 —  Quantitative and Qualitative Disclosures About Market Risk                                                                  | 24     |
| Item 4 — Controls  and Procedures                                                                                                     | 24     |
|                                                                                                                                       |   |
| PART II. OTHER  INFORMATION                                                                                                           |   |
|                                                                                                                                       |   |
| Item 1 — Legal  Proceedings                                                                                                           | 25     |
| Item 1A — Risk Factors                                                                                                                | 25     |
| Item 2 —  Unregistered Sales of Equity Securities and Use of Proceeds                                                                 | 25     |
| Item 3 —  Defaults Upon Senior Securities                                                                                             | 25     |
| Item 4 —  Submission of Matters to a Vote of Security Holders                                                                         | 25     |
| Item 5 — Other  Information                                                                                                           | 25     |
| Item 6 — Exhibits                                                                                                                     | 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)**         | ** ** | ** **                 | ** ** |
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|-------------------------|------------|----------------------------|------------|
| ** **                                                                                                                                                                                               | ** ** | **March 31, 2009** | ** ** | **December 30, 2008** | ** ** |
| **Assets**                                                                                                                                                                                               |       |                    |       |                       |       |
| Current assets:                                                                                                                                                                                          |       |                    |       |                       |       |
| Cash and cash  equivalents                                                                                                                                                                               |       | $                       | 7,753      |                       | $          | 5,258 |   |
| Receivables, net  of allowance for doubtful accounts of $650 at March 31, 2009 and $524 at  December 30, 2008                                                                                  |       | 8,600                   |       | 9,922                      |       |
| Inventories, net                                                                                                                                                                                         |       | 7,745                   |       | 8,140                      |       |
| Prepaid income  taxes                                                                                                                                                                                    |       | —                  |       | 3,429                      |       |
| Prepaid expenses                                                                                                                                                                                         |       | 6,093                   |       | 6,097                      |       |
| Deferred tax  assets                                                                                                                                                                                     |       | 1,889                   |       | 1,962                      |       |
| Total current  assets                                                                                                                                                                                    |       | 32,080                  |       | 34,808                     |       |
| Property and  equipment, net                                                                                                                                                                             |       | 459,080                 |       | 456,132                    |       |
| Goodwill                                                                                                                                                                                                 |       | 114,813                 |       | 114,807                    |       |
| Intangible  asset, net                                                                                                                                                                                   |       | 12,524                  |       | 12,807                     |       |
| Other assets                                                                                                                                                                                             |       | 4,376                   |       | 4,109                      |       |
| Total assets                                                                                                                                                                                             |       | $                       | 622,873    |                       | $          | 622,663 |   |
|                                                                                                                                                                                                     |       |                    |       |                       |       |
| **Liabilities  and Stockholders’ Equity**                                                                                                                                                           |       |                    |       |                       |       |
| Current  liabilities:                                                                                                                                                                                    |       |                    |       |                       |       |
| Current  maturities of long-term debt and obligations under capital leases                                                                                                                               |       | $                       | 232        |                       | $          | 228 |   |
| Accounts payable                                                                                                                                                                                         |       | 25,672                  |       | 32,175                     |       |
| Deferred revenue  — gift cards/certificates                                                                                                                                                         |       | 18,607                  |       | 32,265                     |       |
| Accrued wages                                                                                                                                                                                            |       | 19,147                  |       | 15,500                     |       |
| Income tax  payable                                                                                                                                                                                      |       | 1,003                   |       | —                     |       |
| Accrued taxes  and licenses                                                                                                                                                                              |       | 9,540                   |       | 8,544                      |       |
| Other accrued  liabilities                                                                                                                                                                               |       | 11,162                  |       | 10,931                     |       |
| Total current  liabilities                                                                                                                                                                               |       | 85,363                  |       | 99,643                     |       |
| Long-term debt  and obligations under capital leases, excluding current maturities                                                                                                                       |       | 129,367                 |       | 132,482                    |       |
| Stock option and  other deposits                                                                                                                                                                         |       | 3,631                   |       | 3,784                      |       |
| Deferred rent                                                                                                                                                                                            |       | 10,434                  |       | 9,920                      |       |
| Deferred tax  liabilities                                                                                                                                                                                |       | 8,009                   |       | 6,205                      |       |
| Fair value of  derivative financial instruments                                                                                                                                                          |       | 2,286                   |       | 2,704                      |       |
| Other  liabilities                                                                                                                                                                                       |       | 4,980                   |       | 5,128                      |       |
| Total  liabilities                                                                                                                                                                                       |       | 244,070                 |       | 259,866                    |       |
| Texas  Roadhouse, Inc. and subsidiaries stockholders’ equity:                                                                                                                                  |       |                    |       |                       |       |
| Preferred stock  ($0.001 par value, 1,000,000 shares authorized; no sharesissued or outstanding)                                                                                                         |       | —                  |       | —                     |       |
| Common stock,  Class A, ($0.001 par value, 100,000,000 shares authorized,64,287,499 and 64,070,620 shares issued  and outstanding at March 31, 2009 and December 30, 2008,  respectively) |       | 64                      |       | 64                         |       |
| Common stock,  Class B, ($0.001 par value, 8,000,000 shares authorized, 5,265,376shares issued and outstanding)                                                                                     |       | 5                       |       | 5                          |       |
| Additional paid  in capital                                                                                                                                                                              |       | 221,876                 |       | 220,385                    |       |
| Retained earnings                                                                                                                                                                                        |       | 155,574                 |       | 141,240                    |       |
| Accumulated  other comprehensive loss                                                                                                                                                                    |       | (1,404                  | )          | (1,704                     | )          |
| Total Texas  Roadhouse, Inc. and subsidiaries stockholders’ equity                                                                                                                             |       | 376,115                 |       | 359,990                    |       |
| Noncontrolling  interests                                                                                                                                                                                |       | 2,688                   |       | 2,807                      |       |
| Total equity                                                                                                                                                                                             |       | 378,803                 |       | 362,797                    |       |
| Total liabilities  and equity                                                                                                                                                                            |       | $                       | 622,873    |                       | $          | 622,663 |   |

 

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**       | ** ** |
|-------------------------------------------------------------------------------------------|------------|--------------------------|------------|
| ** **                                                                                | ** ** | **March 31,  2009** | ** ** | **March 25,  2008** | ** ** |
| Revenue:                                                                                  |       |                     |       |   |   |
| Restaurant sales                                                                          |       | $                        | 244,090    |   | $ | 208,601 |   |
| Franchise royalties  and fees                                                             |       | 1,983                    |       | 2,612 |   |
|                                                                                      |       |                     |       |   |   |
| Total revenue                                                                             |       | 246,073                  |       | 211,213 |   |
|                                                                                      |       |                     |       |   |   |
| Costs and  expenses:                                                                      |       |                     |       |   |   |
| Restaurant  operating costs:                                                              |       |                     |       |   |   |
| Cost of sales                                                                             |       | 83,041                   |       | 73,586 |   |
| Labor                                                                                     |       | 71,499                   |       | 58,442 |   |
| Rent                                                                                      |       | 4,912                    |       | 3,289 |   |
| Other operating                                                                           |       | 40,860                   |       | 33,250 |   |
| Pre-opening                                                                               |       | 2,284                    |       | 2,826 |   |
| Depreciation and  amortization                                                            |       | 10,471                   |       | 8,546 |   |
| Impairment and  closure                                                                   |       | (86                      | )          | 703 |   |
| General and  administrative                                                               |       | 10,809                   |       | 9,871 |   |
|                                                                                      |       |                     |       |   |   |
| Total costs and  expenses                                                                 |       | 223,790                  |       | 190,513 |   |
|                                                                                      |       |                     |       |   |   |
| Income from  operations                                                                   |       | 22,283                   |       | 20,700 |   |
|                                                                                      |       |                     |       |   |   |
| Interest  expense, net                                                                    |       | 857                      |       | 642 |   |
| Equity income  from investments in unconsolidated affiliates                              |       | (85                      | )          | (69 | ) |
|                                                                                      |       |                     |       |   |   |
| Income before  taxes                                                                      |       | 21,511                   |       | 20,127 |   |
| Provision for  income taxes                                                               |       | 6,715                    |       | 6,953 |   |
| Net income  including noncontrolling interests                                            |       | $                        | 14,796     |   | $ | 13,174 |   |
| Less: Net income  attributable to noncontrolling interests                                |       | 462                      |       | 261 |   |
|                                                                                      |       |                     |       |   |   |
| Net income  attributable to Texas Roadhouse, Inc. and subsidiaries                   |       | $                        | 14,334     |   | $ | 12,913 |   |
|                                                                                      |       |                     |       |   |   |
| Net income per  common share attributable to Texas Roadhouse, Inc. and subsidiaries: |       |                     |       |   |   |
| Basic                                                                                     |       | $                        | 0.21       |   | $ | 0.17 |   |
|                                                                                      |       |                     |       |   |   |
| Diluted                                                                                   |       | $                        | 0.20       |   | $ | 0.17 |   |
|                                                                                      |       |                     |       |   |   |
| Weighted-average  shares outstanding:                                                     |       |                     |       |   |   |
| Basic                                                                                     |       | 69,426                   |       | 74,744 |   |
|                                                                                      |       |                     |       |   |   |
| Diluted                                                                                   |       | 70,506                   |       | 76,443 |   |

** **

See accompanyingnotes to condensed consolidated financial statements.

