What changed in this filing

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Item 5. Market for Registrant’s Common Equity

2022-02-25 compared with 2021-02-26 · 260 added, 322 removed, 330 unchanged (64% of the section changed)

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The number of holders of record of our common stock as of February 16, 2022 was 166.

In 2011, our Board of Directors declared our first quarterly dividend of $0.08 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 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.

On February 17, 2022, our Board of Directors declared a quarterly dividend of $0.46 per share of common stock which will be distributed on March 25, 2022 to shareholders of record at the close of business on March 9, 2022.

In 2011, our Board of Directors declared our first quarterly dividend of $0.08 per share of common stock which we consistently grew over time.

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 the quarterly cash dividend of $0.36 paid on March 27, 2020.

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

On April 28, 2021, our Board of Directors reinstated the payment of a quarterly cash dividend of $0.40 per share of common stock.

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

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In 2021, we paid $51.6 million to repurchase 584,932 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 28, 2021, $96.1 million remains authorized for stock repurchases.

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

The following table includes information regarding purchases of our common stock made by us during the quarter ended December 28, 2021:

Maximum Number

(or Approximate

Dollar Value) of

Part of Publicly

Shares that May

Yet Be Purchased

Under the Plans

September 29 to October 26

October 27 to November 23

November 24 to December 28

Stock Performance Graph

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Russell 3000 Restaurant

ITEM 6—SELECTED FINANCIAL DATA

We derived the selected consolidated financial data as of and for the years 2020, 2019, 2018, 2017 and 2016 from our audited consolidated financial statements.

The Company utilizes a 52 or 53 week accounting period that typically ends on the last Tuesday in December.

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

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.

(in thousands, except per share data)

Consolidated Statements of Income:

Restaurant sales and other

Franchise royalties and fees

Total revenue

Income from operations

Income before taxes

Income tax (benefit) expense

Net income including noncontrolling interests

Net income attributable to noncontrolling interests

Net income attributable to Texas Roadhouse, Inc.

and subsidiaries

Net income per common share:

Weighted average shares outstanding:

Cash dividends declared per share

($ in thousands)

Consolidated Balance Sheet Data:

Cash and cash equivalents

Current portion of operating lease liabilities

Current maturities of long-term debt

Operating lease liabilities, net of current portion

Long-term debt, net of current maturities

Total liabilities

Noncontrolling interests

Texas Roadhouse, Inc.

and subsidiaries stockholders’ equity

Selected Operating Data (unaudited):

Company - Texas Roadhouse

Company - Bubba’s 33

Company - Jaggers

Franchise - Domestic

Franchise - International

Company restaurant information:

Comparable restaurant sales (1)

Texas Roadhouse restaurants only:

Comparable restaurant sales (1)

Average unit volume (2)

Net cash provided by operating activities

Net cash used in investing activities

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.

(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 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.

In addition, average unit volume for 2019 includes 53 weeks compared to 52 weeks for all other periods presented.

ITEM 6— RESERVED

Removed and reserved.

ITEM 7—MANAGEMENT’S DISCUSSIO N AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

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is a growing restaurant company operating predominately in the casual dining segment.

Our founder, chairman and chief executive officer, W.

Our late founder, W.

Kent Taylor, started the business in 1993 with the opening of the first Texas Roadhouse restaurant in Clarksville, Indiana.

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in our consolidated statements of income and comprehensive income.

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.

Of the 566 restaurants we owned and operated at the end of 2021, we operated 526 as Texas Roadhouse restaurants, 36 as Bubba’s 33 restaurants and four as Jaggers restaurants.

● 101 "franchise restaurants,"

24 of which we have a 5.0% to 10.0% ownership interest.

The income derived from our minority interests in these franchise restaurants is reported in the line item entitled "Equity income from investments in unconsolidated affiliates"

The income derived from our minority interests in these franchise restaurants is reported in the line item entitled "Equity (loss) income from investments in unconsolidated affiliates"

in our consolidated statements of income and comprehensive income.

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Of the 101 franchise restaurants, 70 were domestic restaurants and 31 were international restaurants.

We have contractual arrangements which grant us the right to acquire at pre-determined formulas (i) the remaining equity interests in 18 of the 20 majority-owned company restaurants and (ii) 65 of the 69 domestic franchise restaurants.

We have contractual arrangements that grant us the right to acquire at pre-determined formulas the remaining equity interests in 18 of the 20 majority-owned company restaurants and 66 of the 70 domestic franchise restaurants.

Throughout this report, we use the term "restaurants"

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

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.

Fiscal year 2021 and fiscal year 2020 were both 52 weeks in length, while the fourth quarters were both 13 weeks in length.

