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Item 1A. Risk Factors

2021-02-26 compared with 2020-02-28 · 209 added, 168 removed, 232 unchanged (62% of the section changed)

From time to time, in periodic reports and oral statements and in this Annual Report on Form 10-K, we present statements about future events and expectations that constitute forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended.

Forward-looking statements are based on our beliefs, assumptions and expectations of our future financial and operating performance and growth plans, taking into account the information currently available to us.

These statements are not statements of historical fact.

Forward-looking statements involve risks and uncertainties that may cause our actual results to differ materially from the expectations of future results we express or imply in any forward-looking statements.

Careful consideration should be given to the risks described below.

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Risks Related to our Growth and Operating Strategy

The COVID-19 pandemic has disrupted and is expected to continue to disrupt our business, which has and could continue to materially affect our business, financial condition, and results of operations, for an extended period of time.

On March 13, 2020, the COVID-19 pandemic was declared a National Public Health Emergency.

Shortly after the national emergency declaration, state and local officials began placing restrictions on restaurants, some of which allowed To-Go or curbside service only while others limited capacity in the dining room.

By late March all of our domestic company and franchise restaurants were under state or local order which only allowed for To-Go or curbside service.

Beginning in early May 2020, state and local guidelines began to allow dining rooms to re-open, typically at a limited capacity.

While all of our dining rooms were able to re-open in some capacity, many were required to close again in areas more severely impacted by the pandemic.

As of December 29, 2020, 82% of our company restaurants had their dining rooms operating under various limited capacity restrictions.

Our remaining restaurants were limited to outdoor and/or To-Go or curbside service only.

As a result of the dining room restrictions and temporary closures, we have experienced a significant decrease in traffic which has impacted our operating results.

While the majority of our dining rooms have re-opened, a significant portion continue to operate under capacity restrictions that severely limit the number of guests we can serve.

In addition, while we have seen significant sales growth in our To-Go program, even with dining rooms re-opened, we currently do not expect these sales will generate a similar profit margin and cash flows to our normal operating model.

We expect our operating results to continue to be impacted until at least such time that all state and local restrictions are lifted, and our dining rooms can operate at full capacity.

We cannot predict how long the pandemic will last, how long it will take until all state and local restrictions will be lifted, or the extent to which our dining rooms will have to close again.

In addition, we cannot predict the overall impact on the economy or consumer spending habits.

The impact on our operating results as well as the operational and financial measures we have implemented in response to the pandemic have been included throughout this report.

The pandemic has also adversely impacted our ability to open new restaurants.

At the onset of the pandemic, we delayed construction on all restaurants that were not substantially complete.

As a result, we only opened 22 restaurants in 2020 across all concepts.

As of December 29, 2020, 10 restaurants were under construction.

O ur ability to grow our

business could be further impacted, particularly if we have to delay construction on these sites in future periods.

In March 2020, we borrowed $190.0 million under our Amended Credit Agreement in order to enhance our financial flexibility.

The Amended Credit Agreement also provides us the option to increase the credit facility by $200.0 million subject to certain limitations, including approval by the syndicate of lenders, set forth in the Amended Credit Agreement.

On May 11, 2020, as a precautionary measure to further enhance financial flexibility, we amended the revolving credit facility to increase the amount available under the facility by $82.5 million and drew down $50.0 million of this amount.

If the pandemic continues to adversely impact our business for a significant period of time, we may need to further increase the credit facility and/or seek other sources of liquidity.

There is no guarantee that we can increase the credit facility or that additional liquidity will be readily available or available at favorable terms.

Our suppliers could be adversely impacted by the pandemic.

If our supplier’s employees are unable to work, whether because of illness, quarantine, limitations on travel or other government restrictions in connection with the pandemic, we could face shortages of food items or other supplies at our restaurants and our operations and sales could be adversely impacted by such interruptions.

The capacity restrictions and temporary closures of our dining rooms have resulted in decreased staffing levels at our restaurants.

We have taken compensation actions to support certain restaurant employees during the pandemic, but those actions may not be enough to compensate them until such time that our dining rooms can re-open at full capacity.

Those restaurant employees might seek and find other employment during the interruption, which could have a material adverse effect on our ability to properly staff our restaurants with experienced team members once we resume our normal operations.

Our restaurant operations could be further disrupted if a significant number of restaurants have employees diagnosed with COVID-19 resulting in some or all of the restaurant’s employees being quarantined and our restaurant facilities having to be disinfected.

If a significant percentage of our workforce is unable to work, whether because of illness or required quarantine, our operations may be negatively impacted which could have a material adverse effect on our business.

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

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We have grown significantly since our inception and intend to continue growing in the future.

Our objective is to grow our business and increase shareholder value by (1) expanding our base of company restaurants that are profitable and (2) increasing sales and profits at existing restaurants.

While both these methods of achieving our objective are important to us, historically the most significant means of achieving our objective has been through opening new restaurants and operating these restaurants on a profitable basis.

