| | | | | Name | | Age | | Position | W. Kent Taylor
|
| 65
|
| Chairman and Chief Executive Officer
| Gerald L. Morgan | | 6062
| | Chief Executive Officer | Regina A. Tobin | | 59 | | President | S. Chris Jacobsen | | 5557
| | Chief Marketing Officer | Tonya R. RobinsonChristopher C. Colson
| | 5246
| | Chief FinancialLegal and Administrative Officer | Douglas W. ThompsonHernan E. Mujica
| | 5761
| | Chief OperationsTechnology Officer | Keith V. Humpich | | 53 | | Interim Chief Financial Officer |
W. Kent Taylor. Mr. Taylor founded Texas Roadhouse in 1993. He resumed his role as Chief Executive Officer in August 2011, a position he held between May 2000 and October 2004. He was named Chairman of the Company and Board in October 2004. Before his founding of our concept, Mr. Taylor founded and co-owned Buckhead Bar and Grill in Louisville, Kentucky. Mr. Taylor has over 35 years of experience in the restaurant industry.
Gerald L. Morgan. Mr. Morgan was appointed President in December 2020. He assumed this role from Mr. Taylor. He joined Texas Roadhouse in 1997 and has held a number of positions, including Managing Partner, Market
Gerald L. Morgan. Mr. Morgan was appointed Chief Executive Officer in March 2021. Mr. Morgan joined Texas Roadhouse in 1997, during which time he has held the positions of Managing Partner, Market Partner and Regional Market Partner. Mr. Morgan also served as President from December 2020 to January 2023. Mr. Morgan has more than 35 years of restaurant management experience with Texas Roadhouse, Bennigan’s Restaurants and Burger King. Regina A. Tobin. Ms. Tobin was appointed President in January 2023. Ms. Tobin joined Texas Roadhouse in 1996, during which time she has held the positions of Managing Partner, Market Partner, Vice President of Training and served as Chief Learning and Culture Officer from June 2021 through her appointment as President. Ms. Tobin has more than 30 years of restaurant management experience. S. Chris Jacobsen. Mr. Jacobsen was appointed Chief Marketing Officer in February 2016. Mr. Jacobsen joined Texas Roadhouse in January 2003 and haswhere he served as Vice President of Marketing since 2011. Prior to joining us,until his appointment as Chief Marketing Officer. Mr. Jacobsen was employed byhas more than 30 years of restaurant marketing experience with Texas Roadhouse, Papa John’s International and Waffle House, Inc. where he held various senior level marketing positions. He has over 25 years of restaurant industry experience. Tonya R. Robinson.Christopher C. Colson. Ms. RobinsonMr. Colson was appointed Chief FinancialLegal and Administrative Officer in May 2018. SheJanuary 2023 and Corporate Secretary in August 2019. Mr. Colson joined Texas Roadhouse in December 1998,2005, during which time shehe has held the positions of Controller,Senior Counsel, Associate General Counsel, Executive Director of Financial Reportingthe Global Development Group and Vice President of FinanceGeneral Counsel, a position he held from March 2021 through his appointment as Chief Legal and Investor Relations. Ms. RobinsonAdministrative Officer. Mr. Colson has over 20 years of restaurant industry experience.experience with Texas Roadhouse, Frost Brown Todd LLC (serving as outside counsel to Texas Roadhouse), YUM! Brands, Inc. and as assurance staff at KPMG LLP.
Douglas W. Thompson.Hernan E. Mujica. Mr. ThompsonMujica was appointed Chief OperatingTechnology Officer in August 2018. HeJanuary 2023. Mr. Mujica joined Texas Roadhouse in 2002January 2012 as a Market Partner and has served as our Vice President of Operations since 2015. BeforeInformation Technology and then Chief Information Officer, a position he held from March 2021 through his appointment as Chief Technology Officer. Prior to joining the Company,Texas Roadhouse, Mr. Thompson was a singleMujica held senior management positions at The Home Depot and multi-unit operator with both Outback Steakhouse, Inc. and Bennigan’s Restaurants.Arthur Andersen. Mr. ThompsonMujica has over 30 years of restaurantexperience in both industry and consulting roles.
Keith V. Humpich. Mr. Humpich was appointed Interim Chief Financial Officer in January 2023. Mr. Humpich joined Texas Roadhouse in 2005, during which time he has held the positions of Director of Internal Audit, Senior Director of Internal Audit and Vice President of Finance. Prior to joining Texas Roadhouse, Mr. Humpich held several accounting, finance and audit positions at Lexmark International and Ernst & Young, LLP. Mr. Humpich has over 30 years of accounting and finance experience. ITEM 1A. RISK FACTORS Careful consideration should be given to the risks described below. If any of the risks and uncertainties described in the cautionary factors described below actually occurs, our business, financial condition and results of operations, and the trading price of our common stock could be materially and adversely affected. Moreover, we operate in a very competitive and rapidly changing environment. New factors emerge from time to time and it is not possible to predict the impact of all these factors on our business, financial condition or results of operations. Risks Related to our Growth and Operating Strategy The COVID-19 pandemic has disrupted and is expected to continue to disrupt our business, which hasOur quarterly operating results may fluctuate significantly and could continuefall below the expectations of securities analysts and investors due to materially affect our business, financial condition, and resultsa number of operations, for an extended period of time.
On March 13, 2020, the COVID-19 pandemic was declared a National Public Health Emergency. Shortly after the national emergency declaration, state and local officials began placing restrictions on restaurants, somefactors, many of which allowed To-Go or curbside service only while others limited capacityare beyond our control, resulting in the dining room. By late March all of our domestic company and franchise restaurants were under state or local order which only allowed for To-Go or curbside service. Beginning in early May 2020, state and local guidelines began to allow dining rooms to re-open, typically at a limited capacity. While all of our dining rooms were able to re-open in some capacity, many were required to close again in areas more severely impacted by the pandemic. As of December 29, 2020, 82% of our company restaurants had their dining rooms operating under various limited capacity restrictions. Our remaining restaurants were limited to outdoor and/or To-Go or curbside service only.
As a result of the dining room restrictions and temporary closures, we have experienced a significant decrease in traffic which has impacted our operating results. While the majority of our dining rooms have re-opened, a significant portion continue to operate under capacity restrictions that severely limit the number of guests we can serve. In addition, while we have seen significant sales growthdecline 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 ourstock price.
Our quarterly operating results to continue to be impacted until at least such time that all state and local restrictions are lifted, and our dining rooms can operate at full capacity. We cannot predict how long the pandemic will last, how long it will take until all state and local restrictions will be lifted, or the extent to which our dining rooms will have to close again. In addition, we cannot predict the overall impact on the economy or consumer spending habits. The impact on our operating results as well as the operational and financial measures we have implemented in response to the pandemic have been included throughout this report.
The pandemic has also adversely impacted our ability to open new restaurants. At the onsetmay fluctuate significantly because of the pandemic, we delayed construction on all restaurants that were not substantially complete. As a result, we only opened 22 restaurants in 2020 across all concepts. As of December 29, 2020, 10 restaurants were under construction. Our ability to grow ourseveral factors, including:
| ● | the timing of new restaurant openings and related expenses; |
| ● | restaurant operating costs for our newly-opened restaurants, which are often significantly higher during the first several months of operation than thereafter; |
| ● | labor availability and costs for hourly and management personnel including increases relating to unionization and mandated changes in federal and/or state minimum and tipped wage rates, overtime regulations, state unemployment taxes, sick pay or health benefits and other regulatory changes relating to any of the foregoing; |
| ● | fluctuations in commodity prices and utility and energy costs; |
| ● | profitability of our restaurants, particularly in new markets; |
| ● | the impact of litigation, including negative publicity; |
| ● | decreases in average unit volume and comparable restaurant sales, including to-go sales; |
| ● | impairment of long-lived assets, including goodwill, and any loss on restaurant relocations or closures; |
| ● | general economic conditions, including an economic recession, which can affect restaurant traffic, local labor costs, and prices we pay for the food products and other supplies we use; |
| ● | negative publicity regarding food safety and other food and beverage related matters, including the integrity of our, and/or our suppliers’ food processing; |
| ● | negative publicity relating to the consumption of beef or other products we serve; |
| ● | negative publicity regarding health concerns and/or global pandemics; |
| ● | closures and/or dining rooms operating at limited capacity due to government mandated restaurant closures and/or limited availability of staff to meet our business standards; |
| ● | changes in consumer preferences and competitive conditions including changes related to environmental, social and/or governance ("ESG")pressures; |
| ● | expansion to new domestic and/or international markets; |
| ● | the impact of inclement weather, natural disasters and other calamities which impact guest traffic or product availability at our restaurants; |
| ● | increases in infrastructure costs; |
| ● | changes in interest rates; |
| ● | adoption of new, or changes in existing, accounting policies or practices; |
| ● | changes in and/or interpretations of federal and state tax laws; |
| ● | actual self-insurance claims varying from actuarial estimates; and |
Our business could be further impacted, particularly if we have to delay construction on these sites in future periods.
In March 2020, we borrowed $190.0 million under our Amended Credit Agreement in order to enhance our financial flexibility. The Amended Credit Agreementis also provides us the option to increase the credit facility by $200.0 million subject to certain limitations, including approval byseasonal fluctuations. Historically, sales in most of our restaurants have been higher during the syndicatewinter months of lenders, set fortheach year. Holidays, changes in the Amended Credit Agreement. On May 11, 2020,weather, severe weather and similar conditions may impact sales volumes seasonally in some operating regions. As a result, our quarterly operating results and comparable restaurant sales may fluctuate as a precautionary measureresult of seasonality. Accordingly, results for any one quarter are not necessarily indicative of results to further enhance financial flexibility, we amendedbe expected for any other quarter or for any year and comparable, restaurant sales for any particular future period may decrease. In the revolving credit facility to increasefuture, operating results may fall below the amount available underexpectations of securities analysts and investors. In that event, the facility by $82.5 million and drew down $50.0 million of this amount. If the pandemic continues to adversely impact our business for a significant period of time, we may need to further increase the credit facility and/or seek other sources of liquidity. There is no guarantee that we can increase the credit facility or that additional liquidity will be readily available or available at favorable terms.
Our suppliers could be adversely impacted by the pandemic. If our supplier’s employees are unable to work, whether because of illness, quarantine, limitations on travel or other government restrictions in connection with the pandemic, we could face shortages of food items or other supplies at our restaurants and our operations and sales could be adversely impacted by such interruptions.
The capacity restrictions and temporary closuresprice of our dining rooms have resulted in decreased staffing levels at our restaurants. We have taken compensation actions to support certain restaurant employees during the pandemic, but those actions may not be enough to compensate them until such time that our dining rooms can re-open at full capacity. Those restaurant employees might seek and find other employment during the interruption, whichcommon stock could have a material adverse effect on our ability to properly staff our restaurants with experienced team members once we resume our normal operations.
Our restaurant operations could be further disrupted if a significant number of restaurants have employees diagnosed with COVID-19 resulting in some or all of the restaurant’s employees being quarantined and our restaurant facilities having to be disinfected. If a significant percentage of our workforce is unable to work, whether because of illness or required quarantine, our operations may be negatively impacted which could have a material adverse effect on our business.
If we fail to manage our growth effectively, it could harm our business.
Failure to manage our growth effectively could harm our business. We have grown significantly since our inception and intend to continue growing in the future. Our objective is to grow our business and increase shareholder value by (1) expanding our base of company restaurants that are profitable, (2) increasing sales and profits at existing restaurants, and (3) pursuing other strategic initiatives or business opportunities. While these methods of achieving our objective are important to us, historically the most significant means of achieving our objective has been through opening new restaurants and operating these restaurants on a profitable basis. As we open and operate more restaurants, our rate of expansion relative to the size of our existing restaurant base will likely decline, which may make it increasingly difficult to achieve levels of sales and profitability growth that we have seen in the past. In addition, our existing restaurant management systems, field support systems, financial and management controls and information systems may not be adequate to support our planned expansion. Our ability to manage our growth effectively will require us to continue to enhance these systems, procedures and controls and to locate, hire, train and retain management and operating personnel. We also place a lot of importance on our culture, which we believe has been an important contributor to our success. In addition to challenges relating to the COVID-19 pandemic, as we grow, we may have difficulty maintaining our culture or adapting it sufficiently to meet the needs of our operations, or finding new employees (including new employees arising from strategic initiatives) to assimilate to our culture and brand standards. We cannot assure you that we will be able to respond on a timely basis to all of the changing demands that our planned expansion will impose on management and on our existing infrastructure. If we were unable to manage our growth effectively, our business and operating results could be materially adversely impacted.decrease.
Our growth strategy, which primarily depends on our ability to open new restaurants that are profitable, is subject to many factors, some of which are beyond our control. We cannot assure you that we will be able to open new restaurants that are profitable in accordance with our expansion plans. We have experienced delays in opening some of our restaurants in the past including significant delays in 2020 due to the pandemic, and may experience delays in the future. Delays or failures in opening new restaurants could adversely affect our growth strategy. One of our biggest challenges in executing our growth strategy ismay be locating and securing an adequate supply of suitable new and securing an adequate supply of suitable new restaurant sites.sites that satisfy our financial targets. Competition for suitable restaurant sites in our target markets ismay be intense.
In addition, we have generally been able to fund the construction of new restaurants from cash provided by our operations. If our operations continue to be significantly impacted by the pandemic, our ability to open new restaurants could also be impacted.
Once opened, we anticipate that our new restaurants will generally take several months to reach planned operating levels due to start-up inefficiencies typically associated with new restaurants. We cannot assure you that any restaurant we open will be profitable or obtain operating results similar to those of our existing restaurants. Some of our new restaurants will be located in areas where we have little or no meaningful experience. Those new markets may have smaller trade areas and different competitive conditions, consumer tastes and discretionary spending patterns than our traditional, existing markets, which may cause our new store locations to be less successful than restaurants in our existing market areas. Restaurants opened in new markets may open at lower average weekly sales volume than restaurants opened in existing markets and may have higher restaurant-level operating expense ratios than in existing markets. Sales at restaurants opened in new markets may take longer to reach average unit volume, if at all, thereby affecting our overall profitability. Additionally, the opening of a new restaurant could negatively impact sales at one or more of our existing nearby restaurants, which could adversely affect our financial performance. Our ability to open new restaurants that are profitable will also depend on numerous other factors, many of which are beyond our control, including, but not limited to, the following: | ● | our ability to hire, train and retain qualified operating personnel, especially market partners, and managing partners, and/or other restaurant management personnel who can execute our business strategy;strategy and maintain our culture and brand standards; |
| ● | our ability to negotiate suitable purchase or lease terms;terms to execute our business strategy; |
| ● | the availability of construction materials, equipment and labor; |
| ● | our ability to control construction and development costs of new restaurants;restaurants (including increased site, supply chain and distribution costs); |
| ● | our ability to secure required governmental approvals and permits in a timely manner, or at all; |
| ● | road construction and other factors limiting access to the restaurant; |
| ● | delays by our landlord or other developers in constructing other parts of a development adjacent to our premises in a timely manner; |
| ● | redevelopment of other parts of a development adjacent to our premises that affect the parking available for our restaurant; |
| ● | our ability to secure liquor licenses;licenses, or at all; |
| ● | general economic conditions, including an economic recession; |
| ● | changes in federal, and state and/or local tax laws; |
| ● | the cost and availability of capital to fund construction costs and pre-opening expenses; and |
| ● | the impact of inclement weather, natural disasters and other calamities. |
You should not rely on past changes in our average unit volume or our comparable restaurant sales as an indication of our future results of operations because they may fluctuate significantly. A number of factors have historically affected, and will continue to affect, our average unit volume and comparable restaurant sales, including, among other factors: | ● | consumer awareness and understanding of our brands;concepts; |
| ● | our ability to execute our business strategy effectively; |
| ● | our ability to executemaintain and manage the increased levels of to-go sales at our business strategy effectively;restaurants; |
| ● | competition, either from our competitors in the restaurant industry, or our own restaurants;restaurants, and/or other food service providers (such as delivery services and grocery stores); |
| ● | the impact of permanent changes in weather patterns that can cause inclement weather, natural disasters and other calamities; |
| ● | consumer trends and seasonality; |
| ● | our ability to increase menu prices without adversely impacting guest traffic counts or per person average check growth; |
| ● | introduction of new menu items; |
| ● | loss of parking and/or access rights due to government action (such as eminent domain actions) or through private transactions; |
| ● | government mandated dining room closures and/or dining rooms operating at limited capacity;capacity due to health epidemics or pandemics; |
| ● | negative publicity regarding food safety, health concerns, quality of service, and other food or beverage related matters, including the integrity of our or our suppliers’ food processing; |
| ● | general economic conditions, including an economic recession, which can affect restaurant traffic, local labor costs and prices we pay for the food and beverage products and other supplies we use; |
| ● | legislation that impacts our suppliers’ ability to maintain compliance with laws and regulations and impacts our ability to source product; and |
| ● | effects of actual or threatened terrorist attacks.attacks (including cyber and/or ransomware attacks). |
Our average unit volume and comparable restaurant sales may not increase at rates achieved in the past, which may affect our sales growth and will continue to be a critical factor affecting our profitability. In addition, changes in our average unit volume and comparable restaurant sales could cause the price of our common stock to fluctuate substantially.significantly fluctuate. The development and/or acquisition of new restaurant concepts may not contribute to our growth. The development of new restaurant concepts, including Bubba’s 33 and Jaggers, created internally or acquired as a part of our other strategic initiatives may not be as successful as our experience in the development of the Texas Roadhouse concept. In May 2013, we launched a new casual dining concept, Bubba’s 33, a family-friendly, sports restaurant that has expanded to 31 restaurants as of December 29, 2020. In December 2014, we launched a new fast-casual concept, Jaggers, which offers drive-thru service, that has expanded to three restaurants as of December 29, 2020.
Bubba’s 33 and Jaggers eachThese concepts may have lower brand awareness and less operating experience than most Texas Roadhouse restaurants. In addition, Bubba’s 33 restaurantsthey may have a higher initial investment cost and Jaggers hasand/or a lower per person average check amount. As a result, the development and/or acquisition of thesenew restaurant concepts may not contribute to our average unit volume growth and/or profitability in an incremental way. We can provide no assurance that new units will be accepted in the markets targeted for the expansion of these concepts and/or that we or our franchisees will be able to achieve our targeted returns when opening new locations. In the future, we may determine not to move forward with any further expansion and/or acquisition of thesenew restaurant concepts. These decisions could limit or delay our overall long-term growth. Additionally, expansion and/or acquisition of thesenew restaurant concepts might divert our management’s attention from other business concerns or initiatives and could have an adverse impact on our core Texas Roadhouse business.
Our expansion into international markets presents increased economic, political, regulatory and other risks. As of December 29, 2020,27, 2022, our operations include 2838 Texas Roadhouse franchise restaurants in ten countries outside the United States, and we expect to have further international expansion in the future.future with one or more of our concepts. The entrance into international markets may not be as successful as our experience in the development of the Texas Roadhouse concept domestically or any success we have had with the Texas Roadhouse concept in other international markets. In addition, operating in international markets may require significant resources and management attention and will subject us to economic, political and regulatory risks that are different from and incremental to those in the United States. In addition to the risks that we face in the United States, our international operations involve risks that could adversely affect our business, including: | ● | the need to adapt our brandsconcepts for specific cultural and language differences; |
| ● | new and different sources of competition; |
| ● | the ability to identify appropriate business partners; |
| ● | difficulties and costs associated with staffing and managing foreign operations; |
| ● | difficulties in adapting and sourcing product specifications for international restaurant locations; |
| ● | fluctuations in currency exchange rates, which could impact revenuesroyalties, revenue and expenses of our international operations and expose us to foreign currency exchange rate risk; |
| ● | difficulties in complying with local laws, regulations, and customs in foreign jurisdictions; |
| ● | unexpected changes in regulatory requirements or tariffs on goods needed to construct and/or operate our restaurants; |
| ● | political or social unrest, economic instability and destabilization of a region; |
| ● | effects of actual or threatened terrorist attacks; |
| ● | health concerns from global pandemics; |
| ● | compliance with U.S. laws such as the Foreign Corrupt Practices Act, and similar laws in foreign jurisdictions; |
| ● | differences in the registration and/or enforceability and registration of intellectual property and contract rights; |
| ● | adverse tax consequences; |
| ● | profit repatriation and other restrictions on the transfer of funds; and |
| ● | different and more stringent user protection, data protection, privacy and other laws. |
Our failure to manage any of these risks successfully could harm our future international operations and our overall business and results of our operations. We are also subject to governmental regulations throughout the world impacting the way we do business with our international franchisees. These include antitrust and tax requirements, anti-boycott regulations, import/export/customs, tariffs and other international trade regulations, the USA Patriot Act and the Foreign Corrupt Practices Act. Failure to comply with any such legal requirements could subject us to monetary liabilities and other sanctions, which could adversely impact our business and financial performance. Acquisition of existing restaurants from our domestic franchisees and other strategic initiatives may have unanticipated consequences that could harm our business and our financial condition. We plan to continue to opportunistically acquire existing restaurants from our domestic franchisees over time. Additionally, from time to time, we evaluate potential mergers, acquisitions, joint ventures or other strategic initiatives (including (including retail initiatives utilizing our intellectual property)property or other brand extensions) to acquire or develop additional business channels or concepts, and/or change the business strategy regarding an existing concept. To successfully execute any acquisition or development strategy, we will need to identify suitable acquisition or development candidates, negotiate acceptable acquisition or development terms and possibly obtain appropriate financing. Any acquisition or future development that we pursue, including the on-going development of new concepts or retail initiatives utilizing our intellectual property, whether or not successfully completed, may involve risks, including: | ● | material adverse effects on our operating results, particularly in the fiscal quarters immediately following the acquisition or development as the restaurants are integrated into our operations; |
| ● | risks associated with entering into new domestic markets or conducting operations where we have no or limited prior experience; |
| ● | risks associated with successfully integrating new employees, processes and systems;systems while also maintaining our culture and brand standards; |
| ● | risks inherent in accurately assessing the value, future growth potential, strengths, weaknesses, contingent and other liabilities and potential profitability of acquisition candidates, and our ability to achieve projected economic and operating synergies, without impacting our underlying business; and |
| ● | the diversion of management’s attention from other business concerns. |
Future acquisitions of existing restaurants from our franchisees or other strategic partners, which may be accomplished through a cash purchase transaction, the issuance of shares of common stock or a combination of both, could have a dilutive impact on holders of our common stock, and result in the incurrence of debt and contingent liabilities and impairment charges related to goodwill and other tangible and intangible assets, any of which could harm our business and financial condition. Additionally, following a franchise acquisition, we may be required to incur substantial capital improvement costs to meet company standards, which could impact our return on such acquisition. Additionally, we may evaluate other means to leverage our competitive strengths, including the expansion of our products across other strategic initiatives or business opportunities (including retail initiatives utilizing our intellectual property). The expansion of our products may damage our reputation if products bearing our brands are not of the same quality or value that guests associate with our brands.concepts. In addition, we may experience dilution of the goodwill associated with our brandsconcepts as it becomesthey become more common and increasingly accessible. We are subject to all of the risks associated with leasing space subject to long-term non-cancelable leases, as well as risks related to renewal.
The majority of our company restaurants are located on leased premises. Payments under our operating leases account for a significant portion of our operating expenses. Additional sites that we lease are likely to be subject to similar long-term non-cancelable leases. In connection with the relocation, other operational changes, or closure of any restaurant, we may nonetheless be committed to perform on our obligations under the applicable lease including, among other things, paying the base rent and real estate taxes for the balance of the lease term. We also are subject to landlord actions that could negatively impact our business or operations.
In addition, as each of our leases expires, there can be no assurance we will be able to renew our expiring leases after the expiration of all remaining renewal options, either on commercially acceptable terms or at all. As a result, at the end of the lease term and expiration of all renewal periods, we may be unable to renew the lease without substantial additional cost, if at all. As a result, we may be required to relocate or close a restaurant, which could subject us to construction and other costs and risks, and may have an adverse effect on our operating performance.
Approximately 21% of our company restaurants are located in Texas and Florida and, as a result, we are sensitive to economic and other trends and developments in those states. As of December 29, 2020,27, 2022, we operated a total of 7181 company restaurants in Texas and 4144 company restaurants in Florida. As a result, we are particularly susceptible to adverse trends and economic conditions in those states, including declinesany state mandated changes in oil prices that may increase levels of unemploymentminimum and cause othertipped wage rates and economic pressures that may result in lower sales and profits at our restaurants in oil regions of Texas and surrounding areas.restaurants. In addition, given our geographic concentration in these states, negative publicity regarding any of our restaurants in either Texas or Florida could have a material adverse effect on our business and operations, as could other occurrences in either Texas or Florida such as health epidemics or pandemics, (such as COVID-19), local strikes, energy shortages or extreme fluctuations in energy prices, droughts, earthquakes, hurricanes, fires or other natural disasters. Changes in consumer preferences and discretionary spending could adversely affect our business. Our success depends, in part, upon the popularity of our food products. Continued social concerns or shifts in consumer preferences away from our restaurants or cuisine,food offerings, particularly beef, wouldcould harm our business. In response to the pandemic, many consumers have preferred to order food To-Go or by delivery rather than dining in at full-service restaurants, and if these preferences continue and consumers continue to avoid gathering in public places in large groups, we may need to further adapt our offerings to accommodate these changes. Also, our success depends to a significant extent on discretionary consumer spending, which is influenced by general economic conditions and the availability of discretionary income. Accordingly, we may experience declines in sales during economic downturns, pandemics or duringother periods of uncertainty. This includes any downturns that result from the pandemic. Any material decline in the amount of discretionary spending could have a material adverse effect on our business, results of operations, financial condition or liquidity. Our quarterly operating results may fluctuate significantly and could fall below the expectations of securities analysts and investors due to a number of factors, some of which are beyond our control, resulting in a decline in our stock price.
Our quarterly operating results may fluctuate significantly because of several factors, including:
| ● | the timing of new restaurant openings and related expenses; |
| ● | restaurant operating costs for our newly-opened restaurants, which are often materially greater during the first several months of operation than thereafter; |
| ● | labor availability and costs for hourly and management personnel including mandated changes in federal and/or state minimum and tipped wage rates, overtime regulations, state unemployment taxes, or health benefits; |
| ● | profitability of our restaurants, particularly in new markets; |
| ● | changes in interest rates; |
| ● | the impact of litigation, including negative publicity; |
| ● | increases and decreases in average unit volume and comparable restaurant sales; |
| ● | impairment of long-lived assets, including goodwill, and any loss on restaurant relocations or closures; |
| ● | general economic conditions, including an economic recession, which can affect restaurant traffic, local labor costs, and prices we pay for the food products and other supplies we use; |
| ● | mandated restaurant closures and/or dining rooms operating at limited capacity; |
| ● | negative publicity regarding food safety and other food and beverage related matters, including the integrity of our, or our suppliers’, food processing; |
| ● | negative publicity regarding health concerns and/or global pandemics; |
| ● | negative publicity relating to the consumption of beef or other products we serve; |
| ● | changes in consumer preferences and competitive conditions; |
| ● | expansion to new domestic and/or international markets; |
| ● | adverse weather conditions which impact guest traffic at our restaurants; |
| ● | increases in infrastructure costs; |
| ● | adoption of new, or changes in existing, accounting policies or practices; |
| ● | changes in and/or interpretations of federal and state tax laws; |
| ● | actual self-insurance claims varying from actuarial estimates; |
| ● | fluctuations in commodity prices; |
| ● | competitive actions; and |
| ● | the impact of inclement weather, natural disasters and other calamities. |
Our business is also subject to minor seasonal fluctuations. Historically, sales in most of our restaurants have been higher during the winter months of each year. Holidays, changes in weather, severe weather and similar conditions may impact sales volumes seasonally in some operating regions. As a result, our quarterly operating results and comparable
restaurant sales may fluctuate as a result of seasonality. Accordingly, results for any one quarter are not necessarily indicative of results to be expected for any other quarter or for any year and comparable restaurant sales for any particular future period may decrease. In the future, operating results may fall below the expectations of securities analysts and investors. In that event, the price of our common stock could decrease.
Beginning in March 2020, our quarterly operating results were severely impacted by the pandemic which resulted in significant fluctuations between quarters. We expect that our quarterly operating results will continue to fluctuate until at least such time that all dining room restrictions related to the pandemic are lifted.
We rely heavily on information technology, and any material failure, weakness or interruption could prevent us from effectively operating our business.
We rely heavily on information systems in all aspects of our operations, including point-of-sale systems, financial systems, marketing programs, e-commerce, cyber-security and various other processes and transactions. Our point-of-sale processing in our restaurants includes payment of obligations, collection of cash, credit and debit card transactions and other processes and procedures. Our ability to efficiently and effectively manage our business depends significantly on the reliability, security and capacity of these systems. As our business needs continue to evolve, these systems will require upgrading and maintenance over time, consequently requiring significant future commitments of resources and capital. The failure of these systems to operate effectively, maintenance problems, upgrading or transitioning to new platforms or a material breach in the security of these systems could result in delays in guest service and reduce efficiency in our operations.
Additionally, our corporate systems and processes and corporate support for our restaurant operations are handled primarily at our Support Center. As a result of the pandemic, a significant portion of our Support Center staff continue to work remotely. We have disaster recovery procedures and business continuity plans in place to address most events of a crisis nature, including tornadoes and other natural disasters, and back up off-site locations for recovery of electronic and other forms of data information. However, if we are unable to fully implement our disaster recovery plans, we may experience delays in recovery of data, inability to perform vital corporate functions, tardiness in required reporting and compliance, failures to adequately support field operations and other breakdowns in normal communication and operating procedures that could have a material adverse effect on our financial condition, results of operations and exposure to administrative and other legal claims.
We outsource certain business processes to third-party vendors that subject us to risks, including disruptions in business and increased costs.
Some business processes are currently outsourced to third parties. Such processes include information technology processes, gift card tracking, credit card authorization and processing, insurance claims processing, unemployment claims processing, payroll tax filings, check payment processing, and other accounting processes. We also continue to evaluate our other business processes to determine if additional outsourcing is a viable option to accomplish our goals. We make a diligent effort to validate that all providers of outsourced services maintain customary internal controls, such as redundant processing facilities and adequate security frameworks to guard against breaches or data loss; however, there are no guarantees that failures will not occur. Failure of third parties to provide adequate services or internal controls over their processes could have an adverse effect on our results of operations, financial condition or ability to accomplish our financial and management reporting.
We may incur costs and adverse revenue consequences resulting from breaches of security related to confidential guest and/or employee information or the fraudulent use of credit cards.
The nature of our business involves the receipt and storage of information about our guests and employees. Hardware, software or other applications we develop and procure from third parties may contain defects in design or manufacture or other problems that could unexpectedly compromise information security. Unauthorized parties may also attempt to gain access to our systems and facilities through fraud, trickery or other forms of deceiving our employees or vendors. In addition, we accept electronic payment cards for payment in our restaurants. During 2020, approximately 80% of our transactions were by credit or debit cards, and such card usage could increase. Other retailers have experienced actual or potential security breaches in which credit and debit card along with employee information may have been stolen. We may in the future become subject to claims for purportedly fraudulent transactions arising out of alleged theft of guest and/or employee information, and we may also be subject to lawsuits or other proceedings relating to these types of incidents. Any such claim or proceeding could cause us to incur significant unplanned expenses in excess of our insurance coverage,
which could have a material adverse impact on our financial condition and results of operations. If we fail to adequately control fraudulent credit card and debit card transactions to comply with the Payment Card Industry Data Security Standards, we may face diminished public perception of our security measures, fines and assessments from the card brands and significantly higher credit card and debit card related costs. In addition, if there are malfunctions or other problems with our processing vendors, billing software or payment processing systems, our guest satisfaction may be adversely affected and one or more of the major payment networks could disallow our continued use of their payment methods. The termination of our ability to process payments through any major payment network would significantly impact our ability to operate our business.
We may not be able to obtain and maintain licenses and permits necessary to operate our restaurants and compliance with governmental laws and regulations could adversely affect our operating results. The restaurant industry is subject to various federal, state and local government regulations, including those relating to the sale of food and alcoholic beverages. Such regulations are subject to change from time to time, sometimes without notice to us. The failure to obtain and maintain these licenses, permits and approvals, including liquor licenses, could adversely affect our operating results. Difficulties or failure to obtain the required licenses and approvals could delay or result in our decision to cancel the opening of new restaurants. Local authorities may revoke, suspend or deny renewal of our liquor licenses if they determine that our conduct violates applicable regulations. In addition to our having to comply with these licensing requirements, various federal and state labor laws govern our relationship with our employees and affect operating costs. These laws include minimum and tipped wage requirements, overtime pay, health benefits, unemployment taxes, workers’ compensation, work eligibility requirements and working conditions. A number of factors could adversely affect our operating results, including: | ● | additional government-imposed increases in minimum and/or tipped wages, hourhourly and overtime pay, paid leaves of absence, sick leave, and mandated health benefits; |
| ● | increased tax reporting and tax payment requirements for employees who receive gratuities; |
| ● | any failure of our employees to comply with laws and regulations governing work authorization or residency requirements resulting in disruption of our work force and adverse publicity; |
| ● | a reduction in the number of states that allow gratuities to be credited toward minimum wage requirements;requirements, or a federal mandate prohibiting such credits; and |
| ● | increased litigation including claims under federal and/or state wage and hour laws. |
The federal Americans with Disabilities Act prohibits discrimination on the basis of disability in public accommodations and employment. Although our restaurants and other places of accommodation are designed to be accessible to the disabled, we could be required to make unexpected modifications to provide service to, or make reasonable accommodations, for disabled persons. In addition, as a result of the COVID-19 pandemic, certain state and local jurisdictions have enacted various health, safety and other regulations that have impacted our restaurants. Compliance with these regulations has led to decreased sales, increased costs, and operational complexity. We cannot predict when these regulations may be lifted or the impact on our business, results of operations, financial condition or liquidity.