COVID-19 and Related Impacts

The Company has been subject to risks and uncertainties as a result of the COVID-19 pandemic (the “pandemic”).

These include federal, state and local restrictions on restaurants, some of which have limited capacity or seating in dining rooms while others have allowed to-go or curbside service only.

As of December 28, 2021, all of our domestic company and franchise locations were operating without restriction.

As of December 29, 2020, all of our domestic company and franchise locations were operating their dining rooms under various limited capacity restrictions or were limited to outdoor and/or to-go or curbside service only.

As a result of these restrictions, we developed a hybrid operating model to accommodate our dining room restrictions together with enhanced to-go.

We continue to see sales in our to-go program higher than pre-pandemic levels, even with dining rooms operating without restriction.

We cannot predict how long we will continue to be impacted by the pandemic, the extent to which our dining rooms will have to close again or otherwise have limited seating, or if the increased sales in our to-go program will continue.

The extent to which the pandemic impacts our business, results of operations, or financial condition will depend on future developments which are outside of our control.

This includes, without limitation, the efficacy and public acceptance of vaccination programs and/or testing mandates in curbing the spread of the virus, the introduction and spread of new variants of the virus, which may prove resistant to currently approved vaccines, and new or reinstated restrictions or regulations on our operations.

As a result of a significant increase in sales, the lingering impact of the pandemic, and other supply constraints, we have experienced and expect to continue to experience commodity cost inflation and certain food and supply shortages.

The commodity cost inflation, which primarily relates to beef, is due to increased costs incurred by our vendors related to higher labor, transportation, packaging, and raw material costs.

To date, we have been able to properly manage any food or supply shortages but have experienced increased costs.

If our vendors are unable to fulfill their obligations under their contracts, we may encounter further shortages and/or higher costs to secure adequate supply and a possible loss of sales, any of which would harm our business.

In addition, as our dining rooms have returned to operating without restriction, our ability to attract and retain restaurant-level employees has become more challenging due to an increasingly competitive job market throughout the country.

We have also experienced periodic staffing shortages due to employees testing positive for the virus or having to quarantine.

To the extent these challenges persist, we could continue to experience increased labor costs and/or decreased sales.

As a result of the pandemic, legislation referred to as the Coronavirus Aid, Relief, and Economic Security Act (the "CARES Act") was passed in 2020 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.

In total, we deferred $47.3 million in payroll taxes, of which $24.3 million was repaid in 2021 and $23.0 million is required to be repaid by the end of 2022.

The amount due in 2022 is included in accrued wages and payroll taxes 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.

Since the onset of the pandemic, the Company has provided various forms of relief pay for hourly restaurant employees, a significant portion of which qualified for this tax credit.

For the years ended December 28, 2021 and December 29, 2020, we recorded $1.2 million and $7.0 million, respectively, related to this credit which is included as a reduction to labor expense in our consolidated statements of income and comprehensive income.

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

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

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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 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.

In recent years, we have relocated several existing Texas Roadhouse locations at or near the end of the associated lease or as a result of eminent domain which allowed us to move to a better site, update them to a current prototypical design, construct a larger building with more seats and greater number of available parking spaces, accommodate increased to-go sales 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 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.

At our high volume restaurants, we continue to look for opportunities to increase our dining room capacity by adding on to our existing building and/or to increase our parking capacity by leasing or purchasing property that adjoins our site.

In addition, we continue to pursue opportunities to acquire domestic franchise locations to expand our company restaurant base.

In 2021, we opened 29 company restaurants while our franchise partners opened four total restaurants domestic and internationally.

This included 23 Texas Roadhouse restaurants, five Bubba’s 33 restaurants, and one Jaggers restaurant.

In 2022, we plan to open approximately 25 Texas Roadhouse and Bubba’s 33 company restaurants.

In addition, we anticipate our existing franchise partners will open as many as five Texas Roadhouse restaurants in 2022.

Our average capital investment for the 23 Texas Roadhouse restaurants opened during 2021, including pre-opening expenses and a capitalized rent factor, was $5.7 million.

We expect our average capital investment for Texas Roadhouse restaurants opening in 2022 to be approximately $6.3 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.

Our average capital investment for the five Bubba’s 33 restaurants opened during 2021, including pre- opening expenses and a capitalized rent factor, was $7.4 million.

We expect our average capital investment for Bubba’s 33 restaurants opening in 2022 to be approximately $7.3 million.

We remain focused on driving sales and managing restaurant investment costs in order to maintain our restaurant development in the future.

We remain focused on driving sales and managing restaurant investment costs to maintain our restaurant development in the future.

Our capital investment (including cash and non-cash costs) for new restaurants varies significantly depending on a number of factors including, but not limited to:

the square footage, layout, scope of 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.

