What changed in this filing

/stocks — the workspaceLOADING

Item 9A. Controls and Procedures

2023-02-24 compared with 2022-02-25 · 278 added, 313 removed, 787 unchanged (43% of the section changed)

4 unchanged sentences

Changes in internal control

There were no significant changes to the Company’s internal control over financial reporting that occurred during the quarter ended December 28, 2021 that materially affected or are reasonably likely to materially affect, our internal control over financial reporting.

There were no significant changes in the Company’s internal control over financial reporting that occurred during the quarter ended December 27, 2022 that materially affected or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

Management’s Report on Internal Control over Financial Reporting

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Information regarding our directors is incorporated herein by reference to the information set forth under "Election of Directors"

in our Definitive Proxy Statement to be dated on or about April 1, 2022.

in our Definitive Proxy Statement to be dated on or about March 31, 2023.

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

Information regarding our corporate governance is incorporated herein by reference to the information set forth in our Definitive Proxy Statement to be dated on or about April 1, 2022.

Information regarding our corporate governance is incorporated herein by reference to the information set forth in our Definitive Proxy Statement to be dated on or about March 31, 2023.

ITEM 11—EXECUTIVE COMPENSATION

Incorporated by reference from our Definitive Proxy Statement to be dated on or about April 1, 2022.

Incorporated by reference from our Definitive Proxy Statement to be dated on or about March 31, 2023.

ITEM 12—SECURITY OWNERSHI P OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS

Incorporated by reference from our Definitive Proxy Statement to be dated on or about April 1, 2022.

Incorporated by reference from our Definitive Proxy Statement to be dated on or about March 31, 2023.

Equity Compensation Plan Information

As of December 27, 2022, shares of common stock authorized for issuance under our equity compensation plans are summarized in the following table.

See note 14 to the Consolidated Financial Statements for a description of the plans.

Refer to Note 14 to the Consolidated Financial Statements for a description of the plans.

Available for

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ITEM 13—CERTAIN RELATIONSHIP S AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE

Incorporated by reference from our Definitive Proxy Statement to be dated on or about April 1, 2022.

ITEM 14—PRINCIPAL ACCOUNTING FEES AND SERVICES

Incorporated by reference from our Definitive Proxy Statement to be dated on or about April 1, 2022.

Incorporated by reference from our Definitive Proxy Statement to be dated on or about March 31, 2023.

ITEM 14—PRINCIPAL ACCOUNTANT FEES AND SERVICES

Incorporated by reference from our Definitive Proxy Statement to be dated on or about March 31, 2023.

ITEM 15—EXHIBITS, FINANCIA L STATEMENT SCHEDULES

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Morgan entered into as of December 17, 2020 (incorporated by reference to Exhibit 10.33 to the Registrant’s Annual Report on Form 10-K for the year ended December 29, 2020 (File No.

Employment Agreement between Registrant and W.

Kent Taylor entered into as of December 30, 2020 (incorporated by reference to Exhibit 10.34 to the Registrant’s Annual Report on Form 10-K for the year ended December 29, 2020 (File No.

Employment Agreement between Registrant and Doug Thompson entered into as of December 30, 2020 (incorporated by reference to Exhibit 10.35 to the Registrant’s Annual Report on Form 10-K for the year ended December 29, 2020 (File No.

Employment Agreement between Registrant and S.

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2021 Long-Term Incentive Plan Restricted Stock Unit Award Agreement (Member of Board of Directors) (incorporated by reference to Exhibit 10.1 of Registrant's Current Report on Form 8-K dated June 15, 2021 (File No.

Separation Agreement between Registrant and Douglas W.

Thompson entered into as of December 3, 2021 (incorporated by reference to Exhibit 10.1 of Registrant's Current Report on Form 8-K dated December 3, 2021(File No.

Second Amendment to Employment Agreement between Texas Roadhouse Management Corp.

and Gerald L.

Morgan dated January 9, 2023 (incorporated by reference to Exhibit 10.1 to the Registrant's Current Report on Form 8-K dated January 6, 2023 (File No.

First Amendment to Employment Agreement between Texas Roadhouse Management Corp.

and Regina A.

Tobin dated January 9, 2023 (incorporated by reference to Exhibit 10.2 to the Registrant's Current Report on Form 8-K dated January 6, 2023 (File No.

First Amendment to Employment Agreement between Texas Roadhouse Management Corp.

and Hernan E.

Mujica dated January 9, 2023 (incorporated by reference to Exhibit 10.3 to the Registrant's Current Report on Form 8-K dated January 6, 2023 (File No.

First Amendment to Employment Agreement between Texas Roadhouse Management Corp.

and Christopher C.

Colson dated January 9, 2023 (incorporated by reference to Exhibit 10.4 to the Registrant's Current Report on Form 8-K dated January 6, 2023 (File No.

Separation Agreement and Release of Claims dated January 5, 2023 by and between Tonya R.

Robinson and Texas Roadhouse Management Corp.

(incorporated by reference to Exhibit 10.1 to the Registrant's Current Report on Form 8-K dated January 4, 2023 (File No.

List of Subsidiaries

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/s/ Gerald L.

President, Chief Executive

Officer, Director

Chief Executive Officer, Director

February 24, 2023

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/s/ Gerald L.

President, Chief Executive Officer, Director

Chief Executive Officer, Director

(Principal Executive Officer)

February 24, 2023

Chief Financial Officer

Interim Chief Financial Officer

(Principal Financial Officer)

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Current portion of operating lease liabilities

Current maturities of long-term debt

Accounts payable

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Retained earnings

Accumulated other comprehensive loss

Total Texas Roadhouse, Inc.

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Income from operations

Interest expense (income), net

Equity (loss) income from investments in unconsolidated affiliates

Interest expense, net

Equity income (loss) from investments in unconsolidated affiliates

Income before taxes

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Other comprehensive income, net of tax

Noncontrolling interest contribution

Distributions to noncontrolling interest holders

Acquisition of noncontrolling interest and other

Dividends declared ($ 0.36 per share)

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Repurchase of shares of common stock

( 2,625,245 )

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

Share-based compensation

1 unchanged sentence

Other comprehensive income, net of tax

Noncontrolling interests contribution

Distributions to noncontrolling interest holders

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Balance, December 28, 2021

Other comprehensive income, net of tax

Distributions to noncontrolling interest holders

Acquisition of noncontrolling interest

Dividends declared ($ 1.84 per share)

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Repurchase of shares of common stock

( 2,734,005 )

Share-based compensation

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(in thousands)

Fiscal Year Ended

Cash flows from operating activities:

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Impairment and closure costs

Equity loss (income) from investments in unconsolidated affiliates

Equity (income) loss from investments in unconsolidated affiliates

Distributions of income received from investments in unconsolidated affiliates

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Acquisition of franchise restaurants, net of cash acquired

Proceeds from sale of property and equipment

Proceeds from sale of investment in unconsolidated affiliate

Proceeds from the sale of property and equipment

Proceeds from sale leaseback transactions

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(1) Description of Business

The accompanying Consolidated Financial Statements include the accounts of Texas Roadhouse, Inc.

("TRI"), our wholly-owned subsidiaries and subsidiaries in which we have a controlling interest (collectively, the "Company,"

Texas Roadhouse, Inc.

(collectively, the "Company,"

"we,"

"our"

and/or "us") as of December 28, 2021 and December 29, 2020 and for each of the years in the three-year period ended December 28, 2021.

and/or "us"), is a growing restaurant company operating predominately in the casual dining segment.

Our late founder, W.

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

As of December 27, 2022, we owned and operated 597 restaurants and franchised an additional 100 restaurants in 49 states and ten foreign countries.

