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UNITED STATES
SECURITIES AND EXCHANGE COMMISSIONWashington, D.C. 20549

FORM 10-K

(Mark One)ý

ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934For the fiscal year ended December 30, 2008ORo

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934For the transition period
from                                    to


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

Delaware(State or other jurisdiction of
incorporation or organization)

000-50972(Commission File Number)

20-1083890(IRS Employer
Identification Number)


6040 Dutchmans Lane, Suite 200
Louisville, Kentucky 40205(Address of principal executive offices) (Zip Code)

(502) 426-9984(Registrant's telephone number, including area code)

Securities
registered pursuant to Section 12(b) of the Act:

Title of Each Class

Name of Each Exchange on Which RegisteredClass A Common Stock, par value $0.001 per share

Nasdaq Global Select Market


Securities
registered pursuant to Section 12(g) of the Act:

None

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities
Act. Yes o    No ý.

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Exchange
Act. Yes o    No ý.

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

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be
contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to
the Form 10-K. ý.

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting
company. See the definitions of "large accelerated filer", "accelerated filer" and "smaller reporting company" in Rule 12b-2 of the Exchange Act.

Large accelerated filer o

Accelerated filer ý

Non-accelerated filer o (Do not check if a smaller reporting company)

Smaller reporting company o


Indicate
by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange
Act). Yes o    No ý.

The aggregate market value of the voting stock held by non-affiliates of the registrant as of the last day of the second fiscal quarter ended
June 24, 2008 was $472,875,650 based on the closing stock price of $9.27. Shares of voting stock held by each officer and director have been excluded in that such persons may be deemed to be
affiliates. This determination of affiliate status is not necessarily a conclusive determination for other purposes. The registrant has no shares of non-voting common stock authorized or
outstanding. The market value calculation was determined using the closing stock price of our Class A common stock on the Nasdaq Global Select Market.

The
number of shares of Class A and Class B common stock outstanding were 64,221,785 and 5,265,376, respectively, on February 20, 2009.

Portions
of the registrant's definitive Proxy Statement for the registrant's 2009 Annual Meeting of Stockholders, which is expected to be filed pursuant to Regulation 14A within
120 days of the registrant's fiscal year ended December 30, 2008, are incorporated by reference into Part III of the Form 10-K. With the exception of the
portions of the Proxy Statement expressly incorporated by reference, such document shall not be deemed filed with this Form 10-K.



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Table of Contents

TABLE OF CONTENTS



PagePART IItem 1.

Business

5Item 1A.

Risk Factors

16Item 1B.

Unresolved Staff Comments

25Item 2.

Properties

26Item 3.

Legal Proceedings

27Item 4.

Submission of Matters to a Vote of Security Holders

27PART IIItem 5.

Market for Registrant's Common Equity, Related Stockholder Matters
and Issuer Purchases of Equity Securities

28Item 6.

Selected Financial Data

30Item 7.

Management's Discussion and Analysis of Financial Condition and Results of
Operations

34Item 7A.

Quantitative and Qualitative Disclosures About Market Risk

49Item 8.

Financial Statements and Supplementary Data

50Item 9.

Changes in and Disagreements with Accountants on Accounting and Financial
Disclosure

50Item 9A.

Controls and Procedures

50Item 9B.

Other Information

51PART IIIItem 10.

Directors, Executive Officers and Corporate
Governance

52Item 11.

Executive Compensation

52Item 12.

Security Ownership of Certain Beneficial Owners and Management and Related
Stockholder Matters

52Item 13.

Certain Relationships and Related Transactions, and Director
Independence

52Item 14.

Principal Accounting Fees and Services

52PART IVItem 15.

Exhibits, Financial Statement
Schedules

53Signatures

56


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SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

This Annual Report on Form 10-K contains statements about future events and expectations that constitute
forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended.
Forward-looking statements are based on our beliefs, assumptions and expectations of our future financial and operating performance and growth plans, taking into account the information currently
available to us. These statements are not statements of historical fact. Forward-looking statements involve risks and uncertainties that may cause our actual results to differ materially from the
expectations of future results we express or imply in any forward-looking statements. In addition to the other factors discussed under "Risk Factors" elsewhere in this report, factors that could
contribute to these differences include, but are not limited to:



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The
words "believe," "may," "should," "anticipate," "estimate," "expect," "intend," "objective," "seek," "plan," "strive" or similar words, or the negatives of these words, identify
forward-looking statements. We qualify any forward-looking statements entirely by these cautionary factors.

Other
risks, uncertainties and factors, including those discussed under "Risk Factors," could cause our actual results to differ materially from those projected in any forward-looking
statements we make.

We
assume no obligation to publicly update or revise these forward-looking statements for any reason, or to update the reasons actual results could differ materially from those
anticipated in these forward-looking statements, even if new information becomes available in the future.

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PART I

ITEM 1BUSINESS

Texas Roadhouse, Inc. ("Texas Roadhouse" or the "Company") was incorporated under the laws of the state of Delaware in 2004.
From April 1, 1997 through October 8, 2004, the business of the Company was conducted by Texas Roadhouse Holdings LLC ("Holdings") and its affiliates. On October 8, 2004,
Holdings and its wholly-owned and majority-owned affiliates completed a reorganization and initial public offering. In connection with the reorganization and public offering, Holdings became a
subsidiary of the Company. The principal executive office is located in Louisville, Kentucky.

General Development of Business

Texas Roadhouse is a growing, moderately priced, full-service, casual dining restaurant chain. Our founder and chairman, W.
Kent Taylor, started the business in 1993. Our mission statement is "Legendary Food, Legendary Service®." Our operating strategy is designed to position each of our restaurants as the
local hometown destination for a broad segment of consumers seeking high quality, affordable meals served with friendly, attentive service. As of December 30, 2008, there were 314 Texas
Roadhouse restaurants operating in 46 states. We owned and operated 245 restaurants in 43 states and franchised and licensed an additional 69 restaurants in 23 states.

Over
the past five years, the total number of Texas Roadhouse company and franchise restaurants increased from 162 restaurants as of the end of 2003 to 314 restaurants as of the end of
2008, representing a 14.2% compounded annual growth rate. Over the same period, our revenue increased from $286.5 million to $880.5 million, our income from operations increased from
$34.3 million to $62.0 million, and our net income increased from $23.1 million to $38.2 million, representing compounded annual growth rates of 25.2%, 12.6% and 10.5%,
respectively.

Financial Information about Operating Segments

As of December 30, 2008, we operated 245 Texas Roadhouse restaurants, each as a single operating segment, and franchised and
licensed an additional 69 restaurants. The restaurants operate exclusively in the U.S. within the casual dining segment of the restaurant industry, providing similar products to similar customers. The
restaurants also possess similar pricing structures, resulting in similar long-term expected financial performance characteristics. We consider our restaurant and franchising operations as
similar and have aggregated them into a single reportable segment.

Narrative Description of Business

Texas Roadhouse is a full-service, casual dining restaurant chain. We offer an assortment of specially seasoned and aged
steaks hand-cut daily on the premises and cooked to order over open gas-fired grills. In addition to steaks, we also offer our guests a selection of ribs, fish, seafood,
chicken, pork chops, pulled pork and vegetable plates, and an assortment of hamburgers, salads and sandwiches. The majority of our entrées include two
made-from-scratch side items, and we offer all our guests a free
unlimited supply of roasted in-shell peanuts and made-from-scratch yeast rolls.

The
operating strategy that underlies the growth of our concept is built on the following key components:



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Unit Prototype and Economics

We designed our prototype Texas Roadhouse restaurant to provide a relaxed atmosphere and maximize restaurant sales. The Texas Roadhouse
prototypical restaurant consists of a freestanding building with approximately 6,300 to 7,200 square feet of space constructed on sites of approximately 1.7 to 2.0 acres, with seating at approximately
56 tables for a total of 239 guests, including 15 bar seats, and parking for approximately 150 automobiles. Our current prototype is adaptable to in-line and end cap locations such as
spaces within an enclosed mall or a shopping center.

The
total cash cost of developing the current prototype Texas Roadhouse restaurant in which we lease the land is approximately $2.5 million to $3.8 million including
pre-opening costs or $2.1 to $3.4 million excluding pre-opening costs. This cost includes approximately $1.2 million to $2.5 million for building and site
construction, approximately $0.9 million for furniture, fixtures, signage and equipment and approximately $0.4 million for pre-opening costs. When we own the land, the total
cash cost of developing our prototype restaurant is between $3.2 to $5.3 million including pre-opening costs or $2.8 to $4.9 million excluding pre-opening costs.
This cost includes approximately $0.7 million to $1.5 million for land. As of December 30, 2008, we leased 131 properties and owned 114 properties.

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While
our fiscal year ended on December 30, 2008 included 53 weeks, our 2008 average unit volume on a 52 week basis was $3.8 million. The time required for a new restaurant to
reach a steady level of cash flow is approximately three to six months.

Site Selection

We continue to develop and refine our site selection process. In analyzing each prospective site, management devotes significant time
and resources to the evaluation of local market demographics, population density, household income levels and site-specific characteristics such as visibility, accessibility, traffic
generators, proximity of other retail activities, traffic counts and parking. Our management works actively with real estate brokers in target markets to select high quality sites and to maintain and
regularly update our database of potential sites. Management typically requires three to six months to locate, approve and control a restaurant site and typically four to eight additional months to
obtain necessary permits. Upon receipt of permits, it requires approximately four months to construct, equip and open a restaurant.

Existing Restaurant Locations

As of December 30, 2008, we had 245 company restaurants and 69 franchise restaurants in 46 states as shown in the chart
below.

Number of RestaurantsCompany

Franchise

TotalAlabama


4





4Arizona


10





10Arkansas


1





1California





3


3Colorado


12


1


13Connecticut


2





2Delaware


2


1


3Florida


5


4


9Georgia


2


7


9Idaho


3





3Illinois


6


2


8Indiana


11


8


19Iowa


6





6Kansas


2


1


3Kentucky


7


2


9Louisiana


5


1


6Maine


2





2Maryland


2


4


6Massachusetts


6


1


7Michigan


8


3


11Minnesota


1





1Mississippi


1





1Missouri


6





6Montana





1


1Nebraska


2


1


3Nevada


1





1New Hampshire


2





2New Jersey


1





1New Mexico


2





2


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Number of RestaurantsCompany

Franchise

TotalNew York


5





5North Carolina


13





13North Dakota


2


1


3Ohio


16


4


20Oklahoma


5





5Pennsylvania


14


5


19Rhode Island


2





2South Carolina





6


6South Dakota


1





1Tennessee


9


4


13Texas


44


4


48Utah


5





5Vermont


1





1Virginia


7





7West Virginia


1


2


3Wisconsin


7


3


10Wyoming


1





1Total


245


69


314


Food

Menu.Texas Roadhouse restaurants offer a wide variety of menu items at attractive prices that are designed to appeal to a broad range
of consumer
tastes. Our dinner entrée prices generally range from $7.99 to $20.99. We offer a broad assortment of specially seasoned and aged steaks, including 6, 8, 11 and 16 oz. Sirloins; 10, 12
and 16 oz. Rib-eyes; 6 and 8 oz. Filets; Prime Rib; and T-Bones, most of which are hand-cut daily on the premises and cooked over open gas-fired grills.
We also offer our guests a selection of fish, seafood, chicken, pork chops, ribs, pulled pork and vegetable plates, and an assortment of hamburgers, salads and sandwiches. Entrée prices
include made-from-scratch yeast rolls and most include two of the following made-from-scratch sides: baked potato, sweet potato, steak fries, mashed
potatoes, house or Caesar salad, green beans, chili, seasoned rice, baked beans and steamed vegetables. Our menu allows guests to customize their meals by ordering steaks that are "smothered" either
in cheese, onions, gravy or mushrooms and baked potatoes "loaded" with cheese and bacon. Other menu items include specialty appetizers such as the "Cactus Blossom®" and "Chicken
Critters®" (chicken tenders). We also provide a "12 & Under" menu for children that includes a sirloin steak, rib basket, Jr. Chicken Critters, cheeseburger, hot dog and macaroni
and cheese, all served with a beverage at prices generally between $2.99 and $7.99.

Most
of our restaurants feature a full bar that offers an extensive selection of draft and bottled beer. Managing partners are encouraged to tailor their beer selection to include
regional brands and microbrews. We serve a selection of major brands of liquor and wine as well as frozen margaritas. Alcoholic beverages accounted for 11.2% of restaurant sales at Texas Roadhouse in
fiscal 2008.

We
have maintained a consistent menu over time, with a selection of approximately 60 menu items. We continually review our menu to consider enhancements to existing menu items or the
introduction of new items. We change our menu only after guest feedback and an extensive study of the operational and economic implications. To maintain our high levels of food quality and service, we
generally remove one menu item for every new menu item introduced so as to facilitate our ability to execute high quality meals on a focused range of menu items.

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Food Quality and Safety.We are committed to serving a varied menu of high-quality, great tasting food items with an emphasis on
freshness. We have developed proprietary recipes to ensure consistency in quality and taste throughout all restaurants and provide a unique flavor experience to our guests. At each restaurant, a fully
trained meat cutter hand cuts our steaks and other restaurant team members prepare all side items and yeast rolls from scratch in the restaurants daily. We assign individual kitchen employees to the
preparation of designated food items in order to focus on quality, consistency and speed. Additionally, we expect a management level employee to inspect every entrée before it leaves
the kitchen to confirm it matches the guest's order and meets our standards for quality, appearance and presentation.

We
employ a team of product coaches whose function is to provide continual, hands-on training and education to the kitchen staff in all Texas Roadhouse restaurants for the
purpose of assuring uniform adherence to recipes, food preparation procedures, food safety standards, food appearance, freshness and portion size. The team currently consists of over 30 product
coaches, supporting all restaurants system-wide.

Food
safety is of utmost importance to Texas Roadhouse. We currently employ several programs to ensure adherence to proper food preparation procedures and food safety standards. Texas
Roadhouse has a Food Safety coordinator whose function, in conjunction with our product coaches, is to develop, enforce and maintain programs designed to ensure strict adherence to food safety
guidelines. Where required, food items purchased from qualified vendors have been inspected by reputable, outside inspection services confirming that the vendor is compliant with FDA and USDA
guidelines.

Each
product coach is required to perform a sanitation audit on two restaurants each month and these results are reviewed by various members of operations and management. To reinforce
the importance of food safety, Texas Roadhouse has printed all HAACP (Hazard Analysis and Critical Points) in bold type on each recipe. In addition, most of our product coaches have obtained or are in
the process of obtaining their food safety professional designation.

Purchasing.Our purchasing philosophy is designed to consistently supply fresh, quality products to the restaurants at competitive
prices while
maximizing operating efficiencies. We negotiate directly with suppliers for substantially all food and beverage products to ensure consistent quality and freshness and obtain competitive prices.
Certain products, such as dairy products and select produce, are purchased locally to assure freshness.

Food
and supplies are ordered by, and shipped directly to, the restaurants, as we do not maintain a central product warehouse or commissary. Most food products used in the operation of
our restaurants are distributed to individual restaurants through an independent national distribution company. We strive to qualify more than one supplier for all key food items and believe that beef
of comparable quality as well as all other essential food and beverage products are available, upon short notice, from alternative qualified suppliers.

Service

Guest Satisfaction.Through the use of guest surveys, our website "texasroadhouse.com," a toll-free guest response telephone line and
personal interaction in the restaurant, we receive valuable feedback from guests. Additionally, we employ an outside service to administer a "Secret Shopper" program whereby trained individuals
periodically dine and comprehensively evaluate the guest experience at each of our restaurants. Particular attention is given to food and service quality, cleanliness, staff attitude and teamwork, and
manager visibility and interaction. The resulting reports are used for follow up training feedback to both staff and management.

Atmosphere.The atmosphere of Texas Roadhouse restaurants is intended to appeal to broad segments of the population, children, families,
couples,
adults and business persons. Substantially all

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Texas
Roadhouse restaurants are of our prototype design, reflecting a rustic southwestern lodge atmosphere, featuring an exterior of rough-hewn cedar siding and corrugated metal. The
interiors feature pine floors and stained concrete and are decorated with hand-painted murals, neon signs, southwestern prints, rugs and artifacts. The restaurants contain jukeboxes that
continuously play upbeat country hits. Guests may also view a display-cooking grill and a meat cooler displaying fresh cut steaks, and may wait for seating in either a spacious, comfortable waiting
area or a southwestern style bar. While waiting for a table, guests can enjoy complimentary roasted in-shell peanuts and watch as cooks prepare steaks and other entrées on
the gas-fired grills. Immediately upon being seated at a table, guests can enjoy made-from-scratch yeast rolls along with roasted in-shell peanuts.

People

Management and Employees.Each of our restaurants is generally staffed with one managing partner, one kitchen manager and one service
manager, and,
in many cases, one or more additional assistant managers and/or key employees. The managing partner of each restaurant has primary responsibility for the day-to-day operations
of the entire restaurant and is responsible for maintaining the standards of quality and performance established by us. We use market partners to supervise the operation of our restaurants including
the continuing development of each restaurant's management team. Generally, each market partner has supervisory responsibilities for six to 15 restaurants. Through regular visits to the restaurants,
the market partners ensure adherence to all aspects of our concept, strategy and standards of quality. To further assure adherence to our standards of quality and to achieve uniform execution
throughout the system, we employ product coaches who regularly visit the restaurants to assist in training of both new and existing employees and to grade food quality. The attentive service and high
quality food, which results from each restaurant having a managing partner, two to three managers and the hands-on assistance of a product coach, are critical to our success.

Training and Development.All restaurant employees are required to complete varying degrees of training before and during employment.
Our detailed
training program emphasizes our operating strategy, procedures and standards and is conducted individually at Texas Roadhouse restaurants and in groups in Louisville, Kentucky.

Our
managing and market partners are generally required to have significant experience in the full-service restaurant industry and are generally hired at a minimum four to
12 months before their placement in a new or existing restaurant to allow time to fully train in all aspects of restaurant operations. All managing partners, kitchen and service managers and
other management team members are required to complete a comprehensive training program of up to 16 weeks, which includes training for every position in the restaurant. Trainees are validated
at pre-determined points during their training by either the market partner, product coach or a training manager.

A
number of our restaurants have been certified as training centers by our training department. This certification confirms that the training center adheres to established operating
procedures and guidelines. Additionally, most restaurants are staffed with training coordinators responsible for ongoing daily training needs.

For
new restaurant openings, a full team of designated trainers, each specializing in a specific restaurant position, is deployed to the restaurant at least ten days before opening.
Formal employee training begins seven days before opening, and follows a uniform, comprehensive training course as directed by a training manager.

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Marketing

Our marketing strategy aims to promote the Texas Roadhouse brand, while retaining a localized focus, to:



We
accomplish these objectives through three major initiatives.

In-restaurant Marketing.A significant portion of our marketing fund is spent in communicating with our guests while they are in our
restaurants through point of purchase materials.
We believe special promotions such as Valentine's Day and Mother's Day drive significant repeat business. Also, our eight week holiday gift card campaign is one of our most significant promotions. In
addition, our mascot, "Andy Armadillo®", provides our guests with a familiar and easily identifiable face.

Local Restaurant Area Marketing.Given our strategy to be a neighborhood destination, local area marketing is integral in developing
brand awareness
in each market. To enhance our visibility in new markets, we deliver free food to local businesses in connection with new restaurant openings. Managing partners are encouraged to participate in
creative community-based marketing, such as hosting local radio or television programs. We also engage in a variety of promotional activities, such as contributing time, money and complimentary meals
to charitable, civic and cultural programs. For instance, our involvement with the Special Olympics, a local Little League baseball team, a local church or the Armed Forces, shows our "Legendary Care,
Concern and Support" for our communities. We leverage the corresponding recognition in our public relations and marketing efforts to communicate our corporate values and mission statement to our
guests. We employ marketing coordinators at the restaurant and market level to develop and execute the majority of the local marketing strategies.

Advertising.Although our restaurant concept is not media driven, to build brand awareness we spend a limited amount of our marketing
dollars on
various advertising channels, including billboard, print, radio and television. These advertisements are designed to reflect "Legendary Food, Legendary Service®" as well as our fun and
welcoming restaurant environment.

Restaurant Franchise Arrangements

Franchise Restaurants.As of December 30, 2008, we had 18 franchisees that operated 69 restaurants in 23 states. Franchise
rights are
granted for specific restaurants, and we have not granted any rights to develop a territory. Approximately 75% of our franchise restaurants are operated by eight franchisees. No franchisee operates
more than 15 restaurants.

Our
standard franchise agreement has a term of ten years with two renewal options for an additional five years each if certain conditions are satisfied. Our current form of franchise
agreement requires the franchisee to pay a royalty fee of 4.0% of gross sales. The royalty fee varies depending on when the agreements were entered into and range from 2.0% of gross sales to the
current 4.0% fee. We may, at
our discretion, waive or reduce the royalty fee on a temporary or permanent basis. "Gross sales" means the total selling price of all services and products related to the restaurant. Gross sales do
not include:



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Franchisees
are currently required to pay 0.3% of gross sales to a national advertising and marketing fund for the development of advertising materials, system-wide
promotions and related marketing efforts. We have the ability under our agreements to increase the required national advertising and marketing fund contribution up to 2.5% of gross sales. We may also
charge a marketing fee of 0.5% of gross sales, which we may use for market research and to develop system-wide promotional and advertising materials. A franchisee's total required
advertising contribution or spending will not be more than 3.0% of gross sales.

A
franchise agreement may be terminated if the franchisee defaults in the performance of any of its obligations under the franchise agreement, including its obligations to operate the
restaurant in strict accordance with our standards and specifications. A franchise agreement may also be terminated if a franchisee dies, becomes disabled or becomes insolvent, fails to make its
required payments, creates a
threat to the public health or safety, ceases to operate the restaurant, or misuses the Texas Roadhouse trademarks.

Our
standard franchise agreement gives us the right, but not the obligation, to compel a franchisee to transfer its assets to us in exchange for shares of our stock, or to convert its
equity interests into shares of our stock. The amount of shares that a franchisee would receive is based on a formula that is included in the franchise agreement.

Franchise Compliance Assurance.We have instituted a comprehensive system to ensure compliance with our systems and standards, both
during the
development and operating of franchise restaurants. After a preliminary franchise agreement is signed, we actively work with and monitor our franchisees to ensure successful franchise operations as
well as compliance with the Texas Roadhouse standards and procedures. During the restaurant development phase, we approve the selection of restaurant sites and make available copies of our prototype
building plans to franchisees. In addition, we ensure that the building is in compliance with our standards. We provide training to the managing partner and up to three other managers of a
franchisee's first restaurant. We also provide trainers for a period of 12 to 15 days to assist in the opening of every franchise restaurant. Finally, on an ongoing basis, we conduct reviews on
all franchise restaurants to determine their level of effectiveness in executing our concept at a variety of operational levels. Our franchisees are required to follow the same standards and
procedures regarding equipment, food purchases and food preparation as we maintain in our company restaurants. Reviews are conducted by seasoned operations teams, and focus on key areas including
health, safety and execution proficiency.

To
continuously improve our communications with franchisees and the consistency of the brand, we maintain a business development council that includes representatives of our franchisees,
company operations personnel and vendors. The council's functions are advisory. Its members review and comment on proposed advertising campaigns and materials and budget expenditures, as well as
operational initiatives.

Management Services.We provide management services to 20 of the franchise restaurants in which we or our founder have an ownership
interest. Such
management services include accounting, operational supervision, human resources, training, and food, beverage and equipment consulting for which we receive monthly fees of up to 2.5% of gross sales.
We also make available to these restaurants certain legal services through outside sources on a pass-through cost basis. We also provide restaurant employees on a pass-through
cost basis to three franchise restaurants in which we or our founder have an ownership interest. In addition, we receive a monthly fee from six franchise restaurants for providing payroll and
accounting services.

