What changed in this filing

/stocks — the workspaceLOADING

Item 5. Market for Registrant’s Common Equity

2021-02-26 compared with 2020-02-28 · 297 added, 250 removed, 355 unchanged (61% of the section changed)

2 unchanged sentences

The number of holders of record of our common stock as of February 17, 2021 was 179.

On February 20, 2020, our Board of Directors authorized the payment of a cash dividend of $0.36 per share of common stock.

This payment will be distributed on March 27, 2020, to shareholders of record at the close of business on March 11, 2020.

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 February 20, 2020, our Board of Directors declared a quarterly dividend of $0.36 per share of common stock which was paid on March 27, 2020.

On March 24, 2020, the Board of Directors voted to suspend the payment of quarterly cash dividends of the Company’s common stock, effective with respect to dividends occurring after March 27, 2020.

This was done to preserve cash flow during the pandemic.

The declaration and payment of cash dividends on our common stock is at the discretion of our Board of Directors, and any decision to declare a dividend will be based on a number of factors including, but not limited to, earnings, financial condition, applicable covenants under our amended credit facility and other contractual restrictions, or other factors deemed relevant.

We are currently evaluating when we will resume the payment of cash dividends.

Unregistered Sales of Equity Securities

1 unchanged sentence

Issuer Repurchases of Securities

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.

In 2008, our Board of Directors approved our first stock repurchase program.

From inception through December 29, 2020, we have paid $369.0 million through our authorized stock repurchase programs to repurchase 17,722,505 shares of our common stock at an average price per share of $20.82.

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.

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 program have been made through open market transactions.

The timing and the amount of any repurchases 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.

Since commencing our repurchase program in 2008, we have repurchased a total of 17,470,096 shares of common stock at a total cost of $356.4 million through December 31, 2019 under authorizations from our Board of Directors.

The following table includes information regarding purchases of our common stock made by us during the 14 weeks ended December 31, 2019 in connection with the repurchase programs described above:

Maximum Number

(or Approximate

Dollar Value) of

Part of Publicly

Shares that May

Yet Be Purchased

Under the Plans

September 25 to October 22

October 23 to November 19

November 20 to December 31

All repurchases to date have been made through open market transactions.

In 2020, we paid $12.6 million to repurchase 252,409 shares of our common stock.

The Company suspended all share repurchase activity on March 17, 2020 in order to preserve cash flow due to the pandemic.

As of December 29, 2020, $147.8 million remains authorized for stock repurchases.

We are currently evaluating when we will resume the repurchase of shares.

Stock Performance Graph

10 unchanged sentences

The Company utilizes a 13 or 14 week accounting period for quarterly reporting purposes.

Fiscal year 2019 was 53 weeks in length.

Fiscal years 2018, 2017, 2016 and 2015 were 52 weeks in length.

Fiscal years 2020, 2018, 2017 and 2016 were 52 weeks in length while fiscal year 2019 was 53 weeks in length.

Our historical results are not necessarily indicative of our results for any future period.

6 unchanged sentences

Income before taxes

Provision for income taxes

Income tax (benefit) expense

Net income including noncontrolling interests

8 unchanged sentences

Cash and cash equivalents

Current portion of operating lease liabilities

Current maturities of long-term debt

Operating lease liabilities, net of current portion

7 unchanged sentences

Company - Bubba’s 33

Company-Other

Company - Jaggers

Franchise - Domestic

1 unchanged sentence

Company restaurant information:

Comparable restaurant sales growth(1)

Comparable restaurant sales (1)

Texas Roadhouse restaurants only:

Comparable restaurant sales growth(1)

Comparable restaurant sales (1)

Average unit volume (2)

1 unchanged sentence

Net cash used in investing activities

Net cash used in financing activities

(1) Comparable restaurant sales growth reflects the change in sales over the same period of the prior year 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 later fiscal period, excluding sales from restaurants closed during the period.

(2) Average unit volume represents the average annual restaurant sales from Texas Roadhouse company restaurants open for a full six months before the beginning of the period measured, excluding sales from restaurants closed during the period.

Net cash provided by (used in) financing activities

(1) Comparable restaurant sales reflects the change in sales over the same period of the prior year 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 sales from restaurants permanently closed during the period.

Additionally, average unit volume of company restaurants in the table above was adjusted to reflect the restaurant sales of any acquired franchise restaurants.

3 unchanged sentences

(page 3) and Risk Factors set forth in Item 1A.

This Management’s Discussion and Analysis of Financial Condition and Results of Operations focuses on discussion of 2020 results as compared to 2019 results.

For discussion of 2019 results as compared to 2018 results, see “Item 7.

Management’s Discussion and Analysis of Financial Condition and Results of Operations” within our Form 10-K for the year ended December 31, 2019 filed with the SEC on February 28, 2020.

Texas Roadhouse, Inc.

11 unchanged sentences

in our consolidated statements of income and comprehensive income.

Of the 514 restaurants we owned and operated at the end of 2019, we operated 484 as Texas Roadhouse restaurants and operated 28 as Bubba’s 33 restaurants.

In addition, we operated two restaurants outside of the casual dining segment.

Of the 537 restaurants we owned and operated at the end of 2020, we operated 503 as Texas Roadhouse restaurants, 31 as Bubba’s 33 restaurants and three as Jaggers restaurants.

● 97 "franchise restaurants,"

2 unchanged sentences

in our consolidated statements of income and comprehensive income.

Additionally, we provide various management services to these 24 franchise restaurants, as well as six additional franchise restaurants in which we have no ownership interest.

Additionally, we provide various management services to these 24 franchise restaurants, as well as five additional franchise restaurants in which we have no ownership interest.

All of the franchise restaurants operated as Texas Roadhouse restaurants.

5 unchanged sentences

We operate on a fiscal year that typically ends on the last Tuesday in December.

Fiscal year 2019 was 53 weeks in length and, as such, the fourth quarter of fiscal 2019 was 14 weeks in length.

Fiscal years 2018 and 2017 were 52 weeks in length, while the fourth quarters for those years were 13 weeks in length.

As further noted in note 2 to the consolidated financial statements, 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 as of the beginning of our 2019 fiscal year and used 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.

In addition, as further noted in note 2 to the consolidated financial statements, we adopted Accounting Standards Codification 606, Revenue from Contracts with Customers as of the beginning of our 2018 fiscal year.

As a result of this adoption, certain transactions that were previously recorded as expense are now classified as revenue.

These include breakage income and third party gift card fees from our gift card program which are included in other sales and previously were included in other operating expense as well as certain fees received from our franchisees which are

included in franchise royalties and fees and previously were a reduction of general and administrative expense.

In addition, we reclassified certain amounts between restaurant operating costs and general and administrative expenses.

None of the above mentioned reclassifications had an impact to income before taxes and the comparative financial information has not been restated for these reclassifications.

The comparative impact of these reclassifications is further detailed below.

Fiscal year 2020 was 52 weeks in length, while the fourth quarter was 13 weeks in length.

Fiscal year 2019 was 53 weeks in length and, as such, the fourth quarter was 14 weeks in length.