Of the 566 company restaurants that were operating at December 28, 2021 , 546 were wholly-owned and 20 were majority-owned.

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

Of the 597 company restaurants that were operating at December 27, 2022, 577 were wholly-owned and 20 were majority-owned and we operated 552 as Texas Roadhouse restaurants, 40 as Bubba’s 33 restaurants and five as Jaggers restaurants.

Of the 100 franchise restaurants, 62 were domestic and 38 were international restaurants, all of which were operated as Texas Roadhouse restaurants .

As of December 28, 2021, we owned and operated 566 restaurants and franchised an additional 101 restaurants in 49 states and ten foreign countries.

Of the 537 company restaurants that were operating at December 29, 2020 , 517 were wholly-owned and 20 were majority-owned.

Of the 97 franchise restaurants, 69 were domestic and 28 were international restaurants.

Of the 566 company restaurants that were operating at December 28, 2021, 546 were wholly-owned and 20 were majority-owned and we operated 526 as Texas Roadhouse restaurants, 36 as Bubba’s 33 restaurants and four as Jaggers restaurants.

Of the 101 franchise restaurants, 70 were domestic and 31 were international restaurants , all of which were operated as Texas Roadhouse restaurants .

Risks and Uncertainties

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 the 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 COVID-19 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.

In addition, significant items subject to estimates and assumptions including the carrying amount of property and equipment, goodwill, and lease related assets could be impacted.

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

In 2022, all of our domestic company and franchise restaurants operated without restriction.

In 2021 and 2020, all of our domestic company and franchise restaurants operated under various forms of capacity restrictions, which included outdoor and/or to-go or curbside service only.

(2) Summary of Significant Accounting Policies

(a) Principles of Consolidation

As of December 28, 2021 and December 29, 2020, we owned a 5.0 % to 10.0 % equity interest in 24 restaurants.

Additionally, we owned a 40 % equity interest in four non-Texas Roadhouse restaurants as part of a joint venture agreement with a casual dining restaurant operator in China.

The unconsolidated restaurants were accounted for using the equity method.

Our investments in these unconsolidated affiliates are included in other assets in our consolidated balance sheets, and we record our percentage share of net income earned by these unconsolidated affiliates in our consolidated statements of income and comprehensive income under equity (loss) income from investments in unconsolidated affiliates.

The investment balance related to our joint venture agreement in China was fully impaired in 2021 as the related restaurants closed during the year.

All significant intercompany balances and transactions for these unconsolidated restaurants as well as the entities whose accounts have been consolidated have been eliminated.

The accompanying consolidated financial statements present the financial position, results of operations and cash flows of the Company and its majority-owned subsidiaries.

All significant intercompany balances and transactions have been eliminated in consolidation.

As of December 27, 2022 and December 28, 2021, we had majority ownership in 20 restaurants.

The portion of income attributable to noncontrolling interests in these restaurants is reflected in the line item entitled "Net income attributable to noncontrolling interests"

in our consolidated statements of income and comprehensive income.

As of December 27, 2022 and December 28, 2021, we owned a 5.0 % to 10.0 % equity interest in 23 and 24 restaurants, respectively.

Additionally, as of December 28, 2021, we owned a 40 % interest in four non-Texas Roadhouse restaurants in China that was fully impaired in 2021.

The unconsolidated restaurants are accounted for using the equity method.

Our investments in these unconsolidated affiliates are included in other assets in our consolidated balance sheets, and we record our percentage share of net income earned by these unconsolidated affiliates in our consolidated statements of income and comprehensive income under equity income (loss) from investments in unconsolidated affiliates.

(b) Fiscal Year

We utilize a 52 or 53 week accounting period that typically ends on the last Tuesday in December.

We utilize a 13 week accounting period for quarterly reporting purposes, except in years containing 53 weeks when the fourth quarter contains 14 weeks.

Fiscal years 2022, 2021 and 2020 were 52 weeks in length.

Texas Roadhouse, Inc.

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

(b) Fiscal Year

We utilize a 52 or 53 week accounting period that typically ends on the last Tuesday in December.

We utilize a 13 week accounting period for quarterly reporting purposes, except in years containing 53 weeks when the fourth quarter contains 14 weeks.

Fiscal years 2021 and 2020 were 52 weeks in length and fiscal year 2019 was 53 weeks in length.

In fiscal year 2019, the 53 rd week added $ 59.0 million to restaurant and other sales and $ 0.10 to $ 0.11 to diluted earnings per share in our consolidated statements of income and comprehensive income.

Operating segments are defined as components of a company that engage in business activities from which it may earn revenues and incur expenses, and for which separate financial information is available and is regularly reviewed by the chief operating decision maker (“CODM”), to assess the performance of the individual segments and make decisions about resources to be allocated to the segments.

We have made a number of estimates and assumptions relating to the reporting of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reporting of revenue and expenses during the period to prepare these consolidated financial statements in conformity with U.S.

generally accepted accounting principles ("GAAP").

Significant items subject to such estimates and assumptions include the carrying amount of property and equipment, goodwill, obligations related to insurance reserves, leases and leasehold improvements, legal reserves, gift card breakage and third-party fees and income taxes.

Actual results could differ from those estimates.

(d) Segment Reporting

Operating segments are defined as components of a company that engage in business activities from which it may earn revenue and incur expenses, and for which separate financial information is available and is regularly reviewed by the chief operating decision maker ( "

), to assess the performance of the individual segments and make decisions about resources to be allocated to the segments.

The Company’s operating segments have been identified in accordance with the provisions of Financial Accounting Standards Board ("FASB") Accounting Standards Codification ("ASC") ASC 280, Segment Reporting .

Historically, the Company identified each restaurant as an operating segment and aggregated them into a single reportable segment.

In 2021, due to a change in our management reporting structure, we have identified our concepts as separate operating segments.

These operating segments include Texas Roadhouse, Bubba’s 33, Jaggers and our retail initiatives.

We have identified Texas Roadhouse, Bubba’s 33, Jaggers and our retail initiatives as separate operating segments.

In addition, we have identified Texas Roadhouse and Bubba’s 33 as reportable segments.

This change did not have an impact on our consolidated operating results.

For further discussion of segment reporting, see note 18.

(d) Cash and Cash Equivalents

For further discussion of segment reporting, refer to Note 19.

(e) Cash and Cash Equivalents

We consider all highly liquid debt instruments with original maturities of three months or less to be cash equivalents.

Cash and cash equivalents also included receivables from credit card companies, which amounted to $ 26.4 million and $ 18.1 million at December 28, 2021 and December 29, 2020, respectively, because the balances are settled within two to three business days.

(e) Receivables

Cash and cash equivalents also include receivables from credit card companies as these balances are highly liquid in nature and are settled within two to three business days.

These amounted to $ 22.0 million and $ 26.4 million at December 27, 2022 and December 28, 2021, respectively.

(f) Receivables

Receivables consist principally of amounts due from retail gift card providers, certain franchise restaurants for reimbursement of labor costs, pre-opening and other expenses, and franchise restaurants for royalty fees.

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The allowance for doubtful accounts is our best estimate of the amount of probable credit losses in our existing accounts receivable.

We determine the allowance based on historical write- off experience.

We determine the allowance based on historical collection experience and the age of receivables.

We review our allowance for doubtful accounts quarterly.

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Account balances are charged off against the allowance after all means of collection have been exhausted and the potential for recovery is considered remote.

(f) Inventories

(g) Inventories

Inventories, consisting principally of food, beverages and supplies, are valued at the lower of cost (first-in, first-out) or net realizable value.

