UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended September 26, 2017 June 29, 2021
OR
☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from to
Commission File Number 000-50972
Texas Roadhouse, Inc.
(Exact name of registrant specified in its charter)
Delaware | | 20-1083890 |
(State or other jurisdiction of | | (IRS Employer |
incorporation or organization) | | Identification Number) |
6040 Dutchmans Lane, Suite 200
Louisville, Kentucky40205
(Address of principal executive offices) (Zip Code)
(502) (502) 426-9984
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
| | |
Title of each class | Trading Symbol(s) | Name of each exchange on which registered |
Common Stock, par value $0.001 per share | TXRH | NASDAQ Global Select Market |
Indicate by check mark whether registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐.☐.
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulations S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes ☒ No ☐.☐.
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of "large accelerated filer," "accelerated filer," "smaller reporting company," and "emerging growth company" in Rule 12b-2 of the Exchange Act. (Check one):
Large | Accelerated | Non-accelerated | Smaller |
| Emerging |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒.☒.
The number of shares of common stock outstanding were 71,106,21569,830,389 on October 25, 2017.July 28, 2021.
2
PART I — FINANCIAL INFORMATION
ITEM 1 — FINANCIAL STATEMENTS
Texas Roadhouse, Inc. and Subsidiaries
Condensed Consolidated Balance Sheets
(in thousands, except share and per share data)
(unaudited)
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| September 26, 2017 |
| December 27, 2016 |
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Assets |
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Current assets: |
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|
|
Cash and cash equivalents |
| $ | 114,436 |
| $ | 112,944 |
|
Receivables, net of allowance for doubtful accounts of $52 at September 26, 2017 and $33 at December 27, 2016 |
|
| 24,979 |
|
| 56,127 |
|
Inventories, net |
|
| 15,453 |
|
| 16,088 |
|
Prepaid income taxes |
|
| — |
|
| 954 |
|
Prepaid expenses |
|
| 10,461 |
|
| 12,150 |
|
Deferred tax assets, net |
|
| — |
|
| 1,996 |
|
Total current assets |
|
| 165,329 |
|
| 200,259 |
|
Property and equipment, net of accumulated depreciation of $512,061 at September 26, 2017 and $457,102 at December 27, 2016 |
|
| 886,972 |
|
| 830,054 |
|
Goodwill |
|
| 121,040 |
|
| 116,571 |
|
Intangible assets, net of accumulated amortization of $12,445 at September 26, 2017 and $11,753 at December 27, 2016 |
|
| 2,930 |
|
| 3,622 |
|
Other assets |
|
| 36,448 |
|
| 29,465 |
|
Total assets |
| $ | 1,212,719 |
| $ | 1,179,971 |
|
Liabilities and Stockholders’ Equity |
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Current liabilities: |
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Current maturities of long-term debt and obligation under capital lease |
| $ | 9 |
| $ | 167 |
|
Accounts payable |
|
| 48,979 |
|
| 50,789 |
|
Deferred revenue-gift cards |
|
| 70,648 |
|
| 129,558 |
|
Accrued wages |
|
| 29,580 |
|
| 26,039 |
|
Income taxes payable |
|
| 8,581 |
|
| — |
|
Accrued taxes and licenses |
|
| 23,483 |
|
| 19,698 |
|
Dividends payable |
|
| 14,931 |
|
| 13,418 |
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Other accrued liabilities |
|
| 42,058 |
|
| 39,858 |
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Total current liabilities |
|
| 238,269 |
|
| 279,527 |
|
Long-term debt and obligation under capital lease, excluding current maturities |
|
| 51,984 |
|
| 52,381 |
|
Stock option and other deposits |
|
| 7,549 |
|
| 7,491 |
|
Deferred rent |
|
| 40,261 |
|
| 36,103 |
|
Deferred tax liabilities, net |
|
| 4,707 |
|
| 12,268 |
|
Other liabilities |
|
| 39,157 |
|
| 33,959 |
|
Total liabilities |
|
| 381,927 |
|
| 421,729 |
|
Texas Roadhouse, Inc. and subsidiaries stockholders’ equity: |
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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, 71,101,654 and 70,619,737 shares issued and outstanding at September 26, 2017 and December 27, 2016, respectively) |
|
| 71 |
|
| 71 |
|
Additional paid-in-capital |
|
| 229,909 |
|
| 219,626 |
|
Retained earnings |
|
| 588,826 |
|
| 530,723 |
|
Accumulated other comprehensive loss |
|
| (63) |
|
| (194) |
|
Total Texas Roadhouse, Inc. and subsidiaries stockholders’ equity |
|
| 818,743 |
|
| 750,226 |
|
Noncontrolling interests |
|
| 12,049 |
|
| 8,016 |
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Total equity |
|
| 830,792 |
|
| 758,242 |
|
Total liabilities and equity |
| $ | 1,212,719 |
| $ | 1,179,971 |
|
See accompanying notes to condensed consolidated financial statements.
3
Texas Roadhouse, Inc. and Subsidiaries
Condensed Consolidated Statements of Income and Comprehensive Income
| | | | | | | |
|
| June 29, 2021 |
| December 29, 2020 |
| ||
Assets | | | | | | | |
Current assets: | | | | | | | |
Cash and cash equivalents | | $ | 483,419 | | $ | 363,155 | |
Receivables, net of allowance for doubtful accounts of $10 at June 29, 2021 and $11 at December 29, 2020 | |
| 48,600 | |
| 98,418 | |
Inventories, net | |
| 25,634 | |
| 22,364 | |
Prepaid income taxes | |
| 5,161 | |
| 4,502 | |
Prepaid expenses and other current assets | |
| 18,959 | |
| 22,212 | |
Total current assets | |
| 581,773 | |
| 510,651 | |
Property and equipment, net of accumulated depreciation of $816,085 at June 29, 2021 and $763,700 at December 29, 2020 | |
| 1,117,393 | |
| 1,088,623 | |
Operating lease right-of-use assets, net | | | 547,387 | | | 530,625 | |
Goodwill | |
| 127,001 | |
| 127,001 | |
Intangible assets, net of accumulated amortization of $14,731 at June 29, 2021 and $14,341 at December 29, 2020 | |
| 1,881 | |
| 2,271 | |
Other assets | |
| 73,510 | |
| 65,990 | |
Total assets | | $ | 2,448,945 | | $ | 2,325,161 | |
Liabilities and Stockholders’ Equity | | | | | | | |
Current liabilities: | | | | | | | |
Current portion of operating lease liabilities | | $ | 20,578 | | $ | 19,271 | |
Current maturities of long-term debt | | | — | | | 50,000 | |
Accounts payable | |
| 89,300 | |
| 66,977 | |
Deferred revenue-gift cards | |
| 177,946 | |
| 232,812 | |
Accrued wages and payroll taxes | |
| 71,837 | |
| 51,982 | |
Income taxes payable | | | 6,107 | | | 2,859 | |
Accrued taxes and licenses | |
| 31,976 | |
| 24,751 | |
Other accrued liabilities | |
| 82,064 | |
| 57,666 | |
Total current liabilities | |
| 479,808 | |
| 506,318 | |
Operating lease liabilities, net of current portion | | | 590,443 | | | 572,171 | |
Long-term debt | |
| 190,000 | |
| 190,000 | |
Restricted stock and other deposits | |
| 7,490 | |
| 7,481 | |
Deferred tax liabilities, net | |
| 5,753 | |
| 2,802 | |
Other liabilities | |
| 112,768 | |
| 103,338 | |
Total liabilities | |
| 1,386,262 | |
| 1,382,110 | |
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, 69,830,389 and 69,561,861 shares issued and outstanding at June 29, 2021 and December 29, 2020, respectively) | |
| 70 | |
| 70 | |
Additional paid-in-capital | |
| 153,248 | |
| 145,626 | |
Retained earnings | |
| 893,613 | |
| 781,915 | |
Accumulated other comprehensive loss | |
| (96) | |
| (106) | |
Total Texas Roadhouse, Inc. and subsidiaries stockholders’ equity | |
| 1,046,835 | |
| 927,505 | |
Noncontrolling interests | |
| 15,848 | |
| 15,546 | |
Total equity | |
| 1,062,683 | |
| 943,051 | |
Total liabilities and equity | | $ | 2,448,945 | | $ | 2,325,161 | |
(in thousands, except per share data)
(unaudited)
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| 13 Weeks Ended |
| 39 Weeks Ended |
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| September 26, 2017 |
| September 27, 2016 |
| September 26, 2017 |
| September 27, 2016 |
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Revenue: |
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Restaurant sales |
| $ | 536,341 |
| $ | 477,617 |
| $ | 1,661,821 |
| $ | 1,493,531 |
|
Franchise royalties and fees |
|
| 4,166 |
|
| 4,020 |
|
| 12,634 |
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| 12,473 |
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Total revenue |
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| 540,507 |
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| 481,637 |
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| 1,674,455 |
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| 1,506,004 |
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Costs and expenses: |
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Restaurant operating costs (excluding depreciation and amortization shown separately below): |
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Cost of sales |
|
| 176,498 |
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| 161,886 |
|
| 545,862 |
|
| 506,565 |
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Labor |
|
| 169,355 |
|
| 145,301 |
|
| 514,287 |
|
| 442,861 |
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Rent |
|
| 11,257 |
|
| 10,266 |
|
| 33,238 |
|
| 30,477 |
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Other operating |
|
| 83,679 |
|
| 73,583 |
|
| 254,176 |
|
| 227,082 |
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Pre-opening |
|
| 4,548 |
|
| 5,017 |
|
| 14,302 |
|
| 14,253 |
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Depreciation and amortization |
|
| 23,534 |
|
| 20,941 |
|
| 69,236 |
|
| 60,718 |
|
Impairment and closure |
|
| 2 |
|
| 13 |
|
| 13 |
|
| 54 |
|
General and administrative |
|
| 26,123 |
|
| 26,162 |
|
| 94,594 |
|
| 82,933 |
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Total costs and expenses |
|
| 494,996 |
|
| 443,169 |
|
| 1,525,708 |
|
| 1,364,943 |
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Income from operations |
|
| 45,511 |
|
| 38,468 |
|
| 148,747 |
|
| 141,061 |
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Interest expense, net |
|
| 500 |
|
| 288 |
|
| 1,211 |
|
| 902 |
|
Equity income from investments in unconsolidated affiliates |
|
| (359) |
|
| (4) |
|
| (1,149) |
|
| (831) |
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Income before taxes |
|
| 45,370 |
|
| 38,184 |
| $ | 148,685 |
| $ | 140,990 |
|
Provision for income taxes |
|
| 13,046 |
|
| 11,381 |
|
| 41,159 |
|
| 42,325 |
|
Net income including noncontrolling interests |
|
| 32,324 |
|
| 26,803 |
| $ | 107,526 |
| $ | 98,665 |
|
Less: Net income attributable to noncontrolling interests |
|
| 1,310 |
|
| 1,128 |
|
| 4,618 |
|
| 3,792 |
|
Net income attributable to Texas Roadhouse, Inc. and subsidiaries |
| $ | 31,014 |
| $ | 25,675 |
| $ | 102,908 |
| $ | 94,873 |
|
Other comprehensive income (loss), net of tax: |
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Unrealized gain on derivatives, net of tax of ($-), ($-), ($-) and ($18), respectively |
|
| — |
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| — |
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| — |
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| 27 |
|
Foreign currency translation adjustment, net of tax of ($55), ($18), ($82) and $7, respectively |
|
| 88 |
|
| 29 |
|
| 131 |
|
| (11) |
|
Total other comprehensive income, net of tax |
|
| 88 |
|
| 29 |
|
| 131 |
|
| 16 |
|
Total comprehensive income |
| $ | 31,102 |
| $ | 25,704 |
| $ | 103,039 |
| $ | 94,889 |
|
Net income per common share attributable to Texas Roadhouse, Inc. and subsidiaries: |
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Basic |
| $ | 0.44 |
| $ | 0.36 |
| $ | 1.45 |
| $ | 1.35 |
|
Diluted |
| $ | 0.43 |
| $ | 0.36 |
| $ | 1.44 |
| $ | 1.34 |
|
Weighted average shares outstanding: |
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Basic |
|
| 71,067 |
|
| 70,477 |
|
| 70,939 |
|
| 70,338 |
|
Diluted |
|
| 71,532 |
|
| 70,981 |
|
| 71,449 |
|
| 70,898 |
|
Cash dividends declared per share |
| $ | 0.21 |
| $ | 0.19 |
| $ | 0.63 |
| $ | 0.57 |
|
See accompanying notes to condensed consolidated financial statements.
43
Texas Roadhouse, Inc. and Subsidiaries
Condensed Consolidated Statements of Income (Loss) and Comprehensive Income (Loss)
(in thousands, except per share data)
(unaudited)
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
| | 13 Weeks Ended | | 26 Weeks Ended | | ||||||||
|
| June 29, 2021 |
| June 30, 2020 |
| June 29, 2021 |
| June 30, 2020 |
| ||||
Revenue: | | | | | | | | | | | | | |
Restaurant and other sales | | $ | 892,444 | | $ | 473,090 | | $ | 1,687,367 | | $ | 1,120,716 | |
Franchise royalties and fees | | | 6,344 | | | 3,335 | | | 12,050 | | | 8,233 | |
Total revenue | |
| 898,788 | |
| 476,425 | |
| 1,699,417 | |
| 1,128,949 | |
Costs and expenses: | | | | | | | | | | | | | |
Restaurant operating costs (excluding depreciation and amortization shown separately below): | | | | | | | | | | | | | |
Food and beverage | |
| 295,504 | | | 164,041 | | | 546,986 | | | 374,221 | |
Labor | |
| 288,147 | | | 194,622 | | | 546,183 | | | 435,701 | |
Rent | |
| 14,956 | | | 13,251 | | | 29,408 | | | 26,722 | |
Other operating | |
| 135,606 | | | 89,348 | | | 258,985 | | | 193,637 | |
Pre-opening | |
| 6,319 | | | 4,290 | | | 10,587 | | | 9,402 | |
Depreciation and amortization | |
| 31,650 | | | 29,016 | | | 62,519 | | | 58,070 | |
Impairment and closure, net | |
| 17 | | | (440) | | | 521 | | | 155 | |
General and administrative | |
| 36,861 | | | 29,615 | | | 73,573 | | | 62,569 | |
Total costs and expenses | |
| 809,060 | |
| 523,743 | |
| 1,528,762 | |
| 1,160,477 | |
Income (loss) from operations | |
| 89,728 | |
| (47,318) | |
| 170,655 | |
| (31,528) | |
Interest expense, net | |
| 975 | | | 1,030 | | | 2,435 | | | 1,099 | |
Equity income (loss) from investments in unconsolidated affiliates | |
| 239 | | | (90) | | | 22 | | | (598) | |
Income (loss) before taxes | | $ | 88,992 | | $ | (48,438) | | $ | 168,242 | | $ | (33,225) | |
Income tax expense (benefit) | |
| 11,067 | | | (15,132) | | | 23,887 | | | (17,071) | |
Net income (loss) including noncontrolling interests | | | 77,925 | | | (33,306) | | $ | 144,355 | | $ | (16,154) | |
Less: Net income attributable to noncontrolling interests | |
| 2,445 | | | 247 | | | 4,725 | | | 1,370 | |
Net income (loss) attributable to Texas Roadhouse, Inc. and subsidiaries | | $ | 75,480 | | $ | (33,553) | | $ | 139,630 | | $ | (17,524) | |
Other comprehensive income (loss), net of tax: | | | | | | | | | | | | | |
Foreign currency translation adjustment, net of tax of ($7), ($4), ($3) and $9, respectively | | | 22 | | | 10 | | | 10 | | | (27) | |
Total comprehensive income (loss) | | $ | 75,502 | | $ | (33,543) | | $ | 139,640 | | $ | (17,551) | |
Net income (loss) per common share attributable to Texas Roadhouse, Inc. and subsidiaries: | | | | | | | | | | | | | |
Basic | | $ | 1.08 | | $ | (0.48) | | $ | 2.00 | | $ | (0.25) | |
Diluted | | $ | 1.08 | | $ | (0.48) | | $ | 1.99 | | $ | (0.25) | |
Weighted average shares outstanding: | | | | | | | | | | | | | |
Basic | |
| 69,790 | | | 69,361 | | | 69,713 | | | 69,391 | |
Diluted | |
| 70,161 | | | 69,361 | | | 70,150 | | | 69,391 | |
Cash dividends declared per share | | $ | 0.40 | | $ | — | | $ | 0.40 | | $ | 0.36 | |
See accompanying notes to condensed consolidated financial statements.