COVID-19 Impact

On March 13, 2020, the novel coronavirus ( "

COVID-19 ") pandemic (the "

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 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.

In response to the impact of the pandemic on our restaurant operations, we have developed a hybrid operating model that accommodates our limited capacity dining rooms together with enhanced To-Go, which includes a curbside and/or drive-up operating model, as permitted by local guidelines.

This includes design changes to our building to better accommodate the increased To-Go sales and the expansion of outdoor seating areas where allowed.

We also have installed booth partitions in all of our restaurants as an added safety measure for our guests.

In addition, we have increased our already strict sanitation requirements, are conducting daily health and temperature checks for all employees before they begin their shift and are requiring personal protective equipment to be worn by all restaurant employees at all times.

As we work through the local regulations at each of our locations, the safety of our employees and guests remains our top priority.

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.

In response to the pandemic, the Company and our Board of Directors implemented the following measures in 2020 to enhance financial flexibility:

● Decreased the number of planned new restaurants for 2020;

● Suspended all quarterly cash dividends occurring after March 27, 2020;

● Suspended all share repurchase activity;

● Expanded the capacity of the revolving credit facility and increased the borrowings by $240 million;

● Decreased compensation including voluntary reductions of salary and bonus for the executive and leadership teams to make relief grants available for restaurant employees.

Each non-employee member of the Board of Directors also volunteered to forgo their director and committee fees along with any cash retainers effective April 1, 2020 and continuing throughout fiscal 2020.

Effective March 27, 2020, legislation referred to as the Coronavirus Aid, Relief, and Economic Security Act (the "CARES Act") was passed to benefit companies that were significantly impacted by the pandemic.

This legislation allowed for the deferral of the social security portion of the employer portion of FICA payroll taxes from the date of enactment through the end of 2020.

Amounts are required to be repaid in equal installments at the end of 2021 and 2022.

As of December 29, 2020, the Company had deferred $47.3 million in payroll taxes with the amount due in 2021 included in accrued wages and payroll taxes and the amount due in 2022 included in other liabilities in our consolidated balance sheets.

The CARES Act also allowed for an Employee Retention Credit for companies severely impacted by the pandemic to encourage the retention of full-time employees.

This refundable payroll tax credit was available for any company that had fully or partially suspended operations due to government order or experienced a significant decline in gross receipts and had employees who were paid but did not actually work.

The Company provided various forms of relief pay for hourly restaurant employees throughout the year, as significant portion of which qualified for this tax credit.

For the year ended December 29, 2020, we recorded $7.0 million related to this credit which is included in labor expense in our

consolidated statements of income and comprehensive income.

Finally, the CARES Act provided for small business loans that were forgivable if certain criteria were met.

The Company did not pursue any of these loans on behalf of company restaurants as we believe we have sufficient alternatives for raising capital if needed.

Long-term Strategies to Grow Earnings Per Share

Although a significant portion of 2020 required us to focus on adapting our business to account for the impacts of the pandemic, we remain committed to our core operating strategy that has defined and grown our brand.

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

2 unchanged sentences

Domestically, we 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 locations once the associated lease expired or as a result of eminent domain which allows us to update them to a more current design and/or to obtain more favorable lease terms.

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 move to a better site, 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, we opened 22 company restaurants while our franchise partners opened nine restaurants.

We currently plan to open at least 30 company restaurants in 2020 including as many as seven Bubba’s 33 restaurants.

In addition, we anticipate our existing franchise partners will open as many as eight Texas Roadhouse restaurants, primarily international, in 2020.

In 2020, we opened 22 company restaurants while our franchise partners opened four restaurants.

This included 18 Texas Roadhouse restaurants, three Bubba’s 33 restaurants, and one Jaggers restaurant.

At the onset of the pandemic, we delayed construction on all restaurants that were not substantially complete which decreased our planned store openings for the year.

We currently plan to open 25 to 30 company restaurants across all concepts in 2021.

To the extent that state and local guidelines begin to further reduce capacity at our restaurants, we could pull back on development and reduce capital expenditures accordingly.

In addition, we anticipate our existing franchise partners will open as many as six Texas Roadhouse restaurants, primarily international, in 2021.

Our average capital investment for the 18 Texas Roadhouse restaurants opened during 2020, including pre-opening expenses and a capitalized rent factor, was $6.2 million.

We expect our average capital investment for Texas Roadhouse restaurants opening in 2021 to be approximately $5.5 million.

For 2019, the average capital investment, including pre-opening expenses and a capitalized rent factor, for the three Bubba’s 33 restaurants opened during the year was $6.7 million.

Our average capital investment for the three Bubba’s 33 restaurants opened during 2020, including pre- opening expenses and a capitalized rent factor, was $7.3 million.

We expect our average capital investment for Bubba’s 33 restaurants opening in 2021 to be approximately $6.9 million.

2 unchanged sentences

the square footage, layout, scope of any 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.

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 December 31, 2019, we had 17 restaurants open in five countries in the Middle East, three restaurants open in Taiwan, five in the Philippines and one each in Mexico, China and South Korea for a total of 28 restaurants in ten foreign countries.

In addition, we have seen increased building costs as a result of the pandemic.

We have entered into area development and franchise agreements for the development and operation of Texas Roadhouse restaurants in several foreign countries and one U.S territory.

We currently have signed franchise and/or development agreements in nine countries in the Middle East as well as Taiwan, the Philippines, Mexico, China, South Korea, Brazil and Puerto Rico.

As of December 29, 2020, we had 15 restaurants open in five countries in the Middle East, four restaurants open in Taiwan, five in the Philippines, two in South Korea, and one each in Mexico and China for a total of 28 restaurants in ten foreign countries.

For the existing international agreements, the franchisee is generally 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.

2 unchanged sentences

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.

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.

2 unchanged sentences

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 higher 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.

In terms of driving higher 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.

In addition, we continue to focus on driving to-go sales which has significantly contributed to our recent sales growth.

In addition, with the increase in To-Go sales in prior years and the significant increase in the current year due to the pandemic, we are currently testing changes to our building layout to help better accommodate higher To-Go volumes at our restaurants.

In addition, we continue to look for ways through various strategic initiatives to drive awareness of our brands and increase profitability.

At the onset of the pandemic, we began selling ready-to-grill steaks and pork for customers to prepare at home.

While we reduced our store-level offerings around ready-to-grill products once our dining rooms began to re-open, based on the success of this program we have developed Texas Roadhouse Butcher Shop.

This on-line platform allows for the purchase and delivery hand-cut quality steaks that are available in our restaurants.

This platform launched in our Q4 2020 fiscal quarter.

Leveraging Our Scalable Infrastructure.

3 unchanged sentences

Returning Capital to Shareholders.

We continue to pay dividends and evaluate opportunities to return capital to our shareholders through repurchases of common stock.

We continue to evaluate opportunities to return capital to our shareholders, including the payment of dividends and repurchase 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 February 20, 2020, our Board of Directors declared a quarterly dividend of $0.36 per share of common stock.

On February 20, 2020, our Board of Directors declared a quarterly dividend of $0.36 per share of common stock which was paid on March 27, 2020.