(g) Property and Equipment

Property and equipment are stated at cost.

(h) Property and Equipment

Property and equipment are stated at cost less accumulated depreciation.

Expenditures for major renewals and betterments are capitalized while expenditures for maintenance and repairs are expensed as incurred.

Depreciation is computed on property and equipment, including assets located on leased properties, over the shorter of the estimated useful lives of the related assets or the underlying lease term using the straight- line method.

In most cases, assets on leased properties are

In most cases, assets on

Texas Roadhouse, Inc.

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

depreciated over a period of time which includes both the initial term of the lease and one or more option periods.

See note 2(h) for further discussion of leases.

leased properties are depreciated over a period of time which includes both the initial term of the lease and one or more option periods.

Refer to Note 2(i) for further discussion of leases.

The estimated useful lives are:

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The cost of purchasing transferable liquor licenses through open markets in jurisdictions with a limited number of authorized liquor licenses are capitalized as indefinite-lived assets and included in Property and equipment, net.

Repairs and maintenance expense amounted to $ 31.7 million, $ 25.2 million and $ 27.9 million for the years ended December 28, 2021, December 29, 2020 and December 31, 2019, respectively.

These costs are included in other operating costs in our consolidated statements of income and comprehensive income.

We lease land and/or buildings for the majority of our restaurants under non-cancelable lease agreements which have initial terms and one or more option periods.

In addition, certain of these leases contain pre-determined fixed escalations of the minimum rent over the lease term.

We recognize operating lease right-of-use assets and operating lease liabilities for these leases based on the present value of the lease payments over the lease term.

The present value is based on our incremental borrowing rate which considers our credit rating for a secured or collateralized instrument.

In addition, for those leases with fixed escalations, we recognize the related rent expense on a straight-line basis over the lease term.

See note 8 for further discussion of leases.

We recognize operating lease right-of-use assets and operating lease liabilities for real estate leases, including our restaurant leases and Support Center lease, as well as certain restaurant equipment leases based on the present value of the lease payments over the lease term.

We estimate the present value based on our incremental borrowing rate which corresponds to the underlying lease term.

In addition, operating lease right-of-use assets are reduced for accrued rent and increased for any initial direct costs recognized at lease inception.

For real estate and restaurant equipment leases commencing in 2019 and later, we account for lease and non-lease components as a single lease component.

Certain of our operating leases contain predetermined fixed escalations of the minimum rent over the lease term.

For these leases, we recognize the related total rent expense on a straight-line basis over the lease term.

We may receive rent concessions or leasehold improvement incentives upon opening a restaurant that is subject to a lease which we consider when determining straight-line rent expense.

We also may receive rent holidays, which would begin on the possession date and end when the store opens, during which no cash rent payments are typically due under the terms of the lease.

Rent holidays are included in the lease term when determining straight-line rent expense.

In recognizing straight-line rent expense, we record the difference between amounts charged to operations and amounts paid as accrued rent.

Certain of our operating leases contain clauses that provide for additional contingent rent based on a percentage of sales greater than certain specified target amounts.

We recognize contingent rent expense prior to the achievement of the specified target that triggers the contingent rent, provided achievement of the target is considered probable.

In addition, certain of our operating leases have variable escalations of the minimum rent that depend on an index or rate.

For these leases, we recognize operating lease right-of-use assets and operating lease liabilities based on the index or rate at the commencement date.

Any subsequent changes to the index or rate are recognized as variable rent expense when the escalation is determinable.

Sale-leasebacks are transactions through which we sell previously acquired land at fair value and subsequently enter into a lease agreement on the same land.

The resulting lease agreement is evaluated to determine classification as an operating or finance lease and is recorded based on the lease classification.

Refer to Note 8 for further discussion of leases.

Goodwill represents the excess of cost over fair value of assets of businesses acquired.

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

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, 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.

As stated in ASC 350, an entity may first assess qualitative factors in order to determine if it is necessary to perform the quantitative test.

In 2021, we elected to perform a qualitative assessment for our annual review of goodwill.

This review included evaluating factors such as macroeconomic conditions, industry and market considerations, cost factors, changes in management or key personnel, sustained decreases in share price and the overall financial performance of the Company’s reporting units at both the individual restaurant and concept level.

As a result of the qualitative assessment, no indicators of impairment were identified, and no additional indicators of impairment were identified through the end of the fourth quarter that would require additional testing.

Historically, we designated our operating segment and reporting unit to be at the

Texas Roadhouse, Inc.

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

In 2020, as a result of our annual goodwill impairment analysis, we recorded goodwill impairment of $ 1.1 million related to two reporting units.

In 2019, we determined that there was no goodwill impairment.

same level which we defined to be the individual restaurant.

In 2021, we changed the designation of our operating segment and reporting unit to be at the concept level.

As a result of this change, in 2021, 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 2022, we performed the goodwill impairment analysis at the concept level.

As stated in ASC 350, an entity may first assess qualitative factors in order to determine if it is necessary to perform the quantitative test.

In 2022 and 2021, we elected to perform a qualitative assessment for our annual review of goodwill.

In 2022 and 2021, we determined there was no goodwill impairment.

In 2020, as a result of our annual goodwill impairment analysis, we recorded goodwill impairment of $ 1.1 million.

Refer to Note 7 for additional information related to goodwill and intangible assets.

(j) Other Assets

(k) Other Assets

Other assets consist primarily of deferred compensation plan assets, investments in unconsolidated affiliates and deposits.

For further discussion of the deferred compensation plan, see note 15.

(k) Impairment or Disposal of Long-lived Assets

For further discussion of the deferred compensation plan, refer to Note 15 and Note 16.

(l) Impairment or Disposal of Long-lived Assets

In accordance with ASC 360, Property, Plant and Equipment , long-lived assets related to each restaurant to be held and used in the business, such as property and equipment, operating lease right-of-use assets and intangible assets subject to amortization, are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of a restaurant may not be recoverable.

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The adjusted carrying amounts of assets to be held and used are depreciated over their remaining useful life.

See note 16 for further discussion of amounts recorded as part of our impairment analysis.

(l) Insurance Reserves

Refer to Note 17 for further discussion of amounts recorded as part of our impairment analysis.

Texas Roadhouse, Inc.

and Subsidiaries

Notes to Consolidated Financial Statements

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

(m) Insurance Reserves

We self- insure a significant portion of expected losses under our health, workers’ compensation, general liability, employment practices liability, and property insurance programs.

We purchase insurance for individual claims that exceed the retention amounts listed below:

Employment practices liability/Class Action

December 27, 2022

December 28, 2021

Employment practices liability ("EPL")

EPL Class Action

Workers' compensation

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Our assumptions are reviewed, monitored, and adjusted when warranted by changing circumstances.

(n) Revenue Recognition

We recognize revenue in accordance with ASC 606, Revenue from Contracts with Customers, which requires an entity to allocate the transaction price received from customers to each separate and distinct performance obligation and recognize revenue as these performance obligations are satisfied.

We recognize revenue from company restaurant sales when food and beverage products are sold.

Restaurant sales include gross food and beverage sales, net of promotions and discounts, for all company restaurants.

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

We record deferred revenue for gift cards that have been sold but not yet redeemed.

When the gift cards are redeemed, we recognize restaurant sales and reduce deferred revenue.

For some of the gift cards that are sold we have determined that, based on our historic gift card redemption patterns, the likelihood of redemption is remote.

For these gift cards, we record a breakage adjustment and reduce deferred revenue by the amount never expected to be redeemed.

We use historic gift card redemption patterns to determine the breakage rate to utilize and recognize the expected breakage amount in a manner generally consistent with the actual redemption pattern of the associated gift card.