 

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**TexasRoadhouse, Inc. and Subsidiaries**

**Condensed Consolidated Statements ofStockholders’ Equity and Comprehensive Income**

**(inthousands, except share data)**

**(unaudited)**

** **
| ** **                                                   | ** ** | **Class A** | ** ** | **Class B** | ** ** | ** ** | ** ** | ** **     | ** ** | **Accumulated  Other** | ** ** | ** **             | ** ** | ** **                       | ** ** |
|--------------------------------------------------------------|------------|------------------|------------|------------------|------------|------------|------------|----------------|------------|------------------------|------------|------------------------|------------|----------------------------------|------------|
| ** **                                                   | ** ** | **Shares**       | ** ** | **Par  Value**   | ** ** | **Shares** | ** ** | **Par  Value** | ** ** | **Paid in  Capital**   | ** ** | **Retained  Earnings** | ** ** | **Comprehensive  Income (Loss)** | ** ** | **Noncontrolling  Interests** | ** ** | **Total** | ** ** |
|                                                         |       |             |       |             |       |       |       |           |       |                   |       |                   |       |                             |       |   |   |   |   |
| Balance,  December 30, 2008                             |       | 64,070,620       |       | $                | 64         |       | 5,265,376  |           | $          | 5                      |       | $                      | 220,385    |                             | $          | 141,240 |   | $ | (1,704 | ) | $ | 2,807 |   | $ | 362,797 |   |
|                                                         |       |             |       |             |       |       |       |           |       |                   |       |                   |       |                             |       |   |   |   |   |
| Comprehensive  income:                                       |       |             |       |             |       |       |       |           |       |                   |       |                   |       |                             |       |   |   |   |   |
| Unrealized gain  on derivatives, net of tax                  |       | —           |       | —           |       | —     |       | —         |       | —                 |       | —                 |       | 300                              |       | — |   | 300 |   |
| Net income                                                   |       | —           |       | —           |       | —     |       | —         |       | —                 |       | 14,334                 |       | —                           |       | 462 |   | 14,796 |   |
|                                                         |       |             |       |             |       |       |       |           |       |                   |       |                   |       |                             |       |   |   |   |   |
| Total  comprehensive income                                  |       |             |       |             |       |       |       |           |       |                   |       |                   |       |                             |       |   |   | 15,096 |   |
|                                                         |       |             |       |             |       |       |       |           |       |                   |       |                   |       |                             |       |   |   |   |   |
| Distributions to  noncontrolling interests                   |       | —           |       | —           |       | —     |       | —         |       | —                 |       | —                 |       | —                           |       | (581 | ) | (581 | ) |
| Shares issued  under stock option plan including tax effects |       | 35,442           |       | —           |       | —     |       | —         |       | 164                    |       | —                 |       | —                           |       | — |   | 164 |   |
| Settlement of  restricted stock units, net of tax            |       | 181,437          |       | —           |       | —     |       | —         |       | (634                   | )          | —                 |       | —                           |       | — |   | (634 | ) |
| Share-based  compensation                                    |       | —           |       | —           |       | —     |       | —         |       | 1,961                  |       | —                 |       | —                           |       | — |   | 1,961 |   |
|                                                         |       |             |       |             |       |       |       |           |       |                   |       |                   |       |                             |       |   |   |   |   |
| Balance,  March 31, 2009                                |       | 64,287,499       |       | $                | 64         |       | 5,265,376  |           | $          | 5                      |       | $                      | 221,876    |                             | $          | 155,574 |   | $ | (1,404 | ) | $ | 2,688 |   | $ | 378,803 |   |

 

See accompanyingnotes to condensed consolidated financial statements.

 

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**TexasRoadhouse, Inc. and Subsidiaries**

**Condensed Consolidated Statements ofCash Flows**

**(inthousands)**

**(unaudited)**

 
| ** **                                                                         | ** ** | **13 Weeks Ended**      | ** ** |
|------------------------------------------------------------------------------------|------------|-------------------------|------------|
| ** **                                                                         | ** ** | **March 31, 2009** | ** ** | **March 25, 2008** | ** ** |
| **Cash  flows from operating activities:**                                         |       |                    |       |   |   |
| Net income  attributable to Texas Roadhouse, Inc. and subsidiaries            |       | $                       | 14,334     |   | $ | 12,913 |   |
| Adjustments to  reconcile net income to net cash provided by operating activities: |       |                    |       |   |   |
| Depreciation and  amortization                                                     |       | 10,471                  |       | 8,546 |   |
| Deferred income  taxes                                                             |       | 1,759                   |       | (1,747 | ) |
| Loss on  disposition of assets                                                     |       | 211                     |       | 253 |   |
| Impairment and  closure                                                            |       | (88                     | )          | 611 |   |
| Noncontrolling  interests                                                          |       | 462                     |       | 261 |   |
| Equity income  from investments in unconsolidated affiliates                       |       | (85                     | )          | (69 | ) |
| Distributions  received from investments in unconsolidated affiliates              |       | 91                      |       | 65 |   |
| Provision for  doubtful accounts                                                   |       | 126                     |       | — |   |
| Share-based  compensation expense                                                  |       | 1,961                   |       | 1,700 |   |
| Changes in  operating working capital:                                             |       |                    |       |   |   |
| Receivables                                                                        |       | 1,196                   |       | 8,014 |   |
| Inventories                                                                        |       | 395                     |       | 218 |   |
| Prepaid expenses  and other current assets                                         |       | 4                       |       | (576 | ) |
| Other assets                                                                       |       | (255                    | )          | (140 | ) |
| Accounts payable                                                                   |       | (6,503                  | )          | (1,129 | ) |
| Deferred revenue  — gift cards/certificates                                   |       | (13,658                 | )          | (13,598 | ) |
| Accrued wages                                                                      |       | 3,647                   |       | 1,000 |   |
| Excess tax  benefits from share-based compensation                                 |       | (32                     | )          | (73 | ) |
| Prepaid income  taxes and income taxes payable                                     |       | 4,464                   |       | 8,118 |   |
| Accrued taxes  and licenses                                                        |       | 977                     |       | 1,354 |   |
| Other accrued  liabilities                                                         |       | 231                     |       | (767 | ) |
| Deferred rent                                                                      |       | 514                     |       | 519 |   |
| Other  liabilities                                                                 |       | (44                     | )          | 611 |   |
|                                                                               |       |                    |       |   |   |
| Net cash  provided by operating activities                                         |       | $                       | 20,178     |   | $ | 26,084 |   |
|                                                                               |       |                    |       |   |   |
| **Cash  flows from investing activities:**                                         |       |                    |       |   |   |
| Capital  expenditures — property and equipment                                |       | (13,430                 | )          | (24,384 | ) |
| Acquisitions of  franchise restaurants, net of cash acquired                       |       | 13                      |       | 157 |   |
| Proceeds from  sale of property and equipment, including insurance proceeds        |       | 67                      |       | (5 | ) |
|                                                                               |       |                    |       |   |   |
| Net cash used in  investing activities                                             |       | $                       | (13,350    | ) | $ | (24,232 | ) |
|                                                                               |       |                    |       |   |   |
| **Cash  flows from financing activities:**                                         |       |                    |       |   |   |
| (Repayments of)  proceeds from revolving credit facility, net                      |       | (3,000                  | )          | 9,000 |   |
| Proceeds from  noncontrolling interests contributions and other                    |       | —                  |       | 445 |   |
| Investments in  unconsolidated affiliates                                          |       | (18                     | )          | — |   |
| Distributions to  noncontrolling interest holders                                  |       | (581                    | )          | (258 | ) |
| Excess tax  benefits from share-based compensation                                 |       | 32                      |       | 73 |   |
| Repurchase  shares of common stock                                                 |       | —                  |       | (4,905 | ) |
| Repayments of  stock option and other deposits                                     |       | (543                    | )          | (66 | ) |
| Proceeds from  stock option and other deposits                                     |       | 390                     |       | 405 |   |
| Settlement of  restricted stock units, net of tax                                  |       | (634                    | )          | — |   |
| Principal  payments on long-term debt and capital lease obligations                |       | (111                    | )          | (73 | ) |
| Proceeds from  exercise of stock options                                           |       | 132                     |       | 136 |   |
|                                                                               |       |                    |       |   |   |
| Net cash (used  in)/provided by financing activities                               |       | $                       | (4,333     | ) | $ | 4,757 |   |
|                                                                               |       |                    |       |   |   |
| Net increase in  cash and cash equivalents                                         |       | 2,495                   |       | 6,609 |   |
| Cash and cash  equivalents — beginning of period                              |       | 5,258                   |       | 11,564 |   |
| Cash and cash  equivalents — end of period                                    |       | $                       | 7,753      |   | $ | 18,173 |   |
|                                                                               |       |                    |       |   |   |
| Supplemental  disclosures of cash flow information:                                |       |                    |       |   |   |
| Interest, net of  amounts capitalized                                              |       | $                       | 1,009      |   | $ | 873 |   |
| Income taxes                                                                       |       | $                       | 492        |   | $ | 582 |   |