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.

the square footage, layout, scope of required site work, geographical location, cost of materials, type of construction labor, local permitting requirements, hook-up fees, our ability to negotiate with landlords, and cost of liquor and other licenses.

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.

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.

As of December 28, 2021, we had 15 restaurants in five countries in the Middle East, five restaurants open in the Philippines, four in Taiwan, four in South Korea, two in Mexico and one in China for a total of 31 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.

We anticipate that the specific business terms of any future franchise agreement for international restaurants might vary significantly from the standard terms of our domestic agreements and from the terms of existing international agreements, depending on the territory to be franchised and the extent of franchisor-provided services to each franchisee.

In 2021, we entered into our first area development agreements for Jaggers, our fast-casual concept.

These agreements allow for the development and operation of restaurants in specific territories in Texas, Oklahoma, and North Carolina.

As part of these agreements, the franchisees are 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 territories.

No franchise agreements have been entered into and no corresponding restaurants have been opened yet related to these area development agreements.

Maintaining and/or Improving Restaurant Level Profitability.

We continue to balance the impacts of inflationary pressures with our value positioning as we remain focused on our long-term success.

This may create a challenge in

terms of maintaining and/or increasing restaurant-level profitability (restaurant margin), in any given year, depending on the level of inflation we experience.

This may create a challenge in terms of maintaining and/or increasing restaurant-level profitability (restaurant margin), in any given year, depending on the level of inflation we experience.

Restaurant margin is not a U.S.

generally accepted accounting principle ("GAAP") measure and should not be considered in isolation, or as an alternative from income from operations.

generally accepted accounting principle ("GAAP") measure and should not be considered in isolation, or as an alternative to income from operations.

See further discussion of restaurant margin below.

In addition to restaurant margin, as a percentage of restaurant and other sales, we also focus on the growth of restaurant margin dollars per store week as a measure of restaurant-level profitability.

In terms of driving 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 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, 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.

In addition, with the increase in to-go sales, we have made changes to our building layout to better accommodate higher to-go volumes at our restaurants.

We have also made investments in technology to allow for a better guest experience.

We also continue to look for ways through various strategic initiatives to drive awareness of our brands and increase sales and profitability.

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

While we reduced our store-level offerings around ready-to-grill once our dining rooms began to re-open in mid-2020, based on the success of this program we developed Texas Roadhouse Butcher Shop.

This online retail store allows for the purchase and delivery of quality steaks that are similar to those available in our restaurants.

This non-royalty-based product launched in late 2020.

We also further expanded our retail business in 2021 with the introduction of our non-alcoholic Margarita Mixer, and our canned cocktail Margarita Seltzer, which rolled out in test markets.

These Texas Roadhouse-branded products are subject to royalty-based license agreements.

Leveraging Our Scalable Infrastructure.

To support our growth, we have made significant investments in our infrastructure over the past several years, including information and accounting systems, real estate, human resources, legal, marketing, international and restaurant operations, including the development of new concepts.

In addition, in Q4 2018 we increased our number of regional market partners, market partners and regional support teams.

To support our growth, we have made investments in our infrastructure over the past several years, including information and accounting systems, real estate, human resources, legal, marketing, international and restaurant operations, including the development of new strategic initiatives.

Whether we are able to leverage our infrastructure in future years by growing our general and administrative costs at a slower rate than our revenue will depend, in part, on our new restaurant openings, our comparable restaurant sales growth rate going forward and the level of investment we continue to make in our infrastructure.

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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.

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.

In 2011, our Board of Directors declared our first quarterly dividend of $0.08 per share of common stock which we consistently grew over time.

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.

On April 28, 2021, our Board of Directors reinstated the payment of a quarterly cash dividend of $0.40 per share of common stock.

On February 17, 2022, our Board of Directors declared a quarterly cash dividend of $0.46 per share of common stock.

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

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

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.

In 2021, we paid $51.6 million to repurchase 584,932 shares of our common stock.

As of December 28, 2021, $96.1 million remains authorized for stock repurchases.

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

Key Operating Personnel

Key management personnel who have a significant impact on the performance of our restaurants include market partners, managing partners, kitchen managers, service managers and assistant managers.

Key management personnel who have a significant impact on the performance of our restaurants include market partners, managing partners, operations managers, kitchen managers, service managers and assistant managers.

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 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.

Operations managers support the managing partner in overall operations including both departments for kitchen and service.

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

Service managers have primary responsibility for managing the front of house staff and overall dining room, bar and to-go operations including service quality and the guest experience.

Assistant managers support our managing partners, operations managers, kitchen and service managers.

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

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The annual compensation of our managing partners and market partners includes a base salary plus a percentage of the pre- tax income of the restaurant(s) they operate or supervise.