Our failure or inability to enforce our trademarks or other proprietary rights could adversely affect our competitive position or the value of our brand. We own certain common law trademark rights and a number of federal and international trademark and service mark registrations, including our trade names and logos, and proprietary rights relating to certain of our core menu offerings. We believe that our trademarks and other proprietary rights are important to our success and our competitive position. Therefore, we devote appropriate resources to the protection of our trademarks and proprietary rights. However, the protective actions that we take may not be enough to prevent unauthorized usage or imitation by others, which could harm our image, brand or competitive position and, if we commence litigation to enforce our rights, cause us to incur significant legal fees. Our inability to register or protect our marks and other proprietyproprietary rights in foreign jurisdictions could adversely affect our competitive position in international markets. We cannot assure you that third parties will not claim that our trademarks or menu offerings infringe upon their proprietary rights. Any such claim, whether or not it has merit, could be time-consuming, result in costly litigation, cause delays in introducing new menu items in the future or require us to enter into royalty or licensing agreements. As a result, any such claim could have a material adverse effect on our business, results of operations, financial condition or liquidity. Issues relating to ESGtopics could adversely affect our operating results. Entities across all industries are facing increased interest related to their ESG compliance and practices. Evolving consumer and investor interest and preferences as well as governmental regulation may result in additional transparency, due diligence, reporting and specific target-setting with regard to our business and supply chain that could result in additional costs to comply with such demands. Failure to comply with the increased demands could result in public or investor scrutiny and/or litigation and could have an adverse effect on our business. Establishing targets or making other public commitments due to these demands, without a full or complete understanding of the cost or operational impact of changes in our supply chain or operating model, could also adversely affect our business and financial condition. We are subject to increasing legal complexity and could be party to litigation that could adversely affect us. Increasing legal complexity will continue to affect our operations and results. We could be subject to legal proceedings that may adversely affect our business, including class actions, administrative proceedings, government investigations, employment and personal injury claims, claims alleging violations of federal and state laws regarding consumer, workplace and employment matters, wage and hour claims, discrimination and similar matters, landlord/tenant disputes, disputes with current and former suppliers, claims by current and former franchisees, data privacy claims and intellectual property claims (including claims that we infringed upon another party’s trademarks, copyrights or patents). Inconsistent standards imposed by governmental authorities can adversely affect our business and increase our exposure to litigation which could result in significant judgments, including punitive and liquidated damages, and injunctive relief. Occasionally, our guests file complaints or lawsuits against us alleging that we are responsible for an illness or injury they suffered as a result of a visit to our restaurants, or that we have problems with food quality or operations. As a Company, we take responsible alcohol service seriously. However, we are subject to "dram shop" statutes. These statutes generally allow a person injured by an intoxicated person to recover damages from an establishment that wrongfully served alcoholic beverages to the intoxicated person. Some litigation against restaurant chains has resulted in significant judgments, including punitive damages, under dram shop statutes. Because a plaintiff may seek punitive damages, which may not be covered by insurance, this type of action could have an adverse impact on our financial condition and results of operations. It is also possible that employees, guests or others could make claims against us as a result of the pandemic, and the nature and scope of such matters, if any, is unknown. Litigation involving our relationship with franchisees and the legal distinction between our franchisees and us for employment law purposes, if determined adversely, could increase costs, negatively impact the business prospects of our franchisees and subject us to incremental liability for their actions. We are also subject to the legal and compliance risks associated with privacy, data collection, protection and management, in particular as it relates to information we collect when we provide optional technology-related services to franchisees. Our operating results could also be affected by the following: | ● | The relative level of our defense costs and nature and procedural status of pending proceedings; |
| ● | The cost and other effects of settlements, judgments or consent decrees, which may require us to make disclosures or to take other actions that may affect perceptions of our brands and products; |
| ● | Adverse results of pending or future litigation, including litigation challenging the composition and preparation of our products, or the appropriateness or accuracy of our marketing or other communication practices; and |
| ● | The scope and terms of insurance or indemnification protections that we may have.have (if any). |
Regardless of whether any claims against us are valid or whether we are liable, claims may be expensive to defend and may divert time, attention and money away from our operations and hurt our performance. A judgment significantly in excess of any applicable insurance coverage could materially adversely affecthave significant adverse effect on our financial condition or results of operations. Further, adverse publicity resulting from these claims may hurt our business. Our current insurance may not provide adequate levels of coverage against claims. We currently maintain insurance customary for businesses of our size and type. However, there are types of losses we may incur that cannot be insured against or that we believe are not economically reasonable to insure. Such damages could have a material adverse effect on our business, results of operations and/or liquidity. In addition, we self-insure a significant portion of expected losses under our health, workers’ compensation, general liability, employment practices liability, cybersecurity and property insurance programs. Unanticipated changes in the actuarial assumptions and management estimates underlying our reserves for these losses could result in materiallysignificantly different amounts of expense under these programs, which could have a material adverse effect on our financial condition, results of operations and liquidity. Decreased cash flow from operations, or an inability to access credit, could negatively affect our business initiatives or may result in our inability to execute our revenue, expense, and capital allocation strategies. Our ability to fund our operating plans and to implement our capital allocation strategies depends on sufficient cash flow from operations and/or other financing, including the use of funding under our amended revolving credit facility. We also may seek access to the debt and/or equity capital markets. There can be no assurance, however, that these sources of financing will be available on terms favorable to us, or at all. Our capital allocation strategies include, but are not limited to, new restaurant development, payment of dividends, (even though the dividend program was suspended due to the on-going COVID-19 pandemic), refurbishment or relocation of existing restaurants, repurchases of our common stock and franchise acquisitions. If we experience decreased cash flow from operations, similar to what we experienced in the current year, our ability to fund our operations and planned initiatives, and to take advantage of growth opportunities, may be delayed or negatively affected. In addition, these disruptions or a negative effect on our revenuesrevenue could affect our ability to borrow or comply with our covenants under our amended revolving credit facility. If we are unable to raise additional capital, our growth could be impeded. Our existing credit facility limits our ability to incur additional debt. The lenders’ obligation to extend credit under our amended revolving credit facility depends on our maintaining certain financial covenants. If we are unable to maintain these covenants, we would be unable to obtain additional financing under this amended revolving credit facility. The amended revolving credit facility permits us to incur additional secured or unsecured indebtedness outside the revolving credit facility, except for the incurrence of secured indebtedness that in the aggregate is equal to or greater than $125.0 million and 20% of our consolidated tangible net worth or circumstances where the incurrence of secured or unsecured indebtedness would prevent us from complying with our financial covenants. If we are unable to borrow additional capital or have sufficient liquidity to either repay or refinance the then outstanding balance at the expiration of our amended revolving credit facility, or upon violation of the covenants, our growth could be impeded and our financial performance could be materiallysignificantly adversely affected. Changes in tax laws and unanticipated tax liabilities could adversely affect our financial results. We are primarily subject to income and other taxes in the United States. Our effective income tax rate and other taxes in the future could be affected by a number of factors, including changes in the valuation of deferred tax assets and liabilities, changes in tax laws or other legislative changes and the outcome of income tax audits. Any significant increases in income tax rates, changes in income tax laws or unfavorable resolution of tax matters could have a material adverse impact on our financial results. We may be required to record additional impairment charges in the future. In accordance with accounting guidance as it relates to the impairment of long-lived assets, we make certain estimates and projections with regard to company restaurant operations, as well as our overall performance in connection with our impairment analysesanalysis for long-livedlong-lived assets. When impairment triggers are deemed to exist for any company restaurant, the estimated undiscounted future cash flows for the restaurant are compared to its carrying value. If the carrying value exceeds the undiscounted cash flows, an impairment charge would be recorded equal to the difference between the carrying value and the estimated fair value. We also review the value of our goodwill on an annual basis and also when events or changes in circumstances indicate that the carrying value of goodwill or other intangible assets may exceed the fair value of such assets. The estimates of fair value are based upon the best information available as of the date of the assessment and incorporate management assumptions about expected future cash flows and contemplate other valuation measurements and techniques. The estimates of fair value used in these analyses require the use of judgment, certain assumptions and estimates of future operating results. If actual results differ from our estimates or assumptions, additional impairment charges may be required in the future. If impairment charges are significant, our results of operations could be adversely affected. Failure to retain the services of our key management personnel, or to successfully execute succession planning and attract additional qualified personnel could harm our business. Our future success depends on the continued services and performance of our key management personnel.personnel and our ability to develop future successors of such personnel as a part of our succession planning. Our future performance will depend on our ability to motivate and retain these and other key officers, employees and managers, particularly regional market partners, market partners and managing partners. Competition for these employees is intense. The loss of the services of members of our senior management team or other key officers or managers or the inability to attract additional qualified personnel as needed could materiallysignificantly harm our business. In addition, our business could suffer from theany actual or alleged misconduct of any of our key personnel. Our franchisees could take actions that could harm our business. Both our domestic and international franchisees are contractually obligated to operate their restaurants in accordance with Texas Roadhouseour applicable restaurant operating standards. We also provide training and support to franchisees. However, most franchisees are independent third parties that we do not control, and these franchisees own, operate and oversee the daily operations of their restaurants. As a result, the ultimate success and quality of any franchise restaurant rests with the franchisee. If franchisees do not successfully operate restaurants in a manner consistent with our standards, the Texas Roadhouseour image and reputation could be harmed, which in turn could adversely affect our business and operating results. Risks Related to Information Technology and Privacy We rely heavily on information technology, and any material failure, weakness, ransomware or interruption could prevent us from effectively operating our business. We rely heavily on information systems in all aspects of our operations, including point-of-sale systems, digital apps, financial systems, marketing programs, e-commerce and various other processes and transactions. This reliance has significantly increased in recent years as we have had to rely to a greater extent on systems such as online ordering, contactless payments, online waitlists, and systems supporting a more remote workforce as our guests are increasingly using our website and digital applications to place and pay for their orders. Our point-of-sale processing in our restaurants includes collection of cash, credit cards, debit cards, gift cards and other processes and procedures. Our ability to efficiently and effectively manage our business depends significantly on the reliability, security and capacity of these systems. As our business needs continue to evolve, these systems will require upgrading and maintenance over time, consequently requiring significant future commitments of resources and capital. Additionally, as we become increasingly reliant on digital ordering and payment as a sales channel, our business could be negatively impacted if we are unable to successfully implement, execute or maintain our consumer-facing digital initiatives. The failure of these systems to operate effectively, maintenance problems, upgrading or transitioning to new platforms or a material breach in the security of these systems could result in delays or errors to guest service and reduce efficiency in our operations. In addition, as we implement new technology platforms to improve the overall guest experience, there can be no guarantees that these platforms will operate as reliably or be as operationally impactful as intended. We have disaster recovery procedures and business continuity plans in place to address events of a crisis nature, including tornadoes and other natural disasters, and back up off-site locations for recovery of electronic and other forms of data information. However, if we are unable to fully implement our disaster recovery plans, we may experience delays in recovery of data, inability to perform vital corporate functions, tardiness in required reporting and compliance, failures to adequately support field operations and other breakdowns in normal communication and operating procedures that could have a material adverse effect on our financial condition, results of operations and exposure to administrative and other legal claims. We outsource certain business processes to third-party vendors that subject us to risks, including disruptions in business and increased costs. Some business processes are currently outsourced to third parties, including such processes as information technology, gift card tracking, credit and debit card authorization and processing, insurance claims processing, unemployment claims processing, payroll tax filings, vendor payment processing and other accounting processes. We continually evaluate our other business processes to determine if additional outsourcing is a viable, and the most appropriate, option to accomplish our goals. We make a diligent effort to validate that all providers of outsourced services maintain customary internal controls, such as redundant processing facilities and adequate security frameworks to guard against breaches or data loss; however, there are no guarantees that failures will not occur. Failure of third parties to provide adequate services or internal controls over their processes could have an adverse effect on our results of operations, financial condition or ability to accomplish our financial and management reporting. We may incur increased costs to comply with privacy and data protection laws and, if we fail to comply or our systems are compromised by a security breach, we could be subject to government enforcement actions, private litigation and adverse publicity. New, modified and existing privacy and data protection laws and regulations may result in significant costs and compliance challenges and adversely affect our business and financial condition. These privacy laws and regulations, which are constantly evolving, may be interpreted by regulatory authorities in new and differing manners and such interpretations may be inconsistent among jurisdictions. We may incur increased costs to comply with increasingly demanding privacy laws and regulations. We could also be subject to government enforcement actions, private litigation and adverse publicity including reputational damage and loss of guest confidence. We receive and maintain certain personal, financial or other information about our guests, vendors and employees. In 2022, approximately 85% of our transactions were by credit or debit cards. In addition, certain of our vendors receive and/or maintain certain personal, financial and other information about our employees and guests on our behalf. The use and handling, including security, of this information is regulated by privacy and data protection laws and regulations in various jurisdictions, as well as by certain third-party contracts, frameworks and industry standards, such as the Payment Card Industry Data Security Standard. Hardware, software or other applications we develop and procure from third parties may contain defects in design or manufacture or other problems that could unexpectedly compromise information security. Unauthorized parties may also attempt to gain access to our systems and facilities through fraud, trickery or other forms of deceiving our employees or vendors. In addition, if our security and information systems are compromised as a result of data corruption or loss, cyber-attack or a network security incident, or if our employees or vendors (or other persons or entities with which we do business with) fail to comply with such laws and regulations or fail to meet industry standards and this information is obtained by unauthorized persons or used inappropriately, it could result in liabilities and penalties and could damage our reputation, cause interruption of normal business performance, cause us to incur substantial costs and result in a loss of guest confidence, which could adversely affect our results of operations and financial condition. Additionally, we could be subject to litigation and government enforcement actions as a result of any such failure. Any such claim or proceeding could cause us to incur significant unplanned expenses in excess of our insurance coverage, which could have a material impact on our financial condition and results of operations. In addition, if there are malfunctions or other problems with our processing vendors, billing software or payment processing systems, it may cause interruption of normal business performance. Risks Related to the Restaurant Industry Changes in food and supply costs and/or availability of products could adversely affect our results of operations. Our profitability depends in part on our ability to anticipate and react to changes in food and supply costs.costs and/or the availability of products necessary to operate our business, including increased costs arising from federal and/or state mandated requirements. Any increase in food prices or loss of supply, particularly proteins, could adversely affect our operating results. In addition, we are susceptible to increases in food costs as a result of factors beyond our control, such as food supply constrictions, weather conditions, food safety concerns, global pandemics, product recalls, global market and trade conditions, and government regulations. We cannot predict whether we will be able to anticipate and react to changing food costs and/or loss of supply by adjusting our purchasing practices, and menu prices or menu offerings, and a failure to do so could adversely affect our operating results. Extreme and/or long term increases in commodity prices could adversely affect our future results, especially if we are unable, primarily due to competitive reasons, to increase menu prices. Additionally, if there is a time lag between the increasing commodity prices and our ability to increase menu prices or if we believe the commodity price increase to be short in duration and we choose not to pass on the cost increases, our short-term results could be negatively affected. Also, if we adjust pricing there is no assurance that we will realize the full benefit of any adjustment due to changes in our guests’ menu item selections and guest traffic. We currently purchase the majority of our beef from threefour beef suppliers under annual contracts.with all of our beef coming from the United States or Canada. While we maintain relationships with additional suppliers, if any of these vendors were unable to fulfill its obligations under its contracts, we could encounter supply shortages and incur higher costs to secure adequate supplies, either of which would harm our business. Our business could be adversely affected by increased labor costs or labor shortages. Labor is a primary component in the cost of operating our business. We devote significant resources to recruiting and training our restaurant managers and hourly employees. Increased labor costs due to competition, unionization, increased minimum and tipped wages, changes in hourhourly and overtime pay, state unemployment rates, sick pay or other employee benefits costs (including workers’ compensation and health insurance), company staffing initiatives or otherwise any regulatory changes resulting from any of the foregoing would adversely impact our operating expenses. In addition, failure to adequately monitor and proactively respond to employee dissatisfaction could lead to poor guest satisfaction, higher turnover, litigation and unionization efforts, which could negatively impact our financial results.
Increased competition for qualified employees caused by a shortage in the labor pool exerts upward pressure on wages paid to attract and retain such personnel, resulting in higher labor costs, together with greater recruitment and training expense. We could suffer from significant indirect costs, including restaurant disruptions due to management or hourly labor turnover and potential delays in new restaurant openings. A shortage in the labor pool could also cause our restaurants to be required to operate with reduced staff which could negatively impact our ability to provide adequate service levels to our guests resulting in adverse guest reactions and a possible reduction in guest traffic counts. Additionally, so long as the COVID-19 pandemic continues, personal or public health concerns related to the pandemic might make some existing personnel or potential candidates reluctant to work in enclosed restaurant environments.
We have many restaurants located in states or municipalities where the minimum and/or tipped wage is greater than the federal minimum and/or tipped wage. We anticipate that additional legislation significantly increasing minimum and/or tipped wage standards will be enacted in future periods and in other jurisdictions. Any government actions related to employee compensation or employer liability in response to the pandemic, whether temporary or permanent, could increase our labor costs. In addition, regulatory actions which result in changes to healthcare eligibility, design and cost structure could occur. Any increases in minimum and/or tipped wages or increases in employee benefits costs will result in higher labor costs.
In addition, the pandemic resulted in a number of staffing challenges at our restaurants in the current year. To address these challenges, we provided relief pay and enhanced benefits for our hourly employees. The relief pay included pay for employees who received significantly less or no hours at locations where dining rooms were required to close. The benefits included certain sick pay and accrued vacation enhancements as well as a premium holiday on health insurance. These actions were performed to retain employees and ensure that we maintained adequate staffing levels as
our dining rooms re-opened.
Our operating margin will be adversely affected to the extent that we are unable or are unwilling to offset any increase in these labor costs through higher prices on our products. Our distributors and suppliers also may be affected by higher minimum wage and benefit standards which could result in higher costs for goods and services supplied to us. Our success depends on our ability to attract, motivate and retain qualified employees to keep pace with our growth strategy. If we are unable to do so, our results of operations may also be adversely affected. Our objective to increase sales and profits at existing restaurants could be adversely affected by macroeconomic conditions. The pandemic has significantly impacted our business as well as the global economy. During 2021 and beyond,In future periods, the U.S. and global economies could further suffer from a downturn in economic activity. Recessionary economic cycles, higher interest rates, higher fuel and other energy costs, inflation, increases in commodity prices, higher levels of unemployment, higher consumer debt levels, higher tax rates and other changes in tax laws, financial market volatility, social unrest, government spending, a low or stagnant pace of economic recovery and growth, or other economic factors that may affect consumer spending or buying habits could adversely affect the demand for our products. In addition, there is no assurance that any governmental plans to stimulate the economy will foster growth in consumer spending or buying habits. As in the past, we could experience reduced guest traffic or we may be unable or unwilling to increase the prices we charge for our products to offset higher costs or fewer transactions, either of which could reduce our sales and profit margins. Also, landlords or other tenants in the shopping centers in which some of our restaurants are located may experience difficulty as a result of macroeconomic trends or cease to operate, which could in turn negatively affect guest traffic at our restaurants. All of these factors could have a material adverse impact on our business, results of operations, financial condition or liquidity.
Our success depends on our ability to compete with many food service businesses. The restaurant industry is intensely competitive. We compete with many well-established food service companies on the basis of taste, quality and price of products offered, guest service, atmosphere, location, take-out and delivery options and overall guest experience. Our competitors include a large and diverse group of restaurant chains and individual restaurants that range from independent local operators that have opened restaurants in various markets to well-capitalized national restaurant companies.chains. We also face competition from meal kit delivery services as well as the supermarket industry. In addition, improving product offerings of fast casual and quick-servicequick-service restaurants, together with negative economic conditions could cause consumers to choose less expensive alternatives. As our competitors expand their operations, we expect competition to intensify. We also compete with other restaurant chains and other retail establishments for quality site locations and employees. Additionally, our competitors may generate or better implement business strategies that improve the value and the relevance of their brands and reputation, relative to ours. This could include the testing of delivery via internal or third-party methods or better execution around guests’ To-Go experience in response to dine-in capacity restrictions.to-go experience. The food service industry is affected by litigation and publicity concerning food quality, health and other issues, which can cause guests to avoid our restaurants and result in significant liabilities or litigation costs. Food service businesses can be adversely affected by litigation and complaints from guests, consumer groups or government authorities resulting from food quality, illness, injury or other health concerns or operating issues stemming from one restaurant or a limited number of restaurants. Adverse publicity about these allegations may negatively affect us, regardless of whether the allegations are true, by discouraging guests from eating at our restaurants. We could also incur significant liabilities if a lawsuit or claim results in a decision against us or litigation costs regardless of the result. Our business could be adversely affected by our inability to respond to or effectively manage social media.
As part of our marketing strategy, we utilize social media platforms to promote our brandsconcepts and attract and retain guests. Our strategy may not be successful, resulting in expenses incurred without improvement in guest traffic or brand relevance. In addition, a variety of risks are associated with the use of social media, including improper disclosure of proprietary information, negative comments about us, exposure of personally identifiable information, fraud, or dissemination of false information. The inappropriate use of social media vehicles by our guests or employees could increase our costs, lead to litigation or result in negative publicity that could damage our reputation and adversely affect our results of operations. Given the marked increase in the use of social media platforms, along with smart phones in recent years, individuals have access to a broad audience of consumers and other interested persons. The availability of information on social media platforms is virtually immediate as is its impact. Many social media platforms immediately publish the content their subscribers and participants post, often without filters or checks on the accuracy of the content posted. Information concerning our Company may be posted on such platforms at any time. Additionally, social media has increasingly been utilized to target specific companies or brands as a result of a variety of actions or inactions, or perceived actions or inactions, that are disfavored by interest groups and such campaigns can rapidly accelerate and impact consumer behavior. If we are unable to quickly and effectively respond to such reports, we may suffer declines in guest traffic. The impact may be immediate without affording us an opportunity for redress or correction. These factors could have a material adverse effectimpact on our business. Health, social and socialenvironmental concerns relating to the consumption or sourcing of beef or other food products could affect consumer preferences and could negatively impact our results of operations. Like other restaurant chains, consumer preferences could be affected by health concerns about the consumption or sourcing of beef, the key ingredient in many of our menu items, or negative publicity concerning food quality and food safety, including food-borne illnesses. In addition, consumer preferences may be impacted by current and future menu-labeling requirements. In 2018, federal disclosure requirements went into effect underor social and environmental concerns about the Patient Protection and Affordable Care Actsourcing of 2010 requiring new menu nutritional labeling requirements. As a result, we include calorie information onfood products throughout our menus and make additional nutritional information available at our restaurants and on our websites. However, futuresupply chain. Future regulatory action may occur which could result in further changes in the nutritional and environmental disclosure requirements. We cannot make any assurances regarding our ability to effectively respond to changes in consumer health perceptions and to adapt our menu offerings to trends in eating habits.prevailing trends. The imposition of menu-labeling and food sourcing laws or regulations could have an adverse effect on our results of operations and financial position, as well as the restaurant industry in general. The labeling and sourcing requirements and any negative publicity concerning any of the food products we serve may adversely affect demand for our food and could result in a decrease in guest traffic to our restaurants. If we react to the labeling or sourcing requirements or negative publicity by changing our concepts or our menu offerings or their ingredients, we may lose guests who do not prefer the new concept or products, and we may not be able to attract sufficient new guests to produce the revenue needed to make our restaurants profitable. In addition, we may have different or additional competitors for our intended guests as a result of a change in our concept and may not be able to compete successfully against those competitors. A decrease in guest traffic to our restaurants as a result of these health, social and environmental concerns or negative publicity or as a result of a change in our menu or concept could materiallysignificantly harm our business. Food safety and sanitation, food-borne illness and health concerns may have an adverse effect on our business by reducing demand and increasing costs. Food safety and sanitation is a top priority, and we dedicate substantial resources to help our guests enjoy safe, quality food products. However, food-borne illnesses and food safety issues occur in the food industry from time to time. Any report or publicity, whether true or not, linking us to instances of food-borne illness or other food safety issues, including food tampering or contamination, could adversely affect our brandsconcepts and reputation as well as our revenue and profits. In addition, instances of food-bornefood-borne illness, food tampering or food contamination occurring solely at restaurants of our competitors could result in negative publicity about the food service industry generally and adversely impact our revenue and profits. Heightened concern regarding restaurant safety caused by the COVID-19 pandemic would likely magnify such adverse impact. Furthermore, our reliance on third-party food suppliers and distributors increases the risk that food-bornefood-borne illness incidents could be caused by factors outside of our control and that multiple locations would be affected rather than a single restaurant. WeWhile we attempt to minimize the risk, we cannot assure that all food items are properly maintained during transport throughout the supply chain and that our employees will identify all products that may be spoiled and should not be used in our restaurants. If our guests become ill from food-borne illnesses, we could be forced to temporarily close some restaurants. Furthermore, any instances of food contamination, whether or not at our restaurants, could subject us or our suppliers to a food recall. In addition to the novel coronavirus that causes COVID-19, the United States and other countries have experienced, or may experience in the future, outbreaks of viruses, such as Hepatitis A, Norovirus, Ebola, Avian Flu, SARS and H1N1. To the extent that a virus is food-borne,food-borne, future outbreaks may adversely affect the price and availability of certain food products and cause our guests to eat less of a product which may materially adversely affecthave a significant adverse effect on our business. Risks Related to Our Corporate Structure Our Stock Ownership and Our Common Stock Provisions in our charter documents and Delaware law may delay or prevent our acquisition by a third party. Our certificate of incorporation and by-laws contain several provisions that may make it more difficult for a third party to acquire control of us without the approval of our Board of Directors.Directors (the "Board"). These provisions include, among other things, advance notice for raising business or making nominations at meetings and "blank check" preferred stock. Blank check preferred stock enables our Board, of Directors, without approval of the shareholders, to designate and issue additional series of preferred stock with such dividend, liquidation, conversion, voting or other rights, including the right to issue convertible securities with no limitations on conversion, as our Board of Directors may determine. The issuance of blank check preferred stock may adversely affect the voting and other rights of the holders of our common stock as our Board of Directors may designate and issue preferred stock with terms that are senior to our common stock. These provisions may make it more difficult or expensive for a third party to acquire a majority of our outstanding common stock. These provisions also may delay, prevent or deter a merger, acquisition, tender offer, proxy contest or other transaction that might otherwise result in our stockholders receiving a premium over the market price for their common stock. If we issue preferred shares in the future that have a preference over our common stock with respect to dividends or upon liquidation, dissolution or winding up, or if we issue preferred shares with voting rights that dilute the voting power of our common stock, the rights of our common stockholders or the market price of our common stock may be adversely affected. The Delaware General Corporation Law prohibits us from engaging in "business combinations" with "interested shareholders" (with some exceptions) unless such transaction is approved in a prescribed manner. The existence of this provision could have an anti-takeover effect with respect to transactions not approved in advance by the Board, of Directors, including discouraging attempts that might result in a premium over the market price for our common stock. There can be no assurance that we will continue to pay dividends on our common stock or repurchase our common stock up to the maximum amounts permitted under our previously announced repurchase program. Payment of cash dividends on our common stock or repurchases of our common stock are subject to compliance with applicable laws and depends on, among other things, our results of operations, financial condition, level of indebtedness, capital requirements, business prospects, macro-economic conditions and other factors that our Board of Directors may deem relevant. We temporarily suspended all cash dividends and share repurchases to enhance our financial flexibility as a result of the pandemic. Once this suspension has been lifted, thereThere can be no assurance that we will continue to pay dividends or repurchase our common stock at the same levels we have historically.historically (if at all). Our business could be negatively affected as a result of actions of activist shareholders, and such activism could impact the trading value of our common stock. We value constructive input from our shareholders and the investment community. Our Board of Directors and management team are committed to acting in the best interests of all of our shareholders. There is no assurance that the actions taken by our Board of Directors and management in seeking to maintain constructive engagement with our shareholders will be successful. Responding to actions by activist shareholders can be costly and time-consuming, disrupting our operations and diverting the attention of management and our employees. Such activities could interfere with our ability to execute our strategic plan. The perceived uncertainties as to our future direction also resulting from activist strategies could also affect the market price and volatility of our common stock. Failure to achieve and maintain effective internal control over financial reporting may negatively impact our business and our financial results. The Company is responsible for establishing and maintaining effective internal control over financial reporting. Despite its inherent limitations, effective internal control over financial reporting helps provide reasonable assurance regarding the reliability of financial reporting for external purposes. A significant accounting error correction, financial reporting failure or material weakness in internal control over financial reporting could cause results in our consolidated financial statements that do not accurately reflect our financial condition, a loss of investor confidence and subsequent decline in the market price of our common stock, increase our costs and regulatory scrutiny, and lead to litigation or result in negative publicity that could damage our reputation. ITEM 1B—UNRESOLVED STAFF COMMENTS None. ITEM 2—PROPERTIES Properties Our Support Center is located in Louisville, Kentucky. We occupy this facility under a master lease with Paragon Centre Holdings, LLC, a limited liability company in which we have a minority ownership position. As of December 29, 2020,27, 2022, we leased 133,023 square feet. Our lease expires on October 31, 2048, including all applicable extensions. Of the 537597 company restaurants in operation as of December 29, 2020,27, 2022, we owned 148150 locations and leased 389447 locations, as shown in the following table. | | | | | | | | State | | Owned | | Leased | | Total | | Alabama | | 3 | | 6 | | 9 | | Alaska | | — | | 2 | | 2 | | Arizona | | 5 | | 15 | | 20 | | Arkansas | | 1 | | 7 | | 8 | | California | | 1 | | 5 | | 6 | | Colorado | | 7 | | 10 | | 17 | | Connecticut | | — | | 5 | | 5 | | Delaware | | 1 | | 2 | | 3 | | Florida | | 7 | | 37 | | 44 | | Georgia | | 4 | | 12 | | 16 | | Idaho | | 1 | | 5 | | 6 | | Illinois | | 3 | | 16 | | 19 | | Indiana | | 13 | | 12 | | 25 | | Iowa | | 3 | | 8 | | 11 | | Kansas | | 2 | | 4 | | 6 | | Kentucky | | 4 | | 13 | | 17 | | Louisiana | | 2 | | 8 | | 10 | | Maine | | — | | 3 | | 3 | | Maryland | | — | | 8 | | 8 | | Massachusetts | | 1 | | 9 | | 10 | | Michigan | | 5 | | 13 | | 18 | | Minnesota | | 1 | | 6 | | 7 | | Mississippi | | 1 | | 2 | | 3 | | Missouri | | 3 | | 15 | | 18 | | Nebraska | | 1 | | 3 | | 4 | | Nevada | | — | | 4 | | 4 | | New Hampshire | | 2 | | 1 | | 3 | | New Jersey | | — | | 10 | | 10 | | New Mexico | | 1 | | 6 | | 7 | | New York | | 3 | | 18 | | 21 | | North Carolina | | 4 | | 17 | | 21 | | North Dakota | | — | | 2 | | 2 | | Ohio | | 12 | | 23 | | 35 | | Oklahoma | | 2 | | 6 | | 8 | | Oregon | | — | | 2 | | 2 | | Pennsylvania | | 3 | | 23 | | 26 | | Rhode Island | | — | | 3 | | 3 | | South Carolina | | — | | 9 | | 9 | | South Dakota | | 1 | | 1 | | 2 | | Tennessee | | — | | 17 | | 17 | | Texas | | 39 | | 42 | | 81 | | Utah | | 1 | | 9 | | 10 | | Vermont | | — | | 1 | | 1 | | Virginia | | 6 | | 15 | | 21 | | Washington | | — | | 2 | | 2 | | West Virginia | | 1 | | 3 | | 4 | | Wisconsin | | 4 | | 7 | | 11 | | Wyoming | | 2 | | — | | 2 | | Total | | 150 | | 447 | | 597 | |
| | | | | | | | State | | Owned | | Leased | | Total | | Alabama | | 3 | | 5 | | 8 | | Alaska | | — | | 2 | | 2 | | Arizona | | 5 | | 14 | | 19 | | Arkansas | | 1 | | 5 | | 6 | | California | | 1 | | 3 | | 4 | | Colorado | | 7 | | 10 | | 17 | | Connecticut | | — | | 5 | | 5 | | Delaware | | 1 | | 1 | | 2 | | Florida | | 7 | | 34 | | 41 | | Georgia | | 4 | | 8 | | 12 | | Idaho | | 1 | | 4 | | 5 | | Illinois | | 3 | | 14 | | 17 | | Indiana | | 13 | | 8 | | 21 | | Iowa | | 2 | | 8 | | 10 | | Kansas | | 2 | | 4 | | 6 | | Kentucky | | 4 | | 11 | | 15 | | Louisiana | | 2 | | 8 | | 10 | | Maine | | — | | 3 | | 3 | | Maryland | | — | | 8 | | 8 | | Massachusetts | | 1 | | 9 | | 10 | | Michigan | | 5 | | 11 | | 16 | | Minnesota | | 1 | | 4 | | 5 | | Mississippi | | 1 | | 2 | | 3 | | Missouri | | 2 | | 15 | | 17 | | Nebraska | | 1 | | 2 | | 3 | | Nevada | | — | | 2 | | 2 | | New Hampshire | | 2 | | 1 | | 3 | | New Jersey | | — | | 10 | | 10 | | New Mexico | | 1 | | 5 | | 6 | | New York | | 3 | | 18 | | 21 | | North Carolina | | 4 | | 16 | | 20 | | North Dakota | | — | | 2 | | 2 | | Ohio | | 12 | | 21 | | 33 | | Oklahoma | | 2 | | 6 | | 8 | | Oregon | | — | | 2 | | 2 | | Pennsylvania | | 3 | | 22 | | 25 | | Rhode Island | | — | | 3 | | 3 | | South Carolina | | — | | 3 | | 3 | | South Dakota | | 1 | | 1 | | 2 | | Tennessee | | — | | 15 | | 15 | | Texas | | 39 | | 32 | | 71 | | Utah | | 1 | | 8 | | 9 | | Vermont | | — | | 1 | | 1 | | Virginia | | 6 | | 13 | | 19 | | Washington | | — | | 2 | | 2 | | West Virginia | | 1 | | 2 | | 3 | | Wisconsin | | 4 | | 6 | | 10 | | Wyoming | | 2 | | — | | 2 | | Total | | 148 | | 389 | | 537 | |
Additional information concerning our properties and leasing arrangements is included in note 2(g)Note 2(h), Note 2(i) and noteNote 8 to the Consolidated Financial Statements appearing in Part II, Item 8 of this Annual Report on Form 10-K. ITEM 3—LEGAL PROCEEDINGS Occasionally, we are a defendantInformation regarding legal proceedings is included in litigation arisingNote 13 to the Consolidated Financial Statements appearing in the ordinary course of our business, including "slip and fall" accidents, employment related claims, claims related to our service of alcohol, and claims from guests or employees alleging illness, injury or food quality, health or operational concerns. None of these types of litigation, most of which are covered by insurance, has had a material effect on us during the periods covered by this report and, as of the datePart II, Item 8 of this report, we are not party to any litigation that we believe could have a material adverse effectAnnual Report on our business.Form 10-K.