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Management Information Systems and Restaurant Reporting

All of our company restaurants utilize computerized management information systems, which are designed to improve operating
efficiencies, provide restaurant and Support Center management with timely access to financial and operating data and reduce administrative time and expense. With our current information systems, we
have the ability to query, report and analyze this intelligent data on a daily, weekly, period, quarter and year-to-date basis and beyond, on a company-wide,
regional or individual restaurant basis. Together, this enables us to closely monitor sales, food and beverage costs and labor and operating expenses at each of our restaurants. We have a number of
systems and reports that provide comparative information that enables both restaurant and Support Center management to supervise the financial and operational performance of our restaurants and to
recognize and understand trends in the business. Our accounting department uses a standard, integrated system to prepare monthly profit and loss statements, which provide a detailed analysis of sales
and costs, and which are compared both to the restaurant-prepared reports and to prior periods. We have satellite technology at the restaurant level, which serves as a high-speed, secure
communication link between the restaurants and our Support Center as well as our credit and gift card processor.

Competition

According to the National Restaurant Association, or NRA, restaurant industry sales in 2009 will represent approximately 4% of the
United States' gross domestic product. The NRA also forecasts that restaurant industry sales will reach $566 billion in 2009 and will encompass approximately 945,000 restaurants.

Competition
in the restaurant industry is intense. Texas Roadhouse restaurants compete with mid-priced, full-service, casual dining restaurants primarily on the
basis of taste, quality and price of the food offered, service, atmosphere, location and overall dining experience. Our competitors include a large and diverse group of restaurants that range from
independent local operators to well-capitalized national restaurant chains. Although we believe that we compete favorably with respect to each of the above factors, other restaurants
operate with concepts that compete for the same casual dining guests as we do, with the number of casual dining restaurants
emphasizing steaks increasing in recent years. We also compete with other restaurants and retail establishments for quality site locations and restaurant-level employees.

Trademarks

Our registered trademarks and service marks include, among others, the marks "Texas Roadhouse®" and our stylized logo. We
have registered all of our significant marks with the United States Patent and Trademark Office. We have registered or have registrations pending for our most significant trademarks and service marks
in 20 foreign jurisdictions including the European Union. To better protect our brand, we have also registered the Internet domain name "www.texasroadhouse.com." We believe that our trademarks,
service marks, and other proprietary rights have significant value and are important to our brand-building efforts and the marketing of our restaurant concept.

Government Regulation

We are subject to a variety of federal, state and local laws. Each of our restaurants is subject to permitting, licensing and
regulation by a number of government authorities relating to alcoholic beverage control, health, safety, sanitation, building and fire codes, and to compliance with the applicable zoning, land use and
environmental laws and regulations. Difficulties in obtaining or failure to obtain required licenses or approvals could delay or prevent the development of a new restaurant in a particular area.

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In
2008, the sale of alcoholic beverages accounted for 11.2% of our restaurant sales. Alcoholic beverage control regulations require each of our restaurants to apply to a state authority
and, in certain locations, county or municipal authorities for a license that must be renewed annually and may be revoked or suspended for cause at any time. Alcoholic beverage control regulations
affect numerous aspects of restaurant operations, including minimum age of patrons and employees, hours of operation, advertising, wholesale purchasing, inventory control and handling, storage and
dispensing of alcoholic beverages.

The
failure of a restaurant to obtain or retain liquor or food service licenses would have a material adverse effect on the restaurant's operations. To reduce this risk, each company
restaurant is operated in accordance with procedures intended to assure compliance with applicable codes and regulations.

We
are subject in certain states to "dram shop" statutes, which generally provide a person injured by an intoxicated person the right to recover damages from an establishment that
wrongfully served alcoholic beverages to the intoxicated person. We carry liquor liability coverage as part of our existing comprehensive general liability insurance, as well as excess umbrella
coverage of $100.0 million, with a $10,000 deductible for the first $25.0 million of excess coverage.

Our
restaurant operations are also subject to federal and state laws governing such matters as the minimum hourly wage, minimum tipped wage, unemployment tax rates, sales tax and similar
matters, over which we have no control. Significant numbers of our service, food preparation and other personnel are paid at rates related to the federal minimum wage (which currently is $6.55 per
hour) or federal tipped wage (which currently is $2.13 per hour). In addition, numerous states in which we operate have passed legislation governing the applicable state minimum hourly and/or tipped
wage. Further planned and unplanned increases in federal and/or state minimum hourly and tipped wages will increase our labor costs.

Seasonality

Our business is subject to minor seasonal fluctuations. Historically, sales in most of our restaurants have been higher during the
winter months of each year.

Employees

As of December 30, 2008, we employed approximately 28,000 people, of whom 328 were executive and administrative personnel, 1,031
were restaurant management personnel and the remainder were hourly restaurant personnel. Many of our hourly restaurant employees work part-time. None of our employees are covered by a
collective bargaining agreement.

Executive Officers of the Company

Set forth below are the name, age, position and a brief account of the business experience of each of our executive officers:

Name

Age

PositionW. Kent Taylor


53

Chairman of the Company, DirectorG.J. Hart


51

President, Chief Executive Officer, DirectorSteven L. Ortiz


51

Chief Operating OfficerScott M. Colosi


44

Chief Financial OfficerSheila C. Brown


56

General Counsel, Corporate Secretary


W. Kent Taylor.Mr. Taylor is our founder and was, until the completion of our initial public offering, Chief Executive Officer.
Upon the
completion of the initial public offering, Mr. Taylor became Chairman of the Company, an executive position. Before his founding of our concept, Mr. Taylor

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founded
and co-owned Buckhead Bar and Grill in Louisville, Kentucky. Mr. Taylor has over 25 years of experience in the restaurant industry.

G.J. Hart.Mr. Hart has served as our President since May 15, 2000. Upon the completion of the initial public offering,
Mr. Hart
became President and Chief Executive Officer. From October 1995 until May 2000, Mr. Hart was President of Al Copeland Investments in Metairie, Louisiana, a privately held business consisting of
four restaurant concepts, hotels, gaming, entertainment and food processing operations. From June 1991 to September 1995, Mr. Hart was President of TriFoods International, Inc., a
producer of prepared food products. Mr. Hart has over 25 years of experience in the food industry.

Steven L. Ortiz.Mr. Ortiz has served as our Executive Vice President of Operations since May 2001. Upon the completion of the
initial public
offering, Mr. Ortiz became Chief Operating Officer. Mr. Ortiz joined our company in 1996 as a Market Partner in which capacity he was responsible for developing and starting new Texas
Roadhouse restaurants in Texas. From 1982 to 1996, Mr. Ortiz was employed by Bennigan's Restaurants in various capacities, including General Manager, Area Director and Regional Vice President.
Mr. Ortiz has over 25 years of experience in the restaurant industry.

Scott M. Colosi.Mr. Colosi has served as our Chief Financial Officer since September 2002. From 1992 until September 2002,
Mr. Colosi
was employed by YUM! Brands, Inc., owner of the A&W, KFC, Pizza Hut, Long John Silver's and Taco Bell brands. During this time, Mr. Colosi served in various financial positions and,
immediately prior to joining us, was Director of Investor Relations. Mr. Colosi has over 20 years of experience in the restaurant industry.

Sheila C. Brown.Ms. Brown has served as our General Counsel and Secretary since November 2001. From August 2000 to November 2001,
Ms. Brown was our Director of Property Acquisition and, from September 1998 to August 2000, Development Coordinator, in which capacity Ms. Brown was responsible for our real estate
development activities. Ms. Brown has over 25 years of experience in the restaurant industry.

Website Access To Reports

We make our Annual Report on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on
Form 8-K, and amendments to those reports, filed or furnished pursuant to section 13(a) or 15(d) of the Securities Exchange Act of 1934, available, free of charge on or
through the Internet website,www.texasroadhouse.com, as soon as reasonably practicable after we electronically file such material with, or furnish it
to, the SEC.

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ITEM 1A.    RISK FACTORS

From time to time in annual reports and oral statements, and in this Annual Report on Form 10-K, we present
statements about future events and expectations that constitute forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of
the Securities Exchange Act of 1934, as amended. Forward-looking statements are based on our beliefs, assumptions and expectations of our future financial and operating performance and growth plans,
taking into account the information currently available to us. These statements are not statements of historical fact. Forward-looking statements involve risks and uncertainties that may cause our
actual results to differ materially from the expectations of future results we express or imply in any forward-looking statements. Risks and uncertainties that could cause actual results to differ
materially include, but are not limited to, those discussed below.

Risks Related to Our Business

If we fail to manage our growth effectively, it could harm our business.

Failure to manage our growth effectively could harm our business. We have grown significantly since our inception and intend to
continue growing in the future. Our existing restaurant management systems, financial and management controls and information systems may not be adequate to support our planned expansion. Our ability
to manage our growth effectively will require us to continue to enhance these systems, procedures and controls and to locate, hire, train and retain management and operating personnel. We cannot
assure you that we will be able to respond on a timely basis to all of the changing demands that our planned expansion will impose on management and on our existing infrastructure. If we are unable to
manage our growth effectively, our business and operating results could be materially adversely impacted.

You should not rely on past increases in our average unit volumes or our comparable restaurant sales as an indication of our future results of operations because they may
fluctuate significantly.

A number of factors have historically affected, and will continue to affect, our average unit volumes and comparable restaurant sales,
including, among other factors:



Our
average unit volumes and comparable restaurant sales may not increase at rates achieved over the past several years. Changes in our average unit volumes and comparable restaurant
sales could cause the price of our Class A common stock to fluctuate substantially.

Our growth strategy, which primarily depends on our ability to open new restaurants that are profitable, is subject to many factors, some of which are beyond our control.

Our objective is to grow our business and increase stockholder value by (1) expanding our base of company restaurants (and, to a
lesser extent, franchise restaurants) that are profitable and (2) increasing sales and profits at existing restaurants. While both these methods of achieving our

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objective
are important to us, historically the most significant means of achieving our objective has been through opening new restaurants and operating these restaurants on a profitable basis. We
expect this to continue to be the case in the future.

We
cannot assure you that we will be able to open new restaurants in accordance with our expansion plans. We have experienced delays in opening some of our restaurants in the past and
may experience
delays in the future. Delays or failures in opening new restaurants could materially adversely affect our growth strategy. One of our biggest challenges in executing our growth strategy is locating
and securing an adequate supply of suitable new restaurant sites. Competition for suitable restaurant sites in our target markets is intense and we cannot assure you that we will be able to find
sufficient suitable locations, or suitable purchase or lease terms, for our planned expansion in any future period. Our ability to open new restaurants will also depend on numerous other factors, some
of which are beyond our control, including, but not limited to, the following:



Once
opened, we anticipate that our new restaurants will generally take several months to reach planned operating levels due to start-up inefficiencies typically associated
with new restaurants. We cannot assure you that any restaurant we open will be profitable or obtain operating results similar to those of our existing restaurants. Our ability to operate new
restaurants profitably will depend on numerous factors, including those discussed above impacting our average unit volumes and comparable restaurant sales, some of which are beyond our control,
including, but not limited to, the following:



Our
failure to successfully open new restaurants that are profitable in accordance with our growth strategy could harm our business and future prospects.

Our franchisees could take actions that could harm our business.

Our franchisees are contractually obligated to operate their restaurants in accordance with Texas Roadhouse standards. We also provide
training and support to franchisees. However, franchisees are

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independent
third parties that we do not control, and the franchisees own, operate and oversee the daily operations of their restaurants. As a result, the ultimate success and quality of any franchise
restaurant rests with the franchisee. If franchisees do not successfully operate restaurants in a manner consistent with our standards, the Texas Roadhouse image and reputation could be harmed, which
in turn could adversely affect our business and operating results.

Our quarterly operating results may fluctuate significantly and could fall below the expectations of securities analysts and investors due to a number of factors, some of
which are beyond our control, resulting in a decline in our stock price.

Our quarterly operating results may fluctuate significantly because of several factors, including:



Our
business is also subject to minor seasonal fluctuations. Historically, sales in most of our restaurants have been higher during the winter months of each year. As a result, our
quarterly operating results and comparable restaurant sales may fluctuate as a result of seasonality. Accordingly, results for any one quarter are not necessarily indicative of results to be expected
for any other quarter or for any year and comparable restaurant sales for any particular future period may decrease. In the future, operating results may fall below the expectations of securities
analysts and investors. In that event, the price of our Class A common stock would likely decrease.

If we lose the services of any of our key management personnel, our business could suffer.

Our future success significantly depends on the continued services and performance of our key management personnel, particularly G.J.
Hart, our president and chief executive officer; Scott M. Colosi, our chief financial officer; Steven L. Ortiz, our chief operating officer; and W. Kent Taylor, our founder and chairman. Our future
performance will depend on our ability to motivate and retain these

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and
other key officers and managers, particularly market partners and managing partners. Competition for these employees is intense. The loss of the services of members of our senior management or
other key officers or managers or the inability to attract additional qualified personnel as needed could materially harm our business.

Our failure or inability to enforce our trademarks or other proprietary rights could adversely affect our competitive position or the value of our brand.

We own certain common law trademark rights and a number of federal and international trademark and service mark registrations,
including the Texas Roadhouse® name and logo, and proprietary rights relating to certain of our core menu offerings. We believe that our trademarks and other proprietary rights are
important to our success and our competitive position. We, therefore, devote appropriate resources to the protection of our trademarks and proprietary rights. The protective actions that we take,
however, may not be enough to prevent unauthorized usage or imitation by others, which could harm our image, brand or competitive position and, if we commence litigation to enforce our rights, cause
us to incur significant legal fees. Our inability to register or protect our marks and other propriety rights in foreign jurisdictions could adversely affect our competitive position in international
markets.

We
cannot assure you that third parties will not claim that our trademarks or menu offerings infringe upon their proprietary rights. Any such claim, whether or not it has merit, could be
time-consuming, result in costly litigation, cause delays in introducing new menu items in the future or require us to enter into royalty or licensing agreements. As a result, any such
claim could have a material adverse effect on our business, results of operations, financial condition or liquidity.

We may need additional capital in the future and it may not be available on acceptable terms.

The development of our business may require significant additional capital in the future to, among other things, fund our operations
and growth strategy. We have historically relied upon bank financing and private sales of equity interests in certain restaurants to fund our operations. Going forward, we will continue to rely on
bank financing and also may seek access to the debt and/or equity capital markets. There can be no assurance, however, that these sources of financing will be available on terms favorable to us, or at
all. Our ability to obtain additional financing will be subject to a number of factors, including market conditions, our operating performance, investor sentiment and our ability to incur additional
debt in compliance with agreements governing our outstanding debt. These factors may make the timing, amount, terms and conditions of additional financings unattractive to us. If we are unable to
raise additional capital, our growth could be impeded.

Our existing credit facility limits our ability to incur additional debt.

The lenders' obligation to extend credit under the facility depends on our maintaining certain financial covenants, including a minimum
consolidated fixed charge coverage ratio of 2.00 to 1.00 and a maximum consolidated leverage ratio of 3.00 to 1.00. If we are unable to maintain these ratios, we would be unable to obtain additional
financing under this facility. The credit facility permits us to incur additional secured or unsecured indebtedness outside the facility, except for the incurrence of secured indebtedness that in the
aggregate exceeds 20% of our consolidated tangible net worth or circumstances where the incurrence of secured or unsecured indebtedness would prevent us from complying with our financial covenants.

We
have also entered into other loan agreements with other lenders to finance various restaurants which impose financial covenants that are less restrictive than those imposed by our
existing credit facility. A default under these loan agreements could result in a default under our existing credit

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facility,
which in turn would limit our ability to secure additional funds under that facility. As of December 30, 2008, we were in compliance with all of our lenders' covenants.

The acquisition of existing restaurants from our franchisees and licensees and other strategic transactions may have unanticipated consequences that could harm our business
and our financial condition.

We have previously announced our intention to opportunistically acquire existing restaurants from our franchisees or licensees over
time. Additionally, from time to time, we evaluate potential mergers, acquisitions, joint ventures or other strategic initiatives to acquire or develop additional concepts. To successfully execute any
acquisition or development strategy, we will need to identify suitable acquisition or development candidates, negotiate acceptable acquisition or development terms and obtain appropriate financing.
Any acquisition or future development that we pursue, whether or not successfully completed, may involve risks, including:



Future
acquisitions of existing restaurants from our franchisees or licensees or other strategic partners, which may be accomplished through a cash purchase transaction, the issuance of
shares of our Class A common stock or a combination of both, could have a dilutive impact on holders of our Class A common stock, and result in the incurrence of debt and contingent
liabilities and impairment charges related to goodwill and other tangible and intangible assets, any of which could harm our business and financial condition. The development of additional concepts
and/or the entrance into international
markets may not be as successful as our experience in the development of the Texas Roadhouse concept domestically. Development rates for newer brands may differ significantly as there is increased
risk in the development of a new restaurant concept or system.

Approximately 18% of our company restaurants are located in Texas and, as a result, we are sensitive to economic and other trends and developments in that state.

As of December 30, 2008, we operated a total of 44 company restaurants in Texas. As a result, we are particularly susceptible to
adverse trends and economic conditions in this state, including its labor market. In addition, given our geographic concentration in this state, negative publicity regarding any of our restaurants in
Texas could have a material adverse effect on our business and operations, as could other occurrences in Texas such as local strikes, energy shortages or increases in energy prices, droughts,
earthquakes, fires or other natural disasters.

Our expansion into new domestic and/or international markets may present increased risks due to our unfamiliarity with the area.

Some of our new restaurants will be located in areas where we have little or no meaningful experience. Those markets may have different
competitive conditions, consumer tastes and discretionary spending patterns than our existing markets, which may cause our new restaurants to be less successful than restaurants in our existing
markets. An additional risk of expanding into new markets is the lack of market awareness of the Texas Roadhouse® brand. Restaurants opened in new markets may open at

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lower
average weekly sales volumes than restaurants opened in existing markets and may have higher restaurant-level operating expense ratios than in existing markets. Sales at restaurants opened in
new markets may take longer to reach average unit volumes, if at all, thereby affecting our overall profitability.

Risks Relating to the Food Service Industry

Our business is affected by changes in consumer preferences and discretionary spending.

Our success depends, in part, upon the popularity of our food products. Shifts in consumer preferences away from our restaurants or
cuisine, particularly beef, would harm our business. Also, our success depends to a significant extent on discretionary consumer spending, which is influenced by general economic conditions and the
availability of discretionary income. Accordingly, we may experience declines in sales during economic downturns or during periods of uncertainty. Any material decline in the amount of discretionary
spending could have a material adverse effect on our business, results of operations, financial condition or liquidity.

Our success depends on our ability to compete with many food service businesses.

The restaurant industry is intensely competitive and we compete with many well-established food service companies on the
basis of taste, quality and price of products offered, guest service, atmosphere, location and overall guest experience. Our competitors include a large and diverse group of restaurant chains and
individual restaurants that range from independent local operators that have opened restaurants in various markets to well-capitalized national restaurant companies. Many of our
competitors or potential competitors have substantially greater financial and other resources than we do, which may allow them to react to changes in pricing, marketing and the casual dining segment
of the restaurant industry better than we can. As our competitors expand their operations, we expect competition to intensify. We also compete with other restaurant chains and other retail businesses
for quality site locations and hourly employees.

Changes in food and supply costs could adversely affect our results of operations.

Our profitability depends in part on our ability to anticipate and react to changes in food and supply costs. Any increase in food
prices, particularly proteins, could adversely affect our operating results. In addition, we are susceptible to increases in food costs as a result of factors beyond our control, such as weather
conditions, food safety concerns, product recalls, global market and trade conditions, and government regulations. We cannot predict whether we will be able to anticipate and react to changing food
costs by adjusting our purchasing practices and menu prices, and a failure to do so could adversely affect our operating results. In addition, because we provide a moderately priced product, we may
not seek to or be able to pass along price increases to our guests.
Also, if we adjust pricing there is no assurance that we will realize the full benefit of any adjustment due to changes in our guests' menu item selections.

We
currently purchase the majority of our beef from two of the largest beef suppliers in the country under annual contracts. If any of these vendors were unable to fulfill its
obligations under its contracts, we could encounter supply shortages and incur higher costs to secure adequate supplies, either of which would harm our business.

The food service industry is affected by litigation and publicity concerning food quality, health and other issues, which can cause guests to avoid our restaurants and
result in significant liabilities or litigation costs.

Food service businesses can be adversely affected by litigation and complaints from guests, consumer groups or government authorities
resulting from food quality, illness, injury or other health

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concerns
or operating issues stemming from one restaurant or a limited number of restaurants. Adverse publicity about these allegations may negatively affect us, regardless of whether the allegations
are true, by discouraging guests from eating at our restaurants. We could also incur significant liabilities if a lawsuit or claim results in a decision against us or litigation costs regardless of
the result.

Health concerns relating to the consumption of beef or other food products could affect consumer preferences and could negatively impact our results of operations.

Like other restaurant chains, consumer preferences could be affected by health concerns about the consumption of beef, the key
ingredient in many of our menu items, or negative publicity concerning food quality, illness and injury generally. In recent years there has been negative publicity concerning e-coli,
hepatitis A, "mad cow," "foot-and-mouth" disease and "bird flu." The restaurant industry has also been subject to a growing number of claims that the menus and actions of
restaurant chains have led to the obesity of certain of their guests, resulting in legislation in some states which require nutritional information to be disclosed to guests. This negative publicity,
as well as any other negative publicity concerning food products we serve, and nutritional labeling requirements, may adversely affect demand for our food and could result in a decrease in guest
traffic to our restaurants. If we react to the negative publicity by changing our concept or our menu, we may lose guests who do not prefer the new concept or menu, and may not be able to attract
sufficient new guests to produce the revenue needed
to make our restaurants profitable. In addition, we may have different or additional competitors for our intended guests as a result of a change in our concept and may not be able to compete
successfully against those competitors. A decrease in guest traffic to our restaurants as a result of these health concerns or negative publicity or as a result of a change in our menu or concept
could materially harm our business.

Our business could be adversely affected by increased labor costs or labor shortages.

Labor is a primary component in the cost of operating our business. We devote significant resources to recruiting and training our
managers and hourly employees. Increased labor costs due to competition, unionization, increased minimum and tip wage or employee benefits costs or otherwise, would adversely impact our operating
expenses. The federal government and numerous states have enacted legislation resulting in tip and/or minimum wage increases as well as pre-determined future increases. We anticipate that
additional legislation will be enacted in future periods, including some legislation regarding health care benefits. Our operating expenses will be adversely affected to the extent that we are not
able to offset these costs. In addition, our success depends on our ability to attract, motivate and retain qualified employees, including restaurant managers and staff, to keep pace with our growth
strategy. If we are unable to do so, our results of operations may be adversely affected.

We may not be able to obtain and maintain licenses and permits necessary to operate our restaurants and compliance with laws could adversely affect our operating results.

The restaurant industry is subject to various federal, state and local government regulations, including those relating to the sale of
food and alcoholic beverages. Such regulations are subject to change from time to time. The failure to obtain and maintain these licenses, permits and approvals, including liquor licenses, could
adversely affect our operating results. Difficulties or failure to obtain the required licenses and approvals could delay or result in our decision to cancel the opening of new restaurants. Local
authorities may revoke, suspend or deny renewal of our liquor licenses if they determine that our conduct violates applicable regulations.

In
addition to our having to comply with these licensing requirements, various federal and state labor laws govern our relationship with our employees and affect operating costs. These
laws include minimum and tip wage requirements, overtime pay, unemployment tax rates, workers' compensation

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rates,
citizenship requirements and sales taxes. A number of factors could adversely affect our operating results, including:



The
federal Americans with Disabilities Act prohibits discrimination on the basis of disability in public accommodations and employment. Although our restaurants are designed to be
accessible to the disabled, we could be required to make modifications to our restaurants to provide service to, or make reasonable accommodations for disabled persons.

