Table of Contents

** **

 

** **

**UNITEDSTATES**

**SECURITIESAND EXCHANGE COMMISSION**

**Washington,D.C. 20549**

 

**FORM 10-Q**

 

**x****      QUARTERLY REPORT PURSUANT TO SECTION 13 OR15(d) OF THE SECURITIES EXCHANGE ACT OF 1934**

 

**Forthe quarterly period ended March 30, 2010**

 

**OR**

 

**o****         TRANSITIONREPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACTOF 1934**

 

**Forthe transition periodfrom                     to             **

 

**CommissionFile Number 000-50972**

 

**TexasRoadhouse, Inc.**

(Exact name ofregistrant specified in its charter)

 

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

 

**6040Dutchmans Lane, Suite 200**

**Louisville,Kentucky 40205**

(Address ofprincipal executive offices) (Zip Code)

 

**(502)426-9984**

(Registrant’stelephone number, including area code)

 

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

 

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

 

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

 

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

 

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

 

The number of shares ofcommon stock outstanding were 71,414,288 on April 30, 2010.

 

 

 

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Table of Contents

 

**TABLEOF CONTENTS**

 
| PART I.  FINANCIAL INFORMATION                                                                                                         |   |   |
|---------------------------------------------------------------------------------------------------------------------------------------------|--------|--------|
|                                                                                                                                        |   |   |
| Item 1 —  Financial Statements — Texas Roadhouse, Inc. and Subsidiaries                                                      |   | 3      |
| Condensed  Consolidated Balance Sheets — March 30, 2010 and December 29, 2009                                                |   | 3      |
| Condensed  Consolidated Statements of Income — For the 13 Weeks Ended March 30,  2010 and March 31, 2009                     |   | 4      |
| Condensed Consolidated  Statements of Stockholders’ Equity and Comprehensive Income — For the 13  Weeks Ended March 30, 2010 |   | 5      |
| Condensed  Consolidated Statements of Cash Flows — For the 13 Weeks Ended March 30,  2010 and March 31, 2009                 |   | 6      |
| Notes  to Condensed Consolidated Financial Statements                                                                                       |   | 7      |
| Item 2 —  Management’s Discussion and Analysis of Financial Condition and Results of  Operations                                  |   | 14     |
| Item 3 —  Quantitative and Qualitative Disclosures About Market Risk                                                                   |   | 22     |
| Item 4 — Controls  and Procedures                                                                                                      |   | 22     |
|                                                                                                                                        |   |   |
| PART II. OTHER  INFORMATION                                                                                                            |   |   |
|                                                                                                                                        |   |   |
| Item 1 — Legal  Proceedings                                                                                                            |   | 23     |
| Item  1A — Risk Factors                                                                                                                |   | 23     |
| Item 2 —  Unregistered Sales of Equity Securities and Use of Proceeds                                                                  |   | 23     |
| Item 3 —  Defaults Upon Senior Securities                                                                                              |   | 23     |
| Item 4 — (Removed and  Reserved)                                                                                                       |   | 23     |
| Item 5 — Other  Information                                                                                                            |   | 23     |
| Item  6 — Exhibits                                                                                                                     |   | 24     |
|                                                                                                                                        |   |   |
| Signatures                                                                                                                                  |   | 25     |

 

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Table of Contents

 

**PART I — FINANCIAL INFORMATION**

 

**ITEM 1 —FINANCIAL STATEMENTS**

 

**TexasRoadhouse, Inc. and Subsidiaries**

**Condensed Consolidated Balance Sheets**

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

 
| ** **                                                                                                                                                                                   | ** ** | **(unaudited)**          | ** ** | ** **                  | ** ** |
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|--------------------------|------------|-----------------------------|------------|
| ** **                                                                                                                                                                                   | ** ** | **March 30,  2010** | ** ** | **December 29,  2009** | ** ** |
| **Assets**                                                                                                                                                                                   |       |                     |       |                        |       |
| Current assets:                                                                                                                                                                              |       |                     |       |                        |       |
| Cash and cash  equivalents                                                                                                                                                                   |       | $                        | 53,743     |                        | $          | 46,858 |   |
| Receivables, net  of allowance for doubtful accounts of $911 at March 30, 2010 and  December 29, 2009                                                                              |       | 12,543                   |       | 12,312                      |       |
| Inventories, net                                                                                                                                                                             |       | 7,311                    |       | 8,004                       |       |
| Prepaid expenses                                                                                                                                                                             |       | 7,840                    |       | 5,611                       |       |
| Deferred tax assets                                                                                                                                                                          |       | 1,509                    |       | 1,531                       |       |
| Total current  assets                                                                                                                                                                        |       | 82,946                   |       | 74,316                      |       |
| Property and  equipment, net                                                                                                                                                                 |       | 453,752                  |       | 456,281                     |       |
| Goodwill                                                                                                                                                                                     |       | 113,465                  |       | 113,465                     |       |
| Intangible  asset, net                                                                                                                                                                       |       | 10,925                   |       | 11,194                      |       |
| Fair value of  derivative financial instruments                                                                                                                                              |       | —                   |       | 31                          |       |
| Other assets                                                                                                                                                                                 |       | 6,505                    |       | 6,786                       |       |
| Total assets                                                                                                                                                                                 |       | $                        | 667,593    |                        | $          | 662,073 |   |
|                                                                                                                                                                                         |       |                     |       |                        |       |
| **Liabilities  and Stockholders’ Equity**                                                                                                                                               |       |                     |       |                        |       |
| Current  liabilities:                                                                                                                                                                        |       |                     |       |                        |       |
| Current  maturities of long-term debt and obligations under capital leases                                                                                                                   |       | $                        | 253        |                        | $          | 247 |   |
| Accounts payable                                                                                                                                                                             |       | 27,328                   |       | 27,882                      |       |
| Deferred revenue  — gift cards/certificates                                                                                                                                             |       | 20,009                   |       | 34,443                      |       |
| Accrued wages                                                                                                                                                                                |       | 22,540                   |       | 20,186                      |       |
| Income tax  payable                                                                                                                                                                          |       | 6,174                    |       | 6,194                       |       |
| Accrued taxes  and licenses                                                                                                                                                                  |       | 10,679                   |       | 8,579                       |       |
| Other accrued  liabilities                                                                                                                                                                   |       | 10,355                   |       | 10,672                      |       |
| Total current  liabilities                                                                                                                                                                   |       | 97,338                   |       | 108,203                     |       |
| Long-term debt  and obligations under capital leases, excluding current maturities                                                                                                           |       | 89,113                   |       | 101,179                     |       |
| Stock option and  other deposits                                                                                                                                                             |       | 3,477                    |       | 3,653                       |       |
| Deferred rent                                                                                                                                                                                |       | 12,612                   |       | 12,089                      |       |
| Deferred tax  liabilities                                                                                                                                                                    |       | 7,918                    |       | 6,660                       |       |
| Fair value of  derivative financial instruments                                                                                                                                              |       | 712                      |       | —                      |       |
| Other  liabilities                                                                                                                                                                           |       | 7,983                    |       | 7,339                       |       |
| Total  liabilities                                                                                                                                                                           |       | 219,153                  |       | 239,123                     |       |
| Texas  Roadhouse, Inc. and subsidiaries stockholders’ equity:                                                                                                                      |       |                     |       |                        |       |
| Preferred stock  ($0.001 par value, 1,000,000 shares authorized; no shares issued or  outstanding)                                                                                           |       | —                   |       | —                      |       |
| Common stock,  ($0.001 par value, 100,000,000 shares authorized, 71,279,512 and 70,384,915  shares issued and outstanding at March 30, 2010 and December  29,  2009, respectively) |       | 71                       |       | 70                          |       |
| Additional paid  in capital                                                                                                                                                                  |       | 238,193                  |       | 231,564                     |       |
| Retained  earnings                                                                                                                                                                           |       | 207,960                  |       | 188,719                     |       |
| Accumulated  other comprehensive (loss)gain                                                                                                                                                  |       | (438                     | )          | 19                          |       |
| Total Texas  Roadhouse, Inc. and subsidiaries stockholders’ equity                                                                                                                 |       | 445,786                  |       | 420,372                     |       |
| Noncontrolling  interests                                                                                                                                                                    |       | 2,654                    |       | 2,578                       |       |
| Total equity                                                                                                                                                                                 |       | 448,440                  |       | 422,950                     |       |
| Total  liabilities and equity                                                                                                                                                                |       | $                        | 667,593    |                        | $          | 662,073 |   |

 

See accompanyingnotes to condensed consolidated financial statements.