ITEM 4—MINE SAFETY DISCLOSURES Not applicable. PART II ITEM 5—MARKET FOR THE REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES Our common stock is traded on the Nasdaq Global Select Market under the symbol TXRH. The number of holders of record of our common stock as of February 17, 202115, 2023 was 179.159. In 2011,On February 14, 2023, 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(the "Board") declared a quarterly dividend of $0.36$0.55 per share of common stock which was paidwill be distributed on March 27, 2020. On24, 2023 to shareholders of record at the close of business 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.8, 2023. 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 There were no equity securities sold by the Company during the period covered by this Annual Report on Form 10-K that were not registered under the Securities Act of 1933, as amended. Issuer Repurchases of Securities In 2008, our Board of Directors approved our first stock repurchase program. From inception through December 29, 2020,27, 2022, we have paid $369.0$633.5 million through our authorized stock repurchase programs to repurchase 17,722,50521,041,442 shares of our common stock at an average price per share of $20.82.$30.11. On May 31, 2019, ourMarch 17, 2022, the Board of Directors approved a stock repurchase program under which we may repurchase up to $250.0$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 22, 2014.31, 2019 that authorized the Company to repurchase up to $250.0 million of our common stock. All repurchases to date have been made through open market transactions. In 2020,2022, we paid $12.6$212.9 million to repurchase 252,4092,734,005 shares of our common stock. The Company suspended all shareThis includes $133.1 million repurchased under our current authorized stock repurchase activity on March 17, 2020 in order to preserve cash flow due toprogram and $79.7 million repurchased under our prior authorization. For the pandemic.13 week period ended December 27, 2022, we did not repurchase any shares of our common stock. As of December 29, 2020, $147.827, 2022, $166.9 million remains authorized for stock repurchases. We are currently evaluating when we will resume the repurchase of shares.
Stock Performance Graph The following graph sets forth the cumulative total shareholder return experienced by holders of the Company’s common stock compared to the cumulative total return of the broad market indices of the S&P 500 Index and Russell 3000 Index as well as the industry specific indices of the S&P Composite 1500 Restaurant Sub-Index and Russell 3000 Restaurant Index and the Russell 3000 Index for the five year period ended December 29, 2020,27, 2022, the last trading day of our fiscal year. The graph assumes the values of the investment in our common stock and each index was $100 on December 29, 201526, 2017 and the reinvestment of all dividends paid during the period of the securities comprising the indices. Historically, we have presented the performance graph by comparing our cumulative total shareholder return against the Russell 3000 Index and Russell 3000 Restaurant Index. In 2022, we transitioned to the S&P 500 Index and S&P Composite 1500 Restaurant Sub-Index as these are more widely utilized industry indices. The performance graph below presents all the indices used for this transition year. Note: The stock price performance shown on the graph below does not indicate future performance. Comparison of Cumulative Total Return Since December 29, 201526, 2017 Among Texas Roadhouse, Inc., the Russell 3000 Index and the Russell 3000 Restaurant Index![Graphic](https://files.docoh.com/10-K/0001558370-23-001979/txrh-20221227x10k001.jpg)
![Graphic](https://files.docoh.com/10-K/0001558370-21-001970/txrh-20201229x10k002.jpg)
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | 12/29/2015 | | 12/27/2016 | | 12/26/2017 | | 12/24/2018 | | 12/31/2019 | | 12/29/2020 | | | 12/26/2017 | | 12/24/2018 | | 12/31/2019 | | 12/29/2020 | | 12/28/2021 | | 12/27/2022 | | Texas Roadhouse, Inc. | | $ | 100.00 | | $ | 137.44 | | $ | 149.97 | | $ | 157.54 | | $ | 156.18 | | $ | 218.97 | | | $ | 100.00 | | $ | 106.69 | | $ | 108.05 | | $ | 152.59 | | $ | 175.44 | | $ | 188.43 | | S&P 500 | | | $ | 100.00 | | $ | 89.44 | | $ | 125.44 | | $ | 147.34 | | $ | 191.93 | | $ | 156.08 | | S&P Composite 1500 Restaurant Sub-Index | | | $ | 100.00 | | $ | 104.87 | | $ | 135.44 | | $ | 161.06 | | $ | 196.79 | | $ | 181.84 | | Russell 3000 | | $ | 100.00 | | $ | 110.05 | | $ | 129.40 | | $ | 115.63 | | $ | 154.29 | | $ | 182.00 | | | $ | 100.00 | | $ | 88.62 | | $ | 123.87 | | $ | 148.62 | | $ | 188.83 | | $ | 151.48 | | Russell 3000 Restaurant | | $ | 100.00 | | $ | 103.97 | | $ | 123.69 | | $ | 123.89 | | $ | 158.36 | | $ | 183.33 | | | Russell 3000 Restaurant Index | | | $ | 100.00 | | $ | 100.16 | | $ | 130.00 | | $ | 147.41 | | $ | 170.36 | | $ | 159.21 | |
ITEM 6—RESERVED 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.
| | | | | | | | | | | | | | | | | | | Fiscal Year | | | | 2020 | | 2019 | | 2018 | | 2017 | | 2016 | | | | | | (in thousands, except per share data) | | Consolidated Statements of Income: | | | | | | | | | | | | | | | | | Revenue: | | | | | | | | | | | | | | | | | Restaurant sales and other | | $ | 2,380,177 | | $ | 2,734,177 | | $ | 2,437,115 | | $ | 2,203,017 | | $ | 1,974,261 | | Franchise royalties and fees | | | 17,946 | | | 21,986 | | | 20,334 | | | 16,514 | | | 16,453 | | Total revenue | | | 2,398,123 | | | 2,756,163 | | | 2,457,449 | | | 2,219,531 | | | 1,990,714 | | Income from operations | | | 23,844 | | | 212,023 | | | 187,789 | | | 186,206 | | | 171,900 | | Income before taxes | | | 19,253 | | | 213,915 | | | 188,551 | | | 186,117 | | | 171,756 | | Income tax (benefit) expense | | | (15,672) | | | 32,397 | | | 24,257 | | | 48,581 | | | 51,183 | | Net income including noncontrolling interests | | $ | 34,925 | | $ | 181,518 | | $ | 164,294 | | $ | 137,536 | | $ | 120,573 | | Less: Net income attributable to noncontrolling interests | | | 3,670 | | | 7,066 | | | 6,069 | | | 6,010 | | | 4,975 | | Net income attributable to Texas Roadhouse, Inc. and subsidiaries | | $ | 31,255 | | $ | 174,452 | | $ | 158,225 | | $ | 131,526 | | $ | 115,598 | | Net income per common share: | | | | | | | | | | | | | | | | | Basic | | $ | 0.45 | | $ | 2.47 | | $ | 2.21 | | $ | 1.85 | | $ | 1.64 | | Diluted | | $ | 0.45 | | $ | 2.46 | | $ | 2.20 | | $ | 1.84 | | $ | 1.63 | | Weighted average shares outstanding: | | | | | | | | | | | | | | | | | Basic | | | 69,438 | | | 70,509 | | | 71,467 | | | 70,989 | | | 70,396 | | Diluted | | | 69,893 | | | 70,916 | | | 71,964 | | | 71,527 | | | 71,052 | | | | | | | | | | | | | | | | | | | Cash dividends declared per share | | $ | 0.36 | | $ | 1.20 | | $ | 1.00 | | $ | 0.84 | | $ | 0.76 | |
| | | | | | | | | | | | | | | | | | | Fiscal Year | | | | 2020 | | 2019 | | 2018 | | 2017 | | 2016 | | | | | ($ in thousands) | | Consolidated Balance Sheet Data: | | | | | | | | | | | | | | | | | Cash and cash equivalents | | $ | 363,155 | | $ | 107,879 | | $ | 210,125 | | $ | 150,918 | | $ | 112,944 | | Total assets | | | 2,325,161 | | | 1,983,565 | | | 1,469,276 | | | 1,330,623 | | | 1,179,971 | | Current portion of operating lease liabilities | | | 19,271 | | | 17,263 | | | - | | | - | | | - | | Current maturities of long-term debt | | | 50,000 | | | - | | | - | | | 9 | | | 159 | | Operating lease liabilities, net of current portion | | | 572,171 | | | 538,710 | | | - | | | - | | | - | | Long-term debt, net of current maturities | | | 190,000 | | | - | | | - | | | 50,000 | | | 50,550 | | Total liabilities | | | 1,382,110 | | | 1,052,396 | | | 508,568 | | | 479,232 | | | 421,729 | | Noncontrolling interests | | | 15,546 | | | 15,175 | | | 15,139 | | | 12,312 | | | 8,016 | | Texas Roadhouse, Inc. and subsidiaries stockholders’ equity | | $ | 927,505 | | $ | 915,994 | | $ | 945,569 | | $ | 839,079 | | $ | 750,226 | | Selected Operating Data (unaudited): | | | | | | | | | | | | | | | | | Restaurants: | | | | | | | | | | | | | | | | | Company - Texas Roadhouse | | | 503 | | | 484 | | | 464 | | | 440 | | | 413 | | Company - Bubba’s 33 | | | 31 | | | 28 | | | 25 | | | 20 | | | 16 | | Company - Jaggers | | | 3 | | | 2 | | | 2 | | | 2 | | | 2 | | Franchise - Domestic | | | 69 | | | 69 | | | 69 | | | 70 | | | 73 | | Franchise - International | | | 28 | | | 28 | | | 22 | | | 17 | | | 13 | | Total | | | 634 | | | 611 | | | 582 | | | 549 | | | 517 | | Company restaurant information: | | | | | | | | | | | | | | | | | Store weeks | | | 27,181 | | | 26,473 | | | 24,693 | | | 23,274 | | | 21,583 | | Comparable restaurant sales (1) | | | (14.2) | % | | 4.7 | % | | 5.4 | % | | 4.5 | % | | 3.5 | % | Texas Roadhouse restaurants only: | | | | | | | | | | | | | | | | | Comparable restaurant sales (1) | | | (14.1) | % | | 4.6 | % | | 5.4 | % | | 4.5 | % | | 3.6 | % | Average unit volume (2) | | $ | 4,649 | | $ | 5,555 | | $ | 5,209 | | $ | 4,973 | | $ | 4,805 | | Net cash provided by operating activities | | $ | 230,438 | | $ | 374,298 | | $ | 352,868 | | $ | 286,373 | | $ | 257,065 | | Net cash used in investing activities | | $ | (161,105) | | $ | (214,820) | | $ | (158,145) | | $ | (178,156) | | $ | (164,738) | | Net cash provided by (used in) financing activities | | $ | 185,943 | | $ | (261,724) | | $ | (135,516) | | $ | (70,243) | | $ | (38,717) | |
(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 7—MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The discussion and analysis below of the financial condition and results of operations for Texas Roadhouse, Inc. (collectively, the Company"Company," "we," "our" and/or "us") should be read in conjunction with the consolidated financial statements and the notes to such financial statements (pages F-1 to F-29)F-28), "Forward-looking Statements" (page 3) and Risk Factors set forth in Item 1A. This Management’s Discussion For discussion and Analysisanalysis of Financial Conditionour financial condition and Resultsresults of Operations focuses on discussion of 2020 results asoperations for fiscal year 2021 compared to 2019 results. For discussionfiscal year 2020, see Part II, Item 7 of 2019 results as compared to 2018 results, see “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations” within our 2021 Form 10-K for the year ended December 31, 2019 filed with the SEC on February 28, 2020.
10-K.
Our Company Texas Roadhouse, Inc. is a growing restaurant company operating predominately in the casual dining segment. Our late founder, chairman and chief executive officer, W. Kent Taylor, started the business in 1993 with the opening of the first Texas Roadhouse restaurant in Clarksville, Indiana. Since then, we have grown to 634three concepts with 697 restaurants in 49 states and ten foreign countries. Our mission statement is "Legendary Food, Legendary Service®." Our operating strategy is designed to position each of our restaurants as the local hometown destination for a broad segment of consumers seeking high-quality, affordable meals served with friendly, attentive service. As of December 29, 2020,27, 2022, our 634697 restaurants included: | ● | 537597 "company restaurants," of which 517577 were wholly-owned and 20 were majority-owned.majority-owned. Of the 597 restaurants we owned and operated at the end of 2022, we operated 552 as Texas Roadhouse restaurants, 40 as Bubba’s 33 restaurants and five as Jaggers restaurants. The results of operations of company restaurants are included in our consolidated statements of income and comprehensive income. The portion of income attributable to noncontrolling interests in company restaurants that are not wholly-ownedmajority-owned is reflected in the line item entitled "Net income attributable to noncontrolling interests" 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. |
| ● | 97100 "franchise restaurants," 2423 of which we have a 5.0% to 10.0% ownership interest. All of the franchise restaurants operated as Texas Roadhouse restaurants. The income derived from our minority interests in these franchise restaurants is reported in the line item entitled "Equity income from investments in unconsolidated affiliates" in our consolidated statements of income and comprehensive income. Additionally, we provide various management services to these 2423 franchise restaurants, as well as five additional franchise restaurants in which we have no ownership interest. All ofOf the 100 franchise restaurants, operated as Texas Roadhouse restaurants. Of the 97 franchise restaurants, 6962 were domestic restaurants and 2838 were international restaurants. |
We have contractual arrangements whichthat 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) 6558 of the 6962 domestic franchise restaurants. Throughout this report, we use the term "restaurants" to include Texas Roadhouse and Bubba’s 33, unless otherwise noted. Presentation of Financial and Operating Data We operate on a fiscal year that typically ends on the last Tuesday in December. Fiscal year 2020 was2022 and fiscal year 2021 were both 52 weeks in length, whileand the fourth quarter wasquarters were both 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 Impactand Related Impacts
On March 13, 2020,The Company has been subject to risks and uncertainties as a result of the novel coronavirus ("COVID-19") pandemic (the "pandemic""pandemic") was declared a National Public Health Emergency. Shortly after the national emergency declaration,. These include federal, state and local officials began placing restrictions on restaurants, some of which limited capacity or seating in dining rooms while others allowed To-Goto-go or curbside service only while others limited capacity in the dining room. By late March,only. In 2022, 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.locations operated without restriction. 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 healthexperienced 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 stateexperience commodity inflation and local restrictions are lifted,certain food 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 resultssupply shortages as well as a more competitive labor market. To the operational and financial measuresextent these challenges persist, we have implemented in responsewill continue 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; and |
| ● | Decreased compensation including voluntary reductions of salary and bonus for the executive and leadership teams to make relief grants available for restaurant employees. Each non-employee member of the Board of Directors also volunteered to forgo their director and committee fees along with any cash retainers effective April 1, 2020 and continuing throughout fiscal 2020. |
Effective March 27, 2020, legislation referred to as the Coronavirus Aid, Relief, and Economic Security Act (the "CARES Act") was passed to benefit companies that were significantly impacted by the pandemic. This legislation allowed for the deferral of the social security portion of the employer portion of FICA payroll taxes from the date of enactment through the end of 2020. Amounts are required to be repaid in equal installments at the end of 2021 and 2022. As of December 29, 2020, the Company had deferred $47.3 million in payroll taxes with the amount due in 2021 included in accrued wages and payroll taxes and the amount due in 2022 included in other liabilities in our consolidated balance sheets.
The CARES Act also allowed for an Employee Retention Credit for companies severely impacted by the pandemic to encourage the retention of full-time employees. This refundable payroll tax credit was available for any company that had fully or partially suspended operations due to government order or experienced a significant decline in gross receipts and had employees who were paid but did not actually work. The Company provided various forms of relief pay for hourly restaurant employees throughout the year, as significant portion of which qualified for this tax credit. For the year ended December 29, 2020, we recorded $7.0 million related to this credit which is included in labor expense in our
consolidated statements of income and comprehensive income.
Finally, the CARES Act provided for small business loans that were forgivable if certain criteria were met. The Company did not pursue any of these loans on behalf of company restaurants as we believe we have sufficient alternatives for raising capital if needed.
experience increased costs.
Long-term Strategies to Grow Earnings Per Share and Create Shareholder Value Although a significant portion of 2020 required us to focus on adapting our business to account for the impacts of the pandemic, we remain committed to our core operating strategy that has defined and grown our brand. Our long-term strategies with respect to increasing net income and earnings per share, along with creating shareholder value, include the following:
| ● | Expanding Our Restaurant Base. We continue to evaluate opportunities to develop restaurants in existing markets and in new domestic and international markets. Domestically, we remain focused primarily on markets and in new domestic and international markets. 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 addition, we continue to pursue opportunities to acquire domestic franchise locations to expand our company restaurant base. |
We have entered into area development and franchise agreements for the development and operation of Texas Roadhouse restaurants in numerous foreign countries and one U.S. territory. We have also entered into area development agreements for Jaggers, our fast-casual concept. We expect our first Jaggers franchise restaurant to open in 2023. In 2022, we opened 23 company restaurants while our franchise partners opened seven restaurants internationally. The company restaurants included 18 Texas Roadhouse restaurants, four Bubba’s 33 restaurants, and one Jaggers restaurant. In 2023, we plan to open approximately 25 to 30 Texas Roadhouse and Bubba’s 33 company restaurants and three Jaggers company restaurants. In addition, we expect as many as nine Texas Roadhouse international and domestic franchise openings and three Jaggers domestic franchise openings in 2023. In 2022, we completed the acquisition of eight domestic franchise Texas Roadhouse restaurants for an aggregate purchase price of $33.1 million. On our first day of fiscal year 2023, we completed the acquisition of eight domestic franchise Texas Roadhouse restaurants for an aggregate purchase price of approximately $39.0 million. | ● | Maintaining and/or Improving Restaurant Level Profitability. We continue to focus on driving comparable restaurant sales to maintain or improve store level profitability. This includes a pricing strategy that balances the impacts of inflationary pressures with our long-term value positioning. In terms of driving traffic at our restaurants, 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 continue to drive various localized marketing programs, focus on speed of service, increase throughput by adding seats and parking at certain restaurants and continue to enhance the guest digital experience. |
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. We also continue to make a number of building modifications and/or expansions to existing restaurants in order to better accommodate our increased dine-in and to-go sales. These modifications include room expansions which add additional guest seating, the addition of to-go areas, and cooler expansions to accommodate higher inventory levels. In recent years, we have relocated several existing Texas Roadhouse locations onceat or near the end of their associated lease expired or as a result of eminent domain which allowsallowed 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.
Our average capital investment for the 18 Texas Roadhouse restaurants opened during 2020, including pre-opening expenses and a capitalized rent factor, was $6.2 million. We expect our average capital investment for Texas Roadhouse restaurants opening in 2021 to be approximately $5.5 million. Our average capital investment for the three Bubba’s 33 restaurants opened during 2020, including pre-opening expenses and a capitalized rent factor, was $7.3 million. We expect our average capital investment for Bubba’s 33 restaurants opening in 2021 to be approximately $6.9 million.
We remain focused on driving sales and managing restaurant investment costs in order 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. We currently have signed franchise and/or development agreements in nine countries in the Middle East as well as Taiwan, the Philippines, Mexico, China, South Korea, Brazil and Puerto Rico. As of December 29, 2020, we had 15 restaurants open in five countries in the Middle East, four restaurants open in Taiwan, five in the Philippines, two in South Korea, and one each in Mexico and China for a total of 28 restaurants in ten foreign countries. For the existing international agreements, the franchisee is generally required to pay us a franchise fee for each restaurant to be opened, royalties on the gross sales of each restaurant and a development fee for our grant of development rights in the named countries. We anticipate that the specific business terms of any future franchise agreement for international restaurants might vary significantly from the standard terms of our domestic agreements and from the terms of existing international agreements, depending on the territory to be franchised and the extent of franchisor-provided services to each franchisee.
Maintaining and/or Improving Restaurant Level Profitability. We continue to balance the impacts of inflationary pressures with our value positioning as we remain focused on our long-term success. This may create a challenge in
| ● | Leveraging Our Scalable Infrastructure. To support our growth, we have made investments in our infrastructure across all critical functions, 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. |
| ● | Returning Capital to Shareholders. 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 (the "Board") declared our first quarterly dividend of $0.08 per share of common stock which has consistently grown over time. In 2022, the Board declared a quarterly cash dividend of $0.46 per share of common stock. On February 14, 2023, the Board declared a quarterly cash dividend of $0.55 per share of common stock, representing a 20% increase compared to the quarterly dividend declared in the prior year period. |
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. 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. 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.
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. Whether we are able to leverage our infrastructure in future years by growing our general and administrative costs at a slower rate than our revenue will depend, in part, on our new restaurant openings, our comparable restaurant sales growth rate going forward and the level of investment we continue to make in our infrastructure.
Returning Capital to Shareholders. We continue to 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. On March 24, 2020, the Board of Directors voted to suspend the payment of quarterly cash dividends on the Company’s common stock, effective with respect to dividends occurring after March 27, 2020. This was done to preserve cash flow due to the pandemic. The declaration and payment of cash dividends on our common stock is at the discretion of our Board of Directors, and any decision to declare a dividend will be based on a number of factors, including, but not limited to, earnings, financial condition, applicable covenants under our amended credit facility, other contractual restrictions and other factors deemed relevant. We are currently evaluating when we will resume the payment of cash dividends.
In 2008, ourthe Board of Directors approved our first stock repurchase program. From inception through December 29, 2020,27, 2022, we have paid $369.0$633.5 million through our authorized stock repurchase programs to repurchase 17,722,50521,041,442 shares of our common stock at an average price per share of $20.82.$30.11. On May 31, 2019, ourMarch 17, 2022, the Board of Directors approved a stock repurchase program under which we may repurchase up to $250.0$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 22, 2014. All repurchases to date have been made through open market transactions. For the year ended December 29, 2020,In 2022, we paid $12.6$212.9 million to repurchase 252,4092,734,005 shares of our common stock. The Company suspended all shareThis includes $133.1 million repurchased under our current authorized stock repurchase activity on March 17, 2020 in order to preserve cash flow due to the pandemic.program and $79.7 million repurchased under our prior authorization. As of December 29, 2020, $147.827, 2022, $166.9 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. 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. All managers are responsible for maintaining our standards of quality and performance. We use market partners to oversee the operation of our restaurants. Each market partner oversees a group of varying sizes of managing partners and their respective management teams. Market partners are also responsible for the hiring and development of each restaurant’s management team and assisting in the site selection process. Through regular visits to the restaurants, the market partners facilitate adherence to all aspects of our concepts, strategies and standards of quality.
Managing partners and market partners are required, as a condition of employment, to sign a multi-year employment agreement. 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.
Key Measures We Use To Evaluate Our Company Key measures we use to evaluate and assess our business include the following: Number of Restaurant Openings. Number of restaurant openings reflects the number of restaurants opened during a particular fiscal period. For company restaurant openings, we incur pre-opening costs, which are defined below, before the restaurant opens. Typically, new Texas Roadhouse restaurants open with an initial start-up period of higher than normalized sales volumes, which decrease to a steady level approximately three to six months after opening. However, although sales volumes are generally higher, so are initial costs, resulting in restaurant margins that are generally lower during the start-up period of operation and increase to a steady level approximately three to six months after opening.
Comparable Restaurant Sales. Comparable restaurant sales reflects the change in sales for company restaurants over the same period of the prior year for the comparable restaurant base. We define the comparable restaurant base to include those restaurants open for a full 18 months before the beginning of the period measured excluding restaurants permanently closed during the period. Comparable restaurant sales can be impacted by changes in guest traffic counts or by changes in the per person average check amount. Menu price changes and the mix of menu items sold can affect the per person average check amount.
Average Unit Volume. Average unit volume represents the average annual restaurant sales for company restaurants open for a full six months before the beginning of the period measured excluding sales of restaurants permanently closed during the period. Historically, average unit volume growth is less than comparable restaurant sales growth which indicates that newer restaurants are operating with sales levels lower than the company average. At times, average unit volume growth may be more than comparable restaurant sales growth which indicates that newer restaurants are operating with sales levels higher than the company average.
Store Weeks. Store weeks represent the number of weeks that our company restaurants were open during the reporting period. Store weeks include weeks in which a restaurant is temporarily closed.
| ● | Comparable Restaurant Sales. 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, 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 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 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 company average. |
| ● | Store Weeks and New Restaurant Openings. 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. Store week growth is driven by new restaurant openings and franchise acquisitions. New restaurant openings reflect the number of restaurants opened during a particular fiscal period, excluding store relocations. We consider store openings that occur simultaneous with a store closure in the same trade area to be a relocation. |
| ● | Restaurant Margin. Restaurant margin (in dollars and as a percentage of restaurant and other sales) represents restaurant and other sales less restaurant-level operating costs, including food and beverage costs, labor, rent and other operating costs. Restaurant margin is not a measurement determined in accordance with U.S. generally accepted accounting principles ("GAAP") and should not be considered in isolation, or as an alternative, to income from operations. This non-GAAP measure is not indicative of overall company performance and profitability in that this measure does not accrue directly to the benefit of shareholders due to the nature of the costs excluded. Restaurant margin is widely regarded as a useful metric by which to evaluate core restaurant-level operating efficiency and performance over various reporting periods on a consistent basis. |
Restaurant Margin. Restaurant margin (in dollars and as a percentage of restaurant and other sales) represents restaurant and other sales less restaurant-level operating costs, including food and beverage costs, labor, rent and other operating costs. Restaurant margin is not a measurement determined in accordance with GAAP and should not be considered in isolation, or as an alternative, to income from operations. This non-GAAP measure is not indicative of overall company performance and profitability in that this measure does not accrue directly to the benefit of shareholders due to the nature of the costs excluded. Restaurant margin is widely regarded as a useful metric by which to evaluate restaurant-level operating efficiency and performance. In calculating restaurant margin, we exclude certain non-restaurant-level costs that support operations, including pre-opening and general and administrative expenses, but do not have a direct impact on core restaurant-level operational efficiency and performance. We also exclude pre-opening expense as it occurs at irregular intervals and would impact comparability to prior period results. We also exclude depreciation and amortization expense, substantially all of which relates to restaurant-level assets, as it represents a non-cash charge for the investment in our restaurants. We also exclude impairment and closure expense as we believe this provides a clearer perspective of the Company’s ongoing operating performance and a more useful comparison to prior period results. Restaurant margin as presented may not be comparable to other similarly titled measures of other companies in our industry. A reconciliation of income from operations to restaurant margin is included in the Results of Operations section below.
Other Key Definitions Restaurant and Other Sales. Restaurant sales include gross food and beverage sales, net of promotions and discounts, for all company restaurants. Sales taxes collected from customers and remitted to governmental authorities are accounted for on a net basis and therefore are excluded from restaurant sales in the consolidated statements of income and comprehensive income. Other sales include the amortization of fees associated with our third partythird-party gift card sales net of the amortization of gift card breakage income. These amounts are amortized consistent with the historic redemption pattern of the associated gift card or on actual redemptions in periods where redemptions do not align with historic redemption patterns. Franchise Royalties and Fees. Franchise royalties consist of royalties, as defined in our franchise agreement, paid to us by our domestic and international franchisees. Domestic and/orand international franchisees also typically pay an initial franchise fee and/or development fee for each new restaurant or territory. The terms of the international agreements may vary significantly from our domestic agreements. 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. Food and beverage costs consists of the costs of raw materials and ingredients used in the preparation of food and beverage products sold in our company restaurants. Approximately half of our food and beverage costs relates to beef costs. beef.
Restaurant Labor Expenses. Restaurant labor expenses include all direct and indirect labor costs incurred in operations except for profit sharing incentive compensation expenses earned by our restaurant managing partners and market partners. These profit sharing expenses are reflected in restaurant other operating expenses. Restaurant labor expenses also include share-based compensation expense related to restaurant-level employees.