Complaints or litigation may hurt us.

Occasionally, our guests file complaints or lawsuits against us alleging that we are responsible for some illness or injury they
suffered as a result of a visit to our restaurants, or
that we have problems with food quality or operations. We are also subject to a variety of other claims arising in the ordinary course of our business, including personal injury claims, contract
claims, claims from franchisees and claims alleging violations of federal and state laws regarding consumer, workplace and employment matters, discrimination and similar matters, or we could become
subject to class action lawsuits related to these matters in the future. The restaurant industry has also been subject to a growing number of claims that the menus and actions of restaurant chains
have led to the obesity of certain of their guests. In addition, we are subject to "dram shop" statutes. These statutes generally allow a person injured by an intoxicated person to recover damages
from an establishment that wrongfully served alcoholic beverages to the intoxicated person. Some litigation against restaurant chains has resulted in significant judgments, including punitive damages,
under dram shop statutes. Because a plaintiff may seek punitive damages, which may not be covered by insurance, this type of action could have an adverse impact on our financial condition and results
of operations. Regardless of whether any claims against us are valid or whether we are liable, claims may be expensive to defend and may divert time and money away from our operations and hurt our
performance. A judgment significantly in excess of our insurance coverage for any claims could materially adversely affect our business, results of operations, financial condition or liquidity.
Further, adverse publicity resulting from these allegations may have a material adverse effect on us and our restaurants.

Our current insurance may not provide adequate levels of coverage against claims.

We currently maintain insurance customary for businesses of our size and type. However, there are types of losses we may incur that
cannot be insured against or that we believe are not economically reasonable to insure. Such damages could have a material adverse effect on our business and results of operations. In addition, we
self-insure a significant portion of expected losses under our workers compensation, general liability and property insurance programs. Unanticipated changes in the actuarial assumptions
and management estimates underlying our reserves for these losses could result in materially different amounts of expense under these programs, which could have a material adverse effect on our
financial condition, results of operations and liquidity.

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Risks Related to Our Stock and Corporate Structure

Provisions in our charter documents and Delaware law may delay or prevent our acquisition by a third party.

Our certificate of incorporation and by-laws contain several provisions that may make it more difficult for a third party
to acquire control of us without the approval of our Board of Directors. These provisions include, among other things, elimination of stockholder action by written consent, advance notice for raising
business or making nominations at meetings and "blank check" preferred stock. Blank check preferred stock enables our Board of Directors, without approval of the Class A stockholders, to
designate and issue additional series of preferred stock with such dividend, liquidation, conversion, voting or other rights, including the right to issue convertible securities with no limitations on
conversion, as our Board of directors may determine. The issuance of blank check preferred stock may adversely affect the voting and other rights of the holders of our common stock as our Board of
Directors may designate and issue preferred stock with terms that are senior to our common stock. These provisions may make it more difficult or expensive for a third party to acquire a majority of
our outstanding common stock. These provisions also may delay, prevent or deter a merger, acquisition, tender offer, proxy contest or other transaction that might otherwise result in our stockholders
receiving a premium over the market price for their Class A common stock.

The
Delaware General Corporation Law prohibits us from engaging in "business combinations" with "interested shareholders" (with some exceptions) unless such transaction is approved in a
prescribed manner. The existence of this provision could have an anti-takeover effect with respect to transactions not approved in advance by the Board of Directors, including discouraging
attempts that might result in a premium over the market price for our Class A common stock.

There may be an adverse effect on the value of our Class A common stock due to the disparate voting rights of our Class A common stock and our Class B
common stock.

The holders of our Class A common stock and Class B common stock generally have identical rights except that
(1) on all matters to be voted on by stockholders, holders of our Class A common stock are entitled to one vote per share while holders of our Class B common stock are entitled to
ten votes per share, and (2) holders of our Class A common stock are not entitled to vote on any alteration of the powers, preferences or special rights of the Class B common
stock that would not adversely affect the holders of our Class A common stock. The difference in the voting rights of our Class A common stock and Class B common stock could
adversely affect the value of the Class A common stock to the extent that any investor or potential future purchaser of our Class A common stock ascribes value to the superior voting
rights of our Class B common stock.

Our founder and chairman controls our company and this control could inhibit potential changes of control.

As of February 20, 2009, our founder and chairman, W. Kent Taylor, beneficially owned all of our outstanding shares of
Class B common stock and 13,411,716 shares of Class A common stock, representing approximately 56% of our voting power. As a result, Mr. Taylor has the ability to control our
management and affairs and the outcome of all matters requiring stockholder approval, including the election and removal of our entire Board of Directors, and any merger, consolidation or sale of all
or substantially all of our assets. The Class B common stock has ten votes per share, while Class A common stock has one vote per share. While this dual-class structure is in
effect, Mr. Taylor is able to control all matters submitted to our stockholders even if in the future he were to own significantly less than 50% of the equity of our company. This concentrated
control could discourage others from initiating any potential merger takeover or other change of control transaction that may otherwise be

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beneficial
to our businesses. As a result, the market price of Class A common stock could be adversely affected.

Each
share of our Class B common stock is automatically convertible into one share of Class A common stock upon the earliest of:



In
addition, each share of Class B common stock may be converted at any time into one share of Class A Common stock at the option of Mr. Taylor.

Our founder and chairman controls our company and his interests may differ from your interests.

As a result of W. Kent Taylor's controlling interests in our company as described above, Mr. Taylor is able to exercise a
controlling influence over our business and affairs and to unilaterally determine the outcome of any matter submitted to a vote of our stockholders. Mr. Taylor's interests in our company may
differ from the interests of our other stockholders, and Mr. Taylor could take actions or make decisions that are not in the best interests of our stockholders.

ITEM 1BUNRESOLVED STAFF COMMENTS

None.

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ITEM 2PROPERTIES

Properties

Our Support Center is located in Louisville, Kentucky. We occupy this facility under leases with Paragon Centre Holdings, LLC, a
limited liability company in which we have a minority ownership position. As of December 30, 2008, we leased 64,506 square feet. Our leases expire between March 31, 2014 and
December 31, 2020. We have rights to expand our leased space as additional space in the building becomes available. We have an option to renew the leases for an additional five years. Of the
245 company restaurants in operation as of December 30, 2008, we owned 114 locations and leased 131 locations, as shown in the following table.

State

Owned

Leased

TotalAlabama


3


1


4Arizona


5


5


10Arkansas





1


1Colorado


7


5


12Connecticut





2


2Delaware


1


1


2Florida


1


4


5Georgia


2





2Idaho


1


2


3Illinois


2


4


6Indiana


7


4


11Iowa


2


4


6Kansas


2





2Kentucky


4


3


7Louisiana


1


4


5Maine





2


2Maryland





2


2Massachusetts


1


5


6Michigan


3


5


8Minnesota


1





1Mississippi


1





1Missouri


2


4


6Nebraska





2


2Nevada





1


1New Hampshire


2





2New Jersey





1


1New Mexico


1


1


2New York


2


3


5North Carolina


4


9


13North Dakota





2


2Ohio


11


5


16Oklahoma


2


3


5Pennsylvania


3


11


14Rhode Island





2


2South Dakota


1





1Tennessee





9


9Texas


34


10


44Utah





5


5Vermont





1


1


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State

Owned

Leased

TotalVirginia


3


4


7West Virginia


1





1Wisconsin


3


4


7Wyoming


1





1Total


114


131


245


Additional
information concerning our properties and leasing arrangements is included in note 2(p) and note 7 to the Consolidated Financial Statements appearing in
Part II, Item 8 of this Annual Report on Form 10-K.

ITEM 3LEGAL PROCEEDINGS

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

ITEM 4SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

None.

27

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Table of Contents

PART II

ITEM 5MARKET FOR THE REGISTRANT'S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES

Our Class A common stock is traded on the Nasdaq Global Select Market under the symbol TXRH. The Class A common stock has
been quoted on the Nasdaq Global Select
Market since October 5, 2004. The quarterly high and low closing prices of our Class A common stock by quarter were as follows:

High

LowYear ended December 30, 2008First Quarter

$
12.20

$
9.06Second Quarter

$
12.08

$
9.02Third Quarter

$
10.30

$
8.38Fourth Quarter

$
8.99

$
4.46Year ended December 27, 2007First Quarter

$
16.02

$
12.59Second Quarter

$
15.63

$
12.60Third Quarter

$
13.85

$
11.62Fourth Quarter

$
13.18

$
10.64


The
number of holders of record of our Class A common stock as of February 20, 2009 was 288. The number of holders of record of our Class B common stock as of
February 20, 2009 was one. There is no established trading market for our Class B common stock.

We
have never declared or paid cash dividends on our common stock. The declaration and payment of cash dividends on our common stock is at the discretion of our Board of Directors, and
any decision to declare a dividend will be based on a number of factors, including, but not limited to, earnings, financial condition, applicable covenants under our credit facility and other
contractual restrictions, or other factors deemed relevant.

As
of December 30, 2008, shares of Class A common stock authorized for issuance under our equity compensation plan are summarized in the following table. The number of
shares to be issued upon exercise includes 36,000 shares of restricted Class A common stock which have been issued but which are subject to forfeiture. The weighted-average option exercise
price is for stock options only, as the restricted stock has no exercise price. See note 13 to the Consolidated Financial Statements for a description of the plan.

Plan Category

Shares to Be
Issued Upon
Exercise

Weighted-Average
Option
Exercise Price

Shares Available
for Future
GrantsPlan approved by stockholders


7,566,151

$
10.14


3,760,385Plans not approved by stockholders








Total


7,566,151

$
10.14


3,760,385




There were no equity securities sold by the Company during the period covered by this Annual Report on Form 10-K
that were not registered under the Securities Act of 1933, as amended.

28

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On February 14, 2008, our Board of Directors approved a stock repurchase program under which we are authorized to repurchase up
to $25.0 million of our Class A common stock. Under this program, we may repurchase outstanding shares from time to time in open market transactions during the two-year
period ending February 14, 2010. The timing and the amount of any repurchases will be determined by our management under parameters established by our Board of Directors, based on its
evaluation of our stock prices, market conditions and other corporate considerations. On July 8, 2008, our Board of Directors approved a $50.0 million increase in our stock repurchase
program.

The
following table includes information regarding purchases of our common stock made by us during the 14 weeks ended December 30, 2008:

Period

Total Number
of Shares
Purchased

Average
Price Paid
per Share

Total Number of Shares
Purchased as Part of Publicly Announced Plans or Programs

Maximum Number (or Approximate
Dollar Value) of Shares that May Yet Be Purchased Under the Plans or ProgramsSeptember 23 to October 21


40,200

$
8.75


40,200

$
22,184,138.03October 22 to November 18










$
22,184,138.03November 19 to December 30


767,700

$
5.25


767,700

$
18,155,246.34Total


807,900





807,900




The following graph sets forth cumulative total return experienced by holders of the Company's Class A common stock compared to
the cumulative total return of the Russell 3000 Restaurant Index and the Russell 3000 Index for the period ended December 30, 2008, the last trading day of our fiscal year. The graph assumes
the values of the investment in our Class A common stock and each index was $100 on October 5, 2004, the first trading day of our stock, and the reinvestment of all dividends paid during
the period of the securities comprising the indices.

Note: The stock price performance shown on the graph below does not indicate future performance.

29

---



Table of Contents

Comparison of Cumulative Total Return Since October 5, 2004Among Texas Roadhouse, Inc., the Russell 3000 Index, and the Russell 3000 Restaurant Index

CHART

10/5/04

12/28/04

12/27/05

12/26/06

12/24/07

12/30/2008Texas Roadhouse, Inc.

$
100.00

$
130.01

$
140.96

$
118.17

$
100.80

$
65.00Russell 3000

$
100.00

$
107.80

$
112.97

$
127.54

$
134.55

$
79.49Russell 3000 Restaurant

$
100.00

$
118.55

$
123.23

$
142.81

$
149.83

$
124.59


ITEM 6SELECTED CONSOLIDATED FINANCIAL DATA

We derived the selected consolidated financial data as of and for the years 2008, 2007, 2006, 2005 and 2004 from our audited
consolidated financial statements. The 2004 financial data give effect to the combination of our operations under Texas Roadhouse, Inc., a "C" corporation, and the closing of the Company's
initial public offering, both of which occurred on October 8, 2004. The 2004 financial data also gives effect to an income tax provision for the period after October 8, 2004 and includes
an adjustment to establish a deferred tax liability related to the $5.0 million excess of the reported amounts of the Company's assets and liabilities over the tax basis of those assets and
liabilities at October 8, 2004.

The
selected consolidated financial data from December 31, 2003 through October 8, 2004 were derived from our audited consolidated financial statements and present the
consolidated operations of Texas Roadhouse Holdings LLC and its wholly-owned and majority-owned restaurants, Texas Roadhouse Development Corporation, Texas Roadhouse Management Corp., WKT
Restaurant Corp., and nine franchise restaurants, all of which were entities under the common control of Mr. Taylor. The Company utilizes a 52 or 53 week accounting period that ends on
the last Tuesday in December. The Company utilizes a 13 or 14 week accounting period for quarterly reporting purposes. Fiscal year 2008

30

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was
53 weeks in length while fiscal years 2007, 2006, 2005 and 2004 were 52 weeks in length. Our historical results are not necessarily indicative of our results for any future period.

Fiscal Year2008

2007

2006

2005

2004(in thousands, except per share data)Consolidated Statements of Income:Revenue:Restaurant sales

$
871,556

$
724,372

$
586,557

$
448,341

$
354,190Franchise royalties and fees


8,905


10,717


10,574


10,443


8,821Total revenue


880,461


735,089


597,131


458,784


363,011Income from operations(1)


62,027


63,213


54,369


47,296


38,682Income before taxes


57,557


60,501


53,390


46,614


28,860Provision for income taxes(2)


19,389


21,176


19,381


16,292


7,159Net income

$
38,168

$
39,325

$
34,009

$
30,322

$
21,701




Pro formaHistorical net income













$
21,701Pro forma provision for income taxes(3)














7,869Net income adjusted for pro forma provision for income taxes













$
13,832Net income per common share:Basic

$
0.53

$
0.53

$
0.46

$
0.44

$
0.27Diluted

$
0.52

$
0.51

$
0.44

$
0.42

$
0.24Weighted average shares outstanding(4):Basic


72,672


74,611


73,876


68,677


51,890Diluted


74,079


76,832


76,520


72,565


56,514


31

---



Table of Contents



Fiscal Year2008

2007

2006

2005

2004($ in thousands)Consolidated Balance Sheet Data:Total assets

$
622,663

$
546,029

$
452,588

$
312,593

$
275,854Long-term debt and obligations under capital leases, net of current maturities


132,482


66,482


35,362


6,881


13,531Total liabilities


259,866


176,264


132,209


80,367


101,944Minority interest


2,807


2,384


1,305


651


699Total stockholders' equity(5)


359,990


367,381


319,074


231,575


173,211Selected Operating Data:Company restaurants:Number open at end of period


245


204


163


127


107Average unit volumes(6)

$
3,824

$
3,974

$
3,967

$
3,891

$
3,679Comparable restaurant sales growth(7)


(2.3
)%

1.4
%

3.5
%

5.6
%

7.6Net cash provided by operating activities

$
101,214

$
76,567

$
79,744

$
64,384

$
57,275Net cash used in investing activities

$
(120,216
)
$
(134,532
)
$
(109,845
)
$
(61,021
)
$
(49,735
)Net cash provided by (used in) financing activities

$
12,696

$
35,745

$
34,898

$
(20,611
)
$
32,967


---



32

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Table of Contents



2004Effective federal tax rate


31.6
%Combined state tax rate


3.3
%Combined effective federal and state tax rate


34.9
%


33

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Table of Contents

ITEM 7MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The discussion and analysis below for the Company should be read in conjunction with the consolidated financial statements and the
notes to such financial statements (pages F-3 to F-20), "Forward-looking Statements" (page 3) and Risk Factors set forth in Item 1A.

Our Company

Texas Roadhouse is a growing, moderately priced, full-service restaurant chain. Our founder and chairman, W. Kent Taylor,
started the business in 1993. Our mission statement is "Legendary Food, Legendary Service®." Our
operating strategy is designed to position each of our restaurants as the local hometown destination for a broad segment of consumers seeking high-quality, affordable meals served with
friendly, attentive service. The first Texas Roadhouse restaurant opened in Clarksville, Indiana in February 1993. As of December 30, 2008, there were 314 Texas Roadhouse restaurants operating
in 46 states, including:



We
have contractual arrangements which grant us the right to acquire at pre-determined valuation formulas (i) the remaining equity interests in eight of the ten
majority-owned company restaurants and (ii) 59 of the franchise restaurants.

Presentation of Financial and Operating Data

We operate on a fiscal year that ends on the last Tuesday in December. Fiscal year 2008 was 53 weeks in length and, as such, the
fourth quarter of fiscal year 2008 was 14 weeks in length. Fiscal years 2007 and 2006 were 52 weeks in length, while the quarters for those years were 13 weeks in length.

Long-term Strategies to Grow Earnings Per Share

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

Expanding Our Restaurant Base.We will continue to evaluate opportunities to develop Texas Roadhouse restaurants in existing markets and
new domestic
or international markets. We will remain focused primarily on mid-sized markets where we believe there exists a significant demand for our restaurants because of population size, income
levels and the presence of shopping and entertainment centers and a significant employment base. Restaurants that we owned and operated for the full six months before the beginning of 2008 generated
average unit volumes of $3.9 million for 2008, which was a 53 week year. When we lease the land, the total cash cost of developing our prototype restaurant, including
pre-opening expenses, is between $2.5 million and $3.8 million. Our average cash investment to develop and open a new restaurant, including the cost of land and
pre-opening expenses,

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is
approximately $3.4 million to $4.8 million. Our ability to expand our restaurant base is influenced by factors beyond our control and therefore we may not be able to achieve our
anticipated growth.

We
may, at our discretion, add franchise restaurants, domestically and/or internationally, primarily with franchisees who have demonstrated prior success with the Texas Roadhouse or
other restaurant concepts and in markets in which the franchisee demonstrates superior knowledge of the demographics and restaurant operating conditions. We may, also, look to acquire franchise
restaurants under terms favorable to the Company and our stockholders. Additionally, from time to time, we will evaluate potential mergers, acquisitions, joint ventures or other strategic initiatives
to acquire or develop additional concepts. On February 24, 2009, we opened a new restaurant, Aspen Creek, which is wholly-owned by Texas Roadhouse, Inc.

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

Leveraging Our Scalable Infrastructure.Over the past several years, we have made significant investments in our infrastructure,
including
information systems, real estate, human resources, legal, marketing and operations. As a result, we believe that our general and administrative costs will increase at a slower growth rate than our
revenue.

Stock Repurchase Program.We continue to look at opportunities to repurchase our Class A common stock at favorable market prices
under our
stock repurchase program. Currently, our Board of Directors has authorized us to repurchase up to $75.0 million of our Class A common stock. As of the end of 2008, $18.2 million
worth of Class A common stock remains authorized for repurchase.

Key Operating Personnel

Key personnel who have a significant impact on the performance of our restaurants include managing and market partners. Each company
restaurant has one managing partner who serves as the general manager. Market partners can provide supervisory services for up to 12 to 15 managing partners and their respective management teams.
Market partners also assist with our site selection process and recruitment of new management teams. The managing partner of each company restaurant and their corresponding market partners are
required, as a condition of employment, to sign a multi-year employment agreement. The annual compensation of our managing and market partners includes a base salary plus a percentage of
the pre-tax net income of the restaurant(s) they operate or supervise. Managing and market partners are eligible to participate in our equity incentive plan and, as a general rule, are
required to make deposits of $25,000 and $50,000, respectively. The deposits are refunded after a period of time, no less than five years, or may be used towards the payments of the exercise price of
outstanding and vested stock options.

Key Measures We Use To Evaluate Our Company

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

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

Comparable Restaurant Sales Growth.Comparable restaurant sales growth reflects the change in year-over-year sales for the
comparable restaurant base. We define the comparable restaurant base to

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include
those restaurants open for a full 18 months before the beginning of the later fiscal period. Comparable restaurant sales growth can be generated by an increase in guest traffic counts
or by changes in the per person average check amount. Menu price changes and the mix of menu items sold can affect the per person average check amount.

Average Unit Volume.Average unit volume represents the average annual restaurant sales for all company restaurants open for a full six
months before
the beginning of the period measured. Growth in average unit volumes in excess of comparable restaurant sales growth is generally an indication that newer restaurants are operating with sales levels
in excess of the company average. Conversely, growth in average unit volumes less than growth in comparable restaurant sales growth is generally an indication that newer restaurants are operating with
sales levels lower than the company average.

Store Weeks.Store weeks represent the number of weeks that our company restaurants were open during the reporting period.

Other Key Definitions

Restaurant Sales.Restaurant sales include gross food and beverage sales, net of promotions and discounts.

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

Restaurant Cost of Sales.Restaurant cost of sales consists of food and beverage costs.

Restaurant Labor Expenses.Restaurant labor expenses include all direct and indirect labor costs incurred in operations except for
profit sharing
incentive compensation expenses earned by our managing and market partners. These profit sharing expenses are reflected in restaurant other operating expenses. Restaurant labor expenses also include
share-based compensation expense related to restaurant-level employees.

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

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

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

Depreciation and Amortization Expenses.Depreciation and amortization expenses ("D&A") includes the depreciation of fixed assets
and amortization of
intangibles with definite lives.

Impairment and closure costs.Impairment and closure costs include any impairment of long-lived assets associated with restaurants
where
the carrying amount of the asset is not recoverable and exceeds the fair value of the asset and expenses associated with the closure of a restaurant.

General and Administrative Expenses.General and administrative expenses ("G&A") are comprised of expenses associated with
corporate and
administrative functions that support development

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and
restaurant operations and provide an infrastructure to support future growth. Supervision and accounting fees received from certain franchise restaurants and license restaurants are offset against
G&A. G&A also includes share-based compensation expense related to executive officers, support center employees and market partners.

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

Minority Interest.Minority interest represents the portion of income attributable to the other owners of the majority-owned or
controlled
restaurants. Our consolidated subsidiaries at December 30, 2008 included ten majority-owned restaurants, all of which were open. Our consolidated subsidiaries at December 25, 2007
included eight majority-owned restaurants, seven of which were open and one of which was under construction. Our consolidated subsidiaries at December 26, 2006 included five majority-owned
restaurants, all of which were open.

Equity Income from Unconsolidated Affiliates.As of December 30, 2008, we owned 5.0% to 10.0% equity interest in 19 franchise
restaurants. As of December 25, 2007 and December 26, 2006, we owned

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5.0%
to 10.0% equity interest in 18 franchise restaurants. Equity income from unconsolidated affiliates represents our percentage share of net income earned by these unconsolidated affiliates.