 

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)   Basisof Presentation**

 

The accompanyingunaudited condensed consolidated financial statements include the accounts ofTexas Roadhouse, Inc. (the “Company”), its wholly-owned subsidiaries andsubsidiaries in which it owns more than 50 percent interest, as of and for the13 weeks ended March 31, 2009 and March 25, 2008.  Texas Roadhouse, Inc.’s wholly-ownedsubsidiaries include: Texas Roadhouse Holdings LLC (“Holdings”), TexasRoadhouse Development Corporation (“TRDC”) and Texas Roadhouse ManagementCorp. (“Management Corp”).  The Company and its subsidiaries operate TexasRoadhouse restaurants. Holdings also provides supervisory and administrativeservices for certain other franchise and license restaurants. TRDC sellsfranchise rights and collects the franchise royalties and fees. Management Corp. provides management services to the Company, Holdings andcertain other license and franchise restaurants.  All material balances and transactionsbetween the consolidated entities have been eliminated.  In accordance with the Company’s adoption ofStatement of Financial Accounting Standard No. 160, *NoncontrollingInterests in Consolidated Statements, an amendment of ARB No. 51*(“SFAS160”), noncontrolling interests (previously shown as “minority interest inconsolidated subsidiaries”) are reported below net income under the heading “Netincome attributable to the noncontrolling interests” in the condensedconsolidated statements of income and shown as a component of equity in thecondensed consolidated balance sheets. See note 5 for further discussion.

 

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 13weeks ended March 31, 2009 are not necessarily indicative of the resultsthat may be expected for the year ending December 29, 2009.  Thefinancial statements should be read in conjunction with the consolidatedfinancial statements and notes thereto included in the Company’s Annual Reporton Form 10-K for the year ended December 30, 2008.

 

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

 

**(2)   Share-basedCompensation**

 

The Company may grantincentive and non-qualified stock options to purchase shares of Class Acommon stock, stock bonus awards (restricted stock unit awards (“RSUs”)) andrestricted stock awards under the Texas Roadhouse, Inc. 2004 Equity IncentivePlan (the “Plan”).  Beginning in 2008,the Company changed the method by which it provides share-based compensation toits employees by eliminating stock option grants and, instead, granting RSUs asa form of share-based compensation.   AnRSU is the conditional right to receive one share of Class A common stockupon satisfaction of the vesting requirement.

 

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

 
| ** **                              | ** ** | **13 Weeks Ended**      | ** ** |
|-----------------------------------------|------------|-------------------------|------------|
| ** **                              | ** ** | **March 31, 2009** | ** ** | **March 25, 2008** | ** ** |
|                                    |       |                    |       |   |   |
| Labor expense                           |       | $                       | 727        |   | $ | 550 |   |
| General and  administrative expense     |       | 1,234                   |       | 1,150 |   |
| Total  share-based compensation expense |       | $                       | 1,961      |   | $ | 1,700 |   |

 

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A summary of share-based compensation activity by typeof grant as of March 31, 2009 and changes during the period then ended ispresented below.

 

*Summary Details for Plan ShareOptions*

 
| ** **                             | ** ** | **Shares** | ** ** | **Weighted-  Average  Exercise Price** | ** ** | **Weighted-Average  Remaining Contractual  Term (years)** | ** ** | **Aggregate  Intrinsic  Value** | ** ** |
|----------------------------------------|------------|------------|------------|----------------------------------------|------------|-----------------------------------------------------------|------------|---------------------------------|------------|
|                                   |       |       |       |                                   |       |                                                      |       |                            |       |
| Outstanding at  December 30, 2008 |       | 6,276,323  |       | $                                      | 10.14      |                                                      |       |                            |       |   |
| Granted                                |       | —     |       | —                                 |       |                                                      |       |                            |       |
| Forfeited                              |       | (14,761    | )          | 14.21                                  |       |                                                      |       |                            |       |
| Exercised                              |       | (35,442    | )          | 3.72                                   |       |                                                      |       |                            |       |
| Outstanding at  March 31, 2009    |       | 6,226,120  |       | $                                      | 10.16      |                                                      | 5.75       |                            | $          | 11,148 |   |
|                                   |       |       |       |                                   |       |                                                      |       |                            |       |
| Exercisable at  March 31, 2009    |       | 5,638,270  |       | $                                      | 9.77       |                                                      | 5.55       |                            | $          | 11,144 |   |

 

No stock options weregranted during the 13 weeks ended March 31, 2009.

 

The total intrinsic valueof options exercised during the 13 weeks ended March 31, 2009 and March 25,2008 was $0.2 million and $0.6 million, respectively.  As of March 31, 2009, with respect tounvested stock options, there was $0.7 million of unrecognized compensationcost that is expected to be recognized over a weighted-average period of 0.5year.  The total grant date fair value ofstock options vested for both 13 week periods ended March 31, 2009 and March 25,2008 was $0.6 million and $2.3 million, respectively.

 

*SummaryDetails for RSUs*

 
| ** **                             | ** ** | **Shares** | ** ** | **Weighted-  Average  Grant Date  Fair Value** | ** ** |
|----------------------------------------|------------|------------|------------|------------------------------------------------|------------|
|                                   |       |       |       |                                           |       |
| Outstanding at  December 30, 2008 |       | 1,253,530  |       | $                                              | 9.63       |   |
| Granted                                |       | 160,835    |       | 7.96                                           |       |
| Forfeited                              |       | (12,614    | )          | 8.91                                           |       |
| Vested                                 |       | (258,471   | )          | 10.05                                          |       |
| Outstanding at  March 31, 2009    |       | 1,143,280  |       | $                                              | 9.31       |   |

 

As of March 31,2009, with respect to unvested RSUs, there was $8.1 million of unrecognizedcompensation cost that is expected to be recognized over a weighted-averageperiod of 1.8 years.  The vesting termsof the RSUs range from approximately 1.0 to 5.0 years.  The total grant date fair value of RSUsvested for the 13 week period ended March 31, 2009 was $2.6 million.

 

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 March 31, 2009, theunrecognized compensation expense related to the restricted stock grantstotaled approximately $0.1 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:

 
| ** **                               | ** ** | **March 31, 2009** | ** ** | **December 30, 2008** | ** ** |
|------------------------------------------|------------|-------------------------|------------|----------------------------|------------|
| Installment loans,  due 2009 – 2020 |       | $                       | 2,149      |                       | $          | 2,194 |   |
| Obligations  under capital leases        |       | 450                     |       | 516                        |       |
| Revolver                                 |       | 127,000                 |       | 130,000                    |       |
|                                     |       | 129,599                 |       | 132,710                    |       |
| Less current  maturities                 |       | 232                     |       | 228                        |       |
|                                     |       | $                       | 129,367    |                       | $          | 132,482 |   |

 

The weighted-averageinterest rate for installment loans outstanding at March 31, 2009 and December 30,2008 was 10.57% and 10.55%, respectively. The debt is secured by certain land, buildings and equipment.

 

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The Company has a $250.0million five-year revolving credit facility with a syndicate of commerciallenders led by Bank of America, N.A., Banc of America Securities LLC andNational City Bank which, in December 2008, was acquired by PNC Bank.  The facility expires on May 31,2012.  The terms of the facility requirethe Company to pay interest on outstanding borrowings at LIBOR plus a margin of0.50% to 0.875%, depending on its leverage ratio, or the Base Rate, which isthe higher of the issuing bank’s prime lending rate or the Federal Funds rateplus 0.50%.  The Company is also requiredto pay a commitment fee of 0.10% to 0.175% per year on any unused portion ofthe facility, depending on its leverage ratio. The weighted-average interest rate for the revolver at March 31,2009 and December 30, 2008 was 2.28% and 2.73%, respectively.  At March 31, 2009, the Company had$127.0 million outstanding under the credit facility and $119.0 million ofavailability, net of $4.0 million of outstanding letters of credit.

 

The lenders’ obligationto extend credit under the facility depends on the Company maintaining certainfinancial covenants, including a minimum consolidated fixed charge coverageratio of 2.00 to 1.00 and a maximum consolidated leverage ratio of 3.00 to1.00.  The credit facility permits theCompany to incur additional secured or unsecured indebtedness outside thefacility, except for the incurrence of secured indebtedness that in theaggregate exceeds 20% of the Company’s consolidated tangible net worth orcircumstances where the incurrence of secured or unsecured indebtedness wouldprevent the Company from complying with its financial covenants.  The Company was in compliance with allcovenants as of March 31, 2009.

