P1Yfalse0001289460--12-312019Q300716175106950776300012894602019-05-310001289460us-gaap:RetainedEarningsMember2019-09-240001289460us-gaap:ParentMember2019-09-240001289460us-gaap:NoncontrollingInterestMember2019-09-240001289460us-gaap:AdditionalPaidInCapitalMember2019-09-240001289460us-gaap:AccumulatedOtherComprehensiveIncomeMember2019-09-240001289460us-gaap:RetainedEarningsMember2019-06-250001289460us-gaap:ParentMember2019-06-250001289460us-gaap:NoncontrollingInterestMember2019-06-250001289460us-gaap:AdditionalPaidInCapitalMember2019-06-250001289460us-gaap:AccumulatedOtherComprehensiveIncomeMember2019-06-2500012894602019-06-250001289460us-gaap:RetainedEarningsMember2018-12-250001289460us-gaap:ParentMember2018-12-250001289460us-gaap:NoncontrollingInterestMember2018-12-250001289460us-gaap:AdditionalPaidInCapitalMember2018-12-250001289460us-gaap:AccumulatedOtherComprehensiveIncomeMember2018-12-250001289460us-gaap:RetainedEarningsMember2018-09-250001289460us-gaap:ParentMember2018-09-250001289460us-gaap:NoncontrollingInterestMember2018-09-250001289460us-gaap:AdditionalPaidInCapitalMember2018-09-250001289460us-gaap:AccumulatedOtherComprehensiveIncomeMember2018-09-250001289460us-gaap:RetainedEarningsMember2018-06-260001289460us-gaap:ParentMember2018-06-260001289460us-gaap:NoncontrollingInterestMember2018-06-260001289460us-gaap:AdditionalPaidInCapitalMember2018-06-260001289460us-gaap:AccumulatedOtherComprehensiveIncomeMember2018-06-2600012894602018-06-260001289460us-gaap:RetainedEarningsMember2017-12-260001289460us-gaap:ParentMember2017-12-260001289460us-gaap:NoncontrollingInterestMember2017-12-260001289460us-gaap:AdditionalPaidInCapitalMember2017-12-260001289460us-gaap:AccumulatedOtherComprehensiveIncomeMember2017-12-260001289460txrh:RealEstateAndEquipmentMember2018-12-262019-09-240001289460us-gaap:FranchisedUnitsMembertxrh:OfficersDirectorsAndShareholdersMember2019-06-262019-09-240001289460us-gaap:FranchisedUnitsMembertxrh:OfficersDirectorsAndShareholdersMember2018-06-272018-09-250001289460us-gaap:FranchiseMember2019-06-262019-09-240001289460us-gaap:FoodAndBeverageMember2019-06-262019-09-240001289460txrh:FranchiseRoyaltyMember2019-06-262019-09-240001289460txrh:FranchiseFeesMember2019-06-262019-09-240001289460us-gaap:FranchiseMember2018-12-262019-09-240001289460us-gaap:FoodAndBeverageMember2018-12-262019-09-240001289460txrh:FranchiseRoyaltyMember2018-12-262019-09-240001289460txrh:FranchiseFeesMember2018-12-262019-09-240001289460us-gaap:FranchiseMember2018-06-272018-09-250001289460us-gaap:FoodAndBeverageMember2018-06-272018-09-250001289460txrh:FranchiseRoyaltyMember2018-06-272018-09-250001289460txrh:FranchiseFeesMember2018-06-272018-09-250001289460us-gaap:FranchiseMember2017-12-272018-09-250001289460us-gaap:FoodAndBeverageMember2017-12-272018-09-250001289460txrh:FranchiseRoyaltyMember2017-12-272018-09-250001289460txrh:FranchiseFeesMember2017-12-272018-09-250001289460us-gaap:RevolvingCreditFacilityMember2018-04-012018-04-300001289460txrh:PersonalContributionAdditionalPaidInCapitalMembertxrh:FounderMember2018-03-282018-06-260001289460txrh:StockRepurchaseProgramMember2018-12-262019-09-240001289460txrh:PreviousStockRepurchaseProgramMember2018-12-262019-09-240001289460txrh:EquipmentAndOtherLeaseMember2018-06-272018-09-250001289460txrh:EquipmentAndOtherLeaseMember2017-12-272018-09-250001289460txrh:OccupancyLeaseMember2018-06-272018-09-250001289460txrh:OccupancyLeaseMember2017-12-272018-09-250001289460us-gaap:EquipmentMember2019-09-240001289460us-gaap:FranchisedUnitsMemberus-gaap:UnconsolidatedPropertiesMember2019-09-240001289460us-gaap:FranchisedUnitsMemberus-gaap:GeographicDistributionForeignMember2019-09-240001289460us-gaap:FranchisedUnitsMemberus-gaap:GeographicDistributionDomesticMember2019-09-240001289460us-gaap:FranchisedUnitsMembertxrh:OfficersDirectorsAndShareholdersMember2019-09-240001289460us-gaap:EntityOperatedUnitsMemberus-gaap:WhollyOwnedPropertiesMember2019-09-240001289460us-gaap:EntityOperatedUnitsMemberus-gaap:ConsolidatedPropertiesMember2019-09-240001289460us-gaap:ConsolidatedPropertiesMembertxrh:OfficersDirectorsAndShareholdersMember2019-09-240001289460us-gaap:FranchisedUnitsMember2019-09-240001289460us-gaap:EntityOperatedUnitsMember2019-09-240001289460us-gaap:FranchisedUnitsMemberus-gaap:UnconsolidatedPropertiesMember2018-09-250001289460us-gaap:FranchisedUnitsMemberus-gaap:GeographicDistributionForeignMember2018-09-250001289460us-gaap:FranchisedUnitsMemberus-gaap:GeographicDistributionDomesticMember2018-09-250001289460us-gaap:FranchisedUnitsMembertxrh:OfficersDirectorsAndShareholdersMember2018-09-250001289460us-gaap:EntityOperatedUnitsMemberus-gaap:WhollyOwnedPropertiesMember2018-09-250001289460us-gaap:EntityOperatedUnitsMemberus-gaap:ConsolidatedPropertiesMember2018-09-250001289460us-gaap:FranchisedUnitsMember2018-09-250001289460us-gaap:EntityOperatedUnitsMember2018-09-250001289460srt:MaximumMemberus-gaap:LeaseAgreementsMember2019-09-240001289460srt:MaximumMemberus-gaap:LeaseAgreementsMember2018-12-250001289460srt:MinimumMember2019-09-240001289460srt:MaximumMember2019-09-240001289460us-gaap:RealEstateMember2019-09-240001289460txrh:RealEstateAndEquipmentMember2018-12-250001289460srt:MinimumMemberus-gaap:FranchisedUnitsMemberus-gaap:UnconsolidatedPropertiesMember2019-09-240001289460srt:MaximumMemberus-gaap:FranchisedUnitsMemberus-gaap:UnconsolidatedPropertiesMember2019-09-240001289460txrh:NonTexasRoadhouseRestaurantsMemberus-gaap:UnconsolidatedPropertiesMember2019-09-240001289460srt:MinimumMemberus-gaap:FranchisedUnitsMemberus-gaap:UnconsolidatedPropertiesMember2018-09-250001289460srt:MaximumMemberus-gaap:FranchisedUnitsMemberus-gaap:UnconsolidatedPropertiesMember2018-09-250001289460txrh:NonTexasRoadhouseRestaurantsMemberus-gaap:UnconsolidatedPropertiesMember2018-09-250001289460us-gaap:FairValueInputsLevel1Memberus-gaap:FairValueMeasurementsRecurringMember2019-09-240001289460us-gaap:FairValueInputsLevel1Memberus-gaap:FairValueMeasurementsRecurringMember2018-12-250001289460us-gaap:RevolvingCreditFacilityMember2019-09-240001289460us-gaap:RevolvingCreditFacilityMember2018-12-250001289460srt:MinimumMemberus-gaap:RevolvingCreditFacilityMemberus-gaap:LondonInterbankOfferedRateLIBORMember2017-08-072017-08-070001289460srt:MaximumMemberus-gaap:RevolvingCreditFacilityMemberus-gaap:LondonInterbankOfferedRateLIBORMember2017-08-072017-08-070001289460us-gaap:RevolvingCreditFacilityMembertxrh:FederalReserveBankOfNewYorkMember2017-08-072017-08-070001289460us-gaap:AccountingStandardsUpdate201602Memberus-gaap:RetainedEarningsMember2018-12-262019-09-240001289460us-gaap:AccountingStandardsUpdate201602Memberus-gaap:ParentMember2018-12-262019-09-240001289460us-gaap:AccountingStandardsUpdate201602Member2018-12-262019-09-2400012894602018-12-262018-12-260001289460us-gaap:AccountingStandardsUpdate201409Memberus-gaap:RetainedEarningsMember2017-12-272018-09-250001289460us-gaap:AccountingStandardsUpdate201409Memberus-gaap:ParentMember2017-12-272018-09-250001289460us-gaap:AccountingStandardsUpdate201409Member2017-12-272018-09-250001289460us-gaap:CreditCardMember2019-06-262019-09-240001289460us-gaap:CreditCardMember2018-12-262019-09-240001289460us-gaap:CreditCardMember2018-06-272018-09-250001289460us-gaap:CreditCardMember2017-12-272018-09-250001289460us-gaap:CreditCardMember2019-09-240001289460us-gaap:CreditCardMember2018-12-250001289460us-gaap:CommonStockMember2019-09-240001289460us-gaap:CommonStockMember2019-06-250001289460us-gaap:CommonStockMember2018-12-250001289460us-gaap:CommonStockMember2018-09-250001289460us-gaap:CommonStockMember2018-06-260001289460us-gaap:CommonStockMember2017-12-2600012894602018-09-2500012894602017-12-260001289460us-gaap:RestrictedStockMember2019-06-262019-09-240001289460us-gaap:RestrictedStockMember2018-12-262019-09-240001289460us-gaap:RestrictedStockMember2018-06-272018-09-250001289460us-gaap:RestrictedStockMember2017-12-272018-09-250001289460us-gaap:RetainedEarningsMember2019-06-262019-09-240001289460us-gaap:ParentMember2019-06-262019-09-240001289460us-gaap:NoncontrollingInterestMember2019-06-262019-09-240001289460us-gaap:CommonStockMember2019-06-262019-09-240001289460us-gaap:AdditionalPaidInCapitalMember2019-06-262019-09-240001289460us-gaap:AccumulatedOtherComprehensiveIncomeMember2019-06-262019-09-240001289460us-gaap:RetainedEarningsMember2018-12-262019-09-240001289460us-gaap:ParentMember2018-12-262019-09-240001289460us-gaap:NoncontrollingInterestMember2018-12-262019-09-240001289460us-gaap:CommonStockMember2018-12-262019-09-240001289460us-gaap:AdditionalPaidInCapitalMember2018-12-262019-09-240001289460us-gaap:AccumulatedOtherComprehensiveIncomeMember2018-12-262019-09-240001289460us-gaap:RetainedEarningsMember2018-06-272018-09-250001289460us-gaap:ParentMember2018-06-272018-09-250001289460us-gaap:NoncontrollingInterestMember2018-06-272018-09-250001289460us-gaap:CommonStockMember2018-06-272018-09-250001289460us-gaap:AdditionalPaidInCapitalMember2018-06-272018-09-250001289460us-gaap:AccumulatedOtherComprehensiveIncomeMember2018-06-272018-09-250001289460us-gaap:FranchisedUnitsMembertxrh:OfficersDirectorsAndShareholdersMember2018-12-262019-09-240001289460us-gaap:LeaseAgreementsMember2018-12-262019-09-240001289460us-gaap:LeaseAgreementsMember2017-12-272018-12-250001289460srt:MaximumMemberus-gaap:RevolvingCreditFacilityMember2017-08-072017-08-070001289460srt:MinimumMemberus-gaap:RevolvingCreditFacilityMember2017-08-072017-08-070001289460txrh:OperatingLeasingArrangementOfRealEstateMember2018-12-262019-09-240001289460us-gaap:RealEstateMember2018-12-262019-09-240001289460us-gaap:RevolvingCreditFacilityMembertxrh:DebtInstrumentVariableRateBaseEurodollarRateMember2017-08-072017-08-070001289460us-gaap:RevolvingCreditFacilityMember2017-08-072017-08-070001289460us-gaap:RevolvingCreditFacilityMember2017-08-0700012894602019-06-262019-09-2400012894602018-06-272018-09-250001289460us-gaap:RetainedEarningsMember2017-12-272018-09-250001289460us-gaap:ParentMember2017-12-272018-09-250001289460us-gaap:NoncontrollingInterestMember2017-12-272018-09-250001289460us-gaap:CommonStockMember2017-12-272018-09-250001289460us-gaap:AdditionalPaidInCapitalMember2017-12-272018-09-250001289460us-gaap:AccumulatedOtherComprehensiveIncomeMember2017-12-272018-09-2500012894602017-12-272018-09-2500012894602019-09-2400012894602018-12-2500012894602019-10-2300012894602018-12-262019-09-24xbrli:sharesiso4217:USDxbrli:puretxrh:itemtxrh:leasetxrh:restaurantiso4217:USDxbrli:shares

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

  QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 24, 2019

OR

  TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from           to

Commission File Number 000-50972

Texas Roadhouse, Inc.