Our objective is to grow our business and increase shareholder value by (1) expanding our base of company restaurants that are profitable, (2) increasing sales and profits at existing restaurants, and (3) pursuing other strategic initiatives or business opportunities.

While these methods of achieving our objective are important to us, historically the most significant means of achieving our objective has been through opening new restaurants and operating these restaurants on a profitable basis.

As we open and operate more restaurants, our rate of expansion relative to the size of our existing restaurant base will likely decline, which may make it increasingly difficult to achieve levels of sales and profitability growth that we have seen in the past.

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We also place a lot of importance on our culture, which we believe has been an important contributor to our success.

As we grow, we may have difficulty maintaining our culture or adapting it sufficiently to meet the needs of our operations, or finding new employees (including new employees arising from a strategic initiative) to assimilate to our culture and brand standards.

In addition to challenges relating to the COVID-19 pandemic, as we grow, we may have difficulty maintaining our culture or adapting it sufficiently to meet the needs of our operations, or finding new employees (including new employees arising from strategic initiatives) to assimilate to our culture and brand standards.

We cannot assure you that we will be able to respond on a timely basis to all of the changing demands that our planned expansion will impose on management and on our existing infrastructure.

If we are unable to manage our growth effectively, our business and operating results could be materially adversely impacted.

If we were unable to manage our growth effectively, our business and operating results could be materially adversely impacted.

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

We cannot assure you that we will be able to open new restaurants in accordance with our expansion plans.

We have experienced delays in opening some of our restaurants in the past and may experience delays in the future.

Delays or failures in opening new restaurants could materially adversely affect our growth strategy.

One of our biggest challenges in executing our growth strategy is locating and securing an adequate supply of suitable new restaurant sites.

We cannot assure you that we will be able to open new restaurants that are profitable in accordance with our expansion plans.

We have experienced delays in opening some of our restaurants in the past, including significant delays in 2020 due to the pandemic, and may experience delays in the future.

Delays or failures in opening new restaurants could adversely affect our growth strategy.

One of our biggest challenges in executing our growth strategy is locating

and securing an adequate supply of suitable new restaurant sites.

Competition for suitable restaurant sites in our target markets is intense.

Our ability to open new restaurants will also depend on numerous other factors, some of which are beyond our control, including, but not limited to, the following:

● our ability to find sufficient suitable locations for new restaurant sites;

● our ability to hire, train and retain qualified operating personnel, especially market partners and managing partners;

● our ability to negotiate suitable purchase or lease terms;

● the availability of construction materials and labor;

● our ability to control construction and development costs of new restaurants;

● our ability to secure required governmental approvals and permits in a timely manner, or at all;

● the delay or cancellation of new site development by developers and landlords;

● our ability to secure liquor licenses;

● general economic conditions;

● the cost and availability of capital to fund construction costs and pre-opening expenses;

● the impact of inclement weather, natural disasters and other calamities.

In addition, we have generally been able to fund the construction of new restaurants from cash provided by our operations.

If our operations continue to be significantly impacted by the pandemic, our ability to open new restaurants could also be impacted.

Once opened, we anticipate that our new restaurants will generally take several months to reach planned operating levels due to start- up inefficiencies typically associated with new restaurants.

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Additionally, the opening of a new restaurant could negatively impact sales at one or more of our existing nearby restaurants, which could adversely affect our financial performance.

Our ability to operate new restaurants profitably will depend on numerous factors, including those discussed below impacting our average unit volume and comparable restaurant sales growth, some of which are beyond our control, including, but not limited to, the following:

● competition, either from our competitors in the restaurant industry or our own restaurants;

● consumer acceptance of our restaurants in new domestic or international markets;

● changes in consumer tastes and/or discretionary spending patterns;

● lack of market awareness of our brands;

● the ability of the market partner and the managing partner to execute our business strategy at the new restaurant;

● general economic conditions which can affect restaurant traffic, local labor costs, and prices we pay for the food products and other supplies we use;

● changes in government regulation;

Our ability to open new restaurants that are profitable will also depend on numerous other factors, many of which are beyond our control, including, but not limited to, the following:

● our ability to hire, train and retain qualified operating personnel, especially market partners and managing partners who can execute our business strategy;

● our ability to negotiate suitable purchase or lease terms;

● the availability of construction materials and labor;

● our ability to control construction and development costs of new restaurants;

● our ability to secure required governmental approvals and permits in a timely manner, or at all;

● road construction and other factors limiting access to the restaurant;

● delays by our landlord or other developers in constructing other parts of a development adjacent to our premises in a timely manner;

● redevelopment of other parts of a development adjacent to our premises that affect the parking available for our restaurant;

● our ability to secure liquor licenses;

● general economic conditions, including an economic recession;

● changes in federal and state tax laws;

● the cost and availability of capital to fund construction costs and pre-opening expenses;

● the impact of inclement weather, natural disasters and other calamities.

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

In addition, our inability to open new restaurants and provide growth opportunities for our employees could result in the loss of qualified personnel which could harm our business and future prospects.