Results of OperationsFiscal Year2008

2007

2006$

%

$

%

$

%(in thousands)Consolidated Statements of Income:Revenue:Restaurant sales


871,556


99.0


724,372


98.5


586,557


98.2Franchise royalties and fees


8,905


1.0


10,717


1.5


10,574


1.8Total revenue


880,461


100.0


735,089


100.0


597,131


100.0Costs and expenses:(As a percentage of restaurant sales)Restaurant operating costs:Cost of sales


308,123


35.4


255,060


35.2


205,615


35.1Labor


253,132


29.0


205,780


28.4


162,610


27.7Rent


15,879


1.8


11,735


1.6


10,052


1.7Other operating


146,019


16.8


116,258


16.0


95,536


16.3(As a percentage of total revenue)Pre-opening


11,604


1.3


12,741


1.7


12,508


2.1Depreciation and amortization


37,694


4.3


30,446


4.1


21,357


3.6Impairment and closures


2,175


0.2


1,721


0.2


481


0.1General and administrative


43,808


5.0


38,135


5.2


34,603


5.8Total costs and expenses


818,434


93.0


671,876


91.4


542,762


90.9Income from operations


62,027


7.0


63,213


8.6


54,369


9.1Interest expense, net


3,844


(0.4
)

2,295


(0.3
)

645


(0.1
)Minority interest


841


(0.1
)

711


(0.1
)

585


(0.1
)Equity income from investments in unconsolidated affiliates


(215
)

0.0


(294
)

0.0


(251
)

0.0Income before taxes


57,557


6.5


60,501


8.2


53,390


8.9Provision for income taxes


19,389


2.2


21,176


2.9


19,381


3.2Net income


38,168


4.3


39,325


5.3


34,009


5.7


38

---



Table of Contents

Restaurant Unit Activity

Company

Franchise

TotalBalance at December 27, 2005


127


94


221Openings


25


5


30Acquisitions (Dispositions)


11


(11
)

Closures








Balance at December 26, 2006


163


88


251Openings


32


2


34Acquisitions (Dispositions)


9


(9
)

Closures








Balance at December 25, 2007


204


81


285Openings


29


1


30Acquisitions (Dispositions)


13


(13
)

Closures


(1
)




(1
)Balance at December 30, 2008


245


69


314


Restaurant Sales

Restaurant sales increased by 20.3% in 2008 as compared to 2007. This increase was primarily attributable to the opening of new
restaurants and the acquisitions of franchise restaurants coupled with the addition of a 53rd week in 2008, partially offset by a decrease in comparable restaurant sales and
average unit volumes. The 53rd week resulted in $17.9 million in restaurant sales or 2.5% of the increase in 2008 as compared to 2007. Restaurant sales increased by 23.5%
in 2007 as compared to 2006. This increase was primarily attributable to the opening of new restaurants, the acquisitions of nine franchise restaurants on June 27, 2007 and comparable
restaurant sales growth.

The
following table summarizes certain key drivers and/or attributes of restaurant sales at company restaurants for the periods. Although 2008 contained 53 weeks, for comparative
purposes, 2008 average unit volumes were adjusted to a 52-week basis.

2008

2007

2006Company RestaurantsStore weeks


11,861


9,499


7,648Comparable restaurant sales growth/(decline)


(2.3
)%

1.4
%

3.5
%Average unit volumes (in thousands)

$
3,824

$
3,974

$
3,967


We
have implemented certain menu pricing increases to partially offset impacts from higher operating costs, including higher food costs and increased minimum and tip wages, and other
inflationary pressures. The following table summarizes our menu pricing actions for the periods.

Increased Menu
PricingMay/June 2008


1.5
%January/February 2008


1.1
%December 2006/February 2007


2.0
%October 2006


0.8
%January 2006


1.0
%


In
conjunction with our menu pricing implemented in May 2008, several lower priced entrées were added to our menu which, based on the preference of these items, resulted
in a reduction of average check of approximately 0.3%. As a result, we had approximately 2.3% in net menu pricing for 2008. We

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will
continue to evaluate the need for and test further menu price increases as we assess the current inflationary and competitive environment.

On
September 24, 2008, we acquired one franchise restaurant in Florida, which is expected to have no significant net revenue or accretive impact on an on-going annual
basis. In fiscal 2008, restaurant sales included $0.9 million from the acquired franchise restaurant. Effective July 23, 2008, we acquired nine franchise restaurants. On an
on-going annual basis, the acquisitions are expected to add approximately $31.0 million of net revenue and have no significant accretive impact. In fiscal 2008, restaurant sales
included $12.4 million from the nine acquired franchise restaurants. Effective March 26, 2008, we acquired three franchise restaurants. On an on-going annual basis, we
estimate these acquisitions will be accretive to diluted earnings per share by approximately $0.005. In fiscal 2008, restaurant sales included $9.7 million from the three acquired franchise
restaurants. For comparative purposes, average unit volume for 2007 in the table above was adjusted to reflect restaurant sales of these acquired franchise restaurants as part of company-owned
restaurants average unit volume.

On
June 27, 2007, we acquired nine franchise restaurants. These acquisitions were slightly accretive to fiscal 2007 diluted earnings per share. In fiscal 2007, restaurant sales
included $16.4 million from the nine acquired franchise restaurants, as these restaurants were acquired at the beginning of third quarter of 2007. For comparative purposes, average unit volume
for 2006 in the table above was adjusted to reflect restaurant sales of the nine acquired franchise restaurants as part of company-owned restaurants average unit volume.

In
2009, we plan to open approximately 15 additional company restaurants. We have either begun construction or have sites currently under contract for purchase or lease for 13 of the 15
restaurants. In addition, we may evaluate opportunities for acquiring additional franchise restaurants in 2009.

Franchise Royalties and Fees

Franchise royalties and fees decreased by $1.8 million, or by 16.9%, from 2007 to 2008. This decrease was primarily attributable
to the loss of royalties associated with the acquisition of 13 franchise restaurants in 2008 and nine franchise restaurants in 2007. These decreases were partially offset by the
additional week in 2008. The franchise restaurants acquired in 2008 generated approximately $0.8 million and $1.7 million in franchise royalties in fiscal 2008 and fiscal 2007,
respectively. The franchise restaurants acquired in 2007 generated approximately $0.6 million in franchise royalties in fiscal 2007. Franchise comparable restaurant sales decreased by 3.6% in
2008. Franchise restaurant count activity is shown in the restaurant unit activity table above. In 2009, we expect that our franchisees will open two new franchise restaurants.

Franchise
royalties and fees increased by $0.1 million, or by 1.4%, from 2006 to 2007. This increase was primarily attributable to the impact of the opening of new franchise
restaurants in the latter half of fiscal 2006 and during fiscal 2007 and increasing royalty rates in conjunction with the renewal of certain franchise agreements, offset by the loss of royalties
associated with the nine acquired franchise restaurants on June 27, 2007. These acquired franchise restaurants generated approximately $0.6 million and $1.1 million in franchise
royalties in fiscal 2007 and fiscal 2006, respectively. Franchise comparable restaurant sales growth was 0.8% in 2007. Franchise restaurant count activity is shown in the restaurant unit activity
table above.

Restaurant Cost of Sales

Restaurant cost of sales, as a percentage of restaurant sales, increased to 35.4% in 2008 from 35.2% in 2007. This increase was
primarily attributable to higher commodity costs on food items, such as wheat and oil-based ingredients, produce costs and dairy costs,
partially offset by the benefit of lower beef costs and menu price increases discussed above. For 2009, we have fixed price contracts for 90% of our beef product volume with the remainder currently
subject to fluctuating market prices. We expect commodity cost deflation of approximately 2-3% in 2009.

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Restaurant
cost of sales, as a percentage of restaurant sales, increased to 35.2% in 2007 from 35.1% in 2006. This increase was primarily attributable to higher dairy and bread mix
costs, partially offset by menu price increases discussed above.

Restaurant Labor Expenses

Restaurant labor expenses, as a percentage of restaurant sales, increased to 29.0% in 2008 from 28.4% in 2007. This increase was
primarily attributable to negative average unit volume growth combined with higher labor costs associated with restaurants opened in 2008 and the latter part of 2007 and higher average wages rates,
partially offset by menu price increases discussed above. We generally incur higher labor costs, as a percentage of restaurant sales, during the first few months after the opening of a new restaurant.
Higher average hourly wage rates resulted from several state-mandated increases in minimum and tip wage rates throughout 2007 and into 2008 and an increase in federal minimum wage rate in July 2008.
We anticipate our labor costs will continue to be pressured by inflation, which is primarily caused by federal and state-mandated increases in minimum and tip wage rates. These increases may or may
not be offset by additional menu price adjustments.

Restaurant
labor expenses, as a percentage of restaurant sales, increased to 28.4% in 2007 from 27.7% in 2006. This increase was primarily attributable to higher average hourly wage
rates resulting from several state-mandated increases in minimum and/or tip wage rates during 2007 and restaurants opened in fiscal 2007 as we generally incur higher labor costs during the first few
months after the opening of a new restaurant, partially offset by the impact of menu price increases as discussed above and lower share-based compensation expense.

Restaurant Rent Expense

Restaurant rent expense, as a percentage of restaurant sales, increased to 1.8% in 2008 from 1.6% in 2007 which was a decrease from
1.7% in 2006. The increase in 2008 was primarily due to rent expense associated with acquired franchise restaurants and negative average unit volume growth, while the slight decrease in 2007 was
primarily due to the benefit generated from comparable restaurant sales growth. We expect rent expense to be higher in 2009 due to the franchise restaurant acquisitions in 2008 and a higher percentage
of the restaurants we are opening being on leased versus owned land.

Restaurant Other Operating Expenses

Restaurant other operating expenses, as a percentage of restaurant sales, increased to 16.8% from 16.0% in 2007. This increase was
primarily due to negative average unit volume growth combined with higher utility costs and property tax expense, partially offset by lower managing partner and market partner bonuses, as a percentage
of restaurant sales. In addition, costs relating to weather damage and losses on disposal of assets relating to remodels at three restaurants further contributed to the increase in 2008. Managing and
market partner bonuses were lower, as a percentage of restaurant sales, due to lower profitability.

Restaurant
other operating expenses, as a percentage of restaurant sales, decreased to 16.0% in 2007 from 16.3% in 2006. This decrease was primarily due to a decrease in equipment rent
and lower managing and market partner bonuses, as a percentage of restaurant sales, partially offset by higher credit card fees and less favorable general liability insurance claims experience.
Equipment rent decreased 0.3%, as a percentage of restaurant sales, in fiscal 2007 due to our discontinuance of leasing arrangements for restaurant equipment packages. Managing and market partner
bonuses were lower, as a percentage of restaurant sales, due to lower profitability. The increase in credit card fees resulted from the increased use of credit and debit cards as a percentage of
restaurant transactions. Our general liability claims experience for the policy year ended September 30, 2007, though favorable, was not as favorable as for the prior year policy period.

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Restaurant Pre-opening Expenses

Pre-opening expenses in 2008 decreased to $11.6 million from $12.7 million in 2007 which was an increase from
$12.5 million in 2006. The decrease in 2008 was primarily due to fewer restaurants being in the development pipeline in fiscal 2008 compared to fiscal 2007. The slight increase in 2007 was
primarily due to seven more restaurants being opened in fiscal 2007 compared to fiscal 2006. Pre-opening costs will fluctuate from period to period based on the number and timing of
restaurant openings and the number and timing of restaurant managers hired. We anticipate that pre-opening costs will decrease in fiscal 2009 as we have fewer openings planned for fiscal
2009 compared to fiscal 2008.

Depreciation and Amortization Expenses

D&A, as a percentage of revenue, increased to 4.3% in 2008 from 4.1% in 2007, which was an increase from 3.6% in 2006. The increase in
2008 was primarily related to capital spending on new restaurants and negative average unit volume growth, partially offset by lower depreciation expense on older restaurants and the impact of having
an additional week of sales in 2008. The increase in 2007 was primarily related to capital spending on new restaurants.

Impairment and Closure Expenses

Impairment and closure expenses increased to $2.2 million (0.2% of revenue) in 2008 from $1.7 million (0.2% of revenue)
in 2007 which was an increase from $0.5 million (0.1% of revenue) in 2006. Impairment costs of $1.4 million were recorded in 2008 with respect to one underperforming restaurant in which
the carrying value was reduced to its estimated fair value in the fourth quarter of 2008 compared to impairment costs of $1.7 million in 2007 with respect to one underperforming restaurant in
which the carrying value was reduced to its estimated fair value in the fourth quarter of 2007. Additionally, $0.8 million in 2008 was incurred due to lease reserve and other charges incurred
in conjunction with the closure of the restaurant impaired in the fourth quarter of 2007. This restaurant was closed in the first quarter of 2008. The impairment costs of $0.5 million in 2006
were incurred in conjunction with the planned relocation of two restaurant sites in 2007. Prior to 2007, these costs were recorded in Other Operating Expenses.

General and Administrative Expenses

G&A, as a percentage of total revenue, decreased to 5.0% in 2008 from 5.2% in 2007. This decrease was primarily attributable to lower
performance-based bonus expense for executive and other support center employees and lower costs associated with our annual managing partner conference, partially offset by an increase in higher
share-based compensation costs combined with negative average unit volume growth. The higher share-based compensation costs were a result of the renewal of certain executive employment contracts at
the beginning of 2008.

G&A
decreased in 2007 to 5.2% of revenue from 5.8% of revenue in 2006. This decrease was primarily due to leveraging of the base business and lower share-based compensation costs.

Interest Expense, Net

Net interest expense increased to $3.8 million in 2008 from $2.3 million in 2007. This increase was primarily due to
increased borrowings under our credit facility, a decrease in interest income and lower capitalized interest, partially offset by lower interest rates. The increased borrowings were primarily related
to money spent on stock repurchases and franchise restaurant acquisitions. Lower interest income and capitalized interest were primarily due to lower interest rates.

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Net interest expense increased to $2.3 million in 2007 from $0.6 million in 2006. This increase was primarily due to increased borrowings under our
credit facility, partially offset by an increase in interest income, the payoff of certain installment loans in the first quarter of fiscal 2006 and the prepayment penalties of $0.1 million
associated with these loans. The increased borrowings under our credit facility primarily resulted from the acquisitions of nine franchise restaurants on June 27, 2007.

Income Taxes

We account for income taxes in accordance with SFAS No. 109,Accounting for Income
Taxes. Our effective tax rate for 2008 decreased to 33.7% from 35.0% in 2007. This decrease is primarily attributable to higher federal tax credits as a percentage of net
income before income tax, offset by the non-deductibility of officers' compensation in 2008. Officers' compensation was fully deductible in 2007. We expect the effective tax rate to be
approximately 34.0% for fiscal 2009.

Our
effective tax rate for 2007 decreased to 35.0% from 36.3% in 2006. This decrease in the rate was primarily due to higher tax credits, the non-deductibility of a
$0.8 million charge related to franchise acquisitions in the first quarter of fiscal 2006 and a decrease in the
non-deductible portion of certain incentive stock options relating to share-based compensation costs, partially offset by an increase in state income tax rates.

Liquidity and Capital Resources

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

Fiscal Year2008

2007

2006(in thousands)Net cash provided by operating activities

$
101,214

$
76,567

$
79,744Net cash used in investing activities


(120,216
)

(134,532
)

(109,845
)Net cash provided by (used in) financing activities


12,696


35,745


34,898Net (decrease) increase in cash

$
(6,306
)
$
(22,220
)
$
4,797


Net
cash provided by operating activities was $101.2 million in 2008 compared to $76.6 million in 2007. This increase was primarily due to a $9.5 million timing
issue related to credit card settlements in 2007 which impacted the increase in net cash provided by operating activities by $19.0 million. The $9.5 million increase in accounts
receivable in 2007 was due to the timing of credit card settlements as fiscal year 2007 ended on a bank holiday. In addition, higher depreciation was partially offset by lower gift card sales and
decreases in other working capital. Our operations have not required significant working capital and, like many restaurant companies, we have been able to operate with negative working capital. Sales
are primarily for cash, and restaurant operations do not require significant inventories or receivables. In addition, we received trade credit for the purchase of food, beverages and supplies, thereby
reducing the need for incremental working capital to support growth. Net cash provided by operating activities was $76.6 million in 2007 which was lower than $79.7 million in 2006
primarily due to the $9.5 million increase in accounts receivable discussed above. Additionally, increases in other liabilities and income taxes payable were partially offset by higher net
income and depreciation.

Net
cash used in investing activities was $120.2 million in 2008 compared to $134.5 million in 2007. The decrease was primarily due to higher aggregate purchase prices
relating to the acquisition of franchise restaurants in 2007 than in 2008, as $33.2 million was spent on franchise acquisitions in 2007 compared to $17.8 million in 2008. Net cash used
in investing activities was $134.5 million in 2007 compared to $109.8 million in 2006. This increase was primarily due to higher aggregate purchase

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prices
relating to the acquisition of franchise restaurants in 2007 than in 2006 and an increase in capital spending associated with new restaurant development, as $33.2 million was spent on
franchise acquisitions in 2007 compared to $13.3 million in 2006.

We
require capital principally for the development of new company restaurants, the refurbishment of existing restaurants and the acquisitions of franchise restaurants, if any. We either
lease our restaurant site locations under operating leases for periods of five to 30 years (including renewal periods) or purchase the land where it is cost effective. As of December 30,
2008, there were 114 restaurants developed on land which we owned.

Our
future capital requirements will primarily depend on the number of new restaurants we open, the timing of those openings and the restaurant prototype developed, in a given fiscal
year. These requirements will include costs directly related to opening new restaurants and may also include costs necessary to ensure that our infrastructure is able to support a larger restaurant
base. In 2009, we expect our capital expenditures to be $50.0 to $60.0 million, excluding franchise acquisitions, substantially all of which will relate to planned restaurant openings. We
intend to satisfy our capital requirements over the next 12 months with cash on hand, net cash provided by operating activities and, if needed, funds available under our credit facility.

Net
cash provided by financing activities was $12.7 million in 2008 compared to $35.7 million in 2007. This decrease was primarily due to increased borrowings under our
credit facility, offset by stock repurchases of $57.0 million in fiscal 2008. The increased borrowings under our credit facility are due to borrowings of approximately $57.0 million in
conjunction with stock repurchases in 2008 and approximately $20.0 in conjunction with acquisitions of franchise restaurants in 2008 compared to borrowings of approximately $36.0 million in
conjunction with the acquisitions of franchise restaurants in 2007. Net cash provided by financing activities was $35.7 million in 2007 compared to $34.9 million in 2006. This increase
was primarily due to an increase in net borrowings of $3.0 million under our credit facility to fund capital expenditures, offset by a decrease in excess tax benefits from share-based
compensation recognized in accordance with SFAS 123R of $2.0 million. For 2009, we anticipate net cash provided by operating activities will exceed capital expenditures.

On
February 14, 2008, our Board of Directors approved a stock repurchase program under which we are authorized to repurchase up to $25.0 million of our Class A
common stock. On July 8, 2008, our Board of Directors approved a $50.0 million increase in the Company's stock repurchase program, thereby increasing the Company's total stock repurchase
authorization to $75.0 million. Under this program, we may repurchase outstanding shares from time to time in open market transactions during
the two-year period ending February 14, 2010. During 2008, we repurchased 6,512,807 shares for an aggregate purchase price of $57.0 million. The timing and the amount of any
repurchases will be determined by our management under parameters established by our Board of Directors, based on its evaluation of our stock price, market conditions and other corporate
considerations.

In
2008, we paid distributions of $1.3 million to equity holders of seven of our majority-owned company restaurants. In 2007 and 2006, we paid distributions of $1.1 million
and $0.8 million to equity holders of five of our majority-owned company restaurants, respectively. Currently, our intent is to retain future earnings, if any, primarily to finance the future
development and operation of our business.

On
May 31, 2007, we amended and restated our five-year revolving credit facility dated October 8, 2004 with a syndicate of commercial lenders led by Bank of
America, N.A., Banc of America Securities LLC and National City Bank which, in December 2008, was acquired by PNC Bank. The facility was increased from $150.0 million to
$250.0 million and the term was extended to May 31, 2012. The terms of the facility require us to pay interest on outstanding borrowings at the London Interbank Offered Rate ("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 portion of the facility, in both cases depending on our leverage ratio.

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The
weighted-average interest rate for the revolver at December 30, 2008 was 2.73%. The lenders' obligation to extend credit under the facility depends on us maintaining certain financial
covenants, including a minimum consolidated fixed charge coverage ratio of 2.00 to 1.00 and a maximum consolidated leverage ration of 3.00 to 1.00. The new credit facility permits us to incur
additional secured or unsecured indebtedness outside the facility, except for the incurrence of secured indebtedness that in the aggregate exceeds 20% of our consolidated tangible net worth or
circumstances where the incurrence of secured or unsecured indebtedness that would prevent us from complying with our financial covenants. We were in compliance with all covenants as of
December 30, 2008.

At
December 30, 2008, we had $130.0 million of outstanding borrowings under our credit facility and $116.0 million of availability net of $4.0 million of
outstanding letters of credit. In addition, we had various other notes payable totaling $2.2 million with interest rates ranging from 4.35% to 10.80%. Each of these notes relate to the
financing of specific restaurants. Our total weighted average effective interest rate at December 30, 2008 was 2.86%.

At
December 25, 2007, we had $63.0 million of outstanding borrowings under our credit facility and $183.4 million of availability net of $3.6 million of
outstanding letters of credit. In addition, we had various other notes payable totaling $3.2 million with interest rates ranging from 4.35% to 10.80%. Each of these notes relate to the
financing of specific restaurants. Our total weighted average effective interest rate at December 25, 2007 was 5.93%.

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

Contractual Obligations

The following table summarizes the amount of payments due under specified contractual obligations as of December 30, 2008:

Payments Due by PeriodTotal

Less than
1 year

1-3
Years

3-5
Years

More than
5 years(in thousands)Long-term debt obligations

$
132,194

$
163

$
352

$
130,435


1,244Capital lease obligations


516


65


176


207


68Interest(1)


1,490


276


478


358


378Operating lease obligations


207,614


18,793


37,364


36,865


114,592Capital obligations


33,589


33,589








Total contractual obligations(2)

$
375,403

$
52,886

$
38,370

$
167,865

$
116,282


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The
Company has no material minimum purchase commitments with its vendors that extend beyond a year. See notes 4 and 7 to the Consolidated Financial Statements for details of
contractual obligations.

Off-Balance Sheet Arrangements

Except for operating leases (primarily restaurant leases), we do not have any off-balance sheet arrangements.

Guarantees

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

Recent Accounting Pronouncements

In September 2006, the FASB issued SFAS No. 157,Fair Value Measurements("SFAS 157"), which defines fair value, establishes a framework for measuring fair value and expands disclosures about fair value measurements. The provisions of SFAS 157 for financial
assets and liabilities, as well as any other assets and liabilities that are carried at fair value on a recurring basis in financial statements, are effective for financial statements issued for
fiscal years beginning after November 15, 2007 (fiscal year 2008 for the Company). The adoption of SFAS 157 for financial assets and liabilities did not have a material impact on the
Company's consolidated financial position, results of operations or cash flows. In February 2008, the FASB issued Staff Position FAS 157-2,Effective Date of
FASB Statement No.157, which delayed the effective date of SFAS 157 for most nonfinancial assets and nonfinancial liabilities until fiscal years beginning after
November 15, 2008 (fiscal year 2009 for the Company). We do not expect the adoption of SFAS 157 for nonfinancial assets and liabilities will have a material impact on our consolidated
financial position, results of operations or cash flows. See note 14 of the Consolidated Financial Statements for additional fair value discussions.

In
February 2007, the FASB issued SFAS No. 159,The Fair Value Option for Financial Assets and Financial Liabilities("SFAS 159"). SFAS 159 permits entities to choose to measure many financial assets and financial liabilities at fair value. Unrealized gains and losses on items for which the fair value
option has been elected are reported in earnings. The provisions of SFAS 159 are effective as of the beginning of the Company's 2008 fiscal year. The adoption of SFAS 159 did not have a
material impact on our consolidated financial position, results of operations or cash flows.

In
December 2007, the FASB issued SFAS No. 141 (revised 2007),Business Combinations("SFAS 141R"). SFAS 141R
establishes the principles and requirements for how an acquirer: 1) recognizes and measures in its financial statements the identifiable assets acquired, the liabilities assumed, and any
noncontrolling interest in the acquiree; 2) recognizes and measures the goodwill acquired in the business combination or gain from a bargain purchase; and 3) determines what information
to disclose to enable users of the financial statements to evaluate the nature and financial effects of the business combination. SFAS 141R is to be applied prospectively to business
combinations consummated on or after the beginning of the first annual reporting period on or after December 15,

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2008
(fiscal year 2009 for the Company). We are currently evaluating the impact SFAS 141R will have on any potential future business combinations.