Restaurant Rent Expense. Restaurant rent expense includes all rent, except pre-opening rent, associated with the leasing of real estate and includes base, percentage and straight-line rent expense. Restaurant Other Operating Expenses. Restaurant other operating expenses consist of all other restaurant-level operating costs, the major components of which are credit card fees, utilities, dining room and To-Go supplies, local store advertising, repairs and maintenance, equipment rent, property taxes, credit card fees, and general liability insurance. Profitprofit sharing incentive compensation expenses earned byfor our restaurant managing partners and market partners are also included in restaurant other operating expenses.and general liability insurance. 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. On average, overapproximately 70% of total pre-opening costs incurred per restaurant opening relate to the hiring and training of employees. Pre-opening costs vary by location depending on a number of factors, including the size and physical layout of each location; the number of management and hourly employees required to operate each restaurant; the availability of qualified restaurant staff members; the cost of travel and lodging for different geographic areas; the timing of the restaurant opening; and the extent of unexpected delays, if any, in obtaining final licenses and permits to open the restaurants. Depreciation and Amortization Expenses. Depreciation and amortization expenses ("D&A") include the depreciation of fixed assets and amortization of intangibles with definite lives, substantially all of which relates to restaurant-level assets. Impairment and Closure Costs, Net. Impairment and closure costs, net include any impairment of long-lived assets, including property and equipment, operating lease right-of-use assets and goodwill, and expenses associated with the closure of a restaurant. Closure costs also include any gains or losses associated with a relocated restaurant or the sale of a closed restaurant and/or assets held for sale as well as lease costs associated with closed or relocated restaurants. General and Administrative Expenses. General and administrative expenses ("G&A") are comprised of expenses associated with corporate and administrative functions that support development and restaurant operations and provide an infrastructure to support future growth includinggrowth. This includes software hosting fees, professional fees, group insurance, advertising costs incurred. G&A also includes legal fees, settlement chargesexpense, salary 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.equivalents and capitalized interest. Equity Income (Loss)(loss) from Unconsolidated Affiliates. Equity income (loss) includes our percentage share of net income earned by unconsolidated affiliates and our share of any gain on the acquisition of these affiliates. This includes ourAs of December 27, 2022 and December 28, 2021, we owned a 5.0% to 10.0% equity interest in 23 and 24 domestic franchise restaurants.restaurants, respectively. Additionally, we ownhad 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.China that we fully impaired in 2021. Net Income Attributable to Noncontrolling Interests. Net income attributable to noncontrolling interests represents the portion of income attributable to the other owners of the majority-owned restaurants. Our consolidated subsidiaries include 20 majority-owned restaurants for all periods presented. 20202022 Financial Highlights
Total revenue decreased $358.0increased $551.0 million or 13.0%15.9% to $2.4$4.0 billion in 20202022 compared to $2.8$3.5 billion in 2019. The decrease was2021 primarily due to a decreasean increase in average unit volumes driven by a decreasestore weeks and an increase in comparable restaurant sales. While storeStore weeks increased 2.7% in 2020,and comparable restaurant sales decreased 14.2%.increased 6.1% and 9.7%, respectively, at company restaurants in 2022. The decreaseincrease in store weeks was due to new store openings and the acquisition of franchise restaurants. The increase in comparable restaurant sales was due to an increase in per person average unit volumes ischeck and an increase in guest traffic. Net income increased $24.5 million or 10.0% to $269.8 million in 2022 compared to $245.3 million in 2021 primarily due to our dining rooms operating under various limited capacity restrictionshigher restaurant margin dollars, as described below, partially offset by higher general and administrative expenses and higher depreciation and amortization expense. Diluted earnings per share increased 13.5% to $3.97 from $3.50 in the prior year due to the pandemic. Also,increase in net income and the additionbenefit of the 53share repurchases.rd week in 2019 resulted in $59.0 million in restaurant and other sales. Restaurant margin decreased $208.6dollars increased $45.8 million or 44.0%7.9% to $265.6$627.5 million in 20202022 compared to $474.2$581.7 million in 2019 and restaurant2021 primarily due to higher sales. Restaurant margin, as a percentage of restaurant and other sales, decreased to 11.2%15.7% in 20202022 compared to 17.3%16.9% in 2019.2021. 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 dollarscommodity and wage and other labor inflation 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 53higher sales.rd week in 2019 resulted in additional diluted earnings per share of $0.10 to $0.11.
| | | | | | | | | | | | | | | | | | | | | | | Results of Operations | | | Results of Operations | | | | | Fiscal Year | | | Fiscal Year Ended | | | | | 2020 | | 2019 | | | 2022 | | 2021 | | | | | $ | | % | | $ | | % | | | $ | | % | | $ | | % | | | | | | (In thousands) | | | (In thousands) | | Consolidated Statements of Income: | | | | | | | | | | | | | | | | | | | | Revenue: | | | | | | | | | | | | | | | | | | | | Restaurant and other sales | | | 2,380,177 | | 99.3 | | 2,734,177 | | 99.2 | | | 3,988,791 | | 99.3 | | 3,439,176 | | 99.3 | | Franchise royalties and fees | | | 17,946 | | 0.7 | | 21,986 | | 0.8 | | | 26,128 | | 0.7 | | 24,770 | | 0.7 | | Total revenue | | | 2,398,123 | | 100.0 | | 2,756,163 | | 100.0 | | | 4,014,919 | | 100.0 | | 3,463,946 | | 100.0 | | Costs and expenses: | | | | | | | | | | | | | | | | | | | | (As a percentage of restaurant and other sales) | | | | | | | | | | | | | | | | | | | | Restaurant operating costs (excluding depreciation and amortization shown separately below): | | | | | | | | | | | | | | | | | | | | Food and beverage | | | 780,646 | | 32.8 | | 883,357 | | 32.3 | | | 1,378,192 | | 34.6 | | 1,156,628 | | 33.6 | | Labor | | | 875,764 | | 36.8 | | 905,614 | | 33.1 | | | 1,319,959 | | 33.1 | | 1,123,003 | | 32.7 | | Rent | | | 54,401 | | 2.3 | | 52,531 | | 1.9 | | | 66,834 | | 1.7 | | 60,005 | | 1.7 | | Other operating | | | 403,726 | | 17.0 | | 418,448 | | 15.3 | | | 596,305 | | 14.9 | | 517,808 | | 15.1 | | (As a percentage of total revenue) | | | | | | | | | | | | | | | | | | | | Pre-opening | | | 20,099 | | 0.8 | | 20,156 | | 0.7 | | | 21,883 | | 0.5 | | 24,335 | | 0.7 | | Depreciation and amortization | | | 117,877 | | 4.9 | | 115,544 | | 4.2 | | | 137,237 | | 3.4 | | 126,761 | | 3.7 | | Impairment and closure, net | | | 2,263 | | NM | | (899) | | NM | | | 1,600 | | NM | | 734 | | NM | | General and administrative | | | 119,503 | | 5.0 | | 149,389 | | 5.4 | | | 172,712 | | 4.3 | | 157,480 | | 4.5 | | Total costs and expenses | | | 2,374,279 | | 99.0 | | 2,544,140 | | 92.3 | | | 3,694,722 | | 92.0 | | 3,166,754 | | 91.4 | | Income from operations | | | 23,844 | | 1.0 | | 212,023 | | 7.7 | | | 320,197 | | 8.0 | | 297,192 | | 8.6 | | Interest expense (income), net | | | 4,091 | | 0.2 | | (1,514) | | (0.1) | | Equity (loss) income from investments in unconsolidated affiliates | | | (500) | | (0.0) | | 378 | | 0.0 | | Interest expense, net | | | | 124 | | NM | | 3,663 | | 0.1 | | Equity income (loss) from investments in unconsolidated affiliates | | | | 1,239 | | NM | | (637) | | NM | | Income before taxes | | | 19,253 | | 0.8 | | 213,915 | | 7.8 | | | 321,312 | | 8.0 | | 292,892 | | 8.5 | | Income tax (benefit) expense | | | (15,672) | | (0.7) | | 32,397 | | 1.2 | | Income tax expense | | | | 43,715 | | 1.1 | | 39,578 | | 1.1 | | Net income including noncontrolling interests | | | 34,925 | | 1.5 | | 181,518 | | 6.6 | | | 277,597 | | 6.9 | | 253,314 | | 7.3 | | Net income attributable to noncontrolling interests | | | 3,670 | | 0.2 | | 7,066 | | 0.3 | | | 7,779 | | 0.2 | | 8,020 | | 0.2 | | Net income attributable to Texas Roadhouse, Inc. and subsidiaries | | | 31,255 | | 1.3 | | 174,452 | | 6.3 | | | 269,818 | | 6.7 | | 245,294 | | 7.1 | |
NM – Not meaningful
| | | | | | | | | | Reconciliation of Income from Operations to Restaurant Margin | | | Fiscal Year Ended | | | 2020 | | 2019 | | | | (In thousands, except per store week) | | | | | | Income from operations | | $ 23,844 | | $ 212,023 | | | | | | Less: | | | | | Franchise royalties and fees | | 17,946 | | 21,986 | | | | | | Add: | | | | | Pre-opening | | 20,099 | | 20,156 | Depreciation and amortization | | 117,877 | | 115,544 | Impairment and closure, net | | 2,263 | | (899) | General and administrative | | 119,503 | | 149,389 | Restaurant margin | | $ 265,640 | | $ 474,227 | | | | | | Restaurant margin $/store week | | $ 9,773 | | $ 17,914 | Restaurant margin (as a percentage of restaurant and other sales) | | 11.2% | | 17.3% |
| | | | | | | | | | Reconciliation of Income from Operations to Restaurant Margin | | | Fiscal Year Ended | | | 2022 | | 2021 | | | | (In thousands, except per store week) | | | | | | Income from operations | | $ 320,197 | | $ 297,192 | | | | | | Less: | | | | | Franchise royalties and fees | | 26,128 | | 24,770 | | | | | | Add: | | | | | Pre-opening | | 21,883 | | 24,335 | Depreciation and amortization | | 137,237 | | 126,761 | Impairment and closure, net | | 1,600 | | 734 | General and administrative | | 172,712 | | 157,480 | Restaurant margin | | $ 627,501 | | $ 581,732 | | | | | | Restaurant margin $/store week | | $ 20,721 | | $ 20,389 | Restaurant margin (as a percentage of restaurant and other sales) | | 15.7% | | 16.9% |
Restaurant Unit Activity | | | | | | | | | | | Total | | Texas Roadhouse | | Bubba's 33 | | Jaggers | Balance at December 28, 2021 | | 667 | | 627 | | 36 | | 4 | Company openings | | 23 | | 18 | | 4 | | 1 | Company closings | | — | | — | | — | | — | Franchise openings - Domestic | | — | | — | | — | | — | Franchise openings - International | | 7 | | 7 | | — | | — | Franchise closings | | — | | — | | — | | — | Balance at December 27, 2022 | | 697 | | 652 | | 40 | | 5 |
| | | | | | | | | | | Total | | Texas Roadhouse | | Bubba's 33 | | Jaggers | Balance at December 31, 2019 | | 611 | | 581 | | 28 | | 2 | Company openings | | 22 | | 18 | | 3 | | 1 | Company closings | | (1) | | (1) | | — | | — | Franchise openings - Domestic | | 2 | | 2 | | — | | — | Franchise openings - International | | 2 | | 2 | | — | | — | Franchise closings - International | | (2) | | (2) | | — | | — | Balance at December 29, 2020 | | 634 | | 600 | | 31 | | 3 |
| | | | | | | | | | | December 29, 2020 | | December 31, 2019 | | December 27, 2022 | | December 28, 2021 | Company - Texas Roadhouse | | 503 | | 484 | | 552 | | 526 | Company - Bubba's 33 | | 31 | | 28 | | 40 | | 36 | Company - Jaggers | | 3 | | 2 | | 5 | | 4 | Franchise - Texas Roadhouse - U.S. | | 69 | | 69 | | 62 | | 70 | Franchise - Texas Roadhouse - International | | 28 | | 28 | | 38 | | 31 | Total | | 634 | | 611 | | 697 | | 667 |
Restaurant and Other Sales Restaurant and other sales decreased 12.9%increased 16.0% in 20202022 compared to 2019.2021. The following table summarizes certain key drivers and/or attributes of restaurant sales at company restaurants for the periods presented. Company restaurant count activity is shown in the restaurant unit activity table above. | | | | | | | | | | | | | | | | | 2020 | | 2019 | | | 2022 | | 2021 | | Company Restaurants: | | | | | | | | | | | | | | | Increase in store weeks | | | 2.7 | % | | 7.2 | % | | | 6.1 | % | | 5.0 | % | (Decrease) increase in average unit volume | | | (16.3) | % | | 4.1 | % | | Increase in average unit volume | | | | 9.4 | % | | 36.7 | % | Other(1) | | | 0.6 | % | | 1.0 | % | | | 0.4 | % | | 2.6 | % | Total (decrease) increase in restaurant sales | | | (13.0) | % | | 12.3 | % | | Total increase in restaurant sales | | | | 15.9 | % | | 44.3 | % | Other sales(2) | | | 0.1 | % | | (0.1) | % | | | 0.1 | % | | 0.2 | % | Total (decrease) increase in restaurant and other sales | | | (12.9) | % | | 12.2 | % | | Total increase in restaurant and other sales | | | | 16.0 | % | | 44.5 | % | | | | | | | | | | | | | | | | Store weeks | | | 27,181 | | | 26,473 | | | | 30,284 | | | 28,531 | | Comparable restaurant sales | | | (14.2) | % | | 4.7 | % | | | 9.7 | % | | 37.8 | % | | | | | | | | | | | | | | | | Texas Roadhouse restaurants only: | | | | | | | | | Texas Roadhouse restaurants: | | | | | | | | | Store weeks | | | | 28,127 | | | 26,622 | | Comparable restaurant sales | | | (14.1) | % | | 4.6 | % | | | 9.7 | % | | 37.6 | % | Average unit volume (in thousands) | | $ | 4,649 | | $ | 5,555 | | | $ | 6,962 | | $ | 6,358 | | Average unit volume (in thousands), 2019 adjusted (3) | | $ | 4,649 | | $ | 5,427 | | | | | | | | | | | | | | | | | | Weekly sales by group: | | | | | | | | | | | | | | | Comparable restaurants (453 and 430 units, respectively) | | | 89,621 | | | 105,336 | | | Average unit volume restaurants (20 and 22 units, respectively)(4) | | | 84,485 | | | 94,437 | | | Restaurants less than six months old (30 and 32 units, respectively) | | | 81,546 | | | 105,732 | | | Comparable restaurants (499 and 473 units) | | | $ | 134,085 | | $ | 123,064 | | Average unit volume restaurants (20 and 18 units)(2) | | | $ | 128,665 | | $ | 104,545 | | Restaurants less than six months old (33 and 35 units) | | | $ | 135,401 | | $ | 124,142 | | | | | | | | | | | Bubba's 33 restaurants: | | | | | | | | | Store weeks | | | | 1,936 | | | 1,747 | | Comparable restaurant sales | | | | 10.5 | % | | 43.0 | % | Average unit volume (in thousands) | | | $ | 5,620 | | $ | 5,090 | | | | | | | | | | | Weekly sales by group: | | | | | | | | | Comparable restaurants (30 and 25 units) | | | $ | 108,132 | | $ | 101,097 | | Average unit volume restaurants (4 and 5 units)(2) | | | $ | 107,636 | | $ | 81,813 | | Restaurants less than six months old (6 and 6 units) | | | $ | 121,791 | | $ | 115,554 | |
(1) | Includes the impact of the year-over-year change in sales volume of all non-Texas RoadhouseJaggers 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) | 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. |
(4) | Average unit volume restaurants include restaurants open a full six to 18 months before the beginning of the period measured.measured, excluding sales from restaurants permanently closed during the period, if applicable. |
The decreaseincrease in restaurant sales for 20202022 was primarily attributable to the decreasean increase in average unit volumes,store weeks and an increase in comparable restaurant sales. The increase in store weeks was driven by a declinethe opening of new restaurants and the acquisition of franchise restaurants. The increase in comparable restaurant sales partially offset by an increase in store weeks. The decrease in comparable restaurant salesgrowth was driven primarily by increases in our per person average check as shown in 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.table below.
Our expanded To-Go model helped to offset the loss of dining room sales particularly at the onset of the pandemic when all of our dining rooms were closed. In addition, we continued to see significant To-Go sales once our dining rooms began to re-open. To-Go sales as a percentage of total restaurant sales were 27.0% in 2020 compared to 7.2% in 2019.
| | | | | | | | | 2022 | | | 2021 | | Guest traffic counts | | 1.9 | % | | 27.6 | % | Per person average check | | 7.8 | % | | 10.2 | % | Comparable restaurant sales growth | | 9.7 | % | | 37.8 | % | | | | | | | |
In additionThe increase in 2022 guest traffic counts was due 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.increase in dining room traffic partially offset by a decrease in to-go traffic. The majority of the sales around the family value packs and ready-to-grill occurredincrease in the first half of 2020, whendining room traffic counts was primarily driven by all of our dining roomscompany locations operating without capacity restrictions for the entire 2022 period. To-go sales as a percentage of total restaurant sales were closed.13.3% in 2022 compared to 17.1% in 2021.
Per person average check includes the benefit of menu price increases of approximately 3.2% and 2.9% implemented in Q2 2022 and Q4 2022, respectively, as well as increases of 1.8% and 4.2% implemented in Q2 2021 and Q4 2021, respectively. In 2022, we opened 23 company restaurants, which included 18 Texas Roadhouse restaurants, four Bubba’s 33 restaurants and one Jaggers restaurant. We also completed the acquisition of eight franchise restaurants. In 2023, we plan to open approximately 25 to 30 Texas Roadhouse and Bubba’s 33 company restaurants and three Jaggers company restaurants. On December 28, 2022, the first day of our 2023 fiscal year, we completed the acquisition of eight domestic franchise restaurants for an aggregate purchase price of approximately $39.0 million. In total, these items represented less than 3%we expect store week growth of restaurant sales forat least 6% in 2023, including the year.impact of the franchise restaurants acquired.
Other sales primarily represents the net impact of amortization of third-party gift card fees and gift card breakage income. The net impact was ($6.4) million and ($6.1) million for 2022 and 2021, respectively. The change was driven primarily by favorable adjustments of $6.6 million and $4.8 million recorded in 2022 and 2021, respectively. These adjustments related to a change in our estimate of breakage due 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 increased. This shift in redemption patterns was primarily due to the increase in sales through our third-party gift card program. As a result, we adjusted our expected breakage assumptions on unredeemed gift cards. The adjustments were partially offset by an increase in amortization of the significant changethird-party fees due to an increase in sales through 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.third-party gift card program.
Franchise Royalties and Fees Franchise royalties and fees decreasedincreased by $4.0$1.4 million or 18.4%5.5% compared to 20192021 due to lower average unit volume driven by comparable restaurant sales decreases at domesticgrowth and internationalnew store openings partially offset by decreased royalties related to the eight franchise stores as well as the impact of the 53rd weekacquisitions in 2019. Comparable restaurant sales at domestic and international franchise stores decreased 17.3% in 2020. These2022. Franchise comparable restaurant sales decreases include the impact of international locations that were temporarily closed during the year.increased 10.3% in 2022. 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 ofIn 2022, 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 twoseven Texas Roadhouse restaurants in 2020.international restaurants. 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 open2023, we expect as many as sixnine Texas Roadhouse restaurants, primarily international in 2021.and domestic franchise openings and three Jaggers domestic franchise openings.
Food and Beverage Costs Food and beverage costs, as a percentage of restaurant and other sales, increased to 32.8%34.6% in 20202022 from 32.3%33.6% in 20192021 primarily due to higher commodity inflation partially offset by the benefit of a change in mix of items sold, including fewer alcoholic beverages.higher guest check. Commodity inflation was 2.1%10.8% in 2020, primarily driven by2022, with higher beef costs.costs across the basket. For 2021,2023, we currently expect commodity cost inflation of 5% to 6% for the year with prices locked for approximately 3.0%.40% 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%33.1% in 20202022 compared to 33.1%32.7% in 2019.2021. This increase was primarily due to wage and other labor inflation of 8.3% in 2022. Wage and other labor inflation was primarily due to higher wage and benefit expense driven by labor market pressures along with increases in state-mandated minimum and tipped wage rates and increased benefits provided toinvestment in our employees relatedpeople. In addition, a higher mix of dining room sales versus to-go sales also contributed to the pandemic, higher costs associated with health insurance, and a decrease in average unit volume. These increases wereincrease. The increase was partially offset by employee retention payroll tax creditsthe benefit of $7.0 million related to relief pay paid to our hourly restaurant employeesa higher guest check as well as a decrease in worker’sgroup insurance and workers’ compensation costs. Higher wage rates wereexpense due to a significant numberfavorable claims experience of employees moving from a tipped wage rate to a non-tipped wage rate due$7.2 million as compared 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 asyear.
rateIn 2023, we anticipate our labor costs will continue to be pressured by wage and enrollment increases. The increased claim costs,other labor inflation of 5% to 6% driven by unfavorable claims experience, resultedlabor market pressures, increases 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 Actstate-mandated minimum and related to relief pay for our hourly employees that was paid throughout 2020. The decrease in workers’ compensation expense was due to changestipped wages and increased investment in our claims development history included in our Q3 2020 actuarial reserve estimate that resulted in a favorable adjustment of $1.8 million.people.
Restaurant Rent Expense Restaurant rent expense, as a percentage of restaurant and other sales, increased to 2.3%remained flat at 1.7% in 2020 compared to 1.9% in 2019 due to the decreaseboth periods presented. The increase in average unit volume and the benefit of the 53rd week in 2019 along withwas 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, increaseddecreased to 17.0%14.9% in 2020 from 15.3%2022 compared to 15.1% in 2019. This increase2021. The decrease was primarily due to a decreasethe increase in average unit volume higherand lower supplies expense and higher general liability insurancebonus expense partially offset by lower losses on remodeling projects, laundryhigher credit card charges and linenrepair 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.maintenance costs. Restaurant Pre-opening Expenses Pre-opening expenses decreased to $20.1were $21.9 million in 2020 from $20.22022 compared to $24.3 million in 2019. The change in pre-opening expense is primarily driven by the number and timing of restaurant openings in a given year.2021. 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,Depreciation and amortization expenses, as a percentage of revenue, increaseddecreased to 4.9%3.4% in 20202022 compared to 4.2%3.7% in 2019.2021. The increasedecrease was primarily due to a decreasethe increase in average unit volume andpartially offset by higher depreciation at new restaurants partially offset by lower accelerated depreciation. In 2019, our accelerated depreciation was higher due to the planned relocationand increased amortization of several restaurants.intangible assets generated from franchise restaurant acquisitions.
Impairment and Closure Costs, Net Impairment and closure costs, net were $2.3$1.6 million and ($0.9)$0.7 million in 20202022 and 2019,2021, respectively. In 2020,2022, impairment and closure costs, net included $1.2$1.7 million related to the impairment of 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. In 2021, impairment and closure costs, net included the impairment of the fixed assets and operating lease right-of-use assets at fourtwo restaurants, allboth 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,General and administrative expenses, as a percentage of total revenue, decreased to 5.0%4.3% in 20202022 compared to 5.4%4.5% in 2019.2021. The decrease was primarily driven by the increase in average unit volume and lower incentive and performance-based compensation costs, lowerlegal settlement expense partially offset by increased managing partner conference costsexpense of $2.5 million.
Interest Expense, Net Interest expense was $0.1 million in 2022 compared to $3.7 million in 2021. The decrease was primarily driven by increased earnings on our cash and cash equivalents and decreased borrowings on our amended revolving credit facility. Income Taxes Our effective tax rate increased to 13.6% in 2022 compared to 13.5% in 2021. The increase was primarily due to lower travel costsexcess tax benefits related to our share-based compensation program partially offset by a decreasean increase in average unit volume. Managing partner conference costs were lower in 2020 duethe FICA tip tax credit. For 2023, we expect our effective tax rate to be approximately 14% based on forecasted operating results, excluding the cancellationimpact of our annual conference. As a result of the pandemic, our executive and leadership teams voluntarily agreed to reductions of salary and bonus for a portion of our 2020 fiscal year. Also, each non-employee member of our Board of Directors volunteered to forgo their director and committee fees and any cash retainers for a portion of our 2020 fiscal year.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): | | | | | | | | | | | | | 52 Weeks Ended | | December 27, 2022 | | December 28, 2021 | Texas Roadhouse | $ | 600,197 | | 16.0 | % | | $ | 552,039 | | 16.9 | % | Bubba's 33 | | 26,934 | | 12.7 | | | | 28,862 | | 16.6 | | Other | | 370 | | 2.6 | | | | 831 | | 7.6 | | Total | $ | 627,501 | | 15.7 | % | | $ | 581,732 | | 16.9 | % |
We are currently subject to various claims and contingencies that arise from time to timeIn our Texas Roadhouse reportable segment, restaurant margin dollars increased $48.2 million or 8.7% in the ordinary course of business, including those related to litigation, business transactions, employee-related matters and taxes, among others. See note 13 to the consolidated financial statements for further discussion of these matters.
Interest Expense (Income) Expense, Net
Interest expense was $4.1 million compared to interest income of $1.5 million in 2019.2022. 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.
Income Taxes
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 higher sales which were partially offset by commodity and wage and other labor inflation. In addition, restaurant margin, as a percentage of restaurant and other sales, decreased to 16.0% in 2022 from 16.9% in 2021. Restaurant margin was negatively impacted by commodity and wage and other labor inflation which was partially offset by the impactbenefit of FICA tipan increase in comparable restaurant sales.
In our Bubba’s 33 reportable segment, restaurant margin dollars decreased $1.9 million or 6.7% in 2022. In addition, restaurant margin, as a percentage of restaurant and Work opportunity tax credits on lower pre-tax income. Additionally, these credits exceeded our federal tax liabilityother sales, decreased to 12.7% in 2020 but we expect to utilize these credits2022 from 16.6% in 2021. These decreases were primarily driven by commodity and wage and other labor inflation which was partially offset by the future years or by carrying back to our 2019 tax year.benefit of an increase in comparable restaurant 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 | | Fiscal Year Ended | | | 2020 | | 2019 | | 2022 | | 2021 | Net cash provided by operating activities | | $ | 230,438 | | $ | 374,298 | | $ | 511,725 | | $ | 468,826 | Net cash used in investing activities | | | (161,105) | | | (214,820) | | | (263,734) | | | (195,104) | Net cash provided by (used in) financing activities | | | 185,943 | | | (261,724) | | Net increase (decrease) in cash and cash equivalents | | $ | 255,276 | | $ | (102,246) | | Net cash used in financing activities | | | | (409,775) | | | (301,232) | Net decrease in cash and cash equivalents | | | $ | (161,784) | | $ | (27,510) |
Net cash provided by operating activities was $230.4$511.7 million in 20202022 compared to $374.3$468.8 million in 2019.2021. This decreaseincrease was primarily due to a decreasean increase in net income, an increase in non-cash items such as depreciation and amortization and a decreasefavorable increase in deferred income taxesworking capital. The favorable increase in working capital was partially offset by favorable changes in working capital. Working capital changes included the benefitfinal remittance of our deferred payroll taxestax liability of $23.0 million related to the CARESCoronavirus Aid, Relief, and Economic Security Act. Our operations have not required significant working capital and, like many restaurant companies, we canhave been able to operate with negative working capital. Sales are primarily for cash, and restaurant operations do not require significant inventories or receivables. In addition, we receive trade credit for the purchase of food, beverages and supplies, thereby reducing the need for incremental working capital to support growth. Net cash used in investing activities was $161.1$263.7 million in 20202022 compared to $214.8$195.1 million in 2019.2021. The decrease is primarilyincrease was due to the acquisition of eight franchise restaurants for a decreasenet purchase price of $33.1 million as well as an increase in capital expenditures, partially offsetprimarily driven by the purchasean increase in new company restaurant construction and refurbishments and relocations 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.existing restaurants. 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 generally of five to 30 years (including renewal periods) or purchase the land when appropriate. As of December 29, 2020, 14827, 2022, 150 of the 537597 company restaurants have been developed on land which we own. The following table presents a summary of capital expenditures (in thousands): | | | | | | | | | | | | | | | | 2022 | | 2021 | | | 2020 | | 2019 | | | | | | | New company restaurants | | $ | 78,941 | | $ | 99,957 | | $ | 139,210 | | $ | 123,044 | Refurbishment of existing restaurants | | | 47,735 | | | 63,548 | | Refurbishment or expansion of existing restaurants | | | | 84,414 | | | 64,146 | Relocation of existing restaurants | | | 17,917 | | | 25,131 | | | 18,478 | | | 8,374 | Capital expenditures related to Support Center office | | | 9,808 | | | 25,704 | | | 4,019 | | | 5,128 | Total capital expenditures | | $ | 154,401 | | $ | 214,340 | | $ | 246,121 | | $ | 200,692 |
AtOur future capital requirements will primarily depend on the onsetnumber and mix of new restaurants we open, the pandemic, we delayedtiming of those openings and the restaurant prototype developed in a given fiscal year. These requirements will include costs directly related to new restaurant construction on all restaurants that were not substantially complete which decreased our planned restaurant openings for the year. In addition, we delayed any projects oncosts or relocating existing restaurants and may also include costs necessary to ensure that were not criticalour infrastructure is able to their operations.support a larger restaurant base. In 2021,2023, we expect our capital expenditures to be $210.0approximately $265 million to $220.0 million andas we currently plan to open approximately 25 to 30 Texas Roadhouse and Bubba’s 33 company restaurants. We also expect to have as many as four relocations in 2023. In addition, on the first day of our 2023 fiscal year, we completed the acquisition of eight domestic franchise restaurants across all concepts. Tofor an aggregate purchase price of approximately $39.0 million. We intend to satisfy our capital requirements over the extent that state and local guidelines begin to significantly reduce capacity and/or re-close dining rooms, we could pull backnext 12 months with cash on development and reduce capital expenditure spend accordingly.
Nethand, net cash provided by financingoperating activities, was $185.9 million in 2020 compared to netand if needed, funds available under our amended credit facility.
Net cash used in financing activities of $261.7was $409.8 million in 2019.2022 compared to $301.2 million in 2021. The increase is primarily due to increased borrowings underthe significant increases in share repurchases and our revolving credit facilitydividend payment. These increases were partially offset by a decrease in share repurchases and dividends paid. In March 2020, we increasedrepayments made on our borrowings by $190.0 million as a precautionary measure in order to bolster our cash position and enhance financial flexibility. On May 11, 2020, we amended the revolving credit facility to increase the amount available under the facility by $82.5 million and drew down $50.0 million of the increased amount. The proceeds from these borrowings, which totaled $240.0 million, are being used for general corporate purposes, including, without limitation, working capital, capital expenditures in the ordinary course of business, or other lawful corporate purposes, all in accordance with and subject to the terms and conditions of the facility.If the pandemic continues to adversely impact our business for a significant period of time, we may need to further increase the credit facility and/or seek other sources of liquidity. There is no guarantee that we can increase the credit facility or that additional liquidity will be readily available or available at favorable terms.
On May 31, 2019, ourMarch 17, 2022, the Board of Directors approved a stock repurchase program under which we may repurchase up to $250.0 $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 22, 2014.31, 2019. All repurchases to date under our stock repurchase programs have been made through open market transactions. The timing and the amount of any repurchases will be determined by management under parameters established by the Board, of Directors, based on an evaluation of our stock price, market conditions and other corporate considerations. During 2020, In 2022, we paid $12.6$212.9 million to repurchase 252,4092,734,005 shares of our common stock. On March 17, 2020,This includes $133.1 million repurchased under our current authorized stock repurchase program and $79.7 million repurchased under our prior authorization. In 2021, we suspended all sharepaid $51.6 million to repurchase activity.584,932 shares of our common stock. As of December 29, 2020, $147.827, 2022, $166.9 million remainsremained under our authorized for stock repurchases. We are currently evaluating when we will resume the repurchase of shares. program.
On February 20, 2020,17, 2022, our Board of Directors authorized the payment of a cashquarterly dividend of $0.36$0.46 per share of common stock. The payment of this dividend totaling $25.0dividends totaled $124.1 million was distributed on March 27, 2020 to shareholders of record at the close of business on March 11, 2020.and $83.7 million in 2022 and 2021, respectively. On March 24, 2020, theFebruary 14, 2023, our Board of Directors voted to suspend the payment ofdeclared a quarterly cash dividendsdividend of the Company’s$0.55 per share of 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. stock.
We paid distributions of $3.4$7.8 million and $6.4$8.2 million in 2022 and 2021, respectively, to equity holders of all of our 20 majority-owned company restaurants in 2020 and 2019, respectively.restaurants. On August 7, 2017,May 4, 2021, we entered into the Amended and Restated Credit Agreement (the "Amended Credit Agreement") with respectan 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., and Wells Fargo Bank, N.A. The amended revolving credit facility remains an unsecured, revolving credit agreement under which we may borrowand has a borrowing capacity of up to $200.0$300.0 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 amendedThe amendment also extended 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 isto May 10, 2021. The maturity date for the original revolving credit facility remains August 5, 2022.1, 2026.
The terms of the amendment require us to pay interest on outstanding borrowings ofat the original revolving credit facility at LIBOR London Interbank Offered Rate ("LIBOR") plus a margin of 1.50%0.875% to 1.875% and to pay a commitment fee of 0.25%0.125% to 0.30% per year on any unused portion of the amended revolving credit facility, through the end ofin each case depending on our Q1 2021 fiscal quarter.leverage ratio. The amendmentagreement also provides an Alternate Base Rate that may be substituted for LIBOR. As of December 29, 2020,27, 2022, we had $190.0$50.0 million outstanding on the originalamended revolving credit facility and $1.8 $233.5 million of availability, net of $8.2$16.5 million of outstanding letters of credit. ThisAs of December 28, 2021, we had $100.0 million outstanding amount ison 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 sheet. sheets.
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$50.0 million outstanding as of December 29, 202027, 2022 was 1.98%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 Credit Agreementamended revolving credit facility 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. 27, 2022 and December 28, 2021.
Contractual Obligations The following table summarizes the amount of payments due under specified contractual obligations as of December 29, 202027, 2022 (in thousands): | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Payments Due by Period | | Payments Due by Period | | | | | | Less than | | | | | | | | More than | | | | | Less than | | | | | | | | More than | | | Total | | 1 year | | 1 - 3 Years | | 3 - 5 Years | | 5 years | | Total | | 1 year | | 1 - 3 Years | | 3 - 5 Years | | 5 years | Long-term debt obligation, including current maturities | | $ | 240,000 | | $ | 50,000 | | | 190,000 | | $ | — | | $ | — | | $ | 50,000 | | $ | — | | | — | | $ | 50,000 | | $ | — | Obligation under finance lease | | | 2,122 | | | — | | | — | | | — | | | 2,122 | | Obligations under finance leases | | | | 2,750 | | | — | | | — | | | — | | | 2,750 | Interest(1) | | | 10,287 | | | 4,083 | | | 2,389 | | | 571 | | | 3,244 | | | 13,208 | | | 2,919 | | | 5,840 | | | 1,484 | | | 2,965 | Operating lease obligations | | | 1,046,273 | | | 56,201 | | | 114,484 | | | 112,844 | | | 762,744 | | Real estate operating lease obligations | | | | 1,191,064 | | | 66,675 | | | 132,401 | | | 130,574 | | | 861,414 | Capital obligations | | | 95,870 | | | 95,870 | | | — | | | — | | | — | | | 205,663 | | | 205,663 | | | — | | | — | | | — | Total contractual obligations(2) | | $ | 1,394,552 | | $ | 206,154 | | $ | 306,873 | | $ | 113,415 | | $ | 768,110 | | $ | 1,462,685 | | $ | 275,257 | | $ | 138,241 | | $ | 182,058 | | $ | 867,129 |
(1) | Includes interest on our revolving credit facility and interest on a finance lease. Usesour financing leases. We used the interest ratesrate on our amended revolving credit facility as of December 29, 202027, 2022 for our variable rate debt. Wedebt and assumed $240.0$50.0 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 finance lease.financing leases. |
(2) | Unrecognized tax benefits under ASCAccounting Standards Codification 740, Income Taxes, are not significant and excluded from this amount. |
We have no material minimum purchase commitments with our vendors that extend beyond a year. See notesRefer to Notes 5, 8 and 813 to the consolidated financial statements for details of contractual obligations. Off-Balance Sheet Arrangements
We do not have any off-balance sheet arrangements.