4
Texas Roadhouse, Inc. and Subsidiaries
Condensed Consolidated Statement of Stockholders' EquityEquity
(in thousands, except share and per share data)
(unaudited)
| | | | | | | | | | | | | | | | | | | | | | | | |
| | For the 13 Weeks Ended June 29, 2021 | ||||||||||||||||||||||
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| Accumulated |
| Total Texas |
| | |
| | |
| ||
| | | | | | | Additional | | | | | Other | | Roadhouse, Inc. | | | | | | |
| |||
| | | | Par | | Paid-in- | | Retained | | Comprehensive | | and | | Noncontrolling | | | |
| ||||||
| | Shares | | Value | | Capital | | Earnings | | Loss | | Subsidiaries | | Interests | | Total |
| |||||||
Balance, March 30, 2021 |
| 69,742,520 | | $ | 70 | | $ | 147,604 | | $ | 846,065 | | $ | (118) | | $ | 993,621 | | $ | 16,397 | | $ | 1,010,018 | |
Net income |
| — | |
| — | |
| — | |
| 75,480 | |
| — | |
| 75,480 | |
| 2,445 | |
| 77,925 | |
Other comprehensive income, net of tax | | — | | | — | | | — | | | — | | | 22 | | | 22 | | | — | | | 22 | |
Distributions to noncontrolling interest holders |
| — | |
| — | |
| — | |
| — | |
| — | |
| — | |
| (2,994) | |
| (2,994) | |
Dividends declared ($0.40 per share) |
| — | |
| — | |
| — | |
| (27,932) | |
| — | |
| (27,932) | |
| — | |
| (27,932) | |
Shares issued under share-based compensation plans including tax effects |
| 128,590 | |
| — | |
| — | |
| — | |
| — | |
| — | |
| — | |
| — | |
Indirect repurchase of shares for minimum tax withholdings |
| (40,721) | |
| — | |
| (4,265) | |
| — | |
| — | |
| (4,265) | |
| — | |
| (4,265) | |
Share-based compensation |
| — | |
| — | |
| 9,909 | |
| — | |
| — | |
| 9,909 | |
| — | |
| 9,909 | |
Balance, June 29, 2021 |
| 69,830,389 | | $ | 70 | | $ | 153,248 | | $ | 893,613 | | $ | (96) | | $ | 1,046,835 | | $ | 15,848 | | $ | 1,062,683 | |
| | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | |
| | For the 13 Weeks Ended June 30, 2020 | ||||||||||||||||||||||
|
| |
| | |
| | |
| | |
| Accumulated |
| Total Texas |
| | |
| | | | ||
| | | | | | | Additional | | | | | Other | | Roadhouse, Inc. | | | | | | | | |||
| | | | Par | | Paid-in- | | Retained | | Comprehensive | | and | | Noncontrolling | | | | | ||||||
| | Shares | | Value | | Capital | | Earnings | | Loss | | Subsidiaries | | Interests | | Total | | |||||||
Balance, March 31, 2020 |
| 69,310,804 | | $ | 69 | | $ | 129,796 | | $ | 766,689 | | $ | (262) | | $ | 896,292 | | $ | 14,451 | | $ | 910,743 | |
Net (loss) income |
| — | |
| — | |
| — | |
| (33,553) | |
| — | |
| (33,553) | |
| 247 | |
| (33,306) | |
Other comprehensive income, net of tax | | — | | | — | | | — | | | — | | | 10 | | | 10 | | | — | | | 10 | |
Shares issued under share-based compensation plans including tax effects |
| 136,685 | |
| — | |
| — | |
| — | |
| — | |
| — | |
| — | |
| — | |
Indirect repurchase of shares for minimum tax withholdings |
| (43,520) | |
| — | |
| (1,971) | |
| — | |
| — | |
| (1,971) | |
| — | |
| (1,971) | |
Share-based compensation |
| — | |
| — | |
| 7,243 | |
| — | |
| — | |
| 7,243 | |
| — | |
| 7,243 | |
Balance, June 30, 2020 |
| 69,403,969 | | $ | 69 | | $ | 135,068 | | $ | 733,136 | | $ | (252) | | $ | 868,021 | | $ | 14,698 | | $ | 882,719 | |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Accumulated |
| Total Texas |
|
|
|
|
|
|
| ||
|
|
|
|
|
|
| Additional |
|
|
|
| Other |
| Roadhouse, Inc. |
|
|
|
|
|
|
| |||
|
|
|
| Par |
| Paid-in- |
| Retained |
| Comprehensive |
| and |
| Noncontrolling |
|
|
|
| ||||||
|
| Shares |
| Value |
| Capital |
| Earnings |
| Loss |
| Subsidiaries |
| Interests |
| Total |
| |||||||
Balance, December 27, 2016 |
| 70,619,737 |
| $ | 71 |
| $ | 219,626 |
| $ | 530,723 |
| $ | (194) |
| $ | 750,226 |
| $ | 8,016 |
| $ | 758,242 |
|
Net income |
| — |
|
| — |
|
| — |
|
| 102,908 |
|
| — |
|
| 102,908 |
|
| 4,618 |
|
| 107,526 |
|
Other comprehensive income, net |
| — |
|
| — |
|
| — |
|
| — |
|
| 131 |
|
| 131 |
|
| — |
|
| 131 |
|
Noncontrolling interests contribution |
| — |
|
| — |
|
| — |
|
| — |
|
| — |
|
| — |
|
| 3,457 |
|
| 3,457 |
|
Distributions to noncontrolling interest holders |
| — |
|
| — |
|
| — |
|
| — |
|
| — |
|
| — |
|
| (4,042) |
|
| (4,042) |
|
Dividends declared and paid ($0.42 per share) |
| — |
|
| — |
|
| — |
|
| (29,805) |
|
| — |
|
| (29,805) |
|
| — |
|
| (29,805) |
|
Dividends declared ($0.21 per share) |
| — |
|
| — |
|
| — |
|
| (14,931) |
|
| — |
|
| (14,931) |
|
| — |
|
| (14,931) |
|
Shares issued under share-based compensation plans |
| 701,827 |
|
| 1 |
|
| 1,484 |
|
| — |
|
| — |
|
| 1,485 |
|
| — |
|
| 1,485 |
|
Indirect repurchase of shares for minimum tax withholdings |
| (219,910) |
|
| (1) |
|
| (10,096) |
|
| — |
|
| — |
|
| (10,097) |
|
| — |
|
| (10,097) |
|
Cumulative effect of change in accounting principle |
| — |
|
| — |
|
| 69 |
|
| (69) |
|
| — |
|
| — |
|
| — |
|
| — |
|
Share-based compensation |
| — |
|
| — |
|
| 18,826 |
|
| — |
|
| — |
|
| 18,826 |
|
| — |
|
| 18,826 |
|
Balance, September 26, 2017 |
| 71,101,654 |
| $ | 71 |
| $ | 229,909 |
| $ | 588,826 |
| $ | (63) |
| $ | 818,743 |
| $ | 12,049 |
| $ | 830,792 |
|
5
Texas Roadhouse, Inc. and Subsidiaries
Condensed Consolidated Statement of Stockholders' Equity
(in thousands, except share and per share data)
(unaudited)
| | | | | | | | | | | | | | | | | | | | | | | | |
| | For the 26 Weeks Ended June 29, 2021 | ||||||||||||||||||||||
|
| |
| | |
| | |
| | |
| Accumulated |
| Total Texas |
| | |
| | |
| ||
| | | | | | | Additional | | | | | Other | | Roadhouse, Inc. | | | | | | |
| |||
| | | | Par | | Paid-in- | | Retained | | Comprehensive | | and | | Noncontrolling | | | |
| ||||||
| | Shares | | Value | | Capital | | Earnings | | Loss | | Subsidiaries | | Interests | | Total |
| |||||||
Balance, December 29, 2020 |
| 69,561,861 | | $ | 70 | | $ | 145,626 | | $ | 781,915 | | $ | (106) | | $ | 927,505 | | $ | 15,546 | | $ | 943,051 | |
Net income |
| — | |
| — | |
| — | |
| 139,630 | |
| — | |
| 139,630 | |
| 4,725 | |
| 144,355 | |
Other comprehensive income, net of tax | | — | | | — | | | — | | | — | | | 10 | | | 10 | | | — | | | 10 | |
Distributions to noncontrolling interest holders |
| — | |
| — | |
| — | |
| — | |
| — | |
| — | |
| (4,423) | |
| (4,423) | |
Dividends declared ($0.40 per share) |
| — | |
| — | |
| — | |
| (27,932) | |
| — | |
| (27,932) | |
| — | |
| (27,932) | |
Shares issued under share-based compensation plans including tax effects |
| 398,508 | |
| — | |
| — | |
| — | |
| — | |
| — | |
| — | |
| — | |
Indirect repurchase of shares for minimum tax withholdings |
| (129,980) | |
| — | |
| (12,195) | |
| — | |
| — | |
| (12,195) | |
| — | |
| (12,195) | |
Share-based compensation |
| — | |
| — | |
| 19,817 | |
| — | |
| — | |
| 19,817 | |
| — | |
| 19,817 | |
Balance, June 29, 2021 |
| 69,830,389 | | $ | 70 | | $ | 153,248 | | $ | 893,613 | | $ | (96) | | $ | 1,046,835 | | $ | 15,848 | | $ | 1,062,683 | |
| | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | |
| | For the 26 Weeks Ended June 30, 2020 | ||||||||||||||||||||||
|
| |
| | |
| | |
| | |
| Accumulated |
| Total Texas |
| | |
| | | | ||
| | | | | | | Additional | | | | | Other | | Roadhouse, Inc. | | | | | | | | |||
| | | | Par | | Paid-in- | | Retained | | Comprehensive | | and | | Noncontrolling | | | | | ||||||
| | 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 | |
Net (loss) income |
| — | |
| — | |
| — | |
| (17,524) | |
| — | |
| (17,524) | |
| 1,370 | |
| (16,154) | |
Other comprehensive loss, net of tax | | — | | | — | | | — | | | — | | | (27) | | | (27) | | | — | | | (27) | |
Distributions to noncontrolling interest holders |
| — | |
| — | |
| — | |
| — | |
| — | |
| — | |
| (1,847) | |
| (1,847) | |
Dividends declared ($0.36 per share) |
| — | |
| — | |
| — | |
| (24,989) | |
| — | |
| (24,989) | |
| — | |
| (24,989) | |
Shares issued under share-based compensation plans including tax effects |
| 388,477 | |
| — | |
| — | |
| — | |
| — | |
| — | |
| — | |
| — | |
Indirect repurchase of shares for minimum tax withholdings |
| (132,351) | |
| — | |
| (7,302) | |
| — | |
| — | |
| (7,302) | |
| — | |
| (7,302) | |
Repurchase of shares of common stock | | (252,409) | | | | | | (12,621) | | | — | | | — | | | (12,621) | | | — | | | (12,621) | |
Share-based compensation |
| — | |
| — | |
| 14,490 | |
| — | |
| — | |
| 14,490 | |
| — | |
| 14,490 | |
Balance, June 30, 2020 |
| 69,403,969 | | $ | 69 | | $ | 135,068 | | $ | 733,136 | | $ | (252) | | $ | 868,021 | | $ | 14,698 | | $ | 882,719 | |
| | | | | | | | | | | | | | | | | | | | | | | | |
6
Texas Roadhouse, Inc. and Subsidiaries
Condensed Consolidated Statements of Cash Flows
(in thousands)
(unaudited)
| | | | | | | |
| | 26 Weeks Ended | | ||||
|
| June 29, 2021 |
| June 30, 2020 | | ||
Cash flows from operating activities: | | | | | | | |
Net income (loss) including noncontrolling interests | | $ | 144,355 | | $ | (16,154) | |
Adjustments to reconcile net income (loss) to net cash provided by operating activities: | | | | | | | |
Depreciation and amortization | |
| 62,519 | |
| 58,070 | |
Deferred income taxes | |
| 2,948 | |
| (10,926) | |
Loss on disposition of assets | |
| 1,072 | |
| 2,165 | |
Impairment and closure costs | |
| 505 | |
| 89 | |
Equity income (loss) from investments in unconsolidated affiliates | |
| (22) | |
| 598 | |
Distributions of income received from investments in unconsolidated affiliates | |
| 401 | |
| 184 | |
Provision for doubtful accounts | |
| (1) | |
| 16 | |
Share-based compensation expense | |
| 19,817 | |
| 14,490 | |
Changes in operating working capital: | | | | | | | |
Receivables | |
| 50,143 | |
| 69,004 | |
Inventories | |
| (3,270) | |
| (2,835) | |
Prepaid expenses and other current assets | |
| 2,782 | |
| 4,242 | |
Other assets | |
| (7,178) | |
| (2,790) | |
Accounts payable | |
| 21,301 | |
| (91) | |
Deferred revenue—gift cards | |
| (54,866) | |
| (52,896) | |
Accrued wages and payroll taxes | |
| 19,855 | |
| (5,810) | |
Prepaid income taxes and income taxes payable | |
| 2,589 | |
| (6,524) | |
Accrued taxes and licenses | |
| 7,225 | |
| (6,099) | |
Other accrued liabilities | |
| 14,649 | |
| 2,280 | |
Operating lease right-of-use assets and lease liabilities | |
| 2,592 | |
| 2,257 | |
Other liabilities | |
| 9,430 | |
| 12,575 | |
Net cash provided by operating activities | |
| 296,846 | |
| 61,845 | |
Cash flows from investing activities: | | | | | | | |
Capital expenditures—property and equipment | |
| (85,068) | | | (81,833) | |
Proceeds from sale leaseback transactions | |
| 3,285 | |
| 2,167 | |
Net cash used in investing activities | |
| (81,783) | |
| (79,666) | |
Cash flows from financing activities: | | | | | | | |
(Payments on) proceeds from revolving credit facility, net | | | (50,000) | | | 240,000 | |
Debt issuance costs | | | (708) | | | (641) | |
Distributions to noncontrolling interest holders | |
| (4,423) | | | (1,847) | |
Proceeds from (payments on) restricted stock and other deposits, net | |
| 459 | | | (165) | |
Indirect repurchase of shares for minimum tax withholdings | |
| (12,195) | | | (7,302) | |
Repurchase of shares of common stock | |
| — | | | (12,621) | |
Dividends paid to shareholders | |
| (27,932) | | | (24,989) | |
Net cash (used in) provided by financing activities | |
| (94,799) | |
| 192,435 | |
Net increase in cash and cash equivalents | |
| 120,264 | |
| 174,614 | |
Cash and cash equivalents—beginning of period | |
| 363,155 | | | 107,879 | |
Cash and cash equivalents—end of period | | $ | 483,419 | | $ | 282,493 | |
Supplemental disclosures of cash flow information: | | | | | | | |
Interest paid, net of amounts capitalized | | $ | 2,078 | | $ | 1,223 | |
Income taxes paid | | $ | 18,351 | | $ | 388 | |
Capital expenditures included in current liabilities | | $ | 25,030 | | $ | 11,516 | |
See accompanying notes to condensed consolidated financial statements.
57
Texas Roadhouse, Inc. and Subsidiaries
Condensed Consolidated Statements of Cash Flows
(in thousands)
(unaudited)
|
|
|
|
|
|
|
|
|
| 39 Weeks Ended |
| ||||
|
| September 26, 2017 |
| September 27, 2016 |
| ||
Cash flows from operating activities: |
|
|
|
|
|
|
|
Net income including noncontrolling interests |
| $ | 107,526 |
| $ | 98,665 |
|
Adjustments to reconcile net income to net cash provided by operating activities: |
|
|
|
|
|
|
|
Depreciation and amortization |
|
| 69,236 |
|
| 60,718 |
|
Deferred income taxes |
|
| (5,647) |
|
| (3,270) |
|
Loss on disposition of assets |
|
| 3,490 |
|
| 3,509 |
|
Impairment and closure costs |
|
| — |
|
| 139 |
|
Equity income from investments in unconsolidated affiliates |
|
| (1,149) |
|
| (831) |
|
Distributions of income received from investments in unconsolidated affiliates |
|
| 585 |
|
| 1,765 |
|
Provision for doubtful accounts |
|
| 19 |
|
| 9 |
|
Share-based compensation expense |
|
| 18,826 |
|
| 18,347 |
|
Changes in operating working capital: |
|
|
|
|
|
|
|
Receivables |
|
| 31,129 |
|
| 23,373 |
|
Inventories |
|
| 805 |
|
| 1,276 |
|
Prepaid expenses |
|
| 1,689 |
|
| 1,985 |
|
Other assets |
|
| (5,729) |
|
| (3,003) |
|
Accounts payable |
|
| (3,162) |
|
| (9,352) |
|
Deferred revenue—gift cards |
|
| (59,302) |
|
| (46,146) |
|
Accrued wages |
|
| 3,541 |
|
| (8,471) |
|
Excess tax benefits from share-based compensation |
|
| — |
|
| (2,698) |
|
Prepaid income taxes and income taxes payable |
|
| 9,535 |
|
| 9,760 |
|
Accrued taxes and licenses |
|
| 3,785 |
|
| 1,698 |
|
Other accrued liabilities |
|
| 3,536 |
|
| 5,594 |
|
Deferred rent |
|
| 4,158 |
|
| 3,412 |
|
Other liabilities |
|
| 5,199 |
|
| 3,303 |
|
Net cash provided by operating activities |
|
| 188,070 |
|
| 159,782 |
|
Cash flows from investing activities: |
|
|
|
|
|
|
|
Capital expenditures—property and equipment |
|
| (117,037) |
|
| (113,219) |
|
Acquisition of franchise restaurants, net of cash acquired |
|
| (16,528) |
|
| — |
|
Net cash used in investing activities |
|
| (133,565) |
|
| (113,219) |
|
Cash flows from financing activities: |
|
|
|
|
|
|
|
Proceeds from revolving credit facility, net |
|
| — |
|
| 25,000 |
|
Debt issuance costs |
|
| (476) |
|
| — |
|
Proceeds from noncontrolling interest contribution |
|
| 3,457 |
|
| — |
|
Repurchase of shares of common stock |
|
| — |
|
| (4,110) |
|
Distributions to noncontrolling interest holders |
|
| (4,042) |
|
| (3,538) |
|
Excess tax benefits from share-based compensation |
|
| — |
|
| 2,698 |
|
Proceeds from stock option and other deposits, net |
|
| 438 |
|
| 283 |
|
Indirect repurchase of shares for minimum tax withholdings |
|
| (10,097) |
|
| (7,927) |
|
Principal payments on long-term debt and capital lease obligation |
|
| (555) |
|
| (106) |
|
Proceeds from exercise of stock options |
|
| 1,485 |
|
| 2,172 |
|
Dividends paid to shareholders |
|
| (43,223) |
|
| (38,656) |
|
Net cash used in financing activities |
|
| (53,013) |
|
| (24,184) |
|
Net increase in cash and cash equivalents |
|
| 1,492 |
|
| 22,379 |
|
Cash and cash equivalents—beginning of period |
|
| 112,944 |
|
| 59,334 |
|
Cash and cash equivalents—end of period |
| $ | 114,436 |
| $ | 81,713 |
|
Supplemental disclosures of cash flow information: |
|
|
|
|
|
|
|
Interest paid, net of amounts capitalized |
| $ | 948 |
| $ | 201 |
|
Income taxes paid |
| $ | 37,271 |
| $ | 35,849 |
|
Capital expenditures included in current liabilities |
| $ | 5,470 |
| $ | 3,189 |
|
See accompanying notes to condensed consolidated financial statements.
6
Texas Roadhouse, Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements
(tabular amounts in thousands, except share and per share data)
(unaudited)
(1) Basis of Presentation
The accompanying unaudited condensed 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 September 26, 2017June 29, 2021 and December 27, 201629, 2020 and for the 13 and 3926 weeks ended September 26, 2017June 29, 2021 and September 27, 2016. June 30, 2020.
As of September 26, 2017,June 29, 2021, we owned and operated 455548 restaurants and franchised an additional 8599 restaurants in 49 states and six10 foreign countries. Of the 455 company-owned548 company restaurants that were operating at September 26, 2017, 437June 29, 2021, 528 were wholly-owned and 1820 were majority-owned. Of the 99 franchise restaurants, 69 were domestic restaurants and 30 were international restaurants.