In
December 2007, the FASB issued SFAS No. 160,Noncontrolling Interests in Consolidated Financial Statementsan amendment of ARB
No. 51("SFAS 160"). SFAS 160 establishes accounting and reporting standards that require: 1) noncontrolling interests to be reported as a component
of equity; 2) changes in a parent's ownership interest while the parent retains its controlling interest be accounted for as equity transactions: and 3) any retained noncontrolling
equity investment upon the deconsolidation of a subsidiary be initially measured at fair value. SFAS 160 is to be applied prospectively to business combinations consummated on or after the
beginning of the first annual reporting period on or after December 15, 2008 (fiscal year 2009 for the Company). We do not expect the adoption of SFAS 160 will have a material impact on
our consolidated financial position, results or operations or cash flows.

In
March 2008, the FASB issued SFAS No. 161,Disclosures about Derivative Instruments and Hedging Activities("SFAS 161").
SFAS 161 provides companies with requirements for enhanced disclosures about derivative instruments and hedging activities to enable investors to better understand their effects on a company's
financial position, financial performance and cash flows. These requirements include the disclosure of the fair values of derivative instruments and their gains and losses in a tabular format.
SFAS 161 is effective for financial statements issued for fiscal years and interim periods beginning after November 15, 2008 (fiscal year 2009 for the Company). SFAS 161
encourages, but does not require, comparative disclosures for earlier periods at initial adoption. We do not expect the adoption of SFAS 161 will have a material impact on its consolidated
financial position, results of operations or cash flows.

In
May 2008, the FASB issued SFAS No. 162, The Hierarchy of Generally Accepted Accounting Principles ("SFAS 162"). This Statement identifies the sources of accounting
principles and the framework for selecting the principles used in the preparation of financial statements of nongovernmental entities that are presented in conformity with generally accepted
accounting principles ("GAAP") in the United States. This statement will be effective 60 days following the SEC's approval of the Public Company Accounting Oversight Board amendments to AU
Section 411, The Meaning of Present Fairly in Conformity with Generally Accepted Accounting Principles. We do not expect the adoption of SFAS 162 to have a material impact on our
consolidated financial position, results of operations or cash flows.

Critical Accounting Policies and Estimates

The above discussion and analysis of our financial condition and results of operations are based upon our Consolidated Financial
Statements, which have been prepared in accordance with U.S. generally accepted accounting principles. The preparation of these financial statements requires us to make estimates and judgments that
affect the reported amounts of assets, liabilities, revenue and expenses, and disclosures of contingent assets and liabilities. Our significant accounting policies are described in note 2 to
the accompanying Consolidated Financial Statements. Critical accounting policies are those that we believe are most important to portraying our financial condition and results of operations and also
require the greatest amount of subjective or complex judgments by management. Judgments or uncertainties regarding the application of these policies may result in materially different amounts being
reported under different conditions or using different assumptions. We consider the following policies to be the most critical in understanding the judgments that are involved in preparing the
consolidated financial statements.

Share-based Employee Compensation.Effective with the first quarter of 2006, we account for share-based compensation in accordance with
SFAS 123R. As required by SFAS 123R, share-based compensation expense is estimated for equity awards at fair value at the grant date. We determine the

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fair
value of equity awards using the Black-Scholes option pricing model. The Black-Scholes option pricing model requires various highly judgmental assumptions including the expected dividend yield,
stock price volatility and life of the award. If any of the assumptions used in the model change significantly, share-based compensation expense may differ materially in the future from that recorded
in the current period. See note 13 in the Consolidated Financial Statements for further discussion of share-based employee compensation.

Impairment of Long-lived Assets.We evaluate our long-lived assets for impairment at the individual restaurant level when
events or circumstances indicate that the carrying amount of a restaurant may not be recoverable. Our evaluation requires an estimation of the future undiscounted cash flows from operating the
restaurant over its estimated useful life, which can be for a period of over 20 years. In the estimation of future cash flows, we consider the period of time the restaurant has been open, the
trend of operations over such period and future periods and expectations for future sales growth. We limit assumptions about important factors such as trend of future operations and sales growth to
those that are supportable based upon our plans for the restaurant and actual results at comparable restaurants. As we assess the ongoing expected cash flows and carrying amounts of our
long-lived assets, these factors could cause us to realize a material impairment charge.

If
assets are determined to be impaired, we measure the impairment charge by calculating the amount by which the asset carrying amount exceeds its fair value. The determination of asset
fair value is also subject to significant judgment. We generally measure estimated fair market value by discounting estimated future cash flows or obtaining an independent third party appraisal, if
available. If these assumptions change in the future, we may be required to record impairment charges for these assets.

We
recorded an impairment of $1.4 million in 2008 with respect to one underperforming restaurant in the fourth quarter of 2008. We recorded an impairment of $1.7 million in
2007 with respect to one underperforming restaurant in the fourth quarter of 2007. Additionally, $0.8 million was incurred in 2008 due to a lease reserve and other charges incurred in
conjunction with the subsequent closure of the restaurant in the first quarter of 2008. The Company recorded an impairment loss of $0.5 million in 2006 with respect to two restaurants that were
approved to relocate to better sites in their respective markets. One of these restaurants opened at its new site in January 2007 and the other one opened at its new site in September 2007. We
concluded that no other impairment charge was necessary as a result of our impairment evaluations for 2008, 2007 and 2006.

Goodwill.Goodwill is tested annually for impairment, and is tested for impairment more frequently if events and circumstances indicate
that the
asset might be impaired. An impairment loss is recognized to the extent that the carrying amount exceeds the implied fair value of goodwill. The determination of impairment consists of two steps.
First, we determine the fair value of the reporting unit and compare it to its carrying amount. Fair value is determined based on discounted cash flows. Second, if the carrying amount of the reporting
unit exceeds its fair value, an impairment loss is recognized for any excess of the carrying amount of the reporting unit's goodwill over the implied fair value of the goodwill. The implied fair value
of goodwill is determined by allocating the fair value of the reporting unit, which we consider to be at the restaurant level, in a manner similar to a purchase price allocation, in accordance with
SFAS No. 141,Business Combinations. The residual fair value after this allocation is the implied fair value of the reporting unit goodwill.

The
most significant assumptions we use in this analysis are those made in estimating future cash flows. In estimating future cash flows, we use the assumptions from our strategic plan
for items such as sales growth and operating costs. If our assumptions used in performing the impairment test prove inaccurate, the fair value of the restaurants may ultimately prove to be
significantly lower, thereby causing the carrying value to exceed the fair value and indicating impairment has occurred. We concluded that no goodwill impairment charge was required for 2008, 2007 and
2006.

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Insurance Reserves.We self-insure a significant portion of expected losses under our workers compensation, general liability and
property insurance programs. We purchase insurance for individual claims that exceed the amounts listed below:

Workers compensation

$
250,000General liability

$
100,000Property

$
25,000


We
record a liability for unresolved claims and for an estimate of incurred but not reported claims at the anticipated cost to us based on estimates provided by a third party
administrator and actuary. Our estimated liability is based on a number of assumptions and factors regarding economic conditions, the frequency and severity of claims and claim development history and
settlement practices. Estimates of claims reserves are discounted using a discount rate of approximately 3.0% at December 30, 2008 resulting in a discount of $0.2 million. An increase or
decrease in the discount rate of 100 basis points would change the reserve, and resulting expense, by an immaterial amount. We also monitor actuarial observations of historical claim development for
the industry. Our assumptions are reviewed, monitored, and adjusted when warranted by changing circumstances.

Income Taxes.We account for income taxes in accordance with SFAS No. 109,Accounting for Income
Taxes, under which deferred assets and liabilities are recognized based upon anticipated future tax consequences attributable to differences between financial statement
carrying values of assets and liabilities and their respective tax bases. A valuation allowance is established to reduce the carrying value of deferred tax assets if it is considered more likely than
not that such assets will not be realized. Any change in the valuation allowance would be charged to income in the period such determination was made.

Uncertain
tax positions are accounted for under FIN 48. FIN 48 requires that a position taken or expected to be taken in a tax return be recognized in the financial
statements when it is more likely than not (i.e., a likelihood of more than fifty percent) that the position would be sustained upon examination by tax authorities that have full knowledge of
all relevant information. A recognized tax position is then measured at the largest amount of benefit that is greater than fifty percent likely of being realized upon settlement.

Effects of Inflation

We believe inflation has had a negative effect on our operations during the past few years as we have not substantially offset
increases in our restaurant and operating costs resulting from inflation by altering our menu, increasing menu prices and/or making other adjustments. Whether we are able and/or choose to offset the
effects of inflation will determine to what, if any, extent inflation affects our operations in future periods.

ITEM 7AQUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

We are exposed to market risk from changes in interest rates on debt and changes in commodity prices. Our exposure to interest rate
fluctuations is limited to our outstanding bank debt. Our options for the rate are the Base Rate, which is the higher of the issuing bank's prime lending rate or the Federal Funds rate plus 0.50%, or
LIBOR plus an applicable margin. At December 30, 2008, there was $130.0 million in outstanding borrowings under our revolving line of credit, which bears interest at approximately 50 to
87.5 basis points (depending on our leverage ratios) over LIBOR. We had various other notes payable totaling $2.2 million with fixed interest rates ranging from 4.35% to 10.80%. Should interest
rates based on these borrowings increase by one percentage point, our estimated annual interest expense would increase by $1.3 million.

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On
October 22, 2008, we entered into an interest rate swap, which started on November 7, 2008, with a notional amount of $25.0 million to hedge a portion of the cash
flows of our variable rate borrowings. We have designated the interest rate swap as a cash flow hedge of our exposure to variability in future cash flows attributable to interest payments on a
$25.0 million tranche of floating rate debt borrowed under our revolving credit facility. Under the terms of the swap, we pay a fixed rate of 3.83% on the $25.0 million notional amount
and receive payments from the 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. By using a derivative instrument to hedge exposures to changes in interest rates, we expose ourselves to credit risk. Credit risk is the failure of the
counterparty to perform under the terms of the derivative contract. We minimize the credit risk by entering into transactions with high-quality counterparties whose credit rating is
evaluated on a quarterly basis. Our counterparty in the interest rate swap is J.P. Morgan Chase, N.A.

Many
of the ingredients used in the products sold in our restaurants are commodities that are subject to unpredictable price volatility. There are no established fixed price markets for
certain commodities such as produce and cheese, and we are subject to prevailing market conditions when purchasing those types of commodities. For other commodities, we employ various purchasing and
pricing contract techniques in an effort to minimize volatility, including fixed price contracts for terms of one year or less and negotiating prices with vendors with reference to fluctuating market
prices. We currently do not use financial instruments to hedge commodity prices, but we will continue to evaluate their effectiveness. Extreme and/or long term increases in commodity prices could
adversely affect our future results, especially if we are unable, primarily due to competitive reasons, to increase menu prices. Additionally, if there is a time lag between the increasing commodity
prices and our ability to increase menu prices or if we believe the commodity price increase to be short in duration and we choose not
to pass on the cost increases, our short-term financial results could be negatively affected.

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

ITEM 8FINANCIAL STATEMENTS AND SUPPLEMENTARY FINANCIAL DATA

See Index to Consolidated Financial Statements at Item 15.

ITEM 9CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

None.

ITEM 9ACONTROLS AND PROCEDURES

Evaluation of disclosure controls and procedures

We have evaluated the effectiveness of the design and operation of our disclosure controls and procedures pursuant to, and as defined
in, Rules 13a-15(e) under the Securities Exchange Act of 1934, as amended as of the end of the period covered by this report. Based on the evaluation, performed under the
supervision and with the participation of our management, including the Chief Executive Officer (the "CEO") and the Chief Financial Officer (the "CFO"), our management, including the CEO and CFO,
concluded that our disclosure controls and procedures were effective as of the end of December 30, 2008.

50

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Table of Contents

Changes in internal control

During the fourth quarter of 2008, there were no changes with respect to our internal control over financial reporting that materially
affected, or are reasonably likely to materially affect, internal control over financial reporting.

Management's Report on Internal Control over Financial Reporting

Under Section 404 of the Sarbanes-Oxley Act of 2002, our management is required to assess the effectiveness of the Company's
internal control over financial reporting as of the end of each fiscal year and report, based on that assessment, whether the Company's internal control over financial reporting is effective.

Management
of the Company is responsible for establishing and maintaining adequate internal control over financial reporting. As defined in Exchange Act
Rule 13a-15(f), internal control over financial reporting is a process designed by, or under the supervision of, our principal executive and principal financial officer and effected
by our board of directors, management and other personnel, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external
purposes in accordance with generally accepted accounting principles.
Therefore, internal control over financial reporting determined to be effective can provide only reasonable assurance with respect to financial statement preparation and may not prevent or detect all
misstatements.

Under
the supervision and with the participation of our management, including our CEO and CFO, we assessed the effectiveness of the Company's internal control over financial reporting as
of the end of the period covered by this report. In this assessment, the Company applied criteria based on the "Internal ControlIntegrated Framework" issued by the Committee of Sponsoring
Organizations of the Treadway Commission ("COSO"). These criteria are in the areas of control environment, risk assessment, control activities, information and communication, and monitoring. The
Company's assessment included documenting, evaluating and testing the design and operating effectiveness of its internal control over financial reporting. Based upon this evaluation, our management
concluded that our internal control over financial reporting was effective as of December 30, 2008.

KPMG LLP,
the independent registered public accounting firm that audited our Consolidated Financial Statements included in the Annual Report on Form 10-K, has
also audited the effectiveness of the Company's internal control over financial reporting as of December 30, 2008 as stated in their report at F-1.

ITEM 9BOTHER INFORMATION

None.

51

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Table of Contents

PART III

ITEM 10DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE

The information required by this Item 10 regarding the directors of the Company is incorporated herein by reference to the
information set forth in the table entitled "Director and Director Nominee Information" under "Election of Directors" in the 2008 Proxy Statement.

Information
regarding executive officers of the Company has been included in Part I of this Annual Report under the caption "Executive Officers of the Company."

Information
regarding corporate governance of the Company is incorporated herein by reference to the information set forth under the caption, "Corporate Governance" in the 2008 Proxy
Statement.

ITEM 11EXECUTIVE COMPENSATION

Incorporated by reference from the Company's Definitive Proxy Statement to be dated approximately April 10, 2009.

ITEM 12SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS

Incorporated by reference from the Company's Definitive Proxy Statement to be dated approximately April 10, 2009.

ITEM 13CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE

Incorporated by reference from the Company's Definitive Proxy Statement to be dated approximately April 10, 2009.

ITEM 14PRINCIPAL ACCOUNTING FEES AND SERVICES

Incorporated by reference from the Company's Definitive Proxy Statement to be dated approximately April 10, 2009.

52

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PART IV

ITEM 15EXHIBITS, FINANCIAL STATEMENT SCHEDULES

Description

Page Number
in ReportReport of Independent Registered Public Accounting Firm

F-1Consolidated Balance Sheets as of December 30, 2008 and December 25,
2007

F-3Consolidated Statements of Income for the years ended December 30, 2008, December 25, 2007 and
December 26, 2006

F-4Consolidated Statements of Stockholders' Equity and Comprehensive Income for the years ended December 30,
2008, December 25, 2007 and December 26, 2006

F-5Consolidated Statements of Cash Flows for the years ended December 30, 2008, December 25, 2007 and
December 26, 2006

F-6Notes to Consolidated Financial Statements

F-7


Omitted
due to inapplicability or because required information is shown in the Company's Consolidated Financial Statements or notes thereto.

Exhibit No.

Description3.1

Form of Amended and Restated Certificate of Incorporation of Registrant (incorporated by reference to Exhibit 3.2 to the Registration Statement on Form S-1 of Registrant (File No. 333-115259))3.2

Bylaws of Registrant (incorporated by reference to Exhibit 3.3 to the Registration Statement on Form S-1 of Registrant (File No. 333-115259))4.1

Registration Rights Agreement, dated as of May 7, 2004, among Registrant and others (incorporated by reference to Exhibit 4.3 to the Registration Statement on Form S-1 of Registrant (File
No. 333-115259))10.1
*
Texas Roadhouse, Inc. 2004 Equity Incentive Plan (incorporated by reference to Exhibit 4.1 to the Registration Statement on Form S-8 of Registrant (File No. 333-121241))10.2

Amended and Restated Office Lease Agreement (One Paragon Centre), dated as of August 15, 2003, by and between Paragon Centre Associates, LLC and Texas Roadhouse Holdings LLC, as amended (incorporated by
reference to Exhibit 10.1 to the Registration Statement on Form S-1 of Registrant (File No. 333-115259))10.3

Form of Director and Executive Officer Indemnification Agreement (incorporated by reference to Exhibit 10.9 to the Registration Statement on Form S-1 of Registrant (File No. 333-115259))10.4

Form of Limited Partnership Agreement and Operating Agreement for company-managed Texas Roadhouse restaurants, including schedule of the owners of such restaurants and the interests held by directors, executive
officers and 5% stockholders who are parties to such an agreement (incorporated by reference to Exhibit 10.10 to the Registration Statement on Form S-1 of Registrant (File No. 333-115259))


53

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Table of Contents

Exhibit No.

Description10.5

Lease Agreement dated as of November 1999, by and between TEAS II, LLC and Texas Roadhouse Holdings LLC (incorporated by reference to Exhibit 10.13 to the Registration Statement on Form S-1 of
Registrant (File No. 333-115259))10.6

Form of Franchise Agreement and Preliminary Agreement for a Texas Roadhouse restaurant franchise, including schedule of directors, executive officers and 5% stockholders which have entered into either agreement
(incorporated by reference to Exhibit 10.14 to the Registration Statement on Form S-1 of Registrant (File No. 333-115259))10.7

Updated schedule as of December 30, 2008 of the owners of company-managed Texas Roadhouse restaurants and the interests held by directors, executive officers and 5% stockholders who are parties to Limited
Partnership Agreements and Operating Agreements as set forth at Exhibit 10.4 of this Form 10-K10.8

Updated schedule as of December 30, 2008 of the directors, executive officers and 5% stockholders which have entered into Franchise Agreements or Preliminary Agreements for a Texas Roadhouse Franchise as set
forth at Exhibit 10.6 of this Form 10-K10.9

Amended and Restated Lease Agreement (Two Paragon Centre) dated January 1, 2006 between Paragon Centre Holdings, LLC and Texas Roadhouse Holdings LLC (incorporated by reference to Exhibit 10.17 of
Registrant's Quarterly Report on Form 10-Q for the quarter ended June 27, 2006) (File No. 000-50972))10.10

First Amendment to Amended and Restated Lease Agreement (Two Paragon Centre) dated December 18, 2006 between Paragon Centre Holdings, LLC and Texas Roadhouse Holdings LLC (incorporated by reference to
Exhibit 10.21 of Registrant's Annual Report on Form 10-K for the year ended December 26, 2006) (File No. 000-50972))10.11

Amended and Restated Credit Agreement, dated as of May 31, 2007, by and among Texas Roadhouse, Inc., the lenders named therein and Bank of America, N.A., as Administrative Agent (incorporated by
reference to Exhibit 10.1 to Registrant's Current Report on Form 8-K dated June 6, 2007 (File No. 000-50972))10.12

Second Amendment to Amended and Restated Lease Agreement (Two Paragon Centre) dated May 10, 2007 between Paragon Centre Holdings, LLC and Texas Roadhouse Holdings LLC (incorporated by reference to
Exhibit 10.2 of Registrant's Quarterly Report on Form 10-Q for the quarter ended June 26, 2007) (File No. 000-50972))10.13

Third Amendment to Amended and Restated Lease Agreement (Two Paragon Centre) dated September 7, 2007 between Paragon Centre Holdings, LLC and Texas Roadhouse Holdings LLC (incorporated by reference to
Exhibit 10.1 of Registrant's Quarterly Report on Form 10-Q for the quarter ended September 25, 2007) (File No. 000-50972))10.14
*
Employment Agreement between Registrant and G.J. Hart effective December 26, 2007 (incorporated by reference to Exhibit 10.14 of Registrant's Annual Report on Form 10-K for the year ended
December 25, 2007 (File No. 000-50972))10.15
*
Employment Agreement between Registrant and Scott M. Colosi effective December 26, 2007 (incorporated by reference to Exhibit 10.15 of Registrant's Annual Report on Form 10-K for the year ended
December 25, 2007 (File No. 000-50972))10.16
*
Employment Agreement between Registrant and Steven L. Ortiz effective December 26, 2007 (incorporated by reference to Exhibit 10.16 of Registrant's Annual Report on Form 10-K for the year ended
December 25, 2007 (File No. 000-50972))


54

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Table of Contents

Exhibit No.

Description10.17
*
Employment Agreement between Registrant and W. Kent Taylor effective December 26, 2007 (incorporated by reference to Exhibit 10.17 of Registrant's Annual Report on Form 10-K for the year ended
December 25, 2007 (File No. 000-50972))10.18
*
Employment Agreement between Registrant and Sheila C. Brown effective December 26, 2007 (incorporated by reference to Exhibit 10.18 of Registrant's Annual Report on Form 10-K for the year ended
December 25, 2007 (File No. 000-50972))10.19
*
Form of Restricted Stock Unit Award Agreement (incorporated by reference to Exhibit 10.19 of Registrant's Annual Report on Form 10-K for the year ended December 25, 2007 (File No. 000-50972))10.20
*
Form of First Amendment to Restricted Stock Unit Award Agreement with non-management directors10.21
*
Amendment to Texas Roadhouse, Inc. 2004 Equity Incentive Plan10.22
*
Amendment to Employment Agreement between Registrant and G.J. Hart effective January 1, 200910.23
*
Amendment to Employment Agreement between Registrant and Scott M. Colosi effective January 1, 200910.24
*
Amendment to Employment Agreement between Registrant and Steven L. Ortiz effective January 1, 200910.25
*
Amendment to Employment Agreement between Registrant and W. Kent Taylor effective January 1, 200910.26
*
Amendment to Employment Agreement between Registrant and Sheila C. Brown effective January 1, 200921.1

List of Subsidiaries23.1

Consent of KPMG LLP, Independent Registered Public Accounting Firm31.1

Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 200231.2

Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 200232.1

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 200232.2

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


---

55

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Table of Contents

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, as amended, the registrant has duly
caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

TEXAS ROADHOUSE, INC.By:

/s/ G.J. HART G.J. HART President, Chief Executive Officer, DirectorDate: February 27, 2009


Pursuant
to the requirements of the Securities Exchange Act of 1934, as amended, this Annual Report has been signed below by the following persons on behalf of the registrant and in the
capacities and on the dates indicated.

Signature

Title

Date/s/ W. KENT TAYLOR W. Kent Taylor

Chairman of the Company, Director

February 27, 2009/s/ G.J. HART G.J. Hart

President, Chief Executive Officer, Director
(Principal Executive Officer)

February 27, 2009/s/ SCOTT M. COLOSI Scott M. Colosi

Chief Financial Officer
(Principal Financial Officer and
Principal Accounting Officer)

February 27, 2009/s/ GREGORY N. MOORE Gregory N. Moore

Director

February 27, 2009/s/ MARTIN T. HART Martin T. Hart

Director

February 27, 2009/s/ JAMES F. PARKER James F. Parker

Director

February 27, 2009/s/ JAMES R. RAMSEY James R. Ramsey

Director

February 27, 2009/s/ JAMES R. ZARLEY James R. Zarley

Director

February 27, 2009


56

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Table of Contents

Report of Independent Registered Public Accounting Firm

The
Board of Directors and Stockholders
Texas Roadhouse, Inc.:

We
have audited the accompanying consolidated balance sheets of Texas Roadhouse, Inc. and subsidiaries (the "Company") as of December 30, 2008 and December 25, 2007,
and the related consolidated statements of income, stockholders' equity and comprehensive income, and cash flows for each of the years in the three-year period ended December 30,
2008. These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements based on our
audits.