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

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

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

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

● consumer awareness and understanding of our brands;

● our ability to execute our business strategy effectively;

● unusual initial sales performance by new restaurants;

● competition, either from our competitors in the restaurant industry or our own restaurants;

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● introduction of new menu items;

● mandated dining room closures and/or dining rooms operating at limited capacity;

● negative publicity regarding food safety, health concerns, quality of service, and other food or beverage related matters, including the integrity of our or our suppliers’ food processing;

● general economic conditions, which can affect restaurant traffic, local labor costs and prices we pay for the food products and other supplies we use;

● general economic conditions, including an economic recession, which can affect restaurant traffic, local labor costs and prices we pay for the food products and other supplies we use;

● effects of actual or threatened terrorist attacks.

Our average unit volume and comparable restaurant sales growth may not increase at rates achieved in the past, which may affect our sales growth and will continue to be a critical factor affecting our profitability.

In addition, changes in our average unit volume and comparable restaurant sales growth could cause the price of our common stock to fluctuate substantially.

Our average unit volume and comparable restaurant sales may not increase at rates achieved in the past, which may affect our sales growth and will continue to be a critical factor affecting our profitability.

In addition, changes in our average unit volume and comparable restaurant sales could cause the price of our common stock to fluctuate substantially.

The development of new restaurant concepts may not contribute to our growth.

The development of new restaurant concepts may not be as successful as our experience in the development of the Texas Roadhouse concept.

In May 2013, we launched a new concept, Bubba’s 33, a family-friendly, sports restaurant, which currently has lower brand awareness and less operating experience than most Texas Roadhouse restaurants and a higher initial investment cost.

As a result, the development of the Bubba’s 33 concept may not contribute to our average unit volume growth and/or profitability in an incremental way.

As of December 31, 2019, we have expanded the concept to 28 restaurants and expect to open as many as seven additional locations in 2020.

However, we can provide no assurance that new units will be accepted in the markets targeted for the expansion of this concept or that we will be able to achieve our targeted returns when opening new locations.

In the future, we may determine not to move forward with any further expansion of Bubba’s 33 or other concepts.

In May 2013, we launched a new casual dining concept, Bubba’s 33, a family-friendly, sports restaurant that has expanded to 31 restaurants as of December 29, 2020.

In December 2014, we launched a new fast-casual concept, Jaggers, which offers drive-thru service, that has expanded to three restaurants as of December 29, 2020.

Bubba’s 33 and Jaggers each have lower brand awareness and less operating experience than most Texas Roadhouse restaurants.

In addition, Bubba’s 33 restaurants have a higher initial investment cost and Jaggers has a lower per person average check amount.

As a result, the development of these concepts may not contribute to our average unit volume growth and/or profitability in an incremental way.

We can provide no assurance that new units will be accepted in the markets targeted for the expansion of these concepts or that we will be able to achieve our targeted returns when opening new locations.

In the future, we may determine not to move forward with any further expansion of these concepts.

These decisions could limit our overall long-term growth.

Additionally, expansion of Bubba’s 33 or other concepts might divert our management’s attention from other business concerns and could have an adverse impact on our core Texas Roadhouse business.

Additionally, expansion of these concepts might divert our management’s attention from other business concerns and could have an adverse impact on our core Texas Roadhouse business.

Our expansion into international markets presents increased economic, political, regulatory and other risks.

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Acquisition of existing restaurants from our domestic franchisees and other strategic initiatives may have unanticipated consequences that could harm our business and our financial condition.

We plan to opportunistically acquire existing restaurants from our domestic franchisees over time.

Additionally, from time to time, we evaluate potential mergers, acquisitions, joint ventures or other strategic initiatives to acquire or develop additional concepts and/or change the business strategy regarding an existing concept.

To successfully execute

any acquisition or development strategy, we will need to identify suitable acquisition or development candidates, negotiate acceptable acquisition or development terms and possibly obtain appropriate financing.

Any acquisition or future development that we pursue, including the on-going development of new concepts, whether or not successfully completed, may involve risks, including:

We plan to continue to opportunistically acquire existing restaurants from our domestic franchisees over time.

Additionally, from time to time, we evaluate potential mergers, acquisitions, joint ventures or other strategic initiatives (including retail initiatives utilizing our intellectual property) to acquire or develop additional business channels or concepts, and/or change the business strategy regarding an existing concept.

To successfully execute any acquisition or development strategy, we will need to identify suitable acquisition or development candidates, negotiate acceptable acquisition or development terms and possibly obtain appropriate financing.

Any acquisition or future development that we pursue, including the on-going development of new concepts or retail initiatives utilizing our intellectual property, whether or not successfully completed, may involve risks, including:

● material adverse effects on our operating results, particularly in the fiscal quarters immediately following the acquisition or development as the restaurants are integrated into our operations;

● risks associated with entering into new domestic or international markets or conducting operations where we have no or limited prior experience;

● risks associated with successfully integrating new employees (including new employees arising from a strategic initiative);

● risks inherent in accurately assessing the value, future growth potential, strengths, weaknesses, contingent and other liabilities and potential profitability of acquisition candidates, and our ability to achieve projected economic and operating synergies;

● risks associated with entering into new domestic markets or conducting operations where we have no or limited prior experience;

● risks associated with successfully integrating new employees, processes and systems;

● the diversion of management’s attention from other business concerns.