On March 24, 2020, the Board of Directors voted to suspend the payment of quarterly cash dividends on the Company’s common stock, effective with respect to dividends occurring after March 27, 2020.

This was done to preserve cash flow due to the pandemic.

The declaration and payment of cash dividends on our common stock is at the discretion of our Board of Directors, and any decision to declare a dividend will be based on a number of factors, including, but not limited to, earnings, financial condition, applicable covenants under our amended credit facility, other contractual restrictions and other factors deemed relevant.

We are currently evaluating when we will resume the payment of cash dividends.

In 2008, our Board of Directors approved our first stock repurchase program.

Since then, we have paid $356.4 million through our authorized stock repurchase programs to repurchase 17,470,096 shares of our common stock at an average price per share of $20.40.

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.

1 unchanged sentence

All repurchases to date have been made through open market transactions.

This includes repurchases of $89.6 million under the new repurchase program and repurchases of $50.2 million under the previous stock purchase program.

For the year ended December 29, 2020, we paid $12.6 million to repurchase 252,409 shares of our common stock.

The Company suspended all share repurchase activity on March 17, 2020 in order to preserve cash flow due to the pandemic.

As of December 29, 2020, $147.8 million remains authorized for stock repurchases.

We are currently evaluating when we will resume the repurchase of shares.

Key Operating Personnel

1 unchanged sentence

Managing partners are single restaurant operators who have primary responsibility for the day-to- day operations of the entire restaurant.

Kitchen managers have primary responsibility for managing operations relating to our food preparation and food quality, and service managers have primary responsibility for managing our service quality and guest experiences.

The assistant managers support our kitchen and service managers;

these managers are collectively responsible for the operations of the restaurant in the absence of a managing partner.

Kitchen managers have primary responsibility for managing the kitchen staff and overall kitchen operations including food preparation and food quality.

Service managers have primary responsibility for managing the front of house staff and

overall dining room operations including service quality and the guest experience.

The assistant managers support our managing partners, kitchen, and service managers.

All managers are responsible for maintaining our standards of quality and performance.

1 unchanged sentence

Each market partner oversees a group of varying sizes of managing partners and their respective management teams.

Market partners are also responsible for the hiring and development of each restaurant’s management team and assist in the site selection process for new restaurants.

Market partners are also responsible for the hiring and development of each restaurant’s management team and assisting in the site selection process.

Through regular visits to the restaurants, the market partners facilitate adherence to all aspects of our concepts, strategies and standards of quality.

7 unchanged sentences

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.

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 sales for company restaurants over the same period of the prior year 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.

Comparable Restaurant Sales.

Comparable restaurant sales reflects the change in sales for company restaurants over the same period of the prior year 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 permanently closed during the period.

Comparable restaurant sales 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 annual restaurant and other sales for company restaurants open for a full six months before the beginning of the period measured excluding sales on restaurants closed during the period.

Average unit volume represents the average annual restaurant sales for company restaurants open for a full six months before the beginning of the period measured excluding sales of restaurants permanently 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.

1 unchanged sentence

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

Store weeks include weeks in which a restaurant is temporarily closed.

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 (in dollars and as a percentage of restaurant and other sales) represents restaurant and other sales less restaurant-level operating costs, including food and beverage costs, 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.

10 unchanged sentences

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 consolidated statements of income and comprehensive income.

Beginning in 2018, with the adoption of new revenue recognition accounting guidance, other sales include the amortization of fees associated with our third party gift card sales net of the amortization of gift card breakage income which had previously been recorded in restaurant other operating expense.

These amounts are amortized over a period consistent with the historic redemption pattern of the associated gift cards.

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 consistent with the historic redemption pattern of the associated gift card or on actual redemptions in periods where redemptions do not align with historic redemption patterns.

Franchise Royalties and Fees.

2 unchanged sentences

The terms of the international agreements may vary significantly from our domestic agreements.

Beginning in 2018, with the adoption of new revenue recognition accounting guidance, franchise royalties and fees include certain fees which had previously been recorded as a reduction of general and administrative expenses.

These 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 half relates to beef costs.

Food and Beverage Costs.

Food and beverage costs consists of the costs of raw materials and ingredients used in the preparation of food and beverage products sold in our company restaurants.

Approximately half of our food and beverage costs relates to beef costs.

Restaurant Labor Expenses.

5 unchanged sentences

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.

Restaurant other operating expenses consist of all other restaurant-level operating costs, the major components of which are utilities, dining room and To-Go 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.

15 unchanged sentences

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 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 December 31, 2019, December 25, 2018 and December 26, 2017, we owned a 5.0% to 10.0% equity interest in 24 franchise restaurants.

Additionally, as of December 31, 2019, December 25, 2018 and December 26, 2017, 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.

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 Expense (Income), Net.

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

Equity Income (Loss) from Unconsolidated Affiliates.

Equity income (loss) includes our percentage share of net income earned by unconsolidated affiliates.

This includes our 5.0% to 10.0% equity interest in 24 franchise restaurants.

Additionally, we own 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.

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 December 31, 2019 and December 25, 2018 included 20 majority-owned restaurants, all of which were open.

At December 26, 2017, our consolidated subsidiaries included 18 majority-owned restaurants, all of which were open.

Our consolidated subsidiaries include 20 majority-owned restaurants for all periods presented.

2020 Financial Highlights

Total revenue increased $298.7 million or 12.2% to $2.8 billion in 2019 compared to $2.5 billion in 2018.

The increase was primarily due to an increase in average unit volume driven by comparable restaurant sales growth, the opening of new restaurants and the addition of the 53 rd week in 2019.

The 53 rd week resulted in $59.0 million in

restaurant and other sales or 2.4% of the increase in 2019 compared to 2018.

Store weeks and comparable restaurant sales increased 7.2% and 4.7%, respectively, at company restaurants in 2019.

Restaurant margin increased $50.1 million or 11.8% to $474.2 million in 2019 from $424.2 million in 2018 while restaurant margin, as a percentage of restaurant and other sales, remained relatively unchanged at 17.3% in 2019 compared to 17.4% in 2018.

The decrease in restaurant margin, as a percentage of restaurant and other sales, was primarily due to higher labor costs as a result of higher average wage rates and prior staffing initiatives intended to increase sales.

These decreases were partially offset by lower cost of sales due to the benefit of higher average check.

Net income increased $16.2 million or 10.3% to $174.5 million in 2019 compared to $158.2 million in 2018 primarily due to higher restaurant margin dollars partially offset by higher depreciation and amortization expense, general and administration expense, and income tax expense.

Diluted earnings per share increased 11.9% to $2.46 from $2.20 in the prior year.

In addition, diluted earnings per share were positively impacted by $0.10 to $0.11 as a result of the 53 rd week.

Total revenue decreased $358.0 million or 13.0% to $2.4 billion in 2020 compared to $2.8 billion in 2019.

The decrease was primarily due to a decrease in average unit volumes driven by a decrease in comparable restaurant sales.

While store weeks increased 2.7% in 2020, comparable restaurant sales decreased 14.2%.