We
conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to
obtain
reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the
financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.

In
our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Texas Roadhouse, Inc. and subsidiaries
as of December 30, 2008 and December 25, 2007, and the results of their operations and their cash flows for each of the years in the three-year period ended
December 30, 2008, in conformity with U.S. generally accepted accounting principles.

We
also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), Texas Roadhouse, Inc.'s internal control over financial
reporting as of December 30, 2008, based on criteria established inInternal ControlIntegrated Frameworkissued by the Committee of
Sponsoring Organizations of the Treadway Commission (COSO), and our report dated February 27, 2009 expressed an unqualified opinion on the effectiveness of the Company's internal control over
financial reporting.

/s/
KPMG LLP

Louisville,
Kentucky
February 27, 2009

F-1

---



Table of Contents

Report of Independent Registered Public Accounting Firm

The
Board of Directors and Stockholders
Texas Roadhouse, Inc.:

We
have audited the internal control over financial reporting of Texas Roadhouse, Inc. as of December 30, 2008 based on criteria established in Internal ControlIntegrated Frameworkissued
by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). Texas
Roadhouse, Inc.'s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial
reporting, included in the accompanying Management's Report on Internal Control over Financial Reporting appearing under Item 9A. Our responsibility is to express an opinion on Texas
Roadhouse Inc.'s internal control over financial reporting based on our audit.

We
conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to
obtain
reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over
financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audit
also included performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.

A
company's internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of
financial statements for external purposes in accordance with generally accepted accounting principles. A company's internal control over financial reporting includes those policies and procedures
that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide
reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and
expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely
detection of unauthorized acquisition, use, or disposition of the company's assets that could have a material effect on the financial statements.

Because
of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future
periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

In
our opinion, Texas Roadhouse, Inc. maintained, in all material respects, effective internal control over financial reporting as of December 30, 2008, based on criteria
established inInternal ControlIntegrated Frameworkissued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).

We
also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated balance sheets of Texas Roadhouse, Inc.
and subsidiaries as of December 30, 2008 and December 25, 2007, and the related consolidated statements of income, stockholders' equity and comprehensive income, and cash flows for each
of the years in the three-year period ended December 30, 2008, and our report dated February 27, 2009 expressed an unqualified opinion on those consolidated financial
statements.

/s/
KPMG LLP

Louisville,
Kentucky
February 27, 2009

F-2

---





Table of Contents

Consolidated Balance Sheets as of December 30, 2008 and December 25, 2007 Texas Roadhouse, Inc. and Subsidiaries        Consolidated Balance Sheets        (in thousands, except share and per share data)

December 30,
2008

December 25,
2007AssetsCurrent assets:Cash and cash equivalents

$
5,258

$
11,564Receivables, net of allowance for doubtful accounts of $524 in 2008 and $8 in 2007


9,922


18,303Inventories, net


8,140


7,277Prepaid income taxes


3,429


Prepaid expenses


6,097


3,646Deferred tax assets


1,962


841Total current assets


34,808


41,631Property and equipment, net


456,132


390,378Goodwill


114,807


101,856Intangible asset, net


12,807


8,414Other assets


4,109


3,750Total assets

$
622,663

$
546,029Liabilities and Stockholders' EquityCurrent liabilities:Current maturities of long-term debt and obligations under capital leases

$
228

$
302Accounts payable


32,175


23,716Deferred revenuegift cards/certificates


32,265


32,088Accrued wages


15,500


14,561Income tax payable





721Accrued taxes and licenses


8,544


6,439Other accrued liabilities


10,931


10,432Total current liabilities


99,643


88,259Long-term debt and obligations under capital leases, excluding current maturities


132,482


66,482Stock option and other deposits


3,784


4,916Deferred rent


9,920


7,472Deferred tax liabilities


6,205


4,900Fair value of derivative financial instruments


2,704


Other liabilities


5,128


4,235Total liabilities


259,866


176,264Minority interest in consolidated subsidiaries


2,807


2,384Stockholders' equity:Preferred stock ($0.001 par value, 1,000,000 shares authorized; no shares issued or outstanding)





Common stock, Class A, ($0.001 par value, 100,000,000 shares authorized, 64,070,620 and 69,582,602 shares issued and outstanding at December 30,
2008 and December 25, 2007, respectively)


64


70Common stock, Class B, ($0.001 par value, 8,000,000 shares authorized, 5,265,376 shares issued and outstanding)


5


5Additional paid in capital


220,385


264,234Retained earnings


141,240


103,072Accumulated other comprehensive loss


(1,704
)

Total stockholders' equity


359,990


367,381Total liabilities and stockholders' equity

$
622,663

$
546,029


See accompanying notes to Consolidated Financial Statements.

F-3

---





Table of Contents

Texas Roadhouse, Inc. and Subsidiaries        Consolidated Statements of Income        (in thousands, except per share data)

Fiscal Year EndedDecember 30,
2008

December 25,
2007

December 26,
2006Revenue:Restaurant sales

$
871,556

$
724,372

$
586,557Franchise royalties and fees


8,905


10,717


10,574Total revenue


880,461


735,089


597,131Costs and expenses:Restaurant operating costs:Cost of sales


308,123


255,060


205,615Labor


253,132


205,780


162,610Rent


15,879


11,735


10,052Other operating


146,019


116,258


95,536Pre-opening


11,604


12,741


12,508Depreciation and amortization


37,694


30,446


21,357Impairment and closures


2,175


1,721


481General and administrative


43,808


38,135


34,603Total costs and expenses


818,434


671,876


542,762Income from operations


62,027


63,213


54,369Interest expense, net


3,844


2,295


645Minority interest


841


711


585Equity income from investments in unconsolidated affiliates


(215
)

(294
)

(251
)Income before taxes

$
57,557

$
60,501

$
53,390Provision for income taxes


19,389


21,176


19,381Net income

$
38,168

$
39,325

$
34,009Net income per common share:Basic

$
0.53

$
0.53

$
0.46Diluted

$
0.52

$
0.51

$
0.44Weighted average shares outstanding:Basic


72,672


74,611


73,876Diluted


74,079


76,832


76,520


See
accompanying notes to Consolidated Financial Statements.

F-4

---





Table of Contents

Texas Roadhouse, Inc. and Subsidiaries        Consolidated Statements of Stockholders' Equity and Comprehensive Income        (in thousands, except share data)

Class A

Class B





Accumulated
Other
Comprehensive
Income
(Loss)Shares

Par
Value

Shares

Par
Value

Paid in
Capital

Retained
Earnings
(Deficit)

TotalBalance, December 27, 2005


65,267,655

$
65


5,265,376

$
5

$
201,764

$
29,738

$
3

$
231,575Comprehensive income:Realized gain on derivatives, net of tax




















(3
)

(3
)Net income

















34,009





34,009Total comprehensive income























34,006Issuance of Class A Common Stock in acquisition


2,478,531


3








39,235








39,238Shares issued under stock option plan including tax effects


1,256,739


1








8,043








8,044Share-based compensation














6,211








6,211Balance, December 26, 2006


69,002,925

$
69


5,265,376

$
5

$
255,253

$
63,747

$


$
319,074Net income

















39,325





39,325Shares issued under stock option plan including tax effects


579,677


1








4,116








4,117Minority interest liquidation adjustments














123








123Share-based compensation














4,742








4,742Balance, December 25, 2007


69,582,602

$
70


5,265,376

$
5

$
264,234

$
103,072

$


$
367,381Comprehensive income:Unrealized loss on derivatives, net of tax




















(1,704
)

(1,704
)Net income

















38,168





38,168Total comprehensive income























36,464Shares issued under stock option plan including tax effects


1,000,825


1








5,249








5,250Repurchase of shares of Common Stock


(6,512,807
)

(7
)







(56,967
)







(56,974
)Minority interest liquidation adjustments














44








44Share-based compensation














7,825








7,825Balance, December 30, 2008


64,070,620

$
64


5,265,376

$
5

$
220,385

$
141,240

$
(1,704
)
$
359,990


See accompanying notes to Consolidated Financial Statements.

F-5

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Table of Contents

Texas Roadhouse, Inc. and Subsidiaries        Consolidated Statements of Cash Flows        (in thousands)

Fiscal Year EndedDecember 30,
2008

December 25,
2007

December 26,
2006Cash flows from operating activities:Net income

$
38,168

$
39,325

$
34,009Adjustments to reconcile net income to net cash provided by operating activities:Depreciation and amortization


37,694


30,446


21,357Deferred income taxes


1,184


(2,698
)

(679
)Loss on disposition of assets


1,293


655


248Impairment and closure


2,018


1,721


481Minority interest


841


711


585Equity income from investments in unconsolidated affiliates


(215
)

(294
)

(251
)Distributions received from investments in unconsolidated affiliates


361


359


309Provision for doubtful accounts


516


(61
)

Share-based compensation expense


7,745


4,742


6,211Changes in operating working capital:Receivables


7,865


(9,923
)

1,360Inventories


(515
)

(610
)

(243
)Prepaid expenses and other current assets


(2,377
)

(584
)

(611
)Other assets


(399
)

(534
)

(16
)Accounts payable


6,552


4,377


1,379Deferred revenuegift cards/certificates


(507
)

5,230


5,006Accrued wages


362


1,440


3,107Excess tax benefits from share-based compensation


(3,288
)

(1,786
)

(3,767
)Prepaid income taxes and income taxes payable


(862
)

(1,218
)

9,358Accrued taxes and licenses


2,020


(399
)

2,778Other accrued liabilities


183


2,006


603Deferred rent


2,343


1,625


1,157Other liabilities


232


2,037


(2,637
)Net cash provided by operating activities


101,214


76,567


79,744Cash flows from investing activities:Capital expendituresproperty and equipment


(102,536
)

(101,923
)

(97,926
)Acquisition of franchise restaurants, net of cash acquired


(17,835
)

(33,222
)

(13,281
)Proceeds from sale of property and equipment, including insurance proceeds


250


613


1,362Investment in equity investees


(95
)




Net cash used in investing activities


(120,216
)

(134,532
)

(109,845
)Cash flows from financing activities:Proceeds from revolving credit facility, net


67,000


33,000


30,000Repurchase of shares of common stock


(56,974
)




Proceeds from minority interest contributions and other


877


1,605


737Distributions to minority interest holders


(1,251
)

(1,100
)

(794
)Excess tax benefits from share-based compensation


3,288


1,786


3,767Repayment of stock option and other deposits


(1,812
)

(259
)

(412
)Proceeds from stock option and other deposits


784


1,073


1,514Principal payments on long-term debt and capital lease obligations


(1,074
)

(2,231
)

(3,795
)Payments for debt issuance costs





(459
)

Proceeds from exercise of stock options


1,858


2,330


3,881Net cash provided by financing activities


12,696


35,745


34,898Net (decrease) increase in cash


(6,306
)

(22,220
)

4,797Cash and cash equivalentsbeginning of year


11,564


33,784


28,987Cash and cash equivalentsend of year

$
5,258

$
11,564

$
33,784Supplemental disclosures of cash flow information:Interest, net of amounts capitalized

$
4,130

$
1,744

$
2,824Income taxes

$
19,067

$
25,092

$
10,887Supplemental schedule of noncash financing activities:Stock acquisition of franchise restaurants

$


$


$
39,260Assumption of debtacquisitions

$


$


$
2,292


See accompanying notes to Consolidated Financial Statements.

F-6

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Table of Contents

Texas Roadhouse, Inc. and Subsidiaries        Notes to Consolidated Financial Statements        (Tabular amounts in thousands, except share and per share data)

(1) Description of Business

The accompanying Consolidated Financial Statements as of December 30, 2008 and December 25, 2007 include the accounts of Texas Roadhouse, Inc. (the "Company"), and
its wholly-owned subsidiaries, Texas Roadhouse Holdings LLC ("Holdings"), Texas Roadhouse Development Corporation ("TRDC"), and Texas Roadhouse Management Corp. The Company and its wholly-owned
subsidiaries operate Texas Roadhouse restaurants. Holdings also provides supervisory and administrative services for certain other license and franchise restaurants. TRDC sells franchise rights and
collects the franchise royalties and fees. Texas Roadhouse Management Corp. provides management services to Holdings, TRDC and certain other license and franchise restaurants.

At
December 30, 2008 and December 25, 2007, there were 314 and 285 Texas Roadhouse restaurants operating in 46 and 44 states, respectively. Of the 314 restaurants that were
operating at December 30, 2008, (i) 245 were Company restaurants, 235 of which were wholly-owned and 10 of which were majority-owned, (ii) 66 were franchise restaurants and
(iii) 3 were license restaurants. Of the 285 restaurants that were operating at December 25, 2007, (i) 204 were Company restaurants, 197 of which were wholly-owned and seven of
which were majority-owned, (ii) 78 were franchise restaurants and (iii) three were license restaurants.

(2) Summary of Significant Accounting Policies



At
December 30, 2008 and December 25, 2007, the Company had minority ownership in 19 and 18 restaurants, respectively. The unconsolidated restaurants are accounted for
using the equity method. The Company exercises significant control over the operating and financial policies of these entities based on the rights granted to the Company under each entity's operating
or partnership agreement. Notwithstanding the significant control exercised by the Company over their affairs, the Company does not consolidate such entities because (i) the Company owns only
5% to 10% of these entities and (ii) the revenue, expense and net income, and assets and liabilities that would be attributable to these entities would not be material to our financial position
or results of operations. Should the financial position and results of operations of these entities become material to the Company's financial position and results of operations in future periods, the
Company will consolidate the entities into its results. All significant intercompany balances and transactions for these unconsolidated restaurants as well as the companies whose accounts have been
consolidated have been eliminated.



The
Company utilizes a 52 or 53 week accounting period that ends on the last Tuesday in December. The Company utilizes a 13 or 14 week accounting period for quarterly
reporting purposes. Fiscal year 2008 was 53 weeks in length. In fiscal 2008, the 53rd week added $17.9 million to restaurant sales and $18.0 million to total
revenues and approximately $0.03 to diluted earnings per share in our Consolidated Statement of Income. Fiscal years 2007 and 2006 were 52 weeks in length.



For
purposes of the consolidated statements of cash flows, the Company considers all highly liquid debt instruments with original maturities of three months or less to be cash
equivalents. Book overdrafts are recorded in accounts payable and are included within operating cash flows.

F-7

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Table of Contents

Texas Roadhouse, Inc. and Subsidiaries

Notes to Consolidated Financial Statements (Continued)

(Tabular amounts in thousands, except share and per share data)

(2) Summary of Significant Accounting Policies (Continued)



Receivables
consist principally of amounts due from certain franchise and license restaurants for reimbursement of pre-opening and other expenses, amounts due for royalty
fees from franchise restaurants and credit card receivables. Credit card receivables were $3.8 million at December 30, 2008 as compared to $11.7 million at December 25,
2007 due to the timing of credit card settlements as fiscal year 2007 ended on a bank holiday.

Receivables
are recorded at the invoiced amount and do not bear interest. The allowance for doubtful accounts is the Company's best estimate of the amount of probable credit losses in
the Company's existing accounts receivable. The Company determines the allowance based on historical write-off experience. The Company reviews its allowance for doubtful accounts
quarterly. Past due balances over 90 days and a specified amount are reviewed individually for collectibility. Account balances are charged off against the allowance after all means of
collection have been exhausted and the potential for recovery is considered remote.



Inventories,
consisting principally of food, beverages and supplies, are valued at the lower of cost (first-in, first-out) or market. The Company purchases its
products from a number of suppliers and believes there are alternative suppliers.



Pre-opening
expenses are charged to operations as incurred. These costs include wages, benefits, travel and lodging for the training and opening management teams, rent and
food, beverage and other restaurant operating expenses incurred prior to a restaurant opening for business.



Property
and equipment are stated at cost. Expenditures for major renewals and betterments are capitalized while expenditures for maintenance and repairs are expensed as incurred.
Depreciation is computed on property and equipment, including assets located on leased properties, over the shorter of the estimated useful lives of the related assets or the underlying lease term
using the straight-line method. In some cases, assets on leased properties are depreciated over a period of time which includes both the initial term of the lease and one or more option
periods. See note 2(p).

The
estimated useful lives are:

Land improvements

10-25 yearsBuildings and leasehold improvements

10-25 yearsEquipment and smallwares

3-10 yearsFurniture and fixtures

3-10 years




Goodwill
represents the excess of cost over fair value of assets of businesses acquired. Goodwill and intangible assets acquired in a purchase business combination and determined to have
an indefinite useful life are not amortized, but instead tested for impairment at least annually in accordance with the

F-8

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Table of Contents

Texas Roadhouse, Inc. and Subsidiaries

Notes to Consolidated Financial Statements (Continued)

(Tabular amounts in thousands, except share and per share data)

(2) Summary of Significant Accounting Policies (Continued)

provisions
of Statement of Financial Accounting Standards ("SFAS") No. 142,Goodwill and Other Intangible Assets("SFAS No. 142").
Goodwill is tested for impairment more frequently if events and circumstances indicate that the asset might be impaired. A goodwill impairment is recognized to the extent that the carrying amount
exceeds the asset's implied fair value. This determination is made at the reporting unit level and consists of two steps. First, the Company determines the fair value of a reporting unit and compares
it to its carrying amount. Second, if the carrying amount of a reporting unit exceeds its fair value, an impairment is recognized for any excess of the carrying amount of the reporting unit's goodwill
over the implied fair value of the goodwill. The implied fair value of goodwill is determined by allocating the fair value of the reporting unit in a manner similar to a purchase price allocation, in
accordance with SFAS No. 141,Business Combinations("SFAS No. 141"). The residual fair value after this allocation is the implied fair
value of the reporting unit goodwill. SFAS No. 142 also requires that intangible assets with estimable useful lives be amortized over their respective estimated useful lives to their estimated
residual values, and reviewed for impairment in accordance with SFAS No. 144,Accounting for Impairment or Disposal of Long-Lived
Assets("SFAS No. 144").



Other
assets consist primarily of deposits and costs related to the issuance of debt. The debt issuance costs are being amortized to interest expense over the term of the related debt.



In
accordance with SFAS No. 144, long-lived assets, such as property and equipment, are reviewed for impairment whenever events or changes in circumstances indicate
that the carrying amount of an asset may not be recoverable. Recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset to estimated undiscounted
future cash flows expected to be generated by the asset. If the carrying amount of an asset exceeds its estimated future cash flows, an impairment charge is recognized by the amount by which the
carrying amount of the asset exceeds the fair value of the asset. Assets to be disposed of would be separately presented in the consolidated balance sheet and reported at the lower of the carrying
amount or fair value less costs to
sell, and would no longer be depreciated. The assets and liabilities of a disposal group classified as held-for-sale would be presented separately in the appropriate asset and
liability sections of the consolidated balance sheet.

The
Company recorded an impairment of $1.4 million in 2008 as a result of reducing the carrying value of one underperforming restaurant to its estimated fair value in the fourth
quarter of 2008, based on its historical results and anticipated future trends of operation. The impairment included land, building, fixtures and equipment. The Company recorded an impairment of
$1.7 million in 2007 as a result of reducing the carrying value of one underperforming restaurant to its estimated fair value in the fourth quarter of 2008, based on its historical results and
anticipated future trends of operation. The impairment included building, fixtures and equipment. Subsequently, in the first quarter of 2008 this restaurant was closed and the Company recorded
$0.8 million in 2008 due to a lease reserve and other charges incurred in conjunction with the closure. The Company recorded an impairment of $0.5 million in 2006 with respect to two
restaurants that were approved to relocate to better sites in their respective markets. The impairment included leasehold improvements, fixtures and equipment.

F-9

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Table of Contents

Texas Roadhouse, Inc. and Subsidiaries

Notes to Consolidated Financial Statements (Continued)

(Tabular amounts in thousands, except share and per share data)

(2) Summary of Significant Accounting Policies (Continued)



The
Company self-insures a significant portion of expected losses under its workers compensation, general liability and property insurance programs. The Company purchases
insurance for individual claims that exceed the amounts listed below:

Workers compensation

$
250,000General liability

$
100,000Property

$
25,000


The
Company records a liability for unresolved claims and for an estimate of incurred but not reported claims at its anticipated cost based on estimates provided by a third party
administrator and actuary. The estimated liability is based on a number of assumptions and factors regarding economic conditions, the frequency and severity of claims and claim development history and
settlement practices. Estimates of claims reserves are discounted using a discount rate of approximately 3.0% resulting in a discount of $0.2 million at December 30, 2008 and
December 25, 2007. The Company's assumptions are reviewed, monitored, and adjusted when warranted by changing circumstances.



As
of December 30, 2008, the Company operated 245 Texas Roadhouse restaurants, each as a single operating segment, and franchised and/or licensed an additional 69 restaurants. The
restaurants operate exclusively in the U.S. within the casual dining segment of the restaurant industry, providing similar products to similar customers. The restaurants also possess similar pricing
structures, resulting in similar long-term expected financial performance characteristics. Revenue from external customers is derived principally from food and beverage sales. The Company
does not rely on any major customers as a source of revenue. The Company aggregates similar operating segments into a single reportable operating segment if the businesses are considered similar under
SFAS No. 131,Disclosures about Segments of an Enterprise and Related Information. The Company considers restaurant and franchising operations as
similar and has aggregated them into a single reportable segment.



Revenue
from restaurant sales is recognized when food and beverage products are sold. Deferred revenue primarily represents the Company's liability for gift cards and certificates that
have been sold, but not yet redeemed. When the gift cards and certificates are redeemed, the Company recognizes restaurant sales and reduces deferred revenue.

For
some of the gift cards that were sold, the likelihood of redemption is remote. When the likelihood of a gift card's redemption is determined to be remote, the Company records a
breakage adjustment and reduces deferred revenue by the amount never expected to be redeemed. The Company uses historic gift card redemption patterns to determine when the likelihood of a gift card's
redemption becomes remote and has determined that approximately 5% of the value of gift cards will never be redeemed. The methodology the Company uses to match the expected redemption value of
unredeemed gift cards to its historic redemption patterns is to amortize the historic 5% rate of breakage over a three year period. As a result, the amount of unredeemed gift card liability included
in

F-10

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Table of Contents

Texas Roadhouse, Inc. and Subsidiaries

Notes to Consolidated Financial Statements (Continued)

(Tabular amounts in thousands, except share and per share data)

(2) Summary of Significant Accounting Policies (Continued)

deferred
revenue is the full value of unredeemed gift cards less the amortized portion of the 5% rate of breakage. The Company reviews and adjusts its estimates on a quarterly basis.

The
Company franchises Texas Roadhouse restaurants. The Company executes franchise agreements for each franchise restaurant which sets out the terms of our arrangement with the
franchisee. Our franchise agreements typically require the franchisee to pay an initial, non-refundable fee and continuing fees based upon a percentage of sales. Subject to the Company's
approval and payment of a renewal fee, a franchisee may generally renew the franchise agreement upon its expiration. The Company collects ongoing royalties of 2.0% to 4.0% of sales from franchise
restaurants. These ongoing royalties are reflected in the accompanying consolidated statements of income as franchise royalties and fees. The Company recognizes initial franchise fees as revenue after
performing substantially all initial services or conditions required by the franchise agreement, which is generally upon the opening of a restaurant. The Company received initial franchise fees of
$0.1 million for the years ended December 30, 2008 and December 25, 2007, respectively, and $0.2 million for the year ended December 26, 2006. Continuing franchise
royalties are recognized as revenue as the fees are earned. The Company also performs supervisory and administrative services for certain franchise and license restaurants for which it receives
management fees, which are recognized as the services are performed. Revenue from supervisory and administrative services is recorded as a reduction of general and administrative expenses in the
accompanying consolidated statements of income. Total revenue recorded for supervisory and administrative services for each of the years ended December 30, 2008, December 25, 2007 and
December 26, 2006 was approximately $0.5 million.