Future acquisitions of existing restaurants from our franchisees or other strategic partners, which may be accomplished through a cash purchase transaction, the issuance of shares of common stock or a combination of both, could have a dilutive impact on holders of our common stock, and result in the incurrence of debt and contingent liabilities and impairment charges related to goodwill and other tangible and intangible assets, any of which could harm our business and financial condition.

Additionally, we may evaluate other means to leverage our competitive strengths, including the expansion of our products across other strategic initiatives or business opportunities.

Additionally, we may evaluate other means to leverage our competitive strengths, including the expansion of our products across other strategic initiatives or business opportunities (including retail initiatives utilizing our intellectual property).

The expansion of our products may damage our reputation if products bearing our brands are not of the same quality or value that guests associate with our brands.

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We are subject to all of the risks associated with leasing space subject to long-term non-cancelable leases, as well as risks related to renewal.

The majority of our company-owned restaurants are located on leased premises.

The majority of our company restaurants are located on leased premises.

Payments under our operating leases account for a significant portion of our operating expenses.

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As a result, we may be required to relocate or close a restaurant, which could subject us to construction and other costs and risks, and may have an adverse effect on our operating performance.

Approximately 13% of our company restaurants are located in Texas and, as a result, we are sensitive to economic and other trends and developments in that state.

As of December 31, 2019, we operated a total of 69 company-owned restaurants in Texas.

As a result, we are particularly susceptible to adverse trends and economic conditions in this state, including declines in oil prices that may increase levels of unemployment and cause other economic pressures that may result in lower sales and profits at our restaurants in oil regions of Texas and surrounding areas.

In addition, given our geographic concentration in this state, negative publicity regarding any of our restaurants in Texas could have a material adverse effect on our business and

operations, as could other occurrences in Texas such as local strikes, energy shortages or extreme fluctuations in energy prices, droughts, earthquakes, fires or other natural disasters.

Approximately 21% of our company restaurants are located in Texas and Florida and, as a result, we are sensitive to economic and other trends and developments in those states.

As of December 29, 2020, we operated a total of 71 company restaurants in Texas and 41 company restaurants in Florida.

As a result, we are particularly susceptible to adverse trends and economic conditions in those states, including declines in oil prices that may increase levels of unemployment and cause other economic pressures that may result in lower sales and profits at our restaurants in oil regions of Texas and surrounding areas.

In addition, given our geographic concentration in these states, negative publicity regarding any of our restaurants in either Texas or Florida could have a material adverse effect on our business and operations, as could other occurrences in either Texas or Florida such as health epidemics or pandemics (such as COVID-19), local strikes, energy shortages or extreme fluctuations in energy prices, droughts, earthquakes, hurricanes, fires or other natural disasters.

Changes in consumer preferences and discretionary spending could adversely affect our business.

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Continued social concerns or shifts in consumer preferences away from our restaurants or cuisine, particularly beef, would harm our business.

In response to the pandemic, many consumers have preferred to order food To-Go or by delivery rather than dining in at full-service restaurants, and if these preferences continue and consumers continue to avoid gathering in public places in large groups, we may need to further adapt our offerings to accommodate these changes.

Also, our success depends to a significant extent on discretionary consumer spending, which is influenced by general economic conditions and the availability of discretionary income.

Accordingly, we may experience declines in sales during economic downturns or during periods of uncertainty.

This includes any downturns that result from the pandemic.

Any material decline in the amount of discretionary spending could have a material adverse effect on our business, results of operations, financial condition or liquidity.

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● the impact of litigation, including negative publicity;

● increases and decreases in average unit volume and comparable restaurant sales growth;

● increases and decreases in average unit volume and comparable restaurant sales;

● impairment of long-lived assets, including goodwill, and any loss on restaurant relocations or closures;

● general economic conditions which can affect restaurant traffic, local labor costs, and prices we pay for the food products and other supplies we use;

● general economic conditions, including an economic recession, which can affect restaurant traffic, local labor costs, and prices we pay for the food products and other supplies we use;

● mandated restaurant closures and/or dining rooms operating at limited capacity;

● negative publicity regarding food safety and other food and beverage related matters, including the integrity of our, or our suppliers’, food processing;

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Holidays, changes in weather, severe weather and similar conditions may impact sales volumes seasonally in some operating regions.

As a result, our quarterly operating results and comparable restaurant sales may fluctuate as a result of seasonality.

As a result, our quarterly operating results and comparable

restaurant sales may fluctuate as a result of seasonality.

Accordingly, results for any one quarter are not necessarily indicative of results to be expected for any other quarter or for any year and comparable restaurant sales for any particular future period may decrease.

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In that event, the price of our common stock could decrease.

Risks Related to the Restaurant Industry

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

Our profitability depends in part on our ability to anticipate and react to changes in food and supply costs.

Any increase in food prices, particularly proteins, could adversely affect our operating results.