The decrease in average unit volumes is primarily due to our dining rooms operating under various limited capacity restrictions due to the pandemic.

Also, the addition of the 53 rd week in 2019 resulted in $59.0 million in restaurant and other sales.

Restaurant margin decreased $208.6 million or 44.0% to $265.6 million in 2020 compared to $474.2 million in 2019 and restaurant margin, as a percentage of restaurant and other sales, decreased to 11.2% in 2020 compared to 17.3% in 2019.

The decrease in restaurant margin, as a percentage of restaurant and other sales, was due to lower sales along with higher costs due to the pandemic.

In addition, restaurant margin was pressured by an increase in To-Go sales which typically result in a less profitable transaction.

See further discussion of specific drivers included below.

Net income decreased $143.2 million or 82.1% to $31.3 million in 2020 compared to $174.5 million in 2019 primarily due to lower restaurant margin dollars partially offset by lower general and administrative expenses and an income tax benefit.

Diluted earnings per share decreased 81.8% to $0.45 from $2.46 in the prior year.

Also, the addition of the 53 rd week in 2019 resulted in additional diluted earnings per share of $0.10 to $0.11.

Results of Operations

7 unchanged sentences

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

Cost of sales

Food and beverage

Other operating

5 unchanged sentences

Income from operations

Interest income (expense), net

Equity income from investments in unconsolidated affiliates

Interest expense (income), net

Equity (loss) income from investments in unconsolidated affiliates

Income before taxes

Provision for income taxes

Income tax (benefit) expense

Net income including noncontrolling interests

18 unchanged sentences

Company openings

Company closings

Franchise openings - Domestic

4 unchanged sentences

December 31, 2019

December 26, 2017

Company - Texas Roadhouse

Company - Bubba's 33

Company - Other

Company - Jaggers

Franchise - Texas Roadhouse - U.S.

1 unchanged sentence

Restaurant and Other Sales

Restaurant and other sales increased 12.2% in 2019 compared to 2018 and increased 10.6% in 2018 compared to 2017.

Restaurant and other sales decreased 12.9% in 2020 compared to 2019.

The following table summarizes certain key drivers and/or attributes of restaurant sales at company restaurants for the periods presented.

2 unchanged sentences

Increase in store weeks

Increase in average unit volume

Total increase in restaurant sales

(Decrease) increase in average unit volume

Total (decrease) increase in restaurant sales

Other sales(2)

Total increase in restaurant and other sales

Comparable restaurant sales growth

Total (decrease) increase in restaurant and other sales

Comparable restaurant sales

Texas Roadhouse restaurants only:

Comparable restaurant sales growth

Comparable restaurant sales

Average unit volume (in thousands)

Average unit volume (in thousands), 2018 and 2017 adjusted (3)

Average unit volume (in thousands), 2019 adjusted (3)

Weekly sales by group:

2 unchanged sentences

Restaurants less than six months old (30 and 32 units, respectively)

(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 2020, represent $16.9 million related to the amortization of third-party gift card fees net of $10.1 million related to the amortization of gift card breakage income.

For 2018, other sales represent $14.2 million related to the amortization of third party gift card fees net of $9.0 million related to the amortization of gift card breakage income.

(3) As 2019 contains 53 weeks, for comparative purposes, 2018 and 2017 average unit volumes were adjusted to a 53-week basis.

Other sales, for 2019, represent $19.8 million related to the amortization of third-party gift card fees net of $10.7 million related to the amortization of gift card breakage income.

The decrease in amounts for 2020 is primarily due to a decrease in gift card sales and redemptions.

(3) As 2019 contained 53 weeks, for comparative purposes, 2019 average unit volumes were adjusted to a 52-week basis.

(4) Average unit volume restaurants include restaurants open a full six 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 average unit volume driven by comparable restaurant sales growth combined with the opening of new restaurants.

In addition, the increase in store weeks in 2019 includes the impact of the 53 rd week.

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.

Guest traffic counts

Per person average check

Comparable restaurant sales growth

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.

The increase in our per person average check for the periods presented was primarily driven by menu price increases shown below, which were taken as a result of inflationary pressures, primarily labor and/or commodities.

In all periods presented, average guest check may not have changed in line with the menu price increases implemented as guests shifted to other menu price items and/or purchased more or less beverages.

The decrease in restaurant sales for 2020 was primarily attributable to the decrease in average unit volumes, driven by a decline in comparable restaurant sales, partially offset by an increase in store weeks.

The decrease in comparable restaurant sales was driven by the dining room closures and capacity restrictions due to the pandemic.

In late March, all of our domestic company and franchise restaurants were required to temporarily close their dining rooms and shifted to a To-Go only model.

Our expanded To-Go model, which includes a curbside and/or drive-up operating model, allows guests to order via phone, through our mobile app, on-line, or once on site.

As the dining rooms were allowed to re-open, we implemented a hybrid operating model with limited capacity dining rooms together with enhanced To-Go , which includes a curbside and/or drive-up operating model, as permitted by local guidelines.

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

Our expanded To-Go model helped to offset the loss of dining room sales particularly at the onset of the pandemic when all of our dining rooms were closed.

In addition, we continued to see significant To-Go sales once our dining rooms began to re-open.

To-Go sales as a percentage of total restaurant sales were 27.0% in 2020 compared to 7.2% in 2019.

In addition to our expanded To-Go model, we also added family value packs which include four entrées with an assortment of sides , and ready-to-grill steaks and pork that allow customers to order their preferred cut of meat to prepare at home.

The majority of the sales around the family value packs and ready-to-grill occurred in the first half of 2020, when all of our dining rooms were closed.

In total, these items represented less than 3% of restaurant sales for the year.

As a result of the significant change in our operating model in the first half of 2020, including the offering of these items, we do not believe that our per person average check and guest traffic counts provide a meaningful comparison to the prior year period.

As such, these amounts have not been disclosed for 2020.

In addition, in late October 2020 we implemented a menu price increase of approximately 1.0% which was the only increase taken for 2020.

We may take additional pricing in 2021 if needed.

In 2020, we plan to open at least 30 company restaurants, including as many as seven Bubba’s 33 restaurants.

We have either begun construction or have sites under contract for purchase or lease for the majority of our expected 2020 openings.

We opened 22 company restaurants across all concepts in 2020.

At the onset of the pandemic, we delayed construction on all restaurants that were not substantially complete which decreased our planned store openings for the year.

We currently plan to open 25 to 30 company restaurants across all concepts in 2021.

To the extent that state and local guidelines begin to further reduce capacity at our restaurants, we could pull back on development and reduce capital expenditures accordingly.

Franchise Royalties and Fees

Franchise royalties and fees increased $1.7 million or 8.1% in 2019 compared to 2018 and increased $3.8 million or 23.1% in 2018 compared to 2017.

The increases in both 2019 and 2018 were attributable to an increase in average unit volume at domestic restaurants, driven by comparable restaurant sales growth of 3.8%, and the opening of new restaurants.

The increase in 2019 was also impacted by the addition of the 53 rd week.

The 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.

Also included in the increase in 2018 were reclassifications of $2.6 million in conjunction with the implementation of new revenue recognition accounting guidance as previously described.