Managing partners and market partners are eligible to participate in our equity incentive plan and are generally required to make refundable deposits of $25,000 and $50,000, respectively.

Generally, the deposits are refunded after five years of service.

Managing partners and market partners are eligible to participate in our equity incentive plan and are required to make refundable deposits of $25,000 and $50,000, respectively.

Generally, the deposits are refunded after five years of continuous service.

Key Measures We Use To Evaluate Our Company

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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.

Typically, new restaurants open with an initial start- up period of higher than normalized sales volumes, which decrease to a steady level approximately three to six months after opening.

However, although sales volumes are generally higher, so are initial costs, resulting in restaurant 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.

Comparable restaurant sales reflects the change in sales for company restaurants over the same period of the prior year for the comparable restaurant base.

Comparable restaurant sales reflects the change in sales for all 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.

Menu price changes, the mix of menu items sold and the mix of dine-in versus to-go sales can affect the per person average check amount.

Average Unit Volume.

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.

Average unit volume represents the average annual restaurant sales for Texas Roadhouse and Bubba’s 33 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.

At times, average unit volume growth may be more than comparable restaurant sales growth which indicates that newer restaurants are operating with sales levels higher than the company average.

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

Store weeks represent the number of weeks that all company restaurants, unless otherwise noted, were open during the reporting period.

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

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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.

Other sales also include sales related to our non-royalty-based retail products.

Franchise Royalties and Fees.

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

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.

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.

Food and Beverage Costs.

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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.

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.

Equity (Loss) Income from Unconsolidated Affiliates.

Equity (loss) income 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.

Additionally, we had 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.

We fully impaired our equity investment related to this joint venture in 2021 as these restaurants closed during the year.

Net Income Attributable to Noncontrolling Interests.

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2021 Financial Highlights

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.

Total revenue increased $1.1 billion or 44.4% to $3.5 billion in 2021 compared to $2.4 billion in 2020 primarily due to an increase in average unit volumes driven by an increase in comparable restaurant sales, along with an increase in store weeks.

Store weeks and comparable restaurant sales increased 5.0% and 37.8%, respectively, at company restaurants in 2021.

The increase in comparable restaurant sales was driven by the re-opening of our dining rooms, the continued easing of dining room capacity and seating restrictions throughout 2021 and continued strong to-go sales.

Restaurant margin increased $316.1 million or 119.0% to $581.7 million in 2021 compared to $265.6 million in 2020 and restaurant margin, as a percentage of restaurant and other sales, increased to 16.9% in 2021 compared to 11.2% in 2020.

The increase in restaurant margin was due to higher sales partially offset by commodity inflation.

Net income increased $214.0 million or 684.8% to $245.3 million in 2021 compared to $31.3 million in 2020 primarily due to higher restaurant margin dollars partially offset by higher general and administrative expenses and higher income tax expense.

Diluted earnings per share increased 682.5% to $3.50 from $0.45 in the prior year.

Results of Operations

Fiscal Year Ended

(In thousands)

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Income before taxes

Income tax (benefit) expense

Income tax expense (benefit)

Net income including noncontrolling interests

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Franchise openings - International

Franchise closings - International

Franchise closings

Balance at December 28, 2021

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Restaurant and Other Sales

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

Restaurant and other sales increased 44.5% in 2021 compared to 2020.

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

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Increase in store weeks

(Decrease) increase in average unit volume

Total (decrease) increase in restaurant sales

Other sales(2)

Total (decrease) increase in restaurant and other sales

Increase (decrease) in average unit volume

Total increase (decrease) in restaurant sales

Total increase (decrease) in restaurant and other sales

Comparable restaurant sales

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Average unit volume (in thousands)

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

Weekly sales by group:

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Restaurants less than six months old (35 and 30 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 permanently 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.

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.

Bubba's 33 restaurants:

Comparable restaurant sales

Average unit volume (in thousands)

Weekly sales by group:

Comparable restaurants (25 and 24 units, respectively)

Average unit volume restaurants (5 and 1 units, respectively)(2)

Restaurants less than six months old (6 and 6 units, respectively)

(1) Includes the impact of the year-over-year change in sales volume of all Jaggers restaurants, along with Texas Roadhouse and Bubba’s 33 restaurants open less than six months before the beginning of the period measured, and, if applicable, the impact of restaurants permanently closed or acquired during the period.

(2) Average unit volume restaurants include restaurants open a full six to 18 months before the beginning of the period measured.

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.

The increase in restaurant sales for 2021 was primarily attributable to an increase in average unit volumes, driven by an increase in comparable restaurant sales along with an increase in store weeks.

Comparable restaurant sales increased 37.8% in 2021, which included guest traffic count growth of 27.6% and per person average check growth of 10.2%.