Sales
taxes collected from customers and remitted to governmental authorities are accounted for on a net basis and therefore are excluded from revenue in the consolidated statements of
income.



The
Company accounts for income taxes in accordance with SFAS No. 109,Accounting for Income Taxes("SFAS No. 109"), under
which deferred assets and liabilities are recognized based upon anticipated future tax consequences attributable to differences between financial statement carrying values of assets and liabilities
and their respective tax bases. A valuation allowance is established to reduce the carrying value of deferred tax assets if it is considered more likely than not that such assets will not be realized.
Any change in the valuation allowance would be charged to income in the period such determination was made.

The
Company adopted Financial Accounting Standards Board ("FASB") Interpretation No. 48,Accounting for Uncertainty in Income Taxesan
interpretation of FAS 109("FIN 48"), on December 27, 2006. FIN 48 clarifies the accounting for uncertainty in income taxes recognized in financial
statements prepared in accordance with SFAS 109, "Accounting for Income Taxes." FIN 48 prescribes a recognition threshold and measurement attribute for the financial statement
recognition and measurement of a tax position taken or expected to be taken in a tax return. FIN 48 also provides guidance on de-recognition, classification, interest and penalties,
accounting in interim periods, disclosure, and transition. Under FIN 48, a tax position adopted is subjected to two levels of evaluation. Initially, a determination is made as to whether it is
more likely than not that a tax position will be sustained upon examination, including resolution of any related appeals or litigation processes, based on the technical merits of the position. In
conducting this evaluation, management should presume that the

F-11

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Table of Contents

Texas Roadhouse, Inc. and Subsidiaries

Notes to Consolidated Financial Statements (Continued)

(Tabular amounts in thousands, except share and per share data)

(2) Summary of Significant Accounting Policies (Continued)

position
will be examined by the appropriate taxing authority possessing full knowledge of all relevant information. The second level of evaluation is the measurement of a tax position that satisfies
the more-likely-than-not recognition threshold. This measurement is performed in order to determine the amount of benefit to recognize in the financial statements.
The tax position is measured at the largest amount of benefit that is greater than fifty percent likely of being realized upon ultimate settlement. FIN 48 further requires tabular disclosure of
material activity related to unrecognized tax benefits that do not satisfy the recognition provisions established under FIN 48.



The
Company has a system-wide marketing and advertising fund. The Company maintains control of the marketing and advertising fund and, as such, has consolidated the fund's
activity for the years ended December 30, 2008, December 25, 2007 and December 26, 2006. Company and franchise restaurants are required to remit a designated portion of sales,
currently 0.3%, to the advertising fund. Advertising costs also include local restaurant area marketing initiatives. Advertising costs are expensed as incurred.

Advertising
costs amounted to approximately $6.1 million, $4.8 million and $4.1 million for the years ended December 30, 2008, December 25, 2007 and
December 26, 2006, respectively.



The
Company leases land, buildings, and/or certain equipment for several of its restaurants under noncancelable lease agreements. The Company's land and building leases typically have
initial terms ranging from ten to 15 years, and certain renewal options for one or more five-year periods. The Company accounts for leases in accordance with SFAS No. 13, Accounting for Leases,
 and other related authoritative guidance. When determining the lease term, the Company includes option periods for which failure
to renew the lease imposes a penalty on the Company in such an amount that a renewal appears, at the inception of the lease, to be reasonably assured. The primary penalty to which the Company is
subject is the economic detriment associated with the existence of leasehold improvements which might become impaired if the Company chooses not to continue the use of the leased property.

Certain
of the Company's operating leases contain predetermined fixed escalations of the minimum rent during the original term of the lease. For these leases, the Company recognized the
related rent expense on a straight-line basis over the lease term and recorded the difference between the amounts charged to operations and amounts paid as deferred rent. We generally do
not receive rent holidays, rent concessions or leasehold improvement incentives upon opening a restaurant that is subject to a lease.

Additionally,
certain of the Company's operating leases contain clauses that provide for additional contingent rent based on a percentage of sales greater than certain specified target
amounts. The Company recognizes contingent rent expense prior to the achievement of the specified target that triggers the contingent rent, provided achievement of the target is considered probable.



Management
of the Company has made a number of estimates and assumptions relating to the reporting of assets and liabilities, the disclosure of contingent assets and liabilities at the
date of the

F-12

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Table of Contents

Texas Roadhouse, Inc. and Subsidiaries

Notes to Consolidated Financial Statements (Continued)

(Tabular amounts in thousands, except share and per share data)

(2) Summary of Significant Accounting Policies (Continued)

Consolidated
Financial Statements and the reporting of revenue and expenses during the period to prepare these Consolidated Financial Statements in conformity with U.S. generally accepted accounting
principles. Significant items subject to such estimates and assumptions include the carrying amount of property and equipment, goodwill, obligations related to insurance reserves, income taxes and
share-based compensation expense. Actual results could differ from those estimates.



SFAS
No. 130,Reporting Comprehensive Income, establishes standards for reporting and presentation of comprehensive income and its
components in a full set of financial statements. Comprehensive income consists of net income and other comprehensive income (loss) items that are excluded from net income under generally accepted
accounting principles ("GAAP") in the United States. These items included net unrealized gains (losses) on securities and the effective unrealized portion of changes in fair value of cash flow hedges.



In
the first quarter of 2006, the Company adopted SFAS No. 123 (Revised 2004),Share-Based Payment("SFAS 123R"), which
replaces SFAS No. 123,Accounting for Stock-Based Compensation("SFAS 123"), supersedes APB 25,Accounting
for Stock Issued to Employeesand related interpretations, and amends SFAS No. 95,Statement of Cash Flows. The
provisions of SFAS 123R are similar to those of SFAS 123. However, SFAS 123R requires all new, modified and unvested share-based payments to employees, including grants of
employee stock options and restricted stock, be recognized in the financial statements as compensation costs over the service period based on their fair value on the date of grant. Compensation cost
is recognized over the service period on a straight-line basis for the fair value of awards that actually vest.

In
accordance with the FASB Position FAS 123 (R)3,Transition Election to Accounting for the Tax Effects of Share-Based Payment
Awards, the Company has elected the alternative transition method to calculate the beginning balance of the pool of excess tax benefits. The beginning balance of excess tax
benefits was calculated as the sum of all net increases in additional paid-in-capital related to tax benefits from share-based employee compensation, less the incremental tax
effect of share-based compensation costs that would have been recognized if the fair value recognition provisions of SFAS 123 had been used to account for share-based compensation costs.



In
September 2006, the FASB issued SFAS No. 157,Fair Value Measurements("SFAS 157"). SFAS 157 defines fair value,
establishes a framework for measuring fair value and enhances disclosures about fair value measurements required under other accounting pronouncements, but does not change existing guidance as to
whether or not an instrument is carried at fair value. For those financial assets and liabilities the Company records or discloses at fair value, the Company adopted SFAS 157 at the
beginning of fiscal year 2008. Fair value is determined based on the present value of expected future cash flows considering the risks involved and using discount rates appropriate for the duration,
and considers counterparty performance risk.

F-13

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Table of Contents

Texas Roadhouse, Inc. and Subsidiaries

Notes to Consolidated Financial Statements (Continued)

(Tabular amounts in thousands, except share and per share data)

(2) Summary of Significant Accounting Policies (Continued)



The
Company does not use derivative instruments for trading purposes. Currently, the Company's only free standing current derivative instrument is an interest rate swap agreement.

The
Company accounts for derivatives and hedging activities in accordance with SFAS No. 133,Accounting for Derivative Instruments and Certain Hedging
Activities, as amended, which requires that all derivative instruments be recorded on the consolidated balance sheet at their respective fair values. The accounting for changes
in the fair value of a derivative instrument is dependent upon whether the derivative has been designated and qualifies as part of a hedging relationship. The Company's current derivative has been
designated and qualifies as a cash flow hedge. For derivative instruments that are designated and qualify as a cash flow hedge, the effective portion of the gain or loss on the derivative instrument
is reported as a component of other comprehensive income (loss) and reclassified into earnings in the same period or period during which the hedged transaction affects earnings. There was no hedge
ineffectiveness recognized during the period ended December 30, 2008. As of December 25, 2007, the Company did not have any derivative contracts.



In
February 2008, the FASB issued Staff Position FAS 157-2,Effective Date of FASB Statement No.157, which
delayed the effective date of SFAS 157 for most nonfinancial asset and nonfinancial liabilities until fiscal years beginning after November 15, 2008 (fiscal year 2009 for the Company).
The Company does not expect the adoption of SFAS 157 for nonfinancial assets and liabilities will have a material impact on its consolidated financial position, results of operations or cash
flows. See note 14 for additional fair value discussions.

In
February 2007, the FASB issued SFAS No. 159,The Fair Value Option for Financial Assets and Financial Liabilities("SFAS 159"). SFAS 159 permits entities to choose to measure many financial assets and financial liabilities at fair value. Unrealized gains and losses on items for which the fair value
option has been elected are reported in earnings at each subsequent reporting date. The provisions of SFAS 159 were effective as of the beginning of the Company's 2008 fiscal year. The adoption
of SFAS 159 did not have a material impact on the Company's consolidated financial position, results of operations or cash flows.

In
December 2007, The FASB issued SFAS No. 141 (revised 2007),Business Combinations("SFAS 141R"). SFAS 141R
establishes the principles and requirements for how an acquirer: 1) recognizes and measures in its financial statements the identifiable assets acquired, the liabilities assumed, and any
noncontrolling interest in the acquiree; 2) recognizes and measures the goodwill acquired in the business combination or gain from a bargain purchase; and 3) determines what information
to disclose to enable users of the financial statements to evaluate the nature and financial effects of the business combination. SFAS 141R is to be applied prospectively to business
combinations consummated on or after the beginning of the first annual reporting period on or after December 15, 2008 (fiscal year 2009 for the Company). The Company is currently evaluating the
impact SFAS 141R will have on any potential future business combinations.

In
December 2007, the FASB issued SFAS No. 160,Noncontrolling Interests in Consolidated Financial Statementsan amendment of ARB
No. 51("SFAS 160"). SFAS 160 establishes accounting

F-14

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Table of Contents

Texas Roadhouse, Inc. and Subsidiaries

Notes to Consolidated Financial Statements (Continued)

(Tabular amounts in thousands, except share and per share data)

(2) Summary of Significant Accounting Policies (Continued)

and
reporting standards that require: 1) noncontrolling interests to be reported as a component of equity; 2) changes in a parent's ownership interest while the parent retains its
controlling interest be accounted for as equity transactions; and 3) any retained noncontrolling equity investment upon the deconsolidation of a subsidiary be initially measured at fair value.
SFAS 160 is to be applied prospectively to business combinations consummated on or after the beginning of the first annual reporting period on or after December 15, 2008 (fiscal year
2009 for the Company). The Company does not expect the adoption of SFAS 160 will have a material impact on its consolidated financial position, results or operations or cash flows.

In
March 2008, the FASB issued SFAS No. 161,Disclosures about Derivative Instruments and Hedging Activities("SFAS 161").
SFAS 161 provides companies with requirements for enhanced disclosures about derivative instruments and hedging activities to enable investors to better understand their effects on a company's
financial position, financial performance and cash flows. These requirements include the disclosure of the fair values of derivative instruments and their gains and losses in a tabular format.
SFAS 161 is effective for financial statements issued for fiscal years and interim periods beginning after November 15, 2008 (fiscal year 2009 for the Company). SFAS 161
encourages, but does not require, comparative disclosures for earlier periods at initial adoption. The Company does not expect the adoption of SFAS 161 will have a material impact on its
consolidated financial position, results of operations or cash flows.

In
May 2008, the FASB issued SFAS No. 162,The Hierarchy of Generally Accepted Accounting Principles("SFAS 162").
SFAS 162 identifies the sources of accounting principles and the framework for selecting the principles used in the preparation of financial statements of nongovernmental entities that are
presented in conformity with GAAP in the United States. This statement will be effective 60 days following the SEC's approval of the Public Company Accounting Oversight Board amendments to AU
Section 411,The Meaning of Present Fairly in Conformity with Generally Accepted Accounting Principles.The Company does not expect the adoption
of SFAS 162 to have a material impact on its consolidated financial position, results of operations or cash flows.

(3) Acquisitions

On September 24, 2008, the Company acquired one franchise restaurant in Florida, which is expected to have no significant net revenue or accretive impact on an
on-going annual basis. Pursuant to the terms of the acquisition agreement, the Company paid a purchase price of approximately $1.5 million. This acquisition is consistent with the
Company's long-term strategy to increase net income and earnings per share.

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

F-15

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Table of Contents

Texas Roadhouse, Inc. and Subsidiaries

Notes to Consolidated Financial Statements (Continued)

(Tabular amounts in thousands, except share and per share data)

(3) Acquisitions (Continued)

The
purchase price has been preliminarily allocated as follows:

Current assets

$
39Property and equipment, net


204Goodwill


1,024Intangible asset


270Other assets


11Current liabilities


(92
)$
1,456


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

53 Weeks Ended

52 Weeks EndedDecember 30,
2008

December 25,
2007Revenue

$
883,097

$
738,760Net income

$
38,243

$
39,434Basic EPS

$
0.53

$
0.53Diluted EPS

$
0.52

$
0.51


As
a result of this acquisition, the Company recorded an intangible asset relating to certain reacquired franchise rights of $0.3 million in accordance with Emerging Issues Task
Force ("EITF") Issue No. 04-1, Accounting for Preexisting Relationships between the Parties to a Business Combination ("EITF 04-1"). EITF 04-1
requires that a business combination between two parties that have a preexisting relationship be evaluated to determine if a settlement of a preexisting relationship exists.
EITF 04-1 also requires that certain reacquired rights (including the rights to the acquirer's trade name under a franchise agreement) be recognized as intangible assets apart from
goodwill. However, if a contract giving rise to the reacquired rights includes terms that are favorable or unfavorable when compared to pricing for current market transactions for the same or similar
items, EITF 04-1 requires that a settlement gain or loss be measured as the lesser of (i) the amount by which the contract is favorable or unfavorable under market terms from
the perspective of the acquirer or (ii) the stated settlement provisions of the contract available to the counterparty to which the contract is unfavorable.

The
intangible asset of $0.3 million has a weighted-average life of approximately 15 years. When calculating this intangible asset, the Company considered the remaining
term of the existing franchise agreement including renewals. The Company recorded amortization expense relating to the intangible asset of approximately $4,000 for the year ended December 30,
2008. The Company expects the annual expense for each of the next five years to be approximately $17,000.

Effective
July 23, 2008, the Company completed the acquisitions of nine franchise restaurants located in Tennessee. Pursuant to the terms of the acquisition agreements, the
Company paid an aggregate purchase price of approximately $8.4 million. These acquisitions are consistent with the Company's long-term strategy to increase net income and earnings
per share.

F-16

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Table of Contents

Texas Roadhouse, Inc. and Subsidiaries

Notes to Consolidated Financial Statements (Continued)

(Tabular amounts in thousands, except share and per share data)

(3) Acquisitions (Continued)

These
transactions were accounted for using the purchase method as defined in SFAS No. 141. Based on a purchase price of $8.4 million, including approximately
$0.2 million of direct acquisition costs and net of the $0.1 million of cash acquired and the $0.1 million charge related to EITF 04-1, and the Company's
estimates of the fair value of net assets acquired, $5.7 million of goodwill was generated by the acquisitions, which is not amortizable for book purposes, but is deductible for tax purposes.

The
purchase price has been preliminarily allocated as follows:

Current assets

$
264Property and equipment, net


1,741Goodwill


5,696Intangible asset


3,465Current liabilities


(2,776
)$
8,390


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

53 Weeks Ended

52 Weeks EndedDecember 30,
2008

December 25,
2007Revenue

$
896,765

$
764,149Net income

$
37,944

$
39,957Basic EPS

$
0.52

$
0.54Diluted EPS

$
0.51

$
0.52


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

The
intangible asset of $3.5 million has a weighted-average life of approximately 13 years. When calculating this intangible asset, the Company considered the remaining
term of the existing franchise agreements including renewals. The remaining terms ranged from 10 to 19 years. The Company recorded amortization expense relating to the intangible asset of
approximately $0.1 million for the year ended December 30, 2008. The Company expects the annual expense for each of the next five years to be $0.3 million.

On
March 26, 2008, the first day of the Company's second fiscal quarter, the Company completed the acquisitions of three restaurants located in Kentucky and Missouri. Pursuant to
the terms of the acquisition agreements, the Company paid an aggregate purchase price of approximately $8.5 million. These acquisitions are consistent with the Company's long-term
strategy to increase net income and earnings per share.

These
transactions were accounted for using the purchase method as defined in SFAS 141. Based on a purchase price of $8.2 million, including approximately
$0.1 million of direct acquisition costs and net of the $0.4 million of cash acquired and the $47,000 charge related to EITF 04-1, and the

F-17

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Table of Contents

Texas Roadhouse, Inc. and Subsidiaries

Notes to Consolidated Financial Statements (Continued)

(Tabular amounts in thousands, except share and per share data)

(3) Acquisitions (Continued)

Company's
estimates of the fair value of net assets acquired, $6.4 million of goodwill was generated by the acquisitions, which is not amortizable for book purposes, but is deductible for tax
purposes.

The
purchase price has been preliminarily allocated as follows:

Current assets

$
84Property and equipment, net


867Goodwill


6,436Intangible asset


1,579Current liabilities


(675
)Noncurrent liabilities


(105
)$
8,186


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

53 Weeks Ended

52 Weeks EndedDecember 30,
2008

December 25,
2007Revenue

$
883,775

$
747,636Net income

$
38,290

$
39,809Basic EPS

$
0.53

$
0.53Diluted EPS

$
0.52

$
0.52


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

The
intangible asset of $1.6 million has a weighted-average life of approximately 13 years. When calculating this intangible asset, the Company considered the remaining
term of the existing franchise agreements including renewals. The remaining terms ranged from ten to 16 years. The Company recorded amortization expense relating to the intangible asset of
approximately $0.1 million for the 53 weeks ended December 30, 2008. The Company expects the annual expense for each of the next five years to be $0.1 million.

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

These
transactions were accounted for using the purchase method as defined in SFAS No. 141,Business Combinations. Based on a
purchase price of $33.0 million, including $0.2 million of direct acquisition costs and net of the $1.6 million of cash acquired and the $0.5 million charge related to
Emerging Issues Task Force ("EITF") Issue No. 04-1,Accounting for Preexisting Relationships between

F-18

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Table of Contents

Texas Roadhouse, Inc. and Subsidiaries

Notes to Consolidated Financial Statements (Continued)

(Tabular amounts in thousands, except share and per share data)

(3) Acquisitions (Continued)

the Parties to a Business Combination("EITF 04-1"), and the Company's estimates of the fair value of net assets acquired, $15.0 million of goodwill
was generated by the acquisitions, which is not amortizable for book purposes, but is deductible for tax purposes.

The
purchase price has been allocated as follows:

Current assets

$
427Property and equipment, net


15,629Goodwill


15,002Intangible asset


4,064Other assets


12Current liabilities


(2,078
)Other liabilities


(18
)$
33,038


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

52 Weeks EndedDecember 25,
2007

December 26,
2006Revenue

$
752,077

$
629,055Net income

$
39,768

$
35,137Basic EPS

$
0.53

$
0.48Diluted EPS

$
0.52

$
0.46


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

The
intangible asset of $4.1 million has a weighted-average life of approximately 13 years. When calculating this intangible asset, the Company considered the remaining
term of the existing franchise agreements including renewals. The remaining terms ranged from nine to 18 years. The Company recorded amortization expense relating to the intangible asset of
approximately $0.3 million and $0.2 million for the 53 and 52 weeks ended December 30, 2008 and December 25, 2007, respectively. The Company expects the annual
expense for each of the next five years to be $0.3 million.

F-19

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Table of Contents

Texas Roadhouse, Inc. and Subsidiaries

Notes to Consolidated Financial Statements (Continued)

(Tabular amounts in thousands, except share and per share data)

(4) Long-term Debt and Obligations Under Capital Leases

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

December 30,
2008

December 25,
2007Installment loans, due 2008-2020

$
2,194

$
3,210Obligations under capital leases


516


574Revolver


130,000


63,000132,710


66,784Less current maturities


228


302$
132,482

$
66,482


Maturities
of long-term debt and obligations under capital leases at December 30, 2008 are as follows:

2009

$
2282010


2542011


2742012


130,3042013


338Thereafter


1,084$
132,482


The
weighted average interest rates for installment loans outstanding at December 30, 2008 and December 25, 2007 were 10.55% and 9.95%, respectively. The debt is secured by
certain land, buildings, and equipment.

On
May 31, 2007, the Company amended and restated its existing five-year revolving credit facility dated October 8, 2004 with a syndicate of commercial lenders
led by Bank of America, N.A., Banc of America Securities LLC and National City Bank which, in December 2008, was acquired by PNC Bank. The facility was increased from $150.0 million to
$250.0 million and the term was extended to May 31, 2012. The terms of the facility require the Company to pay interest on outstanding borrowings at LIBOR plus a margin 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 Federal Funds rate plus 0.50%. The Company is required to pay a
commitment fee of 0.10% to 0.175% per year on any unused portion of the facility, depending on the Company's leverage ratio. The weighted-average interest rate for the revolver at December 30,
2008 and December 25, 2007 was 2.73% and 5.73%, respectively. At December 30, 2008, the Company had $130.0 million outstanding under the credit facility and $116.0 million
of availability, net of $4.0 million of outstanding letters of credit.

The
lenders' obligation to extend credit under the facility depends on the Company maintaining certain financial covenants, including a minimum consolidated fixed charge coverage ratio
of 2.00 to 1.00 and a maximum consolidated leverage ratio of 3.00 to 1.00. The new credit facility permits the Company to incur additional secured or unsecured indebtedness outside the facility,
except for the incurrence of secured indebtedness that in the aggregate exceeds 20% of the Company's consolidated

F-20

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Table of Contents

Texas Roadhouse, Inc. and Subsidiaries

Notes to Consolidated Financial Statements (Continued)

(Tabular amounts in thousands, except share and per share data)

(4) Long-term Debt and Obligations Under Capital Leases (Continued)

tangible
net worth or circumstances where the incurrence of secured or unsecured indebtedness would prevent the Company from complying with its financial covenants. The Company is currently in
compliance with all covenants as of December 30, 2008.

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

(5) Property and Equipment, Net

Property and equipment were as follows:

December 30,
2008

December 25,
2007Land and improvements

$
92,733

$
88,307Buildings and leasehold improvements


295,513


242,171Equipment and smallwares


127,179


102,330Furniture and fixtures


41,217


33,839Construction in progress


22,959


14,890Liquor licenses


4,651


4,363584,252


485,900Accumulated depreciation and amortization


(128,120
)

(95,522
)$
456,132

$
390,378


The
amount of interest capitalized in connection with restaurant construction was approximately $0.5 million, $1.0 million and $0.9 million for the years ended
December 30, 2008, December 25, 2007 and December 26, 2006, respectively.

F-21

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Table of Contents

Texas Roadhouse, Inc. and Subsidiaries

Notes to Consolidated Financial Statements (Continued)

(Tabular amounts in thousands, except share and per share data)

(6) Goodwill

The changes in the carrying amount of goodwill are as follows:

Balance as of December 26, 2006

$
86,649Additions


15,207Disposals and other, net


Balance as of December 25, 2007


101,856Additions


12,951Disposals and other, net


Balance as of December 30, 2008

$
114,807


Refer
to note 3 for discussion of acquisitions completed during fiscal 2008 and fiscal 2007.