We anticipate our existing franchise partners will open as many as eight Texas Roadhouse restaurants, primarily international, in 2020.

Restaurant Cost of Sales

Restaurant cost of sales, as a percentage of restaurant and other sales, decreased to 32.3% in 2019 from 32.6% in 2018 and from 32.8% in 2017.

These decreases were primarily due to the benefit of menu pricing actions partially offset by commodity inflation of 1.9% and 1.4% in 2019 and 2018, respectively.

The decrease in 2018 was also due to the reclassification of $5.4 million in conjunction with the implementation of new revenue recognition accounting guidance as previously described.

For 2020, we currently expect commodity cost inflation of 1.0% to 2.0% with fixed price contracts for just over 50% of our overall food costs and the remainder subject to fluctuating market prices.

Franchise royalties and fees decreased by $4.0 million or 18.4% compared to 2019 due to lower average unit volume driven by comparable restaurant sales decreases at domestic and international franchise stores as well as the impact of the 53 rd week in 2019.

Comparable restaurant sales at domestic and international franchise stores decreased 17.3% in 2020.

These comparable restaurant sales decreases include the impact of international locations that were temporarily closed during the year.

Additionally, in 2020, we waived royalties of $0.4 million for international franchisees in countries that were significantly impacted by the pandemic.

We also made royalty deferral arrangements for many of our domestic and international franchisees.

The majority of these royalty waiver and deferral arrangements were through the end of our Q2 2020 fiscal quarter.

Our existing domestic franchise partners opened two Texas Roadhouse restaurants in 2020.

In addition, our existing international franchise restaurant partners opened two restaurants and closed two restaurants in 2020.

We also acquired two domestic franchise restaurants in the fourth quarter of 2020.

We anticipate our existing franchise partners will open as many as six Texas Roadhouse restaurants, primarily international, in 2021.

Food and Beverage Costs

Food and beverage costs, as a percentage of restaurant and other sales, increased to 32.8% in 2020 from 32.3% in 2019 primarily due to higher commodity inflation partially offset by a change in mix of items sold, including fewer alcoholic beverages.

Commodity inflation was 2.1% in 2020, primarily driven by higher beef costs.

For 2021, we expect commodity cost inflation of approximately 3.0%.

Restaurant Labor Expenses

Restaurant labor expense, as a percentage of restaurant and other sales, increased to 36.8% in 2020 compared to 33.1% in 2019.

This increase was primarily attributed to higher average wage rates and prior staffing initiatives intended to increase sales partially offset by the benefit from an increase in average unit volume.

Restaurant labor expense, as a percentage of restaurant and other sales, increased to 32.6% in 2018 compared to 31.2% in 2017.

The increase was primarily attributed to higher average wage rates and staffing initiatives to increase sales along with higher costs associated with health insurance and workers’ compensation expense partially offset by the benefit from an increase in average unit volume.

In 2020, we anticipate our labor costs will be pressured by mid-single digit inflation due to ongoing labor market pressures and increases in state-mandated wage rates.

These increases may or may not be offset by additional menu price adjustments.

This increase was primarily due to higher wage rates, increased benefits provided to our employees related to the pandemic, higher costs associated with health insurance, and a decrease in average unit volume.

These increases were partially offset by employee retention payroll tax credits of $7.0 million related to relief pay paid to our hourly restaurant employees as well as a decrease in worker’s compensation costs.

Higher wage rates were due to a significant number of employees moving from a tipped wage rate to a non-tipped wage rate due to the significant increase in To-Go sales.

In addition, we incurred costs of $20.2 million for relief pay and enhanced benefits for our hourly employees.

The relief pay was based on their level of hours worked prior to the pandemic and indexed for tenure.

In addition, we enhanced certain sick pay and accrued vacation benefits and also provided a premium holiday on health insurance.

Higher health insurance costs were due to higher claim costs as well as

rate and enrollment increases.

The increased claim costs, driven by unfavorable claims experience, resulted in $3.8 million of unfavorable adjustments to our actuarial reserve estimate in 2020.

The employee retention payroll tax credit of $7.0 million was a credit made available through the CARES Act and related to relief pay for our hourly employees that was paid throughout 2020.

The decrease in workers’ compensation expense was due to changes in our claims development history included in our Q3 2020 actuarial reserve estimate that resulted in a favorable adjustment of $1.8 million.

Restaurant Rent Expense

Restaurant rent expense, as a percentage of restaurant and other sales, remained relatively unchanged at 1.9% in 2019 compared to 2.0% in both 2018 and 2017.

The decrease in 2019 was primarily due to the benefit of the 53 rd week and an increase in average unit volume partially offset by higher rent expense, as a percentage of restaurant and other sales, at our newer restaurants.

Rent expense was unchanged in 2018 compared to 2017 due to higher rent expense, as a percentage of restaurant and other sales, at our newer restaurants offset by the benefit from an increase in average unit volume.

Restaurant rent expense, as a percentage of restaurant and other sales, increased to 2.3% in 2020 compared to 1.9% in 2019 due to the decrease in average unit volume and the benefit of the 53 rd week in 2019 along with higher rent expense, as a percentage of restaurant and other sales, at our newer restaurants.

Restaurant Other Operating Expenses

Restaurant other operating expense, as a percentage of restaurant and other sales, decreased to 15.3% in 2019 from 15.4% in 2018.

The decrease was primarily attributed to lower utilities expense and lower marketing and advertising expense along with the benefit from an increase in average unit volume.

These decreases were partially offset by higher general liability insurance expense and repairs and maintenance expense.

Restaurant other operating expense, as a percentage of restaurant and other sales, decreased to 15.4% in 2018 from 15.6% in 2017.

The decrease was primarily attributed to reclassifications of $4.7 million in 2018 made in conjunction with the implementation of the new revenue recognition accounting guidance along with lower incentive compensation expense and the benefit from an increase in average unit volume.

The decrease was partially offset by higher credit card fees.

Restaurant other operating expenses, as a percentage of restaurant and other sales, increased to 17.0% in 2020 from 15.3% in 2019.

This increase was due to a decrease in average unit volume, higher supplies expense and higher general liability insurance expense partially offset by lower losses on remodeling projects, laundry and linen and advertising expenses.

Higher supplies expense was due to an increase in To-Go supplies, personal protective equipment, and other costs to support our hybrid operating model throughout the year.

The increase in general liability insurance expense was due to changes in our claims development history included in our Q3 2020 actuarial reserve estimate that resulted in an unfavorable adjustment of $1.4 million.

This compared to a favorable adjustment of $1.1 million in 2019.

In addition, due to the significant decrease in our average unit volumes, expenses that are largely fixed, including utilities, property taxes, and other outside services increased as a percentage of restaurant and other sales.

Restaurant Pre-opening Expenses

Pre-opening expenses increased to $20.2 million in 2019 from $19.1 million in 2018 and from $19.3 million in 2017.

These changes are primarily due to the number of restaurant openings in a given year and the timing of restaurant openings.

Pre-opening costs will fluctuate from period to period 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.