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.

In addition, we continued to see significant to-go sales once our dining rooms reopened.

To-go sales as a percentage of total restaurant sales were 17.1% in 2021 compared to 27.0% in 2020.

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.

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.

Comparable restaurant sales include the benefit of menu price increases of approximately 1.75% and 4.2% implemented in April 2021 and October 2021, respectively, as well as an increase of 1.0% in October 2020.

In 2021, we opened 29 company restaurants, including five Bubba’s 33 and one Jaggers restaurant.

In 2022, we plan to open approximately 25 Texas Roadhouse and Bubba’s 33 company restaurants.

On December 29, 2021, the first day of our 2022 fiscal year, we completed the acquisition of seven franchise restaurants for an aggregate purchase price of approximately $27 million.

In total, we expect store week growth of approximately 6.5% in 2022, including the impact of the seven franchise restaurants acquired.

Other sales primarily represent the net impact of amortization of third party gift card fees and gift card breakage income.

The net impact was ($6.1) million and ($6.8) million for 2021 and 2020, respectively.

The increase was primarily related to a favorable breakage adjustment of $4.8 million recorded in 2021.

This adjustment primarily related to a shift in our historic redemption pattern which indicated that the percentage of gift cards sold that are not expected to be redeemed had shifted from 4.0% to 4.5%.

As a result, we adjusted the breakage recognized for all gift cards that had not been fully amortized.

The impact of this adjustment was offset by increased amortization of third party fees due to the increase in sales through our third party gift card program.

Franchise Royalties and Fees

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.

Franchise royalties and fees increased by $6.8 million or 38.0% compared to 2020 due to higher average unit volumes, driven by comparable restaurant sales increases at domestic stores.

Comparable restaurant sales at domestic franchise stores increased 37.5% in 2021.

We anticipate our existing franchise partners will open as many as five Texas Roadhouse restaurants in 2022.

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.

Food and beverage costs, as a percentage of restaurant and other sales, increased to 33.6% in 2021 from 32.8% in 2020 primarily due to higher commodity inflation partially offset by the benefit of a higher guest check.

Commodity inflation was 10.0% in 2021, primarily driven by higher beef costs.

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

For 2022, we currently expect commodity cost inflation of approximately 17% for the first half of the year and 12% to 14% for the year with prices locked for approximately 30% of our forecasted costs and the remainder subject to floating market prices.

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 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 labor expense, as a percentage of restaurant and other sales, decreased to 32.7% in 2021 compared to 36.8% in 2020.

This decrease was primarily due to an increase in average unit volumes as well as several items related to 2020 including labor inefficiencies as we converted to our hybrid operating model, relief payments and increased benefits provided to our hourly employees.

In 2021, the benefit of a higher guest check amount also contributed to the decrease.

These decreases were partially offset by higher wage rates primarily due to labor market pressures along with increases in state-mandated minimum and tipped wage rates, the impact of higher employee retention payroll tax credits in the prior year and an increase in workers’ compensation expense.

In 2021, we incurred costs of $4.0 million for relief pay and enhanced benefits to our restaurant-level managers and hourly employees compared to $20.2 million in 2020.

In 2021, we recognized employee retention payroll tax credits of $1.2 million compared to $7.0 million in 2020.

No employee retention credits were recognized in the second half of 2021 as we no longer qualified for these credits.

The increase in workers’ compensation expense was due to changes in our claims development history included in our quarterly actuarial reserve estimate that resulted in an unfavorable adjustment of $1.8 million in 2021.

This compared to a favorable adjustment of $1.8 million in 2020.

In 2022, we anticipate our labor costs will continue to be pressured by wage and other labor inflation of approximately 7% driven by labor market pressures, increases in state-mandated minimum and tipped wages and increased investment in our people.

Restaurant Rent Expense

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 rent expense, as a percentage of restaurant and other sales, decreased to 1.7% in 2021 compared to 2.3% in 2020 due to the increase in average unit volumes partially offset by higher rent expense, as a percentage of restaurant and other sales, at our newer restaurants.

Restaurant Other Operating Expenses

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 other operating expenses, as a percentage of restaurant and other sales, decreased to 15.1% in 2021 compared to 17.0% in 2020.

The decrease was primarily due to the increase in average unit volumes, lower to-go supplies, and lower general liability insurance expense.

The lower supplies expense was due to the prior year period having significantly higher to-go sales due to the closure of our dining rooms.

The decrease in general liability insurance expense was due to changes in our claims development history included in our quarterly actuarial reserve estimate that resulted in favorable adjustments totaling $3.9 million in 2021 compared to unfavorable adjustments totaling $3.1 million in 2020.