We review the breakage rate on an annual basis, or sooner if circumstances indicate that the rate may have significantly changed and update the rate accordingly as needed.

In addition, we incur fees on all gift cards that are sold through third-party retailers.

These fees are also deferred and generally recorded consistent with the actual redemption pattern of the associated gift cards.

We also recognize revenue from our franchising of Texas Roadhouse restaurants.

This includes franchise royalties and domestic marketing and advertising fees, initial and upfront franchise fees, domestic and international development agreements and supervisory and administrative service fees.

We recognize franchise royalties and domestic marketing and advertising fees as franchise restaurant sales occur.

For initial and upfront franchise fees and fees from development agreements, because the services we provide related to these fees do not contain separate and distinct performance obligations from the franchise right, these fees are recognized on a straight-line basis over the term of the associated franchise agreement.

We recognize fees from supervision and administrative services as incurred.

Texas Roadhouse, Inc.

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

(m) Revenue Recognition

We recognize revenue from restaurant sales when food and beverage products are sold.

Deferred revenue primarily represents our liability for gift cards that have been sold, but not yet redeemed.

When the gift cards are redeemed, we recognize restaurant sales and reduce deferred revenue.

We also recognize revenue from our franchising of Texas Roadhouse restaurants.

This includes franchise royalties, initial and upfront franchise fees, fees paid to our domestic marketing and advertising fund, and fees for supervisory and administrative services.

We recognize revenue in accordance with ASC 606, Revenue from Contracts with Customers .

This ASC requires an entity to allocate the transaction price received from customers to each separate and distinct performance obligation and recognize revenue as these performance obligations are satisfied.

We recognize sales-based royalties as franchise restaurant sales occur.

For initial and upfront franchise fees from international development agreements, because the services we provide related to these fees do not contain separate and distinct performance obligations from the franchise right, these fees are recognized on a straight-line basis over the term of the associated franchise agreement.

For further discussion of revenue, see note 3.

(n) Income Taxes

(o) Income Taxes

We account for income taxes in accordance with ASC 740, Income Taxes , under which deferred assets and liabilities are recognized based upon anticipated future tax consequences attributable to differences between financial statement carrying values of assets and liabilities and their respective tax bases.

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For all years presented, no valuation allowances have been recorded.

(o) Advertising

(p) Advertising

We have a domestic system- wide marketing and advertising fund.

We maintain control of the marketing and advertising fund and, as such, have consolidated the fund’s activity for all the years presented.

Domestic company and franchise restaurants are required to remit a designated portion of sales, currently 0.3 % , to the advertising fund.

Domestic company and franchise restaurants are required to remit a designated portion of sales to the advertising fund.

Advertising contributions related to company restaurants are recorded as a component of other operating costs.

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These costs and the company restaurant contribution amounted to $ 25.0 million, $ 21.1 million and $ 13.8 million for the years ended December 27, 2022, December 28, 2021 and December 29, 2020, respectively.

(p) Pre-opening Expenses

(q) Pre-opening Expenses

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

(q) Use of Estimates

generally accepted accounting principle (“GAAP”).

Significant items subject to such estimates and assumptions include the carrying amount of property and equipment, goodwill, obligations related to insurance reserves, leases and leasehold

Texas Roadhouse, Inc.

and Subsidiaries

Notes to Consolidated Financial Statements

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

improvements, legal reserves, gift card breakage and third party fees and income taxes.

Actual results could differ from those estimates.

(r) Comprehensive Income

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Foreign currency translation adjustment represents the unrealized impact of translating the financial statements of our foreign investment.

In 2021, we fully impaired our foreign investment and recognized the corresponding foreign currency translation adjustment of $ 0.1 million in net income.

(s) Fair Value of Financial Instruments

Fair value is defined as the price that we would receive to sell an asset or pay to transfer a liability in an orderly transaction between market participants on the measurement date.

We use a three-tier fair value hierarchy based upon observable and non-observable inputs that prioritizes the information used to develop our assumptions regarding fair value.

ASC 820, Fair Value Measurements and Disclosures , establishes a framework for measuring fair value and expands disclosures about fair value measurements.

This includes a three- level hierarchy, which requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs in measuring fair value.

The valuation hierarchy is based upon the transparency of inputs to the valuation of an asset or liability on the measurement date.

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

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

Inputs that are unobservable for the asset.

Fair value measurements are separately disclosed by level within the fair value hierarchy.

Refer to Note 16 for further discussion of fair value measurement.

(t) Recent Accounting Pronouncements

(Accounting Standards Update 2019-12, "ASU 2019-12")

In December 2019, the FASB issued ASU 2019-12, Income Taxes (Topic 740):

Simplifying the Accounting for Income Taxes, which removed certain exceptions related to the approach for intraperiod tax allocations, the calculation of income taxes in interim periods, and the recognition of deferred taxes for investments.

This guidance also simplified aspects of accounting for recognizing deferred taxes for taxable goodwill.

We adopted ASU 2019-12 as of the beginning of our 2021 fiscal year.

The adoption of this standard did not have a significant impact on our consolidated financial statements.

Reference Rate Reform

(Accounting Standards Update 2020-04, "ASU 2020-04")

In March 2020, the FASB issued ASU 2020-04, Reference Rate Reform (Topic 848):

Facilitation of the Effects of Reference Rate Reform on Financial Reporting, which provides temporary optional expedients and exceptions to the current guidance on contract modifications and hedge accounting.

These changes are intended to simplify the market transition from the London Interbank Offered Rate ("LIBOR") and other interbank offered rates to alternative reference rates.

This guidance is effective upon issuance to modifications made as early as the beginning of the interim period through December 31, 2022.

We are currently assessing the impact of this new standard on our consolidated financial statements .

Texas Roadhouse, Inc.

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

(t) Recent Accounting Pronouncements

Reference Rate Reform

In March 2020, the FASB issued Accounting Standards Update ("ASU") 2020-04, Reference Rate Reform (Topic 848):

These changes are intended to simplify the market transition from the London Interbank Offered Rate ("LIBOR") and other interbank offered rates to alternative reference rates.

In December 2022, the FASB issued ASU 2022-06, Reference Rate Reform (Topic 848):

Deferral of the Sunset Date of Topic 848 which defers the sunset date of Topic 848 from December 31, 2022 to December 31, 2024.

We do not anticipate that the adoption of this standard will have a significant impact on our consolidated financial statements .

The following table disaggregates our revenue by major source:

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Total revenue

Restaurant sales include the sale of food and beverage products to our customers.

We recognize this revenue when the products are sold.

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

Other sales include the amortization of gift card breakage and fees associated with third party gift card sales.

We record deferred revenue for gift cards that have been sold but not yet redeemed.

When the gift cards are redeemed, we recognize restaurant sales and reduce deferred revenue.

For some of the gift cards that are sold, the likelihood of redemption is remote.

When the likelihood of a gift card's redemption is determined to be remote, we record a breakage adjustment and reduce deferred revenue by the amount never expected to be redeemed.

We use historic gift card redemption patterns to determine when the likelihood of a gift card's redemption becomes remote.

In the current year, a shift in our historic redemption pattern indicated that the percentage of gift cards sold that are not expected to be redeemed had changed from 4.0 % to 4.5 % .

As a result, we adjusted the breakage recognized for all gift cards that had not been fully amortized and recorded a favorable breakage adjustment of $ 4.8 million.

In addition, we incur fees on all gift cards that are sold through third party retailers.

These fees are also deferred and recorded consistent with the historic redemption pattern of the associated gift cards or on actual redemptions in periods where redemptions do not align with historic redemption patterns.