(Exact name of registrant specified in its charter)

Delaware

20-1083890

(State or other jurisdiction of

(IRS Employer

incorporation or organization)

Identification Number)

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

Trading Symbol(s)

Name of each exchange on which registered

Common Stock, par value $0.001 per share

TXRH

NASDAQ Global Select Market

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     No  .

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulations S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes     No  .

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

Large Accelerated Filer  

Accelerated Filer  

Non-accelerated Filer  

Smaller Reporting Company  

Emerging Growth Company  

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. 

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

The number of shares of common stock outstanding were 69,409,291 on October 23, 2019.

TABLE OF CONTENTS

PART I. FINANCIAL INFORMATION

Item 1 — Financial Statements (Unaudited) — Texas Roadhouse, Inc. and Subsidiaries

3

Condensed Consolidated Balance Sheets — September 24, 2019 and December 25, 2018

3

Condensed Consolidated Statements of Income and Comprehensive Income — For the 13 and 39 Weeks Ended September 24, 2019 and September 25, 2018

4

Condensed Consolidated Statement of Stockholders’ Equity — For the 13 and 39 Weeks Ended September 24, 2019 and September 25, 2018

5

Condensed Consolidated Statements of Cash Flows — For the 39 Weeks Ended September 24, 2019 and September 25, 2018

7

Notes to Condensed Consolidated Financial Statements

8

Item 2 — Management’s Discussion and Analysis of Financial Condition and Results of Operations

17

Item 3 — Quantitative and Qualitative Disclosures About Market Risk

31

Item 4 — Controls and Procedures

31

PART II. OTHER INFORMATION

Item 1 — Legal Proceedings

32

Item 1A — Risk Factors

32

Item 2 — Unregistered Sales of Equity Securities and Use of Proceeds

32

Item 3 — Defaults Upon Senior Securities

32

Item 4 — Mine Safety Disclosures

32

Item 5 — Other Information

33

Item 6 — Exhibits

33

Signatures

34

2

PART I — FINANCIAL INFORMATION

ITEM 1 — FINANCIAL STATEMENTS

Texas Roadhouse, Inc. and Subsidiaries

Condensed Consolidated Balance Sheets

(in thousands, except share and per share data)

(unaudited)

    

September 24, 2019

    

December 25, 2018

Assets

Current assets:

Cash and cash equivalents

$

99,540

$

210,125

Receivables, net of allowance for doubtful accounts of $16 at September 24, 2019 and $34 at December 25, 2018

 

33,948

 

92,114

Inventories, net

 

17,198

 

18,827

Prepaid income taxes

 

 

7,569

Prepaid expenses

 

13,976

 

16,384

Total current assets

 

164,662

 

345,019

Property and equipment, net of accumulated depreciation of $663,493 at September 24, 2019 and $602,451 at December 25, 2018

 

1,020,167

 

956,676

Operating lease right-of-use asset

495,419

Goodwill

 

123,220

 

123,220

Intangible assets, net of accumulated amortization of $14,000 at September 24, 2019 and $13,416 at December 25, 2018

 

1,375

 

1,959

Other assets

 

50,718

 

42,402

Total assets

$

1,855,561

$

1,469,276

Liabilities and Stockholders’ Equity

Current liabilities:

Current portion of operating lease liabilities

$

16,748

$

Accounts payable

 

59,504

 

62,060

Deferred revenue-gift cards

 

107,200

 

192,242

Accrued wages

 

35,711

 

34,159

Income taxes payable

7,031

Accrued taxes and licenses

 

27,071

 

24,631

Dividends payable

 

20,863

 

17,904

Other accrued liabilities

 

58,144

 

54,146

Total current liabilities

 

332,272

 

385,142

Operating lease liabilities, net of current portion

532,480

Restricted stock and other deposits

 

8,413

 

7,703

Deferred rent

 

 

48,079

Deferred tax liabilities, net

 

12,664

 

17,268

Other liabilities

 

61,035

 

50,376

Total liabilities

 

946,864

 

508,568

Texas Roadhouse, Inc. and subsidiaries stockholders’ equity:

Preferred stock ($0.001 par value, 1,000,000 shares authorized; no shares issued or outstanding)

 

 

Common stock ($0.001 par value, 100,000,000 shares authorized, 69,507,763 and 71,617,510 shares issued and outstanding at September 24, 2019 and December 25, 2018, respectively)

 

70

 

72

Additional paid-in-capital

 

140,445

 

257,388

Retained earnings

 

753,791

 

688,337

Accumulated other comprehensive loss

 

(331)

 

(228)

Total Texas Roadhouse, Inc. and subsidiaries stockholders’ equity

 

893,975

 

945,569

Noncontrolling interests

 

14,722

 

15,139

Total equity

 

908,697

 

960,708

Total liabilities and equity

$

1,855,561

$

1,469,276

See accompanying notes to condensed consolidated financial statements.

3

Texas Roadhouse, Inc. and Subsidiaries

Condensed Consolidated Statements of Income and Comprehensive Income

(in thousands, except per share data)

(unaudited)

13 Weeks Ended

39 Weeks Ended

    

September 24, 2019

    

September 25, 2018

    

September 24, 2019

    

September 25, 2018

 

Revenue:

Restaurant and other sales

$

645,230

$

589,704

$

2,014,720

$

1,836,179

Franchise royalties and fees

5,259

4,891

16,205

15,358

Total revenue

 

650,489

 

594,595

 

2,030,925

 

1,851,537

Costs and expenses:

Restaurant operating costs (excluding depreciation and amortization shown separately below):

Cost of sales

 

205,158

191,990

650,136

598,824

Labor

 

218,342

197,621

667,712

593,298

Rent

 

12,994

12,330

39,173

36,300

Other operating

 

100,742

91,946

306,355

279,182

Pre-opening

 

4,736

4,378

12,801

13,529

Depreciation and amortization

 

28,347

25,843

84,574

75,492

Impairment and closure

 

61

20

394

128

General and administrative

 

35,225

35,023

111,168

100,202

Total costs and expenses

 

605,605

 

559,151

 

1,872,313

 

1,696,955

Income from operations

 

44,884

 

35,444

 

158,612

 

154,582

Interest income (expense), net

 

81

(168)

1,526

(810)

Equity income from investments in unconsolidated affiliates

 

(154)

381

100

1,150

Income before taxes

$

44,811

$

35,657

$

160,238

$

154,922

Provision for income taxes

 

6,785

5,398

23,331

22,321

Net income including noncontrolling interests

38,026

30,259

$

136,907

$

132,601

Less: Net income attributable to noncontrolling interests

 

1,495

1,134

5,141

4,708

Net income attributable to Texas Roadhouse, Inc. and subsidiaries

$

36,531

$

29,125

$

131,766

$

127,893

Other comprehensive loss, net of tax:

Foreign currency translation adjustment, net of tax of $40, $54, $35 and $46, respectively

(118)

(159)

(103)

(167)

Total other comprehensive loss, net of tax

(118)

(159)

(103)

(167)

Total comprehensive income

$

36,413

$

28,966

$

131,663

$

127,726

Net income per common share attributable to Texas Roadhouse, Inc. and subsidiaries:

Basic

$

0.53

$

0.41

$

1.86

$

1.79

Diluted

$

0.52

$

0.40

$

1.85

$

1.78

Weighted average shares outstanding:

Basic

 

69,573

71,508

70,896

71,429

Diluted

 

69,939

72,006

71,287

71,906

Cash dividends declared per share

$

0.30

$

0.25

$

0.90

$

0.75

See accompanying notes to condensed consolidated financial statements.

4

Texas Roadhouse, Inc. and Subsidiaries

Condensed Consolidated Statement of Stockholders' Equity

(in thousands, except share and per share data)

(unaudited)

For the 13 Weeks Ended September 24, 2019

    

    

    

    

    

Accumulated

    

Total Texas

    

    

 

Additional

Other

Roadhouse, Inc.

 

Par

Paid-in-

Retained

Comprehensive

and

Noncontrolling

 

Shares

Value

Capital

Earnings

Loss

Subsidiaries

Interests

Total

 

Balance, June 25, 2019

 

69,801,550

$

70

$

152,872

$

738,123

$

(213)

$

890,852

$

14,766

$

905,618

Net income

 

 

 

 

36,531

 

 

36,531

 

1,495

 

38,026

Other comprehensive loss, net of tax

(118)

(118)

(118)

Distributions to noncontrolling interest holders

 

 

 

 

 

 

 

(1,539)

 

(1,539)

Dividends declared ($0.30 per share)

 

 

 

 

(20,863)

 

 

(20,863)

 

 

(20,863)

Shares issued under share-based compensation plans including tax effects

 

94,010

 

 

 

 

 

 

 

Indirect repurchase of shares for minimum tax withholdings

 

(29,416)

 

 

(1,657)

 

 

 

(1,657)

 

 

(1,657)

Repurchase of shares of common stock

(358,381)

(18,913)

(18,913)

(18,913)

Share-based compensation

 

 

 

8,143

 

 

 

8,143

 

 

8,143

Balance, September 24, 2019

 

69,507,763

$

70

$

140,445

$

753,791

$

(331)

$

893,975

$

14,722

$

908,697

For the 13 Weeks Ended September 25, 2018

    

    

    

    

    

Accumulated

    

Total Texas

    

    

Additional

Other

Roadhouse, Inc.

Par

Paid-in-

Retained

Comprehensive

and

Noncontrolling

Shares

Value

Capital

Earnings

Loss

Subsidiaries

Interests

Total

Balance, June 26, 2018

 

71,474,209

$

71

$

243,357

$

664,668

$

(47)

$

908,049

$

13,549

$

921,598

Net income

 

 

 

 

29,125

 

 

29,125

 

1,134

 

30,259

Other comprehensive loss, net of tax

(159)

(159)

(159)

Noncontrolling interest contribution

1,686

1,686

Distributions to noncontrolling interest holders

 

 

 

 

 

 

 

(1,279)

 

(1,279)

Acquisition of noncontrolling interest

(75)

(75)

(47)

(122)

Dividends declared ($0.25 per share)

 

 

 

 

(17,884)

 

 

(17,884)

 

 

(17,884)

Shares issued under share-based compensation plans including tax effects

 

102,171

 

1

 

(1)

 

 

 

 

 

Indirect repurchase of shares for minimum tax withholdings

 

(31,143)

 

 

(1,765)

 

 

 

(1,765)

 

 

(1,765)

Share-based compensation

 

 

 

8,964

 

 

 

8,964

 

 

8,964

Balance, September 25, 2018

 

71,545,237

$

72

$

250,480

$

675,909

$

(206)

$

926,255

$

15,043

$

941,298

See accompanying notes to condensed consolidated financial statements.

5

Texas Roadhouse, Inc. and Subsidiaries

Condensed Consolidated Statement of Stockholders' Equity

(in thousands, except share and per share data)

(unaudited)

For the 39 Weeks Ended September 24, 2019

    

    

    

    

    

Accumulated

    

Total Texas

    

    

 

Additional

Other

Roadhouse, Inc.