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

Restaurant Pre-opening Expenses

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 expenses increased to $24.3 million in 2021 from $20.1 million in 2020.

The increase was primarily due to the timing and number of restaurant openings as well as a slight increase in average pre-opening expenses incurred.

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 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.

D&A, as a percentage of revenue, decreased to 3.7% in 2021 compared to 4.9% in 2020.

The decrease was primarily due to an increase in average unit volumes partially offset by higher depreciation at newer restaurants.

Impairment and Closure Costs, Net

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.

Impairment and closure costs, net was $0.7 million and $2.3 million in 2021 and 2020, respectively.

In 2021, impairment and closure costs, net included the impairment of the fixed assets and operating lease right-of-use assets at two restaurants, both 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 4.5% in 2021 compared to 5.0% in 2020.

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.

The decrease was primarily due to the increase in average unit volumes partially offset by higher incentive and performance-based compensation costs, the prior year favorable impact of the sale of a legal claim for $3.0 million and higher managing partner conference costs.

In 2021, we incurred costs of $3.0 million for our annual managing partner conference which was not held in 2020.

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.

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

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.

Interest Expense, Net

Interest expense was $3.7 million compared to $4.1 million in 2020.

The decrease in interest expense was primarily driven by lower interest rates and the repayment of our incremental revolving credit facility partially offset by reduced earnings on our cash and cash equivalents.

Our effective tax rate increased to 13.5% compared to an effective tax rate benefit of 81.4% in 2020.

The increase was primarily due to the significant increase in pre-tax income.

In 2020, our FICA tip and Work opportunity tax credits exceeded our federal tax liability which resulted in a tax rate benefit.

For 2022, we expect our effective tax rate to be approximately 15%, excluding the impact of any legislative changes enacted.

Segment Information

We manage our restaurant and franchising operations by concept and as a result have identified Texas Roadhouse, Bubba's 33, Jaggers, and our retail initiatives as separate operating segments.

Our reportable segments are Texas Roadhouse and Bubba's 33.

The Texas Roadhouse reportable segment includes the results of our domestic company Texas Roadhouse restaurants and domestic and international franchise Texas Roadhouse restaurants.

The Bubba's 33 reportable segment includes the results of our domestic company Bubba's 33 restaurants.

Our remaining operating segments, which include the results of our domestic company Jaggers restaurants and the results of our retail initiatives, are included in Other.

Management uses restaurant margin as the measure for assessing performance of our segments.

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 also includes sales and operating costs related to our non-royalty based retail initiatives.

Restaurant margin is used by our chief operating decision maker (“CODM”) to evaluate restaurant-level operating efficiency and performance.

A reconciliation of income from operations to restaurant margin is included in the Results of Operations section above.

The following table presents a summary of restaurant margin by segment (in thousands):

Fiscal Year Ended

Texas Roadhouse

The increase in Texas Roadhouse and Bubba’s 33 restaurant margin is driven by the increase in restaurant sales partially offset by commodity inflation.

In addition, restaurant margin at Bubba’s 33 was negatively impacted in 2020 by the impact of increased to-go sales resulting in decreased alcoholic beverage sales.

Liquidity and Capital Resources

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

Fiscal Year Ended

Net cash provided by operating activities

Net cash used in investing activities

Net cash provided by (used in) financing activities

Net increase (decrease) in cash and cash equivalents

Net cash (used in) provided by financing activities

Net (decrease) increase in cash and cash equivalents

Net cash provided by operating activities was $468.8 million in 2021 compared to $230.4 million in 2020.

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.

This increase was primarily due to an increase in net income.

The increase was partially offset by our working capital being negatively impacted by the remittance of a portion of our deferred payroll tax liability of $24.3 million related to the CARES Act.

Our operations have not required significant working capital and, like many restaurant companies, we have been able to operate with negative working capital.

Sales are primarily for cash, and restaurant operations do not require significant inventories or receivables.

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Net cash used in investing activities was $195.1 million in 2021 compared to $161.1 million in 2020.

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.

The increase was due to an increase in capital expenditures, primarily driven by an increase in new company restaurants and an increase in refurbishments of existing restaurants.

This was due to the delay in our development schedule in 2020 due to the pandemic.

This increase was partially offset by fewer expenditures related to relocation sites.

We require capital principally for the development of new company restaurants, the refurbishment or relocation of existing restaurants and the acquisition of franchise restaurants, if any.

We either lease our restaurant site locations under operating leases for periods of five to 30 years (including renewal periods) or purchase the land when appropriate.

We either lease our restaurant site locations under operating leases for periods generally of five to 30 years (including renewal periods) or purchase the land when appropriate.

As of December 28, 2021, 148 of the 566 company restaurants have been developed on land which we own.