 

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**TexasRoadhouse, Inc. and Subsidiaries**

**Condensed Consolidated Statements of Income**

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

**(unaudited)**

** **
| ** **                                                                           | ** ** | **13  Weeks Ended**      | ** ** |
|--------------------------------------------------------------------------------------|------------|--------------------------|------------|
| ** **                                                                           | ** ** | **March 30,  2010** | ** ** | **March 31,  2009** | ** ** |
| Revenue:                                                                             |       |                     |       |   |   |
| Restaurant sales                                                                     |       | $                        | 257,342    |   | $ | 244,090 |   |
| Franchise royalties  and fees                                                        |       | 2,282                    |       | 1,983 |   |
|                                                                                 |       |                     |       |   |   |
| Total revenue                                                                        |       | 259,624                  |       | 246,073 |   |
|                                                                                 |       |                     |       |   |   |
| Costs and  expenses:                                                                 |       |                     |       |   |   |
| Restaurant  operating costs:                                                         |       |                     |       |   |   |
| Cost of sales                                                                        |       | 82,799                   |       | 83,041 |   |
| Labor                                                                                |       | 74,909                   |       | 71,499 |   |
| Rent                                                                                 |       | 5,270                    |       | 4,912 |   |
| Other operating                                                                      |       | 42,598                   |       | 40,860 |   |
| Pre-opening                                                                          |       | 1,105                    |       | 2,284 |   |
| Depreciation and  amortization                                                       |       | 10,337                   |       | 10,471 |   |
| Impairment and  closures                                                             |       | 158                      |       | (86 | ) |
| General and  administrative                                                          |       | 12,342                   |       | 10,809 |   |
|                                                                                 |       |                     |       |   |   |
| Total costs and  expenses                                                            |       | 229,518                  |       | 223,790 |   |
|                                                                                 |       |                     |       |   |   |
| Income from  operations                                                              |       | 30,106                   |       | 22,283 |   |
|                                                                                 |       |                     |       |   |   |
| Interest  expense, net                                                               |       | 730                      |       | 857 |   |
| Equity income  from investments in unconsolidated affiliates                         |       | (108                     | )          | (85 | ) |
|                                                                                 |       |                     |       |   |   |
| Income before  taxes                                                                 |       | 29,484                   |       | 21,511 |   |
| Provision for  income taxes                                                          |       | 9,606                    |       | 6,715 |   |
| Net income  including noncontrolling interests                                       |       | $                        | 19,878     |   | $ | 14,796 |   |
| Less: Net income  attributable to noncontrolling interests                           |       | 637                      |       | 462 |   |
|                                                                                 |       |                     |       |   |   |
| Net income  attributable to Texas Roadhouse, Inc. and subsidiaries              |       | $                        | 19,241     |   | $ | 14,334 |   |
|                                                                                 |       |                     |       |   |   |
| Net income per  common share attributable to Texas Roadhouse, Inc. and subsidiaries: |       |                     |       |   |   |
| Basic                                                                                |       | $                        | 0.27       |   | $ | 0.21 |   |
|                                                                                 |       |                     |       |   |   |
| Diluted                                                                              |       | $                        | 0.27       |   | $ | 0.20 |   |
|                                                                                 |       |                     |       |   |   |
| Weighted-average  shares outstanding:                                                |       |                     |       |   |   |
| Basic                                                                                |       | 70,690                   |       | 69,426 |   |
|                                                                                 |       |                     |       |   |   |
| Diluted                                                                              |       | 72,226                   |       | 70,506 |   |

 

See accompanyingnotes to condensed consolidated financial statements.

 

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**TexasRoadhouse, Inc. and Subsidiaries**

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

**(inthousands, except share data)**

**(unaudited)**

** **
| ** **                                                   | ** ** | ** **       | ** ** | ** ** | ** ** | ** **  | ** ** | ** **   | ** ** | **Accumulated**   | ** ** | ** **         | ** ** | ** ** | ** ** |
|--------------------------------------------------------------|------------|------------------|------------|------------|------------|-------------|------------|--------------|------------|-------------------|------------|--------------------|------------|------------|------------|
| ** **                                                   | ** ** | **Class A** | ** ** | ** ** | ** ** | ** **  | ** ** | **Other**    | ** ** | ** **        | ** ** | ** **         | ** ** |
| ** **                                                   | ** ** | ** **       | ** ** | **Par**    | ** ** | **Paid in** | ** ** | **Retained** | ** ** | **Comprehensive** | ** ** | **Noncontrolling** | ** ** | ** ** | ** ** |
| ** **                                                   | ** ** | **Shares**       | ** ** | **Value**  | ** ** | **Capital** | ** ** | **Earnings** | ** ** | **Income (Loss)** | ** ** | **Interests**      | ** ** | **Total**  | ** ** |
|                                                         |       |             |       |       |       |        |       |         |       |              |       |               |       |       |       |
| Balance,  December 29, 2009                             |       | 70,384,915       |       | $          | 70         |        | $          | 231,564      |       | $                 | 188,719    |               | $          | 19         |       | $ | 2,578 |   | $ | 422,950 |   |
|                                                         |       |             |       |       |       |        |       |         |       |              |       |               |       |       |       |
| Comprehensive  income:                                       |       |             |       |       |       |        |       |         |       |              |       |               |       |       |       |
| Unrealized gain  on derivatives, net of tax of $0.3 million  |       | —           |       | —     |       | —      |       | —       |       | (457              | )          | —             |       | (457       | )          |
| Net income                                                   |       | —           |       | —     |       | —      |       | 19,241       |       | —            |       | 637                |       | 19,878     |       |
|                                                         |       |             |       |       |       |        |       |         |       |              |       |               |       |       |       |
| Total  comprehensive income                                  |       |             |       |       |       |        |       |         |       |              |       |               |       | 19,421     |       |
|                                                         |       |             |       |       |       |        |       |         |       |              |       |               |       |       |       |
| Distributions to  noncontrolling interests                   |       | —           |       | —     |       | —      |       | —       |       | —            |       | (561               | )          | (561       | )          |
| Shares issued  under stock option plan including tax effects |       | 669,857          |       | 1          |       | 5,947       |       | —       |       | —            |       | —             |       | 5,948      |       |
| Settlement of  restricted stock units, net of tax            |       | 224,740          |       | —     |       | (1,148      | )          | —       |       | —            |       | —             |       | (1,148     | )          |
| Share-based  compensation                                    |       | —           |       | —     |       | 1,830       |       | —       |       | —            |       | —             |       | 1,830      |       |
|                                                         |       |             |       |       |       |        |       |         |       |              |       |               |       |       |       |
| Balance,  March 30, 2010                                |       | 71,279,512       |       | $          | 71         |        | $          | 238,193      |       | $                 | 207,960    |               | $          | (438       | )          | $ | 2,654 |   | $ | 448,440 |   |

 

See accompanyingnotes to condensed consolidated financial statements.

 

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**TexasRoadhouse, Inc. and Subsidiaries**

**Condensed Consolidated Statements of Cash Flows**

**(inthousands)**

**(unaudited)**

 
| ** **                                                                  | ** ** | **13 Weeks Ended**      | ** ** |
|-----------------------------------------------------------------------------|------------|-------------------------|------------|
| ** **                                                                  | ** ** | **March 30, 2010** | ** ** | **March 31, 2009** | ** ** |
| **Cash flows from operating activities:**                                   |       |                    |       |   |   |
| Net income including noncontrolling interests                               |       | $                       | 19,878     |   | $ | 14,796 |   |
| Depreciation and amortization                                               |       | 10,337                  |       | 10,471 |   |
| Deferred income taxes                                                       |       | 1,567                   |       | 1,759 |   |
| Loss on disposition of assets                                               |       | 141                     |       | 211 |   |
| Impairment and closures                                                     |       | 121                     |       | (88 | ) |
| Equity income from investments in unconsolidated affiliates                 |       | (108                    | )          | (85 | ) |
| Distributions received from investments in unconsolidated affiliates        |       | 94                      |       | 91 |   |
| Provision for doubtful accounts                                             |       | —                  |       | 126 |   |
| Share-based compensation expense                                            |       | 1,830                   |       | 1,961 |   |
| Excess tax benefits from share-based compensation                           |       | (1,499                  | )          | (32 | ) |
| Changes in operating working capital:                                       |       |                    |       |   |   |
| Receivables                                                                 |       | (231                    | )          | 1,196 |   |
| Inventories                                                                 |       | 693                     |       | 395 |   |
| Prepaid expenses and other current assets                                   |       | (2,229                  | )          | 4 |   |
| Other assets                                                                |       | 295                     |       | (255 | ) |
| Accounts payable                                                            |       | (554                    | )          | (6,503 | ) |
| Deferred revenue — gift cards/certificates                             |       | (14,434                 | )          | (13,658 | ) |
| Accrued wages                                                               |       | 2,354                   |       | 3,647 |   |
| Prepaid income taxes and income taxes payable                               |       | 1,479                   |       | 4,464 |   |
| Accrued taxes and licenses                                                  |       | 2,100                   |       | 977 |   |
| Other accrued liabilities                                                   |       | (317                    | )          | 231 |   |
| Deferred rent                                                               |       | 523                     |       | 514 |   |
| Other liabilities                                                           |       | 644                     |       | (44 | ) |
|                                                                        |       |                    |       |   |   |
| Net cash provided by operating activities                                   |       | $                       | 22,684     |   | 20,178 |   |
|                                                                        |       |                    |       |   |   |
| **Cash flows from investing activities:**                                   |       |                    |       |   |   |
| Capital expenditures — property and equipment                          |       | (7,822                  | )          | (13,430 | ) |
| Acquisitions of franchise restaurants, net of cash acquired                 |       | —                  |       | 13 |   |
| Proceeds from sale of property and equipment, including insurance  proceeds |       | 21                      |       | 67 |   |
|                                                                        |       |                    |       |   |   |
| Net cash used in investing activities                                       |       | $                       | (7,801     | ) | $ | (13,350 | ) |
|                                                                        |       |                    |       |   |   |
| **Cash flows from financing activities:**                                   |       |                    |       |   |   |
| Repayments of revolving credit facility, net                                |       | (12,000                 | )          | (3,000 | ) |
| Investments in unconsolidated affiliates                                    |       | —                  |       | (18 | ) |
| Distributions to noncontrolling interest holders                            |       | (561                    | )          | (581 | ) |
| Excess tax benefits from share-based compensation                           |       | 1,499                   |       | 32 |   |
| Repayments of stock option and other deposits                               |       | (400                    | )          | (543 | ) |
| Proceeds from stock option and other deposits                               |       | 224                     |       | 390 |   |
| Settlement of restricted stock units, net of tax                            |       | (1,148                  | )          | (634 | ) |
| Principal payments on long-term debt and capital lease obligations          |       | (60                     | )          | (111 | ) |
| Proceeds from exercise of stock options                                     |       | 4,448                   |       | 132 |   |
|                                                                        |       |                    |       |   |   |
| Net cash used in financing activities                                       |       | $                       | (7,998     | ) | $ | (4,333 | ) |
|                                                                        |       |                    |       |   |   |
| Net increase in cash and cash equivalents                                   |       | 6,885                   |       | 2,495 |   |
| Cash and cash equivalents — beginning of period                        |       | 46,858                  |       | 5,258 |   |
| Cash and cash equivalents — end of period                              |       | $                       | 53,743     |   | $ | 7,753 |   |
|                                                                        |       |                    |       |   |   |
| Supplemental disclosures of cash flow information:                          |       |                    |       |   |   |
| Interest, net of amounts capitalized                                        |       | $                       | 692        |   | $ | 1,009 |   |
| Income taxes, net of refunds                                                |       | $                       | 6,558      |   | $ | 492 |   |