 

Par

Paid-in-

Retained

Comprehensive

and

Noncontrolling

 

Shares

Value

Capital

Earnings

Loss

Subsidiaries

Interests

Total

 

Balance, December 25, 2018

 

71,617,510

$

72

$

257,388

$

688,337

$

(228)

$

945,569

$

15,139

$

960,708

Net income

 

 

 

 

131,766

 

 

131,766

 

5,141

 

136,907

Other comprehensive loss, net of tax

(103)

(103)

(103)

Distributions to noncontrolling interest holders

 

 

 

 

 

 

 

(4,885)

 

(4,885)

Acquisition of noncontrolling interest and other

(70)

(70)

(673)

(743)

Dividends declared ($0.90 per share)

 

 

 

 

(63,634)

 

 

(63,634)

 

 

(63,634)

Shares issued under share-based compensation plans including tax effects

 

527,927

 

 

 

 

 

 

 

Indirect repurchase of shares for minimum tax withholdings

 

(182,616)

 

 

(10,926)

 

 

 

(10,926)

 

 

(10,926)

Repurchase of shares of common stock

(2,455,058)

(2)

(130,963)

(130,965)

(130,965)

Cumulative effect of adoption of ASC 842, Leases, net of tax

(2,678)

(2,678)

(2,678)

Share-based compensation

 

 

 

25,016

 

 

 

25,016

 

 

25,016

Balance, September 24, 2019

 

69,507,763

$

70

$

140,445

$

753,791

$

(331)

$

893,975

$

14,722

$

908,697

For the 39 Weeks Ended September 25, 2018

    

    

    

    

    

Accumulated

    

Total Texas

    

    

Additional

Other

Roadhouse, Inc.

Par

Paid-in-

Retained

Comprehensive

and

Noncontrolling

Shares

Value

Capital

Earnings

Loss

Subsidiaries

Interests

Total

Balance, December 26, 2017

 

71,168,897

$

71

$

236,548

$

602,499

$

(39)

$

839,079

$

12,312

$

851,391

Net income

 

 

 

 

127,893

 

 

127,893

 

4,708

 

132,601

Other comprehensive loss, net of tax

(167)

(167)

(167)

Noncontrolling interest contribution

2,551

2,551

Contribution from executive officer

1,000

1,000

1,000

Distributions to noncontrolling interest holders

 

 

 

 

 

 

 

(4,481)

 

(4,481)

Acquisition of noncontrolling interest holders

(75)

(75)

(47)

(122)

Dividends declared ($0.75 per share)

 

 

 

 

(53,605)

 

 

(53,605)

 

 

(53,605)

Shares issued under share-based compensation plans including tax effects

 

580,861

 

1

 

(1)

 

 

 

 

 

Indirect repurchase of shares for minimum tax withholdings

 

(204,521)

 

 

(11,812)

 

 

 

(11,812)

 

 

(11,812)

Cumulative effect of adoption of ASC 606, Revenue from Contracts with Customers, net of tax

(878)

(878)

(878)

Share-based compensation

 

 

 

24,820

 

 

 

24,820

 

 

24,820

Balance, September 25, 2018

 

71,545,237

$

72

$

250,480

$

675,909

$

(206)

$

926,255

$

15,043

$

941,298

See accompanying notes to condensed consolidated financial statements.

6

Texas Roadhouse, Inc. and Subsidiaries

Condensed Consolidated Statements of Cash Flows

(in thousands)

(unaudited)

39 Weeks Ended

    

September 24, 2019

    

September 25, 2018

Cash flows from operating activities:

Net income including noncontrolling interests

$

136,907

$

132,601

Adjustments to reconcile net income to net cash provided by operating activities:

Depreciation and amortization

 

84,574

 

75,492

Deferred income taxes

 

(3,660)

 

2,146

Loss on disposition of assets

 

4,138

 

4,339

Impairment and closure costs

 

26

 

Contribution from executive officer

1,000

Equity income from investments in unconsolidated affiliates

 

(100)

 

(1,150)

Distributions of income received from investments in unconsolidated affiliates

 

495

 

521

Provision for doubtful accounts

 

(18)

 

16

Share-based compensation expense

 

25,016

 

24,820

Changes in operating working capital:

Receivables

 

59,002

 

41,676

Inventories

 

1,629

 

(30)

Prepaid expenses

 

2,408

 

315

Other assets

 

(9,297)

 

(6,582)

Accounts payable

 

(5,854)

 

918

Deferred revenue—gift cards

 

(85,042)

 

(68,680)

Accrued wages

 

1,552

 

3,267

Prepaid income taxes and income taxes payable

 

14,600

 

235

Accrued taxes and licenses

 

2,440

 

2,838

Other accrued liabilities

 

(1,772)

 

2,593

Operating lease right-of-use assets and lease liabilities

 

4,367

 

Deferred rent

4,144

Other liabilities

 

10,586

 

5,100

Net cash provided by operating activities

 

241,997

 

225,579

Cash flows from investing activities:

Capital expenditures—property and equipment

 

(144,917)

(110,906)

Proceeds from sale of property and equipment

 

351

 

Net cash used in investing activities

 

(144,566)

 

(110,906)

Cash flows from financing activities:

Proceeds from noncontrolling interest contribution

2,551

Distributions to noncontrolling interest holders

 

(4,885)

(4,481)

Acquisition of noncontrolling interest

(743)

Proceeds from restricted stock and other deposits, net

 

176

14

Indirect repurchase of shares for minimum tax withholdings

 

(10,926)

(11,812)

Principal payments on long-term debt and finance lease obligation

 

(50,007)

Repurchase of shares of common stock

 

(130,963)

Dividends paid to shareholders

 

(60,675)

(50,666)

Net cash used in financing activities

 

(208,016)

 

(114,401)

Net (decrease) increase in cash and cash equivalents

 

(110,585)

 

272

Cash and cash equivalents—beginning of period

 

210,125

150,918

Cash and cash equivalents—end of period

$

99,540

$

151,190

Supplemental disclosures of cash flow information:

Interest paid, net of amounts capitalized

$

238

$

568

Income taxes paid

$

12,391

$

19,940

Capital expenditures included in current liabilities

$

16,934

$

9,415

See accompanying notes to condensed consolidated financial statements.

7

Texas Roadhouse, Inc. and Subsidiaries

Notes to Condensed Consolidated Financial Statements

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

(unaudited)

(1)  Basis of Presentation

The accompanying unaudited condensed consolidated financial statements include the accounts of Texas Roadhouse, Inc. ("TRI"), our wholly-owned subsidiaries and subsidiaries in which we have a controlling interest (collectively the "Company," "we," "our" and/or "us") as of September 24, 2019 and December 25, 2018 and for the 13 and 39 weeks ended September 24, 2019 and September 25, 2018.

As of September 24, 2019, we owned and operated 502 restaurants and franchised an additional 95 restaurants in 49 states and ten foreign countries. Of the 502 company restaurants that were operating at September 24, 2019, 482 were wholly-owned and 20 were majority-owned. Of the 95 franchise restaurants, 70 were domestic restaurants and 25 were international restaurants.

As of September 25, 2018, we owned and operated 479 restaurants and franchised an additional 91 restaurants in 49 states and eight foreign countries. Of the 479 company restaurants that were operating at September 25, 2018, 460 were wholly-owned and 19 were majority-owned. Of the 91 franchise restaurants, 70 were domestic restaurants and 21 were international restaurants.

As of September 24, 2019 and September 25, 2018, we owned a 5.0% to 10.0% equity interest in 24 domestic franchise restaurants. Additionally, as of September 24, 2019 and September 25, 2018, we owned a 40% equity interest in four non-Texas Roadhouse restaurants as part of a joint venture agreement with a casual dining restaurant operator in China. The unconsolidated restaurants are accounted for using the equity method. Our investments in these unconsolidated affiliates are included in other assets in our unaudited condensed consolidated balance sheets, and we record our percentage share of net income earned by these unconsolidated affiliates in our unaudited condensed consolidated statements of income and comprehensive income under equity income from investments in unconsolidated affiliates. All significant intercompany balances and transactions for these unconsolidated restaurants as well as the entities whose accounts have been consolidated have been eliminated.

We have made a number of estimates and assumptions relating to the reporting of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the unaudited condensed consolidated financial statements and the reporting of revenue and expenses during the periods to prepare these unaudited condensed consolidated financial statements in conformity with U.S. generally accepted accounting principles ("GAAP"). Significant items subject to such estimates and assumptions include the carrying amount of property and equipment, goodwill, obligations related to insurance reserves, leases and leasehold improvements, legal reserves, gift card breakage and third party fees and income taxes. Actual results could differ from those estimates.

In the opinion of management, the accompanying unaudited condensed consolidated financial statements reflect all adjustments, consisting only of normal recurring adjustments, necessary to present fairly our consolidated financial position, results of operations and cash flows for the periods presented. The unaudited condensed consolidated financial statements have been prepared in accordance with GAAP, except that certain information and footnotes have been condensed or omitted pursuant to rules and regulations of the Securities and Exchange Commission ("SEC"). Operating results for the 13 and 39 weeks ended September 24, 2019 are not necessarily indicative of the results that may be expected for the year ending December 31, 2019. The unaudited condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and notes thereto included in our Annual Report on Form 10-K for the year ended December 25, 2018.

Our significant interim accounting policies include the recognition of income taxes using an estimated annual effective tax rate.

8

(2) Recent Accounting Pronouncements

Leases

(Accounting Standards Codification 842, "ASC 842")

On December 26, 2018, we adopted ASC 842, Leases, which requires an entity to recognize a right-of-use asset and a lease liability for virtually all leases.  As further described in note 3, we lease land and/or buildings for the majority of our restaurants under non-cancelable lease agreements. We adopted ASC 842 using a modified retrospective approach. As a result, the comparative financial information has not been updated and the required disclosures prior to the date of adoption have not been updated and continue to be reported under the accounting standards in effect for those periods.

ASC 842 also permitted the election of certain practical expedients upon adoption. We elected the transition package of practical expedients which allowed us to carryforward the historical lease classification. We also elected the practical expedient to not separate lease and non-lease components for all leases entered into after the date of adoption. Finally, we elected the hindsight practical expedient which required us to assess the lease term for all existing leases. This resulted in extending the terms for certain existing leases in which renewal options had already been exercised or were reasonably certain of being exercised and shortening the terms for certain existing leases in which renewal options were not reasonably certain of being exercised. As a result of the hindsight election, we recorded a $2.7 million reduction, net of tax, to retained earnings as of the first day of fiscal 2019 to reflect the change in lease terms.

The adoption of this standard had a significant impact on our consolidated balance sheet. There was no significant impact to our results of operations or cash flows. This standard did not have a significant impact on our liquidity or on our compliance with our financial covenants associated with our credit facility.

Financial Instruments

(Accounting Standards Update 2016-13, "ASU 2016-13")

In June 2016, the FASB issued ASU 2016-13, Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments, which requires measurement and recognition of expected versus incurred losses for financial assets held.  ASU 2016-13 is effective for annual periods beginning after December 15, 2019 (our 2020 fiscal year), and for interim periods within those years, with early adoption permitted for annual periods beginning after December 15, 2018.  We are currently assessing the impact of this new standard on our consolidated financial statements.

Goodwill

(Accounting Standards Update 2017-04, "ASU 2017-04")

In January 2017, the FASB issued ASU 2017-04, Intangibles – Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment, which simplifies the accounting for goodwill impairment and is expected to reduce the cost and complexity of accounting for goodwill.  ASU 2017-04 removes Step 2 of the goodwill impairment test, which requires a hypothetical purchase price allocation.  Instead, goodwill impairment will be the amount by which a reporting unit’s carrying value exceeds its fair value, not to exceed the carrying amount of the goodwill.  ASU 2017-04 is effective for annual and interim periods for fiscal years beginning after December 15, 2019 (our 2020 fiscal year) and will be applied on a prospective basis.  Early adoption is permitted for interim and annual goodwill impairment tests performed on testing dates after January 1, 2017.  We are currently assessing the impact of this new standard on our consolidated financial statements.

9

Fair Value Measurement

(Accounting Standards Update 2018-13, "ASU 2018-13")

In August 2018, the FASB issued ASU 2018-13, Fair Value Measurement (Topic 820): Disclosure Framework – Changes to the Disclosure Requirements for Fair Value Measurement, which changes disclosure requirements for fair value measurements. ASU 2018-13 is effective for fiscal years beginning after December 15, 2019 (our 2020 fiscal year) and for interim periods within those years, with early adoption permitted. We are currently assessing the impact of this new standard on our consolidated financial statements.