 

**(4)   Derivative andHedging Activities**

 

The Company entersinto derivative instruments for risk management purposes only, includingderivatives designated as hedging instruments under Statement of FinancialAccounting Standards No. 133, *Accounting for DerivativeInstruments and Hedging Activities*(“SFAS 133”)*. *The Company uses interestrate-related derivative instruments to manage its exposure to fluctuations ofinterest rates.  By using theseinstruments, the Company exposes itself, from time to time, to credit risk andmarket risk.  Credit risk is the failureof the counterparty to perform under the terms of the derivative contract. Whenthe fair value of a derivative contract is positive, the counterparty owes theCompany, which creates credit risk for the Company.  The Company minimizes the credit risk byentering into transactions with high-quality counterparties whose credit ratingis evaluated on a quarterly basis.  TheCompany’s counterparty in the interest rate swaps is J.P. Morgan Chase, N.A.  Market risk is the adverse effect on thevalue of a financial instrument that results from a change in interest rates,commodity prices, or the market price of the Company’s common stock.  The Company minimizes market risk byestablishing and monitoring parameters that limit the types and degree ofmarket risk that may be taken.

 

*InterestRate Swaps*

 

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

 

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

 

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

 

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The following table summarizesthe fair value and presentation in the condensed consolidated balance sheetsfor derivatives designated as hedging instruments under SFAS 133:

 
| ** **                                                             | ** ** | ** **                  | ** ** | **Derivative Assets**    | ** ** | **Derivative Liabilities**  | ** ** |
|------------------------------------------------------------------------|------------|-----------------------------|------------|--------------------------|------------|-----------------------------|------------|
| ** **                                                             | ** ** | **Balance Sheet  Location** | ** ** | **March 31,  2009** | ** ** | **December 30,  2008** | ** ** | **March 31,  2009** | ** ** | **December 30,  2008** | ** ** |
|                                                                   |       |                        |       |                     |       |                        |       |   |   |   |   |
| Derivative  Contracts Designated as Hedging Instruments under SFAS 133 |       | (1)                         |       |                     |       |                        |       |   |   |   |   |
|                                                                   |       |                        |       |                     |       |                        |       |   |   |   |   |
| Interest rate  swaps                                                   |       |                        |       | $                        | —     |                        | $          | — |   | $ | 2,286 |   | $ | 2,704 |   |
|                                                                   |       |                        |       |                     |       |                        |       |   |   |   |   |
| Total Derivative  Contracts                                            |       |                        |       | $                        | —     |                        | $          | — |   | $ | 2,286 |   | $ | 2,704 |   |

 

----

(1)                             Derivative liabilities are included infair value of derivative financial instruments on the condensed consolidatedbalance sheets.

 

The followingtable summarizes the effect of derivative instruments on the condensed consolidatedstatements of income for the thirteen weeks ended March 31, 2009 and March 25,2008:

 
| ** **           | ** ** | **Amount  of Loss  Recognized in AOCI  (effective portion)** | ** ** | **Location  of  Loss  Reclassified  from AOCI  Income** | ** ** | **Amount  of Loss  Reclassified from AOCI  to Income (effective  portion)** | ** ** | **Location  of  Loss Recognized  in Income (ineffective portion)** | ** ** | **Amount  of Loss Recognized  in Income (ineffective  portion)** | ** ** |
|----------------------|------------|--------------------------------------------------------------|------------|---------------------------------------------------------|------------|-----------------------------------------------------------------------------|------------|--------------------------------------------------------------------|------------|------------------------------------------------------------------|------------|
| ** **           | ** ** | **2009**                                                     | ** ** | **2008**                                                | ** ** | ** **                                                                  | **2009**   | ** **                                                         | **2008**   | ** **                                                       | ** ** | **2009** | ** ** | **2008** | ** ** |
|                 |       |                                                         |       |                                                    |       |                                                                        |       |                                                               |       |                                                             |       |   |   |   |   |   |   |
| Interest rate  swaps |       | $                                                            | (1,404     | )                                                       | $          | —                                                                      |       | —                                                             |       | $                                                                | —     |   | $ | — |   | — |   | $ | — |   | $ | — |   |
|                      |            |                                                              |            |                                                         |            |                                                                             |            |                                                                    |            |                                                                  |            |  |  |  |  |  |  |  |  |  |  |  |  |

 

**(5)   RecentAccounting Pronouncements**

 

In February 2008,the Financial Accounting Standards Board (“FASB”) issued Staff Position FAS157-2, *Effective Date of FASB Statement No. *157,which delayed the effective date of Statement of Financial Accounting Standard No. 157,*Fair Value Measurements*(“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 fornonfinancial assets and nonfinancial liabilities did not impact the Company’sconsolidated financial position, results of operations or cash flows.

 

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 will change its accountingtreatment for business combinations on a prospective basis.

 

In December 2007,the FASB issued SFAS 160.  SFAS 160establishes accounting and reporting standards that require: 1) noncontrollinginterests to be reported as a component of equity; 2) changes in a parent’sownership interest while the parent retains its controlling interest to beaccounted for as equity transactions; and 3) any retained noncontrolling equityinvestment upon the deconsolidation of a subsidiary to be initially measured atfair value.  SFAS 160 also changes the accountingand reporting for minority interests such that they will be recharacterized asnoncontrolling interests and classified as a component of equity.  SFAS 160 is to be applied prospectively tobusiness combinations consummated on or after the beginning of the first annualreporting period on or after December 15, 2008 (fiscal year 2009 for theCompany).  Certain provisions in SFAS 160are required to be adopted retrospectively for all periods presented.  Such provisions include a requirement thatthe carrying value of noncontrolling interests be reclassified as a componentof equity; and the condensed consolidated statements of income be recast toinclude net income attributable to the noncontrolling interests.

 

As a result of adoptingSFAS 160, at the start of fiscal 2009, the Company presents noncontrollinginterests (previously known as minority interest) as a component of equity onthe condensed consolidated balance sheets. Minority interest expense is no longer separately reported as areduction to net income on the condensed consolidated statement of income, butis instead shown below net income under the heading “net income attributable tothe noncontrolling interests”.  Totalprovision for income taxes remains 

 

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unchanged; however, theCompany’s effective tax rate as calculated from the balances shown on thecondensed consolidated statements of income has changed as net incomeattributable to noncontrolling interests is no longer included as a deductionin the determination of income from continuing operations.  As a result of this adoption, the Companyreclassified $2,688 and $2,807 in noncontrolling interests from the mezzaninesection to equity in the March 31, 2009 and the December 30, 2008condensed consolidated balance sheets, respectively.

 

In March 2008, theFASB issued SFAS No. 161, *Disclosures aboutDerivative Instruments and Hedging Activities* (“SFAS 161”).  SFAS 161 provides companies with requirementsfor enhanced disclosures about derivative instruments and hedging activities toenable investors to better understand their effects on a company’s financialposition, financial performance and cash flows. SFAS 161 is effective for financial statements issued for fiscal yearsand interim periods beginning after November 15, 2008 (fiscal year 2009for the Company).  SFAS 161 encourages,but does not require, comparative disclosures for earlier periods at initialadoption.  The adoption of SFAS 161 didnot have a material impact on the Company’s consolidated financial position,results of operations or 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.

 

In April 2009, theFASB issued Staff Position No. FAS 107-1 and APB 28-1, *Interim Disclosures about Fair Value of Financial Instruments*(“FSPFAS 107-1”).  FSP FAS 107-1 requires fairvalue disclosures on an interim basis for financial instruments that are notreflected in the condensed consolidated balance sheets at fair value.  Prior to the issuance of FSP FAS 107-1, thefair values of those financial instruments were only disclosed on an annualbasis.  FSP FAS 107-1 is effective forinterim reporting periods that end after June 15, 2009 (the Company’ssecond quarter).  The Company does notexpect the adoption of FSP FAS 107-1 to have a material impact on itsconsolidated financial position, results of operations or cash flows.

 

**(6)   Commitments andContingencies**

 

The estimated cost ofcompleting capital project commitments at March 31, 2009 and December 30,2008 was approximately $16.3 million and $34.0 million, respectively.

 

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

 

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

 

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

 

**(7)   RelatedParty Transactions**

 

The Longview, Texasrestaurant, 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 is approximately$16,000 per month and will increase by 5% on the 11th anniversary date ofthe lease. The lease can be terminated if the tenant fails to pay the rent on atimely basis, fails to maintain the insurance specified in the lease, fails tomaintain the building or property or becomes insolvent. Total rent paymentswere approximately $50,000 for each of the 13 week periods ended March 31,2009 and March 25, 2008.

 

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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 beterminated if the tenant fails to pay rent on a timely basis, fails to maintaininsurance, abandons the property or becomes insolvent.  Total rent payments were approximately$45,000 for each of the 13 week periods ended March 31, 2009 and March 25,2008.

 

The Company has 14franchise and license restaurants owned, in whole or part, by certain officers,directors or 5% shareholders of the Company at March 31, 2009 and March 25,2008. These entities paid the Company fees of approximately $0.5 million duringeach of the 13 week periods ended March 31, 2009 and March 25, 2008,respectively.  As disclosed in note 6,the Company is contingently liable on leases which are related to three ofthese restaurants.

 

**(8)   EarningsPer Share**

 

The share and net incomeper share data for all periods presented are based on the historicalweighted-average shares outstanding.  The diluted earnings per sharecalculations show the effect of the weighted-average stock options, RSUs andrestricted stock awards outstanding from the Plan as discussed in note 2.  For the 13 weeks ended March 31, 2009and March 25, 2008, options to purchase 4,876,839  and 3,177,066 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.