For the years ended December 28, 2021, December 29, 2020 and December 31, 2019, we recognized gift card fees, net of gift card breakage income, of $ 6.1 million, $ 6.8 million and $ 9.1 million, respectively.

Total deferred revenue related to our gift cards is included in deferred revenue-gift cards in our consolidated balance sheets and includes the full value of unredeemed gift cards less the amortized portion of the breakage rates and the unamortized portion of third party fees.

As of December 28, 2021 and December 29, 2020, our deferred revenue balance related to gift cards was $ 300.7 million and $ 232.8 million, respectively.

This change was primarily due to the sale of additional gift cards partially offset by the redemption of gift cards.

The following table presents a rollforward of deferred revenue-gift cards:

December 27, 2022

December 28, 2021

Beginning balance

Gift card activations, net

Gift card redemptions and breakage

Ending balance

We recognized restaurant sales of $ 190.5 million for the year ended December 27, 2022 related to the amount in deferred revenue as of December 28, 2021.

We recognized restaurant sales of $ 140.1 million for the year ended December 28, 2021 related to the amount in deferred revenue as of December 29, 2020.

Franchise royalties include continuing fees received from our franchising of Texas Roadhouse restaurants.

We execute franchise agreements for each franchise restaurant which sets out the terms of our arrangement with the franchisee.

These agreements require the franchisee to pay ongoing royalties of generally 4.0 % of gross sales from our domestic franchisees, along with royalties paid to us by our international franchisees.

Franchise royalties are recognized as revenue as the corresponding franchise restaurant sales occur.

Franchise fees are all remaining fees from our franchisees including initial fees, upfront fees from international agreements, fees paid to our domestic marketing and advertising fund, and fees for supervisory and administrative services.

Our franchise agreements typically require the franchisee to pay an initial, non-refundable fee.

Subject to our approval and payment of a renewal fee, a franchisee may generally renew the franchise agreement upon its expiration.

These initial fees and renewal fees are deferred and recognized over the term of the agreement.

We also enter into area development agreements for the development of international Texas Roadhouse restaurants.

Upfront fees from

(4) Acquisitions

On March 30, 2022, we completed the acquisition of one franchise Texas Roadhouse restaurant located in Nebraska in which we previously held a 5.49 % equity interest.

Pursuant to the terms of the acquisition agreement, we paid a total purchase price of $ 6.6 million, net of cash acquired for 100 % of the entity.

The transaction was accounted for as a step acquisition and we recorded a gain of $ 0.3 million on our previous investment in equity income from investments in unconsolidated affiliates in the consolidated statements of income and comprehensive income.

Additionally, on December 29, 2021, we completed the acquisition of seven franchise Texas Roadhouse restaurants located in South Carolina and Georgia.

Pursuant to the terms of the acquisition agreements, we paid a total purchase price of $ 26.4 million, net of cash acquired.

Texas Roadhouse, Inc.

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

development agreements are deferred and recognized on a pro-rata basis over the term of the individual restaurant franchise agreement as restaurants under the development agreement are opened.

Our domestic franchise agreement also requires our franchisees to remit 0.3 % of sales to our system-wide marketing and advertising fund.

These amounts are recognized as revenue as the corresponding franchise restaurant sales occur.

Finally, we perform supervisory and administrative services for certain franchise restaurants for which we receive management fees, which are recognized as the services are performed.

Total deferred revenue related to our franchise agreements is included in other liabilities in our consolidated balance sheets and was $ 1.9 million as of December 28, 2021 and December 29, 2020.

We recognized revenue of $ 0.3 million and $ 0.4 million for the years ended December 28, 2021 and December 29, 2020, respectively, related to the amounts in deferred revenue as of December 29, 2020 and December 31, 2019, respectively.

(4) Acquisitions

In 2021, we did not acquire any franchise restaurants.

In 2020, we separately acquired two franchise restaurants.

Pursuant to the terms of the acquisition agreements, we paid a total purchase price of $ 10.6 million.

These transactions were accounted for using the purchase method as defined in ASC 805, Business Combinations .

These acquisitions generated goodwill of $ 3.3 million, which is not amortizable for book purposes, but is deductible for tax purposes.

The goodwill was assigned to the Texas Roadhouse reportable segment.

We also acquired an intangible reacquired franchise right asset of $ 1.6 million which will be amortized over 3.4 years based on the remaining term of the franchise agreement.

These transactions were accounted for using the acquisition method as defined in ASC 805, Business Combinations .

These acquisitions are consistent with our long-term strategy to increase net income and earnings per share.

The following table summarizes the consideration paid (in thousands) for the acquisitions, and the estimated fair value of the assets acquired, and the liabilities assumed at the acquisition date, which are adjusted for measurement-period adjustments through December 27, 2022.

Property and equipment

Operating lease right-of-use assets

Intangible assets

Deferred revenue-gift cards

Current portion of operating lease liabilities

Operating lease liabilities, net of current portion

The aggregate purchase prices are preliminary as the Company is finalizing working capital adjustments.

Intangible assets represent reacquired franchise rights which will be amortized over a weighted-average useful life of 3.5 years.

We expect all of the goodwill and intangible asset amortization will be deductible for tax purposes and believe the resulting amount of goodwill reflects the benefit of sales and unit growth opportunities as well as the benefit of the assembled workforce of the acquired restaurants.

Pro forma operating results for the year ended December 27, 2022 have not been presented as the results of the acquired restaurants are not material to our consolidated financial position, results of operations or cash flows.

(5) Long-term Debt

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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 terms of the amendment 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 27, 2022, we had $ 50.0 million outstanding on the amended revolving credit facility and $ 233.5 million of availability, net of $ 16.5 million of outstanding letters of credit.

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

As of December 29, 2020, we had $ 190.0 million outstanding on the original 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 $ 100.0 million outstanding as of December 28, 2021 was 0.98 % .

The weighted-average interest rate for the $ 240.0 million of combined borrowings as of December 29, 2020 was 1.98 %.

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.

These outstanding amounts are included as long-term debt on our consolidated balance sheets.

Texas Roadhouse, Inc.

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

The interest rate for the $ 50.0 million outstanding as of December 27, 2022 was 5.21 % .

The interest rate for the $ 100.0 million outstanding as of December 28, 2021 was 0.98 %.

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

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Accumulated depreciation and amortization

For the years ended December 28, 2021 and December 29, 2020, the amount of interest capitalized in connection with restaurant construction was $ 0.2 million and $ 0.3 million, respectively.

There was no interest capitalized in connection with restaurant construction for the year ended December 31, 2019.

For the years ended December 27, 2022, December 28, 2021 and December 29, 2020, the amount of interest capitalized in connection with restaurant construction was $ 1.3 million, $ 0.2 million and $ 0.3 million, respectively.

(7) Goodwill and Intangible Assets

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The gross carrying amount and accumulated amortization of the intangible assets at December 27, 2022 were $ 23.5 million and $ 17.9 million, respectively.

As of December 29, 2020, the gross carrying amount and accumulated amortization of the intangible assets was $ 16.6 million and $ 14.3 million, respectively.

We amortize reacquired franchise rights on a straight-line basis over the remaining term of the franchise operating agreements, which varies by restaurant.

Amortization expense for the next five years is expected to range from $ 0.1 million to $ 0.7 million.

As of December 28, 2021, the gross carrying amount and accumulated amortization of the intangible assets were $ 16.6 million and $ 15.1 million, respectively.

We amortize reacquired franchise rights on a straight-line basis over the remaining term of the franchise operating agreements, which varies by franchise agreement.