 

See accompanyingnotes to condensed consolidated financial statements.

 

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**TexasRoadhouse, Inc. and Subsidiaries**

**Notes to Condensed Consolidated Financial Statements**

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

**(unaudited)**

 

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

 

The accompanyingunaudited condensed consolidated financial statements include the accounts ofTexas Roadhouse, Inc. (the “Company”, “we” and/or “our”), our wholly-ownedsubsidiaries and subsidiaries in which we own more than 50 percent interest, asof and for the 13 weeks ended March 30, 2010 and March 31, 2009.  Our wholly-owned subsidiaries include: TexasRoadhouse Holdings LLC (“Holdings”), Texas Roadhouse Development Corporation (“TRDC”)and Texas Roadhouse Management Corp. (“Management Corp”).  We and oursubsidiaries operate Texas Roadhouse restaurants. Holdings also providessupervisory and administrative services for certain other franchise and licenserestaurants. TRDC sells franchise rights and collects the franchise royaltiesand fees.  Management Corp. provides management services to the Company,Holdings and certain other license and franchise restaurants.  All material balances and transactionsbetween the consolidated entities have been eliminated.

 

As of March 30, 2010and March 31, 2009, we owned 5.0% to 10.0% equity interest in 21 franchiserestaurants.  While we exercisesignificant control over these franchise restaurants, we do not consolidatetheir financial position, results of operations or cash flows as it isimmaterial to our consolidated financial position, results of operations and/orcash flows. Our investment in these unconsolidated affiliates is included inOther assets in our condensed consolidated balance sheets and we record ourpercentage share of net income earned by these unconsolidated affiliates on ourcondensed consolidated statements of income under Equity income frominvestments in unconsolidated affiliates.

 

We have made a number ofestimates and assumptions relating to the reporting of assets and liabilities,the disclosure of contingent assets and liabilities at the date of thecondensed consolidated financial statements and the reporting of revenue andexpenses during the period to prepare these condensed consolidated financialstatements in conformity with U.S. generally accepted accounting principles (“GAAP”).Significant items subject to such estimates and assumptions include thecarrying amount of property and equipment, goodwill, obligations related toinsurance reserves, income taxes and share-based compensation expense. Actualresults 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 our financial position, results of operations and cash flows forthe periods presented.  The financial statements have been prepared inaccordance with GAAP, except that certain information and footnotes have been condensedor omitted pursuant to rules and regulations of the Securities andExchange Commission (“SEC”).  Operating results for the 13 weeks ended March 30,2010 are not necessarily indicative of the results that may be expected for theyear ending December 28, 2010.  The financial statements should beread in conjunction with the consolidated financial statements and notesthereto included in our Annual Report on Form 10-K for the year ended December 29,2009.

 

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

 

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

 

We may grant incentiveand non-qualified stock options to purchase shares of common stock, stock bonusawards (restricted stock unit awards (“RSUs”)) and restricted stock awardsunder the Texas Roadhouse, Inc. 2004 Equity Incentive Plan (the “Plan”).  Beginning in 2008, we changed the method bywhich we provide share-based compensation to our employees by eliminating stockoption grants and, instead, granting RSUs as a form of share-basedcompensation.   An RSU is the conditionalright to receive one share of common stock upon satisfaction of the vestingrequirement.

 

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

 
| ** **                              | ** ** | **13  Weeks Ended**      | ** ** |
|-----------------------------------------|------------|--------------------------|------------|
| ** **                              | ** ** | **March 30,  2010** | ** ** | **March 31,  2009** | ** ** |
|                                    |       |                     |       |   |   |
| Labor expense                           |       | $                        | 761        |   | $ | 727 |   |
| General and  administrative expense     |       | 1,069                    |       | 1,234 |   |
| Total  share-based compensation expense |       | $                        | 1,830      |   | $ | 1,961 |   |

 

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A summary ofshare-based compensation activity by type of grant as of March 30, 2010and changes during the period then ended is presented below.

 

*Summary Details for Plan ShareOptions*

 
| ** **                             | ** ** | **Shares** | ** ** | **Weighted-  Average  Exercise Price** | ** ** | **Weighted-Average  Remaining Contractual  Term (years)** | ** ** | **Aggregate  Intrinsic  Value** | ** ** |
|----------------------------------------|------------|------------|------------|----------------------------------------|------------|-----------------------------------------------------------|------------|---------------------------------|------------|
|                                   |       |       |       |                                   |       |                                                      |       |                            |       |
| Outstanding at  December 29, 2009 |       | 5,439,030  |       | $                                      | 10.86      |                                                      |       |                            |       |   |
| Granted                                |       | —     |       | —                                 |       |                                                      |       |                            |       |
| Forfeited                              |       | (10,099    | )          | 13.59                                  |       |                                                      |       |                            |       |
| Exercised                              |       | (669,857   | )          | 6.64                                   |       |                                                      |       |                            |       |
| Outstanding at  March 30, 2010    |       | 4,759,074  |       | $                                      | 11.45      |                                                      | 5.22       |                            | $          | 15,568 |   |
|                                   |       |       |       |                                   |       |                                                      |       |                            |       |
| Exercisable at  March 30, 2010    |       | 4,472,213  |       | $                                      | 11.31      |                                                      | 5.11       |                            | $          | 15,254 |   |

 

No stock options weregranted during the 13 weeks ended March 30, 2010.

 

The total intrinsic valueof options exercised during the 13 weeks ended March 30, 2010 and March 31,2009 was $4.6 million and $0.2 million, respectively.  As of March 30, 2010, with respect tounvested stock options, there was an immaterial amount of  unrecognized compensation cost that isexpected to be recognized over a weighted-average period of less than ayear.  The total grant date fair value ofstock options vested for the 13 week periods ended March 30, 2010 and March 31,2009 was $0.7 million and $0.6 million, respectively.

 

*SummaryDetails for RSUs*

 
| ** **                             | ** ** | **Shares** | ** ** | **Weighted-  Average  Grant Date  Fair Value** | ** ** |
|----------------------------------------|------------|------------|------------|------------------------------------------------|------------|
|                                   |       |       |       |                                           |       |
| Outstanding at  December 29, 2009 |       | 1,362,427  |       | $                                              | 9.90       |   |
| Granted                                |       | 150,969    |       | 13.64                                          |       |
| Forfeited                              |       | (4,386     | )          | 9.92                                           |       |
| Vested                                 |       | (326,003   | )          | 9.37                                           |       |
| Outstanding at  March 30, 2010    |       | 1,183,007  |       | $                                              | 10.49      |   |

 

As of March 30,2010, with respect to unvested RSUs, there was $8.2 million of unrecognizedcompensation cost that is expected to be recognized over a weighted-averageperiod of 1.6 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 periods ended March 30, 2010 and March 31,2009 was $3.0 million and $2.6 million, respectively.

 

**(3)****        ****Long-term Debt and Obligations UnderCapital Leases**

 

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

 
| ** **                               | ** ** | **March 30,  2010** | ** ** | **December 29,  2009** | ** ** |
|------------------------------------------|------------|--------------------------|------------|-----------------------------|------------|
| Installment  loans, due 2010 – 2020 |       | $                        | 1,990      |                        | $          | 2,030 |   |
| Obligations  under capital leases        |       | 376                      |       | 396                         |       |
| Revolver                                 |       | 87,000                   |       | 99,000                      |       |
|                                     |       | 89,366                   |       | 101,426                     |       |
| Less current  maturities                 |       | 253                      |       | 247                         |       |
|                                     |       | $                        | 89,113     |                        | $          | 101,179 |   |

 

The weighted-averageinterest rate for installment loans outstanding at March 30, 2010 and December 29,2009 was 10.58%.  The debt is secured bycertain land and buildings.