(3) Leases

We recognize right-of-use assets and lease liabilities for both real estate and equipment leases that have a term in excess of one year. As of September 24, 2019, these amounts were as follows (in thousands):

Leases

Real estate

Equipment

Total

Operating lease right-of-use assets

$

491,687

$

3,732

$

495,419

Current portion of operating lease liabilities

15,502

1,246

16,748

Operating lease liabilities, net of current portion

529,994

2,486

532,480

Total operating lease liabilities

$

545,496

$

3,732

$

549,228

Information related to our real estate leases as of and for the 13 and 39 week periods ended September 24, 2019 was as follows (in thousands):

13 Weeks Ended

39 Weeks Ended

Real estate costs

September 24, 2019

September 24, 2019

Operating lease

$

13,837

$

40,751

Variable lease

378

1,228

Short-term lease

30

90

Total lease costs

$

14,245

$

42,069

Real estate lease liability maturity analysis

Total

2019

$

12,657

2020

51,896

2021

52,708

2022

53,547

2023

53,494

Thereafter

756,067

Total

$

980,369

Less interest

434,873

Total discounted operating lease liabilities

$

545,496

10

13 Weeks Ended

39 Weeks Ended

Real estate leases other information

September 24, 2019

September 24, 2019

Cash paid for amounts included in measurement of operating lease liabilities

$

12,268

$

36,384

Right-of-use assets obtained in exchange for new operating lease liabilities

$

14,229

$

41,102

Weighted-average remaining lease term (years)

17.88

Weighted-average discount rate

6.78

Operating lease payments exclude $11.2 million of minimum lease payments for executed real estate leases that we have not yet taken possession. In addition to the above operating leases, as of September 24, 2019 we had one finance lease with a right-of-use asset balance and lease liability balance of $1.8 million and $2.1 million, respectively. The right-of-use asset balance is included as a component of other assets and the lease liability balance as a component of other liabilities in the unaudited condensed consolidated balance sheets.

We lease land and/or buildings for the majority of our restaurants under non-cancelable lease agreements. These leases typically have initial terms ranging from 10 to 15 years, and certain renewal options for one or more five-year periods. When determining the lease term, we include option periods for which failure to renew the lease imposes a penalty on us in such an amount that renewal appears, at the inception of the lease, to be reasonably certain. The primary penalty to which we are subject is the economic detriment associated with the existence of leasehold improvements which might become impaired if we choose not to continue the use of the leased property. Our lease agreements do not contain any material residual value guarantees or material restrictive covenants that would impact lease classification.

Beginning in 2019, we recognize operating lease right-of-use assets and operating lease liabilities for real estate leases, including our restaurant leases and Support Center lease, as well as certain restaurant equipment leases based on the present value of the lease payments over the lease term. We estimate the present value based on our incremental borrowing rate which corresponds to the underlying lease term. In addition, operating lease right-of-use assets are reduced for accrued rent and increased for any initial direct costs recognized at lease inception. For leases commencing in 2019 and later, we account for lease and non-lease components as a single lease component.

Certain of our operating leases contain predetermined fixed escalations of the minimum rent over the lease term. For these leases, we recognize the related rent expense on a straight-line basis over the lease term. We may receive rent concessions or leasehold improvement incentives upon opening a restaurant that is subject to a lease which we consider when determining straight-line rent expense. We also may receive rent holidays, which would begin on the possession date and end when the store opens, during which no cash rent payments are typically due under the terms of the lease. Rent holidays are included in the lease term when determining straight-line rent expense. In recognizing straight-line rent expense, we record the difference between amounts charged to operations and amounts paid as accrued rent. Straight-line rent expense is included as an operating lease cost in the table above.

Certain of our operating leases contain clauses that provide for additional contingent rent based on a percentage of sales greater than certain specified target amounts. We recognize contingent rent expense prior to the achievement of the specified target that triggers the contingent rent, provided achievement of the target is considered probable. In addition, certain of our operating leases have variable escalations of the minimum rent that depend on an index or rate. We recognize variable rent expense when the escalation is determinable. Contingent rent and variable rent expense are included as variable lease costs in the table above.

11

The following is a schedule of future minimum lease payments required for real estate and equipment operating leases that have a remaining term in excess of one year as of December 25, 2018 (in thousands):

Operating Leases

2019

$

50,030

2020

49,582

2021

49,917

2022

50,237

2023

49,854

Thereafter

677,710

Total

$

927,330

Rent expense for operating leases consisted of the following for the 13 and 39 week periods ended September 25, 2018 (in thousands):

13 Weeks Ended

39 Weeks Ended

    

September 25, 2018

    

September 25, 2018

Minimum rent—occupancy

$

12,101

$

35,470

Contingent rent

 

229

 

830

Rent expense, occupancy

 

12,330

 

36,300

Minimum rent—equipment and other

 

1,491

 

4,435

Rent expense

$

13,821

$

40,735

(4)   Long-term Debt

On August 7, 2017, we entered into the Amended and Restated Credit Agreement (the "Amended Credit Agreement") with respect to our revolving credit facility with a syndicate of commercial lenders led by JPMorgan Chase Bank, N.A., PNC Bank, N.A., and Wells Fargo Bank, N.A. The revolving credit facility remains an unsecured, revolving credit agreement under which we may borrow up to $200.0 million with the option to increase the revolving credit facility by an additional $200.0 million subject to certain limitations. The Amended Credit Agreement extends the maturity date of our revolving credit facility until August 5, 2022.

The terms of the Amended Credit Agreement require us to pay interest on outstanding borrowings at the London Interbank Offered Rate ("LIBOR") plus a margin of 0.875% to 1.875% and to pay a commitment fee of 0.125% to 0.30% per year on any unused portion of the revolving credit facility, in each case depending on our leverage ratio, or the Alternate Base Rate, which is the highest of the issuing banks’ prime lending rate, the Federal Reserve Bank of New York rate plus 0.50% or the Adjusted Eurodollar Rate for a one month interest period on such day plus 1.0%. In April 2018, we paid off our outstanding credit facility of $50.0 million. The weighted-average interest rate for the amended revolving credit facility as of September 24, 2019 and December 25, 2018 was 2.92% and 3.81%, respectively. As of September 24, 2019, we had $191.8 million of availability, net of $8.2 million of outstanding letters of credit.

The lenders’ obligation to extend credit pursuant to the Amended Credit Agreement 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 ratio of 3.00 to 1.00. The Amended Credit Agreement permits us to incur additional secured or unsecured indebtedness outside the amended revolving credit facility, except for the incurrence of secured indebtedness that in the aggregate is equal to or greater than $125.0 million and 20% of our consolidated tangible net worth. We were in compliance with all financial covenants as of September 24, 2019.

12

(5) Revenue

The following table disaggregates our revenue by major source (in thousands):

13 weeks ended

39 weeks ended

September 24, 2019

September 25, 2018

September 24, 2019

September 25, 2018

Restaurant and other sales

$

645,230

$

589,704

$

2,014,720

$

1,836,179

Franchise royalties

4,645

4,249

14,316

13,069

Franchise fees

614

642

1,889

2,289

Total revenue

$

650,489

$

594,595

$

2,030,925

$

1,851,537

We record deferred revenue for gift cards which includes cards that have been sold but not yet redeemed, a breakage adjustment for a percentage of gift cards that are not expected to be redeemed, and fees paid on gift cards sold through third party retailers. When the gift cards are redeemed, we recognize restaurant sales and reduce deferred revenue. We amortize breakage and third party fees consistent with the historic redemption pattern of the associated gift card and recognize as a component of other sales. As of September 24, 2019 and December 25, 2018, our deferred revenue balance related to gift cards was $107.2 million and $192.2 million, respectively. We recognized sales of $15.8 million and $120.8 million for the 13 and 39 weeks ended September 24, 2019, respectively, related to the amount in deferred revenue as of December 25, 2018. We recognized sales of $12.9 million and $99.3 million for the 13 and 39 weeks ended September 25, 2018, respectively, related to the amount in deferred revenue as of December 26, 2017.

(6) Income Taxes

A reconciliation of the statutory federal income tax rate to our effective tax rate for the 13 and 39 weeks ended September 24, 2019 and September 25, 2018 is as follows:

13 Weeks Ended

   

39 Weeks Ended

   

September 24, 2019

   

September 25, 2018

   

September 24, 2019

   

September 25, 2018

Tax at statutory federal rate

21.0

%  

21.0

%  

21.0

%  

21.0

%

State and local tax, net of federal benefit

3.6

3.8

3.6

3.8

FICA tip tax credit

(9.2)

(8.3)

(9.7)

(9.1)

Work opportunity tax credit

(1.5)

(1.9)

(1.4)

(1.5)

Stock compensation

0.1

(1.4)

(0.2)

(1.4)

Net income attributable to noncontrolling interests

(0.6)

(1.2)

(0.6)

(0.8)

Officers compensation

1.0

2.3

1.1

1.4

Other

0.7

0.8

0.8

1.0

Total

15.1

%  

15.1

%  

14.6

%  

14.4

%

Our effective tax rate was 15.1% for both of the 13 week periods ended September 24, 2019 and September 25, 2018. The Q3 2019 effective tax rate was unchanged compared to Q3 2018 due to lower non-deductible officers’ compensation offset by lower excess tax benefits related to our share-based compensation program. For the 39 weeks ended September 24, 2019 our effective tax rate increased to 14.6% compared to 14.4% for the 39 weeks ended September 25, 2018. This increase was primarily driven by lower excess tax benefits related to our share-based compensation program partially offset by higher FICA tip credits.

(7)

Commitments and Contingencies

The estimated cost of completing capital project commitments at September 24, 2019 and December 25, 2018 was $166.5 million and $168.3 million, respectively.

13

As of September 24, 2019 and December 25, 2018, we were contingently liable for $14.1 million and $14.8 million, respectively, for seven lease guarantees, listed in the table below. These amounts represent the maximum potential liability of future payments under the guarantees. In the event of default, the indemnity and default clauses in our assignment agreements govern our ability to pursue and recover damages incurred. No material liabilities have been recorded as of September 24, 2019 and December 25, 2018 as the likelihood of default was deemed to be less than probable and the fair value of the guarantees is not considered significant.

    

Lease
Assignment Date

    

Current Lease
Term Expiration

 

Everett, Massachusetts (1)(2)

 

September 2002

 

February 2023

Longmont, Colorado (1)

 

October 2003

 

May 2029

Montgomeryville, Pennsylvania (1)

 

October 2004

 

March 2021

Fargo, North Dakota (1)(2)

 

February 2006

 

July 2021

Logan, Utah (1)

 

January 2009

 

August 2024

Irving, Texas (3)

December 2013

December 2019

Louisville, Kentucky (3)(4)

December 2013

November 2023

(1) Real estate lease agreements for restaurant locations which we entered into before granting franchise rights to those restaurants.  We have subsequently assigned the leases to the franchisees, but remain contingently liable under the terms of the lease if the franchisee defaults.
(2) As discussed in note 8, these restaurants are owned, in part, by our founder or the former president of the company.
(3) Leases associated with non-Texas Roadhouse restaurants which were sold.  The leases were assigned to the acquirer, but we remain contingently liable under the terms of the lease if the acquirer defaults.
(4) We may be released from liability after the initial contractual lease term expiration contingent upon certain conditions being met by the acquirer.

During the 13 and 39 weeks ended September 24, 2019, we bought most of our beef from three suppliers. A change in suppliers could cause supply shortages and/or higher costs to secure adequate supplies and a possible loss of sales, which would affect operating results adversely. We have no material minimum purchase commitments with our vendors that extend beyond a year.

Occasionally, we are a defendant in litigation arising in the ordinary course of our business, including "slip and fall" accidents, employment related claims, claims related to our service of alcohol, 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 adverse effect on us during the periods covered by this report and, as of the date of this report, we are not party to any litigation that we believe could have a material adverse effect on our business.

(8)   Related Party Transactions

As of September 24, 2019, we had nine franchise restaurants and one majority-owned company restaurant owned in part by certain officers or the former president of the Company. As of September 25, 2018, we had 10 franchise restaurants owned in part by certain officers of the Company. For both of the 13 week periods ended September 24, 2019 and September 25, 2018, these franchise entities paid us fees of $0.5 million. For both of the 39 week periods ended September 24, 2019 and September 25, 2018, these franchise entities paid us fees of $1.6 million. As disclosed in note 7, we are contingently liable on leases related to two of these franchise restaurants.

In addition, for the 13 weeks ended June 26, 2018, our founder made a personal contribution of $1.0 million to cover a portion of the planned expenses incurred as part of the 2018 annual managing partner conference which marked our 25th anniversary.  This amount was recorded as general and administrative expense on the unaudited condensed consolidated statement of income and as additional paid-in-capital on the unaudited condensed consolidated statement of stockholders’ equity. 

14

(9)   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 restricted stock units from our equity incentive plans. Performance stock units are not included in the diluted earnings per share calculation until the performance-based criteria have been met.

For the 13 week periods ended September 24, 2019 and September 25, 2018, there were 22,302 and zero shares of nonvested stock, respectively, that were outstanding but not included in the computation of diluted earnings per share because they would have had an anti-dilutive effect. For the 39 week periods ended September 24, 2019 and September 25, 2018, there were 5,384 and 220 shares of nonvested stock, respectively, that were outstanding but not included because they would have had an anti-dilutive effect.