In addition, we are susceptible to increases in food costs as a result of factors beyond our control, such as food supply constrictions, weather conditions, food safety concerns, product recalls, global market and trade conditions, and government regulations.

We cannot predict whether we will be able to anticipate and react to changing food costs by adjusting our purchasing practices and menu prices, and a failure to do so could adversely affect our operating results.

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 results could be negatively affected.

Also, if we adjust pricing there is no assurance that we will realize the full benefit of any adjustment due to changes in our guests’ menu item selections and guest traffic.

We currently purchase the majority of our beef from three beef suppliers under annual contracts.

While we maintain relationships with additional suppliers, if any of these vendors were unable to fulfill its obligations under its contracts, we could encounter supply shortages and incur higher costs to secure adequate supplies, either of which would harm our business.

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

Labor is a primary component in the cost of operating our business.

We devote significant resources to recruiting and training our restaurant managers and hourly employees.

Increased labor costs due to competition, unionization, increased minimum and tipped wages, changes in hour and overtime pay, state unemployment rates or employee benefits costs (including workers’ compensation and health insurance), company staffing initiatives, or otherwise would adversely impact our operating expenses.

Increased competition for qualified employees caused by a shortage in the labor pool exerts upward pressure on wages paid to attract and retain such personnel, resulting in higher labor costs, together with greater recruitment and training expense.

We could suffer from significant indirect costs, including restaurant disruptions due to management or hourly labor turnover and potential delays in new restaurant openings.

A shortage in the labor pool could also cause our restaurants to be required to operate with reduced staff which could negatively impact our ability to provide adequate service levels to our guests resulting in adverse guest reactions and a possible reduction in guest traffic counts.

We have many restaurants located in states or municipalities where the minimum and/or tipped wage is greater than the federal minimum and/or tipped wage.

We anticipate that additional legislation increasing minimum and/or tipped wage standards will be enacted in future periods and in other jurisdictions.

In addition, regulatory actions which result in changes to healthcare eligibility, design and cost structure could occur.

Any increases in minimum or tipped wages or increases in employee benefits costs will result in higher labor costs.

Our operating margin will be adversely affected to the extent that we are unable or are unwilling to offset any

increase in these labor costs through higher prices on our products.

Our distributors and suppliers also may be affected by higher minimum wage and benefit standards which could result in higher costs for goods and services supplied to us.

Our success depends on our ability to attract, motivate and retain qualified employees to keep pace with our growth strategy.

If we are unable to do so, our results of operations may also be adversely affected.

Our objective to increase sales and profits at existing restaurants could be adversely affected by macroeconomic conditions.

During 2020 and beyond, the U.S.

and global economies could suffer from a downturn in economic activity.

Recessionary economic cycles, higher interest rates, higher fuel and other energy costs, inflation, increases in commodity prices, higher levels of unemployment, higher consumer debt levels, higher tax rates and other changes in tax laws or other economic factors that may affect consumer spending or buying habits could adversely affect the demand for our products.

As in the past, we could experience reduced guest traffic or we may be unable or unwilling to increase the prices we can charge for our products to offset higher costs or fewer transactions, either of which could reduce our sales and profit margins.

Also, landlords or other tenants in the shopping centers in which some of our restaurants are located may experience difficulty as a result of macroeconomic trends or cease to operate, which could in turn negatively affect guest traffic at our restaurants.

All of these factors could have a material adverse impact on our business, results of operations, financial condition or liquidity.

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

The restaurant industry is intensely competitive.

We compete with many well-established food service companies on the basis of taste, quality and price of products offered, guest service, atmosphere, location, take-out and delivery options and overall guest experience.

Our competitors include a large and diverse group of restaurant chains and individual restaurants that range from independent local operators that have opened restaurants in various markets to well-capitalized national restaurant companies.

We also face competition from meal kit delivery services as well as the supermarket industry.

In addition, improving product offerings of fast casual and quick- service restaurants, together with negative economic conditions could cause consumers to choose less expensive alternatives.

As our competitors expand their operations, we expect competition to intensify.

We also compete with other restaurant chains and other retail establishments for quality site locations and employees.

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

Food service businesses can be adversely affected by litigation and complaints from guests, consumer groups or government authorities resulting from food quality, illness, injury or other health concerns or operating issues stemming from one restaurant or a limited number of restaurants.

Adverse publicity about these allegations may negatively affect us, regardless of whether the allegations are true, by discouraging guests from eating at our restaurants.

We could also incur significant liabilities if a lawsuit or claim results in a decision against us or litigation costs regardless of the result.

Our business could be adversely affected by our inability to respond to or effectively manage social media.

As part of our marketing strategy, we utilize social media platforms to promote our brands and attract and retain guests.

Our strategy may not be successful, resulting in expenses incurred without improvement in guest traffic or brand relevance.

In addition, a variety of risks are associated with the use of social media, including improper disclosure of proprietary information, negative comments about us, exposure of personally identifiable information, fraud, or dissemination of false information.

The inappropriate use of social media vehicles by our guests or employees could increase our costs, lead to litigation or result in negative publicity that could damage our reputation and adversely affect our results of operations.