 

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 PNC Bank.  The facility expires on May 31,2012.  The terms of the facility requireus to

 

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pay interest on outstanding borrowings at LIBOR plus amargin of 0.50% to 0.875%, depending on its leverage ratio, or the Base Rate,which is the higher of the issuing bank’s prime lending rate or the FederalFunds rate plus 0.50%.  We are alsorequired to pay a commitment fee of 0.10% to 0.175% per year on any unusedportion of the facility, depending on our leverage ratio.  The weighted-average interest rate for therevolver at March 30, 2010 and December 29, 2009 was 2.50% and 2.36%,respectively, including interest rate swaps. At March 30, 2010, we had $87.0 million outstanding under thecredit facility and $159.3 million of availability, net of $3.7 million ofoutstanding letters of credit.

 

The lenders’ obligationto extend credit under the facility depends on us maintaining certain financialcovenants, including a minimum consolidated fixed charge coverage ratio of 2.00to 1.00 and a maximum consolidated leverage ratio of 3.00 to 1.00.  The credit facility permits us to incuradditional secured or unsecured indebtedness outside the facility, except forthe incurrence of secured indebtedness that in the aggregate exceeds 20% of ourconsolidated tangible net worth or circumstances where the incurrence ofsecured or unsecured indebtedness would prevent us from complying with ourfinancial covenants.  We were incompliance with all covenants as of March 30, 2010.

 

**(4)****        ****Derivative and Hedging Activities**

 

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

 

*Interest Rate Swaps*

 

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

 

On January 7, 2009,we entered into an interest rate swap, starting on February 7, 2009, witha notional amount of $25.0 million to hedge a portion of the cash flows of ourvariable rate credit facility.  We havedesignated the interest rate swap as a cash flow hedge of our exposure tovariability in future cash flows attributable to interest payments on a $25.0million tranche of floating rate debt borrowed under our revolving credit facility.  Under the terms of the swap, we pay a fixedrate of 2.34% on the $25.0 million notional amount and receive payments fromthe counterparty based on the 1-month LIBOR rate for a term ending on January 7,2016, effectively resulting in a fixed rate LIBOR component of the $25.0million notional amount.

 

We entered into the aboveinterest rate swaps with the objective of eliminating the variability of ourinterest expense that arises because of changes in the variable interest ratefor the designated interest payments. Changes in the fair value of the interest rate swap will be reported asa component of accumulated other comprehensive income.  We will reclassify any gain or loss fromaccumulated other comprehensive income, net of tax, on our consolidated balancesheet to interest expense on the our consolidated statement of income when theinterest rate swap expires or at the time we choose to terminate the swap.  See note 10 for fair value discussion ofthese interest rate swaps.

 

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

 
| ** **                                                           | ** ** | **Balance**  | ** ** | **Derivative Assets** | ** **                                                   | **Derivative Liabilities** | ** ** |
|----------------------------------------------------------------------|------------|--------------|------------|-----------------------|--------------------------------------------------------------|----------------------------|------------|
| ** **                                                           | ** ** | **Sheet**    | ** ** | **March 30,**    | ** **                                                   | **December 29,**      | ** ** | **March 30,** | ** ** | **December 29,** | ** ** |
| ** **                                                           | ** ** | **Location** | ** ** | **2010**              | ** **                                                   | **2009**                   | ** ** | **2010** | ** ** | **2009** | ** ** |
|                                                                 |       |         |       |                  |                                                         |                       |       |   |   |   |   |
| Derivative Contracts Designated as Hedging Instruments under ASC 815 |       | (1)          |       |                  |                                                         |                       |       |   |   |   |   |
| Interest rate swaps                                                  |       |         |       | $                     | —                                                       |                       | $          | 31 |   | $ | 712 |   | $ | — |   |
|                                                                 |       |         |       |                  |                                                         |                       |       |   |   |   |   |
| Total Derivative Contracts                                           |       |         |       | $                     | —          |                       | $          | 31 |   | $ | 712 |   | $ | — |   |

 

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

 

The following table summarizes the effect ofderivative instruments on the condensed consolidated statements of income forthe 13 weeks ended March 30, 2010 and March 31, 2009:

 
| ** **          | ** ** | ** **               | ** ** | ** **       | ** ** | ** **                  | ** ** | ** **          | ** ** | ** **                                   | ** ** | **Location of** | ** ** | ** ** | ** ** | ** ** | ** ** |
|---------------------|------------|--------------------------|------------|------------------|------------|-----------------------------|------------|---------------------|------------|----------------------------------------------|------------|-----------------|------------|------------|------------|------------|------------|
| ** **          | ** ** | ** **               | ** ** | ** **       | ** ** | **Location of**             | ** ** | **Amount  of Loss** | ** ** | **Loss**                                     | ** ** | ** **      | ** ** | ** ** | ** ** |
| ** **          | ** ** | **Amount  of Loss**      | ** ** | **Loss**         | ** ** | **Reclassified  from AOCI** | ** ** | **Recognized**      | ** ** | **Amount of Loss Recognized** | ** ** |
| ** **          | ** ** | **Recognized  in AOCI**  | ** ** | **Reclassified** | ** ** | **to  Income (effective**   | ** ** | **in Income**       | ** ** | **in  Income (ineffective**                  | ** ** |
| ** **          | ** ** | **(effective  portion)** | ** ** | **from AOCI**    | ** ** | **portion)**                | ** ** | **(ineffective**    | ** ** | **portion)**                                 | ** ** |
| ** **          | ** ** | **2010**                 | ** ** | **2009**         | ** ** | **Income**                  | ** ** | **2010**            | ** ** | **2009**                                     | ** ** | **portion)**    | ** ** | **2010**   | ** ** | **2009**   | ** ** |
|                |       |                     |       |             |       |                        |       |                |       |                                         |       |            |       |       |       |       |       |
| Interest rate swaps |       | $                        | (457       | )                | $          | (1,404                      | )          | —              |       | $                                            | —     |            | $          | —     |       | —     |       | $ | — |   | $ | — |   |
|                     |            |                          |            |                  |            |                             |            |                     |            |                                              |            |                 |            |            |            |            |            |  |  |  |  |  |  |

 

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

 

***Fair Value Measures and Disclosures***

*(AccountingStandards Update (“ASU”) 2010-06)*

 

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

 

***Consolidation of Variable Interest Entities — Amended***

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

 

ASC 810 provides guidancefor determining the primary beneficiary of a variable interest entity.  In addition, ASC 810 requires ongoingassessments of whether an enterprise is the primary beneficiary of a variableinterest entity.  ASC 810 is effectivefor the first annual and interim reporting periods that begin after November 15,2009 (our fiscal year 2010).  Theadoption of ASC 810 had no impact on our consolidated financial position,results of operations and cash flows.

 

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

 

The estimated cost ofcompleting capital project commitments at March 30, 2010 and December 29,2009 was approximately $26.5 million and $18.5 million, respectively.

 

We entered into realestate lease agreements for franchise restaurants located in Everett, MA,Longmont, CO, Montgomeryville, PA, Fargo, ND and Logan, UT before grantingfranchise rights for those restaurants. We have subsequently assigned theleases to the franchisees, but remain 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 of our officers, directors or 5% shareholders.

 

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We are involved invarious claims and legal actions arising in the normal course of business. Inthe opinion of management, the ultimate disposition of these matters will nothave a material effect on our consolidated financial position, results ofoperations or cash flows.

 

 We currently buymost of our beef from two to four suppliers. Although there are a limitednumber of beef suppliers, management believes that other suppliers couldprovide a similar product on comparable terms. A change in suppliers, however,could cause supply shortages and a possible loss of sales, which would affectoperating results adversely. We have no material minimum purchase commitmentswith our vendors that extend beyond a year.

 

**(7)****        ****Related Party Transactions**

 

The Longview, Texasrestaurant, which was acquired by us in connection with the completion of ourinitial public offering, leases the land and restaurant building from an entitycontrolled by Steven L. Ortiz, our Chief Operating Officer. The lease term is15 years and will terminate in November 2014. The lease can berenewed for two additional terms of five years each. Rent is approximately$19,000 per month. The lease can be terminated if the tenant fails to pay therent on a timely basis, fails to maintain the insurance specified in the lease,fails to maintain the building or property or becomes insolvent. Total rentpayments were approximately $55,000 for the 13 week period ended March 30,2010 and approximately $50,000 for the thirteen week period ended March 31,2009.

 

The Bossier City,Louisiana restaurant, of which Steven L. Ortiz owns 65.0% and we own 5.0%,leases the land and building from an entity owned by Mr. Ortiz.  The lease term is 15 years and will terminateon March 31, 2020.  The lease can berenewed for three additional terms of five years each.  Rent is approximately $15,100 per month andescalates 10% each five year period during the term.  The next rent escalation is in Q2 2010.  After the escalation, rent will beapproximately $16,600 per month.  Thelease can be terminated if the tenant fails to pay rent on a timely basis,fails to maintain insurance, abandons the property or becomes insolvent.  Total rent payments were approximately$45,000 for each of the 13 week periods ended March 30, 2010 and March 31,2009.