Pre-opening expenses decreased to $20.1 million in 2020 from $20.2 million in 2019.

The change in pre-opening expense is primarily driven by the number and timing of restaurant openings in a given year.

Pre-opening costs will typically fluctuate from period to period 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 Expenses ("D&A")

D&A, as a percentage of revenue, increased to 4.9% in 2020 compared to 4.2% in 2019.

The increase in D&A was primarily due to higher depreciation at new stores from company restaurants and accelerated depreciation on relocated restaurants.

These increases were partially offset by an increase in average unit volume.

D&A, as a percentage of revenue, decreased to 4.1% in 2018 compared to 4.2% in 2017.

The decrease in D&A was primarily due to the benefit from an increase in average unit volume partially offset by increased investment in short-lived assets, such as equipment at existing restaurants, and higher depreciation at new restaurants.

The increase was primarily due to a decrease in average unit volume and higher depreciation at new restaurants partially offset by lower accelerated depreciation.

In 2019, our accelerated depreciation was higher due to the planned relocation of several restaurants.

Impairment and Closure Costs, Net

Impairment and closure costs, net were ($0.9) million, $0.3 million and $0.7 million in 2019, 2018 and 2017, respectively.

Impairment and closure income in 2019 included a gain of $2.6 million related to the forced relocation of one restaurant.

This included a gain of $1.2 million related to the leasehold improvements and a gain of $1.4 million to settle a favorable operating lease.

Also, in 2019, we recorded a charge of $1.1 million related to the impairment of the right-of-use asset at an underperforming restaurant.

The remaining costs of $0.6 million related to closure costs primarily related to the relocation of Texas Roadhouse restaurants.

For 2018 and 2017, the amounts recorded were closure costs primarily related to the relocation of Texas Roadhouse restaurants.

See note 16 in the Consolidated Financial Statements for further discussion regarding closures and impairments recorded in 2019, 2018 and 2017.

Impairment and closure costs, net were $2.3 million and ($0.9) million in 2020 and 2019, respectively.

In 2020, impairment and closure costs, net included $1.2 million related to the impairment of the fixed assets and operating lease right-of-use assets at four restaurants, all of which have relocated or are scheduled to be relocated.

In addition, we recorded goodwill impairment of $1.1 million related to two restaurants.

In 2019, impairment and closure costs, net included a gain of $2.6 million related to the forced relocation of one restaurant and $1.1 million related to the impairment of the operating lease right-of-use asset at an underperforming restaurant.

General and Administrative Expenses ("G&A")

G&A, as a percentage of total revenue, decreased to 5.0% in 2020 compared to 5.4% in 2019.

The decrease was primarily due to the benefit of the 53 rd week, lower claims administration costs related to a previously disclosed legal settlement and an increase in average unit volume.

These decreases were partially offset by increased costs from the expansion of our regional operations support structure and increased marketing expenses due to decreased contributions from company restaurants.

G&A, as a percentage of total revenue, decreased to 5.5% in 2018 compared to 5.6% in 2017.

The decrease was primarily due to a pre-tax charge of $14.9 million ($9.2 million after-tax), or $0.13 per diluted share, related to the settlement of a legal matter in 2017 and the benefit of an increase in average unit volume.

This decrease was offset by higher incentive compensation costs, higher managing partner conference costs, and reclassifications of $7.4 million made in conjunction with the implementation of the new revenue recognition accounting guidance as previously described.

The decrease was primarily driven by lower incentive and performance-based compensation costs, lower managing partner conference costs and lower travel costs partially offset by a decrease in average unit volume.

Managing partner conference costs were lower in 2020 due to the cancellation of our annual conference.

As a result of the pandemic, our executive and leadership teams voluntarily agreed to reductions of salary and bonus for a portion of our 2020 fiscal year.

Also, each non-employee member of our Board of Directors volunteered to forgo their director and committee fees and any cash retainers for a portion of our 2020 fiscal year.

We are currently subject to various claims and contingencies that arise from time to time in the ordinary course of business, including those related to litigation, business transactions, employee-related matters and taxes, among others.

See note 13 to the consolidated financial statements for further discussion of these matters.

Interest Income (Expense), Net

Interest income was $1.5 million in 2019 compared to interest expense of $0.6 million in 2018.

Net interest expense decreased to $0.6 million in 2018 compared to $1.6 million in 2017.

These changes 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.

Our effective tax rate increased to 15.1% in 2019 compared to 12.9% in 2018 primarily due to lower excess tax benefits related to our share-based compensation program partially offset by lower non-deductible officers’ compensation.

In addition, the prior year tax rate benefitted from an adjustment related to tax reform that we recorded in conjunction with the filing of our 2017 tax return.

See note 9 to the Consolidated Financial Statements for a reconciliation of the statutory federal income tax rate to our effective tax rate.

For 2020, we expect the effective tax rate to be 14.0% to 15.0%.

Our effective tax rate decreased to 12.9% in 2018 compared to 26.1% in 2017 primarily due to new tax legislation that was enacted in late 2017.

As a result of the new tax legislation, significant tax changes were enacted including the reduction of the federal corporate tax rate from 35.0% to 21.0%.

These changes were generally effective at the beginning of our 2018 fiscal year.

Interest Expense (Income) Expense, Net

Interest expense was $4.1 million compared to interest income of $1.5 million in 2019.

The increase in interest expense was primarily driven by additional borrowings on our credit facility due to the pandemic along with reduced earnings on our cash and cash equivalents.

Our effective tax rate was a benefit of 81.4% in 2020 compared to expense of 15.1% in 2019.

The benefit was primarily due to the impact of FICA tip and Work opportunity tax credits on lower pre-tax income.

Additionally, these credits exceeded our federal tax liability in 2020 but we expect to utilize these credits in the future years or by carrying back to our 2019 tax year.

Liquidity and Capital Resources

2 unchanged sentences

Net cash used in investing activities

Net cash used in financing activities

Net (decrease) increase in cash and cash equivalents

Net cash provided by operating activities was $374.3 million in 2019 compared to $352.9 million in 2018.

The increase was primarily due to an increase in net income and depreciation and amortization expense.

The increase in net income was primarily driven by increased restaurant margin dollars.

This was partially offset by a decrease in working capital along with a decrease in deferred income taxes.

The decrease in working capital was primarily due to a decrease in deferred revenue related to gift cards partially offset by a decrease in prepaid income taxes.

Net cash provided by (used in) financing activities

Net increase (decrease) in cash and cash equivalents

Net cash provided by operating activities was $230.4 million in 2020 compared to $374.3 million in 2019.

The increase was primarily due to an increase in net income and non-cash items such as deferred income taxes, depreciation and amortization expense and share-based compensation expense along with an increase in working capital.

The increase in net income was primarily driven by a decrease in income tax expense due to new tax legislation that was enacted in late 2017.

The increase in working capital was primarily due to an increase in deferred revenue related to gift cards and an increase in accounts payable partially offset by an increase in prepaid income taxes.

This decrease was primarily due to a decrease in net income and a decrease in deferred income taxes partially offset by favorable changes in working capital.

Working capital changes included the benefit of deferred payroll taxes related to the CARES Act.