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New company restaurants

Refurbishment of existing restaurants

Refurbishment or expansion of existing restaurants

Relocation of existing restaurants

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Total capital expenditures

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.

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

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

In 2022, we expect our capital expenditures to be approximately $230 million as we currently plan to open approximately 25 Texas Roadhouse and Bubba’s 33 company restaurants.

We also expect to have as many as six relocations in 2022.

In addition, on the first day of our 2022 fiscal year, we completed the acquisition of seven franchise restaurants for an aggregate purchase price of approximately $27 million.

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.

Net cash used in financing activities was $301.2 million in 2021 compared to net cash provided by financing activities of $185.9 million in 2020.

The decrease is primarily due to repayments on our amended revolving credit facility, an increase in dividends paid due to the reinstatement of our quarterly dividend payment and an increase in share repurchases.

In 2021, we repaid $140.0 million that was previously outstanding on our amended revolving credit facility.

2020, we increased our borrowings by $240.0 million as a precautionary measure in order to bolster our cash position and enhance financial flexibility in response to the pandemic.

On April 28, 2021, our Board of Directors reinstated the payment of a quarterly cash dividend of $0.40 per share of common stock which was distributed on June 4, 2021 .

This was the first dividend since the Board of Directors voted to suspend the payment of quarterly cash dividends at the onset of the pandemic.

In 2021 and 2020, the Company paid $83.7 million and $25.0 million, respectively, in dividends to shareholders.

On February 17, 2022, our Board of Directors declared a quarterly cash dividend of $0.46 per share of common stock.

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.

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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.

On August 2, 2021, the Company resumed the share repurchase program that was suspended in 2020 at the onset of the pandemic.

During 2021 and 2020, we paid $51.6 million and $12.6 million to repurchase 584,932 shares and 252,409 shares of our common stock, respectively.

As of December 28, 2021, $96.1 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.

We paid distributions of $8.2 million and $3.4 million in 2021 and 2020, respectively, to noncontrolling interest holders of our 20 majority-owned company restaurants.

On May 4, 2021, we entered into an agreement to amend our revolving credit facility with a syndicate of commercial lenders led by JPMorgan Chase Bank, N.A.

and PNC Bank, N.A.

The amended revolving credit facility remains an unsecured, revolving credit agreement and has a borrowing capacity of up to $300.0 million with the option to increase by an additional $200.0 million subject to certain limitations, including approval by the syndicate of lenders.

The amendment also extended the maturity date to May 1, 2026.

Prior to the amendment, our original revolving credit facility had a borrowing capacity of up to $200.0 million with the option to increase by an additional $200.0 million subject to certain limitations, including approval by the syndicate of lenders.

On May 11, 2020, we amended the original 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 original revolving credit facility.

The terms of the amended revolving credit facility require us to pay interest on outstanding borrowings at LIBOR plus a margin of 0.875% to 1.875% and pay a commitment fee of 0.125% to 0.30% per year on any unused portion of the amended revolving credit facility, in each case depending on our leverage ratio.

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

As of December 28, 2021, we had $100.0 million outstanding on the amended revolving credit facility and $189.1 million of availability, net of $10.9 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.

As of December 29, 2020, we had $190.0 million outstanding on the amended revolving credit facility which is included as long-term debt on our consolidated balance sheet.

In addition, we had $50.0 million outstanding on the incremental revolving credit facility which is included as current maturities of long-term debt on our consolidated balance sheet.

The weighted-average interest rate for the amended revolving credit facility as of December 28, 2021 and December 29, 2020 was 0.98% and 1.98%, respectively.

The lenders’ obligation to extend credit pursuant to the amended revolving credit facility depends on us maintaining certain financial covenants.

We were in compliance with all financial covenants as of December 28, 2021 and December 29, 2020.

Contractual Obligations

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Long-term debt obligation, including current maturities

Obligation under finance lease

Obligations under finance leases

Operating lease obligations

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Total contractual obligations(2)

(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.

(1) Includes interest on our revolving credit facility and interest on our financing leases.

We used the interest rate on our amended revolving credit facility as of December 28, 2021 for our variable rate debt and assumed $100.0 million remains outstanding on our amended revolving credit facility through the respective maturity for all borrowings.

We assumed a constant interest rate until maturity on our financing leases.

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

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See notes 5 and 8 to the consolidated financial statements for details of contractual obligations.

Off-Balance Sheet Arrangements

We do not have any off-balance sheet arrangements.

As of December 28, 2021 and December 29, 2020, we were contingently liable for $12.2 million and $13.0 million, respectively, for seven leases, listed in the table below.

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In the event of default, the indemnity and default clauses in our assignment agreements govern our ability to pursue and recover damages incurred.