Amortization expense for the next four years is expected to range from $ 0.1 million to $ 2.6 million.

Refer to Note 4 for discussion of the acquisitions completed for the year ended December 27, 2022.

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As of December 27, 2022 and December 28, 2021, these amounts were as follows:

As of December 28, 2021

December 27, 2022

Operating lease right-of-use assets

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Total operating lease liabilities

As of December 29, 2020

December 28, 2021

Operating lease right-of-use assets

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Variable lease

Short-term lease

Total lease costs

Real estate lease liabilities maturity analysis

As of December 28, 2021

December 27, 2022

Less interest

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In addition to the above operating leases, as of December 27, 2022, we had two finance leases with a right-of-use asset balance and lease liability balance of $ 2.1 million and $ 2.7 million, respectively.

As of December 29, 2020, we had one finance lease with a right-of-use asset balance and lease liability balance of $ 1.7 million and $ 2.1 million, respectively.

As of December 28, 2021, we had two finance leases with a right-of-use asset balance and lease liability balance of $ 2.2 million and $ 2.7 million, respectively.

The right-of-use asset balance is included as a component of other assets and the lease liability balance as a component of other liabilities in the consolidated balance sheets.

In 2022, we entered into four sale leaseback transactions involving land that had recently been acquired.

These sales generated proceeds of $ 12.9 million and no gain or loss was recognized on the transactions.

In 2021, we entered into three sale leaseback transactions involving land that had recently been acquired.

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The resulting operating leases are included in the operating lease right-of-use assets and lease liabilities noted above.

In 2020, we entered into a sale leaseback transaction involving land that had recently been acquired.

The sale generated proceeds of $ 2.2 million and no gain or loss was recognized on the transaction.

The resulting operating lease is included in the operating lease right-of-use assets and lease liabilities noted above.

Texas Roadhouse, Inc.

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

We estimate the present value based on our incremental borrowing rate which corresponds to the underlying lease term.

In addition, operating lease right-of-use assets are reduced for accrued rent and increased for any initial direct costs recognized at lease inception.

For leases commencing in 2019 and later, we account for lease and non-lease components as a single lease component.

Certain of our operating leases contain predetermined fixed escalations of the minimum rent over the lease term.

For these leases, we recognize the related total rent expense on a straight-line basis over the lease term.

We may receive rent concessions or leasehold improvement incentives upon opening a restaurant that is subject to a lease which we consider when determining straight-line rent expense.

We also may receive rent holidays, which would begin on the possession date and end when the store opens, during which no cash rent payments are typically due under the terms of the lease.

Rent holidays are included in the lease term when determining straight-line rent expense.

In recognizing straight-line rent expense, we record the difference between amounts charged to operations and amounts paid as accrued rent.

Straight-line rent expense is included as an operating lease cost in the table above.

Certain of our operating leases contain clauses that provide for additional contingent rent based on a percentage of sales greater than certain specified target amounts.

We recognize contingent rent expense prior to the achievement of the specified target that triggers the contingent rent, provided achievement of the target is considered probable.

In addition, certain of our operating leases have variable escalations of the minimum rent that depend on an index or rate.

For these leases, we recognize operating lease right-of-use assets and operating lease liabilities based on the index or rate at the commencement date.

Any subsequent changes to the index or rate are recognized as variable rent expense when the escalation is determinable.

Contingent rent and variable rent expense are included as variable lease costs in the table above.

(9) Income Taxes

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Our pre-tax income is substantially derived from domestic restaurants.

Texas Roadhouse, Inc.

and Subsidiaries

Notes to Consolidated Financial Statements

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

A reconciliation of the statutory federal income tax rate to our effective tax rate for December 27, 2022, December 28, 2021 and December 29, 2020 is as follows:

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Officers compensation

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

Our effective tax rate increased to 13.6 % in 2022 compared to 13.5 % in 2021.

The increase was primarily due to lower excess tax benefits related to our share-based compensation program partially offset by an increase in the FICA tip tax credit.

Our effective tax rate was 13.5 % in 2021 compared to a tax 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.

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

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

Although these credits exceeded our federal tax liability in 2020, we expect to utilize these credits in future years.

Texas Roadhouse, Inc.

and Subsidiaries

Notes to Consolidated Financial Statements

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

Components of deferred tax liabilities, net are as follows:

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We expect to generate sufficient earnings in future periods and/or may implement tax planning strategies that would allow us to fully utilize these credits.

As such, we have not

Texas Roadhouse, Inc.

and Subsidiaries

Notes to Consolidated Financial Statements

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

provided any valuation allowances for these credits, or any of our other deferred tax assets, as their realization is more likely than not.

A reconciliation of the beginning and ending liability for unrecognized tax benefits, all of which would impact the effective tax rate if recognized, is as follows:

As such, we have not provided any valuation allowances for these credits, or any of our other deferred tax assets, as their realization is more likely than not.

A reconciliation of the beginning and ending liability for unrecognized tax benefits is as follows:

Balance at December 29, 2020

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Reductions due to statute expiration

Reductions due to exam settlements

Reductions due to exam settlement

Balance at December 28, 2021

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Balance at December 27, 2022

As of December 27, 2022 and December 28, 2021, the amount of unrecognized tax benefits that would impact the effective tax rate if recognized was $ 2.1 million and $ 1.5 million, respectively.

As of December 27, 2022 and December 28, 2021, the total amount of accrued penalties and interest related to uncertain tax provisions was recognized as a part of income tax expense and these amounts were not material.

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As a result, as of December 27, 2022, the tax years ended December 28, 2021, December 29, 2020 and December 31, 2019 remain subject to examination by all tax jurisdictions.

As of December 28, 2021, no audits were in process by a tax jurisdiction that, if completed during the next twelve months, would be expected to result in a material change to our unrecognized tax benefits.

As of December 27, 2022, no audits were in process by a

Texas Roadhouse, Inc.

and Subsidiaries

Notes to Consolidated Financial Statements

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

tax jurisdiction that, if completed during the next twelve months, would be expected to result in a material change to our unrecognized tax benefits.

Additionally, as of December 27, 2022, no event occurred that is likely to result in a significant increase or decrease in the unrecognized tax benefits through December 26, 2023.

(10) Preferred Stock

Our Board of Directors is authorized, without further vote or action by the holders of common stock, to issue from time to time up to an aggregate of 1,000,000 shares of preferred stock in one or more series.

Each series of preferred stock will have the number of shares, designations, preferences, voting powers, qualifications and special or relative rights or privileges as shall be determined by the Board of Directors, which may include, but are not limited to, dividend rights, voting rights, redemption and sinking fund provisions, liquidation preferences, conversion rights and preemptive rights.

Our Board of Directors (the "Board") is authorized, without further vote or action by the holders of common stock, to issue from time to time up to an aggregate of 1,000,000 shares of preferred stock in one or more series.

Each series of preferred stock will have the number of shares, designations, preferences, voting powers, qualifications and special or relative rights or privileges as shall be determined by the Board, which may include, but are not limited to, dividend rights, voting rights, redemption and sinking fund provisions, liquidation preferences, conversion rights and preemptive rights.

There were no shares of preferred stock outstanding at December 27, 2022 and December 28, 2021.

(11) Stockholders’ Equity

On May 31, 2019, our Board of Directors approved a stock repurchase program under which we may repurchase up to $ 250.0 million of our common stock.

This stock repurchase program has no expiration date and replaced a previous stock repurchase program which was approved on May 22, 2014.

(11) Stock Repurchase Program

On March 17, 2022, our Board approved a stock repurchase program under which we may repurchase up to $ 300.0 million of our common stock.