Guarantees As of December 29, 202027, 2022 and December 31, 2019,28, 2021, we were contingently liable for $13.0$11.3 million and $13.9$12.2 million, respectively, for seven leases, listed in the table below.lease guarantees. These amounts represent the maximum potential liability of future payments under the guarantees. In the event of default, the indemnity and default clauses in our assignment agreements govern our ability to pursue and recover damages incurred. No material liabilities have been recorded as of December 29, 202027, 2022 as the likelihood of default was deemed to be less than probable and the fair value of the guarantees is not considered significant. | | | | | |
|
| Lease
|
| Current Lease
|
|
|
| Assignment Date
|
| Term Expiration
|
| Everett, Massachusetts (1)(2)
| | September 2002
| | February 2023
|
| Longmont, Colorado (1)
| | October 2003
| | May 2029
|
| Montgomeryville, Pennsylvania (1)
| | October 2004
| | March 2026
|
| Fargo, North Dakota (1)
| | February 2006
| | July 2026
|
| Logan, Utah (1)
| | January 2009
| | August 2024
|
| Irving, Texas (3)
|
| December 2013
|
| December 2024
|
| Louisville, Kentucky (3)(4)
|
| December 2013
|
| November 2023
|
|
(1) | Real estate lease agreements for restaurant locations which we entered into before granting franchise rights to those restaurants. We have subsequently assigned the leases to the franchisees, but remain contingently liable, under the terms of the lease, if the franchisee defaults. |
(2) | As discussed in note 17 to the accompanying consolidated financial statements, this restaurant is owned in part by our founder. |
(3) | Leases associated with non-Texas Roadhouse restaurants which were sold. The leases were assigned to the acquirer, but we remain contingently liable under the terms of the lease if the acquirer defaults. |
(4) | We may be released from liability after the initial lease term expiration contingent upon certain conditions being met by the acquirer. |
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. 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 noteNote 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. Judgments or uncertainties regarding the application of these policies may result in materiallysignificantly different amounts being reported under different conditions or using different assumptions. We consider the following policies to be the most critical in understanding the judgments that are involved in preparing the consolidated financial statements. Impairment of Long-lived Assets. We evaluate long-lived assets related to each restaurant to be held and used in the business, such as property and equipment, operating lease right-of-use assets and intangible assets subject to amortization, for impairment whenever events and circumstances indicate that the carrying amount of a restaurant may not be recoverable. For the purposes of this evaluation, we define the asset group at the individual restaurant level. When we evaluate the restaurants, cash flows are the primary indicator of impairment. Recoverability of assets to be held and used is measured by comparison of the carrying amount of the restaurant to estimated undiscounted future cash flows expected to be generated by the restaurant. Under our policies, trailing 12-month cash flow results under a predetermined amount at the individual restaurant level signals a potential impairment. In our evaluation of restaurants that do not meet the cash flow threshold, we estimate future undiscounted cash flows from operating the restaurant over its estimated useful life, which can beis usually a period of over 2025 years. In the estimation of future cash flows, we consider the period of time the restaurant has been open, the trend of operations over such period and future periods and expectations for future sales growth. We limit assumptions about important factors such as trend of future operations and sales growth to those that are supportable based upon our plans for the restaurant and actual results at comparable restaurants. Both qualitative and quantitative information are considered when evaluating for potential impairments. As we assess the ongoing expected cash flows and carrying amounts of our long-lived assets, these factors could cause us to realize a material impairment charge. If assets are determined to be impaired, we measure the impairment charge by calculating the amount by which the asset carrying amount exceeds its estimated fair value. The determination of asset fair value is also subject to significant judgment. We generally measure estimated fair value by discounting estimated future cash flows. When fair value is measured by discounting estimated future cash flows, the assumptions used are consistent with what we believe hypothetical market participants would use. We also use a discount rate that is commensurate with the risk inherent in the projected cash flows. 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,2022, we recorded a total chargeimpairment and closure costs, net of $1.2$1.6 million. This included $1.7 million related to the impairment of the fixed assetsland, building and operating lease right-of-use assets at fourthree restaurants, alltwo of which have relocated or are scheduledand $0.6 million related to be relocated. See note 16ongoing closure costs. This was partially offset by a gain of $0.7 million associated with the sale of land and building that was previously classified as assets held for sale. Refer to Note 17 in the consolidated financial statements for further discussion regarding closures and impairments recorded in 2020, 20192022, 2021 and 2018.2020. Goodwill. 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. 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 determination of impairment consists of two steps. First, weentity 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, ifIf 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 usedAt December 27, 2022, our Texas Roadhouse reporting unit had allocated goodwill of $148.7 million. No other reporting units had goodwill balances. In 2021, due to determine fair value are subjecta change in our management reporting structure, we changed the designation of our operating segment and reporting unit 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 estimatingbe at the fair value using the capitalization of earnings or discounted cash flows methods we consider the period of timeconcept level from the restaurant has been open,level. As a result of this change, in 2021, we performed the trend of operations over such periodgoodwill impairment analysis at both the individual restaurant and future periods, expectations of future sales growth and terminal value. Assumptions about importantconcept 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.
In performing the qualitative assessment, we reviewed 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, operationalmacroeconomic conditions, industry and market conditions that could impact fair value. The judgmentsconsiderations, cost factors, changes in management or key personnel, sustained decreases in share price 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 valueoverall financial performance 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 73Company’s reporting units primarily at the restaurant level, with allocated goodwillconcept level. As a result of $127.0 million. The average amountthe qualitative assessment, no indicators of goodwill associated with each reporting unit is $1.7 million with six reporting units having goodwillimpairment were identified, and no additional indicators of impairment were identified through the end of the fourth quarter that would require additional testing. Changes in excess of $4.0 million. In connection with our annual impairment analysis, we recordedcircumstances existing at the measurement date or at other times in the future could result in an impairment charge of $1.1 million relatedloss. Refer to two restaurant reporting units. Since we determine the fair value of goodwill at the restaurant level, any significant decreases in cash flows at these restaurants or others could further trigger impairment charges in the future. The fair value of each of our reporting units, excluding the two in which we recorded impairment charges in the current year, was substantially in excess of their respective carrying values as of the 2020 goodwill impairment test. See note 16Note 17 in the consolidated financial statements for further discussion regarding closures and impairments recorded, in 2020, 2019 and 2018.if any.
Effects of Inflation We have not operatedare currently operating in a period of high inflation, led primarily by commodity cost and wage and other labor inflation. Commodity cost inflation for the last several years; however, we have experienced materialis due to increased costs incurred by our vendors related to increased labor, transportation, packaging, and raw materials costs. Wage and other labor inflation is driven by higher wage and benefit expense due to by labor market pressures along with increases in certain commodity costs, specifically beef,state-mandated minimum and tipped wage rates and increased investment in our people. Some of the past. In addition, a significant numberimpacts of our employees are paid at rates related to the federal and/or state minimum or tipped wagesinflation have been offset by menu price increases 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 overmade during the past few years, in an effort to offset increases in our restaurant and operating costs resulting from inflation.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. ITEM 7A—QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK We are exposed to market risk from changes in interest rates on variable rate debt and changes in commodity prices. Our exposure to interest rate fluctuations is limited to our outstanding bank debt. On May 11, 2020, we amended the revolving credit facility to provide for an incremental revolving credit facility of up to $82.5 million and to modify the financial covenants through the end of our Q1 2021 fiscal quarter. The terms of the amended revolving credit facility require us to pay interest on outstanding borrowings at London Interbank Offering Rate ("LIBOR") plus a margin of 1.50%0.875% to 1.875% and to pay a commitment fee of 0.25%0.125% to 0.30% per year on any unused portion of the amended revolving credit facility, through the end ofin each case depending on our Q1 2021 fiscal quarter.leverage ratio. The amendmentamended revolving credit facility also provides an Alternate Base Rate that may be substituted for LIBOR. Subsequent to our Q1 2021 fiscal quarter, we are required to pay interest on outstanding borrowings at LIBOR plus a margin of 0.875% to 2.25% and to pay a commitment fee of 0.125% to 0.40% depending on our consolidated net leverage ratio. As of December 29, 2020,27, 2022, we had $190.0$50.0 million outstanding on our amended credit agreement. 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.
sheets.
The weighted-average interest rate for the $240.0$50.0 million of combined borrowingsoutstanding on our amended revolving credit facility as of December 29, 202027, 2022 was 1.98%5.21%. Should interest rates based on these variable rate borrowings increase by one percentage point, our estimated annual interest expense would increase by $2.4$0.5 million.
In an effort to secure high quality, low costlow-cost ingredients used in the products sold in our restaurants, we employ various purchasing and pricing contract techniques. When purchasing certain types of commodities, we may be subject to prevailing market conditions resulting in unpredictable price volatility. For certain commodities, we may also enter into contracts for terms of one year or less that are either fixed price agreements or fixed volume agreements where the price is negotiated with reference to fluctuating market prices. We currently do not use financial instruments to hedge commodity prices, but we will continue to evaluate their effectiveness. Extreme and/or long termlong-term increases in commodity prices could adversely affect our future results, especially if we are unable, primarily due to competitive reasons, to increase menu prices. Additionally, if there is a time lag between the increasing commodity prices and our ability to increase menu prices or if we believe the commodity price increase to be short in duration and we choose not to pass on the cost increases, our short-term financial results could be negatively affected. We are subject to business risk as our beef supply is highly dependent upon threefour vendors. To date, we have been able to properly manage any supply shortages but have experienced increased costs. If these vendors wereare unable to fulfill their obligations under their contracts, we may encounter further supply shortages and incurand/or higher costs to secure adequate supplies,supply and a possible loss of sales, any of which would harm our business. ITEM 8—FINANCIAL STATEMENTS AND SUPPLEMENTARY FINANCIAL DATA See Index to Consolidated Financial Statements at Item 15. ITEM 9—CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE None. ITEM 9A—CONTROLS AND PROCEDURES Evaluation of disclosure controls and procedures We have evaluated the effectiveness of the design and operation of our disclosure controls and procedures pursuant to, and as defined in, Rules 13a-15(e) and 15d-15(e)15d-15(e) under the Securities Exchange Act of 1934, as amended, as of the end of the period covered by this report. Based on the evaluation, performed under the supervision and with the participation of our management, including the Chief Executive Officer (the "CEO") and the Chief Financial Officer (the "CFO"), our management, including the CEO and CFO, concluded that our disclosure controls and procedures were effective as of December 29, 2020.27, 2022. Changes in internal control There were no significant changes toin the Company’s internal control over financial reporting that occurred during the quarter ended December 29, 202027, 2022 that materially affected or are reasonably likely to materially affect, ourthe Company’s internal control over financial reporting. Management’s Report on Internal Control over Financial Reporting Under Section 404 of the Sarbanes-Oxley Act of 2002, our management is required to assess the effectiveness of the Company’s internal control over financial reporting as of the end of each fiscal year and report, based on that assessment, whether the Company’s internal control over financial reporting is effective. Management of the Company is responsible for establishing and maintaining adequate internal control over financial reporting. As defined in Exchange Act Rule 13a-15(f), internal control over financial reporting is a process designed by, or under the supervision of, our principal executive and principal financial officers and effected by our Board of Directors, management and other personnel, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. Therefore, internal control over financial reporting determined to be effective can provide only reasonable assurance with respect to financial statement preparation and may not prevent or detect all misstatements. Under the supervision and with the participation of our management, including our CEO and CFO, we assessed the effectiveness of the Company’s internal control over financial reporting as of the end of the period covered by this report. In this assessment, the Company applied criteria based on the "Internal Control—Integrated Framework (2013)" issued by the Committee of Sponsoring Organizations of the Treadway Commission. These criteria are in the areas of control environment, risk assessment, control activities, information and communication, and monitoring. The Company’s assessment included documenting, evaluating and testing the design and operating effectiveness of its internal control over financial reporting. Based upon this evaluation, our management concluded that our internal control over financial reporting was effective as of December 29, 2020.27, 2022. KPMG LLP, the independent registered public accounting firm that audited our Consolidated Financial Statements included in the Annual Report on Form 10-K, has also audited the effectiveness of the Company’s internal control over financial reporting as of December 29, 202027, 2022 as stated in their report at F-3. ITEM 9B—OTHER INFORMATION None. ITEM 9C—DISCLOSURE REGARDING FOREIGN JURISDICTIONS THAT PREVENT INSPECTIONS
PART III ITEM 10—DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE 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 2, 2021.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 2, 2021.March 31, 2023. ITEM 11—EXECUTIVE COMPENSATION Incorporated by reference from our Definitive Proxy Statement to be dated on or about April 2, 2021.March 31, 2023. ITEM 12—SECURITY OWNERSHIP 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 2, 2021.March 31, 2023. Equity Compensation Plan Information As of December 29, 2020,27, 2022, shares of common stock authorized for issuance under our equity compensation plans are summarized in the following table. See noteRefer to Note 14 to the Consolidated Financial Statements for a description of the plans. | | | | | | | | | | | | | Shares to Be | | Shares | | | Shares to Be | | Shares | | | | Issued Upon | | Available for | | | Issued Upon | | Available for | | Plan Category | | Vest Date (1) | | Future Grants | | | Vest Date (1) | | Future Grants | | Plans approved by stockholders | | 872,563 | | 2,340,630 | | | 524,439 | | 6,598,721 | | Plans not approved by stockholders | | — | | — | | | — | | — | | Total | | 872,563 | | 2,340,630 | | | 524,439 | | 6,598,721 | |
(1) | Total number of shares consistsconsist of 793,563494,839 restricted stock units and 79,00029,600 performance stock units. Shares in this column are excluded from the Shares Available for Future Grants column. No stock options were outstanding as of December 29, 2020.27, 2022. |
ITEM 13—CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE Incorporated by reference from our Definitive Proxy Statement to be dated on or about April 2, 2021.March 31, 2023. ITEM 14—PRINCIPAL ACCOUNTINGACCOUNTANT FEES AND SERVICES Incorporated by reference from our Definitive Proxy Statement to be dated on or about April 2, 2021.March 31, 2023. PART IV ITEM 15—EXHIBITS, FINANCIAL STATEMENT SCHEDULES 1. | Consolidated Financial Statements |
| | | Description | | Page Number in Report | Reports of Independent Registered Public Accounting Firm (PCAOB ID: 185) | | F-1 | Consolidated Balance Sheets as of December 29, 202027, 2022 and December 31, 201928, 2021 | | F-5 | Consolidated Statements of Income and Comprehensive Income for the years ended December 29, 2020,27, 2022, December 31, 201928, 2021 and December 25, 201829, 2020 | | F-6 | Consolidated Statements of Stockholders’ Equity for the years ended December 29, 2020,27, 2022, December 31, 201928, 2021 and December 25, 201829, 2020 | | F-7 | Consolidated Statements of Cash Flows for the years ended December 29, 2020,27, 2022, December 31, 201928, 2021 and December 25, 201829, 2020 | | F-8 | Notes to Consolidated Financial Statements | | F-9 |
2. | Financial Statement Schedules |
Omitted due to inapplicability or because required information is shown in our Consolidated Financial Statements or notesNotes thereto. | | |
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Exhibit No. | | Description |
---|
3.1 | | Amended and Restated Certificate of Incorporation of Registrant (incorporated by reference to Exhibit 3.1 of the Registrant’s Quarterly Report on Form 10-Q for the period ended June 28, 2016) (File No. 000- 50972) | 3.2 | | Bylaws of Registrant (incorporated by reference to Exhibit 3.3 to the Registration Statement on Form S-1 of Registrant (File No. 333-115259)) | 4.1 | | Registration Rights Agreement, dated as of May 7, 2004, among Registrant and others (incorporated by reference to Exhibit 4.3 to the Registration Statement on Form S-1 of Registrant (File No. 333-115259))
| 4.2
|
| Description of Securities (incorporated by reference to Exhibit 4.2 to the Registrant’s Annual Report on Form 10-K for the year ended December 31, 2019 (File No. 000-50972)) | 10.110.1*
| | Form of Indemnification Agreement for Director and Executive Officer Indemnification Agreement (incorporated by reference to Exhibit 10.9 to the Registration Statement on Form S-1 of Registrant (File No. 333-115259)) | 10.2 | | Form of Limited Partnership Agreement and Operating Agreement for certain company-managed Texas Roadhouse restaurants, including schedule of the owners of such restaurants and the aggregate interests held by directors, executive officers and 5% stockholders who are parties to such an agreement (incorporated by reference to Exhibit 10.10 to the Registration Statement on Form S-1 of Registrant (File No. 333-115259)) | 10.3 | | Form of Franchise Agreement and Preliminary Agreement for a Texas Roadhouse restaurant franchise, including schedule of directors, executive officers and 5% stockholders which have entered into either agreement (incorporated by reference to Exhibit 10.14 to the Registration Statement on Form S-1 of Registrant (File No. 333-115259)) | 10.4 | | Schedule of the owners of company-managed Texas Roadhouse restaurants and the aggregate interests held by directors, executive officers and 5% stockholders who are parties to Limited Partnership Agreements and Operating Agreements as of December 29, 202027, 2022 the form of which is set forth in Exhibit 10.2 of this Form 10-K | 10.5 | | Schedule of the directors, executive officers and 5% stockholders which have entered into Franchise Agreements or Preliminary Agreements for a Texas Roadhouse Franchise as of December 29, 202027, 2022 the form of which is set forth in Exhibit 10.3 of this Form 10-K | 10.6* | | Texas Roadhouse, Inc. 2013 Long-Term Incentive Plan (incorporated by reference from Appendix A to the Texas Roadhouse, Inc. Proxy Statement on Schedule 14A filed with the Securities and Exchange Commission on April 5, 2013 (File No. 000-50972)) |
| | |
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Exhibit No. | | Description |
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10.8* | | Texas Roadhouse, Inc. Cash Bonus Plan for cash incentive awards granted pursuant to the Texas Roadhouse, Inc. 2013 Long-Term Incentive Plan (incorporated by reference to Exhibit 10.3 of Registrant’s Quarterly Report on Form 10-Q for the quarter ended June 25, 2013 (File No. 000-50972)) | 10.9* | | Employment Agreement between the Registrant and W. Kent Taylor entered into as of December 26, 2017 (incorporated by reference to Exhibit 10.25 to the Registrant’s Annual Report on Form 10-K for the year ended December 25, 2018 (File No. 000-50972))
| 10.10*
|
| Employment Agreement between the Registrant and S. Chris Jacobsen entered into as of December 26, 2017 (incorporated by reference to Exhibit 10.28 to the Registrant’s Annual Report on Form 10-K for the year ended December 26, 2017 (File No. 000-50972))
| 10.11*
|
| Form of Performance Stock Unit Award Agreement under the Texas Roadhouse, Inc. 2013 Long-Term Incentive Plan (incorporated by reference to Exhibit 10.36 to the Registrant’s Annual Report on Form 10-K for the year ended December 29, 2015 (File No. 000-50972)) | 10.12*
|
| Employment Agreement between Texas Roadhouse Management Corp. and Tonya Robinson entered into as of May 18, 2018 (incorporated by reference to Exhibit 10.2 to the Registrant’s Quarterly Report on Form 10-Q for the quarter ended June 26, 2018 (File No. 000-50972))
| 10.13*
|
| Employment Agreement between Texas Roadhouse Management Corp. and Doug Thompson entered into as of August 23, 2018 (incorporated by reference to Exhibit 10.1 to the Registrant’s Quarterly Report on Form 10-Q for the quarter ended September 25, 2018 (File No. 000-50972))
| 10.14*10.10*
| | Amended and Restated Form of Restricted Stock Unit Award Agreement under the Texas Roadhouse, Inc. 2013 Long-Term Incentive Plan for officers (incorporated by reference to Exhibit 10.40 to the Registrant’s Annual Report on Form 10-K for the year ended December 30, 2014 (File No. 000-50972)) | 10.15*10.11*
| | Amended and Restated Form of Restricted Stock Unit Award Agreement under the Texas Roadhouse, Inc. 2013 Long-Term Incentive Plan for non-officers (incorporated by reference to Exhibit 10.41 to the Registrant’s Annual Report on Form 10-K for the year ended December 30, 2014 (File No. 000-50972)) | 10.16*10.12*
| | Second Amended and Restated Deferred Compensation Plan of Texas Roadhouse Management Corp., as amended December 19, 2007 and December 31, 2008 (incorporated by reference to Exhibit 10.42 to the Registrant’s Annual Report on Form 10-K for the year ended December 30, 2014 (File No. 000-50972)) | 10.17*10.13*
| | Third Amended and Restated Deferred Compensation Plan of Texas Roadhouse Management Corp., effective January 1, 2010 (incorporated by reference to Exhibit 10.43 to the Registrant’s Annual Report on Form 10-K for the year ended December 30, 2014 (File No. 000-50972)) | 10.18*10.14*
| | Form of Nonqualified Stock Option Agreement under Texas Roadhouse, Inc. 2013 Long-Term Incentive Plan (incorporated by reference to Exhibit 10.47 to the Registrant’s Annual Report on Form 10-K for the year ended December 29, 2015 (File No. 000-50972)) | 10.1910.15
| | Master Lease Agreement dated October 26, 2018 between Paragon Centre Holdings, LLC and Texas Roadhouse Holdings LLC (incorporated by reference to Exhibit 10.2 to the Registrant’s Quarterly Report on Form 10-Q for the quarter ended September 25, 2018 (File No. 000-50972)) | 10.20
|
| Consent Decree dated March 31, 2017, among Texas Roadhouse, Inc., Texas Roadhouse Holdings LLC, Texas Roadhouse Management Corp. and the EEOC (incorporated by reference to Exhibit 10.1 to the Registrant’s Current Report on Form 8-K dated March 31, 2017 (File No. 000-50972))
| 10.2310.16
| | Amended and Restated Credit Agreement dated as of August 7, 2017, by and among Texas Roadhouse Inc., and the lenders named therein and JPMorgan Chase Bank, N.A., as Administrative Agent (incorporated by reference to Exhibit 10.1 to the Registrant’s Current Report on Form 8-K dated August 7, 2017 (File No. 000-50972)) | 10.24*
|
| Consulting Agreement and General Release of Claims between Scott M. Colosi and Texas Roadhouse, Inc., Texas Roadhouse Holdings LLC and Texas Roadhouse Management Corp. entered into July 3, 2019 (incorporated by reference to Exhibit 10.1 to Registrant’s Current Report on Form 8-K dated July 3, 2019 (File No. 000-50972))
|
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Exhibit No.
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| Description
|
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10.25*
|
| Executive Transition and Consulting Agreement between Celia Catlett and Texas Roadhouse, Inc., Texas Roadhouse Holdings LLC and Texas Roadhouse Management Corp. entered into on August 21, 2019 (incorporated by reference to Exhibit 10.1 to Registrant’s Current Report on Form 8-K dated August 21, 2019 (File No. 000-50972))
| 10.2610.17
| | Assignment and Assumption Agreement between Texas Roadhouse Holdings LLC and Texas Roadhouse, Inc. dated October 26, 2018 (incorporated by reference to Exhibit 10.27 to the Registrant’s Annual Report on Form 10-K for the year ended December 31, 2019 (File No. 000-50972)) | 10.2710.18
| | First Amendment to Paragon Centre Master Lease Agreement between Paragon Centre Holdings, LLC and Texas Roadhouse, Inc. dated December 13, 2019 (incorporated by reference to Exhibit 10.28 to the Registrant’s Annual Report on Form 10-K for the year ended December 31, 2019 (File No. 000-50972)) | 10.28*
|
| First Amendment to 2018 Employment Agreement between Texas Roadhouse Management Corp. and W. Kent Taylor dated March 24, 2020 (incorporated by reference to Exhibit 10.1 the Registrant's Current Report on 8-K dated March 24, 2020 (File No. 000-50972))
| 10.29*
|
| First Amendment to 2018 Employment Agreement between Texas Roadhouse Management Corp. and Doug Thompson dated April 6, 2020 (incorporated by reference to Exhibit 10.1 to the Registrant's Current Report on 8-K dated April 6, 2020 (File No. 000-50972))
| 10.30*
|
| First Amendment to 2018 Employment Agreement between Texas Roadhouse Management Corp. and S. Chris Jacobsen dated April 6, 2020 (incorporated by reference to Exhibit 10.2 to the Registrant's Current Report on 8-K dated April 6, 2020 (File No. 000-50972))
| 10.31*
|
| First Amendment to 2018 Employment Agreement between Texas Roadhouse Management Corp. and Tonya Robinson dated April 6, 2020 (incorporated by reference to Exhibit 10.3 to the Registrant's Current Report on 8-K dated April 6, 2020 (File No. 000-50972))
| 10.3210.19
| | First Amendment to Amended and Restated Credit Agreement, dated as of May 11, 2020, by and among Texas Roadhouse, Inc., and the lenders named therein and JPMorgan Chase Bank, N.A. as Administrative Agent (incorporated by reference to Exhibit 10.1 to the Registrant's Current Report on 8-K dated May 11, 2020 (File No. 000-50972)) | 10.33*10.20*
| | Employment Agreement between Registrant and Gerald L. 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. 000-50972)) | 10.34*
|
| Employment Agreement between Registrant and W. Kent Taylor entered into as of December 30, 2020
| 10.35*
|
| Employment Agreement between Registrant and Doug Thompson entered into as of December 30, 2020
| 10.36*10.21*
| | Employment Agreement between Registrant and S. Chris Jacobsen entered into as of December 30, 2020 (incorporated by reference to Exhibit 10.36 to the Registrant’s Annual Report on Form 10-K for the year ended December 29, 2020 (File No. 000-50972)) | 10.37*10.22*
| | Employment Agreement between Registrant and Tonya Robinson entered into as of December 30, 2020 (incorporated by reference to Exhibit 10.37 to the Registrant’s Annual Report on Form 10-K for the year ended December 29, 2020 (File No. 000-50972)) | 10.23* | | Employment Agreement between Registrant and Christopher C. Colson entered into as of March 31, 2021 (incorporated by reference to Exhibit 10.6 of the Registrant’s Quarterly Report on Form 10-Q for the period ended March 30, 2021 (File No. 000- 50972)) |
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Exhibit No. | | Description |
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10.24* | | First Amendment to Employment Agreement between Texas Roadhouse Management Corp. and Gerald L. Morgan dated March 31, 2021, with a retroactive effective date of March 18, 2021 (incorporated by reference to Exhibit 10.1 to the Registrant's Current Report on Form 8-K dated March 31, 2021 (File No. 000-50972)) | 10.25* | | Employment Agreement between Registrant and Regina A. Tobin entered into as of June 15, 2021 with an effective date of June 30, 2021 (incorporated by reference to Exhibit 10.3 of the Registrant’s Quarterly Report on Form 10-Q for the period ended June 29, 2021 (File No. 000- 50972)) | 10.26* | | Employment Agreement between Registrant and Hernan E. Mujica entered into as of June 15, 2021 with an effective date of June 30, 2021 (incorporated by reference to Exhibit 10.4 of the Registrant’s Quarterly Report on Form 10-Q for the period ended June 29, 2021 (File No. 000- 50972)) | 10.27 | | Second Amendment to Amended and Restated Credit Agreement dated as of May 4, 2021 by and among Texas Roadhouse, Inc. and the lenders named therein and JPMorgan Chase Bank, N.A. as Administrative Agent (incorporated by reference to Exhibit 10.1 to the Registrant's Current Report on Form 8-K dated May 4, 2021 (File No. 000-50972) | 10.28* | | Texas Roadhouse, Inc. 2021 Long-Term Incentive Plan (incorporated by reference from Appendix A to the Texas Roadhouse, Inc. Proxy Statement on Schedule 14A filed with the Securities and Exchange Commission on April 2, 2021 (File No. 000-50972)) | 10.29* | | Form of Texas Roadhouse, Inc. 2021 Long-Term Incentive Plan Performance Stock Unit Award Agreement (incorporated by reference to Exhibit 10.1 of Registrant's Current Report on Form 8-K dated June 15, 2021 (File No. 000-50972)) | 10.30* | | Form of Texas Roadhouse, Inc. 2021 Long-Term Incentive Plan Restricted Stock Unit Award Agreement (Officers) (incorporated by reference to Exhibit 10.1 of Registrant's Current Report on Form 8-K dated June 15, 2021 (File No. 000-50972)) | 10.31* | | Form of Texas Roadhouse, Inc. 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. 000-50972)) | 10.32* | | 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. 000-50972)) | 10.33* | | 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. 000-50972)) | 10.34* | | 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. 000-50972)) | 10.35* | | 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. 000-50972)) | 10.36* | | 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. 000-50972)) | 21.1 | | List of Subsidiaries | 23.1 | | Consent of KPMG LLP, Independent Registered Public Accounting Firm | 31.1 | | Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 | 31.2 | | Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 | 32.1 | | Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 | 32.2 | | Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 |
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Exhibit No. | | Description |
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101 | | The following financial statements from the Texas Roadhouse, Inc. Annual Report on Form 10-K for the year ended December 29, 2020,27, 2022, filed February 26, 2021,24, 2023, formatted in inline eXtensible Business Reporting Language (iXBRL): (i) Consolidated Balance Sheets, (ii) Consolidated Statements of Income and Comprehensive Income, (iii) Consolidated Statements of Stockholders’ Equity, (iv) Consolidated Statements of Cash Flows, and (v) the Notes to the Consolidated Financial Statements. | 104 | | Cover page, formatted in iXBRL and contained in Exhibit 101. |
* | Management contract or compensatory plan or arrangement required to be filed as an exhibit to Form 10-K. |
ITEM 16. FORM 10-K SUMMARY Not applicable.
SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, as amended, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. | TEXAS ROADHOUSE, INC. | | | | By: | /s/ W. Kent TaylorGerald L. Morgan | | | W. Kent Taylor
| | | Chairman of the Company, Chief Executive
|
|
| Officer, Director | | Date: February 26, 202124, 2023 |
Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, this Annual Report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated. Signature | | Title | | Date | | | | | | /s/ W. Kent TaylorGerald L. Morgan W. Kent TaylorGerald L. Morgan | | Chairman of the Company, Chief Executive Officer, Director
(Principal Executive Officer) | | February 26, 202124, 2023 | | | | | | /s/ Tonya R. RobinsonKeith V. Humpich Tonya R. RobinsonKeith V. Humpich
| | Interim Chief Financial Officer (Principal Financial Officer) (Principal Accounting Officer) | | February 26, 202124, 2023 | | | | | | /s/ Gregory N. Moore | | Chairman of the Board, Director | | February 24, 2023 | Gregory N. Moore | | | | | | | | | | /s/ Michael A. Crawford Michael A. Crawford | | Director | | February 26, 202124, 2023 | | | | | | /s/ Gregory N. MooreDonna E. Epps Gregory N. Moore
| | Director | | February 26, 202124, 2023 | Donna E. Epps | | | | | | | | | | /s/ Curtis A. Warfield | | Director | | February 26, 202124, 2023 | Curtis A. Warfield | | | | | | | | | | /s/ Kathleen M. Widmer Kathleen M. Widmer | | Director | | February 26, 202124, 2023 | | | | | | /s/ James R. Zarley James R. Zarley | | Director | | February 26, 202124, 2023 | | | | | | |
Report of Independent Registered Public Accounting Firm
To the Stockholders and Board of Directors Texas Roadhouse, Inc.: Opinion on the Consolidated Financial Statements We have audited the accompanying consolidated balance sheets of Texas Roadhouse, Inc. and subsidiaries (the Company) as of December 29, 202027, 2022 and December 31, 2019,28, 2021, the related consolidated statements of income and comprehensive income, stockholders’ equity, and cash flows for each of the years in the three-year period ended December 29, 2020,27, 2022, and the related notes (collectively, the consolidated financial statements). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company as of December 29, 202027, 2022 and December 31, 2019,28, 2021, and the results of its operations and its cash flows for each of the years in the three-year period ended December 29, 2020,27, 2022, in conformity with U.S. generally accepted accounting principles. We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company’s internal control over financial reporting as of December 29, 2020,27, 2022, based on criteria established in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission, and our report dated February 26, 202124, 2023 expressed an unqualified opinion on the effectiveness of the Company’s internal control over financial reporting. Change in Accounting Principle
As discussed in Note 2 to the consolidated financial statements, effective December 26, 2018, the Company changed its method of accounting for leases due to the adoption of Financial Accounting Standards Board Accounting Standard Codification Topic 842, Leases.
Basis for Opinion These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that our audits provide a reasonable basis for our opinion. Critical Audit Matter The critical audit matter communicated below is a matter arising from the current period audit of the consolidated financial statements that was communicated or required to be communicated to the audit committee and that: (1) relates to accounts or disclosures that are material to the consolidated financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of a critical audit matter does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates. Potential indicators of impairment of long-lived assets
As discussed in Notes 2 and 1617 to the consolidated financial statements, the Company assesses long-lived assets, primarily related to restaurants held and used in the business, including property and equipment and right-of-use assets, for potential impairment whenever events or changes in circumstances indicate that the carrying amount of a restaurant, or asset group, may not be recoverable. Trailing 12-month cash flows under predetermined amounts at the individual restaurant level are the Company’s primary indicator that the carrying amount of a restaurant may not be recoverable. Property and equipment, net of accumulated depreciation, and the operating lease right-of-use asset, net as of December 29, 202027, 2022 were $1,088.6$1,270.3 million and $530.6$630.3 million, respectively. We identified the assessment of the Company’s determination of potential indicators of impairment of long-lived assets as a critical audit matter. Subjective auditor judgement was required to evaluate the events or circumstances indicating the carrying amount of an asset group may not be recoverable, including the determination of the cash flow thresholds and the utilization of the trailing 12-month cash flows to identify a potential impairment trigger, and the consideration of the impact of the pandemic on the Company’s cash flows. trigger.
The following are the primary procedures we performed to address this critical audit matter. We evaluated the design and tested the operating effectiveness of certain internal controls over the Company’s long-lived asset impairment process, including controls relating to determination and identification of potential indicators of impairment. We evaluated the Company’s methodology of using trailing 12-month cash flow results under predetermined thresholds at the individual restaurant level as a potential indicator of impairment. Specifically, we evaluated the Company’s assessment of the factors considered, including the cash flows at the individual restaurant level and the cash flow thresholds used in the Company’s analysis, as well as the impact of the pandemic.analysis. We tested that those restaurants with trailing 12-month cash flows were evaluated for potential impairment triggers and we compared the trailing 12-month cash flows to historical financial data. We also assessed other events and circumstances that could have been indicative of a potential impairment trigger by reviewing management’s development reports and related meeting minutes and the board of directors meeting minutes.