The following table sets forth the calculation of earnings per share and weighted-average shares outstanding (in thousands) as presented in the accompanying unaudited condensed consolidated statements of income and comprehensive income:

13 Weeks Ended

39 Weeks Ended

    

September 24, 2019

    

September 25, 2018

September 24, 2019

    

September 25, 2018

 

Net income attributable to Texas Roadhouse, Inc. and subsidiaries

$

36,531

$

29,125

$

131,766

$

127,893

Basic EPS:

Weighted-average common shares outstanding

 

69,573

71,508

70,896

71,429

Basic EPS

$

0.53

$

0.41

$

1.86

$

1.79

Diluted EPS:

Weighted-average common shares outstanding

 

69,573

71,508

70,896

71,429

Dilutive effect of nonvested stock

 

366

498

391

477

Shares-diluted

 

69,939

 

72,006

 

71,287

 

71,906

Diluted EPS

$

0.52

$

0.40

$

1.85

$

1.78

(10) Fair Value Measurements

ASC 820, Fair Value Measurements and Disclosures ("ASC 820"), establishes a framework for measuring fair value and expands disclosures about fair value measurements. ASC 820 establishes a three-level hierarchy, which requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs in measuring fair value. The valuation hierarchy is based upon the transparency of inputs to the valuation of an asset or liability on the measurement date.

Level 1

Inputs based on quoted prices in active markets for identical assets.

Level 2

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

Level 3

Inputs that are unobservable for the asset.

There were no transfers among levels within the fair value hierarchy during the 13 and 39 weeks ended September 24, 2019.

15

The following table presents the fair values for our financial assets and liabilities measured on a recurring basis:

Fair Value Measurements

 

    

Level

    

September 24, 2019

    

December 25, 2018

 

Deferred compensation plan—assets

 

1

$

41,053

$

31,632

Deferred compensation plan—liabilities

 

1

 

(41,128)

 

(31,721)

The Second Amended and Restated Deferred Compensation Plan of Texas Roadhouse Management Corp., as amended, (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. We report the amounts of the rabbi trust in other assets and the corresponding liability in other liabilities in our unaudited condensed consolidated financial statements. These investments are considered trading securities and are reported at fair value based on quoted market prices. The realized and unrealized holding gains and losses related to these investments, as well as the offsetting compensation expense, are recorded in general and administrative expense in the unaudited condensed consolidated statements of income and comprehensive income.

At September 24, 2019 and December 25, 2018, the fair values of cash and cash equivalents, accounts receivable and accounts payable approximated their carrying values based on the short-term nature of these instruments.

(11) Stock Repurchase Program

On May 31, 2019, our Board of Directors approved a stock repurchase program under which we may repurchase up to $250.0 million of our common stock. This stock repurchase program has no expiration date and replaced a previous stock repurchase program which was approved on May 22, 2014. All repurchases to date under our stock repurchase programs have been made through open market transactions. The timing and the amount of any repurchases are determined by management under parameters established by our Board of Directors, based on an evaluation of our stock price, market conditions and other corporate considerations.

For the 13 week period ended September 24, 2019, we paid $18.9 million to repurchase 358,381 shares of our common stock. For the 39 week period ended September 24, 2019, we paid $131.0 million to repurchase 2,455,058 shares of our common stock. This includes repurchases of $80.7 million under the new repurchase program and repurchases of $50.3 million under the previous stock repurchase program. We did not repurchase any shares of common stock during the 13 and 39 week periods ended September 25, 2018. As of September 24, 2019, we had $169.3 million remaining under our authorized stock repurchase program.

16

ITEM 2.  MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

CAUTIONARY STATEMENT

This report contains forward-looking statements based on our current expectations, estimates and projections about our industry and certain assumptions made by us. Words such as "anticipates," "expects," "intends," "plans," "believes," "seeks," "estimates," "may," "will" and variations of these words or similar expressions are intended to identify forward-looking statements. In addition, any statements that refer to expectations, projections or other characterizations of future events or circumstances, including any underlying assumptions, are forward-looking statements. Such statements are not guarantees of future performance and are subject to certain risks, uncertainties and assumptions that are difficult to predict. Therefore, our actual results could differ materially and adversely from those expressed in any forward-looking statements as a result of various factors. The section entitled "Risk Factors" in our Annual Report on Form 10-K for the year ended December 25, 2018, and in Part II, Item 1A in this Form 10-Q, along with disclosures in our other Securities and Exchange Commission ("SEC") filings discuss some of the important risk factors that may affect our business, results of operations, or financial condition. You should carefully consider those risks, in addition to the other information in this report, and in our other filings with the SEC, before deciding to invest in our Company or to maintain or increase your investment. We undertake no obligation to revise or update publicly any forward-looking statements, except as may be required by applicable law. The information contained in this Form 10-Q is not a complete description of our business or the risks associated with an investment in our common stock. We urge you to carefully review and consider the various disclosures made by us in this report and in our other reports filed with the SEC that discuss our business in greater detail and advise interested parties of certain risks, uncertainties and other factors that may affect our business, results of operations or financial condition.

OVERVIEW

Texas Roadhouse, Inc. is a growing restaurant company operating predominately in the casual dining segment. Our founder, chairman, chief executive officer and president, W. Kent Taylor, started the business in 1993 with the opening of the first Texas Roadhouse restaurant in Clarksville, Indiana. Since then, we have grown to 597 restaurants in 49 states and ten foreign countries. As of September 24, 2019, our 597 restaurants included:

502 "company restaurants," of which 482 were wholly-owned and 20 were majority-owned.  The results of operations of company restaurants are included in our unaudited condensed consolidated statements of income and comprehensive income. The portion of income attributable to noncontrolling interests in company restaurants that are not wholly-owned is reflected in the line item entitled "Net income attributable to noncontrolling interests" in our unaudited condensed consolidated statements of income and comprehensive income. Of the 502 restaurants we owned as of September 24, 2019, we operated 474 as Texas Roadhouse restaurants and operated 26 as Bubba’s 33 restaurants. In addition, we operated two restaurants outside of the casual dining segment.

95 "franchise restaurants," 24 of which we have a 5.0% to 10.0% ownership interest. The income derived from our minority interests in these franchise restaurants is reported in the line item entitled "Equity income from investments in unconsolidated affiliates" in our unaudited condensed consolidated statements of income and comprehensive income. Additionally, we provided various management services to these 24 franchise restaurants, as well as six additional franchise restaurants in which we have no ownership interest. All of the franchise restaurants are operated as Texas Roadhouse restaurants. Of the 95 franchise restaurants, 70 were domestic restaurants and 25 were international restaurants.

We have contractual arrangements that grant us the right to acquire at pre-determined formulas the remaining equity interests in 18 of the 20 majority-owned company restaurants and 67 of the 70 domestic franchise restaurants.

Throughout this report, we use the term "restaurants" to include Texas Roadhouse and Bubba’s 33, unless otherwise noted.

17

Presentation of Financial and Operating Data

Throughout this report, the 13 weeks ended September 24, 2019 and September 25, 2018 are referred to as Q3 2019 and Q3 2018, respectively. The 39 weeks ended September 24, 2019 and September 25, 2018 are referred to as 2019 YTD and 2018 YTD, respectively. Fiscal year 2019 will be 53 weeks in length and, as such, the fourth quarter of fiscal 2019 will be 14 weeks in length. Fiscal year 2018 was 52 weeks in length, while the quarters for the year were 13 weeks in length.

As further noted in note 2 to our unaudited condensed consolidated financial statements, in Q1 2019 we adopted Accounting Standards Codification 842, Leases ("ASC 842"), which required an entity to recognize a right-of-use asset and a lease liability for virtually all leases.  We adopted this standard using a modified retrospective approach.  As a result, the comparative financial information has not been updated and the required disclosures prior to the date of adoption have not been updated and continue to be reported under the accounting standards in effect for those periods.  The adoption of this standard had a significant impact on our consolidated balance sheet. There was no significant impact to our results of operations or cash flows related to the adoption of this standard.

Long-Term Strategies to Grow Earnings Per Share and Create Shareholder Value

Our long-term strategies with respect to increasing net income and earnings per share, along with creating shareholder value, include the following:

Expanding Our Restaurant Base.   We will continue to evaluate opportunities to develop restaurants in existing markets and in new domestic and international markets. Domestically, we will remain focused primarily on markets where we believe a significant demand for our restaurants exists because of population size, income levels, and the presence of shopping and entertainment centers and a significant employment base. In recent years, we have relocated several existing Texas Roadhouse locations once the associated lease expired or as a result of eminent domain which allows us to update them to a current prototypical design and/or obtain more favorable lease terms. We continue to evaluate these opportunities particularly as it relates to older locations with strong sales. Our ability to expand our restaurant base is influenced by many factors beyond our control and, therefore, we may not be able to achieve our anticipated growth.

In 2019 YTD, we opened 11 company restaurants, including one Bubba’s 33 restaurant, while our franchise partners opened six restaurants, including five international restaurants. We currently plan to open approximately 22 company restaurants in 2019 including as many as three Bubba’s 33 restaurants. In addition, we anticipate that our franchise partners will open as many as eight Texas Roadhouse restaurants, primarily international, in 2019. In Q2 2019, our franchise partners closed two international locations, one of which is expected to re-open in a new location in late 2019 or early 2020.

Our average capital investment for the 23 Texas Roadhouse restaurants opened during 2018, including pre-opening expenses and a capitalized rent factor, was $5.2 million. We expect our average capital investment for Texas Roadhouse restaurants opening in 2019 to be approximately $5.4 million. The increase in our estimated 2019 average capital investment is due to an increase in building and site improvement costs.

Our average capital investment for the five Bubba’s 33 restaurants opened during 2018, including pre-opening expenses and a capitalized rent factor, was $7.1 million. This includes higher costs at one urban site in New Jersey. Excluding this site, the average capital investment would have been $6.5 million. We expect our average capital investment for Bubba’s 33 restaurants opened in 2019 to be approximately $6.6 million. We continue to evaluate our Bubba’s 33 prototypical asset design.

We remain focused on driving sales and managing restaurant investment costs to maintain our restaurant development in the future. Our capital investment (including cash and non-cash costs) for new restaurants varies significantly depending on a number of factors including, but not limited to: the square footage, layout, scope of required site work, type of construction labor, local permitting requirements, our ability to negotiate with landlords, cost of liquor and other licenses and hook-up fees and geographical location.

18

We have entered into area development and franchise agreements for the development and operation of Texas Roadhouse restaurants in several foreign countries. We currently have signed franchise and/or development agreements in nine countries in the Middle East as well as Taiwan, the Philippines, Mexico, China and South Korea. As of September 24, 2019, we had 15 restaurants open in five countries in the Middle East, three restaurants open in Taiwan, four in the Philippines and one in Mexico, China and South Korea for a total of 25 restaurants in ten foreign countries. For the existing international agreements, the franchisee is required to pay us a franchise fee for each restaurant to be opened, royalties on the gross sales of each restaurant and a development fee for our grant of development rights in the named countries. We anticipate that the specific business terms of any future franchise agreement for international restaurants might vary significantly from the standard terms of our domestic agreements and from the terms of existing international agreements, depending on the territory to be franchised and the extent of franchisor-provided services to each franchisee.

Maintaining and/or Improving Restaurant Level Profitability. We continue to balance the impacts of inflationary pressures with our value positioning as we remain focused on our long-term success. This may create a challenge in terms of maintaining and/or increasing restaurant-level profitability (restaurant margin), in any given year, depending on the level of inflation we experience. Restaurant margin is not a U.S. generally accepted accounting principle ("GAAP") measure and should not be considered in isolation, or as an alternative to income from operations. See further discussion of restaurant margin below. In addition to restaurant margin, as a percentage of restaurant and other sales, we also focus on the growth of restaurant margin dollars per store week as a measure of restaurant-level profitability. In terms of driving comparable restaurant sales, we remain focused on encouraging repeat visits by our guests and attracting new guests through our continued commitment to operational standards relating to food and service quality. To attract new guests and increase the frequency of visits of our existing guests, we also continue to drive various localized marketing programs, focus on speed of service and increase throughput by adding seats and parking at certain restaurants.

Leveraging Our Scalable Infrastructure.   To support our growth, we continue to make investments in our infrastructure. Over the past several years, we have made significant investments in our infrastructure, including information and accounting systems, real estate, human resources, legal, marketing, international and restaurant operations, including the development of new concepts. In addition, in Q4 2018 we increased our number of regional market partners, market partners, and regional support teams. Whether we are able to leverage our infrastructure in future years by growing our general and administrative costs at a slower rate than our revenue will depend, in part, on our new restaurant openings, our comparable restaurant sales growth rate going forward and the level of investment we continue to make in our infrastructure.