As of September 27, 2016,June 30, 2020, we owned and operated 422521 restaurants and franchised an additional 8596 restaurants in 49 states and five10 foreign countries. Of the 422 company-owned521 company restaurants that were operating at September 27, 2016, 406June 30, 2020, 501 were wholly-owned and 1620 were majority-owned. Of the 96 franchise restaurants, 70 were domestic restaurants and 26 were international restaurants.
As of September 26, 2017June 29, 2021 and September 27, 2016,June 30, 2020, we owned a 5.0% to 10.0% equity interest in 24 domesticfranchise restaurants. Additionally, as of September 26, 2017June 29, 2021 and September 27, 2016,June 30, 2020, we owned a 40% equity interest in four3 and 4 non-Texas Roadhouse restaurants, respectively, as part of a joint venture agreement with a casual dining restaurant operator in China. The unconsolidated restaurants are accounted for using the equity method. Our investments in these unconsolidated affiliates are included in Otherother assets in our unaudited condensed consolidated balance sheets, and we record our percentage share of net income earned by these unconsolidated affiliates in our unaudited condensed consolidated statements of income (loss) and comprehensive income (loss) under Equityequity income (loss) 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.
We have made a number of estimates and assumptions relating to the reporting of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the unaudited condensed consolidated financial statements and the reporting of revenue and expenses during the periods to prepare these unaudited condensed consolidated financial statements in conformity with U.S. generally accepted accounting principles ("GAAP"). Significant items subject to such estimates and assumptions include the carrying amountsamount of property and equipment, and goodwill, obligations related to insurance reserves, leases and leasehold improvements, legal reserves, gift card discountsbreakage and breakagethird-party fees and income taxes. Actual results could differ from those estimates.
In the opinion of management, the accompanying unaudited condensed consolidated financial statements reflect all adjustments, consisting only of normal recurring adjustments, necessary to present fairly our consolidated financial position, results of operations and cash flows for the periods presented. The unaudited condensed consolidated financial statements have been prepared in accordance with GAAP, except that certain information and footnotes have been condensed or omitted pursuant to rules and regulations of the Securities and Exchange Commission ("SEC"(the "SEC"). Operating results for the 13 and 3926 weeks ended September 26, 2017June 29, 2021 are not necessarily indicative of the results that may be expected for the year ending December 26, 2017.28, 2021. The unaudited condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and notes thereto included in our Annual Report on Form 10-K for the year ended December 27, 2016.29, 2020.
Our significant interim accounting policies include the recognition of income taxes using an estimated annual effective tax rate.
(2) Share-based Compensation
On May 16, 2013, our stockholders approved the Texas Roadhouse, Inc. 2013 Long-Term Incentive Plan (the "Plan"). The Plan provides for the granting of incentive and non-qualified stock options to purchase shares of common
78
stock, stock appreciation rights,Risks and full value awards, including restricted stock, restricted stock units ("RSUs"), deferred stock units, performance stockUncertainties
The Company continues to be subject to risks and performance stock units ("PSUs"). This Plan replaced the Texas Roadhouse, Inc. 2004 Equity Incentive Plan.
The following table summarizes the share-based compensation expense recorded in the accompanying unaudited condensed consolidated statements of income and comprehensive income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| 13 Weeks Ended |
| 39 Weeks Ended |
| ||||||||
|
| September 26, 2017 |
| September 27, 2016 |
| September 26, 2017 |
| September 27, 2016 |
| ||||
Labor expense |
| $ | 1,822 |
| $ | 1,570 |
| $ | 5,255 |
| $ | 4,475 |
|
General and administrative expense |
|
| 4,639 |
|
| 5,074 |
|
| 13,571 |
|
| 13,872 |
|
Total share-based compensation expense |
| $ | 6,461 |
| $ | 6,644 |
| $ | 18,826 |
| $ | 18,347 |
|
Effective December 28, 2016, we adopted Accounting Standards Update No. 2016-09, Compensation – Stock Compensation ("ASU 2016-09") which amends and simplifies the accounting for stock compensation. As a result of the adoption of ASU 2016-09, we made a change in our accounting for forfeitures to record as they occur and, as a result, we recorded a $0.1 million cumulative-effect reduction to retained earnings under the modified retrospective approach. We elected prospective transition for the requirement to classify excess tax benefits as an operating activity in the consolidated statement of cash flows. No prior periods have been adjusted. Additionally,uncertainties as a result of the new guidance requirements,COVID-19 pandemic (the “pandemic”). These include state and local restrictions on a prospective basis, all excess tax benefits and tax deficiencies are recognized within the income tax provisionrestaurants, some of which have limited capacity or seating in the consolidated statementsdining rooms while others have allowed To-Go or curbside service only. As of income and comprehensive income in the period in which the restricted shares vest or options are exercised. See note 4 for further discussion.
Beginning in 2008, we changed the method by which we provide share-based compensation to our employees by granting RSUs as a form of share-based compensation. Prior to 2008, we issued stock options as share-based compensation to our employees. Beginning in 2015, we began granting PSUs to twoJune 29, 2021, nearly all of our executives. An RSU is the conditional right to receive one share of common stock upon satisfaction of the vesting requirement. A PSU is the conditional right to receive one share of common stock upon meeting defined performance obligations along with the satisfaction of the vesting requirement. Share-based compensation activity by type of grant as of September 26, 2017domestic company and changes during the 39 weeks then ended are presented below.
Summary Details for RSUs
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Weighted-Average |
| Weighted-Average |
|
|
|
| |
|
|
|
| Grant Date Fair |
| Remaining Contractual |
| Aggregate |
| ||
|
| Shares |
| Value |
| Term (years) |
| Intrinsic Value |
| ||
Outstanding at December 27, 2016 |
| 919,463 |
| $ | 37.06 |
|
|
|
|
|
|
Granted |
| 349,049 |
|
| 46.70 |
|
|
|
|
|
|
Forfeited |
| (35,041) |
|
| 37.40 |
|
|
|
|
|
|
Vested |
| (404,505) |
|
| 38.14 |
|
|
|
|
|
|
Outstanding at September 26, 2017 |
| 828,966 |
| $ | 40.57 |
| 1.2 |
| $ | 39,991 |
|
franchise locations were operating without restriction. As of September 26, 2017, with respect to unvested RSUs, there was $17.4 million of unrecognized compensation cost that is expected to be recognized over a weighted-average period of 1.2 years. The vesting terms of the RSUs range from 1.0 to 5.0 years. The total intrinsic value of RSUs vested during the 39 weeks ended September 26, 2017 and September 27, 2016 was $18.8 million and $17.4 million, respectively. The excess tax benefit, which was recognized within the income tax provision, associated with vested RSUs was $1.2 million for the 39 weeks ended September 26, 2017. The excess tax benefit associated with vested RSUs for the 39 weeks ended September 27, 2016 was $1.2 million which was recorded in additional paid-in-capital in the unaudited condensed consolidated balance sheets.
8
Summary Details for PSUs
In 2015 and 2016, we granted PSUs to twoJune 30, 2020, nearly all of our executives subject to an approximate one-year vesting termdomestic company 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 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. franchise restaurants had re-opened their dining rooms under various limited capacity restrictions.
On November 19, 2015, we granted PSUs with a grant date fair value of approximately $3.9 million based on a grant date price per share of $34.11. On January 8, 2017, 188,237 shares vested related to this PSU grant and were distributed during the 13 weeks ended March 28, 2017. On November 9, 2016, we granted PSUs with a grant date fair value of approximately $4.6 million based on a grant date price per share of $39.88. As of September 26, 2017, with respect to unvested PSUs, there was $1.1 million of unrecognized compensation cost that is expected to be recognized over a weighted-average period of three months. Any distribution of vested PSUs as common stock related to the November 9, 2016 grants will occur in the first quarter of 2018. For the 39 weeks ended September 26, 2017, the excess tax benefit, recognized within the income tax provision, associated with vested PSUs was $0.8 million.
Summary Details for Stock Options
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Weighted- |
| Weighted-Average |
|
|
|
| |
|
|
|
| Average Exercise |
| Remaining Contractual |
| Aggregate |
| ||
|
| Shares |
| Price |
| Term (years) |
| Intrinsic Value |
| ||
Outstanding at December 27, 2016 |
| 118,073 |
| $ | 13.57 |
|
|
|
|
|
|
Granted |
| — |
|
| — |
|
|
|
|
|
|
Cancelled/Expired |
| (2,836) |
|
| 15.47 |
|
|
|
|
|
|
Exercised |
| (109,085) |
|
| 13.61 |
|
|
|
|
|
|
Outstanding at September 26, 2017 |
| 6,152 |
| $ | 11.93 |
| 0.1 |
| $ | 223 |
|
Exercisable at September 26, 2017 |
| 6,152 |
| $ | 11.93 |
| 0.1 |
| $ | 223 |
|
No stock options vested during the 39 weeks ended September 26, 2017 or September 27, 2016. For the 39 weeks ended September 26, 2017 and September 27, 2016, the total intrinsic value of options exercised was $3.7 million and $5.3 million, respectively.
For the 39 weeks ended September 26, 2017 and September 27, 2016, cash received before tax withholdings from options exercised was $1.5 million and $2.2 million, respectively. The excess tax benefit, recognized within the income tax provision, associated with options exercised was $1.0 million for the 39 weeks ended September 26, 2017. The excess tax benefit for the 39 weeks ended September 27, 2016 was $1.5 million which was recorded in additional paid-in-capital in the unaudited condensed consolidated balance sheets.
(3) Long-term Debt and Obligation Under Capital Lease
Long-term debt consisted of the following:
|
|
|
|
|
|
|
|
|
| September 26, |
| December 27, |
| ||
|
| 2017 |
| 2016 |
| ||
Installment loan |
| $ | — |
| $ | 550 |
|
Obligation under capital lease |
|
| 1,993 |
|
| 1,998 |
|
Revolver |
|
| 50,000 |
|
| 50,000 |
|
|
|
| 51,993 |
|
| 52,548 |
|
Less current maturities |
|
| 9 |
|
| 167 |
|
|
| $ | 51,984 |
| $ | 52,381 |
|
The interest rate for our installment loan outstanding at December 27, 2016 was 10.46%. The installment loan was repaid during the 13 weeks ended September 26, 2017.
9
During the 52 weeks ended December 27, 2016, we amended an existing lease at one restaurant location to acquire additional square footage. As a result of these restrictions, we developed a hybrid operating model to accommodate our dining room restrictions together with enhanced To-Go. We continue to see increased sales in our To-Go program over pre-pandemic levels, even with dining rooms re-opened and operating with fewer restrictions, which has offset the decrease in dining room traffic. We cannot predict how long we will continue to be impacted by the pandemic, the extent to which our dining rooms will have to close again, or if the increased sales in our To-Go program will continue. The extent to which COVID-19 impacts our business, results of operations, or financial condition will depend on future developments which are outside of our control, including the efficacy and public acceptance of vaccination programs in curbing the spread of the virus, the introduction and spread of new variants of the virus, which may prove resistant to currently approved vaccines, and new or reinstated restrictions on our operations. In addition, significant items subject to estimates and assumptions including the carrying amount of property and equipment, goodwill, and lease related assets could be impacted.
(2) Recent Accounting Pronouncements
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 removed certain exceptions related to the approach for intraperiod tax allocations, the calculation of income taxes in interim periods, and the recognition of deferred taxes for investments. This guidance also simplified aspects of accounting for recognizing deferred taxes for taxable goodwill. We adopted ASU 2019-12 as of the beginning of our 2021 fiscal year. The adoption of this amendment,standard did not have a significant impact on our condensed consolidated financial statements.
Reference Rate Reform
(Accounting Standards Update 2020-04, "ASU 2020-04")
In March 2020, the lease qualifiedFASB issued ASU 2020-04, Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting, which provides temporary optional expedients and exceptions to the current guidance on contract modifications and hedge accounting. These changes are intended to simplify the market transition from the London Interbank Offered Rate ("LIBOR") and other interbank offered rates to alternative reference rates. This guidance is effective upon issuance to modifications made as a capital lease.early as the beginning of the interim period through December 31, 2022. We are currently assessing the impact of this new standard on our condensed consolidated financial statements.
(3) Long-term Debt
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 $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.
9
Prior to the amendment, our original revolving credit facility had a borrowing capacity of up to $200.0 million with the option to increase the revolving credit facility by an additional $200.0 million subject to certain limitations. The Amended Credit Agreement extendslimitations, including approval by the maturity datesyndicate of ourlenders. On May 11, 2020, we amended the original revolving credit facility until August 5, 2022.to provide for an incremental revolving credit facility of up to $82.5 million. This amount reduced the additional $200.0 million that was available under the original revolving credit facility.
As of May 4, 2021, before the amendment, we had $190.0 million outstanding on the original revolving credit facility and $50.0 million outstanding on the incremental revolving credit facility. As part of the amendment, the $190.0 million remained outstanding on the amended revolving credit facility and the $50.0 million was repaid.
The terms of the Amended Credit Agreementamendment require us to pay interest on outstanding borrowings at the London Interbank Offered Rate ("LIBOR")LIBOR plus a margin of 0.875% to 1.875% and to pay a commitment fee of 0.125% to 0.30% per year on any unused portion of the revolving credit facility, in each case depending on our leverage ratio, or theratio. The amendment also provides an Alternate Base Rate that may be substituted for LIBOR.
As of June 29, 2021, we had $190.0 million outstanding on the amended revolving credit facility and $101.8 million of availability, net of $8.2 million of outstanding letters of credit. This outstanding amount is included as long-term debt on our unaudited condensed consolidated balance sheet.
As of December 29, 2020, we had $190.0 million outstanding on the original revolving credit facility which is included as long-term debt on our unaudited condensed consolidated balance sheet. In addition, we had $50.0 million outstanding on the highestincremental revolving credit facility which is included as current maturities of the issuing banks’ prime lending rate, the Federal Funds rate plus 0.50% or the Adjusted Eurodollar Rate for a one month interest periodlong-term debt on such day plus 1.0%. our unaudited condensed consolidated balance sheet.
The weighted-average interest rate for the revolving credit facility$190.0 million outstanding as of September 26, 2017 and December 27, 2016June 29, 2021 was 2.11% and 1.57%, respectively. As of September 26, 2017, we had $50.0 million outstanding under0.98%. The weighted-average interest rate for the revolving credit facility and $142.9$240.0 million of availability, netcombined borrowings as of $7.1 million of outstanding letters of credit.December 29, 2020 was 1.98%.
The lenders’ obligation to extend credit pursuant to the Amended Credit Agreementrevolving credit facility depends on us maintaining certain financial covenants, including a minimum consolidated fixed charge coverage ratio of 2.00 to 1.00 and a maximum consolidated leverage ratio of 3.00 to 1.00. The Amended Credit Agreement permits us to incur additional secured or unsecured indebtedness outside the 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.covenants. We were in compliance with all financial covenants as of September 26, 2017.June 29, 2021.
(4) Income TaxesRevenue
A reconciliationThe following table disaggregates our revenue by major source (in thousands):
| | | | | | | | | | | |
| 13 weeks ended | | 26 weeks ended | ||||||||
| June 29, 2021 | | June 30, 2020 | | June 29, 2021 | | June 30, 2020 | ||||
Restaurant and other sales | $ | 892,444 | | $ | 473,090 | | $ | 1,687,367 | | $ | 1,120,716 |
Franchise royalties | | 5,555 | | | 2,766 | | | 10,528 | | | 7,054 |
Franchise fees | | 789 | | | 569 | | | 1,522 | | | 1,179 |
Total revenue | $ | 898,788 | | $ | 476,425 | | $ | 1,699,417 | | $ | 1,128,949 |
We record deferred revenue for gift cards which includes cards that have been sold but not yet redeemed, a breakage adjustment for a percentage of gift cards that are not expected to be redeemed, and fees paid on gift cards sold through third-party retailers. When the gift cards are redeemed, we recognize restaurant sales and reduce deferred revenue. We amortize breakage and third-party fees consistent with the historic redemption pattern of the statutory federalassociated gift card or on actual redemptions in periods where redemptions do not align with historic redemption patterns. We recognize these amounts as a component of other sales. As of June 29, 2021 and December 29, 2020, our deferred revenue balance related to gift cards was $177.9 million and $232.8 million, respectively. We recognized sales of $28.8 million and $100.2 million for the 13 and 26 weeks ended June 29, 2021, respectively, related to the amount in deferred revenue as of December 29, 2020. We recognized sales of $12.6 million and $86.1 million for the 13 and 26 weeks ended June 30, 2020, respectively, related to the amount in deferred revenue as of December 31, 2019.
10
(5) Income Taxes
Our effective tax rate was 12.4% and 14.2% for the 13 and 26 weeks ended June 29, 2021, respectively. For these periods we recognized income tax rateexpense using an estimated effective annual tax rate. Our effective tax benefit was 31.2% and 51.4% for the 13 and 26 weeks ended June 30, 2020, respectively. For these periods we recognized income tax benefit using a discrete tax calculation as we were unable to reliably estimate our full year effective income tax rate. This was primarily due to the inability to estimate the increased impact of the FICA tip and Work opportunity tax credits on our effective tax rate for the 13 and 39 weeks ended September 26, 2017 and September 27, 2016 is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
| 13 Weeks Ended |
|
| 39 Weeks Ended |
|
| ||||
|
| September 26, 2017 |
| September 27, 2016 |
|
| September 26, 2017 |
| September 27, 2016 |
|
|
Tax at statutory federal rate |
| 35.0 | % | 35.0 | % |
| 35.0 | % | 35.0 | % |
|
State and local tax, net of federal benefit |
| 3.4 |
| 3.5 |
|
| 3.4 |
| 3.5 |
|
|
FICA tip tax credit |
| (7.1) |
| (7.1) |
|
| (7.1) |
| (6.9) |
|
|
Work opportunity tax credit |
| (0.9) |
| (0.9) |
|
| (0.8) |
| (0.8) |
|
|
Stock compensation |
| (0.9) |
| — |
|
| (2.0) |
| — |
|
|
Net income attributable to noncontrolling interests |
| (1.1) |
| (1.1) |
|
| (1.1) |
| (0.9) |
|
|
Other |
| 0.4 |
| 0.4 |
|
| 0.3 |
| 0.1 |
|
|
Total |
| 28.8 | % | 29.8 | % |
| 27.7 | % | 30.0 | % |
|
As a result of the adoptionsignificant decrease in our pre-tax income. The impact of ASU 2016-09,excessthese credits was the primary driver of the difference between our statutory and effective tax benefitsrates for all periods presented. Additionally, the FICA tip and Work opportunity tax deficiencies from share-based compensation are recognized within the incomecredits exceeded our federal tax provisionliability for fiscal year 2020 but we expect to fully utilize these credits in the period in which the restricted shares vest or options are exercised. During the 13 weeks ended September 26, 2017, we recognized $0.4 million as an incomeour 2021 tax benefit, which resulted in a 0.9% impact on the tax rate. During the 39 weeks ended September 26, 2017, we recognized $3.0 million as an income tax benefit, which resulted in a 2.0% impact on the tax rate. Prior to the adoption of ASU 2016-09, excess tax benefits and deficiencies were recognized in additional paid-in capital in the unaudited condensed consolidated balance sheets. year.