/s/ KPMG LLP We have served as the Company’s auditor since 1998. Louisville, Kentucky February 26, 2021
24, 2023
Report of Independent Registered Public Accounting Firm To the Stockholders and Board of Directors Texas Roadhouse, Inc.: Opinion on Internal Control Over Financial Reporting We have audited Texas Roadhouse, Inc. and subsidiariessubsidiaries’ (the Company) internal control over financial reporting as of December 29, 2020,27, 2022, based on criteria established in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission. In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 29, 2020,27, 2022, based on criteria established in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission. We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated balance sheets of the Company as of December 29, 202027, 2022 and December 31, 2019,28, 2021, the related consolidated statements of income and comprehensive income, stockholders’ equity, and cash flows for each of the years in the three-year period ended December 29, 2020,27, 2022, and the related notes (collectively, the consolidated financial statements), and our report dated February 26, 202124, 2023 expressed an unqualified opinion on those consolidated financial statements. Basis for Opinion The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management’s Report on Internal Control over Financial Reporting appearing under Item 9A.Reporting. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audit also included performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion. Definition and Limitations of Internal Control Over Financial Reporting A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. /s/ KPMG LLP Louisville, Kentucky February 26, 202124, 2023
Texas Roadhouse, Inc. and Subsidiaries Consolidated Balance Sheets (in thousands, except share and per share data) | | | | | | | | | | | | | | | | | | | | December 29, 2020 | | December 31, 2019 | | | | December 27, 2022 | | December 28, 2021 | | Assets | | | | | | | | | | | | | | | | | Current assets: | | | | | | | | | | | | | | | | | Cash and cash equivalents | | | $ | 363,155 | | $ | 107,879 | | | | $ | 173,861 | | $ | 335,645 | | Receivables, net of allowance for doubtful accounts of $11 at December 29, 2020 and $12 at December 31, 2019 | | | | 98,418 | | | 99,305 | | | Receivables, net of allowance for doubtful accounts of $50 at December 27, 2022 and $17 at December 28, 2021 | | | | | 150,264 | | | 161,358 | | Inventories, net | | | | 22,364 | | | 20,267 | | | | | 38,015 | | | 31,595 | | Prepaid income taxes | | | | 4,502 | | | 2,015 | | | | | 5,097 | | | 10,701 | | Prepaid expenses and other current assets | | | | 22,212 | | | 18,433 | | | | | 29,604 | | | 24,226 | | Total current assets | | | | 510,651 | | | 247,899 | | | | | 396,841 | | | 563,525 | | Property and equipment, net of accumulated depreciation of $763,700 at December 29, 2020 and $678,988 at December 31, 2019 | | | | 1,088,623 | | | 1,056,563 | | | Property and equipment, net of accumulated depreciation of $968,036 at December 27, 2022 and $869,375 at December 28, 2021 | | | | | 1,270,349 | | | 1,162,441 | | Operating lease right-of-use assets, net | | | | 530,625 | | | 499,801 | | | | | 630,258 | | | 578,413 | | Goodwill | | | | 127,001 | | | 124,748 | | | | | 148,732 | | | 127,001 | | Intangible assets, net of accumulated amortization of $14,341 at December 29, 2020 and $14,141 at December 31, 2019 | | | | 2,271 | | | 1,234 | | | Intangible assets, net of accumulated amortization of $17,905 at December 27, 2022 and $15,092 at December 28, 2021 | | | | | 5,607 | | | 1,520 | | Other assets | | | | 65,990 | | | 53,320 | | | | | 73,878 | | | 79,052 | | Total assets | | | $ | 2,325,161 | | $ | 1,983,565 | | | | $ | 2,525,665 | | $ | 2,511,952 | | Liabilities and Stockholders’ Equity | | | | | | | | | | | | | | | | | Current liabilities: | | | | | | | | | | | | | | | | | Current portion of operating lease liabilities | | | $ | 19,271 | | $ | 17,263 | | | | $ | 25,490 | | $ | 21,952 | | Current maturities of long-term debt | | | | 50,000 | | | — | | | Accounts payable | | | | 66,977 | | | 61,653 | | | | | 105,560 | | | 95,234 | | Deferred revenue-gift cards | | | | 232,812 | | | 209,258 | | | | | 335,403 | | | 300,657 | | Accrued wages and payroll taxes | | | | 51,982 | | | 39,699 | | | | | 54,544 | | | 64,716 | | Income taxes payable | | | | 2,859 | | | — | | | | | 434 | | | 85 | | Accrued taxes and licenses | | | | 24,751 | | | 30,433 | | | | | 35,264 | | | 33,375 | | Other accrued liabilities | | | | 57,666 | | | 58,914 | | | | | 95,315 | | | 86,125 | | Total current liabilities | | | | 506,318 | | | 417,220 | | | | | 652,010 | | | 602,144 | | Operating lease liabilities, net of current portion | | | | 572,171 | | | 538,710 | | | | | 677,874 | | | 622,892 | | Long-term debt | | | | 190,000 | | | — | | | | | 50,000 | | | 100,000 | | Restricted stock and other deposits | | | | 7,481 | | | 8,249 | | | | | 7,979 | | | 8,027 | | Deferred tax liabilities, net | | | | 2,802 | | | 22,695 | | | | | 20,979 | | | 11,734 | | Other liabilities | | | | 103,338 | | | 65,522 | | | | | 89,161 | | | 93,671 | | Total liabilities | | | | 1,382,110 | | | 1,052,396 | | | | | 1,498,003 | | | 1,438,468 | | Texas Roadhouse, Inc. and subsidiaries stockholders’ equity: | | | | | | | | | | | | | | | | | Preferred stock ($0.001 par value, 1,000,000 shares authorized; 0 shares issued or outstanding) | | | | — | | | — | | | Common stock ($0.001 par value, 100,000,000 shares authorized, 69,561,861 and 69,400,252 shares issued and outstanding at December 29, 2020 and December 31, 2019, respectively) | | | | 70 | | | 69 | | | Preferred stock ($0.001 par value, 1,000,000 shares authorized; no shares issued or outstanding) | | | | | — | | | — | | Common stock ($0.001 par value, 100,000,000 shares authorized, 66,973,311 and 69,382,418 shares issued and outstanding at December 27, 2022 and December 28, 2021, respectively) | | | | | 67 | | | 69 | | Additional paid-in-capital | | | | 145,626 | | | 140,501 | | | | | 13,139 | | | 114,504 | | Retained earnings | | | | 781,915 | | | 775,649 | | | | | 999,432 | | | 943,551 | | Accumulated other comprehensive loss | | | | (106) | | | (225) | | | Total Texas Roadhouse, Inc. and subsidiaries stockholders’ equity | | | | 927,505 | | | 915,994 | | | | | 1,012,638 | | | 1,058,124 | | Noncontrolling interests | | | | 15,546 | | | 15,175 | | | | | 15,024 | | | 15,360 | | Total equity | | | | 943,051 | | | 931,169 | | | | | 1,027,662 | | | 1,073,484 | | Total liabilities and equity | | | $ | 2,325,161 | | $ | 1,983,565 | | | | $ | 2,525,665 | | $ | 2,511,952 | |
See accompanying notesNotes to Consolidated Financial Statements. Texas Roadhouse, Inc. and Subsidiaries Consolidated Statements of Income and Comprehensive Income (in thousands, except per share data) | | | | | | | | | | | | | | | Fiscal Year Ended | | | | | December 29, | | December 31, | | December 25, | | | | | 2020 | | 2019 | | 2018 | | Revenue: | | | | | | | | | | | | Restaurant and other sales | | | $ | 2,380,177 | | $ | 2,734,177 | | $ | 2,437,115 | | Franchise royalties and fees | | | | 17,946 | | | 21,986 | | | 20,334 | | Total revenue | | | | 2,398,123 | | | 2,756,163 | | | 2,457,449 | | Costs and expenses: | | | | | | | | | | | | Restaurant operating costs (excluding depreciation and amortization shown separately below): | | | | | | | | | | | | Food and beverage | | | | 780,646 | | | 883,357 | | | 795,300 | | Labor | | | | 875,764 | | | 905,614 | | | 793,384 | | Rent | | | | 54,401 | | | 52,531 | | | 48,791 | | Other operating | | | | 403,726 | | | 418,448 | | | 375,477 | | Pre-opening | | | | 20,099 | | | 20,156 | | | 19,051 | | Depreciation and amortization | | | | 117,877 | | | 115,544 | | | 101,216 | | Impairment and closure, net | | | | 2,263 | | | (899) | | | 278 | | General and administrative | | | | 119,503 | | | 149,389 | | | 136,163 | | Total costs and expenses | | | | 2,374,279 | | | 2,544,140 | | | 2,269,660 | | Income from operations | | | | 23,844 | | | 212,023 | | | 187,789 | | Interest expense (income), net | | | | 4,091 | | | (1,514) | | | 591 | | Equity (loss) income from investments in unconsolidated affiliates | | | | (500) | | | 378 | | | 1,353 | | Income before taxes | | | | 19,253 | | | 213,915 | | | 188,551 | | Income tax (benefit) expense | | | | (15,672) | | | 32,397 | | | 24,257 | | Net income including noncontrolling interests | | | | 34,925 | | | 181,518 | | | 164,294 | | Less: Net income attributable to noncontrolling interests | | | | 3,670 | | | 7,066 | | | 6,069 | | Net income attributable to Texas Roadhouse, Inc. and subsidiaries | | | $ | 31,255 | | $ | 174,452 | | $ | 158,225 | | Other comprehensive income (loss), net of tax: | | | | | | | | | | | | Foreign currency translation adjustment, net of tax of ($40), ($1) and $53, respectively | | | | 119 | | | 3 | | | (189) | | Total comprehensive income | | | $ | 31,374 | | $ | 174,455 | | $ | 158,036 | | Net income per common share attributable to Texas Roadhouse, Inc. and subsidiaries: | | | | | | | | | | | | Basic | | | $ | 0.45 | | $ | 2.47 | | $ | 2.21 | | Diluted | | | $ | 0.45 | | $ | 2.46 | | $ | 2.20 | | Weighted average shares outstanding: | | | | | | | | | | | | Basic | | | | 69,438 | | | 70,509 | | | 71,467 | | Diluted | | | | 69,893 | | | 70,916 | | | 71,964 | | Cash dividends declared per share | | | $ | 0.36 | | $ | 1.20 | | $ | 1.00 | |
| | | | | | | | | | | | | | | Fiscal Year Ended | | | | | December 27, | | December 28, | | December 29, | | | | | 2022 | | 2021 | | 2020 | | Revenue: | | | | | | | | | | | | Restaurant and other sales | | | $ | 3,988,791 | | $ | 3,439,176 | | $ | 2,380,177 | | Franchise royalties and fees | | | | 26,128 | | | 24,770 | | | 17,946 | | Total revenue | | | | 4,014,919 | | | 3,463,946 | | | 2,398,123 | | Costs and expenses: | | | | | | | | | | | | Restaurant operating costs (excluding depreciation and amortization shown separately below): | | | | | | | | | | | | Food and beverage | | | | 1,378,192 | | | 1,156,628 | | | 780,646 | | Labor | | | | 1,319,959 | | | 1,123,003 | | | 875,764 | | Rent | | | | 66,834 | | | 60,005 | | | 54,401 | | Other operating | | | | 596,305 | | | 517,808 | | | 403,726 | | Pre-opening | | | | 21,883 | | | 24,335 | | | 20,099 | | Depreciation and amortization | | | | 137,237 | | | 126,761 | | | 117,877 | | Impairment and closure, net | | | | 1,600 | | | 734 | | | 2,263 | | General and administrative | | | | 172,712 | | | 157,480 | | | 119,503 | | Total costs and expenses | | | | 3,694,722 | | | 3,166,754 | | | 2,374,279 | | Income from operations | | | | 320,197 | | | 297,192 | | | 23,844 | | Interest expense, net | | | | 124 | | | 3,663 | | | 4,091 | | Equity income (loss) from investments in unconsolidated affiliates | | | | 1,239 | | | (637) | | | (500) | | Income before taxes | | | | 321,312 | | | 292,892 | | | 19,253 | | Income tax expense (benefit) | | | | 43,715 | | | 39,578 | | | (15,672) | | Net income including noncontrolling interests | | | | 277,597 | | | 253,314 | | | 34,925 | | Less: Net income attributable to noncontrolling interests | | | | 7,779 | | | 8,020 | | | 3,670 | | Net income attributable to Texas Roadhouse, Inc. and subsidiaries | | | $ | 269,818 | | $ | 245,294 | | $ | 31,255 | | Other comprehensive income, net of tax: | | | | | | | | | | | | Foreign currency translation adjustment, net of tax of $—, ($36) and ($40), respectively | | | | — | | | 106 | | | 119 | | Total comprehensive income | | | $ | 269,818 | | $ | 245,400 | | $ | 31,374 | | Net income per common share attributable to Texas Roadhouse, Inc. and subsidiaries: | | | | | | | | | | | | Basic | | | $ | 3.99 | | $ | 3.52 | | $ | 0.45 | | Diluted | | | $ | 3.97 | | $ | 3.50 | | $ | 0.45 | | Weighted average shares outstanding: | | | | | | | | | | | | Basic | | | | 67,643 | | | 69,709 | | | 69,438 | | Diluted | | | | 67,920 | | | 70,098 | | | 69,893 | | Cash dividends declared per share | | | $ | 1.84 | | $ | 1.20 | | $ | 0.36 | |
See accompanying notesNotes to Consolidated Financial Statements. Texas Roadhouse, Inc. and Subsidiaries Consolidated Statements of Stockholders’ Equity (tabular amounts in thousands, except share data) | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Accumulated | | Total Texas | | | | | | | | | | | | | | | | | Additional | | | | | Other | | Roadhouse, Inc. | | | | | | | | | | | | | | | | | | | | Accumulated | | Total Texas | | | | | | | | | | | | Par | | Paid-in- | | Retained | | Comprehensive | | and | | Noncontrolling | | | | | | | | | | | Additional | | | | | Other | | Roadhouse, Inc. | | | | | | | | | | Shares | | Value | | Capital | | Earnings | | Loss | | Subsidiaries | | Interests | | Total | | | | | Par | | Paid-in- | | Retained | | Comprehensive | | and | | Noncontrolling | | | | | Balance, December 26, 2017 | | 71,168,897 | | $ | 71 | | $ | 236,548 | | $ | 602,499 | | $ | (39) | | $ | 839,079 | | $ | 12,312 | | $ | 851,391 | | | Net income | | — | | | — | | | — | | | 158,225 | | | — | | | 158,225 | | | 6,069 | | | 164,294 | | | Other comprehensive loss, net of tax | | — | | | — | | | — | | | — | | | (189) | | | (189) | | | — | | | (189) | | | Noncontrolling interests contribution | | — | | | — | | | — | | | — | | | — | | | — | | | 2,551 | | | 2,551 | | | Distributions to noncontrolling interest holders | | — | | | — | | | — | | | — | | | — | | | — | | | (5,746) | | | (5,746) | | | Acquisition of noncontrolling interest | | — | | | — | | | (75) | | | | | | | | | (75) | | | (47) | | | (122) | | | Contribution from executive officer | | — | | | — | | | 1,000 | | | | | | | | | 1,000 | | | — | | | 1,000 | | | Dividends declared ($1.00 per share) | | — | | | — | | | — | | | (71,509) | | | — | | | (71,509) | | | — | | | (71,509) | | | Shares issued under share-based compensation plans including tax effects | | 684,804 | | | 1 | | | (1) | | | — | | | — | | | — | | | — | | | — | | | Indirect repurchase of shares for minimum tax withholdings | | (236,191) | | | — | | | (14,067) | | | — | | | — | | | (14,067) | | | — | | | (14,067) | | | Cumulative effect of adoption of ASC 606, Revenue from Contracts with Customers, net of tax | | — | | | — | | | — | | | (878) | | | — | | | (878) | | | — | | | (878) | | | Share-based compensation | | — | | | — | | | 33,983 | | | — | | | — | | | 33,983 | | | — | | | 33,983 | | | Balance, December 25, 2018 | | 71,617,510 | | $ | 72 | | $ | 257,388 | | $ | 688,337 | | $ | (228) | | $ | 945,569 | | $ | 15,139 | | $ | 960,708 | | | Net income | | — | | | — | | | — | | | 174,452 | | | — | | | 174,452 | | | 7,066 | | | 181,518 | | | Other comprehensive income, net of tax | | — | | | — | | | — | | | — | | | 3 | | | 3 | | | — | | | 3 | | | Distributions to noncontrolling interest holders | | — | | | — | | | — | | | — | | | — | | | — | | | (6,357) | | | (6,357) | | | Acquisition of noncontrolling interest and other | | — | | | — | | | (70) | | | — | | | — | | | (70) | | | (673) | | | (743) | | | Dividends declared ($1.20 per share) | | — | | | — | | | — | | | (84,462) | | | — | | | (84,462) | | | — | | | (84,462) | | | Shares issued under share-based compensation plans including tax effects | | 617,395 | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | Indirect repurchase of shares for minimum tax withholdings | | (209,408) | | | — | | | (12,471) | | | — | | | — | | | (12,471) | | | — | | | (12,471) | | | Repurchase of shares of common stock | | (2,625,245) | | | (3) | | | (139,846) | | | — | | | — | | | (139,849) | | | — | | | (139,849) | | | Cumulative effect of adoption of ASC 842, Leases, net of tax | | — | | | — | | | — | | | (2,678) | | | — | | | (2,678) | | | — | | | (2,678) | | | Share-based compensation | | — | | | — | | | 35,500 | | | — | | | — | | | 35,500 | | | — | | | 35,500 | | | | | | Shares | | Value | | Capital | | Earnings | | Loss | | Subsidiaries | | Interests | | Total | | Balance, December 31, 2019 | | 69,400,252 | | $ | 69 | | $ | 140,501 | | $ | 775,649 | | $ | (225) | | $ | 915,994 | | $ | 15,175 | | $ | 931,169 | | | 69,400,252 | | $ | 69 | | $ | 140,501 | | $ | 775,649 | | $ | (225) | | $ | 915,994 | | $ | 15,175 | | $ | 931,169 | | Net income | | — | | | — | | | — | | | 31,255 | | | — | | | 31,255 | | | 3,670 | | | 34,925 | | | — | | | — | | | — | | | 31,255 | | | — | | | 31,255 | | | 3,670 | | | 34,925 | | Other comprehensive income, net of tax | | — | | | — | | | — | | | — | | | 119 | | | 119 | | | — | | | 119 | | | — | | | — | | | — | | | — | | | 119 | | | 119 | | | — | | | 119 | | Noncontrolling interests contribution | | — | | | — | | | — | | | — | | | — | | | — | | | 133 | | | 133 | | | Noncontrolling interest contribution | | | — | | | — | | | — | | | — | | | — | | | — | | | 133 | | | 133 | | Distributions to noncontrolling interest holders | | — | | | — | | | — | | | — | | | — | | | — | | | (3,432) | | | (3,432) | | | — | | | — | | | — | | | — | | | — | | | — | | | (3,432) | | | (3,432) | | Dividends declared ($0.36 per share) | | — | | | — | | | — | | | (24,989) | | | — | | | (24,989) | | | — | | | (24,989) | | | — | | | — | | | — | | | (24,989) | | | — | | | (24,989) | | | — | | | (24,989) | | Shares issued under share-based compensation plans including tax effects | | 615,181 | | | 1 | | | (1) | | | — | | | — | | | — | | | — | | | — | | | 615,181 | | | 1 | | | (1) | | | — | | | — | | | — | | | — | | | — | | Indirect repurchase of shares for minimum tax withholdings | | (201,163) | | | — | | | (11,684) | | | — | | | — | | | (11,684) | | | — | | | (11,684) | | | (201,163) | | | — | | | (11,684) | | | — | | | — | | | (11,684) | | | — | | | (11,684) | | Repurchase of shares of common stock | | (252,409) | | | — | | | (12,621) | | | — | | | — | | | (12,621) | | | — | | | (12,621) | | | (252,409) | | | — | | | (12,621) | | | — | | | — | | | (12,621) | | | — | | | (12,621) | | Share-based compensation | | — | | | — | | | 29,431 | | | — | | | — | | | 29,431 | | | — | | | 29,431 | | | — | | | — | | | 29,431 | | | — | | | — | | | 29,431 | | | — | | | 29,431 | | Balance, December 29, 2020 | | 69,561,861 | | $ | 70 | | $ | 145,626 | | $ | 781,915 | | $ | (106) | | $ | 927,505 | | $ | 15,546 | | $ | 943,051 | | | 69,561,861 | | $ | 70 | | $ | 145,626 | | $ | 781,915 | | $ | (106) | | $ | 927,505 | | $ | 15,546 | | $ | 943,051 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Net income | | | — | | | — | | | — | | | 245,294 | | | — | | | 245,294 | | | 8,020 | | | 253,314 | | Other comprehensive income, net of tax | | | — | | | — | | | — | | | — | | | 106 | | | 106 | | | — | | | 106 | | Distributions to noncontrolling interest holders | | | — | | | — | | | — | | | — | | | — | | | — | | | (8,206) | | | (8,206) | | Dividends declared ($1.20 per share) | | | — | | | — | | | — | | | (83,658) | | | — | | | (83,658) | | | — | | | (83,658) | | Shares issued under share-based compensation plans including tax effects | | | 595,534 | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | Indirect repurchase of shares for minimum tax withholdings | | | (190,045) | | | — | | | (17,628) | | | — | | | — | | | (17,628) | | | — | | | (17,628) | | Repurchase of shares of common stock | | | (584,932) | | | (1) | | | (51,633) | | | — | | | — | | | (51,634) | | | — | | | (51,634) | | Share-based compensation | | | — | | | — | | | 38,139 | | | — | | | — | | | 38,139 | | | — | | | 38,139 | | Balance, December 28, 2021 | | | 69,382,418 | | $ | 69 | | $ | 114,504 | | $ | 943,551 | | $ | — | | $ | 1,058,124 | | $ | 15,360 | | $ | 1,073,484 | | Net income | | | — | | | — | | | — | | | 269,818 | | | — | | | 269,818 | | | 7,779 | | | 277,597 | | Distributions to noncontrolling interest holders | | | — | | | — | | | — | | | — | | | — | | | — | | | (7,775) | | | (7,775) | | Acquisition of noncontrolling interest | | | — | | | — | | | (1,395) | | | — | | | — | | | (1,395) | | | (340) | | | (1,735) | | Dividends declared ($1.84 per share) | | | — | | | — | | | — | | | (124,137) | | | — | | | (124,137) | | | — | | | (124,137) | | Shares issued under share-based compensation plans including tax effects | | | 474,771 | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | Indirect repurchase of shares for minimum tax withholdings | | | (149,873) | | | — | | | (13,576) | | | — | | | — | | | (13,576) | | | — | | | (13,576) | | Repurchase of shares of common stock | | | (2,734,005) | | | (2) | | | (123,057) | | | (89,800) | | | — | | | (212,859) | | | — | | | (212,859) | | Share-based compensation | | | — | | | — | | | 36,663 | | | — | | | — | | | 36,663 | | | — | | | 36,663 | | Balance, December 27, 2022 | | | 66,973,311 | | $ | 67 | | $ | 13,139 | | $ | 999,432 | | $ | — | | $ | 1,012,638 | | $ | 15,024 | | $ | 1,027,662 | |
See accompanying notesNotes to Consolidated Financial Statements. Texas Roadhouse, Inc. and Subsidiaries Consolidated Statements of Cash Flows (in thousands) | | | | | | | | | | | | | | | | | | | | | | | | | | | Fiscal Year Ended | | | | | December 29, | | December 31, | | December 25, | | | | December 27, | | December 28, | | December 29, | | | | | 2020 | | 2019 | | 2018 | | | | 2022 | | 2021 | | 2020 | | Cash flows from operating activities: | | | | | | | | | | | | | | | | | | | | | | | Net income including noncontrolling interests | | | $ | 34,925 | | $ | 181,518 | | $ | 164,294 | | | | $ | 277,597 | | $ | 253,314 | | $ | 34,925 | | Adjustments to reconcile net income to net cash provided by operating activities: | | | | | | | | | | | | | | | | | | | | | | | Depreciation and amortization | | | | 117,877 | | | 115,544 | | | 101,216 | | | | | 137,237 | | | 126,761 | | | 117,877 | | Deferred income taxes | | | | (19,932) | | | 6,335 | | | 12,319 | | | | | 9,456 | | | 8,896 | | | (19,932) | | Loss on disposition of assets | | | | 3,144 | | | 5,885 | | | 6,008 | | | | | 5,206 | | | 3,167 | | | 3,144 | | Impairment and closure costs | | | | 2,290 | | | (1,283) | | | 105 | | | | | 1,770 | | | 673 | | | 2,290 | | Contribution from executive officer | | | | — | | | — | | | 1,000 | | | Equity loss (income) from investments in unconsolidated affiliates | | | | 500 | | | (378) | | | (1,353) | | | Equity (income) loss from investments in unconsolidated affiliates | | | | | (1,239) | | | 637 | | | 500 | | Distributions of income received from investments in unconsolidated affiliates | | | | 329 | | | 1,837 | | | 656 | | | | | 1,022 | | | 1,071 | | | 329 | | Provision for doubtful accounts | | | | (1) | | | (22) | | | (9) | | | | | 33 | | | 7 | | | (1) | | Share-based compensation expense | | | | 29,431 | | | 35,500 | | | 33,983 | | | | | 36,663 | | | 38,139 | | | 29,431 | | Changes in operating working capital: | | | | | | | | | | | | | | | | | | | | | | | Receivables | | | | 1,058 | | | (5,774) | | | (15,597) | | | | | 11,062 | | | (62,399) | | | 1,058 | | Inventories | | | | (2,017) | | | (1,414) | | | (2,495) | | | | | (6,099) | | | (9,231) | | | (2,017) | | Prepaid expenses and other current assets | | | | (2,133) | | | (2,049) | | | (3,023) | | | | | (6,540) | | | (2,485) | | | (2,133) | | Other assets | | | | (12,698) | | | (12,823) | | | (4,290) | | | | | 5,775 | | | (13,918) | | | (12,698) | | Accounts payable | | | | 490 | | | 407 | | | 8,882 | | | | | 5,408 | | | 27,730 | | | 490 | | Deferred revenue—gift cards | | | | 23,458 | | | 16,991 | | | 35,519 | | | | | 33,799 | | | 67,845 | | | 23,458 | | Accrued wages and payroll taxes | | | | 12,283 | | | 5,540 | | | 4,481 | | | | | (10,172) | | | 12,734 | | | 12,283 | | Prepaid income taxes and income taxes payable | | | | 372 | | | 5,554 | | | (8,581) | | | | | 5,953 | | | (8,973) | | | 372 | | Accrued taxes and licenses | | | | (5,700) | | | 5,802 | | | 2,634 | | | | | 1,889 | | | 8,624 | | | (5,700) | | Other accrued liabilities | | | | 4,099 | | | (3,773) | | | 7,569 | | | | | 2,147 | | | 20,352 | | | 4,099 | | Operating lease right-of-use assets and lease liabilities | | | | 4,635 | | | 5,826 | | | — | | | | | 5,268 | | | 5,553 | | | 4,635 | | Deferred rent | | | | — | | | — | | | 5,938 | | | Other liabilities | | | | 38,028 | | | 15,075 | | | 3,612 | | | | | (4,510) | | | (9,671) | | | 38,028 | | Net cash provided by operating activities | | | | 230,438 | | | 374,298 | | | 352,868 | | | | | 511,725 | | | 468,826 | | | 230,438 | | Cash flows from investing activities: | | | | | | | | | | | | | | | | | | | | | | | Capital expenditures—property and equipment | | | | (154,401) | | | (214,340) | | | (155,980) | | | | | (246,121) | | | (200,692) | | | (154,401) | | Acquisition of franchise restaurants, net of cash acquired | | | | (10,580) | | | (1,536) | | | (2,165) | | | | | (33,069) | | | — | | | (10,580) | | Proceeds from sale of property and equipment | | | | 1,709 | | | 1,056 | | | — | | | Proceeds from sale leaseback transaction | | | | 2,167 | | | — | | | — | | | Proceeds from sale of investment in unconsolidated affiliate | | | | | 316 | | | — | | | — | | Proceeds from the sale of property and equipment | | | | | 2,269 | | | — | | | 1,709 | | Proceeds from sale leaseback transactions | | | | | 12,871 | | | 5,588 | | | 2,167 | | Net cash used in investing activities | | | | (161,105) | | | (214,820) | | | (158,145) | | | | | (263,734) | | | (195,104) | | | (161,105) | | Cash flows from financing activities: | | | | | | | | | | | | | | | | | | | | | | | Proceeds from revolving credit facility | | | | 240,000 | | | — | | | — | | | (Payments on) proceeds from revolving credit facility, net | | | | | (50,000) | | | (140,000) | | | 240,000 | | Debt issuance costs | | | | (641) | | | — | | | — | | | | | — | | | (708) | | | (641) | | Proceeds from noncontrolling interest contribution | | | | 133 | | | — | | | 2,551 | | | | | — | | | — | | | 133 | | Distributions to noncontrolling interest holders | | | | (3,432) | | | (6,357) | | | (5,746) | | | | | (7,775) | | | (8,206) | | | (3,432) | | Acquisition of noncontrolling interest | | | | — | | | (743) | | | (122) | | | | | (1,735) | | | — | | | — | | (Repayments) proceeds from restricted stock and other deposits, net | | | | (823) | | | 62 | | | 418 | | | Proceeds from (payments on) restricted stock and other deposits, net | | | | | 307 | | | 602 | | | (823) | | Indirect repurchase of shares for minimum tax withholdings | | | | (11,684) | | | (12,471) | | | (14,067) | | | | | (13,576) | | | (17,628) | | | (11,684) | | Repurchase of shares of common stock | | | | (12,621) | | | (139,849) | | | — | | | | | (212,859) | | | (51,634) | | | (12,621) | | Principal payments on long-term debt | | | | — | | | — | | | (50,000) | | | Dividends paid to shareholders | | | | (24,989) | | | (102,366) | | | (68,550) | | | | | (124,137) | | | (83,658) | | | (24,989) | | Net cash provided by (used in) financing activities | | | | 185,943 | | | (261,724) | | | (135,516) | | | Net increase (decrease) in cash and cash equivalents | | | | 255,276 | | | (102,246) | | | 59,207 | | | Net cash (used in) provided by financing activities | | | | | (409,775) | | | (301,232) | | | 185,943 | | Net (decrease) increase in cash and cash equivalents | | | | | (161,784) | | | (27,510) | | | 255,276 | | Cash and cash equivalents—beginning of period | | | | 107,879 | | | 210,125 | | | 150,918 | | | | | 335,645 | | | 363,155 | | | 107,879 | | Cash and cash equivalents—end of period | | | $ | 363,155 | | $ | 107,879 | | $ | 210,125 | | | | $ | 173,861 | | $ | 335,645 | | $ | 363,155 | | Supplemental disclosures of cash flow information: | | | | | | | | | | | | | | | | | | | | | | | Interest paid, net of amounts capitalized | | | $ | 3,890 | | $ | 738 | | $ | 896 | | | | $ | 1,547 | | $ | 3,186 | | $ | 3,890 | | Income taxes paid | | | $ | 3,776 | | $ | 20,440 | | $ | 20,519 | | | | $ | 25,910 | | $ | 39,789 | | $ | 3,776 | | Capital expenditures included in current liabilities | | | $ | 14,808 | | $ | 15,416 | | $ | 7,332 | | | | $ | 34,689 | | $ | 23,087 | | $ | 14,808 | |
See accompanying notesNotes to Consolidated Financial Statements. Table of Contents Texas Roadhouse, Inc. and Subsidiaries Notes to Consolidated Financial Statements (Tabular amounts in thousands, except share and per share data) (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," "we," "our" and/or "us") as of December 29, 2020 and December 31, 2019 and for each, 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 yearsfirst Texas Roadhouse restaurant in the three-year period ended December 29, 2020.Clarksville, Indiana.
As of December 29, 2020,27, 2022, we owned and operated 537597 restaurants and franchised an additional 97100 restaurants in 49 states and 10ten foreign countries. Of the 537597 company restaurants that were operating at December 29, 2020, 51727, 2022, 577 were wholly-owned and 20 were majority-owned.majority-owned and we operated 552 as Texas Roadhouse restaurants, 40 as Bubba’s 33 restaurants and five as Jaggers restaurants. Of the 97100 franchise restaurants, 6962 were domestic and 2838 were international restaurants.restaurants, all of which were operated as Texas Roadhouse restaurants. As of December 31, 2019,28, 2021, we owned and operated 514566 restaurants and franchised an additional 97101 restaurants in 49 states and 10ten foreign countries. Of the 514566 company restaurants that were operating at December 31, 2019, 49428, 2021, 546 were wholly-owned and 20 were majority-owned.majority-owned and we operated 526 as Texas Roadhouse restaurants, 36 as Bubba’s 33 restaurants and four as Jaggers restaurants. Of the 97101 franchise restaurants, 6970 were domestic and 2831 were international restaurants, all of which were operated as Texas Roadhouse restaurants. Risks and Uncertainties The Company ishas been subject to risks and uncertainties as a result of the COVID-19 pandemic (the "pandemic"). On March 13, 2020, the pandemic was declared a National Public Health Emergency. Shortly after the national emergency declaration,These include federal, state and local officials began placing restrictions on restaurants, some of which limited capacity or seating in dining rooms while others allowed To-Goto-go or curbside service only while others limited capacity in the dining room. By late Marchonly. In 2022, 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 Mayoperated without restriction. In 2021 and 2020, state and local guidelines began to allow dining rooms to re-open, typically at a limited capacity. While all of our dining rooms were able to re-open in some capacity, many were required to close again in areas more severely impacted by the pandemic. As of December 29, 2020, 82% of ourdomestic company and franchise restaurants had their dining rooms operatingoperated under various limitedforms of capacity restrictions. Our remaining restaurants were limited torestrictions, which included outdoor and/or To-Goto-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 extent of these dining room restrictions and temporary closures will determine the significance of the impact to our financial condition, financial results, and liquidity in future periods. 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.
