2017 annual report
Legendary People,
Legendary Results.
Dear Partners,
I started Texas Roadhouse with a simple dream—to open one
restaurant and own my own home.
Now, thanks to the best operators in the country we are celebrating
our 25 year anniversary and rockin’ and rollin’ with 549 restaurants
system-wide in 49 states and seven countries.
But this is not like most anniversary celebrations, which involve
looking back to the “good-old-days” and how things have changed
since the beginning. At Texas Roadhouse, we like to celebrate what
has NOT changed. In fact, if we have any secret sauce it comes
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For example, things that have not changed since day one:
• Our Managing Partner Program—allowing our managing
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restaurant means they run the restaurant like an owner
and have skin in the game. Everyone wins.
• Our Legendary People—we still believe happy employees
make happy guests.
• Our Legendary Food—we continue to offer in-house, hand-
cut steaks, Fall-off-the-Bone ribs, and food that is made
from scratch.
• Our Legendary Service—we still focus on 3-table
stations, a fun atmosphere and our employee recognition
programs.
• We don’t chase fads but instead focus on the basics.
As Herb Kelleher, the founder of Southwest Airlines, once told
me, “Dance with who brung ya. In other words, stay true to your
company’s Core Values.”
For Texas Roadhouse those Core Values are Passion, Partnership,
Integrity and Fun… with Purpose. Because of our operators’
commitment to these Core Values we had another stellar year
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and four Bubba’s 33 locations) and our franchise partners
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• Increased revenue to approximately $2.2 billion, which
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• Paid $58.2 million in dividends.
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million in debt.
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relocated one restaurant.
• Launched our mobile app nationwide, which allows guests
to put their name on the wait list, place to-go orders, and
pay at the table.
With the best operators in the industry we have a lot of momentum
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restaurants, including up to seven Bubba’s 33 restaurants and to
add approximately six, primarily international, franchise locations,
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to conservation and community outreach, our goal is to leave every
community better than we found it. We have included a portion of the
plan in this year’s annual report and the full report can be found on
our website.
No matter how many restaurants we open we will never lose our local
community focus. Since day one we have encouraged our Managing
Partners to be the “mayor” of their communities, both inside and
outside the restaurant. We want to be part of the communities we
serve, take care of our people and our guests, and volunteer in
times of need. There is no greater example of this attitude than our
restaurants’ response to the devastating hurricanes last year.
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responders, those in area shelters and even delivering food door-to-
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impacted by Hurricanes Harvey, Irma and Maria.
Also, we are so proud that Andy’s Outreach, our internal fund
created to help our employees in times of emergency, provided more
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distributions.
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Without Legendary People, we could never serve Legendary Food or
provide Legendary Service.
Paul Ashton, our current Managing Partner of the Year from Sherman,
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leader who raises the bar every single year in every category that can
be measured. He is beloved by his staff because he leads by example.
He has embraced our Core Values and epitomizes Texas Roadhouse
leadership, which is why he was recently promoted to Market Partner.
(cid:36)(cid:81)(cid:82)(cid:87)(cid:75)(cid:72)(cid:85)(cid:3)(cid:86)(cid:87)(cid:68)(cid:81)(cid:71)(cid:82)(cid:88)(cid:87)(cid:3)(cid:76)(cid:86)(cid:3)(cid:82)(cid:88)(cid:85)(cid:3)(cid:21)(cid:19)(cid:20)(cid:25)(cid:3)(cid:53)(cid:82)(cid:68)(cid:71)(cid:76)(cid:72)(cid:3)(cid:82)(cid:73)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:60)(cid:72)(cid:68)(cid:85)(cid:15)(cid:3)(cid:48)(cid:76)(cid:78)(cid:72)(cid:3)(cid:51)(cid:68)(cid:85)(cid:78)(cid:72)(cid:85)(cid:17)(cid:3)(cid:48)(cid:76)(cid:78)(cid:72)(cid:3)
(cid:76)(cid:86)(cid:3)(cid:68)(cid:3)(cid:20)(cid:22)(cid:16)(cid:92)(cid:72)(cid:68)(cid:85)(cid:3)(cid:53)(cid:82)(cid:68)(cid:71)(cid:76)(cid:72)(cid:3)(cid:90)(cid:75)(cid:82)(cid:3)(cid:80)(cid:68)(cid:81)(cid:68)(cid:74)(cid:72)(cid:86)(cid:3)(cid:82)(cid:88)(cid:85)(cid:3)(cid:40)(cid:81)(cid:87)(cid:72)(cid:85)(cid:83)(cid:85)(cid:76)(cid:86)(cid:72)(cid:3)(cid:54)(cid:92)(cid:86)(cid:87)(cid:72)(cid:80)(cid:86)(cid:3)(cid:44)(cid:55)(cid:3)(cid:87)(cid:72)(cid:68)(cid:80)(cid:17)(cid:3)
He always leads with character and integrity and is admired and
respected by all who work with him. We are blessed to have Mike as
part of our team.
(cid:44)(cid:87)(cid:183)(cid:86)(cid:3)(cid:75)(cid:68)(cid:85)(cid:71)(cid:3)(cid:87)(cid:82)(cid:3)(cid:69)(cid:72)(cid:79)(cid:76)(cid:72)(cid:89)(cid:72)(cid:3)(cid:87)(cid:75)(cid:68)(cid:87)(cid:3)(cid:90)(cid:72)(cid:3)(cid:81)(cid:82)(cid:90)(cid:3)(cid:75)(cid:68)(cid:89)(cid:72)(cid:3)(cid:80)(cid:82)(cid:85)(cid:72)(cid:3)(cid:87)(cid:75)(cid:68)(cid:81)(cid:3)(cid:24)(cid:21)(cid:15)(cid:19)(cid:19)(cid:19)(cid:3)(cid:53)(cid:82)(cid:68)(cid:71)(cid:76)(cid:72)(cid:86)(cid:3)
across the nation. I want to thank you all for coming to the ‘dance’
with Texas Roadhouse! I am proud to be your partner.