 

 We have 14franchise and license restaurants owned, in whole or part, by certain of ourofficers, directors or 5% shareholders at March 30, 2010 and March 31,2009. These entities paid us fees of approximately $0.5 million during each ofthe 13 week periods ended March 30, 2010 and March 31, 2009,respectively.  As disclosed in note 6, weare contingently liable on leases which are related to three of theserestaurants.

 

**(8)****        ****Earnings Per Share**

 

The share and net incomeper share data for all periods presented are based on the historicalweighted-average shares outstanding.  The diluted earnings per sharecalculations show the effect of the weighted-average stock options, RSUs andrestricted stock awards outstanding from our equity incentive plan as discussedin note 2.  For the 13 weeks ended March 30,2010 and  March 31, 2009, options topurchase 2,207,141 and 4,520,566  sharesof common stock, respectively, were outstanding, but not included in thecomputation of diluted earnings per share because their inclusion wouldhave had an anti-dilutive effect.  Forthe 13 weeks ended March 30, 2010 and March 31, 2009, 18,281 and356,273 shares of nonvested stock, respectively, were outstanding but notincluded in the computation of diluted net income per share because theirinclusion would have had an anti-dilutive effect.

 

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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 30,  2010** | ** **   | **March 31,  2009** | ** ** |
| Net income  attributable to Texas Roadhouse, Inc. and subsidiaries |       | $                        |  19,241 |   | $ |  14,334 |   |
|                                                                    |       |                     |         |   |   |
| Basic EPS:                                                              |       |                     |         |   |   |
| Weighted-average  common shares outstanding                             |       | 70,690                   |         | 69,426 |   |
|                                                                    |       |                     |         |   |   |
| Basic EPS                                                               |       | $                        |  0.27   |   | $ |  0.21 |   |
|                                                                    |       |                     |         |   |   |
| Diluted EPS:                                                            |       |                     |         |   |   |
| Weighted-average  common shares outstanding                             |       | 70,690                   |         | 69,426 |   |
| Dilutive effect  of stock options and restricted stock                  |       | 1,536                    |         | 1,080 |   |
| Shares — diluted                                                   |       | 72,226                   |         | 70,506 |   |
|                                                                    |       |                     |         |   |   |
| Diluted EPS                                                             |       | $                        |  0.27   |   | $ |  0.20 |   |

 

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

 

During the fourth quarterof 2009, we terminated our franchise agreement with a franchisee which operatedone restaurant.  Pursuant to the terms ofthe franchise agreement, we acquired the restaurant from the franchisee for animmaterial amount.  As a result, there wasno purchase price allocation or subsequent goodwill associated with thisacquisition.  We now operate therestaurant as a company restaurant.

 

**(10) FairValue Measurement**

 

The following tablepresents the fair values for our financial assets and liabilities measured on arecurring basis as of March 30, 2010:

 
| ** **                               | ** ** | ** ** | ** ** | **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                      |       | $          | (712       | )                                                                      | $          | — |   | $ | (712 | ) | $ | — |   |
| Deferred compensation plan — assets |       | 3,940      |       | 3,940                                                                  |       | — |   | — |   |
| Deferred compensation plan - liabilities |       | (3,918     | )          | (3,918                                                                 | )          | — |   | — |   |
|                                     |       |       |       |                                                                   |       |   |   |   |   |
| Total                                    |       | $          | (690       | )                                                                      | $          | 22 |   | $ | (712 | ) | $ | — |   |

 

The fair value of our interestrate swaps were determined based on the present value of expected future cashflows considering the risks involved, including nonperformance risk, and usingdiscount rates appropriate for the duration. See note 4 for discussion of ourinterest 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. We report the accounts of the rabbitrust in our condensed consolidated financial statements. These investments areconsidered trading securities and are reported at fair value based onthird-party broker statements.  Therealized and unrealized holding gains and losses related to these investments,as well as the offsetting compensation expense, are recorded in general andadministrative expense on the condensed consolidated statements of income.

 

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The following tablepresents the fair values for our financial assets and liabilities measured on anonrecurring basis as of  March 30,2010:

 
| ** **                      | ** ** | ** ** | ** ** | **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)** | ** ** | **Total  losses** | ** ** |
|                            |       |       |       |                                                                    |       |   |   |   |   |   |   |
| Long-lived assets held for sale |       | $          | 1,598      |                                                                    | $          | — |   | $ | 1,598 |   | $ | — |   | $ | — |   |
| Long-lived assets held for use  |       | 1,230      |       | —                                                                  |       | 1,230 |   | — |   | — |   |
| Goodwill                        |       | 651        |       | —                                                                  |       | — |   | 651 |   | — |   |
|                            |       |       |       |                                                                    |       |   |   |   |   |   |   |
| Total                           |       | $          | 3,479      |                                                                    | $          | — |   | $ | 2,828 |   | $ | 651 |   | $ | — |   |

 

Long-lived assetsheld for sale include land and building and are valued using Level 2 inputs,primarily an independent third party appraisal. These assets are included in Property and equipment in the Company’scondensed consolidated balance sheets as we do not expect to sell these assetsin the next 12 months.  Costs to marketand/or sell the assets are factored into the estimates of fair value.  The long-lived assets related to thisrestaurant are currently classified as held for sale.

 

Long-lived assetsheld for use include building, equipment and furniture and fixtures and arevalued using Level 2 inputs, primarily independent third party appraisal.  These assets are included in Property andequipment in our condensed consolidated balance sheets.

 

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

 

At March 30, 2010 and December 29, 2009, thefair value of cash and cash equivalents, accounts receivable and accountspayable approximated their carrying value based on the short-term nature ofthese instruments. The fair value of our long-term debt is estimated based on thecurrent rates offered to us for instruments of similar terms and maturities.The carrying amounts and related estimated fair values for our debt are asfollows:

 
| ** **        | ** ** | **March 30, 2010**    | ** ** | **December 29, 2009** | ** ** |
|-------------------|------------|----------------------------|------------|----------------------------|------------|
| ** **        | ** ** | **Carrying********Amount** | ** ** | **Fair Value******         | ** ** | **Carrying********Amount****** | ** ** | **Fair Value** | ** ** |
| Installment loans |       | $                          | 1,990      |                       | $          | 2,526 |   | $ |  2,030 |   | $ |  2,592 |   |
| Revolver          |       | 87,000                     |       | 87,000                     |       | 99,000 |   | 99,000 |   |
|                   |            |                            |            |                            |            |  |  |  |  |  |  |  |  |

 

**(11) Stock Repurchase Program**

 

On February 14,2008, our Board of Directors approved a stock repurchase program under which itauthorized us to repurchase up to $25.0 million of our common stock.  On July 8, 2008, our Board of Directorsapproved a $50.0 million increase in our stock repurchase program.  Our total stock repurchase authorizationincreased to $75.0 million.  Under thisprogram, we were authorized to repurchase outstanding shares of our commonstock from time to time in open market transactions through February 14,2010.  On November 19, 2009, theBoard of Directors extended the expiration date on the stock repurchase programto February 14, 2011.  The timingand the amount of any repurchases will be determined by management underparameters established by our Board of Directors, based on its evaluation ofthe Company’s stock price, market conditions and other corporate considerations.

 

For the 13 weeks ended March 30,2010 and March 31, 2009, we did not repurchase any shares of our commonstock.  The approximate dollar value ofshares that may yet be purchased under the plan is $18.2 million.

 

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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 30, 2010, there were 334 restaurantsoperating in 46 states, including:

 

·  264 “companyrestaurants,” of which 254 were wholly-owned and 10 were majority-owned. The results of operations of company restaurants are included in ourcondensed consolidated statements of income. The portion of income attributableto minority interests in company restaurants that are not wholly-owned isreflected in the line item entitled “Net income attributable to noncontrollinginterests” in our condensed consolidated statements of income.

 

·  70 “franchise restaurants,” of which 67were franchise restaurants and three were license restaurants. We have a 5.0%to 10.0% ownership interest in 21 franchise restaurants.  The income derived from our minorityinterests in these franchise restaurants is reported in the line item entitled “Equity incomefrom investments in unconsolidated affiliates” in our condensed consolidatedstatements of income. Additionally, we provide various management services tothese franchise restaurants, as well as five additional franchise restaurantsin which we have no ownership interest.

 

We have contractualarrangements which grant us the right to acquire at pre-determined valuationformulas (i) the remaining equity interests in eight of the 10majority-owned company restaurants, and (ii) 64 of the franchiserestaurants.

 

**Presentation of Financial andOperating Data**

 

Throughout this report,the 13 weeks ended March 30, 2010 and March 31, 2009 are referred toas Q1 2010 and Q1 2009.

 

**Long-term Strategies to Grow EarningsPer 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 and international markets. We will remain focusedprimarily on mid-sized markets where we believe a significant demand for ourrestaurants exists because of population size, income levels, the presence ofshopping and entertainment centers and a significant employment base.  Our ability to expand our restaurant base isinfluenced by factors beyond our control and therefore we may not be able toachieve our anticipated growth.  Due, inpart, to increasing restaurant development costs, we moderated our restaurantdevelopment plans for 2009 and 2010.  For2010, we expect our average capital investment for developing our prototyperestaurant to decrease by $0.2 million to $0.4 million from our $4.0 millionaverage in 2009.  These increases are aresult of building design modifications and lower site work costs, as landlordsare becoming more responsible for a higher portion of certain of thesecosts.  We continue to focus on drivingsales and decreasing restaurant development costs in order to increase ourrestaurant development in the future.