Returning Capital to Shareholders. We continue to pay dividends and evaluate opportunities to return capital to our shareholders through repurchases of common stock. In 2011, our Board of Directors declared our first quarterly dividend of $0.08 per share of common stock. We have consistently grown our per share dividend each year since that time and our long-term strategy includes increasing our regular quarterly dividend amount over time. On August 15, 2019, our Board of Directors declared a quarterly dividend of $0.30 per share of common stock representing a 20% increase compared to the quarterly dividend declared in the prior year period. 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 many factors, including, but not limited to, earnings, financial condition, applicable covenants under our revolving credit facility, other contractual restrictions and other factors deemed relevant.

In 2008, our Board of Directors approved our first stock repurchase program. From inception through September 24, 2019, we have paid $347.5 million through our authorized stock repurchase programs to repurchase 17,299,909 shares of our common stock at an average price per share of $20.09. On May 31, 2019, our Board of Directors approved a stock repurchase program under which we may repurchase up to $250.0 million of our common stock. This stock repurchase program has no expiration date and replaced a previous stock repurchase program which was approved on May 22, 2014. All repurchases to date have been made through open market transactions. For 2019 YTD, we paid $131.0 million to repurchase 2,455,058 shares of our common stock. This includes repurchases of $80.7 million under the new repurchase program and repurchases of $50.3 million under the previous stock repurchase program. As of September 24, 2019, $169.3 million remains authorized for stock repurchases.

19

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 Texas Roadhouse 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 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 restaurant sales for company restaurants over the same period in prior years for the comparable restaurant base. We define the comparable restaurant base to include those restaurants open for a full 18 months before the beginning of the period measured excluding restaurants closed during the period. Comparable restaurant sales growth can be impacted by changes 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 quarterly or annual restaurant sales for company restaurants open for a full six months before the beginning of the period measured excluding restaurants closed during the period. Historically, average unit volume growth is less than comparable restaurant sales growth which indicates that newer restaurants are operating with sales levels lower than the company average. At times, average unit volume growth may be more than comparable restaurant sales growth which indicates that newer restaurants are operating with sales levels higher than the company average.

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

Restaurant Margin. Restaurant margin (in dollars and as a percentage of restaurant and other sales) represents restaurant and other sales less restaurant-level operating costs, including cost of sales, labor, rent and other operating costs. Restaurant margin is not a measurement determined in accordance with GAAP and should not be considered in isolation, or as an alternative, to income from operations. This non-GAAP measure is not indicative of overall company performance and profitability in that this measure does not accrue directly to the benefit of shareholders due to the nature of the costs excluded. Restaurant margin is widely regarded as a useful metric by which to evaluate restaurant-level operating efficiency and performance. In calculating restaurant margin, we exclude certain non-restaurant-level costs that support operations, including pre-opening and general and administrative expenses, but do not have a direct impact on restaurant-level operational efficiency and performance. We also exclude depreciation and amortization expense, substantially all of which relates to restaurant-level assets, as it represents a non-cash charge for the investment in our restaurants. We also exclude impairment and closure expense as we believe this provides a clearer perspective of the Company’s ongoing operating performance and a more useful comparison to prior period results. Restaurant margin as presented may not be comparable to other similarly titled measures of other companies in our industry. A reconciliation of income from operations to restaurant margin is included in the Results of Operations section below.

Other Key Definitions

Restaurant and Other Sales.   Restaurant sales include gross food and beverage sales, net of promotions and discounts, for all company restaurants. Sales taxes collected from customers and remitted to governmental authorities are accounted for on a net basis and therefore are excluded from restaurant sales in the unaudited condensed consolidated statements of income and comprehensive income. Other sales include the amortization of fees associated with our third party gift card sales net of the amortization of gift card breakage income. These amounts are amortized over a period consistent with the historic redemption pattern of the associated gift cards.

Franchise Royalties and Fees.   Franchise royalties consist of royalties, as defined in our franchise agreements, paid to us by domestic and international franchisees. Domestic and international franchisees also typically pay an initial

20

franchise fee and/or development fee for each new restaurant or territory. The terms of the international agreements may vary significantly from our domestic agreements. Franchise fees also include advertising fees paid by domestic franchisees to our system-wide marketing and advertising fund and management fees paid by certain domestic franchisees for supervisory and administrative services that we perform.

Restaurant Cost of Sales.   Restaurant cost of sales consists of food and beverage costs of which approximately half relates to beef 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 restaurant managing partners 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, except pre-opening rent, associated with the leasing of 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, local store advertising, repairs and maintenance, equipment rent, property taxes, credit card fees and general liability insurance. Profit-sharing incentive compensation expenses earned by our restaurant 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 team compensation and benefits, travel expenses, rent, food, beverage and other initial supplies and expenses. On average, over 70% of total pre-opening costs incurred per restaurant opening relate to the hiring and training of employees. Pre-opening costs vary by location depending on many factors, including the size and physical layout of each location; the number of management and hourly employees required to operate each restaurant; the availability of qualified restaurant staff members; the cost of travel and lodging for different geographic areas; the timing of the restaurant opening; and the extent of unexpected delays, if any, in obtaining final licenses and permits to open the restaurants.

Depreciation and Amortization Expenses.   Depreciation and amortization expenses ("D&A") include the depreciation of fixed assets and amortization of intangibles with definite lives, substantially all of which relates to restaurant-level assets.

Impairment and Closure Costs. Impairment and closure costs include any impairment of long-lived assets, including property and equipment, operating lease right-of-use assets and goodwill, and expenses associated with the closure of a restaurant. Closure costs also include any gains or losses associated with a relocated restaurant or the sale of a closed restaurant and/or assets held for sale as well as lease costs associated with closed or relocated restaurants.

General and Administrative Expenses.   General and administrative expenses ("G&A") are comprised of expenses associated with corporate and administrative functions that support development and restaurant operations and provide an infrastructure to support future growth including certain advertising costs incurred. G&A also includes legal fees, settlement charges and share-based compensation expense related to executive officers, support center employees, and market partners, and the realized and unrealized holding gains and losses related to the investments in our deferred compensation plan.

Interest Income (Expense), Net.   Interest income (expense), net includes earnings on cash and cash equivalents reduced by interest expense on our debt or financing obligations including the amortization of loan fees.

Equity Income from Unconsolidated Affiliates.   As of September 24, 2019 and September 25, 2018, we owned a 5.0% to 10.0% equity interest in 24 domestic franchise restaurants. Additionally, as of September 24, 2019 and September 25, 2018, we owned a 40% equity interest in four non-Texas Roadhouse restaurants as part of a joint venture agreement with a casual dining restaurant operator in China. Equity income from unconsolidated affiliates represents our percentage share of net income earned by these unconsolidated affiliates.

21

Net Income Attributable to Noncontrolling Interests.   Net income attributable to noncontrolling interests represents the portion of income attributable to the other owners of the majority-owned restaurants. Our consolidated subsidiaries at September 24, 2019 and September 25, 2018 included 20 and 19 majority-owned restaurants, respectively, all of which were open.

Q3 2019 Financial Highlights

Total revenue increased $55.9 million, or 9.4%, to $650.5 million in Q3 2019 compared to $594.6 million in Q3 2018 primarily due to an increase in average unit volume driven by comparable restaurant sales growth combined with the opening of new restaurants. Store weeks and comparable restaurant sales increased 5.0% and 4.4%, respectively, at company restaurants in Q3 2019.

Restaurant margin dollars increased $12.2 million, or 12.7%, to $108.0 million in Q3 2019 compared to $95.8 million in Q3 2018 and restaurant margin, as a percentage of restaurant and other sales, increased to 16.7% in Q3 2019 compared to 16.2% in Q3 2018. The increase in restaurant margin, as a percentage of restaurant and other sales, was primarily due to lower cost of sales due to the benefit of higher average check more than offsetting the impact of inflation. This was partially offset by higher labor costs due to higher average wage rates and prior staffing initiatives to increase sales.

Net income increased $7.4 million, or 25.4%, to $36.5 million in Q3 2019 compared to $29.1 million in Q3 2018 primarily due to higher restaurant margin dollars partially offset by higher depreciation and amortization expense and higher income tax expense. Diluted earnings per share increased 29.1% to $0.52 in Q3 2019 from $0.40 in Q3 2018.

22

Results of Operations

 

13 Weeks Ended

39 Weeks Ended

 

September 24, 2019

September 25, 2018

September 24, 2019

September 25, 2018

 

  

$

  

%

  

$

  

%

  

$

  

%

  

$

  

%

 

 

(In thousands)

(In thousands)

Consolidated Statements of Income:

Revenue:

Restaurant and other sales

645,230

99.2

589,704

99.2

2,014,720

99.2

1,836,179

99.2

Franchise royalties and fees

5,259

0.8

4,891

0.8

16,205

0.8

15,358

0.8

Total revenue

650,489

100.0

594,595

100.0

2,030,925

100.0

1,851,537

100.0

Costs and expenses:

(As a percentage of restaurant and other sales)

Restaurant operating costs (excluding depreciation and amortization shown separately below):

Cost of sales

205,158

31.8

191,990

32.6

650,136

32.3

598,824

32.6

Labor

218,342

33.8

197,621

33.5

667,712

33.1

593,298

32.3

Rent

12,994

2.0

12,330

2.1

39,173

1.9

36,300

2.0

Other operating

100,742

15.6

91,946

15.6

306,355

15.2

279,182

15.2

(As a percentage of total revenue)

Pre-opening

4,736

0.7

4,378

0.7

12,801

0.6

13,529

0.7

Depreciation and amortization

28,347

4.4

25,843

4.3

84,574

4.2

75,492

4.1

Impairment and closure

61

NM

20

NM

394

NM

128

NM

General and administrative

35,225

5.4

35,023

5.9

111,168

5.5

100,202

5.4

Total costs and expenses

605,605

93.1

559,151

94.0

1,872,313

92.2

1,696,955

91.7

Income from operations

44,884

6.9

35,444

6.0

158,612

7.8

154,582

8.3

Interest income (expense), net

81

0.0

(168)

(0.0)

1,526

0.1

(810)

(0.0)

Equity income from investments in unconsolidated affiliates

(154)

(0.0)

381

0.1

100

0.0

1,150

0.1

Income before taxes

44,811

6.9

35,657

6.0

160,238

7.9

154,922

8.4

Provision for income taxes

6,785

1.0

5,398

0.9

23,331

1.1

22,321

1.2

Net income including noncontrolling interests

38,026

5.8

30,259

5.1

136,907

6.7

132,601

7.2

Net income attributable to noncontrolling interests

1,495

0.2

1,134

0.2

5,141

0.3

4,708

0.3

Net income attributable to Texas Roadhouse, Inc. and subsidiaries

36,531

5.6

29,125

4.9

131,766

6.5

127,893

6.9

NM — Not meaningful

23

Reconciliation of Income from Operations to Restaurant Margin

13 Weeks Ended

39 Weeks Ended

September 24, 2019

September 25, 2018

September 24, 2019

September 25, 2018

Income from operations

$

44,884

$

35,444

$

158,612

$

154,582

Less:

Franchise royalties and fees

5,259

4,891

16,205

15,358

Add:

Pre-opening

4,736

4,378

12,801

13,529

Depreciation and amortization

28,347

25,843

84,574

75,492

Impairment and closure

61

20

394

128

General and administrative

35,225

35,023

111,168

100,202

Restaurant margin

$

107,994

$

95,817

$

351,344

$

328,575

Restaurant margin $/store week

$

16,591

$

15,464

$

18,153

$

17,871

Restaurant margin (as a percentage of restaurant and other sales)

16.7%

16.2%

17.4%

17.9%

See above for the definition of restaurant margin.

Restaurant Unit Activity

    

Total

Texas Roadhouse

Bubba's 33

    

Other

Balance at December 25, 2018

 

582

555

25

 

2

Company openings

 

11

10

1

Franchise openings - Domestic

1

1

Franchise openings - International

 

5

5

Franchise closings - International

(2)

(2)

Balance at September 24, 2019

 

597

569

26

 

2

 

September 24, 2019

 

September 25, 2018

Company - Texas Roadhouse

 

474

 

453

Company - Bubba's 33

 

26

 

24

Company - Other

 

2

 

2

Franchise - Texas Roadhouse - U.S.