During the first quarter of 2017, we adopted ASU 2015-17, Balance Sheet Classification of Deferred Taxes, which required deferred tax assets and liabilities to be classified as noncurrent on our condensed consolidated balance sheets. We adopted ASU 2015-17 on a prospective basis.
(6) | Commitments and Contingencies |
10
(5)Commitments and Contingencies
The estimated cost of completing capital project commitments at September 26, 2017June 29, 2021 and December 27, 201629, 2020 was approximately $150.6$119.3 million and $157.5$95.9 million, respectively.
As of September 26, 2017June 29, 2021 and December 27, 2016,29, 2020, we were contingently liable for $15.8$12.6 million and $16.4$13.0 million, respectively, for seven7 lease guarantees, listed in the table below. 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 September 26, 2017June 29, 2021 and December 27, 201629, 2020 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 | |||
Everett, Massachusetts (1) |
| September 2002 |
| February 2023 | |
Longmont, Colorado (1) |
| October 2003 |
| May | |
Montgomeryville, Pennsylvania (1) |
| October 2004 |
| March | |
Fargo, North Dakota (1) |
| February 2006 |
| July | |
Logan, Utah (1) |
| January 2009 |
| August | |
Irving, Texas | | December 2013 | | December | |
Louisville, Kentucky (2)(3) | | December 2013 | | November 2023 | |
(1) |
| Real estate lease agreements for restaurant locations which we entered into before granting franchise rights to those restaurants. We have subsequently assigned the leases to the franchisees, but remain contingently liable under the terms of the lease if the franchisee defaults. |
(2) |
|
|
| Leases associated with non-Texas Roadhouse restaurants which were sold. The leases were assigned to the acquirer, but we remain contingently liable under the terms of the lease if the acquirer defaults. |
(3) |
| We may be released from liability after the initial contractual lease term expiration contingent upon certain conditions being met by the acquirer. |
During the 13 and 3926 weeks ended September 26, 2017,June 29, 2021, we bought most of our beef from three3 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 and/or 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.
We and the U.S. Equal Employment Opportunity Commission entered into a consent decree dated March 31, 2017 (the "Consent Decree") to settle the lawsuit styled Equal Employment Opportunity Commission v. Texas Roadhouse, Inc., Texas Roadhouse Holdings LLC and Texas Roadhouse Management Corp. in the United States District Court, District of Massachusetts, Civil Action Number 1:11-cv-11732 (the "Lawsuit"). The Consent Decree resolves the issues litigated in the Lawsuit. Under the Consent Decree, among other terms, we have established a fund of $12.0 million, from which awards of monetary relief, allocated as wages for tax purposes, may be made to eligible claimants in accordance with procedures set forth in the Consent Decree. We recorded a pre-tax charge of $14.9 million ($9.2 million after-tax) related to the Lawsuit and Consent Decree. The pre-tax charge includes $12.6 million of costs associated with the legal settlement and $2.3 million of legal fees associated with the defense of the case during the 13 weeks ended March 28, 2017. The pre-tax charge was recorded in general and administrative expense in our unaudited condensed consolidated statements of income and comprehensive income.
Occasionally, we are a defendant in litigation arising 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 adverse effect on us during the periods covered by this report 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.
11
(6) Acquisitions
On December 28, 2016, we acquired four franchise restaurants in Florida and Georgia. Pursuant to the terms of the acquisition agreements, we paid a total purchase price of $16.5 million, net of cash acquired. Two of the acquired restaurants are wholly-owned and the remaining two restaurants are majority-owned. These acquisitions are consistent with our long-term strategy to increase net income and earnings per share.
These transactions were accounted for using the purchase method as defined in ASC 805, Business Combinations ("ASC 805"). Based on a purchase price of $16.5 million, $4.5 million of goodwill was generated by the acquisition, which is not amortizable for book purposes, but is deductible for tax purposes.
The purchase price has been allocated as follows:
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Current assets |
|
| $ | 170 |
|
Property and equipment |
|
|
| 12,281 |
|
Goodwill |
|
|
| 4,469 |
|
Current liabilities |
|
|
| (392) |
|
|
|
| $ | 16,528 |
|
Pro forma results of operations and revenue and earnings for the 39 weeks ended September 26, 2017 have not been presented because the effect of the acquisitions was not material to our consolidated financial position, results of operations or cash flows.
(7) Related Party Transactions
As of September 26, 2017June 29, 2021 and September 27, 2016,June 30, 2020, we had 103 franchise restaurants and 2 majority-owned company restaurants owned in whole or part by certaincurrent officers directors and 5% stockholders of the Company. For both 13 week periods ended September 26, 2017 and September 27, 2016, theseThese franchise entities paid us fees of approximately $0.5 million. For$0.5 million and $0.2 million for the 39 week periods13 weeks ended September 26, 2017June 29, 2021 and September 27, 2016, theseJune 30, 2020, respectively. These franchise entities paid us fees of approximately $1.6$0.9 million and $1.5$0.4 million for the 26 weeks ended June 29, 2021 and June 30, 2020, respectively. As disclosed in note 5, we are contingently liable on leases which are related to two of these restaurants.
(8) 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 options and RSUs outstandingunits from our equity incentive plans, except during loss periods as discussed in note 2.
For both 13 week periods ended September 26, 2017 and September 27, 2016, there were no shares of nonvestedthe effect would be anti-dilutive. Performance stock that were outstanding, but not included in the computation of diluted earnings per share because their inclusion would have had an anti-dilutive effect. For the 39 week periods ended September 26, 2017 and September 27, 2016, there were 7,960 and six shares of nonvested stock, respectively, that had an anti-dilutive effect. For all periods presented, there were no outstanding options that had an anti-dilutive effect.
PSUsunits are not included in the diluted earnings per share calculation until the performance-based criteria have been met. See note 2
For the 13 and 26 weeks ended June 29, 2021, there were 52,620 and 27,186 weighted-average shares of nonvested stock, respectively, that were outstanding but not included in the computation of diluted earnings per share because they would have had an anti-dilutive effect. For the 13 and 26 weeks ended June 30, 2020, there were 367,968 and 400,291 weighted-average shares of nonvested stock, respectively, that were outstanding but not included in the computation of diluted earnings per share because they would have had an anti-dilutive effect. This included all outstanding restricted stock unit grants as the Company was in a net loss position for further discussion of PSUs.both periods.
12
The following table sets forth the calculation of earnings per share and weighted-average shares outstanding (in thousands) as presented in the accompanying unaudited condensed consolidated statements of income (loss) and comprehensive income:income (loss):
| | | | | | | | | | | | | | |
| | | | | | | | | | | | | | |
| | 13 Weeks Ended | | | 26 Weeks Ended | | ||||||||
|
| June 29, 2021 |
| June 30, 2020 |
| | June 29, 2021 |
| June 30, 2020 |
| ||||
Net income (loss) attributable to Texas Roadhouse, Inc. and subsidiaries | | $ | 75,480 | | $ | (33,553) | | | $ | 139,630 | | $ | (17,524) | |
Basic EPS: | | | | | | | | | | | | | | |
Weighted-average common shares outstanding | |
| 69,790 | | | 69,361 | | | | 69,713 | | | 69,391 | |
Basic EPS | | $ | 1.08 | | $ | (0.48) | | | $ | 2.00 | | $ | (0.25) | |
Diluted EPS: | | | | | | | | | | | | | | |
Weighted-average common shares outstanding | |
| 69,790 | | | 69,361 | | | | 69,713 | | | 69,391 | |
Dilutive effect of nonvested stock | |
| 371 | | | - | | | | 437 | | | - | |
Shares-diluted | |
| 70,161 | |
| 69,361 | | |
| 70,150 | |
| 69,391 | |
Diluted EPS | | $ | 1.08 | | $ | (0.48) | | | $ | 1.99 | | $ | (0.25) | |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| 13 Weeks Ended |
| 39 Weeks Ended |
| ||||||||
|
| September 26, 2017 |
| September 27, 2016 |
| September 26, 2017 |
| September 27, 2016 |
| ||||
Net income attributable to Texas Roadhouse, Inc. and subsidiaries |
| $ | 31,014 |
| $ | 25,675 |
| $ | 102,908 |
| $ | 94,873 |
|
Basic EPS: |
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-average common shares outstanding |
|
| 71,067 |
|
| 70,477 |
|
| 70,939 |
|
| 70,338 |
|
Basic EPS |
| $ | 0.44 |
| $ | 0.36 |
| $ | 1.45 |
| $ | 1.35 |
|
Diluted EPS: |
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-average common shares outstanding |
|
| 71,067 |
|
| 70,477 |
|
| 70,939 |
|
| 70,338 |
|
Dilutive effect of stock options and nonvested stock |
|
| 465 |
|
| 504 |
|
| 510 |
|
| 560 |
|
Shares-diluted |
|
| 71,532 |
|
| 70,981 |
|
| 71,449 |
|
| 70,898 |
|
Diluted EPS |
| $ | 0.43 |
| $ | 0.36 |
| $ | 1.44 |
| $ | 1.34 |
|
(9) Fair Value Measurements
ASCAccounting Standards Codification ("ASC") 820, Fair Value Measurements and Disclosures ("("ASC 820"), establishes a framework for measuring fair value and expands disclosures about fair value measurements. ASC 820 establishes a three-level hierarchy, which requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs in measuring fair value. The valuation hierarchy is based upon the transparency of inputs to the valuation of an asset or liability on the measurement date.
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. |
Level 1Inputs based on quoted prices in active markets for identical assets.12
Level 2Inputs other than quoted prices included within Level 1 that are observable for the assets, either directly or indirectly.Table of Contents
Level 3Inputs that are unobservable for the asset.
There were no0 transfers among levels within the fair value hierarchy during the 13 and 3926 weeks ended September 26, 2017.June 29, 2021.
13
The following table presents the fair values for our financial assets and liabilities measured on a recurring basis:
|
|
|
|
|
|
|
|
|
| |||||||||
|
| Fair Value Measurements |
| |||||||||||||||
|
| Level |
| September 26, 2017 |
| December 27, 2016 |
| |||||||||||
| | | | | | | | | | |||||||||
| | Fair Value Measurements |
| |||||||||||||||
|
| Level |
| June 29, 2021 |
| December 29, 2020 |
| |||||||||||
Deferred compensation plan—assets |
| 1 |
| $ | 26,966 |
| $ | 21,951 |
|
| 1 | | $ | 62,948 | | $ | 55,633 | |
Deferred compensation plan—liabilities |
| 1 |
|
| (26,980) |
|
| (22,128) |
|
| 1 | | $ | (62,868) | | $ | (55,614) | |
The Second Amended and Restated Deferred Compensation Plan of Texas Roadhouse Management Corp., as (as amended, (thethe "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 one1 or more investment funds held in a rabbi trust. We report the amounts of the rabbi trust in other assets and the corresponding liability in other liabilities in our unaudited condensed 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 unaudited condensed consolidated statements of income (loss) and comprehensive income.income (loss).
The following table presents the fair value of our assets measured on a nonrecurring basis:
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| | Fair Value Measurements | | Total loss | ||||||||||||||||
| | | | | | | | | | 13 Weeks Ended | | 26 Weeks Ended | ||||||||
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| June 29, |
| December 29, |
| June 29, |
| June 30, | | June 29, |
| June 30, | ||||||
| | Level | | 2021 | | 2020 | | 2021 | | 2020 | | 2021 | | 2020 | ||||||
Long-lived assets held for sale | | 3 | | $ | 1,175 | | $ | 1,645 | | $ | — | | $ | — | | $ | (470) | | $ | — |
Goodwill | | 3 | | $ | — | | $ | 2,625 | | $ | — | | $ | — | | $ | — | | $ | — |
Investments in unconsolidated affiliates | | 3 | | $ | 1,000 | | $ | 1,531 | | $ | — | | $ | — | | $ | (531) | | $ | (528) |
Long-lived assets held for sale include land and building at a site that was relocated. These assets are included in prepaid expenses and other current assets in our unaudited condensed consolidated balance sheets. These assets are valued using a Level 3 input. This resulted in a loss of $0.5 million which is included in impairment and closure, net in our unaudited condensed consolidated statement of income and comprehensive income for the 26 weeks ended June 29, 2021.
Goodwill includes two restaurants whose carrying values were determined to be in excess of their fair values as part of our most recent annual goodwill impairment assessment in 2020. In determining the fair value, multiple valuation approaches were utilized which considered the historical results and anticipated future trends of operations for these restaurants. We consider this a Level 3 input.
Investments in unconsolidated affiliates include a 40% equity interest in a joint venture in China that was reduced to fair value. 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 $0.5 million which is included in equity income from investments in unconsolidated affiliates in our unaudited condensed consolidated statement of income and comprehensive income for the 26 weeks ended June 29, 2021.
At September 26, 2017June 29, 2021 and December 27, 2016,29, 2020, the fair values of cash and cash equivalents, accounts receivable and accounts payable approximated their carrying values based on the short-term nature of these instruments. TheAt June 29, 2021 and December 29, 2020, the fair value of our revolving credit facility at September 26, 2017 and December 27, 2016 approximated its carrying value since it is a variable rate credit facility (Level 2).
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(10) Share Based Compensation
(10)On May 13, 2021, our stockholders approved the Texas Roadhouse, Inc. 2021 Long-Term Incentive Plan (the "Plan"). The Plan provides for the granting of various forms of equity awards including options, stock appreciation rights, full value awards, and performance-based awards. This Plan replaced the 2013 Long-Term Incentive Plan and no subsequent awards will be granted under the 2013 Plan.
The Company provides restricted stock units ("RSUs") to employees as a form of share-based compensation. An RSU is the conditional right to receive one share of common stock upon satisfaction of the vesting requirement. In addition to RSUs, the Company provides performance stock units ("PSUs") to certain executives as a form of share-based compensation. A PSU is the conditional right to receive one share of common stock upon meeting a performance obligation along with the satisfaction of the vesting requirement. The following table summarizes the share-based compensation recorded in the accompanying unaudited condensed consolidated statements of income (loss) and comprehensive income (loss):
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| | 13 Weeks Ended | | 26 Weeks Ended | | ||||||||
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| June 29, 2021 |
| June 30, 2020 |
| June 29, 2021 |
| June 30, 2020 |
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Labor expense | | $ | 2,495 | | $ | 2,532 | | $ | 5,079 | | $ | 4,920 | |
General and administrative expense | |
| 7,414 | |
| 4,711 | |
| 14,738 | |
| 9,570 | |
Total share-based compensation expense | | $ | 9,909 | | $ | 7,243 | | $ | 19,817 | | $ | 14,490 | |
We grant PSUs to certain executives which are generally 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. There were 0 PSUs that vested during the 13 weeks ended June 29, 2021 and June 30, 2020. The total intrinsic value of PSUs vested during the 26 weeks ended June 29, 2021 and June 30, 2020 was $0.4 million and $5.4 million, respectively.
On January 8, 2021, 5,199 shares vested related to the January 2020 PSU grant and were distributed during the 13 weeks ended March 30, 2021. With respect to unvested PSUs, we recognized expense of $1.8 million and $4.1 million during the 13 and 26 weeks ended June 29, 2021, respectively. As of June 29, 2021, with respect to unvested PSUs, there was $3.8 million of unrecognized compensation cost that is expected to be recognized over a weighted-average period of 0.5 years.
(11) Stock Repurchase Program
On May 22, 2014,31, 2019, our Board of Directors approved a stock repurchase program under which we may repurchase up to $100.0$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 February 16, 2012.May 22, 2014. All repurchases to date under our stock repurchase programprograms have been made through open market transactions. The timing and the amount of any repurchases will beare 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.
WeFor both of the 13 weeks ended June 29, 2021 and June 30, 2020, we did not repurchase any shares of our common stock duringstock. For the 13 and 39 week periods26 weeks ended SeptemberJune 29, 2021, we did not repurchase any shares of our common stock. For the 26 2017. weeks ended June 30, 2020, we paid $12.6 million to repurchase 252,409 shares of our common stock. On March 17, 2020, we suspended all share repurchase activity. As of September 26, 2017,June 29, 2021, we had approximately $69.9147.8 million remaining under our authorized stock repurchase program. For the 13 week period ended September 27, 2016, we did not repurchase any shares of common stock. For the 39 week period ended September 27, 2016, we paid approximately $4.1 million to repurchase 114,700 shares of our common stock.
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ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
CAUTIONARY STATEMENT
This report contains forward-looking statements based on our current expectations, estimates and projections about our industry and certain assumptions made by us.These statements include, but are not limited to, statements related to the potential impact of the COVID-19/Coronavirus outbreak and other non-historical statements. Words such as "anticipates," "expects," "intends," "plans," "believes," "seeks," "estimates," "may," "will" and variations of these words or similar expressions are intended to identify forward-looking statements. In addition, any statements that refer to expectations, projections or other characterizations of future events or circumstances, including any underlying assumptions, are forward-looking statements. Such statements are not guarantees of future performance and are subject to certain risks, uncertainties and assumptions that are difficult to predict. Therefore, our actual results could differ materially and adversely from those expressed in any forward-looking statements as a result of various factors. The section entitled "Risk Factors" in our Annual Report on Form 10-K for the year ended December 27, 2016,29, 2020, and in Part II, Item 1A in this Form 10-Q, andalong with disclosures in our other Securities and Exchange Commission ("SEC") filings discuss some of the important risk factors that may affect our business, results of operations, or financial condition. You should carefully consider those risks, in addition to the other information in this report, and in our other filings with the SEC, before deciding to invest in our Company or to maintain or increase your investment. We undertake no obligation to revise or update publicly any forward-looking statements, for any reason.except as may be required by applicable law. The information contained in this Form 10-Q is not a complete description of our business or the risks associated with an investment in our common stock. We urge you to carefully review and consider the various disclosures made by us in this report and in our other reports filed with the SEC that discuss our business in greater detail and advise interested parties of certain risks, uncertainties and other factors that may affect our business, results of operations or financial condition.