This stock repurchase program has no expiration date and replaced a previous stock repurchase program which was approved on May 31, 2019 that authorized the Company to repurchase up to $ 250.0 million of our common stock.

All repurchases to date under our stock repurchase programs have been made through open market transactions.

The timing and the amount of any repurchases are determined by management under parameters established by our Board of Directors, based on an evaluation of our stock price, market conditions and other corporate considerations.

In response to the impact of the pandemic on our restaurant operations, on March 17, 2020, we suspended all share repurchase activity.

We resumed share repurchases on August 2, 2021.

The timing and the amount of any repurchases are determined by management under parameters established by the Board, based on an evaluation of our stock price, market conditions and other corporate considerations.

For the year ended December 27, 2022, we paid $ 212.9 million to repurchase 2,734,005 shares of our common stock.

This includes $ 133.1 million repurchased under our current authorized stock repurchase program and $ 79.7 million repurchased under our prior authorization.

For the year ended December 28, 2021, we paid $ 51.6 million to repurchase 584,932 shares of our common stock.

As of December 27, 2022, we had $ 166.9 million remaining under our authorized stock repurchase program.

Texas Roadhouse, Inc.

and Subsidiaries

Notes to Consolidated Financial Statements

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

(12) Earnings Per Share

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Performance stock units are not included in the diluted earnings per share calculation until the performance-based criteria have been met.

See note 14 for further discussion of our equity incentive plans.

Refer to Note 14 for further discussion of our equity incentive plans.

For the years ended December 27, 2022, December 28, 2021, and December 29, 2020, the shares of non-vested stock that were not included because they would have had an anti-dilutive effect were not significant.

Texas Roadhouse, Inc.

and Subsidiaries

Notes to Consolidated Financial Statements

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

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

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The estimated cost of completing capital project commitments at December 27, 2022 and December 28, 2021 was $ 205.7 million and $ 135.0 million, respectively.

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

As of December 27, 2022 and December 28, 2021, we are contingently liable for $ 11.3 million and $ 12.2 million, respectively, for seven lease guarantees.

These amounts represent the maximum potential liability of future payments under the guarantees.

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No liabilities have been recorded as of December 27, 2022 as the likelihood of default was deemed to be less than probable and the fair value of the guarantees is not considered significant.

Texas Roadhouse, Inc.

and Subsidiaries

Notes to Consolidated Financial Statements

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

Assignment Date

Current Lease

Term Expiration

Everett, Massachusetts (1)

September 2002

February 2023

Longmont, Colorado (1)

Montgomeryville, Pennsylvania (1)

Fargo, North Dakota (1)

February 2006

Logan, Utah (1)

Irving, Texas (2)

December 2013

December 2024

Louisville, Kentucky (2)(3)

December 2013

November 2023

(1) Real estate lease agreements for restaurant locations which we entered into before granting franchise rights to those restaurants.

We have subsequently assigned the leases to the franchisees, but remain contingently liable, under the terms of the lease, if the franchisee defaults.

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

The leases were assigned to the acquirer, but we remain contingently liable under the terms of the lease if the acquirer defaults.

(3) We may be released from liability after the initial contractual lease term expiration contingent upon certain conditions being met by the acquirer.

During the year ended December 28, 2021, we bought most of our beef from three suppliers.

During the year ended December 27, 2022, we bought most of our beef from four suppliers.

Although there are a limited number of beef suppliers, we believe that other suppliers could provide a similar product on comparable terms.

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On May 13, 2021, our stockholders approved the Texas Roadhouse, Inc.

2021 Long-Term Incentive Plan (the “Plan”).

2021 Long-Term Incentive Plan (the "Plan").

The Plan provides for the granting of various forms of equity awards including options, stock appreciation rights, full value awards, and performance-based awards.

This plan replaced the 2013 Long-Term Incentive Plan and no subsequent awards will be granted under the 2013 plan.

The Company provides restricted stock units (“RSUs”) to employees as a form of share-based compensation.

An RSU is the conditional right to receive one share of common stock upon satisfaction of the vesting requirement.

The Company provides restricted stock units ("RSUs") to employees as a form of share-based compensation.

A RSU is the conditional right to receive one share of common stock upon satisfaction of the vesting requirement.

In addition to RSUs, the Company provides performance stock units ("PSUs") to executives as a form of share-based compensation.

A PSU is the conditional right to receive one share of common stock upon meeting a performance obligation along with the satisfaction of the vesting requirement.

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

Texas Roadhouse, Inc.

2 unchanged sentences

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

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

Fiscal Year Ended

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Outstanding at December 27, 2022

(1) Adjustment to actual payout amount of 6.58 % from the January 2020 PSU grant that vested in January 2021.

(1) Additional shares from the January 2021 PSU grant that vested in January 2022 due to exceeding the initial 100% target.

We grant PSUs to certain of our executives subject to a one-year vesting and the achievement of certain earnings targets, which determine the number of units to vest at the end of the vesting period.

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The total intrinsic value of PSUs vested during the years ended December 27, 2022, December 28, 2021 and December 29, 2020 was $ 5.4 million, $ 0.4 million and $ 5.4 million, respectively.

On January 8, 2022, 60,026 shares vested related to the January 2021 PSU grant and are expected to be distributed during the 13 weeks ending March 29, 2022.

As of December 28, 2021, with respect to unvested PSUs, the amount of unrecognized compensation cost that is expected to be recognized over a weighted-average period of 0.1 year was not

Texas Roadhouse, Inc.

2 unchanged sentences

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

On January 8, 2023, 31,379 shares vested related to the January 2022 PSU grant and are expected to be distributed during the 13 weeks ending March 28, 2023.

As of December 27, 2022, with respect to unvested PSUs, the amount of unrecognized compensation cost that is expected to be recognized over a weighted-average period of 0.1 year was not significant.

There was no allowable excess tax benefit associated with vested PSUs for the years ended December 27, 2022, December 28, 2021 and December 29, 2020.

(15) Employee Benefit Plans

We have a defined contribution benefit plan ("401(k) Plan") that is available to our Support Center employees and managers in our restaurants who meet certain compensation and eligibility requirements.

The 401(k) Plan allows participating employees to defer the receipt of a portion of their compensation and contribute such amount to one or more investment options.

Beginning in 2022, we implemented a company match of a certain percentage of the employee contributions to the 401(k) Plan.

Company contributions totaling $ 5.4 million and $ 1.6 million were recorded in labor expense and general and administrative expense, respectively, within the consolidated statements of income and comprehensive income.

We also have a deferred compensation plan which allows highly compensated employees to defer a portion of their compensation and contribute such amounts to one or more investment funds held in a rabbi trust.

The Company did not provide any contributions into this plan for any period presented.

Refer to Note 16 for further discussion on the fair value measurement of the deferred compensation plan assets and liabilities.

(16) Fair Value Measurement

ASC 820, Fair Value Measurements and Disclosures ("ASC 820"), establishes a framework for measuring fair value and expands disclosures about fair value measurements.

ASC 820 establishes a three- level hierarchy, which requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs in measuring fair value.

The valuation hierarchy is based upon the transparency of inputs to the valuation of an asset or liability on the measurement date.

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

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

Inputs that are unobservable for the asset.

At December 27, 2022 and December 28, 2021, the fair values of cash and cash equivalents, accounts receivable and accounts payable approximated their carrying values based on the short-term nature of these instruments.

At December 27, 2022 and December 28, 2021, the fair value of our amended revolving credit facility approximated its carrying value since it is a variable rate credit facility (Level 2).

There were no transfers among levels within the fair value hierarchy during the year ended December 27, 2022.