 

70

 

70

Franchise - Texas Roadhouse - International

 

25

 

21

Total

 

597

 

570

24

Q3 2019 (13 weeks) compared to Q3 2018 (13 weeks) and 2019 YTD (39 weeks) compared to 2018 YTD (39 weeks)

Restaurant and Other Sales.  Restaurant and other sales increased by 9.4% in Q3 2019 as compared to Q3 2018 and by 9.7% in 2019 YTD as compared to 2018 YTD. The following table summarizes certain key drivers and/or attributes of restaurant and other sales at company restaurants for the periods presented. Company restaurant count activity is shown in the restaurant unit activity table above.

    

Q3 2019

    

Q3 2018

    

2019 YTD

    

2018 YTD

 

Company Restaurants:

Increase in store weeks

 

5.0

%

5.6

%

5.3

%

6.1

%

Increase in average unit volume

 

4.0

%

4.8

%

4.2

%

4.7

%

Other(1)

 

0.5

%

(0.2)

%

0.4

%

-

%

Total increase in restaurant sales

 

9.5

%

10.2

%

9.9

%

10.8

%

Other sales(2)

(0.1)

%

(0.3)

%

(0.2)

%

(0.3)

%

Total increase in restaurant and other sales

9.4

%

9.9

%

9.7

%

10.5

%

Store weeks

 

6,509

6,196

19,355

18,386

Comparable restaurant sales growth

 

4.4

%

5.5

%

4.8

%

5.4

%

Texas Roadhouse restaurants only:

Comparable restaurant sales growth

 

4.2

%

5.5

%

4.7

%

5.3

%

Average unit volume (in thousands)

$

1,304

$

1,254

$

4,118

$

3,953

Weekly sales by group:

Comparable restaurants (441 and 417 units, respectively)

$

100,578

$

97,137

Average unit volume restaurants (23 units for both periods)(3)

$

95,324

$

85,217

Restaurants less than six months old (10 and 13 units, respectively )

$

107,347

$

96,347

(1) Includes the impact of the year-over-year change in sales volume of all non-Texas Roadhouse restaurants, along with Texas Roadhouse restaurants open less than six months before the beginning of the period measured and, if applicable, the impact of restaurants closed or acquired during the period.
(2) Other sales, for Q3 2019, represented $3.5 million related to the amortization of third party gift card fees net of $1.6 million related to the amortization of gift card breakage income. For Q3 2018, other sales represented $2.7 million related to the amortization of third party gift card fees net of $1.5 million related to the amortization of gift card breakage income. For 2019 YTD, other sales represent $15.2 million related to amortization of third party gift card fees net of $7.6 million related to the amortization of gift card breakage income. For 2018 YTD, other sales represent $11.0 million related to the amortization of third party gift card fees net of $6.5 million related to the amortization of gift card breakage income. The increase in all amounts is primarily due to continued growth in our third party gift card program.
(3) Average unit volume restaurants include restaurants open a full six and up to 18 months before the beginning of the period measured.

The increases in restaurant sales for all periods presented were primarily attributable to an increase in store weeks from the opening of new restaurants combined with an increase in average unit volume driven by comparable restaurant sales growth. Comparable restaurant sales growth for all periods presented was due to an increase in our guest traffic counts and an increase in our per person average check as shown in the table below.

    

Q3 2019

    

Q3 2018

    

2019 YTD

    

2018 YTD

Guest traffic counts

1.5

%

4.0

%

2.0

%

4.2

%

Per person average check

2.9

%

1.5

%

2.8

%

1.2

%

Comparable restaurant sales growth

4.4

%

5.5

%

4.8

%

5.4

%

Year-over-year sales for newer restaurants included in our average unit volume, but excluded from our comparable restaurant sales, partially offset the impact of positive comparable restaurant sales growth for all periods presented.

25

The increases in our per person average check for the periods presented were primarily driven by menu price increases taken in 2019, 2018 and 2017. In Q2 2019, we took a menu price increase of approximately 1.5%. In 2018, we increased menu prices in the first quarter and fourth quarter by approximately 0.8% and 1.7%, respectively. In 2017, we increased menu prices in the second quarter and fourth quarter by approximately 0.5% and 0.3%, respectively. These menu price increases were taken as a result of inflationary pressures, primarily commodities and/or labor. We currently plan to take an additional price increase of approximately 1.9% in November 2019 and may take additional pricing in 2020 if needed.

In 2019, we plan to open approximately 22 company restaurants. While the majority of our restaurant growth in 2019 will be Texas Roadhouse restaurants, we currently expect to open as many as three Bubba’s 33 restaurants. We opened ten Texas Roadhouse restaurants and one Bubba’s 33 restaurant in 2019 YTD. We have begun construction for all of our expected 2019 openings.

In 2020, we plan to open at least 30 company restaurants, including as many as eight Bubba’s 33 restaurants. We expect these openings will help grow restaurant store weeks by 3.5% to 4.5%, including the negative impact of lapping the 53rd week from 2019.

Franchise Royalties and Fees.  Franchise royalties and fees increased by $0.4 million, or by 7.5%, in Q3 2019 from Q3 2018 and increased by $0.8 million, or by 5.5%, in 2019 YTD from 2018 YTD. The increases in both periods were attributable to an increase in average unit volume at domestic restaurants, driven by comparable restaurant sales growth, and the opening of new franchise restaurants. These increases were partially offset by a decrease in average unit volume at international restaurants, driven by a decrease in comparable restaurant sales at those locations.

Franchise comparable restaurant sales increased 2.4% and 3.0% in Q3 2019 and 2019 YTD, respectively, which included an increase in domestic franchise comparable restaurant sales of 3.2% and 4.0% in Q3 2019 and 2019 YTD, respectively. Franchise restaurant count activity is shown in the restaurant activity table above. Our existing franchise restaurant partners opened six Texas Roadhouse restaurants in 2019 YTD, including five international restaurants. In addition, our franchise partners closed two international restaurants in 2019 YTD, one of which is expected to re-open at a new location in late 2019 or early 2020. We anticipate our franchise partners will open as many as eight Texas Roadhouse restaurants, primarily international, in both 2019 and 2020.

Restaurant Cost of Sales.  Restaurant cost of sales, as a percentage of restaurant and other sales, decreased to 31.8% in Q3 2019 from 32.6% in Q3 2018 and decreased to 32.3% in 2019 YTD from 32.6% in 2018 YTD. These decreases were primarily due to the benefit of menu pricing actions partially offset by commodity inflation of approximately 0.8% and 1.5% for Q3 2019 and 2019 YTD, respectively.

For 2019, we currently expect commodity cost inflation to be 1.5% to 2.0% with fixed price contracts for approximately 55% of our overall food costs for Q4 2019 and the remainder subject to floating market prices.

For 2020, we currently expect commodity cost inflation to be 1.0% to 2.0% with fixed price contracts for approximately 30% of our overall food costs and the remainder subject to floating market prices.

Restaurant Labor Expenses.  Restaurant labor expenses, as a percentage of restaurant and other sales, increased to 33.8% in Q3 2019 compared to 33.5% in Q3 2018 and increased to 33.1% in 2019 YTD compared to 32.3% in 2018 YTD. These increases were primarily attributable to higher average wage rates and prior staffing initiatives to increase sales partially offset by the benefit from an increase in average unit volume.

For 2019, we expect labor dollars per store week growth of 6.0% to 7.0%, including the impact of traffic growth, due to ongoing labor market pressures, prior staffing initiatives, increased investment in our people and increases in state-mandated minimum and tipped wage rates. In 2020, we anticipate our labor costs will continue to be pressured by mid-single digit inflation due to the ongoing labor market pressures and increases in state-mandated wage rates discussed above. These increases may or may not be offset by additional menu price adjustments.

26

Restaurant Rent Expense.  Restaurant rent expense, as a percentage of restaurant and other sales, decreased to 2.0% in Q3 2019 compared to 2.1% in Q3 2018 and decreased to 1.9% in 2019 YTD compared to 2.0% in 2018 YTD. Higher rent expense, as a percentage of restaurant and other sales, at our newer restaurants was more than offset by the benefit from an increase in average unit volume.

Restaurant Other Operating Expenses. Restaurant other operating expenses, as a percentage of restaurant and other sales, remained unchanged at 15.6% in Q3 2019 and Q3 2018 and 15.2% in 2019 YTD and 2018 YTD. For Q3 2019 compared to Q3 2018, higher marketing and advertising expense, higher credit card expense and higher incentive compensation were offset by lower utilities expense along with the benefit from an increase in average unit volume. For 2019 YTD compared to 2018 YTD, higher general liability insurance expense and higher supplies expense were offset by lower utilities expense and lower incentive compensation expense along with the benefit from an increase in average unit volume.

Restaurant Pre-opening Expenses.  Pre-opening expenses increased to $4.7 million in Q3 2019 from $4.4 million in Q3 2018 and decreased to $12.8 million in 2019 YTD from $13.5 million in 2018 YTD. These variances were primarily due to the timing of restaurant openings as average pre-opening expenses incurred for each restaurant remained relatively unchanged.

Overall, we plan to open approximately 22 company restaurants in 2019 compared to 28 company restaurants in 2018. Pre-opening costs will fluctuate from quarter to quarter based on the specific pre-opening costs incurred for each restaurant, the number and timing of restaurant openings and the number and timing of restaurant managers hired.

Depreciation and Amortization Expense.  D&A, as a percentage of total revenue, increased to 4.4% in Q3 2019 compared to 4.3% in Q3 2018 and increased to 4.2% in 2019 YTD compared to 4.1% in 2018 YTD. These increases were primarily due to higher depreciation at new restaurants and accelerated depreciation on restaurants that are being relocated. These increases were partially offset by an increase in average unit volume.

General and Administrative Expenses. G&A, as a percentage of total revenue, decreased to 5.4% in Q3 2019 compared to 5.9% in Q3 2018 and increased to 5.5% in 2019 YTD compared to 5.4% in 2018 YTD. For Q3 2019 compared to Q3 2018, the decrease was primarily due to lower incentive compensation costs and lower claims administration costs related to a previously disclosed legal settlement along with the benefit of an increase in average unit volume. For 2019 YTD compared to 2018 YTD, the increase was primarily due to increased marketing expenses due to decreased contributions from company restaurants partially offset by lower claims administration costs related to a previously disclosed legal settlement and an increase in average unit volume.

Interest Income (Expense), Net.  Interest income was $0.1 million in Q3 2019 compared to interest expense of $0.2 million in Q3 2018. Interest income was $1.5 million in 2019 YTD compared to interest expense of $0.8 million in 2018 YTD. These increases were primarily driven by earnings on our cash and cash equivalents as well as paying off our outstanding credit facility of $50.0 million in April 2018.

Equity Income from Unconsolidated Affiliates.  Equity income was a loss of $0.2 million in Q3 2019 compared to income of $0.4 million in Q3 2018.  Equity income was $0.1 million in 2019 YTD compared to $1.2 million in 2018 YTD.  These decreases were primarily due to a decrease in earnings and a one-time charge we recorded in Q3 2019 related to our foreign joint venture. 

Income Tax Expense. Our effective tax rate remained unchanged at 15.1% in Q3 2019 compared to Q3 2018 primarily due to lower non-deductible officers’ compensation offset by lower excess tax benefits related to our share-based compensation program. Our effective tax rate increased to 14.6% in 2019 YTD compared to 14.4% in 2018 YTD primarily due to lower excess tax benefits related to our share-based compensation program partially offset by higher FICA tip credits. For both 2019 and 2020, we expect the effective tax rate to be 14.0% to 15.0%.

27

Liquidity and Capital Resources

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

39 Weeks Ended

    

September 24, 2019

    

September 25, 2018

 

Net cash provided by operating activities

$

241,997

$

225,579

Net cash used in investing activities

 

(144,566)

 

(110,906)

Net cash used in financing activities

 

(208,016)

 

(114,401)

Net (decrease) increase in cash and cash equivalents

$

(110,585)

$

272

Net cash provided by operating activities was $242.0 million in 2019 compared to $225.6 million in 2018. This increase was primarily due to an increase in net income, changes in working capital and non-cash items such as depreciation and amortization and a decrease in deferred income taxes. The increase in cash generated from changes in working capital was primarily due to an increase in income taxes payable partially offset by a decrease in accounts payable.

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 receive trade credit for the purchase of food, beverages and supplies, thereby reducing the need for incremental working capital to support growth.

Net cash used in investing activities was $144.6 million in 2019 compared to $110.9 million in 2018. The increase was primarily due to an increase in capital expenditures. The increase in capital expenditures was primarily due to the relocation of existing restaurants and the remodeling of our support center office.

We require capital principally for the development of new company restaurants, the refurbishment or relocation of existing restaurants and the acquisition 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 when appropriate. As of September 24, 2019, we had developed 146 of the 502 company restaurants on land in which we own.