OVERVIEWCOVID-19 Impact
The Company continues to be subject to risks and uncertainties as a result of the COVID-19 pandemic (the “pandemic”). These include state and local restrictions on restaurants, some of which have limited capacity or seating in the dining rooms while others have allowed To-Go or curbside service only. As of June 29, 2021, nearly all of our domestic company and franchise locations were operating without restriction. As of June 30, 2020, nearly all of our domestic company and franchise restaurants had re-opened their dining rooms under various limited capacity restrictions.
As a result of these restrictions, we developed a hybrid operating model to accommodate our dining room restrictions together with enhanced To-Go. We continue to see increased sales in our To-Go program over pre-pandemic levels, even with dining rooms re-opened and operating with fewer restrictions, which has offset the decrease in dining room traffic. We cannot predict how long we will continue to be impacted by the pandemic, the extent to which our dining rooms will have to close again, or if the increased sales in our To-Go program will continue. The extent of the impact on our operations will depend on future developments which are outside of our control, including the efficacy and public acceptance of vaccination programs in curbing the spread of the virus, the introduction and spread of new variants of the virus, which may prove resistant to currently approved vaccines, and new or reinstated restrictions on our operations.
In addition, as our dining rooms have returned to operating without restriction, our ability to attract and retain restaurant-level employees has become more challenging. This is due to an increasingly competitive job market in certain parts of the country which has also impacted some of our suppliers. To the extent these challenges continue, we could experience increased labor costs and increased costs to source product and services.
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As a result of the pandemic, legislation referred to as the Coronavirus Aid, Relief, and Economic Security Act (the "CARES Act") was passed in 2020 to benefit companies that were significantly impacted by the pandemic. This legislation allowed for the deferral of the social security portion of the employer portion of FICA payroll taxes from the date of enactment through the end of 2020. Amounts are required to be repaid in equal installments at the end of 2021 and 2022. As of December 29, 2020, the Company had deferred $47.3 million in payroll taxes with the amount due in 2021 included in accrued wages and payroll taxes and the amount due in 2022 included in other liabilities in our unaudited condensed 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 that qualified for this tax credit. In 2021, we recorded $1.2 million related to this credit which is included in labor expense in our unaudited condensed consolidated statement of income and comprehensive income. Based on the operating status of our restaurants as of June 29, 2021, we currently do not expect to qualify for any further credits going forward.
OVERVIEW
Texas Roadhouse, Inc. is a growing restaurant company operating predominately in the casual dining segment. Our late founder, chairman and chief executive officer ("CEO"), 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 540 company and franchise 647 restaurants in 49 states and sixten 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 favorite for a broad segment of consumers seeking high quality, affordable meals served with friendly, attentive service. As of September 26, 2017,June 29, 2021, our 540647 restaurants included:
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We have contractual arrangements whichthat grant us the right to acquire at pre-determined formulas the remaining equity interests in 1618 of the 1820 majority-owned company restaurants and 6665 of the 69 domestic franchise restaurants.
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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
Throughout this report, the 13 weeks ended September 26, 2017June 29, 2021 and September 27, 2016June 30, 2020 are referred to as Q3 2017Q2 2021 and Q3 2016,Q2 2020, respectively. The 3926 weeks ended September 26, 2017June 29, 2021 and September 27, 2016June 30, 2020 are referred to as 20172021 YTD and 20162020 YTD, respectively. Fiscal years 2021 and 2020 will be 52 weeks in length, while the quarters for the year will be 13 weeks in length.
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Long-Term Strategies to Grow Earnings Per Share and Create Shareholder Value
While our short-term strategies have changed due to the temporary change in our business model due to the pandemic, our long-term strategies remain unchanged. 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 will continue to evaluate opportunities to develop restaurants in existing markets and in new domestic and international markets. Domestically, we will 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. Our abilityIn recent years, we have relocated several existing Texas Roadhouse locations at or near the end of the associated lease or as a result of eminent domain which allows us to expandmove 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, and/or obtain more favorable lease terms. We continue to evaluate these opportunities particularly as it relates to older locations with strong sales. In addition, at our restaurant base is influencedhigh volume restaurants, we continue to look for opportunities to increase our dining room capacity by many factors beyondadding on to our control and, therefore, we may not be ableexisting building and/or to achieveincrease our anticipated growth.parking capacity by leasing or purchasing property that adjoins our site.
In 20172021 YTD, we opened 2011 company restaurants, while our franchise partners openedincluding three restaurants.Bubba’s 33, were opened. We currently plan to open 26 or 27to 29 company restaurants across all concepts in 2017 including four Bubba’s 33 restaurants. In addition,2021. To the extent that state and local guidelines begin to significantly reduce capacity and/or re-close dining rooms, we anticipate thatcould pull back on development and reduce capital expenditures accordingly. We currently expect our existing franchise partners will open as many as five primarily international, Texas Roadhouse restaurants, during 2017.primarily international, in 2021.
Our average capital investment for the 2118 Texas Roadhouse restaurants opened during 2016,2020, including pre‑openingpre-opening expenses and a capitalized rent factor, was $5.0 $6.3 million. We expect our average capital investment for Texas Roadhouse restaurants opening in 20172021 to be approximately $5.2$5.4 million. For 2016, theOur average capital investment for the three Bubba’s 33 restaurants opened during 2020, including pre-opening expenses and a capitalized rent factor, for the nine Bubba’s 33 restaurants opened during the year was $6.6$7.3 million. We expect our average capital investment for Bubba’s 33 restaurants openedopening in 20172021 to be approximately $6.1$7.1 million. The decrease in investment costs for both concepts is primarily due to higher building and site work costs in 2020 related to construction delays from the pandemic.
We remain focused on driving sales and managing restaurant investment costs to maintain our restaurant development in the future. Our capital investment (including cash and non-cash costs) for new restaurants varies significantly depending on a number of factors including, but not limited to: the square footage, layout, scope of required site work, geographical location, type of construction labor, (union or non-union), local permitting requirements, hook-up fees, our ability to negotiate with landlords, and cost of liquor and other licenseslicenses.
We have entered into area development and hook-up fees and geographical location.
We may, at our discretion, add franchise restaurants, domestically and/or internationally, primarily with franchisees who have demonstrated prior success with Texas Roadhouse or other restaurant concepts and in markets in which the franchisee demonstrates superior knowledge of the demographics and restaurant operating conditions. In conjunction with this strategy, we signed our first international franchise development agreement in 2010agreements for the development and operation of Texas Roadhouse restaurants in eightnumerous foreign countries and one U.S. territory. We currently have signed franchise and/or development agreements in nine countries in the Middle East over a 10-year period. In 2015, we amended our agreement in the Middle East to add one country to the territory. In addition to the Middle East, we currently have signed franchise development agreements for the development of Texas Roadhouse restaurants inas well as Taiwan, the Philippines, Mexico, China, South Korea, Brazil and China. We currently have 10Puerto Rico. As of June 29, 2021, we had 15 restaurants open in fourfive countries in the Middle East, threefour restaurants open in Taiwan, andfive in the Philippines, three in South Korea, two in the PhilippinesMexico and one in China for a total of 1530 restaurants in sixten foreign countries. Additionally,For the existing international agreements, the franchisee is 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 2010, we entered into a joint venturethe named countries. We anticipate that the specific business terms of any future franchise agreement with a casual dining restaurant operator in China for a minority ownership in four non‑Texas Roadhouse restaurants, all of which are currently open. We continue to explore opportunities in other countries for international expansion. We may also lookrestaurants might vary significantly from the standard terms of our domestic agreements and from the terms of existing international agreements, depending on the territory to acquire domestic franchise restaurants under terms favorablebe franchised and the extent of franchisor-provided services to us and our stockholders. In Q1 2017, we acquired four franchise restaurants located in Florida and Georgia for an aggregate purchase price of $16.5 million. Additionally, from time to time, we will evaluate potential mergers, acquisitions, joint ventures or other strategic initiatives to acquire or develop additional concepts domestically and/or internationally.each franchisee.
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Maintaining and/or Improving Restaurant LevelRestaurant-Level Profitability.We plan to maintain, or possibly increase, restaurant-level profitability (restaurant margin) through a combination of increased comparable restaurant sales and operating cost management. In general, we continue to balance the impacts of inflationary pressures with our value positioning as we remain focused on our long-term success. This may create a challenge in terms of maintaining and/or increasing restaurant margin, as a percentage of restaurant sales,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 to income from operations. See further discussion
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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 guest traffic counts,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 inand parking at certain restaurants. In addition, with the increase in To-Go sales in prior years and the significant increase during the pandemic, we have made changes to our building layout to better accommodate higher To-Go volumes at our restaurants.
We also continue to look for ways through various strategic initiatives to drive awareness of our brands and increase sales and profitability. At the onset of the pandemic, we began selling ready-to-grill steaks for customers to prepare at home. While we reduced our store-level offerings around ready-to-grill once our dining rooms began to re-open in mid-2020, based on the success of this program we developed Texas Roadhouse Butcher Shop. This on-line platform allows for the purchase and delivery of similar quality steaks that are available in our restaurants. This platform launched in Q4 2020.
We also further expanded our retail business in 2021 with the introduction of our Margarita Mixer, which was available in Q1 2021, and our canned Margarita Seltzer, which will be available in several flavors, and rolled out in Q2 2021 in test markets. These Texas Roadhouse-branded products are subject to royalty-based license agreements.
Leveraging Our Scalable Infrastructure.To support our growth, we continue to makehave made investments in our infrastructure. Overinfrastructure over the past several years, we have made significant investments in our infrastructure, including information and accounting systems, real estate, human resources, legal, marketing, international and restaurant operations, including the development of new concepts. Our goal is for general and administrative costs to increase at a slower growth rate than our revenue. Whether we canare 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 pay dividends and evaluate opportunities to return capital to our shareholders through repurchasesincluding the payment of dividends and repurchase of common stock. In 2011, our Board of Directors declared our first quarterly dividend of $0.08 per share of common stock. We havestock which we consistently grown our per share dividend each year since that time and our long-term strategy includes increasing our regular quarterly dividend amountgrew over time. On August 31, 2017,March 24, 2020, the Board of Directors voted to suspend the payment of quarterly cash dividends on the Company’s common stock, effective with respect to dividends occurring after the quarterly cash dividend of $0.36 paid on March 27, 2020. This was done to preserve cash flow due to the pandemic. On April 28, 2021, our Board of Directors declaredreinstated the payment of a quarterly cash dividend of $0.21$0.40 per share of common stock. This payment was distributed on June 4, 2021 to shareholders of record at the close of business on May 19, 2021. 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 many factors, including, but not limited to, earnings, financial condition, applicable covenants under our revolving credit facility, other contractual restrictions, the extent that state and local guidelines begin to significantly reduce capacity and/or re-close dining rooms, and other factors deemed relevant.
In 2008, our Board of Directors approved our first stock repurchase program. From inception through September 26, 2017,June 29, 2021, we have paid $216.6$369.0 million through our authorized stock repurchase programs to repurchase 14,844,85117,722,505 shares of our common stock at an average price per share of $14.59.$20.82. On May 22, 2014,31, 2019, our Board of Directors approved a stock repurchase program under which we may repurchase up to $100.0$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 February 16, 2012.May 22, 2014. All repurchases to date have been made through open market transactions. The Company has not yet resumed the repurchase of shares since suspending repurchase activity at the onset of the pandemic but currently expects to resume in the second half of 2021, subject to the same factors set forth regarding the continued payment of dividends. As of September 26, 2017, $69.9June 29, 2021, $147.8 million remains authorized for stock repurchases.
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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‑openingpre-opening costs, which are defined below, before the restaurant opens. Typically, new Texas Roadhouse restaurants open with an initial start‑upstart-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‑upstart-up period of operation and increase to a steady level approximately three to six months after opening.
Comparable Restaurant Sales Growth. Sales. Comparable restaurant sales growth reflects the change in restaurant sales for company-ownedcompany restaurants over the same period in prior years 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 growth can be impacted by
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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, 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 quarterly or annual restaurant sales for company-ownedTexas Roadhouse restaurants open for a full six months before the beginning of the period measured excluding 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-ownedcompany restaurants were open during the period measured.reporting period. Store weeks include weeks in which a restaurant is temporarily closed.
Restaurant Margin.Margin. Restaurant margin (in dollars and as a percentage of restaurant and other sales) represents restaurant and other sales less restaurant-level operating costs, including cost of sales,food and beverage costs, labor, rent and other operating costs. DepreciationRestaurant margin is not a measurement determined in accordance with GAAP and amortization expense, substantially allshould not be considered in isolation, or as an alternative, to income from operations. This non-GAAP measure is not indicative of which relatesoverall company performance and profitability in that this measure does not accrue directly to restaurant-level assets, is excluded from restaurant operatingthe benefit of shareholders due to the nature of the costs and is shown separately as it represents a non-cash charge for the investment in our restaurants.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 restaurant-level operational efficiency and performance. We also exclude depreciation and amortization expense, substantially all of which relates to restaurant-level assets, as it represents a non-cash charge for the investment in our restaurants. 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 is not a measurement determined in accordance with U.S. generally accepted accounting principles ("GAAP") and shouldas presented may not be considered in isolation, or as an alternative,comparable to income from operations or other similarly titled measures of other companies. Restaurant margin, as a percentagecompanies in our industry. A reconciliation of restaurant sales, may fluctuate based on many factors, including, but not limitedincome from operations to inflationary pressures, commodity costs and wage rates. As such, we also focus on the growth of restaurant margin dollars per store week as a measureis included in the Results of restaurant-level profitability as it provides additional insight on operating performance.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-ownedcompany 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 unaudited condensed consolidated statements of income and comprehensive income. Other sales include the amortization of fees associated with our third-party gift card sales net of the amortization of gift card breakage income. These amounts are amortized consistent with the historic redemption pattern of the associated gift card or on actual redemptions in periods where redemptions do not align with historic redemption patterns. Other sales also include sales related to our non-royalty-based retail products.
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Franchise Royalties and Fees.Franchise royalties consist of royalties, as defined in our franchise agreements,agreement, paid to us by our domestic and international franchisees. Franchise royalties also include sales related to our royalty-based retail products. Domestic and/or 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. Franchise fees also include advertising fees paid by domestic franchisees to our system-wide marketing and advertising fund and management fees paid by certain domestic franchisees for supervisory and administrative services that we perform.
Restaurant CostFood and Beverage Costs. Food and beverage costs consists of Sales. Restaurant costthe costs of sales consistsraw materials and ingredients used in the preparation of food and beverage costsproducts sold in our company restaurants. Approximately half of which approximately 50%our food and beverage costs relates to beef costs.
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 utilities, dining room and To-Go supplies, local store advertising, repairs and maintenance, equipment rent, property taxes, credit card and gift card fees and general liability insurance offset by gift card breakage income. Profit-sharinginsurance. Profit sharing incentive compensation expenses earned by our restaurant managing partners and market partners are also included in restaurant other operating expenses.
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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, over 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 many 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. 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 including certain advertising costs incurred less amounts remitted by franchise restaurants. Supervision and accounting fees received from certain franchise restaurants are offset against G&A.incurred. G&A also includes legal fees, settlement charges and share-based compensation expense related to executive officers, support centerSupport Center employees, and area managers, including market partners. Thepartners, and the realized and unrealized holding gains and losses related to the investments in our deferred compensation plan, as well as offsetting compensation expense, are also recorded in G&A.plan.
Interest Expense, Net. Interest expense, net includes the cost ofinterest expense on our debt or financing obligations including the amortization of loan fees reduced by interest income and capitalized interest. Interest income includes earnings on cash and cash equivalents.
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Equity Income (Loss) from Unconsolidated Affiliates.Equity Income (loss) includes our percentage share of net income (loss) earned by unconsolidated affiliates. As of September 26, 2017June 29, 2021 and September 27, 2016,June 30, 2020, we owned a 5.0% to 10.0% equity interest in 24 domestic franchise restaurants. Additionally, as of September 26, 2017June 29, 2021 and September 27, 2016,June 30, 2020, we owned a 40% equity interest in three and four non-Texas Roadhouse restaurants, respectively, as part of a joint venture agreement with a casual dining restaurant operator in China. Equity income from unconsolidated affiliates represents our percentage share of net income earned by these unconsolidated affiliates.
Net Income Attributable to Noncontrolling Interests.Net income attributable to noncontrolling interests represents the portion of income attributable to the other owners of the majority-owned restaurants. Our consolidated subsidiaries at September 26, 2017 and September 27, 2016 included 18 and 16include 20 majority-owned restaurants respectively,for all of which were open.periods presented.
Q3 2017Q2 2021 Financial Highlights
Total revenue increased $58.9$422.4 million or 12.2%, to $540.5$898.8 million in Q3 2017Q2 2021 compared to $481.6$476.4 million in Q3 2016Q2 2020 primarily due to the opening of new restaurants combined with an increase in average unit volumevolumes driven by an increase in comparable restaurant sales, growth.along with an increase in store weeks. Store weeks and comparable restaurant sales increased 8.1%5.1% and 4.5%80.2%, respectively, at company restaurants in Q3 2017.Q2 2021. The increase in comparable restaurant sales was primarily due to the re-opening of dining rooms, all of which were open for the entire Q2 2021 period, the continued easing of dining room capacity and seating restrictions, and continued strong To-Go sales.
Restaurant margin dollars increased $9.0$146.4 million to $95.6$158.2 million in Q3 2017Q2 2021 compared to $86.6$11.8 million in Q3 2016 while restaurantQ2 2020. Restaurant margin, as a percentage of restaurant and other sales, decreasedincreased to 17.8%17.7% in Q3 2017Q2 2021 compared to 18.1%2.5% in Q3 2016.Q2 2020. The decreaseincrease in restaurant margin as a percentagewas due to higher sales and the prior year impact of restaurant sales, wasthe pandemic, which significantly impacted our entire Q2 2020 period.
Net income increased $109.0 million to $75.5 million in Q2 2021 compared to net loss of $33.6 million in Q2 2020 primarily due to higher labor costs as a result of higher average wage rates, current staffing initiatives, and a change in our compensation structure. Higher labor costs were partially offset by commodity deflation of approximately 2.0% driven by lower food costs, primarily beef.
19
Net income increased $5.3 million, or 20.8%, to $31.0 million in Q3 2017 compared to $25.7 million in Q3 2016 primarily due to an increase in restaurant margin dollars partially offset by higher depreciation costs.income tax expense. Diluted earnings (loss) per share increased to $1.08 in Q3 2017 by 19.9% to $0.43Q2 2021 from $0.36($0.48) in Q3 2016.Q2 2020.