(7) Leases

The following is a schedule of future minimum lease payments required for capital leases and operating leases that have initial or remaining noncancelable terms in excess of one year as
of December 30, 2008:

Capital
Leases

Operating
Leases2009

$
117

$
18,7932010


117


18,6292011


117


18,7352012


117


18,5512013


117


18,314Thereafter


117


114,592Total


702

$
207,614Less amount representing interest of 11.4%


186Present value of minimum capital lease payments


516Less current maturities of obligations under capital leases


65Obligations under capital leases, excluding current maturities

$
451


Capitalized
lease assets, primarily building and equipment, with an original cost of approximately $1.5 million at both December 30, 2008 and December 25, 2007 are
being amortized on a straight-line basis over the applicable lease terms and interest expense is recognized on the outstanding obligations. The total accumulated amortization of property
and equipment held under capital leases totaled $1.0 million at December 30, 2008 and December 25, 2007.

F-22

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Table of Contents

Texas Roadhouse, Inc. and Subsidiaries

Notes to Consolidated Financial Statements (Continued)

(Tabular amounts in thousands, except share and per share data)

(7) Leases (Continued)

Rent
expense for operating leases consisted of the following:

December 30,
2008

December 25,
2007

December 26,
2006Minimum rentoccupancy

$
15,232

$
11,137

$
9,342Contingent rent


647


598


710Rent expense, occupancy


15,879


11,735


10,052Minimum rentequipment and other


2,152


1,969


3,495Rent expense

$
18,031

$
13,704

$
13,547


(8) Income Taxes

Components of the Company's income tax (benefit) and provision for the years ended December 30, 2008, December 25, 2007 and December 26, 2006 are as follows:

Year Ended
December 30,
2008

Year Ended
December 25,
2007

Year Ended
December 26,
2006Current:Federal

$
14,457

$
19,486

$
16,971State


3,748


4,388


3,089Total current


18,205


23,874


20,060Deferred:Federal


1,036


(2,353
)

(613
)State


148


(345
)

(66
)Total deferred


1,184


(2,698
)

(679
)Income tax provision

$
19,389

$
21,176

$
19,381


A
reconciliation of the statutory federal income tax rate to the Company's effective tax rate for December 25, 2007, December 26, 2006 and December 27, 2005 is as
follows:

December 30,
2008

December 25,
2007

December 26,
2006Tax at statutory federal rate


35.0
%

35.0
%

35.0
%State and local tax, net of federal benefit


3.7


3.7


3.1Federal tax credits


(7.7
)

(5.9
)

(5.2
)Incentive stock options


1.7


1.8


2.2EITF 04-1 charge relating to acquisition








0.6Other


1.0


0.4


0.6Total


33.7
%

35.0
%

36.3
%


F-23

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Table of Contents

Texas Roadhouse, Inc. and Subsidiaries

Notes to Consolidated Financial Statements (Continued)

(Tabular amounts in thousands, except share and per share data)

(8) Income Taxes (Continued)

Components
of deferred tax assets (liabilities) are as follows:

December 30,
2008

December 25,
2007Deferred tax assets:Insurance reserves

$
1,692

$
1,604Other reserves


142


115Deferred rent


3,021


2,081Share-based compensation


3,567


1,901Unredeemed gift cards


2,544


2,213Other assets and liabilities


2,399


789Total deferred tax asset


13,365


8,703Deferred tax liabilities:Depreciation and amortization


(17,448
)

(12,736
)Other assets and liabilities


(160
)

(26
)Total deferred tax liability


(17,608
)

(12,762
)Net deferred tax liability

$
(4,243
)
$
(4,059
)Current deferred tax asset

$
1,962

$
841Noncurrent deferred tax liability


(6,205
)

(4,900
)Net deferred tax liability

$
(4,243
)
$
(4,059
)


The
Company has not provided any valuation allowance as it believes the realization of its deferred tax assets is more likely than not.

The
adoption of FIN 48 on December 27, 2006 did not result in any change to the Company's unrecognized tax benefits. The Company's gross unrecognized tax benefits were
$0.6 million and $0.7 million at December 30, 2008 and December 25, 2007, respectively. In addition, activity related to the Company's unrecognized tax benefits was not
material during the year ended December 30, 2008. The Company, consistent with its existing policy, recognizes both interest and penalties on unrecognized tax benefits as part of income tax
expense. As of December 30, 2008 and December 25, 2007, the total amount of accrued penalties and interest related to uncertain tax provisions was $0.5 million and
$0.2 million, respectively. Included in the balance of total unrecognized tax benefits at December 30, 2008 are no potential benefits, which, if recognized, would affect the effective
tax rate on income taxes.

All
entities for which unrecognized tax benefits exist as of December 30, 2008 possess a December tax year-end. As a result, as of December 30, 2008, the tax
years ended December 27, 2005, December 26, 2006 and December 25, 2007 remain subject to examination by all tax jurisdictions. As of December 30, 2008, no audits were in
process by a tax jurisdiction that, if completed during the next twelve months, would be expected to result in a material change to the Company's unrecognized tax benefits. Additionally, as of
December 30, 2008, no event occurred that is likely to result in a significant increase or decrease in the unrecognized tax benefits through December 29, 2009.

F-24

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Table of Contents

Texas Roadhouse, Inc. and Subsidiaries

Notes to Consolidated Financial Statements (Continued)

(Tabular amounts in thousands, except share and per share data)

(9) Preferred Stock

The Company's board of directors is authorized, without further vote or action by the holders of Class A common stock, to issue from time to time up to an aggregate of 1,000,000
shares of preferred stock in one or more series. Each series of preferred stock will have the number of shares, designations, preferences, voting powers, qualifications and special or relative rights
or privileges as shall be determined by the board of directors, which may include, but are not limited to, dividend rights, voting rights, redemption and sinking fund provisions, liquidation
preferences, conversion rights and preemptive rights. There are no shares of preferred stock outstanding at December 30, 2008 and December 25, 2007.

(10) Stockholders' Equity

The Class B common stock is identical in all respects to Class A common stock, except with respect to voting and conversion rights. Class A common stock and Class B
common stock will vote together as a single class on all matters presented to a vote of stockholders, including the election of directors. Each holder of Class B common stock is entitled to ten
votes to each share held of record on the applicable record date for all of these matters. W. Kent Taylor, or other entities controlled by him, will be the only holders of shares of Class B
common stock. Each share of the Company's Class B common stock is
automatically convertible into one share of Class A common stock upon the earliest of:



In
addition, each share of Class B common stock may be converted at any time into one share of Class A common stock at the option of Mr. Taylor.

Earnings
per share calculations included in the accompanying consolidated financial statements and notes thereto are calculated using the total of Class A and Class B
common stock.

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

For
the year ended December 30, 2008, the Company paid approximately $56.8 million, excluding commissions, to repurchase 6,512,807 shares at an average price of $8.73 per
share.

F-25

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Table of Contents

Texas Roadhouse, Inc. and Subsidiaries

Notes to Consolidated Financial Statements (Continued)

(Tabular amounts in thousands, except share and per share data)

(11) Earnings Per Share

The share and net income per share data for all periods presented are based on the historical weighted-average shares outstanding. The diluted earnings per share calculations show the
effect of the weighted-average stock options and restricted stock awards outstanding from the Company's equity incentive plan as discussed in note 13. The Company adopted SFAS 123R in
the first quarter of 2006 as discussed in note 2. For the years ended December 30, 2008, December 25, 2007, and December 26, 2006, options to purchase 3,700,036, 2,277,518
and 1,869,708 shares, respectively, were outstanding but not included in the computation of diluted net income per share because their inclusion would have had an anti-dilutive
effect.

The
following table sets forth the calculation of weighted average shares outstanding (in thousands) as presented in the accompanying consolidated statements of income:

Fiscal Year EndedDecember 30,
2008

December 25,
2007

December 26,
2006Net income

$
38,168

$
39,325

$
34,009Basic EPS:Weighted-average common shares outstanding


72,672


74,611


73,876Basic EPS

$
0.53

$
0.53

$
0.46Diluted EPS:Weighted-average common shares outstanding


72,672


74,611


73,876Dilutive effect of stock options


1,407


2,221


2,644Sharesdiluted


74,079


76,832


76,520Diluted EPS

$
0.52

$
0.51

$
0.44


(12) Commitments and Contingencies

The estimated cost of completing capital project commitments at December 30, 2008 and December 25, 2007 was approximately $34.0 million and $90.0 million,
respectively.

The
Company entered into real estate lease agreements for franchise restaurants located in Everett, MA, Longmont, CO, Montgomeryville, PA and Fargo, ND before granting franchise rights
for those restaurants. The Company has subsequently assigned the leases to the franchisees, but remains contingently liable if a franchisee defaults, under the terms of the lease. The Longmont lease
was assigned in October 2003 and expires in May 2014, the Everett lease was assigned in September 2002 and expires in February 2018, the Montgomeryville lease was assigned in October 2004 and expires
in June 2021 and the Fargo lease was assigned in February 2006 and expires in July 2016. As the fair value of the guarantees is not considered significant, no liability has been recorded. As discussed
in note 15, the Everett, MA, Longmont, CO, and Fargo, ND restaurants are owned, in whole or part, by certain officers, directors and 5% stockholders of the Company.

F-26

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Table of Contents

Texas Roadhouse, Inc. and Subsidiaries

Notes to Consolidated Financial Statements (Continued)

(Tabular amounts in thousands, except share and per share data)

(12) Commitments and Contingencies (Continued)

The
Company is involved in various claims and legal actions arising in the normal course of business. In the opinion of management, the ultimate disposition of these matters will not
have a material effect on the Company's consolidated financial position, results of operations, or cash flows.

During
the year ended December 30, 2008, the Company bought most of its beef from three suppliers. Although there are a limited number of beef suppliers, management believes that
other suppliers could provide similar product on comparable terms. A change in suppliers, however, could cause supply shortages and a possible loss of sales, which would affect operating results
adversely. The Company has no material minimum purchase commitments with its vendors that extend beyond a year.

(13) Share-based Compensation

In May 2004, the Company adopted an equity incentive plan (the "Plan") for eligible participants. This Plan amended and restated the 1997 Texas Roadhouse Management Corp. Stock Option
Plan. The Plan provides for granting of incentive and non-qualified stock options to purchase shares of Class A common stock, stock bonus awards (restricted stock unit awards
("RSUs")) and restricted stock awards. The Plan provides for the issuance of 16,000,000 shares of Class A common stock plus an annual increase to be added on the first day of the year for a
period of ten years, commencing on January 1, 2005 and ending on (and including) January 1, 2014, equal to the lesser of one percent of the shares of Class A common stock
outstanding or 1,000,000 shares of Class A common stock. Options are exercisable at various periods ranging from one to ten years from the date of grant. The Company requires certain eligible
employees to make refundable deposits which may be applied to the exercise price of outstanding and vested stock options. These deposits are classified as stock option and other deposits in the
accompanying consolidated balance sheets. Beginning in 2008, the Company changed the method by which it provides share-based compensation to its employees by eliminating stock option grants and,
instead, granting RSUs as a form of share-based compensation. An RSU is the conditional right to receive one share of Class A common stock upon satisfaction of the vesting requirement.

The
following table summarizes the share-based compensation recorded in the accompanying condensed consolidated statements of income:

Fiscal Year EndedDecember 30,
2008

December 25,
2007

December 26,
2006Labor expense

$
2,647

$
1,955

$
3,247General and administrative expense


5,098


2,787


2,964Total share-based compensation expense

$
7,745

$
4,742

$
6,211


A
summary of option activity as of December 30, 2008 and changes during the period then ended is presented below.

F-27

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Table of Contents

Texas Roadhouse, Inc. and Subsidiaries

Notes to Consolidated Financial Statements (Continued)

(Tabular amounts in thousands, except share and per share data)

(13) Share-based Compensation (Continued)

Summary Details for Plan Share Options

Shares

Weighted-
Average
Exercise
Price

Weighted-
Average
Remaining
Contractual
Term
(years)

Aggregate
Intrinsic
ValueOutstanding at December 25, 2007


7,356,978

$
9.11Granted


60,000


6.45Forfeited


(139,830
)

13.00Exercised


(1,000,825
)

1.96Outstanding at December 30, 2008


6,276,323

$
10.14


5.99

$
6,359Exercisable at December 30, 2008


5,566,756

$
9.65


5.75

$
6,356


In
the fourth quarter of 2008, the Company awarded 60,000 fully vested stock options to two consultants for services performed for the Company. In conjunction with the granting of these
options, the Company recorded approximately $40,000 in consulting fee expense and approximately $80,000 in building costs as part of a building under construction at December 30, 2008.

The
weighted-average grant date fair value of options granted during the years ended December 30, 2008, December 25, 2007 and December 26, 2006 was $6.45, $4.59 and
$5.12, respectively, using the Black-Scholes option pricing model with the following weighted-average assumptions:

Fiscal Year EndedDecember 30,
2008

December 25,
2007

December 26,
2006Risk-free interest rate


1.67
%

4.41
%

4.80
%Expected term (years)


3.0


3.0 - 5.0


3.0 - 5.0Expected dividend yield


0.0
%

0.0
%

0.0
%Volatility


43
%

36
%

41
%


In
connection with its adoption of SFAS 123R, the Company determined that it was appropriate to group stock option grants into three homogeneous groups when estimating expected
term. These groups consist of grants made primarily to executives, grants made primarily to restaurant-level employees, and grants made to corporate office employees.

Prior
to the adoption of SFAS 123R, the Company used a four-year term as the expected term of all stock option grants. In connection with its adoption of
SFAS 123R and the increasing amount of historical data the Company now possesses with regard to stock option exercise activity, the Company re-evaluated its expected term
assumptions. Based on historical exercise and post-vesting employee termination behavior, the expected life for options granted to its executives is approximately 5.0 years. For
options granted to restaurant-level employees, the expected life is approximately 4.0 years. For options granted to its corporate office employees and consultants, the expected life is
approximately 3.0 years. The Company based its expected volatility on the volatilities of similar entities for an

F-28

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Table of Contents

Texas Roadhouse, Inc. and Subsidiaries

Notes to Consolidated Financial Statements (Continued)

(Tabular amounts in thousands, except share and per share data)

(13) Share-based Compensation (Continued)

appropriate
period of time along with the volatility of the Company's stock since its stock began trading on October 5, 2004 in connection with its initial public offering. In accordance with
Staff Accounting Bulletin No. 107, for grants issued after October 4, 2006, the Company based its expected volatility solely on the volatility of the Company's stock since its initial
public offering.

The
total intrinsic value of options exercised during the years ended December 30, 2008, December 25, 2007 and December 26, 2006 was $8.1 million,
$5.9 million and $14.3 million, respectively. As of December 30, 2008, with respect to unvested stock options, there was $1.3 million of unrecognized compensation cost that
is expected to be recognized over a weighted-average period of 0.6 years. The total grant date fair value of stock options vested during the years ended December 30, 2008,
December 25, 2007 and December 26, 2006 was $6.3 million, $6.0 million and $6.6 million, respectively.

For
the years ended December 30, 2008, December 25, 2007 and December 26, 2006, cash received from options exercised was $1.9 million, $2.3 million and
$3.9 million, respectively. The excess tax benefit realized from tax deductions associated with options exercised for the years ended December 30, 2008, December 25, 2007 and
December 26, 2006 was $3.3 million, $1.8 million and $3.8 million, respectively.

Summary Details for RSUs

Shares

Weighted-
Average Grant
Date Fair ValueOutstanding at December 25, 2007




$
Granted


1,273,930


9.64Forfeited


(20,400
)

10.05Vested





Outstanding at December 30, 2008


1,253,530

$
9.63


As
of December 30, 2008, with respect to unvested RSUs, there was $8.3 million of unrecognized compensation cost that is expected to be recognized over a weighted-average
period of 1.9 years. The vesting terms of the RSUs range from approximately 1.0 to 5.0 years.

Summary Details for Restricted Stock

In the fourth quarter of 2006, the Company awarded 36,000 restricted shares, at a weighted-average price of $14.55 per share, to two
corporate office employees under the terms of the Plan. The restricted shares vest after three years. At December 30, 2008, the unrecognized compensation expense related to the restricted stock
grants totaled approximately $0.1 million and will be recognized over the remaining vesting period. There were no restricted stock awards in 2008, 2007 or prior to fiscal 2006.

F-29

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Table of Contents

Texas Roadhouse, Inc. and Subsidiaries

Notes to Consolidated Financial Statements (Continued)

(Tabular amounts in thousands, except share and per share data)

(14) Fair Value Measurement

At December 30, 2008 and December 25, 2007, the fair value of cash and cash equivalents, accounts receivable and accounts payable approximated their carrying value based on
the short-term nature of these instruments. The fair value of the Company's long-term debt is estimated based on the current rates offered to the Company for instruments of
similar terms and maturities. The carrying amounts and related estimated fair values for the Company's debt are as follows:

December 30, 2008

December 25, 2007Carrying
Amount

Fair Value

Carrying
Amount

Fair ValueInstallment loans

$
2,194

$
2,866

$
3,210

$
3,500Revolver


130,000


130,000


63,000


63,000


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

As
of December 30, 2008, the Company's financial assets and financial liabilities that are measured at fair value on a recurring basis are comprised of an interest rate swap and
the Second Amended and Restated Deferred Compensation Plan of Texas Roadhouse Management Corp., as amended, (the "Deferred Compensation Plan"). The Company entered into the interest rate swap with the
objective of eliminating the variability of its interest expense that arises because of changes in the variable interest rate for the designated interest payments. At December 30, 2008,
liabilities of $2.7 million are included within fair value of derivative instruments on the consolidated balance sheet and the unrealized gain/loss of $2.7 million is recorded in
accumulated other comprehensive income also on the consolidated balance sheet. The Company will reclassify any gain or loss from accumulated other comprehensive income, net of tax, on the Company's
consolidated balance sheet to interest expense on the Company's consolidated statement of income when the interest rate swap expires or at the time the Company chooses to terminate the swap. The fair
value of the interest rate swap was determined based on the present value of the expected future cash flows considering the risks involved, including nonperformance risk, and using discount rates
appropriate for the duration. The fair value of the interest rate swap is based on inputs that are observable either directly or indirectly which represents level 2 in the SFAS 157
hierarchy.

The
Deferred Compensation Plan is a nonqualified deferred compensation plan which allows highly compensated employees to defer receipt of a portion of their compensation and contribute
such amounts to one or more investment funds held in a rabbi trust. The Company reports the accounts of the rabbi trust in its condensed consolidated financial statements. At December 30, 2008,
investments totaling $1.8 million are included within other assets, and offsetting obligations of $1.8 million are included within other liabilities on the condensed consolidated balance
sheet. These investments are considered trading securities and are reported at fair value based on third-party broker statements which represents level 1 in the SFAS 157 fair value
hierarchy. The realized and unrealized holding gains and losses related to these investments, as well as the offsetting compensation expense, is recorded in general and administrative expense on the
condensed consolidated statements of income.

F-30

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Table of Contents

Texas Roadhouse, Inc. and Subsidiaries

Notes to Consolidated Financial Statements (Continued)

(Tabular amounts in thousands, except share and per share data)

(15) Related Party Transactions

The Longview, Texas restaurant, which was acquired by the Company in connection with the completion of the initial public offering, leases the land and restaurant building from an entity
controlled by Steven L. Ortiz, our Chief Operating Officer. The lease term is for 15 years and will terminate in November 2014. The lease can be renewed for two additional terms of five years
each. Rent is approximately $16,000 per month and will increase by 5% on the 11th anniversary date of the lease. The lease can be terminated if the tenant fails to pay the rent on a timely
basis, fails to maintain the insurance specified in the lease, fails to maintain the building or property or becomes insolvent. Total rent payments were approximately $196,000 for both 2008 and 2007.

The
Bossier City, Louisiana restaurant, of which Steven L. Ortiz owns 65.0% and the Company owns 5.0%, leases the land and building from an entity owned by Mr. Ortiz. The lease
term is 15 years and will terminate on March 31, 2020. The lease can be renewed for three additional terms of five years each. Rent is approximately $15,100 per month for the first five
years of the lease and escalates 10% each five year period during the term. The lease 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 $181,000 for both 2008 and 2007.

The
Company has 14 license and franchise restaurants owned in whole or part by certain officers, directors and stockholders of the Company at December 30, 2008,
December 25, 2007 and December 26, 2006. These entities paid the Company fees of $2.1 million, $2.1 million and $2.0 million for the years ended December 30,
2008, December 25, 2007 and December 26, 2006, respectively. As discussed in note 12, the Company is contingently liable on leases which are related to three of these restaurants.

The
Company employed Juli Miller Hart, the former wife of G.J. Hart, the Company's Chief Executive Officer, from 2000 to December 2007. Ms. Hart did not report to Mr. Hart.
In December 2007, Ms. Hart's status changed from employee to consultant.

(16) Selected Quarterly Financial Data (unaudited)

2008First
Quarter

Second
Quarter

Third
Quarter

Fourth
Quarter

TotalRevenue

$
211,213

$
217,311

$
217,735

$
234,202

$
880,461Total costs and expenses

$
190,513

$
200,271

$
204,314

$
223,336

$
818,434Income from operations

$
20,700

$
17,040

$
13,421

$
10,866

$
62,027Net income

$
12,913

$
10,472

$
8,644

$
6,139

$
38,168Basic earnings per common share

$
0.17

$
0.14

$
0.12

$
0.09

$
0.53Diluted earnings per common share

$
0.17

$
0.14

$
0.12

$
0.09

$
0.52


F-31

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Table of Contents

Texas Roadhouse, Inc. and Subsidiaries

Notes to Consolidated Financial Statements (Continued)

(Tabular amounts in thousands, except share and per share data)

(16) Selected Quarterly Financial Data (unaudited) (Continued)



2007First
Quarter

Second
Quarter

Third
Quarter

Fourth
Quarter

TotalRevenue

$
178,337

$
180,986

$
189,454

$
186,312

$
735,089Total costs and expenses

$
158,637

$
166,084

$
172,261

$
174,894

$
671,876Income from operations

$
19,700

$
14,902

$
17,193

$
11,418

$
63,213Net income

$
12,296

$
9,257

$
10,552

$
7,220

$
39,325Basic earnings per common share

$
0.17

$
0.12

$
0.14

$
0.10

$
0.53Diluted earnings per common share

$
0.16

$
0.12

$
0.14

$
0.09

$
0.51


In
the first quarter of 2008, the Company recorded closure costs of $0.7 million ($0.5 million after-tax) due to lease reserve charges incurred in conjunction
with the closure of a restaurant in the first quarter of 2008. In the fourth quarter of 2008, the Company recorded impairment charges of $1.4 million ($1.0 million after-tax)
with respect to one underperforming restaurant in which the carrying value was reduced to its estimated fair value. The Company recorded impairment charges of $1.7 million ($1.1 million
after-tax) in the fourth quarter of 2007 with respect to one underperforming restaurant in which the carrying value was reduced to its estimated fair value. This restaurant was
subsequently closed in the first quarter of 2008.

(17) Subsequent Event

Effective January 7, 2009, the Company entered into an interest rate swap with a notional amount of $25.0 million to hedge a portion of the cash flows of its variable rate
credit facility. The Company has designated the interest rate swap as a cash flow hedge of its exposure to variability of future cash flows attributable to interest payments on a $25.0 million
tranche of floating rate debt borrowed under its revolving credit facility. Under the terms of the swap, the Company pays a fixed rate of 2.34% on the $25.0 notional amount and receives payments from
the counterparty on the 1-month LIBOR rate for a term ending on January 7, 2016, effectively resulting in a fixed rate LIBOR component of the $25.0 notional amount. Changes in the
fair value of the interest rate swap will be reported as a component of accumulated other comprehensive income.

F-32

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