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Deferred compensation plan—liabilities

The Second Amended and Restated Deferred Compensation Plan of Texas Roadhouse Management Corp., as amended, (the "Deferred Compensation Plan") is a nonqualified deferred compensation plan which allows highly compensated employees to defer receipt of a portion of their compensation and contribute such amounts to one or more investment funds held in a rabbi trust.

We report the accounts of the rabbi trust in other assets and the corresponding liability in other liabilities in our consolidated financial statements.

We report the accounts of the deferred compensation plan in other assets and the corresponding liability in other liabilities in our consolidated financial statements.

These investments are considered trading securities and are reported at fair value based on quoted market prices.

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Fair Value Measurements

Total gain (loss)

Fiscal Year Ended

Long-lived assets held for sale

Long-lived assets held for use

Operating lease right-of-use assets

Investments in unconsolidated affiliates

Long-lived assets held for sale include land and building at a site that was relocated and had a carrying amount of $ 1.2 million and $ 1.6 million as of December 28, 2021 and December 29, 2020, respectively.

These assets are included in prepaid expenses and other current assets in our consolidated balance sheets.

These are valued using a Level 3 input, i.e., information from broker listings.

We recorded a loss of $ 0.5 million and $ 0.4 million for the years ended December 28, 2021 and December 29, 2020, respectively, which is included in impairment and closure, net in our consolidated statements of income and comprehensive income.

Goodwill includes two restaurants whose carrying amounts were determined to be in excess of their fair values as part of our annual goodwill impairment assessment in 2020 and had a carrying amount of $ 2.6 million as of December

Texas Roadhouse, Inc.

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

In determining the fair value, multiple valuation approaches were utilized which considered the historical results and anticipated future trends of operations for these restaurants.

We consider this a Level 3 input.

Investments in unconsolidated affiliates include a 40 % equity interest in a joint venture in China that had a carrying amount of zero and $ 1.5 million as of December 28, 2021 and December 29, 2020, respectively.

We recorded a loss of $ 1.5 million and $ 1.1 million for the years ended December 28, 2021 and December 29, 2020, respectively, which is included in equity (loss) income from investments in unconsolidated affiliates in our consolidated statements of income and comprehensive income.

This joint venture included four non-Texas Roadhouse restaurants, all of which closed in 2021.

At December 28, 2021 and December 29, 2020, the fair values of cash and cash equivalents, accounts receivable and accounts payable approximated their carrying values based on the short-term nature of these instruments.

At December 28, 2021 and December 29, 2020, the fair value of our amended revolving credit facility approximated its carrying value since it is a variable rate credit facility (Level 2).

Long-lived assets held for sale include land and building at a site that was relocated and had a carrying amount of $ 1.2 million as of December 28, 2021.

These assets were included in prepaid expenses and other current assets in our consolidated balance sheets and were valued using a Level 3 input.

These assets were sold during the fiscal year ended December 27, 2022 and resulted in a gain of $ 0.7 million which is included in impairment and closure, net in our consolidated statements of income and comprehensive income.

We recorded a loss of $ 0.5 million related to these assets for the year ended December 28, 2021, which is included in impairment and closure, net in our consolidated statements of income and comprehensive income.

Long-lived assets held for use include the land and building for one underperforming restaurant that was impaired down to fair value in 2022.

These assets are valued using a Level 3 input.

This impairment, which totaled $ 1.0 million, is included in impairment and closure costs , net in our consolidated statements of income and comprehensive income.

For further discussion of impairment charges, refer to Note 17.

Operating lease right-of-use assets as of December 27, 2022 includes the lease related asset for two restaurants that were relocated in 2022.

These assets were reduced to a fair value of zero in 2022.

This resulted in a loss of $ 0.7 million for the fiscal year ended December 27, 2022, which is included in impairment and closure, net in our consolidated statements of income and comprehensive income.

Investments in unconsolidated affiliates included a 40 % equity interest in a joint venture in China which was fully impaired in late 2021.

This asset was valued using a Level 3 input, or the amount we expected to receive upon the sale of this investment.

This resulted in a loss of $ 1.5 million for the year ended December 28, 2021, which is included in equity income (loss) from investments in unconsolidated affiliates in our consolidated statements of income and comprehensive income.

(17) Impairment and Closure Costs

We recorded impairment and closure costs of $ 1.6 million, $ 0.7 million and $ 2.3 million for the years ended December 27, 2022, December 28, 2021 and December 29, 2020, respectively.

Impairment and closure costs in 2021 included $ 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.

Impairment and closure costs in 2022 included $ 1.7 million related to the impairment of the land, building and operating lease right-of-use assets at three restaurants, two of which have relocated and $ 0.6 million related to ongoing closure costs.

This was partially offset by a $ 0.7 million gain on the sale of land and building that was previously classified as assets held for sale.

Impairment and closure costs in 2021 included $ 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.

Impairment and closure costs in 2020 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.

In addition, in 2020, we recorded goodwill impairment of $ 1.1 million related to two restaurants.

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

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

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

The remaining costs of $ 0.6 million related to costs associated with the relocation of restaurants.

(18) Related Party Transactions

As of December 28, 2021, December 29, 2020 and December 31, 2019, we had three franchise restaurants and one majority-owned company restaurant owned in part by current officers of the Company.

These franchise entities paid us fees of $ 1.7 million, $ 0.9 million and $ 0.7 million as of December 28, 2021, December 29, 2020, and December 31, 2019, respectively.

As of December 27, 2022, December 28, 2021 and December 29, 2020, we had four franchise restaurants and one majority-owned company restaurant owned in part by a current officer of the Company.

We recognized revenue of $ 1.8 million, $ 1.7 million and $ 0.9 million for the years ended December 27, 2022, December 28, 2021, and December 29, 2020, respectively, related to these restaurants.

Texas Roadhouse, Inc.

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

Restaurant margin is used by our CODM to evaluate restaurant-level operating efficiency and performance.

In calculating restaurant margin, we exclude certain non-restaurant-level costs that support operations, including pre-opening and general and administrative expenses, but do not have a direct impact on restaurant-level operational efficiency and performance.

We also exclude depreciation and amortization expense, substantially all of which relates to restaurant-level assets, as it represents a non-cash charge for the investment in our restaurants.

Restaurant margin is used by our CODM to evaluate core restaurant-level operating efficiency and performance over various reporting periods on a consistent basis.

In calculating restaurant margin, we exclude certain non-restaurant-level costs that support operations, including general and administrative expenses, but do not have a direct impact on restaurant-level operational efficiency and performance.

We exclude pre-opening expense as it occurs at irregular intervals and would impact comparability to prior period results.

We exclude depreciation and amortization expense, substantially all of which relates to restaurant-level assets, as it represents a non-cash charge for the investment in our restaurants.

We also exclude impairment and closure expense as we believe this provides a clearer perspective of the Company’s ongoing operating performance and a more useful comparison to prior period results.

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A reconciliation of restaurant margin to income from operations is presented below.

We do not allocate interest expense (income) and equity (loss) income from investments in unconsolidated affiliates to reportable segments.

We do not allocate interest expense, net and equity income (loss) from investments in unconsolidated affiliates to reportable segments.

Fiscal Year Ended

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(20) Subsequent Events

On December 29, 2021, the first day of our 2022 fiscal year, we completed the acquisition of seven franchise restaurants.

On December 28, 2022, the first day of our 2023 fiscal year, we completed the acquisition of eight domestic franchise restaurants.

Pursuant to the terms of the acquisition agreements, we paid an aggregate purchase price of approximately $ 39.0 million.

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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 9A. Controls and Procedures