21
Results of Operations
| | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | |
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| | 13 Weeks Ended | | 26 Weeks Ended | |
| ||||||||||||
| | June 29, 2021 | | June 30, 2020 | | June 29, 2021 | | June 30, 2020 | |
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|
| $ |
| % |
| $ |
| % |
| $ |
| % |
| $ |
| % |
|
|
| | (In thousands) | | (In thousands) | | | ||||||||||||
Consolidated Statements of Income: | | | | | | | | | | | | | | | | | | |
Revenue: | | | | | | | | | | | | | | | | | | |
Restaurant and other sales | | 892,444 | | 99.3 | | 473,090 | | 99.3 | | 1,687,367 | | 99.3 | | 1,120,716 | | 99.3 | | |
Franchise royalties and fees | | 6,344 | | 0.7 | | 3,335 | | 0.7 | | 12,050 | | 0.7 | | 8,233 | | 0.7 | | |
Total revenue | | 898,788 | | 100.0 | | 476,425 | | 100.0 | | 1,699,417 | | 100.0 | | 1,128,949 | | 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 | | 295,504 | | 33.1 | | 164,041 | | 34.7 | | 546,986 | | 32.4 | | 374,221 | | 33.4 | | |
Labor | | 288,147 | | 32.3 | | 194,622 | | 41.1 | | 546,183 | | 32.4 | | 435,701 | | 38.9 | | |
Rent | | 14,956 | | 1.7 | | 13,251 | | 2.8 | | 29,408 | | 1.7 | | 26,722 | | 2.4 | | |
Other operating | | 135,606 | | 15.2 | | 89,348 | | 18.9 | | 258,985 | | 15.3 | | 193,637 | | 17.3 | | |
(As a percentage of total revenue) | | | | | | | | | | | | | | | | | | |
Pre-opening | | 6,319 | | 0.7 | | 4,290 | | 0.9 | | 10,587 | | 0.6 | | 9,402 | | 0.8 | | |
Depreciation and amortization | | 31,650 | | 3.5 | | 29,016 | | 6.1 | | 62,519 | | 3.7 | | 58,070 | | 5.1 | | |
Impairment and closure, net | | 17 | | NM | | (440) | | NM | | 521 | | NM | | 155 | | NM | | |
General and administrative | | 36,861 | | 4.1 | | 29,615 | | 6.2 | | 73,573 | | 4.3 | | 62,569 | | 5.5 | | |
Total costs and expenses | | 809,060 | | 90.0 | | 523,743 | | 109.9 | | 1,528,762 | | 90.0 | | 1,160,477 | | 102.8 | | |
Income (loss) from operations | | 89,728 | | 10.0 | | (47,318) | | (9.9) | | 170,655 | | 10.0 | | (31,528) | | (2.8) | | |
Interest expense, net | | 975 | | 0.1 | | 1,030 | | 0.2 | | 2,435 | | 0.1 | | 1,099 | | 0.1 | | |
Equity income (loss) from investments in unconsolidated affiliates | | 239 | | NM | | (90) | | NM | | 22 | | NM | | (598) | | NM | | |
Income (loss) before taxes | | 88,992 | | 9.9 | | (48,438) | | (10.2) | | 168,242 | | 9.9 | | (33,225) | | (2.9) | | |
Income tax expense (benefit) | | 11,067 | | 1.2 | | (15,132) | | (3.2) | | 23,887 | | 1.4 | | (17,071) | | (1.5) | | |
Net income (loss) including noncontrolling interests | | 77,925 | | 8.7 | | (33,306) | | (7.0) | | 144,355 | | 8.5 | | (16,154) | | (1.4) | | |
Net income attributable to noncontrolling interests | | 2,445 | | 0.3 | | 247 | | 0.1 | | 4,725 | | 0.3 | | 1,370 | | 0.1 | | |
Net income (loss) attributable to Texas Roadhouse, Inc. and subsidiaries | | 75,480 | | 8.4 | | (33,553) | | (7.0) | | 139,630 | | 8.2 | | (17,524) | | (1.6) | | |
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| 13 Weeks Ended |
| 39 Weeks Ended |
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| September 26, 2017 |
| September 27, 2016 |
| September 26, 2017 |
| September 27, 2016 |
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|
| $ |
| % |
| $ |
| % |
| $ |
| % |
| $ |
| % |
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|
| (In thousands) |
| (In thousands) |
| ||||||||||||
Consolidated Statements of Income: |
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Revenue: |
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|
|
|
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|
|
Restaurant sales |
| 536,341 |
| 99.2 |
| 477,617 |
| 99.2 |
| 1,661,821 |
| 99.2 |
| 1,493,531 |
| 99.2 |
|
Franchise royalties and fees |
| 4,166 |
| 0.8 |
| 4,020 |
| 0.8 |
| 12,634 |
| 0.8 |
| 12,473 |
| 0.8 |
|
Total revenue |
| 540,507 |
| 100.0 |
| 481,637 |
| 100.0 |
| 1,674,455 |
| 100.0 |
| 1,506,004 |
| 100.0 |
|
Costs and expenses: |
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|
(As a percentage of restaurant sales) |
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Restaurant operating costs (excluding depreciation and amortization shown separately below): |
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|
|
Cost of sales |
| 176,498 |
| 32.9 |
| 161,886 |
| 33.9 |
| 545,862 |
| 32.8 |
| 506,565 |
| 33.9 |
|
Labor |
| 169,355 |
| 31.6 |
| 145,301 |
| 30.4 |
| 514,287 |
| 30.9 |
| 442,861 |
| 29.7 |
|
Rent |
| 11,257 |
| 2.1 |
| 10,266 |
| 2.1 |
| 33,238 |
| 2.0 |
| 30,477 |
| 2.0 |
|
Other operating |
| 83,679 |
| 15.6 |
| 73,583 |
| 15.4 |
| 254,176 |
| 15.3 |
| 227,082 |
| 15.2 |
|
(As a percentage of total revenue) |
|
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|
Pre-opening |
| 4,548 |
| 0.8 |
| 5,017 |
| 1.0 |
| 14,302 |
| 0.9 |
| 14,253 |
| 0.9 |
|
Depreciation and amortization |
| 23,534 |
| 4.4 |
| 20,941 |
| 4.3 |
| 69,236 |
| 4.1 |
| 60,718 |
| 4.0 |
|
Impairment and closure |
| 2 |
| NM |
| 13 |
| NM |
| 13 |
| NM |
| 54 |
| NM |
|
General and administrative |
| 26,123 |
| 4.8 |
| 26,162 |
| 5.4 |
| 94,594 |
| 5.6 |
| 82,933 |
| 5.5 |
|
Total costs and expenses |
| 494,996 |
| 91.6 |
| 443,169 |
| 92.0 |
| 1,525,708 |
| 91.1 |
| 1,364,943 |
| 90.6 |
|
Income from operations |
| 45,511 |
| 8.4 |
| 38,468 |
| 8.0 |
| 148,747 |
| 8.9 |
| 141,061 |
| 9.4 |
|
Interest expense, net |
| 500 |
| 0.1 |
| 288 |
| 0.1 |
| 1,211 |
| 0.1 |
| 902 |
| 0.1 |
|
Equity income from investments in unconsolidated affiliates |
| (359) |
| (0.1) |
| (4) |
| NM |
| (1,149) |
| (0.1) |
| (831) |
| (0.1) |
|
Income before taxes |
| 45,370 |
| 8.4 |
| 38,184 |
| 7.9 |
| 148,685 |
| 8.9 |
| 140,990 |
| 9.4 |
|
Provision for income taxes |
| 13,046 |
| 2.4 |
| 11,381 |
| 2.4 |
| 41,159 |
| 2.5 |
| 42,325 |
| 2.8 |
|
Net income including noncontrolling interests |
| 32,324 |
| 6.0 |
| 26,803 |
| 5.6 |
| 107,526 |
| 6.4 |
| 98,665 |
| 6.6 |
|
Net income attributable to noncontrolling interests |
| 1,310 |
| 0.2 |
| 1,128 |
| 0.2 |
| 4,618 |
| 0.3 |
| 3,792 |
| 0.3 |
|
Net income attributable to Texas Roadhouse, Inc. and subsidiaries |
| 31,014 |
| 5.7 |
| 25,675 |
| 5.3 |
| 102,908 |
| 6.1 |
| 94,873 |
| 6.3 |
|
NM — Not meaningful
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| 13 Weeks Ended |
| 39 Weeks Ended |
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|
| September 26, 2017 |
| September 27, 2016 |
| September 26, 2017 |
| September 27, 2016 |
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|
| $ |
| % |
| $ |
| % |
| $ |
| % |
| $ |
| % |
|
(As a percentage of restaurant sales) |
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Restaurant margin ($ in thousands) |
| 95,552 |
| 17.8 |
| 86,581 |
| 18.1 |
| 314,258 |
| 18.9 |
| 286,546 |
| 19.2 |
|
Restaurant margin $/store week |
| 16,284 |
|
|
| 15,953 |
|
|
| 18,140 |
|
|
| 17,866 |
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22
| | | | | | | | | | | |
| Reconciliation of Income (Loss) from Operations to Restaurant Margin | ||||||||||
| (in thousands) | ||||||||||
| 13 Weeks Ended | | 26 Weeks Ended | ||||||||
| June 29, 2021 | | June 30, 2020 | | June 29, 2021 | | June 30, 2020 | ||||
| | | | | | | | | | | |
| | | | | | | | | | | |
Income (loss) from operations | $ | 89,728 | | $ | (47,318) | | $ | 170,655 | | $ | (31,528) |
| | | | | | | | | | | |
Less: | | | | | | | | | | | |
Franchise royalties and fees | | 6,344 | | | 3,335 | | | 12,050 | | | 8,233 |
| | | | | | | | | | | |
Add: | | | | | | | | | | | |
Pre-opening | | 6,319 | | | 4,290 | | | 10,587 | | | 9,402 |
Depreciation and amortization | | 31,650 | | | 29,016 | | | 62,519 | | | 58,070 |
Impairment and closure, net | | 17 | | | (440) | | | 521 | | | 155 |
General and administrative | | 36,861 | | | 29,615 | | | 73,573 | | | 62,569 |
Restaurant margin | $ | 158,231 | | $ | 11,828 | | $ | 305,805 | | $ | 90,435 |
| | | | | | | | | | | |
Restaurant margin $/store week | $ | 22,333 | | $ | 1,754 | | $ | 21,719 | | $ | 6,717 |
Restaurant margin (as a percentage of restaurant and other sales) | | 17.7% | | | 2.5% | | | 18.1% | | | 8.1% |
See page 18above for the definition of restaurant margin.
NM — Not meaningful
Restaurant Unit Activity
| | | | | | | | |
|
| Total | | Texas Roadhouse | | Bubba's 33 |
| Jaggers |
Balance at December 29, 2020 |
| 634 | | 600 | | 31 |
| 3 |
Company openings |
| 11 | | 8 | | 3 | | — |
Company closings | | — | | — | | — | | — |
Franchise openings - Domestic | | — | | — | | — | | — |
Franchise openings - International |
| 2 | | 2 | | — | | — |
Franchise closings - International | | — | | — | | — | | — |
Balance at June 29, 2021 |
| 647 | | 610 | | 34 |
| 3 |
| | | | |
|
| June 29, 2021 |
| June 30, 2020 |
Company - Texas Roadhouse |
| 511 |
| 489 |
Company - Bubba's 33 |
| 34 |
| 30 |
Company - Jaggers |
| 3 |
| 2 |
Franchise - Texas Roadhouse - U.S. |
| 69 |
| 70 |
Franchise - Texas Roadhouse - International |
| 30 |
| 26 |
Total |
| 647 |
| 617 |
2023
Restaurant Unit Activity
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| Total |
| Texas Roadhouse |
| Bubba's 33 |
| Jaggers |
Balance at December 27, 2016 |
| 517 |
| 499 |
| 16 |
| 2 |
Company openings |
| 20 |
| 16 |
| 4 |
| — |
Franchise openings - Domestic |
| 1 |
| 1 |
| — |
| — |
Franchise openings - International |
| 2 |
| 2 |
| — |
| — |
Balance at September 26, 2017 |
| 540 |
| 518 |
| 20 |
| 2 |
Q3 2017Q2 2021 (13 weeks) compared to Q3 2016Q2 2020 (13 weeks) and 20172021 YTD (39(26 weeks) compared to 20162020 YTD (39(26 weeks)
Restaurant and Other Sales.Restaurant and other sales increased by 12.3%88.6% in Q3 2017 asQ2 2021 compared to Q3 2016Q2 2020 and by 11.3%50.6% in 20172021 YTD compared to 20162020 YTD. The following table summarizes certain key drivers and/or attributes of restaurant and other sales at company restaurants for the periods presented. Company restaurant count activity is shown in the restaurant unit activity table above.
| | | | | | | | | | | | | |
|
| Q2 2021 |
| Q2 2020 |
| 2021 YTD |
| 2020 YTD |
| ||||
Company Restaurants: | | | | | | | | | | | | | |
Increase in store weeks |
| | 5.1 | % | | 4.4 | % | | 4.6 | % | | 4.8 | % |
Increase (decrease) in average unit volume |
| | 78.0 | % | | (32.5) | % | | 43.1 | % | | (20.4) | % |
Other(1) |
| | 6.0 | % | | (2.9) | % | | 2.9 | % | | (2.6) | % |
Total increase (decrease) in restaurant sales |
| | 89.1 | % | | (31.0) | % | | 50.6 | % | | (18.2) | % |
Other sales(2) | | | (0.5) | % | | 0.1 | % | | 0.0 | % | | 0.0 | % |
Total increase (decrease) in restaurant and other sales | | | 88.6 | % | | (30.9) | % | | 50.6 | % | | (18.2) | % |
| | | | | | | | | | | | | |
Store weeks |
| | 7,085 | | | 6,742 | | | 14,080 | | | 13,463 | |
Comparable restaurant sales |
| | 80.2 | % | | (32.8) | % | | 44.5 | % | | (20.5) | % |
| | | | | | | | | | | | | |
Texas Roadhouse restaurants only: | | | | | | | | | | | | | |
Comparable restaurant sales |
| | 79.0 | % | | (32.4) | % | | 43.9 | % | | (20.2) | % |
Average unit volume (in thousands) | | $ | 1,664 | | $ | 935 | | $ | 3,175 | | $ | 2,219 | |
| | | | | | | | | | | | | |
Weekly sales by group: | | | | | | | | | | | | | |
Comparable restaurants (476 and 454 units, respectively) | | $ | 128,716 | | $ | 72,005 | | | | | | | |
Average unit volume restaurants (19 and 20 units, respectively)(3) | | $ | 110,459 | | $ | 69,174 | | | | | | | |
Restaurants less than six months old (16 and 15 units, respectively) | | $ | 134,822 | | $ | 61,781 | | | | | | | |
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| Q3 2017 |
| Q3 2016 |
| 2017 YTD |
| 2016 YTD |
|
| ||||
Company Restaurants: |
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|
|
|
|
|
|
|
|
|
|
Increase in store weeks |
|
| 8.1 | % |
| 7.6 | % |
| 8.0 | % |
| 8.1 | % |
|
Increase in average unit volume |
|
| 3.9 | % |
| 2.8 | % |
| 3.1 | % |
| 3.7 | % |
|
Other(1) |
|
| 0.3 | % |
| (0.3) | % |
| 0.2 | % |
| (0.4) | % |
|
Total increase in restaurant sales |
|
| 12.3 | % |
| 10.1 | % |
| 11.3 | % |
| 11.4 | % |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Store weeks |
|
| 5,868 |
|
| 5,427 |
|
| 17,324 |
|
| 16,039 |
|
|
Comparable restaurant sales growth |
|
| 4.5 | % |
| 3.4 | % |
| 4.0 | % |
| 4.2 | % |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Texas Roadhouse restaurants only: |
|
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|
|
|
|
|
|
|
|
|
|
|
|
Comparable restaurant sales growth |
|
| 4.6 | % |
| 3.5 | % |
| 4.0 | % |
| 4.2 | % |
|
Average unit volume (in thousands) |
| $ | 1,197 |
| $ | 1,152 |
| $ | 3,776 |
| $ | 3,663 |
|
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|
Weekly sales by group: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comparable restaurants (396 and 368 units, respectively) |
| $ | 92,712 |
| $ | 89,079 |
|
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|
|
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|
|
Average unit volume restaurants (21 and 24 units, respectively)(2) |
| $ | 79,891 |
| $ | 80,390 |
|
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|
|
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|
Restaurants less than six months old (16 units for each period) |
| $ | 93,419 |
| $ | 84,539 |
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(1) |
| Includes the impact of the year-over-year change in sales volume of all non-Texas Roadhouse restaurants, along with Texas Roadhouse restaurants open less than six months before the beginning of the period measured and, if applicable, the impact of restaurants permanently closed or acquired during the period. |
(2) |
|
(3) | Average unit volume restaurants include restaurants open a full six and up to 18 months before the beginning of the period |
The increasesincrease in restaurant sales for all periods presented wereQ2 2021 and 2021 YTD is primarily attributabledue to the opening of new restaurants combined with an increase in average unit volumevolumes, driven by an increase in comparable restaurant sales, growth.along with an increase in store weeks. The increase in comparable restaurant sales was primarily driven by the re-opening of our dining rooms, the continued easing of dining room capacity and seating restrictions, and continued strong To-Go sales. Comparable restaurant sales growth for all periods presented was due to an increaseincreased 80.2% in ourQ2 2021, which included guest traffic countscount growth of 58.6% and an increase in our per person average check as shown in the table below.
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|
| Q3 2017 |
|
| Q3 2016 |
|
| 2017 YTD |
|
| 2016 YTD |
|
|
Guest traffic counts |
|
| 3.5 | % |
| 2.0 | % |
| 3.2 | % |
| 2.7 | % |
|
Per person average check |
|
| 1.0 | % |
| 1.4 | % |
| 0.8 | % |
| 1.5 | % |
|
Comparable restaurant sales growth |
|
| 4.5 | % |
| 3.4 | % |
| 4.0 | % |
| 4.2 | % |
|
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|
21
Year-over-year sales for newer restaurants included in our average unit volume, but excluded from our comparable21.6%. Comparable restaurant sales partially offset the impactincreased 44.5% in YTD 2021, which included guest traffic count growth of positive comparable restaurant sales growth in Q3 201732.0% and 2017 YTD.
The increases in our per person average check growth of 12.5%.