 

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

 
| ** **                                                              | ** ** | **13 Weeks Ended**      | ** ** |
|-------------------------------------------------------------------------|------------|-------------------------|------------|
| ** **                                                              | ** ** | **March 31, 2009** | ** ** | **March 25, 2008** | ** ** |
| Net income  attributable to Texas Roadhouse, Inc. and subsidiaries |       | $                       | 14,334     |   | $ | 12,913 |   |
|                                                                    |       |                    |       |   |   |
| Basic EPS:                                                              |       |                    |       |   |   |
| Weighted-average  common shares outstanding                             |       | 69,426                  |       | 74,744 |   |
|                                                                    |       |                    |       |   |   |
| Basic EPS                                                               |       | $                       | 0.21       |   | $ | 0.17 |   |
|                                                                    |       |                    |       |   |   |
| Diluted EPS:                                                            |       |                    |       |   |   |
| Weighted-average  common shares outstanding                             |       | 69,426                  |       | 74,744 |   |
| Dilutive effect  of stock options and restricted stock                  |       | 1,080                   |       | 1,699 |   |
| Shares — diluted                                                   |       | 70,506                  |       | 76,443 |   |
|                                                                    |       |                    |       |   |   |
| Diluted EPS                                                             |       | $                       | 0.20       |   | $ | 0.17 |   |

 

**(9)   Acquisitions**

 

On September 24,2008, the Company acquired one franchise restaurant.  Pursuant to the terms of the acquisitionagreement, the Company paid a purchase price of approximately $1.5million.  This acquisition is consistentwith the Company’s long-term strategy to increase net income and earnings pershare.

 

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This transaction wasaccounted for using the purchase method as defined in SFAS No. 141, *Business Combinations* (“SFAS 141”).  Based on a purchase price of $1.5 million,including approximately $0.1 million of direct acquisition costs and net of$0.1 million of cash acquired, and the Company’s estimates of the fair value ofnet assets acquired, $1.0 million of goodwill was generated by the acquisition,which is not amortizable for book purposes, but is deductible for tax purposes.

 

The purchase price hasbeen preliminarily allocated as follows:

 
| Current assets               |   | $      | 39     |   |
|------------------------------|--------|--------|--------|--------|
| Property and  equipment, net |   | 204    |   |
| Goodwill                     |   | 1,024  |   |
| Intangible asset             |   | 270    |   |
| Other assets                 |   | 11     |   |
| Current  liabilities         |   | (92    | )      |
|                         |   |   |   |
|                         |   | $      | 1,456  |   |

 

If the acquisition hadbeen completed as of the beginning of the quarter ended March 25, 2008,pro forma revenue, net income and earnings per share would have been asfollows:

 
| ** **  | ** ** | **13 Weeks Ended**      | ** ** |
|-------------|------------|-------------------------|------------|
| ** **  | ** ** | **March 25, 2008** | ** ** |
|        |       |                    |       |
| Revenue     |       | $                       | 212,171    |   |
| Net income  |       | $                       | 12,976     |   |
| Basic EPS   |       | $                       | 0.17       |   |
| Diluted EPS |       | $                       | 0.17       |   |

 

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

 

The intangible asset of$0.3 million has a weighted-average life of approximately 15 years.  When calculating this intangible asset, theCompany considered the remaining term of the existing franchise agreementincluding renewals.  The Company recordedamortization expense relating to the intangible asset of approximately $4,300for the 13 weeks ended March 31, 2009. The Company expects the annual expense for each of the next five yearsto be approximately $17,000.

 

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

 

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

 

The purchase price hasbeen preliminarily allocated as follows:

 
| Current assets               |   | $      | 264    |   |
|------------------------------|--------|--------|--------|--------|
| Property and  equipment, net |   | 1,741  |   |
| Goodwill                     |   | 5,697  |   |
| Intangible asset             |   | 3,465  |   |
| Current  liabilities         |   | (2,777 | )      |
|                         |   |   |   |
|                         |   | $      | 8,390  |   |

 

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If the acquisitions had been completed as of thebeginning of the quarter ended March 25, 2008, pro forma revenue, netincome and earnings per share would have been as follows:

 
| ** **  | ** ** | **13 Weeks Ended**      | ** ** |
|-------------|------------|-------------------------|------------|
| ** **  | ** ** | **March 25, 2008** | ** ** |
|        |       |                    |       |
| Revenue     |       | $                       | 218,172    |   |
| Net income  |       | $                       | 12,792     |   |
| Basic EPS   |       | $                       | 0.17       |   |
| Diluted EPS |       | $                       | 0.17       |   |

 

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

 

The intangible asset of$3.5 million has a weighted-average life of approximately 13 years.  When calculating this intangible asset, theCompany considered the remaining term of the existing franchise agreementsincluding renewals.  The remaining termsranged from 10 to 19 years.  The Companyrecorded amortization expense relating to the intangible asset of approximately$0.1 million for the 13 weeks ended March 31, 2009.  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 $8.5million.  These acquisitions areconsistent with the Company’s long-term strategy to increase net income andearnings per share.

 

These transactions wereaccounted for using the purchase method as defined in SFAS 141.  Based on a purchase price of $8.2 million,including approximately $0.1 million of direct acquisition costs and net of the$0.4 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, $6.4 millionof goodwill was generated by the acquisitions, which is not amortizable forbook purposes, but is deductible for tax purposes.

 

The purchase price hasbeen allocated as follows:

 
| Current assets               |   | $      | 84     |   |
|------------------------------|--------|--------|--------|--------|
| Property and  equipment, net |   | 867    |   |
| Goodwill                     |   | 6,441  |   |
| Intangible asset             |   | 1,579  |   |
| Current  liabilities         |   | (693   | )      |
| Noncurrent  liabilities      |   | (105   | )      |
|                         |   |   |   |
|                         |   | $      | 8,173  |   |

 

If the acquisitions hadbeen completed as of the beginning of the quarter ended March 25, 2008,pro forma revenue, net income and earnings per share would have been asfollows:

 
| ** **  | ** ** | **13 Weeks Ended**      | ** ** |
|-------------|------------|-------------------------|------------|
| ** **  | ** ** | **March 25, 2008** | ** ** |
|        |       |                    |       |
| Revenue     |       | $                       | 214,527    |   |
| Net income  |       | $                       | 13,034     |   |
| Basic EPS   |       | $                       | 0.17       |   |
| Diluted EPS |       | $                       | 0.17       |   |

 

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 10 to 16 years.  The Company recordedamortization expense relating to the intangible asset of approximately $31,500for the 13 weeks ended March 31, 2009. The Company expects the annual expense for each of the next five yearsto be $0.1 million.

 

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**(10)   FairValue Measurement**

 

The following tablepresents the fair values for the Company’s financial assets and liabilitiesmeasured on a recurring basis as of March 31, 2009:

 
| ** **                                | ** ** | ** ** | ** ** | **Fair Value Measurements**                                           | ** ** |
|-------------------------------------------|------------|------------|------------|-----------------------------------------------------------------------|------------|
| ** **                                | ** ** | **Total**  | ** ** | **Quoted Prices in  Active Markets  for Identical  Assets (Level 1)** | ** ** | **Significant Other  Observable  Inputs (Level 2)** | ** ** | **Significant  Unobservable  Inputs (Level 3)** | ** ** |
|                                      |       |       |       |                                                                  |       |   |   |   |   |
| Interest rate  swaps                      |       | $          | (2,286     | )                                                                     | $          | — |   | $ | (2,286 | ) | $ | — |   |
| Deferred  compensation plan - assets      |       | 2,018      |       | 2,018                                                                 |       | — |   | — |   |
| Deferred  compensation plan - liabilities |       | (1,979     | )          | (1,979                                                                | )          | — |   | — |   |
|                                      |       |       |       |                                                                  |       |   |   |   |   |
| Total                                     |       | $          | (2,247     | )                                                                     | $          | 39 |   | $ | (2,286 | ) | $ | — |   |

 

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

 

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

 

**(11)   StockRepurchase Program**

 

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

 

For the 13 weeks ended March 31,2009, the Company did not repurchase any shares of its Class A commonstock.  For the 13 weeks ended March 25,2008 the Company paid approximately $4.9 million to repurchase and retire529,900 shares at an average price of $9.24 per share.

 

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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 March 31, 2009, there were 323 Texas Roadhouserestaurants operating in 46 states, including:

 

·  254“company restaurants,” of which 244 were wholly-owned and ten weremajority-owned.  The results of operations of company restaurants areincluded in our condensed consolidated statements of income. The portion ofincome attributable to minority interests in company restaurants that are notwholly-owned is reflected in the line item entitled “Net income attributable tononcontrolling interests” in our condensed consolidated statements of income.

 

· 69 “franchise restaurants,” ofwhich 66 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 eight 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) 59 of the franchiserestaurants.

 

**Presentationof Financial and Operating Data**

 

Throughout this report,the 13 weeks ended March 31, 2009 and March 25, 2008 are referred toas Q1 2009 and Q1 2008, respectively.