No material liabilities have been recorded as of December 29, 2020 as the likelihood of default was deemed to be less than probable and the fair value of the guarantees is not considered significant.

No liabilities have been recorded as of December 28, 2021 as the likelihood of default was deemed to be less than probable and the fair value of the guarantees is not considered significant.

Current Lease

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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 to the accompanying consolidated financial statements, this restaurant is owned in part by our founder.

(2) Leases associated with non-Texas Roadhouse restaurants which were sold.

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Critical Accounting Policies and Estimates

The above discussion and analysis of our financial condition and results of operations are based upon our consolidated financial statements, which have been prepared in accordance with U.S.

The above discussion and analysis of our financial condition and results of operations are based upon our consolidated financial statements, which have been prepared in accordance with GAAP.

The preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenue and expenses, and disclosures of contingent assets and liabilities.

Our significant accounting policies are described in note 2 to the accompanying consolidated financial statements.

Critical accounting policies are those that we believe are most important to portraying our financial condition and results of operations and also require the greatest amount of subjective or complex judgments by management.

Critical accounting policies are those that we

believe are most important to portraying our financial condition and results of operations and also require the greatest amount of subjective or complex judgments by management.

Judgments or uncertainties regarding the application of these policies may result in materially different amounts being reported under different conditions or using different assumptions.

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

In 2021, as a result of our quarterly impairment analysis, we recorded a total charge of $0.7 million related to the impairment of the fixed assets and operating lease right-of-use assets at two restaurants, both 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 2021, 2020 and 2019.

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 fair value of the reporting unit.

The determination of impairment consists of two steps.

First, we determine the fair value of the reporting unit and compare it to its carrying amount.

Goodwill is required to be tested for impairment at the reporting unit level, or the level of internal reporting that reflects the way in which an entity manages its businesses.

A reporting unit is defined as an operating segment, or one level below an operating segment.

An entity may first assess qualitative factors in order to determine whether it is more likely than not that the fair value of the reporting unit is less than its carrying amount.

The entity may also elect to bypass the qualitative assessment and determine the fair value of the reporting unit and compare it to its carrying amount.

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 fair value of the reporting unit.

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.

In estimating the fair value using the capitalization of earnings or discounted cash flows methods we consider the period of time the restaurant has been open, the trend of operations over such period and future periods, expectations of future sales growth and terminal value.

Assumptions about important factors such as the trend of future operations and sales growth are limited to those that are supportable based upon the plans for the restaurant and actual results at comparable restaurants.

When developing these key judgments and assumptions, we consider economic, operational and market conditions that could impact fair value.

The judgments and assumptions used are consistent with what we believe hypothetical market participants would use.

However, estimates are inherently uncertain and represent only our reasonable expectations regarding future developments.

If the estimates used in performing the impairment test prove inaccurate, the fair value of the restaurants may ultimately prove to be significantly lower, thereby causing the carrying value to exceed the fair value and indicating impairment has occurred.

At December 29, 2020, we had 73 reporting units, primarily at the restaurant level, with allocated goodwill of $127.0 million.

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.

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.

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 fair value of the reporting unit.

At December 28, 2021, our Texas Roadhouse reporting unit had allocated goodwill of $127.0 million.

No other reporting units had goodwill balances.

Historically, we designated our operating segment and reporting unit to be at the same level which we defined to be the individual restaurant.

In 2021, due to a change in our management reporting structure, we changed the designation of our operating segment and reporting unit to be at the concept level.

As a result of this change, we performed the goodwill impairment analysis at both the individual restaurant and concept level to substantiate that our goodwill was not impaired under either reporting unit definition.

In performing the qualitative assessment, we reviewed factors such as results of prior impairment tests, impacts of the pandemic, macroeconomic conditions, industry and market considerations, cost factors of materials, labor, and other

items, financial performance, operational stability, competitive environment, and share price performance.

Based on the financial performance of the Texas Roadhouse concept, as well as the improved operating environment in 2021, no indicators of impairment were identified.

Changes in circumstances existing at the measurement date or at other times in the future could result in an impairment loss.

See note 16 in the consolidated financial statements for further discussion regarding closures and impairments recorded in 2021, 2020 and 2019.

Effects of Inflation

We have not operated in a period of high commodity inflation for the last several years;

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 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.

We are currently operating in a period of high inflation, led by commodity cost inflation which primarily relates to beef.

This is due to increased costs incurred by our vendors related to high labor, transportation, packaging, and raw materials costs.

Some of the impacts of the inflation have been offset by menu price increases and other adjustments made during the year.

Whether we are able and/or choose to continue to offset the effects of inflation will determine to what extent, if any, inflation affects our restaurant profitability in future periods.

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