As of June 29, 2021, nearly all of our company restaurants were operating without restriction. As of June 30, 2020, nearly all of our company restaurants had re-opened their dining rooms under various limited capacity restrictions. To-Go sales as a percentage of restaurant sales were 16.9% and 19.5% for Q2 2021 and 2021 YTD, respectively, compared
24
to 57.1% and 31.3% for Q2 2020 and 2020 YTD. The prior year periods were significantly impacted by the periods presentedclosure of our dining rooms. As of July 2, 2021, all of our company restaurants were primarily driven byoperating without restriction.
In addition, in April 2021 and October 2020, we implemented menu price increases taken in 2017, 2016of approximately 1.75% and 2015. In 2016 and 2015, we increased menu prices in the fourth quarter by approximately 1.0% and approximately 2.0%, respectively. We expect to take additional pricing in Q4 2021.
In May 2017,2021 YTD, we tookopened 11 company restaurants, including three Bubba's 33 restaurants. As of June 29, 2021, an additional price increase of 0.5%. These menu price increases17 restaurants were taken as a result of inflationary pressures, primarily commodities and/or labor. In Q3 2017 and 2017 YTD, average guest check did not increase in line with the menu price increases implemented as some guests shifted to lower priced menu items and/or purchased fewer beverages.
In 2017, weunder construction. We currently plan to open 26 or 27to 29 company restaurants including four Bubba’s 33 restaurants. We opened 20 restaurantsacross all concepts in 2017 YTD including 16 Texas Roadhouse restaurants2021. To the extent that state and four Bubba’s 33 restaurants. We have begun construction for all of our expected 2017 openings. Additionally,local guidelines begin to significantly reduce capacity and/or re-close dining rooms, we currently plan to open approximately 30 company restaurants in 2018, including up to seven Bubba’s 33 restaurants.could pull back on development and reduce capital expenditures accordingly.
Franchise Royalties and Fees.Franchise royalties and fees increased by $0.1$3.0 million, or by 3.6%90.2%, in Q3 2017 from Q3 2016Q2 2021 compared to Q2 2020 and $0.2increased $3.8 million, or by 1.3%,46.4% in 20172021 YTD from 2016compared to 2020 YTD. The increases in Q3 2017 and 2017 YTD were attributableincrease was due to an increase inhigher average unit volume at domestic restaurants,volumes, driven by comparable restaurant sales growth, and the opening of new franchise restaurants. These increases were partially offset by the loss of royalties associated with the acquisition of four franchise restaurants in Q1 2017 and a decrease in average unit volume at international restaurants, driven by a decrease in comparabledomestic stores. Comparable restaurant sales at those locations.
Franchise comparable restaurant sales increased 2.8% and 2.9% in Q3 2017 and 2017 YTD, which included an increase in domestic franchise comparable restaurant sales of 4.7%stores increased 76.5% and 4.0%,41.1% in Q2 2021 and 2021 YTD, respectively. Franchise restaurant count activity is shown in the restaurant activity table above. In 2017, we
We anticipate that our existing franchise restaurant partners will open as many as five primarily international, Texas Roadhouse restaurants, three of which opened in 2017 YTD. Additionally, we currently anticipate our franchise partners will open as many as seven Texas Roadhouse restaurants, primarily international, in 2018.2021.
Restaurant Cost of Sales. Restaurant cost of sales,Food and Beverage Costs.Food and beverage costs, as a percentage of restaurant and other sales, decreased to 32.9%33.1% in Q3 2017 from 33.9%Q2 2021 compared to 34.7% in Q3 2016Q2 2020 and decreased to 32.8%32.4% in 20172021 YTD from 33.9%compared to 33.4% in 20162020 YTD. TheseThe decreases were primarily attributabledue to the benefit of a higher guest check amount partially offset by commodity deflationinflation. Commodity inflation was approximately 6.5% and menu pricing actions. Commodity deflation of approximately 2.0% in Q3 20174.4% for Q2 2021 and 2.1% in 20172021 YTD, wasrespectively, primarily driven by lower food costs, primarily beef. Recent menu pricing actions are summarized in our discussion of restaurant sales above. higher beef costs.
For the remainder of 2017,2021, we havecurrently expect commodity cost inflation to be approximately 7.0% with fixed price contracts for approximately 60%50% of our overall foodremaining forecasted costs withand the remainder subject to fluctuatingfloating market prices. We expect approximately 2.0% food cost deflation in 2017.
In 2018, we expect commodity costs to be relatively flat. However, for 2018, we only have fixed price contracts for approximately 30% of our overall food costs with the remainder subject to fluctuating market prices.
Restaurant Labor Expenses. Restaurant labor expenses, as a percentage of restaurant and other sales, increaseddecreased to 31.6%32.3% in Q3 2017Q2 2021 compared to 30.4%41.1% in Q3 2016Q2 2020 and increaseddecreased to 30.9%32.4% in 20172021 YTD compared to 29.7%38.9% in 20162020 YTD. These increases wereThe decrease in both periods was primarily attributabledue to higher average wage rates, current staffing initiatives, and a change in our compensation structure, as discussed below, partially offset by lower workers’ compensation expense as well as the benefit from an increase in average unit volume. Lower workers’ compensation expense was drivenvolumes as well as lapping several items related to 2020 including labor inefficiencies as we converted to our hybrid operating model, and relief payments and increased benefits provided to our hourly employees. In 2021, the benefit of a higher guest check amount and employee retention payroll tax credits of $0.2 million and $1.2 million for Q2 2021 and 2021 YTD, respectively, also contributed to the decrease. These decreases were partially offset by a $1.5 million reduction in workers’ compensation costs recorded in Q3 2017 compared to a $0.3 million reduction in costs recorded in Q3 2016higher wage rates primarily due to changes in our claims development history.
In 2016, the Department of Labor published changes related to the Fair Labor Standards Act ("FLSA") which would have resulted in changes to the threshold for overtime pay. The changes were scheduled to go into effect on December 1, 2016, however, in late November a federal judge blocked the implementation of the changes. Despite the injunction, we continuedlabor market pressures along with the implementation of the changes to our overtime policies as originally planned.
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For the remainder of 2017, we expect approximately 7.0% to 8.0% inflation due to increases in state-mandated minimum and tipped wageswage rates.
In Q2 2021 and increased competition2021 YTD, we incurred costs of $1.9 million and $3.4 million, respectively, for qualified workers, as well as by the impact of changesrelief pay and enhanced benefits for our restaurant-level managers and hourly employees. This compared to $4.7 million and $15.4 million in Q2 2020 and 2020 YTD, respectively, for relief pay and enhanced benefits for our compensation structure as discussed above. We expect the changeshourly employees.
Health insurance costs were higher in Q2 2021 compared to our compensation structureQ2 2020 primarily due to increase our 2017 labor costs by $4.5favorable claims experience in Q2 2020 that resulted in a $1.0 million to $5.5 million, which is includeddecrease in our 7.0% to 8.0% inflation guidance. These increases may or may not be offset by additional menu price adjustments or guest traffic growth.claim costs.
Restaurant Rent Expense.Restaurant rent expense, as a percentage of restaurant and other sales, remained relatively unchanged at 2.1%decreased to 1.7% in Q3 2017Q2 2021 compared to 2.8% in Q2 2020 and Q3 2016 as well as 2.0%decreased to 1.7% in 20172021 YTD and 2016compared to 2.4% in 2020 YTD. For both periods,The decrease was due to the benefit from an increase in average unit volume wasvolumes partially offset by higher rent expense, as a percentage of restaurant and other sales, at our newer restaurants.
Restaurant Other Operating Expenses.Restaurant other operating expenses, as a percentage of restaurant and other sales, increaseddecreased to 15.6%15.2% in Q3 2017Q2 2021 compared to 15.4%18.9% in Q3 2016Q2 2020 and increaseddecreased to 15.3% in 20172021 YTD compared to 15.2%17.3% in 20162020 YTD. In Q3 2017, higher general liability insurance and higher costs associated with remodels were partially offset by lower costs associated with utilities and lower bonus expense along with anThis decrease was primarily due to the increase in average unit volume. In 2017 YTD, higher general liability insurance wasvolumes and lower To-Go supplies partially offset by lower bonus expense along with an increase in incentive compensation. The lower supplies expense was due to the prior year periods having significantly higher To-Go sales due to the closure of our dining rooms. Higher incentive compensation expense
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was due to higher restaurant profitability. In addition, due to the significant increase in our average unit volume. Higher general liability insurance was driven byvolumes, expenses that are largely fixed, including utilities, property taxes, and other outside services decreased as a $1.5 million reduction to general liability insurance costs recorded in Q3 2016 compared to a $0.2 million reduction in costs recorded in Q3 2017 due to changes in our claims development history. percentage of restaurant and other sales.
Restaurant Pre-opening Expenses.Pre-opening expenses decreasedincreased to $4.5$6.3 million in Q3 2017 from $5.0Q2 2021 compared to $4.3 million in Q3 2016Q2 2020 and remained relatively unchanged at $14.3increased to $10.6 million in 20172021 YTD and 2016compared to $9.4 million in 2020 YTD. These variancesincreases were primarily due to the timing of restaurant openings.
Overall, we plan to open 26 or 27 company-owned restaurantsopenings as well as a slight increase in 2017 compared to 30 company-owned restaurants in 2016.average pre-opening expenses incurred. Pre-opening costs will fluctuate from quarter to quarter 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 Expense.D&A, as a percentage of total revenue, increaseddecreased to 4.4%3.5% in Q3 2017Q2 2021 compared to 4.3%6.1% in Q3 2016Q2 2020 and increaseddecreased to 4.1%3.7% in 20172021 YTD compared to 4.0%5.1% in 20162020 YTD. These increases wereThe decrease was primarily due to higher depreciation, as a percentage of revenue, at new restaurants and increased re-investment in equipment at older restaurants. This increase was partially offset by the benefit of an increase in average unit volume.volumes partially offset by higher depreciation at new restaurants.
Impairment and Closure Costs, Net. Impairment and closure costs, net was not significant in Q2 2021 compared to ($0.4) million in Q2 2020 and was $0.5 million in 2021 YTD compared to $0.2 million in 2020 YTD. For 2021 YTD, impairment and closure costs, net included the remainderimpairment of 2017land and 2018, we expect D&A,building at a site that was relocated and are currently classified as assets held for sale. For Q2 2020 and 2020 YTD, impairment and closure costs, net includes a percentage of revenue, to continue to be higher than the prior year due to an increase in our capitalized costsgain related to restaurants openeda favorable lease settlement for one underperforming restaurant that was closed in 2016 and 2017, along with an increaseApril 2020. In addition, 2020 YTD also includes the impairment of one restaurant that was relocated in the level of reinvestment in our existing restaurants.February 2020.
General and Administrative Expenses. G&A, as a percentage of total revenue, decreased to 4.8%4.1% in Q3 2017Q2 2021 compared to 5.4%6.2% in Q3 2016Q2 2020 and increaseddecreased to 5.6%4.3% in 20172021 YTD compared to 5.5% in 20162020 YTD. In Q3 2017, the decrease wasThese decreases were primarily driven by lower costs associated with incentive and share-based compensation, along with an increase in average unit volume. In 2017volumes and lower legal settlement expense partially offset by higher incentive and performance-based compensation costs and higher travel costs. Lower legal settlement expense was primarily related to lapping a $1.5 million legal settlement in the prior year. Higher incentive and performance-based compensation costs were due to the increase in profitability.
Interest Expense, Net.Interest expense, net was $1.0 million in both Q2 2021 and Q2 2020 and was $2.4 million and $1.1 million in 2021 YTD and 2020 YTD, respectively. The increase in interest expense, net in the 2021 YTD period was primarily driven by additional borrowings on our credit facility in March 2020 along with reduced earnings on our cash and cash equivalents.
Equity Income (Loss) from Unconsolidated Affiliates. Equity income was $0.2 million in Q2 2021 compared to a loss of $0.1 million in Q2 2020 and was not significant in 2021 YTD compared to a loss of $0.6 million in 2020 YTD. The increase in both periods is due to increased profitability from our unconsolidated affiliates offset by impairment charges related to our investment in a foreign joint venture that were recorded in both Q1 2021 and Q1 2020.
Income Tax Expense (Benefit). Our effective tax rate increased to 12.4% in Q2 2021 compared to an effective tax rate benefit of 31.2% in Q2 2020 and increased to 14.2% in 2021 YTD compared to an effective tax rate benefit of 51.4% in 2020 YTD. The increase in both periods was primarily due to a pre-tax charge of $14.9 million ($9.2 million after-tax) related to legal fees and the settlement of a legal matter in March 2017 partially offset by lower incentive and share-based compensation and ansignificant increase in average unit volume.pre-tax income. In addition, Q3 2016both periods of 2020, our FICA tip and 2016 YTD also included charges of $1.2 million ($0.8 million after-tax) and $6.7 million ($4.1 million after-tax), respectively, related to the settlement ofWork opportunity tax credits exceeded our federal tax liability which resulted in a legal matter.
Interest Expense, Net. Interest expense increased to $0.5 million in Q3 2017 compared to $0.3 million in Q3 2016 and increased to $1.2 million in 2017 YTD compared to $0.9 million in 2016 YTD. These increases were due to higher interest rates.
Income Tax Expense. Our effective tax rate decreased to 28.8% in Q3 2017 compared to 29.8% in Q3 2016 and decreased to 27.7% in 2017 YTD compared to 30.0% in 2016 YTD primarily due to the adoption of Accounting Standards Update 2016-09, Compensation – Stock Compensation. As a result of the new guidance requirements, excess tax benefits and tax deficiencies from share-based compensation are recognized within the income tax provision. Duringbenefit.
2326
Q3 2017, we recognized $0.4 million, or $0.01 per share, as an income tax benefit. During 2017 YTD, we recognized $3.0 million, or $0.04 per share, as an income tax benefit. For the remainder of 2017, we expect the effective tax rate to be approximately 28.0%. For 2018, we expect the effective tax rate to be between 28.0% and 29.0%.
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):
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| |||||||
|
| 39 Weeks Ended |
| |||||||||||
|
| September 26, 2017 |
| September 27, 2016 |
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| | | | | | | | |||||||
| | 26 Weeks Ended | | |||||||||||
|
| June 29, 2021 |
| June 30, 2020 |
| |||||||||
Net cash provided by operating activities |
| $ | 188,070 |
| $ | 159,782 |
| | $ | 296,846 | | $ | 61,845 | |
Net cash used in investing activities |
|
| (133,565) |
|
| (113,219) |
| |
| (81,783) | |
| (79,666) | |
Net cash used in financing activities |
|
| (53,013) |
|
| (24,184) |
| |||||||
Net cash (used in) provided by financing activities | |
| (94,799) | |
| 192,435 | | |||||||
Net increase in cash and cash equivalents |
| $ | 1,492 |
| $ | 22,379 |
| | $ | 120,264 | | $ | 174,614 | |
Net cash provided by operating activities was $188.1$296.8 million in 20172021 YTD compared to $159.8$61.8 million in 20162020 YTD. This increase was primarily due to an increase in net income and non-cash items such as depreciation and amortization expense along with an increasefavorable changes in working capital. The increaseWorking capital changes include increases in working capital was attributed to an increase in cash flows related to a change in the payment timing of accrued wages inand payroll taxes, accounts payable, accrued taxes and licenses and other accrued liabilities. These changes were primarily due to our operations stabilizing compared to the prior year along with a decrease in receivablesperiod. This was partially offset by a changedecrease in deferred revenue relatedaccounts receivable which was primarily due to third-party gift cards. card sales.
Our operations have not required significant working capital and, like many restaurant companies, we have been able to operate with negative working capital. Sales are primarily for cash, and restaurant operations do not require significant inventories or receivables. 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 $133.6$81.8 million in 20172021 YTD compared to $113.2$79.7 million in 20162020 YTD. The increase was primarily due to the acquisition of four franchise restaurants in Q1 2017 for a purchase price of $16.5 million, along with an increase in capital expenditures. Theexpenditures, primarily driven by an increase in capital expendituresnew company restaurants. This was primarily due to increased spending relatedthe delay in our development schedule in 2020 due to new restaurant openings. the pandemic. This increase was partially offset by fewer stores being relocated.
We require capital principally for the development of new company restaurants, the refurbishment or relocation of existing restaurants and the acquisition of franchise restaurants, if any. We either lease our restaurant site locations under operating leases for periods of five to 30 years (including renewal periods) or purchase the land when appropriate. AsIn addition, as of September 26, 2017,June 29, 2021, we had developed 140148 of the 455548 company restaurants on land whichthat we own.
The following table presents a summary of capital expenditures related to the development of new restaurants and the refurbishment of existing restaurants (in thousands):
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|
| 2017 YTD |
| 2016 YTD |
| ||
New company restaurants |
| $ | 78,943 |
| $ | 75,231 |
|
Refurbishment of existing restaurants(1) |
|
| 38,094 |
|
| 37,988 |
|
Total capital expenditures |
| $ | 117,037 |
| $ | 113,219 |
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|
|
Restaurant-related repairs and maintenance expense(2) |
| $ | 18,956 |
| $ | 16,501 |
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|
| | | | | | | |
|
| 2021 YTD |
| 2020 YTD | | ||
New company restaurants | | $ | 48,282 | | $ | 31,525 | |
Refurbishment of existing restaurants | |
| 29,712 | |
| 28,077 | |
Relocation of existing restaurants | | | 4,694 | | | 14,746 | |
Capital expenditures related to Support Center office | | | 2,380 | | | 7,485 | |
Total capital expenditures | | $ | 85,068 | | $ | 81,833 | |
Our future capital requirements will primarily depend on the number of new restaurants we open, the timing of those openings and the restaurant prototype developed in a given fiscal year. These requirements will include costs directly related to opening new restaurants and may also include costs necessary to ensure that our infrastructure is able to support a larger restaurant base. In 2017,2021, we expect our capital expenditures to be approximately $170.0$200.0 million and we currently plan to open 26 to 29 restaurants across all concepts. To the
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majorityJune 29, 2021, the estimated cost of which will relate to planned restaurant openings, including 26 or 27 restaurant openings in 2017. These amounts exclude any cash used for franchise acquisitions. In Q1 2017, we acquired four franchise restaurants for an aggregate purchase price of $16.5completing capital project commitments over the next 12 months was approximately $119.3 million. See note 6 into the unaudited condensed consolidated financial statements for furthera discussion of these acquisitions. We intend to satisfy our capital requirements over the next 12 months with cash on hand, net cash provided by operating activities and, if needed, funds available under our revolving credit facility. For 2017, we anticipate net cash provided by operating activities will exceed capital expenditures. We currently anticipate this excess will be used to pay dividends, as approved by our Board of Directors, repurchase common stock, and/or repay borrowings under our revolving credit facility.contractual obligations.