 

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

 

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

 

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

 

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

 

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

 

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

 

*StockRepurchase Program. *We continue to look at opportunities torepurchase our Class A common stock at favorable market prices under ourstock repurchase program.  Currently, ourBoard of Directors has authorized us to repurchase up to $75.0 million of our Class Acommon stock.  As of March 31, 2009,$18.2 million worth of Class A common stock remains authorized forrepurchase.

 

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

 

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

 

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

 

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

 

**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, as defined in ourfranchise agreement, paid to us by our franchisees.

 

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

 

*RestaurantLabor Expenses.*   Restaurantlabor expenses include all direct and indirect labor costs incurred inoperations except for profit sharing incentive compensation expenses earned byour managing partners 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 otheroperating expenses.

 

*Pre-openingExpenses.*   Pre-openingexpenses, which are charged to operations as incurred, consist of expenses incurredbefore the opening of a new restaurant and are comprised principally of openingteam and training salaries, travel expenses, rent, and food, beverage and otherinitial 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.

 

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

 

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

 

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

 

*NetIncome Attributable to Noncontrolling Interests.*   Net income attributable tononcontrolling interests represents the portion of income attributable to theother owners of the majority-owned or controlled restaurants.  Our consolidated subsidiaries at March 31,2009 included ten majority-owned restaurants, all of which were open.  Ourconsolidated subsidiaries at March 25, 2008 included nine majority-ownedrestaurants, seven of which were open and two of which were under construction.

 

**Resultsof Operations**

 
| ** **                                                              | ** ** | **13 Weeks Ended**      | ** ** |
|-------------------------------------------------------------------------|------------|-------------------------|------------|
| ** **                                                              | ** ** | **March 31, 2009** | ** ** | **March 25, 2008** | ** ** |
| **($ in thousands)**                                               | ** ** | **$**                   | ** ** | **%** | ** ** | **$** | ** ** | **%** | ** ** |
|                                                                    |       |                    |       |   |   |   |   |   |   |
| Revenue:                                                                |       |                    |       |   |   |   |   |   |   |
| Restaurant sales                                                        |       | 244,090                 |       | 99.2 |   | 208,601 |   | 98.8 |   |
| Franchise  royalties and fees                                           |       | 1,983                   |       | 0.8 |   | 2,612 |   | 1.2 |   |
|                                                                    |       |                    |       |   |   |   |   |   |   |
| Total revenue                                                           |       | 246,073                 |       | 100.0 |   | 211,213 |   | 100.0 |   |
|                                                                    |       |                    |       |   |   |   |   |   |   |
| Costs and  expenses:                                                    |       |                    |       |   |   |   |   |   |   |
| *(As a  percentage of restaurant sales)*                                |       |                    |       |   |   |   |   |   |   |
| Restaurant  operating costs:                                            |       |                    |       |   |   |   |   |   |   |
| Cost of sales                                                           |       | 83,041                  |       | 34.0 |   | 73,586 |   | 35.3 |   |
| Labor                                                                   |       | 71,499                  |       | 29.3 |   | 58,442 |   | 28.0 |   |
| Rent                                                                    |       | 4,912                   |       | 2.0 |   | 3,289 |   | 1.6 |   |
| Other operating                                                         |       | 40,860                  |       | 16.7 |   | 33,250 |   | 15.9 |   |
| *(As a  percentage of total revenue)*                                   |       |                    |       |   |   |   |   |   |   |
| Pre-opening                                                             |       | 2,284                   |       | 0.9 |   | 2,826 |   | 1.3 |   |
| Depreciation and  amortization                                          |       | 10,471                  |       | 4.3 |   | 8,546 |   | 4.0 |   |
| Impairment and  closure                                                 |       | (86                     | )          | NM |   | 703 |   | 0.3 |   |
| General and  administrative                                             |       | 10,809                  |       | 4.4 |   | 9,871 |   | 4.7 |   |
|                                                                    |       |                    |       |   |   |   |   |   |   |
| Total costs and  expenses                                               |       | 223,790                 |       | 90.9 |   | 190,513 |   | 90.2 |   |
| Income from  operations                                                 |       | 22,283                  |       | 9.1 |   | 20,700 |   | 9.8 |   |
| Interest  expense, net                                                  |       | 857                     |       | 0.3 |   | 642 |   | 0.3 |   |
| Equity income  from investments in unconsolidated affiliates            |       | (85                     | )          | NM |   | (69 | ) | NM |   |
|                                                                    |       |                    |       |   |   |   |   |   |   |
| Income before  taxes                                                    |       | 21,511                  |       | 8.7 |   | 20,127 |   | 9.5 |   |
| Provision for  income taxes                                             |       | 6,715                   |       | 2.7 |   | 6,953 |   | 3.3 |   |
| Net income  including noncontrolling interests                          |       | 14,796                  |       | 6.0 |   | 13,174 |   | 6.2 |   |
| Net income  attributable to noncontrolling interests                    |       | 462                     |       | 0.2 |   | 261 |   | 0.1 |   |
| Net income  attributable to Texas Roadhouse, Inc. and subsidiaries |       | 14,334                  |       | 5.8 |   | 12,913 |   | 6.1 |   |

 

NM — Not meaningful

 

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**RestaurantUnit Activity**

** **
| ** **                         | ** ** | **Company** | ** ** | **Franchise** | ** ** | **Total** | ** ** |
|------------------------------------|------------|-------------|------------|---------------|------------|-----------|------------|
| Balance at  December 30, 2008 |       | 245         |       | 69            |       | 314       |       |
| Openings                           |       | 9           |       | —        |       | 9         |       |
| Acquisitions  (Dispositions)       |       | —      |       | —        |       | —    |       |
| Closures                           |       | —      |       | —        |       | —    |       |
|                               |       |        |       |          |       |      |       |
| Balance at  March 31, 2009    |       | 254         |       | 69            |       | 323       |       |

 

**Q12009 (13 weeks) Compared to Q1 2008 (13 weeks)**

 

*RestaurantSales.*   Restaurantsales increased by 17.0% in Q1 2009 as compared to Q1 2008.  These increases were primarily attributableto the opening of new restaurants and the acquisitions of franchise restaurantsin fiscal 2008, partially offset by a decrease in comparable restaurant salesand average unit volumes.

 

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

 
| ** **                          | ** ** | **Q1 2009** | ** ** | **Q1 2008** | ** ** |
|-------------------------------------|------------|-------------|------------|-------------|------------|
|                                |       |        |       |        |       |
| Store weeks                         |       | 3,249       |       | 2,667       |       |
| Comparable  restaurant sales growth |       | (1.3        | )%         | (1.2        | )%         |
| Average unit  volume (in thousands) |       | $           | 969        |        | $          | 996 |   |
|                                     |            |             |            |             |            |  |  |

 

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

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

 

Effectivein April 2009, we implemented an average menu price increase of 1.4%.  We will continue to evaluate the need for andtest further menu price increases as we assess the current inflationary andcompetitive environment.

 

OnSeptember 24, 2008, we acquired one franchise restaurant, which isexpected to have no significant net revenue or accretive impact on an on-goingannual basis.  In Q1 2009, restaurantsales included $1.0 million from the acquired franchise restaurant.  Effective July 23, 2008, we acquirednine franchise restaurants.  On a12-month basis, the acquisitions are expected to add approximately $31.0million of net revenue and have no significant accretive impact.  In Q1 2009, restaurant sales included $6.2million from the nine acquired franchise restaurants.  Effective March 26, 2008, we acquiredthree franchise restaurants.  On anon-going annual basis, we estimate these acquisitions will be accretive todiluted earnings per share by approximately $0.005.  In Q1 2009, restaurant sales included $3.3million from the three acquired franchise restaurants.

 

*FranchiseRoyalties and Fees.*   Franchiseroyalties and fees decreased by $0.6 million, or by 24.1%, in Q1 2009 from Q12008.  This decrease was primarilyattributable to the loss of royalties associated with the acquisition of 13franchise restaurants in 2008, the reduction of royalties in severalrestaurants and a decrease in average unit volumes.  These decreases were partially offset byincreasing royalty rates in conjunction with the renewal of certain franchiseagreements.  The acquired franchiserestaurants generated approximately $0.4 million in franchise royalties in Q1 2008.  Franchise comparable restaurant salesdecreased 1.7% in Q1 2009.  Franchiserestaurant count activity is shown in the restaurant unit activity tableabove.  We anticipate our franchiseroyalties and fees will continue to decrease in 2009 due to the impact ofacquisitions of franchise restaurants in 2008.

 

*RestaurantCost of Sales.*   Restaurantcost of sales, as a percentage of restaurant sales, decreased to 34.0% in Q12009 from       35.3% in Q1 2008.  The decrease in Q1 2009 was primarilyattributable to the benefit of lower beef costs and dairy costs and menu priceincreases discussed above, partially offset by higher commodity costs onchicken and food items such as wheat and oil-based ingredients.  For 2009, we have fixed price contracts for90% of our beef product volume with the remainder currently subject tofluctuating market prices.  We expectcommodity cost deflation of approximately 2.0-3.0% in 2009.