Given the marked increase in the use of social media platforms along with smart phones in recent years, individuals have access to a broad audience of consumers and other interested persons.

The availability of information on social media platforms is virtually immediate as is its impact.

Many social media platforms immediately publish the content their subscribers and participants post, often without filters or checks on the accuracy of the content posted.

Information concerning our Company may be posted on such platforms at any time.

If we are unable to quickly and effectively respond to such reports, we may suffer declines in guest traffic.

The impact may be immediate without affording us an opportunity for redress or correction.

These factors could have a material adverse effect on our business.

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

Like other restaurant chains, consumer preferences could be affected by health concerns about the consumption of beef, the key ingredient in many of our menu items, or negative publicity concerning food quality and food safety, including food-borne illnesses.

In addition, consumer preferences may be impacted by current and future menu-labeling requirements.

In 2018, federal disclosure requirements went into effect under the Patient Protection and Affordable Care Act of 2010 requiring new menu nutritional labeling requirements.

As a result, we include calorie information on our menus and make additional nutritional information available at our restaurants and on our website.

However, future regulatory action may occur which could result in further changes in the nutritional disclosure requirements.

We cannot make any assurances regarding our ability to effectively respond to changes in consumer health perceptions and to adapt our menu offerings to trends in eating habits.

The imposition of menu-labeling laws could have an adverse effect on our results of operations and financial position, as well as the restaurant industry in general.

The labeling requirements and any negative publicity concerning any of the food products we serve may adversely affect demand for our food and could result in a decrease in guest traffic to our restaurants.

If we react to the labeling requirements or negative publicity by changing our concepts or our menu offerings or their ingredients, we may lose guests who do not prefer the new concept or products, and we may not be able to attract sufficient new guests to produce the revenue needed to make our restaurants profitable.

In addition, we may have different or additional competitors for our intended guests as a result of a change in our concept and may not be able to compete successfully against those competitors.

A decrease in guest traffic to our restaurants as a result of these health concerns or negative publicity or as a result of a change in our menu or concept could materially harm our business.

Food safety and sanitation, food-borne illness and health concerns may have an adverse effect on our business by reducing demand and increasing costs.

Food safety and sanitation is a top priority, and we dedicate substantial resources to help our guests enjoy safe, quality food products.

However, food-borne illnesses and food safety issues occur in the food industry from time to time.

Any report or publicity, whether true or not, linking us to instances of food-borne illness or other food safety issues, including food tampering or contamination, could adversely affect our brands and reputation as well as our revenue and profits.

In addition, instances of food-borne illness, food tampering or food contamination occurring solely at restaurants of our competitors could result in negative publicity about the food service industry generally and adversely impact our revenue and profits.

Furthermore, our reliance on third-party food suppliers and distributors increases the risk that food-borne illness incidents could be caused by factors outside of our control and that multiple locations would be affected rather than a single restaurant.

We cannot assure that all food items are properly maintained during transport throughout the supply chain and that our employees will identify all products that may be spoiled and should not be used in our restaurants.

If our guests become ill from food-borne illnesses, we could be forced to temporarily close some restaurants.

Furthermore, any instances of food contamination, whether or not at our restaurants, could subject us or our suppliers to a food recall.

The United States and other countries have experienced, or may experience in the future, outbreaks of viruses, such as Hepatitis A, Norovirus, Ebola, Avian Flu, SARS and H1N1.

To the extent that a virus is food-borne, future outbreaks may adversely affect the price and availability of certain food products and cause our guests to eat less of a product.

To the extent that a virus is transmitted by human-to- human contact, our employees or guests could become infected, or could choose, or be advised or required, to avoid gathering in public places, any one of which could adversely affect our business.

We may also be adversely affected if jurisdictions in which we have restaurants impose mandatory closures, seek voluntary closures, impose restrictions on operations and/or require public notification.

Even if such measures are not implemented and a virus or other disease does not spread significantly, the perceived risk of infection or significant health risk may materially adversely affect our business.

The possibility of future misstatement exists due to inherent limitations in our control systems, which could adversely affect our business.

We cannot be certain that our internal control over financial reporting and disclosure controls and procedures will prevent all possible error and fraud.

A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met.

Because of inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of error or fraud, if any, in our Company have been detected.

These inherent limitations include the realities that judgments in

decision-making can be faulty and that breakdowns can occur because of simple error or mistake, which could have an adverse impact on our business.

Beginning in March 2020, our quarterly operating results were severely impacted by the pandemic which resulted in significant fluctuations between quarters.

We expect that our quarterly operating results will continue to fluctuate until at least such time that all dining room restrictions related to the pandemic are lifted.

We rely heavily on information technology, and any material failure, weakness or interruption could prevent us from effectively operating our business.

We rely heavily on information systems in all aspects of our operations, including point-of- sale systems, financial systems, marketing programs, cyber-security and various other processes and transactions.

We rely heavily on information systems in all aspects of our operations, including point-of- sale systems, financial systems, marketing programs, e-commerce, cyber-security and various other processes and transactions.