Table of Contents
Texas Roadhouse, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
(Tabular amounts in thousands, except share and per share data)
(2) Summary of Significant Accounting Policies (a) Principles of Consolidation 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 29, 202027, 2022 and December 31, 2019,28, 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.restaurants, respectively. Additionally, as of December 29, 2020 and December 31, 2019,28, 2021, we owned a 40% equity interest in 4four non-Texas Roadhouse restaurants as part of a joint venture agreement with a casual dining restaurant operator in China.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) income from investments in unconsolidated affiliates. All significant intercompany balances and transactions for these unconsolidated restaurants as well as the entities whose accounts have been consolidated have been eliminated.
(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 20202022, 2021 and 20182020 were 52 weeks in lengthlength. Table of Contents Texas Roadhouse, Inc. and fiscal year 2019 was 53 weeksSubsidiaries Notes to Consolidated Financial Statements (Tabular amounts in length. In fiscal year 2019, the 53rd week added $59.0 million to restaurantthousands, except share and other sales and $0.10 to $0.11 to diluted earnings per share in our consolidated statementsdata) (c) Use of income and comprehensive income.Estimates 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.
(c)(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 ("CODM"), 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. 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. 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 includedinclude receivables from credit card companies which amounted to $18.1 millionas these balances are highly liquid in nature and $22.4 million at December 29, 2020 and December 31, 2019, respectively, because the balances 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.
(d)(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. Receivables are recorded at the invoiced amount and do not bear interest. 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.collection experience and the age of receivables. We review our allowance for doubtful accounts quarterly. Past due balances over 120 days are reviewed individually for collectability. Account balances are charged off against the allowance after all means of collection have been exhausted and the potential for recovery is considered remote.
(e)(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.
(f)(h) Property and Equipment
Property and equipment are stated at cost.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 depreciated over a period of time which includes both the initial term of the lease and one or more option periods. See note 2(g) for further discussion of leases. Table of Contents Texas Roadhouse, Inc. and Subsidiaries Notes to Consolidated Financial Statements (Tabular amounts in thousands, except share and per share data) 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: | | | | Land improvements | | 10 - 25 years | | Buildings and leasehold improvements | | 10 - 25 years | | Furniture, fixtures and equipment | | 3 - 10 years | |
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 $25.2 million, $27.9 million and $29.7 million for the years ended December 29, 2020, December 31, 2019 and December 25, 2018, respectively. These costs are included in other operating costs in our consolidated statements of income and comprehensive income.
(i) Leases
(g) Leases
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.
Beginning in 2019 with the adoption of ASC 842, Leases, we recognize operating lease right-of-use assets and operating lease liabilities for thesereal 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 thoseaccrued rent and increased for any initial direct costs recognized at lease inception. For real estate and restaurant equipment leases withcommencing 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. See noteWe 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. (j) Goodwill
(h) Goodwill
Goodwill represents the excess of cost over fair value of assets of businesses acquired. In accordance with the provisions of Financial Accounting Standards Board ("FASB") Accounting Standards Codification ("ASC")ASC 350, Intangibles—Goodwill and Other ("ASC 350"), we perform testsgoodwill is not subject to assess potential impairments at the reporting unit level, which we define as the individual restaurant level. These tests are performedamortization and is evaluated for impairment on an annual basis, or sooner if an event or other circumstance indicates that goodwill may be impaired. Prior to 2019, this annual assessment occurred at the end of each fiscal year. In 2019, we changed theThe annual assessment date tois the beginningfirst day of our fourth quarter. As our primary indicator of ASC 350 requires that goodwill be tested for impairment is a decrease in cash flows and because we have a significant number of reporting units with goodwill, an earlier evaluation date allows us to more timely identify potential impairments. This change was not due to any goodwill impairment concerns within any of our reporting units. In addition, we determined this did not represent a material change to a method of applying an accounting principle. The determination of impairment consists of two steps. First, we determine the fair value ofat the reporting unit and compare it tolevel, or the level of internal reporting that reflects the way in which an entity manages its carrying amount. The fair value of thebusinesses. A reporting unit may be based on several valuation approaches including capitalization of earnings, discounted cash flows, comparable public company market multiplesis defined as an operating segment, or one level below an operating segment. Historically, we designated our operating segment 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 ofto be at the carrying amount 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 method or discounted cash flows, 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
Table of Contents Texas Roadhouse, Inc. and Subsidiaries Notes to Consolidated Financial Statements (Tabular amounts in thousands, except share and per share data) participants would use. However, estimates are inherently uncertainsame level which we defined to be the individual restaurant. In 2021, we changed the designation of our operating segment and represent onlyreporting 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 reasonable expectations regarding future developments. Ifgoodwill was not impaired under either reporting unit definition. In 2022, we performed the estimates usedgoodwill impairment analysis at the concept level.
As stated in performingASC 350, an entity may first assess qualitative factors in order to determine if it is necessary to perform the impairment test prove inaccurate,quantitative test. In 2022 and 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 fair valueoverall financial performance of the restaurants may ultimately prove to be significantly lower, thereby causingCompany’s reporting units at the carrying value to exceedconcept level. As a result of the fair valuequalitative assessment, no indicators of impairment were identified, and resulting in an impairment.no additional indicators of impairment were identified through the end of the fourth quarter that would require additional testing. 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 related to two reporting units. In 2019 and 2018, we determined that there was 0$1.1 goodwill impairment.million. Refer to noteNote 7 for additional information related to goodwill and intangible assets.
(i)(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. refer to Note 15 and Note 16.
(j)(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. For the purposes of this evaluation, we define the asset group at the individual restaurant level. When we evaluate the restaurants, cash flows are the primary indicator of impairment. Recoverability of assets to be held and used is measured by a comparison of the carrying amount of the restaurant to estimated undiscounted future cash flows expected to be generated by the restaurant. Under our policies, trailing 12-month12-month cash flow results under a predetermined amount at the individual restaurant level signals potential impairment. In our evaluation of restaurants that do not meet the cash flow threshold, we estimate future undiscounted cash flows from operating the restaurant over its estimated useful life, which can be for a period of over 20 years. In the estimation of future cash flows, we consider the period of time the restaurant has been open, the trend of operations over such period and future periods and expectations of future sales growth. 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. If the carrying amount of the restaurant exceeds its estimated undiscounted future cash flows, an impairment charge is recognized by the amount by which the carrying amount exceeds the estimated fair value of the assets. We generally measure fair value by discounting estimated future cash flows. When fair value is measured by discounting estimated future cash flows, the assumptions used are consistent with what we believe hypothetical market participants would use. We also use a discount rate that is commensurate with the risk inherent in the projected cash flows. The adjusted carrying amounts of assets to be held and used are depreciated over their remaining useful life. See note 16Refer to Note 17 for further discussion of amounts recorded as part of our impairment analysis.
(k) 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 | | $500,000 | / | $2,500,000 | | Workers' compensation | | $350,000 | | General liability | | $1,000,000 | | Property | | $250,000 | | Employee healthcare | | $350,000 | |
We record a liability for unresolved claims and for an estimate of incurred but not reported claims based on historical experience. The estimated liability is based on a number of assumptions and factors regarding economic
Table of Contents 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: | | | | | | | December 27, 2022 | | December 28, 2021 | Employment practices liability ("EPL") | | $500,000 | | $500,000 | EPL Class Action | | $2,500,000 | | $2,500,000 | Workers' compensation | | $350,000 | | $350,000 | General liability | | $2,500,000 | | $1,000,000 | Property | | $250,000 | | $250,000 | Employee healthcare | | $400,000 | | $400,000 |
We record a liability for unresolved claims and for an estimate of incurred but not reported claims based on historical experience. The estimated liability is based on a number of assumptions and factors regarding economic conditions, the frequency and severity of claims and claim development history and settlement practices. Our assumptions are reviewed, monitored, and adjusted when warranted by changing circumstances.
(l) Segment Reporting
We consider our restaurant and franchising operations as similar and have aggregated them into a single reportable segment. The majority of the restaurants operate in the U.S. within the casual dining segment of the restaurant industry, providing similar products to similar customers. The restaurants also possess similar pricing structures, resulting in similar long-term expected financial performance characteristics. As of December 29, 2020, we operated 537 restaurants, each as a single operating segment, and franchised an additional 97 restaurants.(n) Revenue from external customers is derived principally from food and beverage sales. We do not rely on any major customers as a source of revenue.
(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 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 sales-basedrevenue 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 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 discussionWe recognize fees from supervision and administrative services as incurred. (n)(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. We recognize both interest and penalties on unrecognized tax benefits as part of income tax expense. A valuation allowance is established to reduce the carrying value of deferred tax assets if it is considered more likely than not that such assets will not be realized. Any change in the valuation allowance would be charged to income in the period such determination was made. For all years presented, 0no valuation allowances have been recorded. (o)(p) Advertising
We have a domestic system-widesystem-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. Advertising contributions related to company restaurants are recorded as a component of other operating costs. Advertising contributions received from our franchisees are recorded as a component of franchise royalties and fees in our consolidated statements of income and comprehensive income. Other costs related to local restaurant area marketing initiatives are included in other operating costs in our consolidated statements of income and comprehensive income. These costs and the company restaurant contribution amounted to $13.825.0 million, $18.3$21.1 million and $17.1$13.8 million for the years ended December 27, 2022, December 28, 2021 and December 29, 2020, December 31, 2019 and December 25, 2018, respectively. Table of Contents
Texas Roadhouse, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
(Tabular amounts in thousands, except share and per share data)
(p)(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
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 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.
(r) Comprehensive Income ASC 220, Comprehensive Income, establishes standards for reporting and the presentation of comprehensive income and its components in a full set of financial statements. Comprehensive income consists of net income and foreign currency translation adjustments which are excluded from net income under GAAP. Foreign currency translation adjustment represents the unrealized impact of translating the financial statements of our foreign investment. This amount is not included in net income and would only be realized upon the disposition of our investment. (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 useASC 820, Fair Value Measurements and Disclosures, establishes a three-tierframework 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 observable and non-observablethe transparency of inputs that prioritizesto the information used to develop our assumptions regarding fair value. valuation of an asset or liability on the measurement date. | | Level 1 | Inputs based on quoted prices in active markets for identical assets. | Level 2 | Inputs other than quoted prices included within Level 1 that are observable for the assets, either directly or indirectly. | Level 3 | Inputs that are unobservable for the asset. |
Fair value measurements are separately disclosed by level within the fair value hierarchy. Refer to note 15Note 16 for further discussion of fair value measurement. (t) Recent Accounting Pronouncements
Financial Instruments
(Accounting Standards Update 2016-13, "ASU 2016-13")
In June 2016, the FASB issued ASU 2016-13, Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments, which requires measurement and recognition of expected versus incurred losses for financial assets held. We adopted ASU 2016-13 as of the beginning of our 2020 fiscal year. The adoption of this standard did not have a significant impact on our consolidated financial statements.
Table of Contents Texas Roadhouse, Inc. and Subsidiaries Notes to Consolidated Financial Statements (Tabular amounts in thousands, except share and per share data) Goodwill
((t) Recent Accounting Standards Update 2017-04, "ASU 2017-04")
In January 2017, the FASB issued ASU 2017-04, Intangibles – Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment, which simplifies the accounting for goodwill impairment and is expected to reduce the cost and complexity of accounting for goodwill. ASU 2017-04 removes Step 2 of the goodwill impairment test, which requires a hypothetical purchase price allocation. Instead, goodwill impairment will be the amount by which a reporting unit’s carrying value exceeds its fair value, not to exceed the carrying amount of the goodwill. We adopted ASU 2017-04 as of the beginning of our 2020 fiscal year. The adoption of this standard did not have a significant impact on our consolidated financial statements.
Fair Value Measurement
(Accounting Standards Update 2018-13, "ASU 2018-13")
In August 2018, the FASB issued ASU 2018-13, Fair Value Measurement (Topic 820): Disclosure Framework – Changes to the Disclosure Requirements for Fair Value Measurement, which changes disclosure requirements for fair value measurements. We adopted ASU 2018-13 as of the beginning of our 2020 fiscal year. The adoption of this standard did not have a significant impact on our consolidated financial statements.
Income Taxes
(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 removes 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 simplifies aspects of accounting for recognizing deferred taxes for taxable goodwill. ASU 2019-12 is effective for fiscal years beginning after December 15, 2020 (our 2021 fiscal year) and for interim periods within those years, with early adoption permitted. We are currently assessing the impact of this new standard on our consolidated financial statements.
Pronouncements
Reference Rate Reform (Accounting Standards Update 2020-04, "ASU 2020-04")
In March 2020, the FASB issued ASUAccounting Standards Update ("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 asIn December 2022, the beginningFASB issued ASU 2022-06, Reference Rate Reform (Topic 848): Deferral of the interim period throughSunset Date of Topic 848 which defers the sunset date of Topic 848 from December 31, 2022.2022 to December 31, 2024. We are currently assessingdo not anticipate that the impactadoption of this new standard will have a significant impact on our consolidated financial statements.statements.
(3) Revenue The following table disaggregates our revenue by major source (in thousands):source: | | | | | | | | | | | | | | | | | | | | | | | Fiscal Year Ended | | Fiscal Year Ended | | | | December 29, 2020 | | December 31, 2019 | | December 25, 2018 | | December 27, 2022 | | December 28, 2021 | | December 29, 2020 | Restaurant and other sales | | | $ | 2,380,177 | | $ | 2,734,177 | | $ | 2,437,115 | | $ | 3,988,791 | | $ | 3,439,176 | | $ | 2,380,177 | Franchise royalties | | | | 15,542 | | | 19,445 | | | 17,443 | | | 23,058 | | | 21,770 | | | 15,542 | Franchise fees | | | | 2,404 | | | 2,541 | | | 2,891 | | | 3,070 | | | 3,000 | | | 2,404 | Total revenue | | | $ | 2,398,123 | | $ | 2,756,163 | | $ | 2,457,449 | | $ | 4,014,919 | | $ | 3,463,946 | | $ | 2,398,123 |
The following table presents a rollforward of deferred revenue-gift cards: | | | | | | | | | December 27, 2022 | | December 28, 2021 | Beginning balance | | $ | 300,657 | | $ | 232,812 | Gift card activations, net | | | 366,606 | | | 319,698 | Gift card redemptions and breakage | | | (331,860) | | | (251,853) | Ending balance | | | 335,403 | | | 300,657 |
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. (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. Table of Contents Texas Roadhouse, Inc. and Subsidiaries Notes to Consolidated Financial Statements (Tabular amounts in thousands, except share and per share data) 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 areThese transactions were accounted for on ausing the acquisition method as defined in ASC 805, Business Combinations. These acquisitions are consistent with our long-term strategy to increase net basis and therefore are excluded from revenue in the consolidated statements of income and comprehensive income.earnings per share.
Other sales includeThe following table summarizes the amortization of gift card breakageconsideration paid (in thousands) for the acquisitions, 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 and have determined that 4% of theestimated fair value of the gift cards sold byassets acquired, and the liabilities assumed at the acquisition date, which are adjusted for measurement-period adjustments through December 27, 2022.
| | | | | Inventory | | $ | 321 | | Other assets | | | 222 | | Property and equipment | | | 4,841 | | Operating lease right-of-use assets | | | 1,221 | | Goodwill | | | 21,731 | | Intangible assets | | | 6,900 | | Deferred revenue-gift cards | | | (947) | | Current portion of operating lease liabilities | | | (47) | | Operating lease liabilities, net of current portion | | | (1,173) | | | | $ | 33,069 | |
The aggregate purchase prices are preliminary as the Company and our third party retailersis finalizing working capital adjustments. Intangible assets represent reacquired franchise rights which will never be redeemed. This breakage adjustment is recorded consistent with the historic redemption patternamortized over a weighted-average useful life of 3.5 years. We expect all of the associated gift card or on actual redemptions in periods where redemptions do not align with historic redemption patterns. In addition, we incur fees on all gift cards that are sold through third party retailers. These fees are also deferredgoodwill and recorded consistent withintangible asset amortization will be deductible for tax purposes and believe the historic redemption patternresulting amount of goodwill reflects the benefit of sales and unit growth opportunities as well as the benefit 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 29, 2020 and December 31, 2019, we recognized gift card fees, net of gift card breakage income, of $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 portionassembled workforce of the breakage rates and the unamortized portion of third party fees. As of December 29, 2020 and December 31, 2019, our deferred revenue balance related to gift cards was acquired restaurants.$232.8 million and $209.3 million, respectively. This change was primarily due to the sale of additional gift cards partially offset by the redemption of gift cards. We recognized restaurant sales of $115.5 millionPro forma operating results for the year ended December 29, 2020 related27, 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 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 amountamendment, 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. 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 deferred revenue aseach case depending on our leverage ratio. The agreement also provides an Alternate Base Rate that may be substituted for LIBOR. As of December 31, 2019. We recognized restaurant sales27, 2022, we had $50.0 million outstanding on the amended revolving credit facility and $233.5 million of $135.2availability, net of $16.5 million for the year ended December 31, 2019 related to the amount in deferred revenue asof outstanding letters of credit. As of December 25, 2018.28, 2021, we had Franchise royalties include continuing fees received from our franchising$100.0 million outstanding on the amended revolving credit facility and $189.1 million of Texas Roadhouse restaurants. We execute franchise agreements for each franchise restaurant which sets out the termsavailability, net of our arrangement with the franchisee.$10.9 million of outstanding letters of credit. 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 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. Theseoutstanding amounts are recognizedincluded 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 inlong-term debt on our consolidated balance sheets and was $1.9 million as of December 29, 2020 and December 31, 2019. We recognized revenue of $0.4 million and $0.3 million for the years ended December 29, 2020 and December 31, 2019, respectively, related to the amounts in deferred revenue as of December 31, 2019 and December 25, 2018, respectively.
sheets.
Table of Contents Texas Roadhouse, Inc. and Subsidiaries Notes to Consolidated Financial Statements (Tabular amounts in thousands, except share and per share data) (4) Acquisitions
In late 2020, we separately acquired 2 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 ("ASC 805"). These acquisitions generated goodwill of $3.3 million, which is not amortizable for book purposes, but is deductible for tax purposes. 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.
In late 2019, we acquired 1 franchise restaurant which was subsequently relocated. Pursuant to the terms of the acquisition agreement, we paid a total purchase price of $1.5 million and accounted for this transaction using the purchase method as defined in ASC 805. This acquisition generated goodwill of $1.5 million, which is not amortizable for book purposes, but is deductible for tax purposes.
These acquisitions are consistent with our long-term strategy to increase net income and earnings per share. Pro forma results of operations and revenue and earningsThe interest rate for the years ended December 29, 2020 and December 31, 2019 have not been presented because the effect of the acquisitions was not material to our consolidated financial position, results of operations or cash flows.
(5) Long-term Debt
On August 7, 2017, we entered into the Amended and Restated Credit Agreement (the "Amended Credit Agreement") with respect to our revolving credit facility with a syndicate of commercial lenders led by JPMorgan Chase Bank, N.A., PNC Bank, N.A., and Wells Fargo Bank, N.A. The amended revolving credit facility remains an unsecured, revolving credit agreement under which we may borrow up to $200.0$50.0 million with the option to increase the amended 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 the London Interbank Offered Rate ("LIBOR") plus a margin of 1.50% and to pay a commitment fee of 0.25% per year on any unused portion of the amended 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. Subsequent to our Q1 2021 fiscal quarter, we are required to pay interest on outstanding borrowings at LIBOR plus a margin of 0.875% to 2.25% and to pay a commitment fee of 0.125% to 0.40% depending on our consolidated net leverage ratio. Asas of December 29, 2020, we had $190.0 million outstanding on the original revolving credit facility and $1.8 million of availability, net of $8.227, 2022 was 5.21% 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 $240.0100.0 million of combined borrowings on our revolving credit facilityoutstanding as of December 29, 202028, 2021 was 1.98%. The weighted-average interest rate for the amended revolving credit facility as of December 31, 2019 was 2.64%0.98%.
Table of Contents
Texas Roadhouse, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
(Tabular amounts in thousands, except share and per share data)
The lenders’ obligation to extend credit pursuant to the Amended Credit Agreementamended revolving credit facility 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, 2020.27, 2022 and December 28, 2021. (6) Property and Equipment, Net Property and equipment were as follows: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | December 29, | | December 31, | | | December 27, | | December 28, | | | | 2020 | | 2019 | | | 2022 | | 2021 | | Land and improvements | | $ | 143,482 | | $ | 135,708 | | | $ | 148,220 | | $ | 144,182 | | Buildings and leasehold improvements | | | 1,003,014 | | | 922,036 | | | | 1,206,930 | | | 1,092,776 | | Furniture, fixtures and equipment | | | 661,878 | | | 614,920 | | | | 797,058 | | | 732,160 | | Construction in progress | | | 32,362 | | | 51,924 | | | | 73,639 | | | 50,809 | | Liquor licenses | | | 11,587 | | | 10,963 | | | | 12,538 | | | 11,889 | | | | | 1,852,323 | | | 1,735,551 | | | | 2,238,385 | | | 2,031,816 | | Accumulated depreciation and amortization | | | (763,700) | | | (678,988) | | | | (968,036) | | | (869,375) | | | | $ | 1,088,623 | | $ | 1,056,563 | | | $ | 1,270,349 | | $ | 1,162,441 | |
For the yearyears 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. There was 0 interest capitalized in connection with restaurant construction for the year ended December 31, 2019. For the year ended December 25, 2018, the amount of interest capitalized in connection with restaurant construction was $0.1 million.million, respectively. (7) Goodwill and Intangible Assets All of our goodwill and intangible assets reside within the Texas Roadhouse reportable segment. The changes in the carrying amount of goodwill and intangible assets are as follows: | | | | | | | | | | | | | | Goodwill | | Intangible Assets | | Goodwill | | Intangible Assets | | Balance as of December 25, 2018 (1) | $ | 123,220 | | $ | 1,959 | | | Balance as of December 29, 2020 (1) | | $ | 127,001 | | $ | 2,271 | | Additions | | 1,528 | | | 0 | | | — | | | — | | Amortization expense | | — | | | (725) | | | — | | | (751) | | Disposals and other, net | | 0 | | | 0 | | | — | | | — | | Impairment | | 0 | | | 0 | | | — | | | — | | Balance as of December 31, 2019 | $ | 124,748 | | $ | 1,234 | | | Balance as of December 28, 2021 | | $ | 127,001 | | $ | 1,520 | | Additions | | 3,329 | | | 1,600 | | | 21,731 | | | 6,900 | | Amortization expense | | — | | | (563) | | | — | | | (2,813) | | Disposals and other, net | | 0 | | | 0 | | | — | | | — | | Impairment | | (1,076) | | | 0 | | | — | | | — | | Balance as of December 29, 2020 | $ | 127,001 | | $ | 2,271 | | | Balance as of December 27, 2022 | | $ | 148,732 | | $ | 5,607 | |
(1) | Net of $4.8$5.9 million of accumulated goodwill impairment losses. |
Intangible assets consist of reacquired franchise rights. The gross carrying amount and accumulated amortization of the intangible assets at December 29, 202027, 2022 were $16.6$23.5 million and $14.3 $17.9 million, respectively. As of December 31, 2019,28, 2021, the gross carrying amount and accumulated amortization of the intangible assets was $15.4were $16.6 million and $14.1$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 restaurant.franchise agreement. Amortization expense for the next fivefour years is expected to range from $0.1$0.1 million to $0.8 $2.6 million. As further discussed in note 16, as a result of our 2020 goodwill impairment analysis, we determined that goodwill related to two restaurants was impaired. Refer to noteNote 4 for discussion of the Table of Contents
Texas Roadhouse, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
(Tabular amounts in thousands, except share and per share data)
acquisitions completed for the yearsyear ended December 29, 2020 and December 31, 2019.27, 2022. (8) Leases
We recognize right-of-use assets and lease liabilities for both real estate and equipment leases that have a term in excess of one year. As of December 29, 2020 and December 31, 2019, these amounts were as follows:
| | | | | | | | | | As of December 29, 2020 | | Real estate | | Equipment | | Total | Operating lease right-of-use assets | $ | 526,746 | | $ | 3,879 | | $ | 530,625 | | | | | | | | | | Current portion of operating lease liabilities | | 17,850 | | | 1,421 | | | 19,271 | Operating lease liabilities, net of current portion | | 569,713 | | | 2,458 | | | 572,171 | Total operating lease liabilities | $ | 587,563 | | $ | 3,879 | | $ | 591,442 | | | | | | | | | |
| | | | | | | | | | As of December 31, 2019 | | Real estate | | Equipment | | Total | Operating lease right-of-use assets | $ | 495,903 | | $ | 3,898 | | $ | 499,801 | | | | | | | | | | Current portion of operating lease liabilities | | 15,966 | | | 1,297 | | | 17,263 | Operating lease liabilities, net of current portion | | 536,109 | | | 2,601 | | | 538,710 | Total operating lease liabilities | $ | 552,075 | | $ | 3,898 | | $ | 555,973 | | | | | | | | | |
Table of Contents Texas Roadhouse, Inc. and Subsidiaries Notes to Consolidated Financial Statements (Tabular amounts in thousands, except share and per share data) (8) Leases
Information related to our real estate leases as of and for the fiscal year ended December 29, 2020 and December 31, 2019 was as follows (in thousands):
| | | | | | | | | | | | | | Fiscal Year Ended | Real estate costs | | | | | December 29, 2020 | | | December 31, 2019 | Operating lease | | | | $ | 58,425 | | $ | 54,844 | Variable lease | | | | | 1,479 | | | 1,590 | Short-term lease | | | | | 90 | | | 120 | Total lease costs | | | | $ | 59,994 | | $ | 56,554 | | | | | | | | | | | | | | | | | | | Real estate lease liability maturity analysis | | | | | | | | As of December 29, 2020 | 2021 | | | | | | | | 56,201 | 2022 | | | | | | | | 57,225 | 2023 | | | | | | | | 57,259 | 2024 | | | | | | | | 57,353 | 2025 | | | | | | | | 55,491 | Thereafter | | | | | | | | 762,744 | Total | | | | | | | $ | 1,046,273 | Less interest | | | | | | | | 458,710 | Total discounted operating lease liabilities | | | | | | | $ | 587,563 | | | | | | | | | | | | | | | | | | | | | | | | Fiscal Year Ended | Real estate leases other information | | | | | December 29, 2020 | | | December 31, 2019 | Cash paid for amounts included in measurement of operating lease liabilities | | | | $ | 52,904 | | $ | 49,018 | Right-of-use assets obtained in exchange for new operating lease liabilities | | | | $ | 50,322 | | $ | 51,220 | Weighted-average remaining lease term (years) | | | | | 17.78 | | | 17.82 | Weighted-average discount rate | | | | | 6.71 | | | 6.77 |
Operating lease payments exclude $15.1 million of minimum lease payments for executed real estate leases that we have not yet taken possession. In addition to the above operating leases, as of December 29, 2020 we had 1 finance lease with a right-of-use asset balance and lease liability balance of $1.7 million and $2.1 million, respectively. The right-of-use asset balance is included as a component of other assets and the lease liability balance as a component of other liabilities in the consolidated balance sheets.
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 leaseWe recognize right-of-use assets and lease liabilities noted above.
We recognize operating lease right-of-use assets and operating lease liabilities for both real estate leases, including our restaurant leases and Support Center lease, as well as certain restaurant equipment leases based on the present valuethat have a term in excess 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
one yearTable. As of Contents Texas Roadhouse, Inc.December 27, 2022 and Subsidiaries
Notes to Consolidated Financial Statements
(TabularDecember 28, 2021, these amounts in thousands, except share and per share data)
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 componentswere as a single lease component.follows:
Certain of our operating leases contain predetermined fixed escalations of the minimum rent over the lease term. For these leases, we recognize the related rent expense on a straight-line basis over the lease term. We may receive rent concessions or leasehold improvement incentives upon opening a restaurant that is subject to a lease which we consider when determining straight-line rent expense. We also may receive rent holidays, which would begin on the possession date and end when the store opens, during which no cash rent payments are typically due under the terms of the lease. Rent holidays are included in the lease term when determining straight-line rent expense. In recognizing straight-line rent expense, we record the difference between amounts charged to operations and amounts paid as accrued rent. Straight-line rent expense is included as an operating lease cost in the table above.
Certain of our operating leases contain clauses that provide for additional contingent rent based on a percentage of sales greater than certain specified target amounts. We recognize contingent rent expense prior to the achievement of the specified target that triggers the contingent rent, provided achievement of the target is considered probable. In addition, certain of our operating leases have variable escalations of the minimum rent that depend on an index or rate. 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.
Rent expense for operating leases for the fiscal year ended December 25, 2018 consisted of the following:
| | | | | | | | | | December 27, 2022 | | Real estate | | Equipment | | Total | Operating lease right-of-use assets | $ | 625,164 | | $ | 5,094 | | $ | 630,258 | | | | | | | | | | Current portion of operating lease liabilities | | 23,803 | | | 1,687 | | | 25,490 | Operating lease liabilities, net of current portion | | 674,468 | | | 3,406 | | | 677,874 | Total operating lease liabilities | $ | 698,271 | | $ | 5,093 | | $ | 703,364 | | | | | | | | | |
| | | | Minimum rent—occupancy | | $ | 47,741 | Contingent rent | | | 1,050 | Rent expense, occupancy | | | 48,791 | Minimum rent—equipment and other | | | 6,176 | Rent expense | | $ | 54,967 |
| | | | | | | | | | December 28, 2021 | | Real estate | | Equipment | | Total | Operating lease right-of-use assets | $ | 574,356 | | $ | 4,057 | | $ | 578,413 | | | | | | | | | | Current portion of operating lease liabilities | | 20,577 | | | 1,375 | | | 21,952 | Operating lease liabilities, net of current portion | | 620,210 | | | 2,682 | | | 622,892 | Total operating lease liabilities | $ | 640,787 | | $ | 4,057 | | $ | 644,844 | | | | | | | | | |
(9) Income Taxes
Components of our income tax (benefit) expense for the years ended December 29, 2020, December 31, 2019 and December 25, 2018 are as follows:
| | | | | | | | | | | | | Fiscal Year Ended | | | | December 29, 2020 | | December 31, 2019 | | December 25, 2018 | | Current: | | | | | | | | | | | Federal | | $ | (648) | | $ | 15,643 | | $ | 2,934 | | State | | | 4,505 | | | 10,050 | | | 8,794 | | Foreign | | | 403 | | | 369 | | | 210 | | Total current | | | 4,260 | | | 26,062 | | | 11,938 | | Deferred: | | | | | | | | | | | Federal | | | (16,859) | | | 4,396 | | | 11,909 | | State | | | (3,073) | | | 1,939 | | | 410 | | Total deferred | | | (19,932) | | | 6,335 | | | 12,319 | | Income tax (benefit) expense | | $ | (15,672) | | $ | 32,397 | | $ | 24,257 | |
Our pre-tax income is substantially derived from domestic restaurants.
Table of Contents Texas Roadhouse, Inc. and Subsidiaries Notes to Consolidated Financial Statements (Tabular amounts in thousands, except share and per share data) Information related to our real estate operating leases as of and for the fiscal year ended December 27, 2022 and December 28, 2021 was as follows: | | | | | | | | | | | | | | Fiscal Year Ended | | Real estate costs | | | | | December 27, 2022 | | | December 28, 2021 | | Operating lease | | | | $ | 68,742 | | $ | 62,430 | | Variable lease | | | | | 4,393 | | | 3,767 | | Total lease costs | | | | $ | 73,135 | | $ | 66,197 | | | | | | | | | | | | | | | | | | | | | | Real estate lease liabilities maturity analysis | | | | | | | | December 27, 2022 | | 2023 | | | | | | | $ | 66,675 | | 2024 | | | | | | | | 67,195 | | 2025 | | | | | | | | 65,206 | | 2026 | | | | | | | | 65,081 | | 2027 | | | | | | | | 65,493 | | Thereafter | | | | | | | | 861,414 | | Total | | | | | | | $ | 1,191,064 | | Less interest | | | | | | | | 492,793 | | Total discounted operating lease liabilities | | | | | | | $ | 698,271 | | | | | | | | | | | | | | | | | | | | | | | | | | Fiscal Year Ended | | Real estate leases other information | | | | | December 27, 2022 | | | December 28, 2021 | | Cash paid for amounts included in measurement of operating lease liabilities | | | | $ | 63,269 | | $ | 57,040 | | Right-of-use assets obtained in exchange for new operating lease liabilities | | | | $ | 54,666 | | $ | 68,921 | | Weighted-average remaining lease term (years) | | | | | 17.57 | | | 17.88 | | Weighted-average discount rate | | | | | 6.34 | % | | 6.46 | % |
Operating lease payments exclude $7.9 million of future minimum lease payments for executed real estate leases of which we have not yet taken possession. 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 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. These sales generated proceeds of $5.6 million and no gain or loss was recognized on the transactions. The resulting operating leases are included in the operating lease right-of-use assets and lease liabilities noted above. Table of Contents Texas Roadhouse, Inc. and Subsidiaries Notes to Consolidated Financial Statements (Tabular amounts in thousands, except share and per share data) (9) Income Taxes Components of our income tax expense (benefit) for the years ended December 27, 2022, December 28, 2021 and December 29, 2020 are as follows: | | | | | | | | | | | | | Fiscal Year Ended | | | | December 27, 2022 | | December 28, 2021 | | December 29, 2020 | | Current: | | | | | | | | | | | Federal | | $ | 15,549 | | $ | 16,700 | | $ | (648) | | State | | | 18,120 | | | 13,539 | | | 4,505 | | Foreign | | | 590 | | | 443 | | | 403 | | Total current | | | 34,259 | | | 30,682 | | | 4,260 | | Deferred: | | | | | | | | | | | Federal | | | 9,664 | | | 7,391 | | | (16,859) | | State | | | (208) | | | 1,505 | | | (3,073) | | Total deferred | | | 9,456 | | | 8,896 | | | (19,932) | | Income tax expense (benefit) | | $ | 43,715 | | $ | 39,578 | | $ | (15,672) | |
Our pre-tax income is substantially derived from domestic restaurants. A reconciliation of the statutory federal income tax rate to our effective tax rate for December 29, 2020,27, 2022, December 31, 201928, 2021 and December 25, 201829, 2020 is as follows: | | | | | | | | | | | | | | | | | Fiscal Year Ended | | | Fiscal Year Ended | | | | December 29, 2020 | | December 31, 2019 | | December 25, 2018 | | | December 27, 2022 | | December 28, 2021 | | December 29, 2020 | | Tax at statutory federal rate | | 21.0 | % | 21.0 | % | 21.0 | % | | 21.0 | % | 21.0 | % | 21.0 | % | State and local tax, net of federal benefit | | 3.6 | | 3.8 | | 3.6 | | | 3.7 | | 3.8 | | 3.6 | | FICA tip tax credit | | (92.5) | | (9.4) | | (9.6) | | | (10.5) | | (9.3) | | (92.5) | | Work opportunity tax credit | | (12.4) | | (1.5) | | (1.5) | | | (1.3) | | (1.2) | | (12.4) | | Stock compensation | | (2.3) | | (0.1) | | (1.4) | | | (0.1) | | (1.5) | | (2.3) | | Net income attributable to noncontrolling interests | | (3.0) | | (0.6) | | (0.8) | | | (0.4) | | (0.5) | | (3.0) | | Officers compensation | | 2.6 | | 1.2 | | 1.7 | | | 0.7 | | 1.1 | | 2.6 | | Other | | 1.6 | | 0.7 | | (0.1) | | | 0.5 | | 0.1 | | 1.6 | | Total | | (81.4) | % | 15.1 | % | 12.9 | % | | 13.6 | % | 13.5 | % | (81.4) | % |
Our effective tax rate was a benefit of 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. Additionally, these credits exceeded our federal tax liability in 2020 but we expect to utilize these credits in future years or by carrying back to our 2019 tax year.