 

*RestaurantLabor Expenses.*   Restaurantlabor expenses, as a percentage of restaurant sales, increased to 29.3% in Q12009 from 28.0% in Q1 2008.  The increasewas primarily attributable to a decrease in average unit volumes combined withhigher labor costs associated with restaurants opened in 2008 and higheraverage wage rates.  Additionally,payroll tax expense was higher as a result of state unemployment rate changesthat occurred in Q1 2009.  Theseincreases were partially offset by menu price increases discussed 

 

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above.  We generally incur higher labor costs, as apercentage of restaurant sales, during the first few months after the openingof a new restaurant.   Higher averagehourly wage rates resulted from several state-mandated increases in minimum andtip wage rates throughout 2008 and into 2009, including an increase in federalminimum wage rate in July 2008.  Weanticipate our labor costs will continue to be pressured by inflation, which isprimarily caused by federal- and state-mandated increases in minimum and tipwages rates.  These increases may or maynot be offset by additional menu price adjustments.

 

*RestaurantRent Expense.*   Restaurantrent expense, as a percentage of restaurant sales, increased to 2.0% in Q1 2009from 1.6% in Q1 2008.  The increase wasprimarily attributable to rent expense associated with the franchiserestaurants acquired in 2008 and the restaurants opened in Q1 2009 and 2008, aswe are leasing more land than we have in the past.

 

*RestaurantOther Operating Expenses**. ****** ***Restaurant other operating expenses, as a percentageof restaurant sales, increased to 16.7% in Q1 2009 from 15.9% in Q1 2008.  The increase was primarily attributable to adecrease in average unit volumes combined with higher costs for supplies,property taxes, utilities and repairs and maintenance, as a percentage ofrestaurant sales. We have seen utility pressures subside recently and have beenworking with various suppliers to lock in lower natural gas and electric rateswhere possible.

 

*RestaurantPre-opening Expenses.*   Pre-opening expenses decreased to $2.3 million in Q12009 from $2.8 million in Q1 2008.  Thedecrease in Q1 2009 was primarily attributable to fewer restaurants being inthe development pipeline in Q1 2009 compared to Q1 2008.  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.

 

*Depreciationand Amortization Expense.*   D&A, as a percentage of total revenue, increasedto 4.3% in Q1 2009 from 4.0% in Q1 2008. The increase was primarily attributable to higher construction costs andother capital spending on new restaurants and a decrease in average unitvolumes, partially offset by lower depreciation expense on older restaurants.

 

*Impairmentand Closure Expenses.*  Impairment and closure expensesdecreased to a credit of $0.1 million in Q1 2009 compared to a charge of $0.7million in Q1 2008.  We recorded $0.7million in Q1 2008 due to lease reserve and other charges incurred inconjunction with the closure of a restaurant in Q1 2008.  The $0.1 million credit in Q1 2009 is aresult of settling the lease reserve for this restaurant.

 

*Generaland Administrative Expenses.*  G&A, as apercentage of total revenue, decreased to 4.4% in Q1 2009 from 4.7% in Q12008.  The decrease in Q1 2009 wasprimarily attributable to the leveraging of costs due to revenue growth,combined with a decrease in costs that are associated with restaurant sites nolonger in development.

 

*InterestExpense, Net.*   Interestexpense increased to $0.9 million in Q1 2009 from $0.6 million in Q1 2008.  The increase was primarily attributable toincreased borrowings under our credit facility, a decrease in interest incomeand lower capitalized interest, partially offset by lower interest rates.  The increased borrowings were primarilyrelated to money spent on stock repurchases and franchise restaurantacquisitions during 2008.  Lower interestincome and capitalized interest were primarily due to lower interest rates andslower development in Q1 2009 compared to Q1 2008.

 

*IncomeTax Expense. * Weaccount for income taxes in accordance with Statement of Financial AccountingStandards (“SFAS”) No. 109, *Accounting for IncomeTaxes. *Our effective tax ratedecreased to 31.9% in Q1 2009 from 35.0% in Q1 2008.  The decrease was primarily attributable tolower non-deductible stock option expense and higher federal tax credits, suchas FICA tip credit and Work Opportunity Tax credits, as a percentage of netincome before income tax.  We expect theeffective tax rate to be approximately 32.0% for fiscal 2009.

 

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**Liquidityand Capital Resources**

 

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

 
| ** **                                           | ** ** | **13 Weeks Ended**      | ** ** |
|------------------------------------------------------|------------|-------------------------|------------|
| ** **                                           | ** ** | **March 31, 2009** | ** ** | **March 25, 2008** | ** ** |
| ** **                                           | ** ** | ** **              | ** ** | ** ** | ** ** |
| Net cash  provided by operating activities           |       | $                       | 20,178     |   | $ | 26,084 |   |
| Net cash used in  investing activities               |       | (13,350                 | )          | (24,232 | ) |
| Net cash (used  in)/provided by financing activities |       | (4,333                  | )          | 4,757 |   |
|                                                 |       |                    |       |   |   |
| Net increase in  cash and cash equivalents           |       | $                       | 2,495      |   | $ | 6,609 |   |

 

Net cash provided byoperating activities was $20.2 million in Q1 2009 compared to $26.1 million inQ1 2008.  This decrease was primarily dueto a $6.8 million reduction in the source of cash from accountsreceivable.  Our fiscal year 2007 endedon a bank holiday, therefore we had a larger than normal amount of credit cardsettlements in accounts receivable at the end of 2007, which were subsequentlyreceived during the first quarter of 2008. This, combined with decreases in other working capital, was partiallyoffset by higher depreciation and deferred income taxes.

 

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

 

Net cash used ininvesting activities was $13.4 million in Q1 2009 compared to $24.2 million inQ1 2008.  This decrease was due to fewerrestaurants in the development pipeline in Q1 2009.  In fiscal 2009, we have reduced our plannedCompany-owned restaurant openings to approximately 15 restaurants, nine of whichopened in Q1 2009, compared to 29 restaurants opened in fiscal 2008.

 

We require capitalprincipally for the development of new company restaurants and therefurbishment of existing restaurants.  We either lease our restaurantsite locations under operating leases for periods of five to 30 years(including renewal periods) or purchase the land where it is cost effective. Asof March 31, 2009 there were 115 restaurants developed on land which weowned.

 

Our future capitalrequirements will primarily depend on the number of new restaurants we open andthe timing of those openings within a given fiscal year. These requirementswill include costs directly related to opening new restaurants and may alsoinclude costs necessary to ensure that our infrastructure is able to support alarger restaurant base. In fiscal 2009, we expect our capital expenditures tobe approximately $50.0 million to $60.0 million, substantially all of whichwill relate to planned restaurant openings. This amount excludes any cash we may use for franchiseacquisitions.  We intend to satisfy ourcapital requirements over the next 12 months with cash on hand, net cashprovided by operating activities and funds available under our credit facility.  However, for 2009, we anticipate net cashprovided by operating activities will exceed capital expenditures.

 

Net cash used infinancing activities was $4.3 million in Q1 2009 as compared to net cashprovided by financing activities of $4.8 million in Q1 2008.  This decrease was primarily due to decreasedborrowings under our credit facility, offset by stock repurchases of $4.9million in Q1 2008.  The borrowings in2008 were made in conjunction with the acquisition of three franchiserestaurants in the second quarter of 2008.

 

On February 14,2008, our Board of Directors approved a stock repurchase program to repurchaseup to $25.0 million of Class A common stock.  On July 8, 2008, our Board of Directorsapproved a $50.0 million increase in the Company’s stock repurchase program,thereby increasing the Company’s total stock repurchase authorization to $75.0million.  Under this program, we mayrepurchase outstanding shares from time to time in open market transactionsduring the two-year period ending February 14, 2010.  The timing and the amount of any repurchaseswill be determined by management under parameters established by our Board ofDirectors, based on its evaluation of our stock price, market conditions andother corporate considerations.  Theapproximate dollar value of shares that may yet be purchased under the plan is$18.2 million.

 

In Q1 2009, we paiddistributions of $0.6 million to equity holders of seven of our majority-ownedcompany restaurants.  Currently, ourintent is to retain our future earnings, if any, primarily to finance thefuture development and operation of our business.

 

We have a $250.0 millionfive-year revolving credit facility with a syndicate of commercial lenders ledby Bank of America, N.A., Banc of America Securities LLC and National City Bankwhich, in December 2008, was acquired by PNC Bank.  The facility expires on May 31,2012.  The terms of the facility 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 March 31,2009 and December 

 

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30, 2008 was 2.28% and2.73%, respectively.  The lenders’obligation to extend credit under the facility depends on us maintainingcertain financial covenants, including a minimum consolidated fixed chargecoverage ratio of 2.00 to 1.00 and a maximum consolidated leverage ratio of3.00 to 1.00.  The credit facilitypermits us to incur additional secured or unsecured indebtedness outside thefacility, except for the incurrence of secured indebtedness that in theaggregate exceeds 20% of our consolidated tangible net worth or circumstanceswhere the incurrence of secured or unsecured indebtedness would prevent us fromcomplying with our financial covenants. We were in compliance with all covenants as of March 31, 2009.