 

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.  In conjunction with thisstrategy, we signed our first international franchise agreement on April 26,2010 for the development of Texas Roadhouse restaurants in eight countries overthe next ten years, the first of which is expected to open in early 2011.  We may also look to acquire franchiserestaurants under terms favorable to us and our stockholders.  Additionally, from time to time, we mayevaluate potential mergers, acquisitions, joint ventures or other strategicinitiatives to acquire or develop additional concepts.  Of the 264 restaurants we owned and operatedat March 30, 2010, 263 operated as Texas Roadhouse restaurants, while oneoperated under the name of Aspen Creek. The majority of our restaurant growth in 2010 will be Texas Roadhouserestaurants; however, we plan to open two additional Aspen Creek restaurants aswe continue testing the viability of the concept.

 

*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.Historically, general and administrative costs have increased at a slowergrowth rate than our revenue.  Whether weare able to continue leveraging our infrastructure will depend, in part, on ournew restaurant and comparable restaurant sale growth rates going forward.

 

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*StockRepurchase Program. *We continue to look at opportunities torepurchase our common stock at favorable market prices under our stockrepurchase program.  Currently, our Boardof Directors has authorized us to repurchase up to $75.0 million of our commonstock.  As of March 30, 2010, $18.2million worth of common stock remains authorized for repurchase.  We made no purchases of our common stockduring the 13 weeks ended March 30, 2010.

 

**Key Measures We Use to Evaluate OurCompany**

 

Key measures we use to evaluate and assess ourbusiness 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 of operationand increase to a steady level approximately three to six months after opening.

 

*ComparableRestaurant Sales Growth. *  Comparable restaurant sales growthreflects the change in year-over-year sales for all company restaurants for thecomparable restaurant base. We define the comparable restaurant base to includethose restaurants open for a full 18 months before the beginning of the currentinterim 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 company average.

 

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

 

**Other Key Definitions**

 

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

 

*FranchiseRoyalties and Fees.*   Domesticfranchisees typically pay a $40,000 initial franchise fee for each newrestaurant and a franchise renewal fee equal to the greater of 30% of thethen-current initial franchise fee or $10,000 to $15,000. Franchise royaltiesconsist of royalties in an amount up to 4.0% of gross sales, as defined in ourfranchise agreement, paid to us by our domestic franchisees.

 

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

 

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

 

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

 

*RestaurantOther Operating Expenses.*   Restaurant other operating expenses consist of allother restaurant-level operating costs, the major components of which 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 expensesincurred before the opening of a new restaurant and are comprised principallyof opening team and training salaries, travel expenses, rent, and food,beverage and other initial supplies and expenses.

 

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

 

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*Impairmentand closure costs. *Impairment and closure costs include anyimpairment of long-lived assets associated with restaurants where the carryingamount of the asset is not recoverable and exceeds the fair value of the assetand expenses associated with the closure of a restaurant.  Closure costs also include any gains or lossesassociated with the sale of a closed restaurant and/or assets held for sale.

 

*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.*   As of March 30, 2010 and March 31,2009, we owned a 5.0% to 10.0% equity interest in 21 franchise restaurants and19 franchise restaurants, respectively. 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 30,2010 and March 31, 2009 included ten majority-owned restaurants, all ofwhich were open.

 

**Resultsof Operations**

** **

| ** **                                                              | ** ** | **13  Weeks Ended**      | ** ** |
|-------------------------------------------------------------------------|------------|--------------------------|------------|
| ** **                                                              | ** ** | **March 30,  2010** | ** ** | **March 31,  2009** | ** ** |
| **($ in thousands)**                                               | ** ** | **$**                    | ** ** | **%** | ** ** | **$** | ** ** | **%** | ** ** |
|                                                                    |       |                     |       |   |   |   |   |   |   |
| Revenue:                                                                |       |                     |       |   |   |   |   |   |   |
| Restaurant sales                                                        |       | 257,342                  |       | 99.1 |   | 244,090 |   | 99.2 |   |
| Franchise  royalties and fees                                           |       | 2,282                    |       | 0.9 |   | 1,983 |   | 0.8 |   |
|                                                                    |       |                     |       |   |   |   |   |   |   |
| Total revenue                                                           |       | 259,624                  |       | 100.0 |   | 246,073 |   | 100.0 |   |
|                                                                    |       |                     |       |   |   |   |   |   |   |
| Costs and  expenses:                                                    |       |                     |       |   |   |   |   |   |   |
| *(As  a percentage of restaurant sales)*                                |       |                     |       |   |   |   |   |   |   |
| Restaurant  operating costs:                                            |       |                     |       |   |   |   |   |   |   |
| Cost of sales                                                           |       | 82,799                   |       | 32.2 |   | 83,041 |   | 34.0 |   |
| Labor                                                                   |       | 74,909                   |       | 29.1 |   | 71,499 |   | 29.3 |   |
| Rent                                                                    |       | 5,270                    |       | 2.0 |   | 4,912 |   | 2.0 |   |
| Other operating                                                         |       | 42,598                   |       | 16.6 |   | 40,860 |   | 16.7 |   |
| *(As  a percentage of total revenue)*                                   |       |                     |       |   |   |   |   |   |   |
| Pre-opening                                                             |       | 1,105                    |       | 0.4 |   | 2,284 |   | 0.9 |   |
| Depreciation and  amortization                                          |       | 10,337                   |       | 4.0 |   | 10,471 |   | 4.3 |   |
| Impairment and  closures                                                |       | 158                      |       | 0.1 |   | (86 | ) | NM |   |
| General and  administrative                                             |       | 12,342                   |       | 4.8 |   | 10,809 |   | 4.4 |   |
|                                                                    |       |                     |       |   |   |   |   |   |   |
| Total costs and  expenses                                               |       | 229,518                  |       | 88.4 |   | 223,790 |   | 90.9 |   |
| Income from  operations                                                 |       | 30,106                   |       | 11.6 |   | 22,283 |   | 9.1 |   |
| Interest  expense, net                                                  |       | 730                      |       | 0.3 |   | 857 |   | 0.3 |   |
| Equity income  from investments in unconsolidated affiliates            |       | (108                     | )          | NM |   | (85 | ) | NM |   |
|                                                                    |       |                     |       |   |   |   |   |   |   |
| Income before  taxes                                                    |       | 29,484                   |       | 11.4 |   | 21,511 |   | 8.7 |   |
| Provision for  income taxes                                             |       | 9,606                    |       | 3.7 |   | 6,715 |   | 2.7 |   |
| Net income  including noncontrolling interests                          |       | 19,878                   |       | 7.7 |   | 14,796 |   | 6.0 |   |
| Net income  attributable to noncontrolling interests                    |       | 637                      |       | 0.3 |   | 462 |   | 0.2 |   |
| Net income  attributable to Texas Roadhouse, Inc. and subsidiaries |       | 19,241                   |       | 7.4 |   | 14,334 |   | 5.8 |   |

 

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NM — Not meaningful

 

**RestaurantUnit Activity**

** **
| ** **                         | ** ** | **Company** | ** ** | **Franchise** | ** ** | **Total** | ** ** |
|------------------------------------|------------|-------------|------------|---------------|------------|-----------|------------|
| Balance at  December 29, 2009 |       | 261         |       | 70            |       | 331       |       |
| Openings                           |       | 3           |       | —        |       | 3         |       |
| Acquisitions  (Dispositions)       |       | —      |       | —        |       | —    |       |
| Closures                           |       | —      |       | —        |       | —    |       |
|                               |       |        |       |          |       |      |       |
| Balance at  March 30, 2010    |       | 264         |       | 70            |       | 334       |       |

 

**Q1 2010 (13 weeks) Compared toQ1 2009 (13 weeks)**

 

*RestaurantSales.*   Restaurantsales increased by 5.4% in Q1 2010 as compared to Q1 2009.  This increase was attributable to the openingof new restaurants and an increase in comparable restaurant sales and averageunit volumes.

 

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

 

| ** **                                    | ** ** | **Q1  2010** | ** ** | **Q1  2009** | ** ** |
|-----------------------------------------------|------------|--------------|------------|--------------|------------|
|                                          |       |         |       |         |       |
| Store weeks                                   |       | 3,412        |       | 3,249        |       |
| Comparable  restaurant sales growth/(decline) |       | 0.4          | %          | (1.3         | )%         |
| Average unit  volume (in thousands)           |       | $            | 974        |         | $          | 972 |   |
|                                               |            |              |            |              |            |  |  |

 

We have implementedcertain menu pricing increases to partially offset impacts from higheroperating costs and other inflationary pressures.  The following table summarizes our menupricing actions for the periods shown.

 

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

 

While we have implementedcertain menu price increases, average guest check has remained fairlyconstant.  This is due to some guestspurchasing fewer alcoholic beverages and/or shifting their selections to lowerpriced menu items.  We will continue toevaluate the need for and test further menu price increases as we assess thecurrent inflationary and competitive environment.

 

In 2010, we plan to open14 to 15 company restaurants, three of which opened during Q1 2010.  We have either begun construction or havesites currently under contract for purchase or lease for 10 of the remainingrestaurants.  In addition, we willcontinue to evaluate opportunities for international development and acquiringadditional franchise restaurants in 2010.