Our point-of-sale processing in our restaurants includes payment of obligations, collection of cash, credit and debit card transactions and other processes and procedures.

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The failure of these systems to operate effectively, maintenance problems, upgrading or transitioning to new platforms or a material breach in the security of these systems could result in delays in guest service and reduce efficiency in our operations.

Additionally, our corporate systems and processes and corporate support for our restaurant operations are handled primarily at our restaurant support center.

Additionally, our corporate systems and processes and corporate support for our restaurant operations are handled primarily at our Support Center.

As a result of the pandemic, a significant portion of our Support Center staff continue to work remotely.

We have disaster recovery procedures and business continuity plans in place to address most events of a crisis nature, including tornadoes and other natural disasters, and back up off-site locations for recovery of electronic and other forms of data information.

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Some business processes are currently outsourced to third parties.

Such processes include information technology processes, gift card tracking, credit card authorization and processing, insurance claims processing, payroll tax filings, check payment processing, and other accounting processes.

Such processes include information technology processes, gift card tracking, credit card authorization and processing, insurance claims processing, unemployment claims processing, payroll tax filings, check payment processing, and other accounting processes.

We also continue to evaluate our other business processes to determine if additional outsourcing is a viable option to accomplish our goals.

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We may in the future become subject to claims for purportedly fraudulent transactions arising out of alleged theft of guest and/or employee information, and we may also be subject to lawsuits or other proceedings relating to these types of incidents.

Any such claim or proceeding could cause us to incur significant unplanned expenses in excess of our insurance coverage, which could have a material adverse impact on our financial condition and results of operations.

Further, adverse publicity resulting from these allegations may result in material adverse revenue consequences for us and our restaurants.

Any such claim or proceeding could cause us to incur significant unplanned expenses in excess of our insurance coverage,

which could have a material adverse impact on our financial condition and results of operations.

If we fail to adequately control fraudulent credit card and debit card transactions to comply with the Payment Card Industry Data Security Standards, we may face diminished public perception of our security measures, fines and assessments from the card brands and significantly higher credit card and debit card related costs.

In addition, if there are malfunctions or other problems with our processing vendors, billing software or payment processing systems, our guest satisfaction may be adversely affected and one or more of the major payment networks could disallow our continued use of their payment methods.

The termination of our ability to process payments through any major payment network would significantly impact our ability to operate our business.

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

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The federal Americans with Disabilities Act prohibits discrimination on the basis of disability in public accommodations and employment.

Although our restaurants and other places of accommodation are designed to be accessible to the disabled, we could be required to make modifications to provide service to, or make reasonable accommodations, for disabled persons.

Although our restaurants and other places of accommodation are designed to be accessible to the disabled, we could be required to make unexpected modifications to provide service to, or make reasonable accommodations, for disabled persons.

In addition, as a result of the COVID-19 pandemic, certain state and local jurisdictions have enacted various health, safety and other regulations that have impacted our restaurants.

Compliance with these regulations has led to decreased sales, increased costs, and operational complexity.

We cannot predict when these regulations may be lifted or the impact on our business, results of operations, financial condition or liquidity.

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

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Because a plaintiff may seek punitive damages, which may not be covered by insurance, this type of action could have an adverse impact on our financial condition and results of operations.

It is also possible that employees, guests or others could make claims against us as a result of the pandemic, and the nature and scope of such matters, if any, is unknown.

Litigation involving our relationship with franchisees and the legal distinction between our franchisees and us for employment law purposes, if determined adversely, could increase costs, negatively impact the business prospects of our franchisees and subject us to incremental liability for their actions.

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There can be no assurance, however, that these sources of financing will be available on terms favorable to us, or at all.

Our capital allocation strategies include, but are not limited to, new restaurant development, payment of dividends, refurbishment or relocation of existing restaurants, repurchases of our common stock and franchise acquisitions.

If we experience decreased cash flow from operations, our ability to fund our operations and planned initiatives, and to take advantage of growth opportunities, may be delayed or negatively affected.

Our capital allocation strategies include, but are not limited to, new restaurant development, payment of dividends (even though the dividend program was suspended due to the on-going COVID-19 pandemic), refurbishment or relocation of existing restaurants, repurchases of our common stock and franchise acquisitions.

If we experience decreased cash flow from operations, similar to what we experienced in the current year, our ability to fund our operations and planned initiatives, and to take advantage of growth opportunities, may be delayed or negatively affected.

In addition, these disruptions or a negative effect on our revenues could affect our ability to borrow or comply with our covenants under our amended revolving credit facility.

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

The lenders’ obligation to extend credit under our amended revolving credit facility depends on our maintaining certain financial covenants, including a minimum consolidated fixed charge coverage ratio of 2.00 to 1.00 and a maximum consolidated leverage ratio of 3.00 to 1.00.

If we are unable to maintain these ratios, we would be unable to obtain additional financing under this amended revolving credit facility.

The lenders’ obligation to extend credit under our amended revolving credit facility depends on our maintaining certain financial covenants.