Our effective tax rate increased to 15.1%13.6% in 20192022 compared to 12.9%13.5% in 20182021. The increase was primarily due to lower excess tax benefits related to our share-based compensation program partially offset by lower non-deductible officer compensation. In addition,an increase in the prior yearFICA tip tax credit. Our effective tax rate benefitted from an adjustment relatedwas 13.5% in 2021 compared to a tax reform that we recordedbenefit of 81.4% in conjunction with2020. The increase was primarily due to the filingsignificant 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. Components of deferred tax liabilities, net are as follows: | | | | | | | | | | | | | | | | | December 29, 2020 | | December 31, 2019 | | | December 27, 2022 | | December 28, 2021 | | Deferred tax assets: | | | | | | | | | | | | | | | Deferred revenue—gift cards | | $ | 26,692 | | $ | 16,122 | | | $ | 29,889 | | $ | 24,056 | | Insurance reserves | | | 5,998 | | | 4,774 | | | | 6,506 | | | 6,407 | | Long-term deferred payroll taxes | | | 5,995 | | | — | | | Deferred payroll taxes | | | | - | | | 5,995 | | Other reserves | | | 705 | | | 601 | | | | 1,060 | | | 1,077 | | Share-based compensation | | | 5,621 | | | 5,510 | | | | 5,059 | | | 6,040 | | Operating lease liabilities | | | 146,803 | | | 137,744 | | | | 173,853 | | | 160,638 | | Deferred compensation | | | 12,778 | | | 10,503 | | | | 17,934 | | | 16,233 | | Tax credit carryforwards | | | 10,360 | | | 1,710 | | | | 2,740 | | | 3,618 | | Other assets | | | 2,119 | | | 2,482 | | | | 2,991 | | | 2,801 | | Total deferred tax asset | | | 217,071 | | | 179,446 | | | | 240,032 | | | 226,865 | | Deferred tax liabilities: | | | | | | | | | | | | | | | Property and equipment | | | (71,263) | | | (63,777) | | | | (82,832) | | | (75,022) | | Goodwill and intangibles | | | (6,896) | | | (6,241) | | | | (8,374) | | | (7,742) | | Operating lease right-of-use asset | | | (131,718) | | | (123,813) | | | | (155,837) | | | (144,153) | | Other liabilities | | | (9,996) | | | (8,310) | | | | (13,968) | | | (11,682) | | Total deferred tax liability | | | (219,873) | | | (202,141) | | | | (261,011) | | | (238,599) | | Net deferred tax liability | | $ | (2,802) | | $ | (22,695) | | | $ | (20,979) | | $ | (11,734) | |
As of December 27, 2022 and December 28, 2021, we had tax credit carryforwards of $2.7 million and $3.6 million, respectively, primarily related to FICA tip and Work opportunity tax credit carryforwards that exceeded credit limitations. These federal carryforwards expire in 2042. 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 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 | | $ | 1,662 | | Additions to tax positions related to prior years | | | 49 | | Additions to tax positions related to current year | | | 413 | | Reductions due to statute expiration | | | (160) | | Reductions due to exam settlement | | | (436) | | Balance at December 28, 2021 | | | 1,528 | | Additions to tax positions related to prior years | | | 1,545 | | Additions to tax positions related to current year | | | 872 | | Reductions due to statute expiration | | | - | | Reductions due to exam settlement | | | (20) | | Balance at December 27, 2022 | | $ | 3,925 | |
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. All entities for which unrecognized tax benefits exist as of December 27, 2022 possess a December tax year-end. 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 27, 2022, no audits were in process by a Table of Contents 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 (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) 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 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. (12) Earnings Per Share The share and net income per share data for all periods presented are based on the historical weighted-average shares outstanding. The diluted earnings per share calculations show the effect of the weighted-average restricted stock units outstanding from our equity incentive plans. Performance stock units are not included in the diluted earnings per share calculation until the performance-based criteria have been met. 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. Table of Contents Texas Roadhouse, Inc. and Subsidiaries Notes to Consolidated Financial Statements (Tabular amounts in thousands, except share and per share data) As of December 29, 2020, we have federal tax credit carryforwards of $10.2 million expiring in 2040 and state tax credit carryforwards of $0.2 million expiring in 2023. The federal tax credits include FICA tip and Work opportunity tax credits that exceeded credit limitations in the current year. 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 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:
| | | | | Balance at December 25, 2018 | | $ | 1,482 | | Additions to tax positions related to prior years | | | 16 | | Additions to tax positions related to current year | | | 362 | | Reductions due to statute expiration | | | (314) | | Reductions due to exam settlements | | | — | | Balance at December 31, 2019 | | | 1,546 | | Additions to tax positions related to prior years | | | 148 | | Additions to tax positions related to current year | | | 389 | | Reductions due to statute expiration | | | (421) | | Reductions due to exam settlement | | | — | | Balance at December 29, 2020 | | $ | 1,662 | |
As of December 29, 2020 and December 31, 2019, the total amount of accrued penalties and interest related to uncertain tax provisions was not material.
All entities for which unrecognized tax benefits exist as of December 29, 2020 possess a December tax year-end. As a result, as of December 29, 2020, the tax years ended December 26, 2017, December 25, 2018 and December 31, 2019 remain subject to examination by all tax jurisdictions. As of December 29, 2020, 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. Additionally, as of December 29, 2020, no event occurred that is likely to result in a significant increase or decrease in the unrecognized tax benefits through December 28, 2021.
(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 1 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. There were 0 shares of preferred stock outstanding at December 29, 2020 and December 31, 2019.
(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. All repurchases to date under our stock repurchase programs have been made through open market transactions. The timing and the amount of any repurchases are determined by management under parameters established by our Board of Directors, based on an evaluation of our stock price, market conditions and other corporate considerations.
For the year ended December 29, 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. For the year ended December 31, 2019, we paid $139.8
Table of Contents
Texas Roadhouse, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
(Tabular amounts in thousands, except share and per share data)
million to repurchase 2,625,245 shares of our common stock. This includes repurchases of $89.6 million under the new repurchase program and repurchases of $50.2 million under the previous stock repurchase program. We did not repurchase any shares of common stock during the year ended December 25, 2018. As of December 29, 2020, we had $147.8 million remaining under our authorized stock repurchase program.
(12) Earnings Per Share
The share and net income per share data for all periods presented are based on the historical weighted-average shares outstanding. The diluted earnings per share calculations show the effect of the weighted-average restricted stock units outstanding from our equity incentive plans. Performance stock units are not included in the diluted earnings per share calculation until the performance-based criteria have been met. See note 14 for further discussion of our equity incentive plans. For the years ended December 29, 2020, December 31, 2019, and December 25, 2018, the shares of non-vested stock that were not included because they would have had an anti-dilutive effect were not significant.
The following table sets forth the calculation of earnings per share and weighted average shares outstanding (in thousands) as presented in the accompanying consolidated statements of income and comprehensive income: | | | | | | | | | | | | | Fiscal Year Ended | | | | December 29, | | December 31, | | December 25, | | | | 2020 | | 2019 | | 2018 | | Net income attributable to Texas Roadhouse, Inc. and subsidiaries | | $ | 31,255 | | $ | 174,452 | | $ | 158,225 | | Basic EPS: | | | | | | | | | | | Weighted-average common shares outstanding | | | 69,438 | | | 70,509 | | | 71,467 | | Basic EPS | | $ | 0.45 | | $ | 2.47 | | $ | 2.21 | | Diluted EPS: | | | | | | | | | | | Weighted-average common shares outstanding | | | 69,438 | | | 70,509 | | | 71,467 | | Dilutive effect of nonvested stock | | | 455 | | | 407 | | | 497 | | Shares-diluted | | | 69,893 | | | 70,916 | | | 71,964 | | Diluted EPS | | $ | 0.45 | | $ | 2.46 | | $ | 2.20 | |
| | | | | | | | | | | | Fiscal Year Ended | | | December 27, | | December 28, | | December 29, | | | 2022 | | 2021 | | 2020 | Net income attributable to Texas Roadhouse, Inc. and subsidiaries | | $ | 269,818 | | $ | 245,294 | | $ | 31,255 | Basic EPS: | | | | | | | | | | Weighted-average common shares outstanding | | | 67,643 | | | 69,709 | | | 69,438 | Basic EPS | | $ | 3.99 | | $ | 3.52 | | $ | 0.45 | Diluted EPS: | | | | | | | | | | Weighted-average common shares outstanding | | | 67,643 | | | 69,709 | | | 69,438 | Dilutive effect of nonvested stock | | | 277 | | | 389 | | | 455 | Shares-diluted | | | 67,920 | | | 70,098 | | | 69,893 | Diluted EPS | | $ | 3.97 | | $ | 3.50 | | $ | 0.45 |
(13) Commitments and Contingencies The estimated cost of completing capital project commitments at December 29, 202027, 2022 and December 31, 201928, 2021 was $95.9$205.7 million and $119.0$135.0 million, respectively. As of December 29, 202027, 2022 and December 31, 2019,28, 2021, we are contingently liable for $13.0$11.3 million and $13.9$12.2 million, respectively, for 7 leases listed in the table below.seven lease guarantees. These amounts represent the maximum potential liability of future payments under the guarantees. In the event of default, the indemnity and default clauses in our assignment agreements govern our ability to pursue and recover damages incurred. No material liabilities have been recorded as of December 29, 202027, 2022 as the likelihood of default was deemed to be less than probable and the fair value of the guarantees is not considered significant.
Table of Contents
Texas Roadhouse, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
(Tabular amounts in thousands, except share and per share data)
| | | | | |
|
| Lease Assignment Date
|
| Current Lease Term Expiration
|
| Everett, Massachusetts (1)(2)
| | September 2002
| | February 2023
|
| Longmont, Colorado (1)
| | October 2003
| | May 2029
|
| Montgomeryville, Pennsylvania (1)
| | October 2004
| | March 2026
|
| Fargo, North Dakota (1)
| | February 2006
| | July 2026
|
| Logan, Utah (1)
| | January 2009
| | August 2024
|
| Irving, Texas (3)
|
| December 2013
|
| December 2024
|
| Louisville, Kentucky (3)(4)
|
| December 2013
|
| November 2023
|
|
(1) | Real estate lease agreements for restaurant locations which we entered into before granting franchise rights to those restaurants. We have subsequently assigned the leases to the franchisees, but remain contingently liable, under the terms of the lease, if the franchisee defaults. |
(2) | As discussed in note 17, this restaurant is owned in part by our founder. |
(3) | Leases associated with restaurants which were sold. The leases were assigned to the acquirer, but we remain contingently liable under the terms of the lease if the acquirer defaults. |
(4) | We may be released from liability after the initial contractual lease term expiration contingent upon certain conditions being met by the acquirer. |
During the year ended December 29, 2020,27, 2022, we bought most of our beef from 3four suppliers. Although there are a limited number of beef suppliers, we believe that other suppliers could provide a similar product on comparable terms. A change in suppliers, however, could cause supply shortages, higher costs to secure adequate supplies and a possible loss of sales, which would affect operating results adversely. We have no material minimum purchase commitments with our vendors that extend beyond a year. Occasionally, we are a defendant in litigation arising in the ordinary course of business, including "slip and fall" accidents, employment related claims, claims related to our service of alcohol, and claims from guests or employees alleging illness, injury or food quality, health or operational concerns. None of these types of litigation, most of which are covered by insurance, has had a material effect on us and, as of the date of this report, we are not party to any litigation that we believe could have a material adverse effect on our business. (14) Share-based Compensation On May 16, 2013,13, 2021, our stockholders approved the Texas Roadhouse, Inc. 20132021 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 basedperformance-based awards. This plan replaced the Texas Roadhouse, Inc. 2004 Equity2013 Long-Term Incentive Plan. 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. AnA RSU is the conditional right to receive 1one 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 1one 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:
Table of Contents Texas Roadhouse, Inc. and Subsidiaries Notes to Consolidated Financial Statements (Tabular amounts in thousands, except share and per share data) | | | | | | | | | | | | | | | Fiscal Year Ended | | | | | December 29, | | December 31, | | December 25, | | | | | 2020 | | 2019 | | 2018 | | Labor expense | | | $ | 10,081 | | $ | 9,032 | | $ | 8,463 | | General and administrative expense | | | | 19,350 | | | 26,468 | | | 25,520 | | Total share-based compensation expense | | | $ | 29,431 | | $ | 35,500 | | $ | 33,983 | |
The following table summarizes the share-based compensation recorded in the accompanying consolidated statements of income and comprehensive income: | | | | | | | | | | | | | | | Fiscal Year Ended | | | | | December 27, | | December 28, | | December 29, | | | | | 2022 | | 2021 | | 2020 | | Labor expense | | | $ | 10,656 | | $ | 10,323 | | $ | 10,081 | | General and administrative expense | | | | 26,007 | | | 27,816 | | | 19,350 | | Total share-based compensation expense | | | $ | 36,663 | | $ | 38,139 | | $ | 29,431 | |
Share-based compensation activity by type of grant as of December 29, 202027, 2022 and changes during the period then ended are presented below. For bothWe recognize expense for RSUs and PSUs weover the vesting term based on the grant date fair value of the award. We do not estimate forfeitures as we record them as they occur. Summary Details for RSUs | | | | | | | | | | | | | | | | | | | | | | | | | | | Weighted-Average | | Weighted-Average | | | | | | | | Weighted-Average | | Weighted-Average | | | | | | | | | Grant Date Fair | | Remaining Contractual | | Aggregate | | | | | Grant Date Fair | | Remaining Contractual | | Aggregate | | | | Shares | | Value | | Term (years) | | Intrinsic Value | | | Shares | | Value | | Term (years) | | Intrinsic Value | | Outstanding at December 31, 2019 | | 836,427 | | $ | 55.20 | | | | | | | | Outstanding at December 28, 2021 | | | 558,183 | | $ | 82.52 | | | | | | | Granted | | 501,575 | | | 57.43 | | | | | | | | 395,859 | | | 88.40 | | | | | | | Forfeited | | (25,204) | | | 54.76 | | | | | | | | (45,207) | | | 84.26 | | | | | | | Vested | | (519,235) | | | 55.60 | | | | | | | | (413,996) | | | 85.37 | | | | | | | Outstanding at December 29, 2020 | | 793,563 | | $ | 56.37 | | 0.9 | | $ | 62,667 | | | Outstanding at December 27, 2022 | | | 494,839 | | $ | 84.55 | | 0.9 | | $ | 47,663 | |
As of December 29, 2020,27, 2022, with respect to unvested RSUs, there was $19.2$18.5 million of unrecognized compensation cost that is expected to be recognized over a weighted-average period of 0.9 years. The vesting terms of the RSUs range from 1.0 to 5.0 years. The total intrinsic value of RSUs vested during the years ended December 29, 2020,27, 2022, December 31, 201928, 2021 and December 25, 201829, 2020 was $30.537.1 million, $27.8$54.7 million and $32.1 $30.5 million, respectively. The excess tax benefit associated with vested RSUs for the years ended December 27, 2022, December 28, 2021 and December 29, 2020 December 31, 2019 and December 25, 2018 was $0.4$0.4 million, $0.3$4.3 million and $1.9$0.4 million, respectively, which was recognized in the income tax provision. Summary Details for PSUs | | | | | | | | | | | | | | | | | | | | | | | | | Weighted-Average | | Weighted-Average | | | | | | | Weighted-Average | | Weighted-Average | | | | | | | | Grant Date Fair | | Remaining Contractual | | Aggregate | | | | Grant Date Fair | | Remaining Contractual | | Aggregate | | | Shares | | Value | | Term (years) | | Intrinsic Value | | Shares | | Value | | Term (years) | | Intrinsic Value | Outstanding at December 31, 2019 | | 77,000 | | $ | 61.86 | | | | ��� | | | Outstanding at December 28, 2021 | | | 31,952 | | $ | 86.22 | | | | | | Granted | | 79,000 | | | 55.98 | | | | | | | 29,600 | | | 86.41 | | | | | | Incremental Performance Shares (1) | | 18,946 | | | 61.86 | | | | | | | Performance shares adjustment (1) | | | 28,074 | | | 84.96 | | | | | | Forfeited | | — | | | — | | | | | | | — | | | — | | | | | | Vested | | (95,946) | | | 61.86 | | | | | | | (60,026) | | | 86.22 | | | | | | Outstanding at December 29, 2020 | | 79,000 | | $ | 55.98 | | 0.1 | | $ | 6,238 | | Outstanding at December 27, 2022 | | | 29,600 | | $ | 87.52 | | 0.1 | | $ | 2,851 |
(1) | Additional shares from the January 20192021 PSU grant that vested in January 20202022 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. Share-based compensation expense is recognized for the number of units expected to vest at the end of the period and is expensed beginning on the grant date and through the performance period. For each grant, PSUs vest after meeting the performance and service conditions. The total intrinsic value of PSUs vested during the years ended December 29, 2020,27, 2022, December 31, 201928, 2021 and December 25, 2018 was $5.4 million, $8.8 million and $8.9 million, respectively. On January 8, 2021, 5,199 shares vested related to the January 2020 PSU grant and are expected to be distributed during the 13 weeks ending March 30, 2021. As of December 29, 2020 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$5.4 million, $0.4 million and $5.4 million, respectively.
Table of Contents Texas Roadhouse, Inc. and Subsidiaries Notes to Consolidated Financial Statements (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 0no allowable excess tax benefit associated with vested PSUs for the years ended December 29, 202027, 2022, December 28, 2021 and December 31, 2019.29, 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 excess tax benefit associated with vested PSUs for401(k) Plan allows participating employees to defer the year ended December 25, 2018 was $0.7receipt 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 which was recognizedand $1.6 million were recorded in labor expense and general and administrative expense, respectively, within the consolidated statements of income tax provision.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. (15)(16) Fair Value Measurement
ASC 820, Fair Value MeasurementsAt December 27, 2022 and Disclosures ("ASC 820"), establishes a framework for measuringDecember 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 and expands disclosures about fairof our amended revolving credit facility approximated its carrying value measurements. ASC 820 establishessince it is 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.
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| Level 1
| Inputs based on quoted prices in active markets for identical assets.
| Level 2
| Inputs other than quoted prices included within Level 1 that are observable for the assets, either directly or indirectly.
| Level 3
| Inputs that are unobservable for the asset.
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variable rate credit facility (Level 2). There were 0no transfers among levels within the fair value hierarchy during the year ended December 29, 2020.27, 2022. The following table presents the fair values for our financial assets and liabilities measured on a recurring basis: | | | | | | | | | | | | | | | | | | | | | Fair Value Measurements | | | Fair Value Measurements | | | | Level | | December 29, 2020 | | December 31, 2019 | | | Level | | December 27, 2022 | | December 28, 2021 | | Deferred compensation plan—assets | | 1 | | $ | 55,633 | | $ | 44,623 | | | 1 | | $ | 61,835 | | $ | 67,512 | | Deferred compensation plan—liabilities | | 1 | | $ | (55,614) | | $ | (44,679) | | | 1 | | $ | (61,668) | | $ | (67,431) | |
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 1 or more investment funds held in a rabbi trust. We report the accounts of the rabbi trustdeferred 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. The realized and unrealized holding gains and losses related to these investments, as well as the offsetting compensation expense, are recorded in general and administrative expense in the consolidated statements of income and comprehensive income.
The following table presents the fair value of our assets measured on a nonrecurring basis: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Fair Value Measurements | | Total gain (loss) | | Fair Value Measurements | | Total gain (loss) | | | | | | | | | | | Fiscal Year Ended | | | | | | | | | Fiscal Year Ended | | | | | December 29, | | December 31, | | December 29, | | December 31, | | | | | | | December 27, | | December 28, | | December 27, | | December 28, | | | Level | | 2020 | | 2019 | | 2020 | | 2019 | | Level | | 2022 | | 2021 | | 2022 | | 2021 | Long-lived assets held for sale | | 3 | | $ | 1,645 | | $ | — | | $ | (432) | | $ | — | | 3 | | $ | — | | $ | 1,175 | | $ | 690 | | $ | (470) | Long-lived assets held for use | | 1 | | $ | — | | $ | 1,684 | | $ | (364) | | $ | 1,190 | | 3 | | $ | 2,000 | | $ | — | | $ | (997) | | $ | — | Operating lease right-of-use assets | | 3 | | $ | — | | $ | 611 | | $ | (413) | | $ | (1,144) | | 3 | | $ | — | | $ | — | | $ | (708) | | $ | — | Goodwill | | 3 | | $ | 2,625 | | $ | — | | $ | (1,076) | | $ | — | | Investments in unconsolidated affiliates | | 3 | | $ | 1,531 | | $ | — | | $ | (1,091) | | $ | — | | 3 | | $ | — | | $ | — | | $ | — | | $ | (1,531) |
Table of Contents Texas Roadhouse, Inc. and Subsidiaries Notes to Consolidated Financial Statements (Tabular amounts in thousands, except share and per share data) Long-lived assets held for sale include land and building at a site that was relocated.relocated and had a carrying amount of $1.2 million as of December 28, 2021. These assets arewere included in prepaid expenses and other current assets in our consolidated balance sheets. These assets aresheets and were valued using a Level 3 input, i.e., information from broker listings discounted for estimated selling costs. Thisinput. These assets were sold during the fiscal year ended December 27, 2022 and resulted in a lossgain of $0.4$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 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. (18) Related Party Transactions 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. Table of Contents Texas Roadhouse, Inc. and Subsidiaries Notes to Consolidated Financial Statements (Tabular amounts in thousands, except share and per share data) (19) 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 leasehold improvementsthe results of our domestic company Jaggers restaurants and the results of our retail initiatives, are included in Other. In addition, Corporate-related segment assets, depreciation and amortization, and capital expenditures are also included in Other. Management uses restaurant margin as the measure for oneassessing 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 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. Restaurant margin as presented may not be comparable to other similarly titled measures of other companies in our industry. Restaurant and other sales for all operating segments are derived primarily from food and beverage sales. We do not rely on any major customer as a source of sales and the customers and assets of our reportable segments are located predominantly in the United States. There are no material transactions between reportable segments. The following tables reconcile our segment results to our consolidated results reported in accordance with GAAP: | | | | | | | | | | | | | Fiscal Year Ended December 27, 2022 | | Texas Roadhouse | | Bubba's 33 | | Other | | Total | Restaurant and other sales | $ | 3,762,884 | | $ | 211,690 | | $ | 14,217 | | $ | 3,988,791 | Restaurant operating costs (excluding depreciation and amortization) | | 3,162,687 | | | 184,756 | | | 13,847 | | | 3,361,290 | Restaurant margin | $ | 600,197 | | $ | 26,934 | | $ | 370 | | $ | 627,501 | | | | | | | | | | | | | Depreciation and amortization | $ | 112,546 | | $ | 13,012 | | $ | 11,679 | | $ | 137,237 | Segment assets | | 2,015,173 | | | 201,503 | | | 308,989 | | | 2,525,665 | Capital expenditures | | 204,662 | | | 30,625 | | | 10,834 | | | 246,121 | | | | | | | | | | | | |
Table of Contents Texas Roadhouse, Inc. and Subsidiaries Notes to Consolidated Financial Statements (Tabular amounts in thousands, except share and per share data) scheduled to be relocated in 2021. These assets were reduced to a fair value of zero in 2020. This resulted in a loss of $0.4 million which is included in impairment and closure, net in our consolidated statements of income and comprehensive income. Long-lived assets held for use as of December 31, 2019 include leasehold improvements for one restaurant that was subject to a forced relocation. This restaurant was relocated in February 2020 at which time the contractually negotiated amount for these assets was received.
Operating lease right-of-use assets as of December 29, 2020 include the lease related assets for one restaurant that relocated in February 2020 and one restaurant scheduled to be relocated in 2021. These assets were reduced to a fair value of zero in 2020. This resulted in a loss of $0.4 million which is included in impairment and closure, net in our consolidated statements of income and comprehensive income. Operating lease right-of-use assets as of December 31, 2019, include the lease related assets for one store that was permanently closed in April 2020.
Goodwill includes two restaurants whose carrying values were determined to be in excess of their fair values as part of our annual goodwill impairment assessment. 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. This resulted in a loss of $1.1 million which is included in impairment and closure, net in our consolidated statements of income and comprehensive income.
Investments in unconsolidated affiliates include a 40% equity interest in a China joint venture. This asset is valued using a Level 3 input, i.e., the amount we expect to receive upon the sale of this investment. This resulted in a loss of $1.1 million which is included in equity (loss) income from investments in unconsolidated affiliates in our consolidated statements of income and comprehensive income.
At December 29, 2020 and December 31, 2019, 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 29, 2020, the fair value of our revolving credit facility approximated its carrying value since it is a variable rate credit facility (Level 2).
(16) Impairment and Closure Costs
We recorded impairment and closure costs of $2.3 million, ($0.9) million and $0.3 million for the years ended December 29, 2020, December 31, 2019 and December 25, 2018.
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 4 restaurants, all of which have relocated or are scheduled to be relocated. In addition, in 2020, we recorded goodwill impairment of $1.1 million related to 2 restaurants.
Impairment and closure costs in 2019 included a gain of $2.6 million related to the forced relocation of 1 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.
Impairment and closure costs in 2018 were related to costs associated with the relocation of restaurants.
(17) Related Party Transactions
As of December 29, 2020, we had 7 franchise restaurants and 2 majority-owned company restaurants owned in part by certain of our officers. These franchise entities paid us fees of $1.6 million for the year ended December 29, 2020. As of December 31, 2019 and December 25, 2018, we had 6 franchise restaurants and 1 majority-owned company restaurant owned in part by certain of our officers. These franchise entities paid us fees of $1.4 million and $1.3 million for the years ended December 31, 2019 and December 25, 2018, respectively. As discussed in note 13, we
Table of Contents
Texas Roadhouse, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
(Tabular amounts in thousands, except share and per share data)
are contingently liable on a lease related to one of these franchise restaurants.
On December 3, 2018, we acquired 1 franchise restaurant owned in part by our founder. This entity paid us fees of $0.1 million for the year ended December 25, 2018.
In addition, in 2018, our founder made a personal contribution of $1.0 million to cover a portion of the planned expenses incurred as part of the annual managing partner conference which marked our 25th anniversary. This amount was recorded as general and administrative expense on the consolidated statements of income and comprehensive income and as additional paid-in-capital on the consolidated statements of stockholders’ equity.
| Fiscal Year Ended December 28, 2021 | | Texas Roadhouse | | Bubba's 33 | | Other | | Total | Restaurant and other sales | $ | 3,253,889 | | $ | 174,355 | | $ | 10,932 | | $ | 3,439,176 | Restaurant operating costs (excluding depreciation and amortization) | | 2,701,850 | | | 145,493 | | | 10,101 | | | 2,857,444 | Restaurant margin | $ | 552,039 | | $ | 28,862 | | $ | 831 | | $ | 581,732 | | | | | | | | | | | | | Depreciation and amortization | $ | 105,079 | | $ | 12,700 | | $ | 8,982 | | $ | 126,761 | Segment assets | | 1,874,620 | | | 179,856 | | | 457,476 | | | 2,511,952 | Capital expenditures | | 167,746 | | | 23,408 | | | 9,538 | | | 200,692 | | | | | | | | | | | | | | Fiscal Year Ended December 29, 2020 | | Texas Roadhouse | | Bubba's 33 | | Other | | Total | Restaurant and other sales | $ | 2,267,815 | | $ | 106,981 | | $ | 5,381 | | $ | 2,380,177 | Restaurant operating costs (excluding depreciation and amortization) | | 2,011,517 | | | 98,565 | | | 4,455 | | | 2,114,537 | Restaurant margin | $ | 256,298 | | $ | 8,416 | | $ | 926 | | $ | 265,640 | | | | | | | | | | | | | Depreciation and amortization | $ | 98,485 | | $ | 12,036 | | $ | 7,356 | | $ | 117,877 | Capital expenditures | | 127,162 | | | 13,833 | | | 13,406 | | | 154,401 |
(18) Selected Quarterly Financial Data (unaudited)
A reconciliation of restaurant margin to income from operations is presented below. We do not allocate interest expense, net and equity income (loss) from investments in unconsolidated affiliates to reportable segments. | | | | | | | | | | | | | | | | | | | 2020 | | | | First | | Second | | Third | | Fourth | | | | | | | Quarter | | Quarter | | Quarter | | Quarter | | Total | | Revenue | | $ | 652,524 | | $ | 476,425 | | $ | 631,185 | | $ | 637,989 | | $ | 2,398,123 | | Total costs and expenses | | $ | 636,734 | | $ | 523,743 | | $ | 596,209 | | $ | 617,593 | | $ | 2,374,279 | | Income (loss) from operations | | $ | 15,790 | | $ | (47,318) | | $ | 34,976 | | $ | 20,396 | | $ | 23,844 | | Net income (loss) attributable to Texas Roadhouse, Inc. and subsidiaries | | $ | 16,029 | | $ | (33,553) | | $ | 29,230 | | $ | 19,549 | | $ | 31,255 | | Basic earnings (loss) per common share | | $ | 0.23 | | $ | (0.48) | | $ | 0.42 | | $ | 0.28 | | $ | 0.45 | | Diluted earnings (loss) per common share | | $ | 0.23 | | $ | (0.48) | | $ | 0.42 | | $ | 0.28 | | $ | 0.45 | | Cash dividends declared per share | | $ | 0.36 | | $ | - | | $ | - | | $ | - | | $ | 0.36 | |
| | | | | | | | | | | | | | | | | | | 2019 | | | | First | | Second | | Third | | Fourth | | | | | | | Quarter | | Quarter | | Quarter | | Quarter | | Total | | Revenue | | $ | 690,608 | | $ | 689,828 | | $ | 650,489 | | $ | 725,238 | | $ | 2,756,163 | | Total costs and expenses | | $ | 630,163 | | $ | 636,545 | | $ | 605,605 | | $ | 671,827 | | $ | 2,544,140 | | Income from operations | | $ | 60,445 | | $ | 53,283 | | $ | 44,884 | | $ | 53,411 | | $ | 212,023 | | Net income attributable to Texas Roadhouse, Inc. and subsidiaries | | $ | 50,390 | | $ | 44,845 | | $ | 36,531 | | $ | 42,686 | | $ | 174,452 | | Basic earnings per common share | | $ | 0.70 | | $ | 0.63 | | $ | 0.53 | | $ | 0.61 | | $ | 2.47 | | Diluted earnings per common share | | $ | 0.70 | | $ | 0.63 | | $ | 0.52 | | $ | 0.61 | | $ | 2.46 | | Cash dividends declared per share | | $ | 0.30 | | $ | 0.30 | | $ | 0.30 | | $ | 0.30 | | $ | 1.20 | |
The fourth quarter of 2019 includes an estimated impact of $0.10 to $0.11 per diluted share for the 53rd week.
| | | | | | | | | | | | | Fiscal Year Ended | | | | December 27, 2022 | | December 28, 2021 | | December 29, 2020 | | Restaurant margin | | $ | 627,501 | | $ | 581,732 | | $ | 265,640 | | | | | | | | | | | | | Add: | | | | | | | | | | | Franchise royalties and fees | | | 26,128 | | | 24,770 | | | 17,946 | | | | | | | | | | | | | Less: | | | | | | | | | | | Pre-opening | | | 21,883 | | | 24,335 | | | 20,099 | | Depreciation and amortization | | | 137,237 | | | 126,761 | | | 117,877 | | Impairment and closure, net | | | 1,600 | | | 734 | | | 2,263 | | General and administrative | | | 172,712 | | | 157,480 | | | 119,503 | | Income from operations | | $ | 320,197 | | $ | 297,192 | | $ | 23,844 | | | | | | | | | | | | |
(20) Subsequent Events 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. We expect to complete the preliminary purchase price allocations relating to these transactions in the first quarter of fiscal 2023. |