 

*FranchiseRoyalties and Fees.*   Franchiseroyalties and fees increased by $0.3 million, or by 15.1%, in Q1 2010 from Q12009.  The increase in Q1 2010 wasprimarily attributable to the opening of new restaurants in 2009, increasingroyalty rates in conjunction with the renewal of certain franchise agreementsand an increase in average unit volumes. Franchise comparable restaurant sales increased 0.9% in Q1 2010.  Franchise restaurant count activity is shownin the restaurant unit activity table above.

 

*RestaurantCost of Sales.*   Restaurantcost of sales, as a percentage of restaurant sales, decreased to 32.2% in Q12010 from 34.0% in Q1 2009.  Thisdecrease was primarily attributable to the benefit of lower beef costs, lowerfood costs on items such as wheat and oil-based ingredients, lower producecosts and the menu price increases discussed above.  For 2010, we have fixed price contracts for65-70% of our overall food costs with the remainder subject to fluctuatingmarket prices.  While commodity costdeflation was higher in Q1 2010 due to the way we purchased certain proteins,we continue to expect commodity cost deflation of approximately 2.5-3.0% in2010.

 

*RestaurantLabor Expenses.*  Restaurantlabor expenses, as a percentage of restaurant sales, decreased to 29.1% in Q12010 from 29.3% in Q1 2009.  Thisdecrease was primarily attributable to an increase in average unit volumes andthe menu price increases discussed above combined with lower turnover,partially offset by higher average wage rates. For Q1 2010, our turnover rate for hourly employees at restaurants open12 months or more was below 80% compared to slightly under 90% in Q1 2009.  Higher average hourly wage rates resultedfrom several state-mandated increases in minimum and tip wage rates throughout2009, including increases in federal minimum wage rate in July 2009.  We anticipate our labor costs will continueto be pressured by inflation, which

 

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is primarily caused by federal and state-mandatedincreases in minimum and tip wage rates. However, we expect that this pressure will not be as much as it has beenin the past.  These increases may or maynot be offset by additional menu price adjustments.

 

*RestaurantRent Expense.*   Restaurantrent expense, as a percentage of restaurant sales, remained the same in Q1 2010compared to Q1 2009 at 2.0%.  The benefitfrom an increase in average unit volumes was offset by the impact of leasingmore land and buildings than we have in the past.

 

*RestaurantOther Operating Expenses**.  ***Restaurant other operating expenses, as a percentageof restaurant sales, decreased slightly to 16.6% in Q1 2010 from 16.7% in Q12009.  This decrease was primarilyattributable to lower costs for utilities and supplies, as a percentage ofrestaurant sales, combined with an increase in average unit volumes, partiallyoffset by higher costs for managing partner and market partner bonuses, as apercentage of restaurant sales.  Wecontinue to work with various suppliers to lock in lower natural gas andelectric rates where possible.  Managingpartner and market partner bonus expense was higher in Q1 2010 as a result ofimproved restaurant sales and margins.

 

*RestaurantPre-opening Expenses.*   Pre-opening expenses decreased to $1.1 million in Q12010 from $2.3 million in Q1 2009.  Thisdecrease was primarily attributable to fewer restaurant openings in Q1 2010compared to Q1 2009.  In 2010, we plan toopen 14 to 15 company restaurants, three of which opened in Q1 2010.  In 2009, we opened 17 company restaurants,nine of which opened in Q1 2009. Pre-opening costs will fluctuate from period to period based on thenumber and timing of restaurant openings and the number and timing ofrestaurant managers hired.

 

*Depreciationand Amortization Expense.*   D&A, as a percentage of total revenue, decreasedto 4.0% in Q1 2010 from 4.3% in Q1 2009. This decrease was primarily attributable to an increase in average unitvolumes and lower depreciation expense on older restaurants, partially offsetby higher construction costs and other capital spending on new restaurants.

 

*Impairmentand Closure Expenses.*  Impairment and closure expensesincreased to $0.2 million in Q1 2010 compared to ($0.1) million in Q12009.  In Q1 2010, we recorded animpairment charge of $0.1 million related to the write-down of equipmentassociated with one restaurant, which was subsequently closed in the secondquarter of 2010.  We also recordedclosure costs of $0.1 million in Q1 2010 relating to various restaurant closuresthat took place in fiscal 2009.  The $0.1million credit in Q1 2009 was a result of settling the lease reserve for arestaurant that was closed in fiscal year 2008.

 

*Generaland Administrative Expenses**.***** **G&A, as a percentage of total revenue, increasedto 4.8% in Q1 2010 from 4.4% in Q1 2009. This increase was primarily attributable to higher performance-basedbonus expense as a result of higher profitability, combined with higher costsrelated to international development.  Weanticipate that our G&A expense in the second quarter of 2010 will behigher as the costs related to our 2010 managing partner conference will be$1.0 to $1.2 million higher than last year.

 

*InterestExpense, Net.*   Interestexpense decreased to $0.7 million in Q1 2010 from $0.9 million in Q1 2009.  This decrease was primarily attributable tolower interest rates, partially offset by lower capitalized interest.  Lower capitalized interest was primarily dueto slower restaurant development in Q1 2010 compared to Q1 2009.

 

*IncomeTax Expense. * Weaccount for income taxes in accordance with Financial Accounting StandardsBoard (“FASB”) Accounting Standards Codification (“ASC”) 740, *Income Taxes (“ASC 740”). *Our effective tax rate increasedto 33.3% in Q1 2010 from 31.9% in Q1 2009. This increase was primarily attributable to higher profitability, whichled to lower federal tax credits, such as FICA tip credit and Work OpportunityTax credits, as a percentage of net income before tax, and an increase in thenon-deductibility of officers’ compensation and was partially offset by lowernon-deductible stock compensation expense. We expect the effective tax rate to be approximately 33.0% for fiscal2010.

 

**Liquidity and Capital Resources**

 

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

 
| ** **                                 | ** ** | **13  Weeks Ended**      | ** **   |
|--------------------------------------------|------------|--------------------------|--------------|
| ** **                                 | ** ** | **March 30,  2010** | ** **   | **March 31,  2009** | ** ** |
| ** **                                 | ** ** | ** **               | ** **   | ** ** | ** ** |
| Net cash  provided by operating activities |       | $                        |  22,684 |   | $ |  20,178 |   |
| Net cash used in  investing activities     |       | (7,801                   | )            | (13,350 | ) |
| Net cash used in  financing activities     |       | (7,998                   | )            | (4,333 | ) |
|                                       |       |                     |         |   |   |
| Net increase in  cash and cash equivalents |       | $                        |  6,885  |   | $ |  2,495 |   |

 

Net cash provided byoperating activities was $22.7 million in Q1 2010 compared to $20.2 million inQ1 2009.  This increase was primarily dueto higher net income, partially offset by other changes in workingcapital.  Net income was $5.0 millionhigher as a result of having more restaurants open and higher restaurants salesand margins.

 

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

 

Net cash used ininvesting activities was $7.8 million in Q1 2010 compared to $13.4 million inQ1 2009.  This decrease was primarily dueto lower spending on capital expenditures as a result of the timing of openingsin Q1 2010, in which we opened three company restaurants, compared to Q1 2009,in which we opened nine company restaurants.

 

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 30, 2010, 117 of the 264 company restaurants had been developedon land which we owned.

 

Our future capital requirementswill primarily depend on the number of new restaurants we open and the timingof those openings and the restaurant prototype developed in a given fiscalyear. These requirements will include costs directly related to opening newrestaurants and may also include costs necessary to ensure that ourinfrastructure is able to support a larger restaurant base. In fiscal 2010, weexpect our capital expenditures to be approximately $50.0 million, the majorityof which will relate to planned restaurant openings.  This amount excludes any cash used forfranchise acquisitions.  We intend tosatisfy our capital requirements over the next 12 months with cash onhand, net cash provided by operating activities and, if needed, funds availableunder our credit facility.  For 2010, weanticipate net cash provided by operating activities will exceed capitalexpenditures, which we currently plan to use to repay borrowings under ourcredit facility and/or increase our cash balance. Currently, our intent is toretain our future earnings, if any, primarily to finance the future developmentand operation of our business.

 

Net cash used infinancing activities was $8.0 million in Q1 2010 as compared to $4.3 million inQ1 2009.  This increase was primarily dueto paying down more on borrowings under our credit facility.

 

On February 14,2008, our Board of Directors approved a stock repurchase program to repurchaseup to $25.0 million of common stock.  On July 8,2008, our Board of Directors approved a $50.0 million increase in the Company’sstock repurchase program, thereby increasing the Company’s total stockrepurchase authorization to $75.0 million. Under this program, we were authorized to repurchase outstanding sharesfrom time to time in open market transactions through February 14,2010.  On November 19, 2009, ourBoard of Directors approved the extension of this date to February 14,2011.  No repurchases were made during Q12010 or Q1 2009.  The timing and theamount of any repurchases will be determined by our management under parametersestablished by our Board of Directors, based on its evaluation of our stockprice, market conditions and other corporate considerations. The approximatedollar value of shares that may yet be purchased under the plan is $18.2million.