Net cash used in financing activities was $53.0$94.8 million in 20172021 YTD compared to $24.2net cash provided by financing activities of $192.4 million in 20162020 YTD. The increasedecrease is primarily due to the change in borrowings onunder our revolving credit facility that occurred in Q1 2016 and an increase in dividends paid. These increases were partially offset by a decrease in spending on share repurchases along with proceeds from noncontrolling interest contributions.in Q1 2020.
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In 2021 YTD, we refinanced our revolving credit facility and repaid $50.0 million that was previously outstanding. In 2020 YTD, we increased our borrowings by $240.0 million as a precautionary measure in order to bolster our cash position and enhance financial flexibility in response to the pandemic.
On May 22, 2014,31, 2019, our Board of Directors approved a stock repurchase program under which we may repurchase up to $100.0$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 February 16, 2012.May 22, 2014. All repurchases to date under our stock repurchase programprograms 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 2017 YTD, we made no share repurchases and had approximately $69.9The Company has not yet resumed the repurchase of shares since suspending repurchase activity at the onset of the pandemic but currently expects to resume in the second half of 2021. As of June 29, 2021, $147.8 million remaining under ourremains authorized for stock repurchase program as of September 26, 2017.repurchases.
On August 31, 2017,April 28, 2021, our Board of Directors authorizedreinstated the payment of a quarterly cash dividend of $0.21$0.40 per share of common stock. The payment of this dividend totaling $27.9 million was distributed on June 4, 2021 to shareholders of record at the close of business on May 19, 2021. This was the first dividend since the Board of Directors voted to suspend the payment of quarterly cash dividends at the onset of the pandemic. Prior to this suspension, the last dividend was authorized on February 20, 2020 and was $0.36 per share of common stock. The payment of this dividend totaling $14.9$25.0 million was distributed on September 29, 2017March 27, 2020 to shareholders of record at the close of business on September 13, 2017. The declared dividend is included as a liability in our unaudited condensed consolidated balance sheet as of September 26, 2017.March 11, 2020.
We paid distributions of $4.0$4.4 million to equity holders of 1718 of our 1820 majority-owned company restaurants in 20172021 YTD. In 2016 YTD, weWe paid $3.5distributions of $1.8 million to equity holders of all our 1620 majority-owned company restaurants.restaurants in 2020 YTD.
On August 7, 2017May 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 $300.0 million with the option to increase by an additional $200.0 million subject to certain limitations, including approval by the syndicate of lenders. The amendment also extended the maturity date to May 1, 2026.
Prior to the amendment, our original revolving credit facility had a borrowing capacity of up to $200.0 million with the option to increase the revolving credit facility by an additional $200.0 million subject to certain limitations. The Amended Credit Agreement extendslimitations, including approval by the maturity datesyndicate of ourlenders. On May 11, 2020, we amended the original revolving credit facility until August 5, 2022.to provide for an incremental revolving credit facility of up to $82.5 million. This amount reduced the additional $200.0 million that was available under the original revolving credit facility.
As of May 4, 2021, before the amendment, we had $190.0 million outstanding on the original revolving credit facility and $50.0 million outstanding on the incremental revolving credit facility. As part of the amendment, the $190.0 million remained outstanding on the amended revolving credit facility and the $50.0 million was repaid.
The terms of the Amended Credit Agreementamendment require us to pay interest on outstanding borrowings at the London Interbank Offered RateLIBOR plus a margin of 0.875% to 1.875% and to pay a commitment fee of 0.125% to 0.30% per year on any unused portion of the revolving credit facility, in each case depending on our leverage ratio, or theratio. The amendment also provides an Alternate Base Rate that may be substituted for LIBOR.
As of June 29, 2021, we had $190.0 million outstanding on the amended revolving credit facility and $101.8 million of availability, net of $8.2 million of outstanding letters of credit. This outstanding amount is included as long-term debt on our unaudited condensed consolidated balance sheet.
As of December 29, 2020, we had $190.0 million outstanding on the original revolving credit facility which is included as long-term debt on our unaudited condensed consolidated balance sheet. In addition, we had $50.0 million outstanding on the highestincremental revolving credit facility which is included as current maturities of the issuing banks’ prime lending rate, the Federal Funds rate plus 0.50% or the Adjusted Eurodollar Rate for a one month interest periodlong-term debt on such day plus 1.0%. our unaudited condensed consolidated balance sheet.
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The weighted-average interest rate for the revolving credit facility$190.0 million outstanding as of September 26, 2017 and December 27, 2016June 29, 2021 was 2.11% and 1.57%, respectively. As of September 26, 2017, we had $50.0 million outstanding under0.98%. The weighted-average interest rate for the revolving credit facility and $142.9$240.0 million of availability, netcombined borrowings as of $7.1 million of outstanding letters of credit.December 29, 2020 was 1.98%.
The lenders’ obligation to extend credit pursuant to the Amended Credit Agreementrevolving credit facility depends on us maintaining certain financial covenants, including a minimum consolidated fixed charge coverage ratio of 2.00 to 1.00 and a maximum consolidated leverage ratio of 3.00 to 1.00. The Amended Credit Agreement permits us to incur additional secured or unsecured indebtedness outside the 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.covenants. We were in compliance with all financial covenants as of September 26, 2017.June 29, 2021.
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Contractual Obligations
Guarantees
The following table summarizes the amount of payments due under specified contractual obligations as of September 26, 2017 (in thousands):
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| Payments Due by Period |
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| Less than |
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| More than |
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| Total |
| 1 year |
| 1 - 3 Years |
| 3 - 5 Years |
| 5 years |
| |||||
Long-term debt obligations |
| $ | 51,993 |
| $ | 9 |
|
| 22 |
|
| 50,030 |
|
| 1,932 |
|
Interest(1) |
|
| 10,777 |
|
| 1,280 |
|
| 2,588 |
|
| 2,525 |
|
| 4,384 |
|
Operating lease obligations |
|
| 839,920 |
|
| 45,037 |
|
| 90,067 |
|
| 89,885 |
|
| 614,931 |
|
Capital obligations |
|
| 150,629 |
|
| 150,629 |
|
| — |
|
| — |
|
| — |
|
Total contractual obligations(2) |
| $ | 1,053,319 |
| $ | 196,955 |
| $ | 92,677 |
| $ | 142,440 |
| $ | 621,247 |
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|
We have no material minimum purchase commitments with our vendors that extend beyond a year. See note 5 to the unaudited condensed consolidated financial statements for a discussion of contractual obligations.
Off-Balance Sheet Arrangements
Except for operating leases (primarily restaurant leases), we do not have any material off-balance sheet arrangements.
Guarantees
As of September 26, 2017June 29, 2021 and December 27, 2016,29, 2020, we are contingently liable for $15.8$12.6 million and $16.4$13.0 million, respectively, for seven lease guarantees, listed in the table below. 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 September 26, 2017June 29, 2021 and December 27, 201629, 2020 as the likelihood of default was deemed to be less than probable and the fair value of the guarantees is not considered significant.
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| | | | | |
| Lease | Current Lease | |||
| |
| |
| |
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| ||||
Everett, Massachusetts (1) |
| September 2002 |
| February 2023 | |
Longmont, Colorado (1) |
| October 2003 |
| May | |
Montgomeryville, Pennsylvania (1) |
| October 2004 |
| March | |
Fargo, North Dakota (1) |
| February 2006 |
| July | |
Logan, Utah (1) |
| January 2009 |
| August | |
Irving, Texas | | December 2013 | | December | |
Louisville, Kentucky (2)(3) | | December 2013 | | November 2023 | |
(1) |
| Real estate lease agreements for restaurant locations which we entered into before granting franchise rights to those restaurants. We have subsequently assigned the leases to the franchisees, but remain contingently liable under the terms of the lease if the franchisee defaults. |
(2) |
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|
| Leases associated with non-Texas Roadhouse restaurants which were sold. The leases were assigned to the acquirer, but we remain contingently liable under the terms of the lease if the acquirer defaults. |
(3) |
| We may be released from liability after the initial contractual lease term expiration contingent upon certain conditions being met by the acquirer. |
Recently Issued Accounting Standards
Revenue Recognition
(Accounting Standards Update 2014‑09, "ASU 2014‑09")
In May 2014, the FASB issued ASU 2014-09, Revenue from Contracts with Customers, which requires an entity to recognize the amount of revenue to which it expects to be entitled for the transfer of promised goods or services to customers. The ASU will replace most existing revenue recognition guidance in GAAP when it becomes effective. In July 2015, the FASB approved a one-year deferral of the effective date of the new revenue standard. ASU 2014-09 is now effective for fiscal years beginning on or after December 15, 2017 (our 2018 fiscal year), including interim periods within those annual periods, with early adoption permitted in the first quarter of 2017. The standard permits the use of either the full retrospective or cumulative-effect transition method. In March and April 2016, the FASB issued the following amendments to clarify the implementation guidance: ASU No. 2016-08, Revenue from Contracts with Customers (Topic 606): Principal versus Agent Considerations (Reporting Revenue Gross versus Net) and ASU No. 2016-10, Revenue from Contracts with Customers (Topic 606): Identifying Performance Obligations and Licensing. Additionally, on December 21, 2016, the FASB issued ASU No. 2016-20, Technical Corrections and Improvements to Topic 606, Revenue from Contracts with Customers, which provides disclosure relief and clarifies the scope and application of the new revenue standard and related cost guidance. The standard will not impact our recognition of sales from company-owned restaurants or our recognition of continuing fees from franchisees, which are based on a percentage of franchise sales. Under this standard, initial franchise fees and upfront fees from international development agreements will be recognized over the life of the applicable franchise agreements. We currently recognize initial franchise fees when the related services have been provided, which is generally upon the opening of the restaurant, and upfront fees on a pro-rata basis as restaurants under the development agreement are opened. In addition, certain transactions that were previously recorded as a reduction of expense will be classified as revenue. These include breakage income from our gift card program which is currently recognized as a reduction of other operating expense and advertising contributions received from our franchisees which are currently recognized as a reduction of general and administrative expense. We continue to evaluate the standard’s impact on other transactions currently not classified as revenue. We currently expect to use the cumulative-effect method of adoption and do not believe this adoption will have a material impact on our consolidated statements of income and comprehensive income.
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Leases
(Accounting Standards Update 2016-02, "ASU 2016-02")
In February 2016, the FASB issued ASU 2016-02, Leases, which requires an entity to recognize a right-of-use asset and a lease liability for virtually all leases. This update also requires additional disclosures about the amount, timing, and uncertainty of cash flows arising from leases. ASU 2016-02 is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2018 (our 2019 fiscal year). Early adoption is permitted. A modified retrospective approach is required for all leases existing or entered into after the beginning of the earliest comparative period in the consolidated financial statements.
We had operating leases with remaining rental payments of approximately $839.9 million as of September 26, 2017. The discounted minimum remaining rental payments will be the starting point for determining the right-of-use asset and lease liability. While we are still in the process of assessing the impact of this new standard on our consolidated financial position, results of operations and cash flows, we expect the adoption of this standard will have a material impact on our consolidated balance sheets due to the recognition of the right-of-use asset and lease liability related to operating leases. While the new standard is also expected to impact the measurement and presentation of elements of expenses and cash flows related to leasing arrangements, we do not presently believe there will be a material impact on our consolidated statements of income and comprehensive income or our consolidated statement of cash flows.
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. ASU 2016-13 is effective for annual periods beginning after December 15, 2019 (our 2020 fiscal year), with early adoption permitted for annual periods beginning after December 15, 2018. We are currently assessing the impact of this new standard on our consolidated financial position, results of operations and cash flows.
Statement of Cash Flows
(Accounting Standards Update 2016-15, "ASU 2016-15")
In August 2016, the FASB issued ASU 2016-15, Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments, which adds and/or clarifies guidance on the classification of certain cash receipts and payments in the statement of cash flows. ASU 2016-15 is effective for annual periods beginning after December 15, 2017 (our 2018 fiscal year) and interim periods within those annual periods. Early adoption is permitted. We do not expect the adoption of this guidance will have a material impact on our consolidated financial position, results of operations or cash flows.
Income Taxes
(Accounting Standards Update 2016-16, "ASU 2016-16")
In October 2016, the FASB issued ASU 2016-16, Income Taxes (Topic 740), which addresses the income tax consequences of intra-entity transfers of assets other than inventory. Current GAAP prohibits the recognition of current and deferred income taxes for an intra-entity asset transfer until the asset has been sold to an outside party. This standard will require recognition of current and deferred income taxes resulting from an intra-entity transfer of an asset other than inventory when the transfer occurs. ASU 2016-16 is effective for annual and interim periods beginning after December 15, 2017 (our 2018 fiscal year). Early adoption is permitted. We do not expect the adoption of this guidance will have a material impact on our consolidated financial position, results of operations or cash flows.
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Goodwill
(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 Text 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. ASU 2017-04 is effective for fiscal years beginning after December 15, 2019 (our 2020 fiscal year) and will be applied on a prospective basis. Early adoption is permitted for interim and annual goodwill impairment tests performed on testing dates after January 1, 2017. We are currently assessing the impact of this new standard on our consolidated financial position, results of operations and cash flows.
Compensation – Stock Compensation
(Accounting Standards Update 2017-09, "ASU 2017-09")
In May 2017, the FASB issued ASU 2017-09, Compensation – Stock Compensation (Topic 718): Scope of Modification Accounting, which clarifies when a change in the terms or conditions of a share-based payment award must be accounted for as a modification. ASU 2017-09 requires modification accounting if the fair value, vesting condition or the classification of the award is not the same immediately before and after a change in the terms and conditions of the award. ASU 2017-09 is effective for annual and interim periods beginning after December 15, 2017 (our 2018 fiscal year). Early adoption is permitted. We do not expect the adoption of this guidance will have a material impact on our consolidated financial position, results of operations or cash flows.
ITEM 3. 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. 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 0.875% to 1.875%, and pay a commitment fee of 0.125% to 0.30% per year on any unused portion of the revolving credit facility, in each case depending on our leverage ratio, or theratio. The amended revolving credit facility also provides an Alternate Base Rate which is the highestthat may be substituted for LIBOR. As of the issuing banks’ prime lending rate, the Federal Funds rate plus 0.50% or the Adjusted Eurodollar Rate for a one month interest period on such day plus 1.0%. At September 26, 2017,June 29, 2021, we had $50.0$190.0 million outstanding under the revolving credit facility, which bears interest at 87.5 to 187.5 basis points (depending on our leverage ratios) over LIBOR. amended credit agreement. This outstanding amount is included as long-term debt on our unaudited condensed consolidated balance sheet.
The weighted-average interest rate for the $190.0 million outstanding on our revolving credit facility at September 26, 2017as of June 29, 2021 was 2.11%0.98%. Should interest rates based on thisthese variable rate borrowingborrowings increase by one percentage point, our estimated annual interest expense would increase by $0.5$1.9 million.
In an effort to secure high quality, low 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
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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 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‑termshort-term financial results could be negatively affected.
We are subject to business risk as our beef supply is highly dependent upon three vendors. To date, the pandemic has not had a significant impact on our ability to source product from our suppliers. If these vendors wereare unable to fulfill their obligations under their contracts, we may encounter supply shortages and/or higher costs to secure adequate supplies and a possible loss of sales, any of which would harm our business.
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ITEM 4. CONTROLS AND PROCEDURES
Evaluation of disclosure controlsDisclosure Controls and proceduresProcedures
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)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 September 26, 2017.June 29, 2021.
Changes in internal controlInternal Control
There were no significant changes in the Company’s internal control over financial reporting that occurred during the period covered by this report13 weeks ended June 29, 2021 that materially affected or are reasonably likely to materially affect, the Company’s internal control over financial reporting.
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PART II — OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
Occasionally, we are a defendant in litigation arising 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 adverse effect on us during the periods covered by this report 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.
Information regarding risk factors appears in our Annual Report on Form 10-K for the year ended December 27, 2016,29, 2020, under the heading "Special Note Regarding Forward-looking Statements" and in the Form 10-K Part I, Item 1A, Risk Factors. There have been no material changes from the risk factors previously disclosed in our Form 10-K for the year ended December 27, 2016.29, 2020.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
On May 22, 2014,31, 2019, our Board of Directors approved a stock repurchase program which authorized us to repurchase up to $100.0$250.0 million of our common stock. For the 13 and 39 weeks ended September 26, 2017, we did not repurchase any shares of common stock. As of September 26, 2017, we had approximately $69.9 million remaining under our authorized repurchase program. This stock repurchase program has no expiration date and replaced a previous stock repurchase program which was approved on February 16, 2012.May 22, 2014. The previous program authorized us to repurchase up to $100.0 million of our common stock and did not have an expiration date. All repurchases to date under our stock repurchase programprograms have been made through open market transactions. The timing and the amount of any repurchases through this program will be determined by management under parameters established by our Board of Directors, based on an evaluation of our stock price, market conditions and other corporate considerations. For the 26 weeks ended June 29, 2021, we did not repurchase any shares of common stock. On March 17, 2020, we suspended all share repurchase activity in order to enhance our financial flexibility as a result of the pandemic. As of June 29, 2021, $147.8 million remains authorized for stock repurchases.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
Not applicable.
None.
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Exhibit No. | Description | |
| | |
10.1 | | |
10.2 | | |
10.3 | | |
10.4 | | |
10.5 | | |
10.6 | | |
10.7 | | |
10.8 | | |
10.9 | | |
31.1 | | |
31.2 | | |
32.1 | | |
32.2 | | |
101.INS | | XBRL Instance Document – the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document. |
101.SCH | | XBRL Taxonomy Extension Schema Document |
101.CAL | | XBRL Taxonomy Extension Calculation Linkbase Document |
101.DEF | | XBRL Taxonomy Extension Definition Linkbase Document |
101.LAB | | XBRL Taxonomy Extension Label Linkbase Document |
101.PRE | | XBRL Taxonomy Extension Presentation Linkbase Document |
104 | | Cover page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101) |
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
| TEXAS ROADHOUSE, INC. | |
| | |
Date: | By: | /s/ |
| |
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| | Chief Executive Officer and President (principal executive officer) |
| | |
| | |
Date: | By: | /s/ |
| |
|
| |
|
| | (principal financial officer) |
| | ( |
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