Our operations have not required significant working capital and like many restaurant companies we can operate with negative working capital.

1 unchanged sentence

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 $214.8 million in 2019 compared to $158.1 million in 2018 and $178.2 million in 2017.

The increase in 2019 was primarily due to an increase in capital expenditures from the relocation of existing restaurants, the remodeling of our support center office and the continued opening of new restaurants.

Net cash used in investing activities was $161.1 million in 2020 compared to $214.8 million in 2019.

The decrease is primarily due to a decrease in capital expenditures partially offset by the purchase of two franchise restaurants in 2020.

The decrease in capital expenditures is primarily due to a delay in our development schedule due to the pandemic and decreased expenditures due to the completion of the remodel 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.

7 unchanged sentences

Total capital expenditures

Our future capital requirements will primarily depend on the number of new restaurants we open, the timing of those openings and the restaurant prototypes developed in a given fiscal year.

These requirements will include costs directly related to opening new restaurants and relocating existing restaurants and may also include costs necessary to ensure that our infrastructure is able to support a larger restaurant base.

In 2020, we expect our capital expenditures to be $210.0 million to $220.0 million, the majority of which will relate to planned restaurant openings, including at least 30 company restaurant openings in 2020, the refurbishment of existing restaurants and the relocation of existing company 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 2020, we anticipate net cash provided by operating activities will exceed capital expenditures, which we currently plan to use to pay dividends, as approved by our Board of Directors and/or repurchase common stock.

Net cash used in financing activities was $261.7 million in 2019 compared to $135.5 million in 2018.

The increase is primarily due to share repurchases of $139.8 million in 2019 as well as higher dividend payments in 2019.

As a result of the 53 rd week, 2019 had five dividend payments versus four payments in 2018.

These increases were partially offset by the repayment of our revolving credit facility in Q2 2018.

Net cash used in financing activities was $135.5 million in 2018 compared to $70.2 million in 2017.

The increase is primarily due to the $50.0 million repayment of our revolving credit facility in Q2 2018 along with an increase in dividends paid.

At the onset of the pandemic, we delayed construction on all restaurants that were not substantially complete which decreased our planned restaurant openings for the year.

In addition, we delayed any projects on existing restaurants that were not critical to their operations.

In 2021, we expect our capital expenditures to be $210.0 million to $220.0 million and we currently plan to open 25 to 30 company restaurants across all concepts.

To the extent that state and local guidelines begin to significantly reduce capacity and/or re-close dining rooms, we could pull back on development and reduce capital expenditure spend accordingly.

Net cash provided by financing activities was $185.9 million in 2020 compared to net cash used in financing activities of $261.7 million in 2019.

The increase is primarily due to increased borrowings under our revolving credit facility offset by a decrease in share repurchases and dividends paid.

In March 2020, we increased our borrowings by $190.0 million as a precautionary measure in order to bolster our cash position and enhance financial flexibility.

On May 11, 2020, 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 the increased amount.

The proceeds from these borrowings, which totaled $240.0 million, are being used for general corporate purposes, including, without limitation, working capital, capital expenditures in the ordinary course of business, or other lawful corporate purposes, all in accordance with and subject to the terms and conditions of the facility.

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.

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.

1 unchanged sentence

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.

During 2019, we repurchased 2,625,245 shares for $139.8 million and had $160.4 million remaining under our authorized stock repurchase program as of December 31, 2019.

We paid cash dividends of $102.4 million in 2019 including the payment of a regular quarterly dividend authorized by our Board of Directors on December 5, 2019, of $0.30 per share of common stock to shareholders of record at the close of business on December 11, 2019.

This payment was distributed on December 27, 2019.

On February 20, 2020, our Board of Directors authorized the payment of a quarterly cash dividend of $0.36 per share of common stock.

This payment will be distributed on March 27, 2020 to shareholders of record at the close of business on March 11, 2020.

The increase in the dividend per share amount reflects the increase in our regular annual dividend rate from $1.20 per share in 2019 to $1.44 per share in 2020.

The declaration and payment of cash dividends on our common stock is at the discretion of our Board of Directors, and any decision to declare a dividend will be based on a number of factors, including, but not limited to, earnings, financial condition, applicable covenants under our amended credit facility and other contractual restrictions, or other factors deemed relevant.

We paid distributions of $6.4 million to equity holders of all of our 20 majority-owned company restaurants in 2019.

In 2018, we paid distributions of $5.7 million to equity holders of 19 of our 20 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 JP Morgan Chase Bank, N.A., PNC Bank, N.A., and Wells Fargo Bank, N.A.

The amended 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 amended 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 amended revolving credit facility, 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%.

The weighted-average interest rate for the amended revolving credit facility at December 31, 2019 and December 25, 2018 was 2.64% and 3.81%, respectively.

At December 31, 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.

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 2020, we paid $12.6 million to repurchase 252,409 shares of our common stock.

On March 17, 2020, we suspended all share repurchase activity.

As of December 29, 2020, $147.8 million remains authorized for stock repurchases.

We are currently evaluating when we will resume the repurchase of shares.

On February 20, 2020, our Board of Directors authorized the payment of a cash dividend of $0.36 per share of common stock.

The payment of this dividend totaling $25.0 million was distributed on March 27, 2020 to shareholders of record at the close of business on March 11, 2020.

On March 24, 2020, the Board of Directors voted to suspend the payment of quarterly cash dividends of the Company’s common stock, effective with respect to dividends occurring after March 27, 2020.

We are currently evaluating when we will resume the payment of cash dividends.

We paid distributions of $3.4 million and $6.4 million to equity holders of all of our 20 majority-owned company restaurants in 2020 and 2019, respectively.

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, including approval by the syndicate of lenders.

On May 11, 2020, we amended the revolving credit facility to provide for an incremental revolving credit facility of up to $82.5 million.

This amount reduced the additional $200.0 million that was available under the revolving credit facility.

The maturity date for the incremental revolving credit facility is May 10, 2021.

The maturity date for the original

revolving credit facility remains August 5, 2022.

The terms of the amendment require us to pay interest on outstanding borrowings of the original revolving credit facility at LIBOR plus a margin of 1.50% and to pay a commitment fee of 0.25% per year on any unused portion of the revolving credit facility through the end of our Q1 2021 fiscal quarter.

The amendment also provides an Alternate Base Rate that may be substituted for LIBOR.

As of December 29, 2020, we had $190.0 million outstanding on the original revolving credit facility and $1.8 million of availability, net of $8.2 million of outstanding letters of credit.

This outstanding amount is included as long-term debt on our consolidated balance sheet.

The terms of the amendment also require us to pay interest on outstanding borrowings of the incremental revolving credit facility at LIBOR, which is subject to a floor of 1.0%, plus a margin of 2.25% and to pay a commitment fee of 0.50% per year on any unused portion of the incremental revolving credit facility through the maturity date.

As of December 29, 2020, we had $50.0 million outstanding and $32.5 million of availability on the incremental revolving credit facility.

This outstanding amount is included as current maturities of long-term debt on our consolidated balance sheet.