 

At March 31, 2009,we had $127.0 million of outstanding borrowings under our credit facility and$119.0 million of availability net of $4.0 million of outstanding letters ofcredit.  In addition, we had various other notes payable totaling $2.1million 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 March 31, 2009 was 2.42%.

 

On October 22, 2008,we entered into an interest rate swap, starting on November 7, 2008, witha notional amount of $25.0 million to hedge a portion of the cash flows of ourvariable rate credit facility.  We havedesignated the interest rate swap as a cash flow hedge of 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. Our counterparty in thisinterest rate swap is J.P. Morgan Chase, N.A.

 

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

 

**ContractualObligations**

 

The following tablesummarizes the amount of payments due under specified contractual obligationsas of March 31, 2009:

 
| ** **                         | ** ** | **Payments Due by Period** | ** ** |
|------------------------------------|------------|-------------------------------------------|------------|
| ** **                         | ** ** | **Total**                                 | ** ** | **Less than  1 year** | ** ** | **1-3  Years** | ** ** | **3-5  Years** | ** ** | **More than  5 years** | ** ** |
| ** **                         | ** ** | **(in thousands)**                   | ** ** |
| Long-term debt  obligations        |       | $                                         | 129,149    |   | $ | 158 |   | $ | 361 |   | $ | 127,447 |   | $ | 1,183 |   |
| Capital lease  obligations         |       | 450                                       |       | 74 |   | 173 |   | 203 |   | — |   |
| Interest (1)                       |       | 1,371                                     |       | 263 |   | 447 |   | 322 |   | 339 |   |
| Operating lease  obligations       |       | 203,961                                   |       | 18,861 |   | 37,508 |   | 36,942 |   | 110,650 |   |
| Capital  obligations               |       | 16,307                                    |       | 16,307 |   | — |   | — |   | — |   |
| Total  contractual obligations (2) |       | $                                         | 351,238    |   | $ | 35,663 |   | $ | 38,489 |   | $ | 164,914 |   | $ | 112,172 |   |

 

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(1)   Assumes constant rate until maturity for our fixed andvariable rate debt and capital lease obligations.Uses interest rates as of March 31, 2009 for our variable rate debt.  Interest payments on our variable-raterevolving credit facility have been excluded from the amounts shown above,primarily because the balance outstanding under our revolving credit facility,described further in note 3 of the condensed consolidated financial statements,can fluctuate daily.

 

(2)   This amount excludes $0.6 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 6 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, Fargo, ND and Logan, UT prior to ourgranting franchise rights for those restaurants. We have subsequently assignedthe leases to the franchisees, but we remain contingently liable if afranchisee defaults under the terms of a lease. The Longmont lease expires in May 2014,the Everett lease expires in February 2018, the Montgomeryville leaseexpires in June 2021, the Fargo lease expires in July 2016 and theLogan lease expires in August 2019.

 

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**Recently Issued AccountingStandards**

 

In February 2008,the Financial Accounting Standards Board (“FASB”) issued Staff Position FAS157-2, *Effective Date of FASB Statement No. *157,which delayed the effective date of SFAS 157 for most nonfinancial assets andnonfinancial liabilities until fiscal years beginning after November 15,2008 (our fiscal year 2009).  Theimplementation of SFAS 157 for nonfinancial assets and nonfinancial liabilitiesdid not impact our consolidated financial position, results of operations orcash flows.  See note 10 of the condensedconsolidated financial statements for additional fair value discussions.

 

In December 2007, theFASB 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 will change our accounting treatment forbusiness combinations on a prospective basis.

 

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 also changes theaccounting and reporting for minority interests such that they will berecharacterized as noncontrolling interests and classified as a component ofequity.  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).

 

As a result of adoptingSFAS 160, at the start of fiscal 2009, we present noncontrolling interests(previously known as minority interest) as a component of equity on ourcondensed consolidated balance sheets. Minority interest expense is no longer separately reported as areduction to net income on our condensed consolidated statement of income, butis instead shown below net income under the heading “net income attributable tothe noncontrolling interests”.  Totalprovision for income taxes remains unchanged; however, our effective tax rateas calculated from the balances shown on the condensed consolidated statementsof income has changed as net income attributable to noncontrolling interests isno longer included as a deduction in the determination of income fromcontinuing operations.  The adoption ofSFAS 160 did not have any other material impact on our consolidated financialposition, results of operations or cash flows.

 

In March 2008, theFASB issued SFAS No. 161, *Disclosures aboutDerivative Instruments and Hedging Activities* (“SFAS 161”).  SFAS 161 provides companies with requirementsfor enhanced disclosures about derivative instruments and hedging activities toenable investors to better understand their effects on a company’s financialposition, financial performance and cash flows. These requirements include the disclosure of the fair values ofderivative instruments and their gains and losses in a tabular format.  SFAS 161 is effective for financial statementsissued for fiscal years and interim periods beginning after November 15,2008 (our fiscal year 2009).  SFAS 161encourages, but does not require, comparative disclosures for earlier periodsat initial adoption.  The adoption ofSFAS 161 did not have a material impact on our consolidated financial position,results of operations or 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.

 

In April 2009, theFASB issued Staff Position No. FAS 107-1 and APB 28-1, *Interim Disclosures about Fair Value of Financial Instruments*(“FSPFAS 107-1”).  FSP FAS 107-1 requires fairvalue disclosures on an interim basis for financial instruments that are notreflected in the condensed consolidated balance sheets at fair value.  Prior to the issuance of FSP FAS 107-1, thefair values of those financial instruments were only disclosed on an annualbasis.  FSP FAS 107-1 is effective forinterim reporting periods that end after June 15, 2009 (our fiscal 2009second quarter).  We do not expect theadoption of FSP FAS 107-1 to have a material impact on its consolidatedfinancial position, results of operations or cash flows.

 

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

 

We are exposed 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 March 31, 2009 there was $127.0million outstanding under our revolving line of credit which bears interest atapproximately 50 to 87.5 basis points (depending on our leverage ratios) overLIBOR.   Our various other notes payable totaled $2.1 million at March 31,2009 and had fixed rates ranging from 4.35% to 10.80%.  Should interestrates on our variable rate borrowings increase by one percentage point, ourestimated annual interest expense would increase by $1.3 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 interestpayments on a $25.0 million tranche of floating rate debt borrowed underour revolving credit facility. Under the terms of the swap, we pay a fixed rateof 3.83% on the $25.0 million notional amount and receive payments fromthe counterparty based on the 1-month LIBOR rate for a term ending on November 7,2015, effectively resulting in a fixed rate on the LIBOR component of the$25.0 million notional amount.

 

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

 

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

 

Many of the ingredientsused in the products sold in our restaurants are commodities that are subjectto unpredictable price volatility. Currently, we do not utilize fixed pricecontracts for certain commodities such as produce and cheese, therefore, we aresubject to prevailing market conditions when purchasing those types ofcommodities. For other commodities, we employ various purchasing and pricingcontract techniques in an effort to minimize volatility, including fixed pricecontracts for terms of generally one year or less and negotiating prices withvendors with reference to fluctuating market prices.  We currently do not use financial instrumentsto hedge commodity prices, but we will continue to evaluate theireffectiveness. Extreme and/or long term increases in commodity prices couldadversely affect our future results, especially if we are unable, primarily dueto competitive reasons, to increase menu prices. Additionally, if there is atime lag between the increasing commodity prices and our ability to increasemenu prices or if we believe the commodity price increase to be short induration and we choose not to pass on the cost increases, our short-termfinancial results could be negatively affected.

 

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

 

**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 changes with respect to our internal control overfinancial reporting that materially affected, or are reasonably likely tomaterially affect, our internal control over financial reporting.

 

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**PART II — OTHER INFORMATION**

 

**ITEM1.  LEGAL PROCEEDINGS**

 

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

 

**ITEM1A.   RISK FACTORS**

 

Informationregarding risk factors appears in our Annual Report on Form 10-K for theyear ended December 30, 2008, under the heading “Special Note RegardingForward-looking Statements” and in the Form 10-K Part I, Item 1A, RiskFactors.  There have been no materialchanges from the risk factors previously disclosed in our Form 10-K,except as follows:

 

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

 

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

 

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

 

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

 

No purchases ofour common stock were made by us during the 13 weeks ended March 31,2009.  The approximate dollar value ofshares that may yet be purchased under the plan is $18.2 million.

 

**ITEM3.  DEFAULTS UPON SENIOR SECURITIES**

 

None.

 

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

 

None.

 

**ITEM5.  OTHER INFORMATION.**

 

None.

 

**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: May 8, 2009 | By:                   | /s/ G.J. Hart |
|                   |                  | G.J. Hart |
|                   |                  | President, Chief Executive  Officer |
|                   |                  | (principal executive  officer) |
|                   |                  |
| Date: May 8, 2009 | By:                   | /s/ Scott M. Colosi |
|                   |                  | Scott M. Colosi |
|                   |                  | Chief Financial Officer |
|                   |                  | (principal financial  officer) |
|                   |                  | (chief accounting  officer) |

 

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