The following table presents a summary of capital expenditures (in thousands):

   

2019 YTD

   

2018 YTD

New company restaurants

$

68,161

$

64,237

Refurbishment of existing restaurants

 

41,636

 

39,280

Relocation of existing restaurants

15,315

851

Capital expenditures related to Support Center office

19,805

6,538

Total capital expenditures

$

144,917

$

110,906

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 or relocating existing restaurants and may also include costs necessary to ensure that our infrastructure is able to support a larger restaurant base. In 2019, we expect our capital expenditures to be approximately $200.0 million, the majority of which will relate to planned restaurant openings, including approximately 22 restaurant openings in 2019 and the refurbishment of existing restaurants. This amount excludes any cash used for franchise acquisitions. 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 amended credit facility. For 2019, we anticipate net cash provided by operating activities will exceed capital expenditures, which we plan to use, along with cash on hand, to pay dividends and repurchase common stock.

28

Net cash used in financing activities was $208.0 million in 2019 compared to $114.4 million in 2018. The increase is primarily due to an increase in share repurchases along with an increase in dividends paid. This was partially offset by the repayment of our revolving credit facility in Q2 2018.

On May 31, 2019, our Board of Directors approved a stock repurchase program under which we may repurchase up to $250.0 million of our common stock. This stock repurchase program has no expiration date and replaced a previous stock repurchase program which was approved on May 22, 2014. All repurchases to date under our stock repurchase programs have been made through open market transactions. The timing and the amount of any repurchases will be determined by management under parameters established by the Board of Directors, based on an evaluation of our stock price, market conditions and other corporate considerations. During 2019 YTD, we paid $131.0 million to repurchase 2,455,058 shares of our common stock.

On August 15, 2019, our Board of Directors authorized the payment of a cash dividend of $0.30 per share of common stock. The payment of this dividend totaling $20.9 million was distributed on September 27, 2019 to shareholders of record at the close of business on September 11, 2019. The declared dividend is included as a liability in our unaudited condensed consolidated balance sheet as of September 24, 2019.

We paid distributions of $4.9 million to equity holders of all 20 majority-owned company restaurants in 2019 YTD. In 2018 YTD, we paid distributions of $4.5 million to equity holders of all 19 majority-owned company restaurants.

On August 7, 2017 we entered into the Amended and Restated Credit Agreement (the "Amended Credit Agreement") with respect to our revolving credit facility with a syndicate of commercial lenders led by JPMorgan Chase Bank, N.A., PNC Bank, N.A., and Wells Fargo Bank, N.A. The revolving credit facility remains an unsecured, revolving credit agreement under which we may borrow up to $200.0 million with the option to increase the revolving credit facility by an additional $200.0 million subject to certain limitations. The Amended Credit Agreement extends the maturity date of our revolving credit facility until August 5, 2022.

The terms of the Amended Credit Agreement require us to pay interest on outstanding borrowings at the London Interbank Offered Rate plus a margin of 0.875% to 1.875% and to pay a commitment fee of 0.125% to 0.30% per year on any unused portion of the revolving credit facility, in each case depending on our consolidated net leverage ratio, or the Alternate Base Rate, which is the highest of the issuing banks’ prime lending rate, the Federal Reserve Bank of New York rate plus 0.50% or the Adjusted Eurodollar Rate for a one month interest period on such day plus 1.0%. In April 2018, we paid off our outstanding credit facility of $50.0 million. The weighted-average interest rate for the revolving credit facility as of September 24, 2019 and December 25, 2018 was 2.92% and 3.81%, respectively. As of September 24, 2019, we had $191.8 million of availability, net of $8.2 million of outstanding letters of credit.

The lenders’ obligation to extend credit pursuant to the Amended Credit Agreement 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 ratio of 3.00 to 1.00. The Amended Credit Agreement permits us to incur additional secured or unsecured indebtedness outside the revolving credit facility, except for the incurrence of secured indebtedness that in the aggregate is equal to or greater than $125.0 million and 20% of our consolidated tangible net worth. We were in compliance with all financial covenants as of September 24, 2019.

29

Contractual Obligations

The following table summarizes the amount of payments due under specified contractual obligations as of September 24, 2019 (in thousands):

Payments Due by Period

 

Less than

More than

 

    

Total

    

1 year

    

1 - 3 Years

    

3 - 5 Years

    

5 years

  

Obligation under finance lease

$

2,108

$

$

$

$

2,108

Interest on finance lease

 

5,007

 

278

560

568

3,601

Operating lease obligations

 

980,369

 

51,492

105,912

107,121

715,844

Capital obligations

 

166,469

 

166,469

 

 

 

Total contractual obligations(1)

$

1,153,953

$

218,239

$

106,472

$

107,689

$

721,553

(1) Unrecognized tax benefits under ASC 740, Income Taxes, are immaterial and excluded from this amount.

We have no material minimum purchase commitments with our vendors that extend beyond a year. See notes 4 and 7 to the unaudited condensed consolidated financial statements for a discussion of contractual obligations.

Off-Balance Sheet Arrangements

We do not have any material off-balance sheet arrangements.

Guarantees

As of September 24, 2019 and December 25, 2018, we are contingently liable for $14.1 million and $14.8 million, respectively, for seven lease guarantees, listed in the table below. These amounts represent the maximum potential liability of future payments under the guarantees. In the event of default, the indemnity and default clauses in our assignment agreements govern our ability to pursue and recover damages incurred. No material liabilities have been recorded as of September 24, 2019 and December 25, 2018 as the likelihood of default was deemed to be less than probable and the fair value of the guarantees is not considered significant.

    

Lease

    

Current Lease

 

Assignment Date

Term Expiration

 

Everett, Massachusetts (1)(2)

 

September 2002

 

February 2023

Longmont, Colorado (1)

 

October 2003

 

May 2029

Montgomeryville, Pennsylvania (1)

 

October 2004

 

March 2021

Fargo, North Dakota (1)(2)

 

February 2006

 

July 2021

Logan, Utah (1)

 

January 2009

 

August 2024

Irving, Texas (3)

December 2013

December 2019

Louisville, Kentucky (3)(4)

December 2013

November 2023

(1) Real estate lease agreements for restaurant locations which we entered into before granting franchise rights to those restaurants.  We have subsequently assigned the leases to the franchisees, but remain contingently liable under the terms of the lease if the franchisee defaults.
(2) As discussed in note 8 to the unaudited condensed consolidated financial statements, these restaurants are owned, in part, by our founder or the former president of the company.
(3) Leases associated with non-Texas Roadhouse restaurants which were sold.  The leases were assigned to the acquirer, but we remain contingently liable under the terms of the lease if the acquirer defaults.
(4) We may be released from liability after the initial contractual lease term expiration contingent upon certain conditions being met by the acquirer.

30

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

We are exposed to market risk from changes in interest rates on variable rate debt and changes in commodity prices. Our exposure to interest rate fluctuations is limited to our outstanding bank debt. The terms of the revolving credit facility require us to pay interest on outstanding borrowings at London Interbank Offering Rate plus a margin of 0.875% to 1.875%, depending on our consolidated net leverage ratio, or the Alternate Base Rate, which is the highest of the issuing banks’ prime lending rate, the Federal Reserve Bank of New York rate plus 0.50% or the Adjusted Eurodollar Rate for a one month interest period on such day plus 1.0%. As of September 24, 2019, we had no outstanding borrowings under our revolving credit facility.

In an effort to secure high quality, low cost ingredients used in the products sold in our restaurants, we employ various purchasing and pricing contract techniques. When purchasing certain types of commodities, we may be subject to prevailing market conditions resulting in unpredictable price volatility. For certain commodities, we may also enter into contracts for terms of one year or less that are either fixed price agreements or fixed volume agreements where the price is negotiated 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 these vendors were unable to fulfill their obligations under their contracts, we may encounter supply shortages and/or higher costs to secure adequate supplies and a possible loss of sales, any of which would harm our business.

ITEM 4. 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) and 15d-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 September 24, 2019.

Changes in Internal Control

On December 26, 2018, the Company adopted ASC 842, Leases. As a result, changes to processes and procedures occurred that affected the Company’s internal control over financial reporting. While we believe the Company’s internal control over financial reporting for affected processes and procedures is effective, we will continue to evaluate and monitor these changes and assess the effectiveness of our internal control over financial reporting as of the end of our fiscal year.

Except for the changes noted above, there were no other significant changes in the Company’s internal control over financial reporting that occurred during the period covered by this report that materially affected or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

31

PART II — OTHER INFORMATION

ITEM 1.  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, claims related to our service of alcohol, 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 adverse effect on us during the periods covered by this report and, as of the date of this report, we are not party to any litigation that we believe could have a material adverse effect on our business.

ITEM 1A. RISK FACTORS

Information regarding risk factors appears in our Annual Report on Form 10-K for the year ended December 25, 2018, under the heading "Special Note Regarding Forward-looking Statements" and in the Form 10-K Part I, Item 1A, Risk Factors. There have been no material changes from the risk factors previously disclosed in our Form 10-K for the year ended December 25, 2018.

ITEM 2.  UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

On May 31, 2019, our Board of Directors approved a stock repurchase program which authorized us to repurchase up to $250.0 million of our common stock. This stock repurchase program has no expiration date and replaced a previous stock repurchase program which was approved on May 22, 2014. The previous program authorized us to repurchase up to $100.0 million of our common stock and did not have an expiration date. All repurchases to date under our stock repurchase programs have been made through open market transactions. The timing and the amount of any repurchases through this program will be determined by management under parameters established by our Board of Directors, based on an evaluation of our stock price, market conditions and other corporate considerations. For 2019 YTD, we paid $131.0 million to repurchase 2,455,058 shares of our common stock. This includes repurchases of $80.7 million under the new repurchase program and repurchases of $50.3 million under the previous stock repurchase program. As of September 24, 2019, $169.3 million remains authorized for stock repurchases.

The following table includes information regarding purchases of our common stock made by us during the 13 weeks ended September 24, 2019 in connection with the repurchase programs described above:

    

    

    

    

Maximum Number

 

(or Approximate

 

Total Number of

Dollar Value)

 

Shares Purchased

of Shares that

 

Total Number

Average

as Part of Publicly

May Yet Be

 

of Shares

Price Paid

Announced Plans

Purchased Under the

 

Period

Purchased

per Share

or Programs

Plans or Programs

 

June 26 to July 23

 

232,335

$

53.37

 

232,335

$

175,777,897

July 24 to August 20

 

31,000

$

51.46

 

31,000

$

174,182,657

August 21 to September 24

 

95,046

$

51.74

 

95,046

$

169,265,039

Total

 

358,381

 

358,381

ITEM 3.  DEFAULTS UPON SENIOR SECURITIES

None.

ITEM 4.  MINE SAFETY DISCLOSURES

Not applicable.

32

ITEM 5.  OTHER INFORMATION

None.

ITEM 6. EXHIBITS

Exhibit No.

    

Description

10.1

Executive Transition and Consulting Agreement between Celia Catlett and Texas Roadhouse, Inc., Texas Roadhouse Holdings LLC and Texas Roadhouse Management Corp. entered into on August 21, 2019 (incorporated by reference to Exhibit 10.1 to Registrant’s Current Report on Form 8-K dated August 21, 2019 (File No. 000-50972))

31.1

Certification of Principal Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

31.2

Certification of Principal Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

32.1

Certification of Principal Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

32.2

Certification of Principal Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

101.INS

XBRL Instance Document – the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document.

101.SCH

XBRL Taxonomy Extension Schema Document

101.CAL

XBRL Taxonomy Extension Calculation Linkbase Document

101.DEF

XBRL Taxonomy Extension Definition Linkbase Document

101.LAB

XBRL Taxonomy Extension Label Linkbase Document

101.PRE

XBRL Taxonomy Extension Presentation Linkbase Document

104

Cover page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101)

33

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

TEXAS ROADHOUSE, INC.

Date: November 1, 2019

By:

/s/ W. KENT TAYLOR

W. Kent Taylor

Chairman, Chief Executive Officer and President (principal executive officer)

Date: November 1, 2019

By:

/s/ TONYA R. ROBINSON

Tonya R. Robinson

Chief Financial Officer

(principal financial officer)

(principal accounting officer)

34

Texas Roadhouse (NASDAQ:TXRH)
Historical Stock Chart
From Mar 2024 to Apr 2024 Click Here for more Texas Roadhouse Charts.
Texas Roadhouse (NASDAQ:TXRH)
Historical Stock Chart
From Apr 2023 to Apr 2024 Click Here for more Texas Roadhouse Charts.