 

In Q1 2010, we paiddistributions of $0.6 million to equity holders of ten of our majority-ownedcompany restaurants.  In Q1 2009, we paiddistributions of $0.6 million to equity holders of nine of our majority-owned companyrestaurants.

 

We have a $250.0 millionfive-year revolving credit facility with a syndicate of commercial lenders ledby Bank of America, N.A., Banc of America Securities LLC and National City Bankwhich, in December 2008, was acquired by PNC Bank.  The facility expires on May 31, 2012.  The terms of the facility require us to payinterest on outstanding borrowings at LIBOR plus a margin of 0.50% to 0.875%and to pay a commitment fee of 0.10% to 0.175% per year on any unused portionof the facility, in both cases depending on our leverage ratio.  The weighted-average interest rate for therevolver at March 30, 2010 and December 29, 2009 was 2.50% and 2.36%,respectively, including interest rate swaps. The lenders’ obligation to extend credit under the facility depends onus maintaining certain financial covenants, including a minimum consolidatedfixed charge coverage ratio of 2.00 to 1.00 and a maximum consolidated leverageratio of 3.00 to 1.00.  The creditfacility permits us to incur additional secured or unsecured indebtednessoutside the facility, except for the incurrence of secured indebtedness that inthe aggregate exceeds 20% of our consolidated tangible net worth orcircumstances where the incurrence of secured or unsecured indebtedness wouldprevent us from complying with our financial covenants.  We were in compliance with all covenants asof March 30, 2010.

 

At March 30, 2010,we had $87.0 million of outstanding borrowings under our credit facility and$159.3 million of availability net of $3.7 million of outstanding letters ofcredit.  In addition, we had various other notes payable totaling $2.0million with interest rates ranging from 10.46% to 10.80%.  Each of thesenotes related to the financing of specific restaurants. Our totalweighted-average effective interest rate at March 30, 2010 was 2.68%,including interest rate swaps.

 

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

 

**Contractual Obligations**

 

The following tablesummarizes the amount of payments due under specified contractual obligationsas of March 30, 2010:

 
| ** **                         | ** ** | **Payments Due by Period** | ** **    |
|------------------------------------|------------|-------------------------------------------|---------------|
| ** **                         | ** ** | **Total**                                 | ** **    | **Less than********1 year** | ** ** | **1-3********Years** | ** ** | **3-5********Years** | ** ** | **More than********5 years** | ** ** |
| ** **                         | ** ** | **(in thousands)**                   | ** **    |
| Long-term debt  obligations        |       | $                                         |  88,990  |   | $ |  171 |   | $ |  87,401 |   | $ |  496 |   | $ |  922 |   |
| Capital lease  obligations         |       | 376                                       |          | 82 |   | 192 |   | 102 |   | — |   |
| Interest (1)                       |       | 1,109                                     |          | 238 |   | 388 |   | 256 |   | 227 |   |
| Operating lease  obligations       |       | 203,869                                   |          | 20,151 |   | 39,946 |   | 38,266 |   | 105,506 |   |
| Capital  obligations               |       | 26,464                                    |          | 26,464 |   | — |   | — |   | — |   |
| Total  contractual obligations (2) |       | $                                         |  320,808 |   | $ |  47,106 |   | $ |  127,927 |   | $ |  39,120 |   | $ |  106,655 |   |

 

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(1)         Assumes constant rate until maturity for our fixed andvariable rate debt and capital lease obligations.

Uses interest rates as ofMarch 30, 2010 for our variable rate debt. Interest payments on our variable-rate revolving credit facility havebeen excluded from the amounts shown above, primarily because the balanceoutstanding under our revolving credit facility, described further in note 3 ofthe condensed consolidated financial statements, can fluctuate daily.

(2)           This amount excludes $0.1 million of unrecognized taxbenefits under FASB ASC 740, *Income Taxes*.

 

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

 

**Off-Balance Sheet Arrangements**

 

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

 

**Guarantees**

 

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

 

**Recently Issued Accounting Standards**

 

***Fair Value Measures and Disclosures***

*(AccountingStandards Update (“ASU”) 2010-06)*

 

In January 2010, theFASB issued ASU 2010-06 which amends Accounting Standards Codification (“ASC”)topic 820, *Fair Value Measures andDisclosures*.  ASU No. 2010-06amends the ASC to require disclosure of transfer into and out of Level 1 andLevel 2 fair value measurements, and also require more detailed disclosureabout the activity within Level 3 fair value measurements.  The changes as a result of this update areeffective for annual and interim reporting periods beginning after December 15,2009 (our 2010 fiscal year), except for requirements related to Level 3disclosures, which are effective for annual and interim reporting periods

 

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beginning after December 15, 2010 (our 2011fiscal year).  This guidance requires newdisclosures only, and will have no impact on our consolidated financialposition, results of operations or cash flows.

 

***Consolidation of Variable Interest Entities — Amended***

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

 

ASC 810 provides guidancefor determining the primary beneficiary of a variable interest entity.  In addition, ASC 810 requires ongoingassessments of whether an enterprise is the primary beneficiary of a variableinterest entity.  ASC 810 is effectivefor the first annual and interim reporting periods that begin after November 15,2009 (our fiscal year 2010).  Theadoption of ASC 810 had no impact on our consolidated financial position,results of operations and cash flows.

 

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

 

We are exposed to marketrisk from changes in interest rates on debt and changes in commodity prices.Our exposure to interest rate fluctuations is limited to our outstanding bankdebt and dependent on the interest rate option we choose to utilize under ourrevolving line of credit.  Our options forthe 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 30, 2010 there was $87.0million 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 payabletotaled $2.0 million at March 30, 2010 and had fixed rates ranging from10.46% to 10.80%.  Should interest rates on our variable rate borrowingsincrease by one percentage point, our estimated annual interest expense wouldincrease by $1.0 million.

 

On October 22, 2008, we entered into an interestrate swap, starting on November 7, 2008, 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 anotherinterest rate swap, starting February 7, 2009, with a notional amount of$25.0 million to hedge a portion of the cash flows of our variable rate creditfacility.  We have designated theinterest rate swap as a cash flow hedge of our exposure to variability infuture cash flows attributable to interest payments on a $25.0 million trancheof floating rate debt borrowed under our revolving credit facility.  Under the terms of the swap, we pay a fixedrate of 2.34% on the $25.0 million notional amount and receive payments fromthe counterparty based on the 1-month LIBOR rate for a term ending on January 7,2016, effectively resulting in a fixed rate LIBOR component of the $25.0million notional amount.

 

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

 

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 to fourvendors.  If these vendors were unable tofulfill their obligations under their contracts, we may encounter supplyshortages and incur higher costs to secure adequate supplies, any of whichwould harm our business.

 

**ITEM 4.CONTROLS AND PROCEDURES**

 

**Evaluation of disclosure controls andprocedures**

 

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 29, 2009, under the heading “Special Note RegardingForward-looking Statements” and in the Form 10-K Part I, Item 1A,Risk Factors.  There have been nomaterial changes from the risk factors previously disclosed in our Form 10-K.

 

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

 

On February 14,2008, our Board of Directors approved a stock repurchase program under which itauthorized us to repurchase up to $25.0 million of our common stock through February 14,2010.  On July 8, 2008, our Board ofDirectors approved a $50.0 million increase in our stock repurchaseprogram.  On November 19, 2009, ourBoard of Directors extended the expiration date on the stock repurchase programto February 14, 2011.  We made norepurchases of common stock during the 13 weeks ended March 30, 2010.  The approximate dollar value of shares thatmay yet be purchased under the plan is $18.2 million.

 

**ITEM3.  DEFAULTS UPON SENIOR SECURITIES**

 

None.

 

**ITEM4.  (Removed and Reserved)**

 

None.

 

**ITEM5.  OTHER INFORMATION.**

 

None.

 

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**ITEM 6.EXHIBITS.**

 
| **Exhibit No.** | ** ** | **Description**                                                                                                                                                |
|----------------------|------------|----------------------------------------------------------------------------------------------------------------------------------------------------------------|
| 31.1                 |       | Certification of Chief Executive Officer pursuant to  Section 302 of the Sarbanes-Oxley Act of 2002.                                                      |
| 31.2                 |       | Certification of Chief Financial Officer pursuant to  Section 302 of the Sarbanes-Oxley Act of 2002.                                                      |
| 32.1                 |       | Certification of Chief Executive Officer pursuant to  18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the  Sarbanes-Oxley Act of 2002. |
| 32.2                 |       | Certification of Chief Financial Officer pursuant to  18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the  Sarbanes-Oxley Act of 2002. |

 

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**SIGNATURES**

 

Pursuant to the requirements of the SecuritiesExchange Act of 1934, the registrant has duly caused this report to be signedon its behalf by the undersigned thereunto duly authorized.

 
|                   | TEXAS ROADHOUSE, INC. |
|------------------------|-----------------------|
|                   |                  |   |
| Date: May 7, 2010 | By:                   | /s/ G.J. Hart |
|                   |                  | G.J. Hart |
|                   |                  | President, Chief Executive Officer |
|                   |                  | (principal executive officer) |
|                   |                  |   |
| Date: May 7, 2010 | By:                   | /s/ Scott M. Colosi |
|                   |                  | Scott M. Colosi |
|                   |                  | Chief Financial Officer |
|                   |                  | (principal financial officer) |
|                   |                  | (chief accounting officer) |

 

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