The weighted-average interest rate for the revolving credit facility as of December 29, 2020 was 1.98%.

The lenders’ obligation to extend credit pursuant to the Amended Credit Agreement depends on us maintaining certain financial covenants.

The amendment to the revolving credit facility also modified the financial covenants through the end of our Q1 2021 fiscal quarter.

We were in compliance with all financial covenants as of December 29, 2020.

2 unchanged sentences

Payments Due by Period

Long-term debt obligation, including current maturities

Obligation under finance lease

Interest on finance lease

Operating lease obligations

1 unchanged sentence

Total contractual obligations(2)

(1) Excluded from this amount are certain immaterial items including unrecognized tax benefits under Accounting Standards Codification ("ASC") 740 as they are immaterial.

(1) Includes interest on our revolving credit facility and interest on a finance lease.

Uses interest rates on our revolving credit facility as of December 29, 2020 for our variable rate debt.

We assumed $240.0 million remains outstanding on our revolving credit facility through the respective maturity for all borrowings.

We assumed a constant interest rate until maturity on our finance lease.

(2) Unrecognized tax benefits under ASC 740, Income Taxes, are not significant and excluded from this amount.

We have no material minimum purchase commitments with our vendors that extend beyond a year.

25 unchanged sentences

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 17, these restaurants are owned, in whole or part, by certain officers, directors and 5% shareholders of the Company.

(3) Leases associated with a restaurant concept which was sold.

(2) As discussed in note 17 to the accompanying consolidated financial statements, this restaurant is owned in part by our founder.

(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.

8 unchanged sentences

Impairment of Long-lived Assets.

We evaluate long-lived assets related to each restaurant to be held and used in the business, such as property and equipment, right-of-use assets and intangible assets subject to amortization, for impairment whenever events and circumstances indicate that the carrying amount of a restaurant may not be recoverable.

When we evaluate restaurants, cash flows are the primary indicator of impairment.

We evaluate long- lived assets related to each restaurant to be held and used in the business, such as property and equipment, operating lease right-of-use assets and intangible assets subject to amortization, for impairment whenever events and circumstances indicate that the carrying amount of a restaurant may not be recoverable.

For the purposes of this evaluation, we define the asset group at the individual restaurant level.

When we evaluate the restaurants, cash flows are the primary indicator of impairment.

Recoverability of assets to be held and used is measured by comparison of the carrying amount of the restaurant to estimated undiscounted future cash flows expected to be generated by the restaurant.

4 unchanged sentences

Both qualitative and quantitative information are considered when evaluating for potential impairments.

As we assess the

ongoing expected cash flows and carrying amounts of our long-lived assets, these factors could cause us to realize a material impairment charge.

As we assess the ongoing expected cash flows and carrying amounts of our long-lived assets, these factors could cause us to realize a material impairment charge.

If assets are determined to be impaired, we measure the impairment charge by calculating the amount by which the asset carrying amount exceeds its estimated fair value.

The determination of asset fair value is also subject to significant judgment.

We generally measure estimated fair value by independent third party appraisal or discounting estimated future cash flows.

We generally measure estimated fair value by discounting estimated future cash flows.

When fair value is measured by discounting estimated future cash flows, the assumptions used are consistent with what we believe hypothetical market participants would use.

1 unchanged sentence

If these assumptions change in the future, we may be required to record impairment charges for these assets.

In 2019, as a result of our impairment analysis, we recorded a charge of $1.1 million related to the impairment of the right-of-use asset at an underperforming restaurant.

In addition, at December 31, 2019, we had 17 restaurants whose trailing 12-month cash flows did not meet the predetermined threshold.

However, the future undiscounted cash flows from operating each of these restaurants over their remaining estimated useful lives exceeded their respective remaining carrying values and no assets were determined to be impaired.

See note 16 in the Consolidated Financial Statements for further discussion regarding closures and impairments recorded in 2019, 2018 and 2017, including the impairments of goodwill and other long-lived assets.

In 2020, as a result of our quarterly impairment analysis, we recorded a total charge of $1.2 million related to the impairment of the fixed assets and operating lease right-of-use assets at four restaurants, all of which have relocated or are scheduled to be relocated.

See note 16 in the consolidated financial statements for further discussion regarding closures and impairments recorded in 2020, 2019 and 2018.

Goodwill is tested annually for impairment and is tested more frequently if events and circumstances indicate that the asset might be impaired.

We have assigned goodwill to our reporting units, which we consider to be the individual restaurant level.

An impairment loss is recognized to the extent that the carrying amount exceeds the implied fair value of goodwill.

An impairment loss is recognized to the extent that the carrying amount exceeds the fair value of the reporting unit.

The determination of impairment consists of two steps.

1 unchanged sentence

The fair value of the reporting unit may be based on several valuation approaches including capitalization of earnings, discounted cash flows, comparable public company market multiples and comparable acquisition market multiples.

Second, if the carrying amount of the reporting unit exceeds its fair value, an impairment loss is recognized for any excess of the carrying amount of the reporting unit’s goodwill over the implied fair value of the goodwill.

The implied fair value of goodwill is determined by allocating the fair value of the reporting unit, in a manner similar to a purchase price allocation.

The residual fair value after this allocation is the implied fair value of the reporting unit goodwill.

The valuation approaches used to determine fair value are subject to key judgments and assumptions that are sensitive to change such as judgments and assumptions about appropriate revenue growth rates, operating margins, weighted average cost of capital, and comparable company and acquisition market multiples.

7 unchanged sentences

The average amount of goodwill associated with each reporting unit is $1.7 million with six reporting units having goodwill in excess of $4.0 million.

We did not record any impairment charges as a result of our annual impairment analysis in 2019.

We are not currently monitoring any restaurants for potential impairment.

Since we determine the fair value of goodwill at the restaurant level, any significant decreases in cash flows at these restaurants or others could trigger an impairment charge in the future.

The fair value of each of our reporting units was substantially in excess of their respective carrying values as of the 2019 goodwill impairment test.

In connection with our annual impairment analysis, we recorded an impairment charge of $1.1 million related to two restaurant reporting units.

Since we determine the fair value of goodwill at the restaurant level, any significant decreases in cash flows at these restaurants or others could further trigger impairment charges in the future.

The fair value of each of our reporting units, excluding the two in which we recorded impairment charges in the current year, was substantially in excess of their respective carrying values as of the 2020 goodwill impairment test.

See note 16 in the consolidated financial statements for further discussion regarding closures and impairments recorded in 2020, 2019 and 2018.

Effects of Inflation

1 unchanged sentence

however, we have experienced material increases in certain commodity costs, specifically beef, in the past.

In addition, a significant number of our employees are paid at rates related to the federal and/or state minimum wage and, accordingly, increases in minimum wage have increased our labor costs for the last several years.

In addition, a significant number of our employees are paid at rates related to the federal and/or state minimum or tipped wages and, accordingly, increases in minimum or tipped wages have increased our labor costs for the last several years.

We have increased menu prices and made other adjustments over the past few years, in an effort to offset increases in our restaurant and operating costs resulting from inflation.

1 unchanged sentence

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 5. Market for Registrant’s Common Equity