If we are unable to maintain these covenants, we would be unable to obtain additional financing under this amended revolving credit facility.

The amended revolving credit facility 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 or circumstances where the incurrence of secured or unsecured indebtedness would prevent us from complying with our financial covenants.

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In accordance with accounting guidance as it relates to the impairment of long-lived assets, we make certain estimates and projections with regard to company restaurant operations, as well as our overall performance in connection with our impairment analyses for long-lived assets.

When impairment triggers are deemed to exist for any Company-owned restaurant, the estimated undiscounted future cash flows for the restaurant are compared to its carrying value.

When impairment triggers are deemed to exist for any company restaurant, the estimated undiscounted future cash flows for the restaurant are compared to its carrying value.

If the carrying value exceeds the undiscounted cash flows, an impairment charge would be recorded equal to the difference between the carrying value and the estimated fair value.

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We also provide training and support to franchisees.

However, most franchisees are independent third parties that we do not control, and these franchisees own, operate and oversee the daily operations of their restaurants.

However, most

franchisees are independent third parties that we do not control, and these franchisees own, operate and oversee the daily operations of their restaurants.

As a result, the ultimate success and quality of any franchise restaurant rests with the franchisee.

If franchisees do not successfully operate restaurants in a manner consistent with our standards, the Texas Roadhouse image and reputation could be harmed, which in turn could adversely affect our business and operating results.

Risks Related to the Restaurant Industry

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

Our profitability depends in part on our ability to anticipate and react to changes in food and supply costs.

Any increase in food prices, particularly proteins, could adversely affect our operating results.

In addition, we are susceptible to increases in food costs as a result of factors beyond our control, such as food supply constrictions, weather conditions, food safety concerns, global pandemics, product recalls, global market and trade conditions, and government regulations.

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.

Also, if we adjust pricing there is no assurance that we will realize the full benefit of any adjustment due to changes in our guests’ menu item selections and guest traffic.

We currently purchase the majority of our beef from three beef suppliers under annual contracts.

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

Labor is a primary component in the cost of operating our business.

We devote significant resources to recruiting and training our restaurant managers and hourly employees.

We could suffer from significant indirect costs, including restaurant disruptions due to management or hourly labor turnover and potential delays in new restaurant openings.

Additionally, so long as the COVID-19 pandemic continues, personal or public health concerns related to the pandemic might make some existing personnel or potential candidates reluctant to work in enclosed restaurant environments.

We have many restaurants located in states or municipalities where the minimum and/or tipped wage is greater than the federal minimum and/or tipped wage.

We anticipate that additional legislation significantly increasing minimum and/or tipped wage standards will be enacted in future periods and in other jurisdictions.

Any government actions related to employee compensation or employer liability in response to the pandemic, whether temporary or permanent, could increase our labor costs.

In addition, regulatory actions which result in changes to healthcare eligibility, design and cost structure could occur.

Any increases in minimum and/or tipped wages or increases in employee benefits costs will result in higher labor costs.

In addition, the pandemic resulted in a number of staffing challenges at our restaurants in the current year.

To address these challenges, we provided relief pay and enhanced benefits for our hourly employees.

The relief pay included pay for employees who received significantly less or no hours at locations where dining rooms were required to close.

The benefits included certain sick pay and accrued vacation enhancements as well as a premium holiday on health insurance.

These actions were performed to retain employees and ensure that we maintained adequate staffing levels as

our dining rooms re-opened.

Our operating margin will be adversely affected to the extent that we are unable or are unwilling to offset any increase in these labor costs through higher prices on our products.

Our distributors and suppliers also may be affected by higher minimum wage and benefit standards which could result in higher costs for goods and services supplied to us.

Our success depends on our ability to attract, motivate and retain qualified employees to keep pace with our growth strategy.

If we are unable to do so, our results of operations may also be adversely affected.

Our objective to increase sales and profits at existing restaurants could be adversely affected by macroeconomic conditions.

The pandemic has significantly impacted our business as well as the global economy.

During 2021 and beyond, the U.S.

and global economies could further suffer from a downturn in economic activity.

In addition, there is no assurance that any governmental plans to stimulate the economy will foster growth in consumer spending or buying habits.

As in the past, we could experience reduced guest traffic or we may be unable or unwilling to increase the prices we charge for our products to offset higher costs or fewer transactions, either of which could reduce our sales and profit margins.

All of these factors could have a material adverse impact on our business, results of operations, financial condition or liquidity.

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

The restaurant industry is intensely competitive.

We also face competition from meal kit delivery services as well as the supermarket industry.

In addition, improving product offerings of fast casual and quick- service restaurants, together with negative economic conditions could cause consumers to choose less expensive alternatives.

As our competitors expand their operations, we expect competition to intensify.

We also compete with other restaurant chains and other retail establishments for quality site locations and employees.

Additionally, our competitors may generate or better implement business strategies that improve the value and the relevance of their brands and reputation, relative to ours.

This could include the testing of delivery via internal or third-party methods or better execution around guests’ To-Go experience in response to dine-in capacity restrictions.