Keep on rockin’,
(cid:3)
(cid:3)
W. Kent Taylor
(cid:3)(cid:3)(cid:3)(cid:3)(cid:3)(cid:3)(cid:3)(cid:3)(cid:3)(cid:3)(cid:3)(cid:3)(cid:3)(cid:3)(cid:3)(cid:41)(cid:82)(cid:88)(cid:81)(cid:71)(cid:72)(cid:85)(cid:3)(cid:9)(cid:3)(cid:38)(cid:75)(cid:68)(cid:76)(cid:85)(cid:80)(cid:68)(cid:81)(cid:15)(cid:3)(cid:38)(cid:75)(cid:76)(cid:72)(cid:73)(cid:3)(cid:40)(cid:91)(cid:72)(cid:70)(cid:88)(cid:87)(cid:76)(cid:89)(cid:72)(cid:3)(cid:50)(cid:73)(cid:192)(cid:3)(cid:70)(cid:72)(cid:85)
April 6, 2018
To our Shareholders:
20MAR201813293135
You are cordially invited to attend the 2018 Annual Meeting of Shareholders of Texas
Roadhouse, Inc. on Thursday, May 17, 2018. The meeting will be held at the Texas Roadhouse Support
Center located at 6040 Dutchmans Lane, Louisville, Kentucky at 9:00 a.m. eastern daylight time.
The official Notice of Annual Meeting, Proxy Statement and Proxy Card are enclosed with this
letter.
Please take the time to read carefully each of the proposals for shareholder action described in the
accompanying proxy materials. Whether or not you plan to attend, you can ensure that your shares are
represented at the meeting by promptly completing, signing and dating your proxy card and returning it
in the enclosed postage-paid envelope. Shareholders of record can also vote by touch-tone telephone
from the United States, using the toll-free number on the proxy card, or by the Internet, using the
instructions on the proxy card. If you attend the meeting, you may revoke your proxy and vote your
shares in person.
Your interest and participation in the affairs of the Company are greatly appreciated. Thank you
for your continued support.
Sincerely,
W. Kent Taylor
Chairman, Chief Executive Officer
16MAR201217593025
TEXAS ROADHOUSE, INC.
6040 Dutchmans Lane
Louisville, Kentucky 40205
NOTICE OF 2018 ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD MAY 17, 2018
To the Shareholders:
The 2018 Annual Meeting of Shareholders (the ‘‘Annual Meeting’’) of Texas Roadhouse, Inc. (the
‘‘Company’’) will be held at the Texas Roadhouse Support Center located at 6040 Dutchmans Lane,
Louisville, Kentucky on Thursday, May 17, 2018 at 9:00 a.m. eastern daylight time.
At the Annual Meeting, you will be asked to:
(cid:129) elect two directors to the Board of Directors, each for a term of one year;
(cid:129) ratify the appointment of KPMG LLP as the Company’s independent auditors;
(cid:129) hold an advisory vote on executive compensation; and
(cid:129) transact such other business as may properly come before the meeting.
A Proxy Statement describing matters to be considered at the Annual Meeting is attached to this
notice. Only shareholders of record at the close of business on March 19, 2018 are entitled to receive
notice of and to vote at the meeting.
By Order of the Board of Directors,
16MAR201217592224
Celia Catlett
General Counsel and Corporate Secretary
Louisville, Kentucky
April 6, 2018
IMPORTANT
WHETHER OR NOT YOU EXPECT TO BE PRESENT AT THE MEETING, PLEASE SUBMIT
YOUR VOTE USING ONE OF THE VOTING METHODS DESCRIBED IN THE ATTACHED
MATERIALS. IF YOU ATTEND THE MEETING, YOU MAY REVOKE YOUR PROXY AND VOTE
YOUR SHARES IN PERSON.
IMPORTANT NOTICE REGARDING THE AVAILABILITY OF PROXY MATERIALS FOR THE 2018
ANNUAL MEETING OF SHAREHOLDERS TO BE HELD ON MAY 17, 2018: Our Proxy Statement
related to our 2018 Annual Meeting of Shareholders, our Annual Report on Form 10-K for the fiscal
year ended on December 26, 2017 and our Annual Report to Shareholders for the fiscal year ended on
December 26, 2017 are available on our website at www.texasroadhouse.com in the Investors section.
Table of Contents
SUMMARY OF MATTERS REQUIRING SHAREHOLDER ACTION . . . . . . . . . . . . . . . . . . . . .
Proposal 1—Election of Directors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Proposal 2—Ratification of Independent Auditors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Proposal 3—Advisory Vote on Approval of Executive Compensation . . . . . . . . . . . . . . . . . . . . .
Other Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
INFORMATION ABOUT PROXIES AND VOTING . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Record Date and Voting Securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Revocability of Proxies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Solicitation of Proxies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other Voting Considerations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
CORPORATE GOVERNANCE AND OUR BOARD . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Director Biographies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Board Declassification . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Meetings of the Board . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Leadership Structure of the Board and the Role of the Board in Risk Oversight . . . . . . . . . . . .
Committees of the Board . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Policy Regarding Consideration of Candidates for Director . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Compensation of Directors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Code of Conduct . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Stock Ownership Guidelines . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
STOCK OWNERSHIP INFORMATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Section 16(a) Beneficial Ownership Reporting Compliance . . . . . . . . . . . . . . . . . . . . . . . . . . . .
EXECUTIVE COMPENSATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Compensation Discussion and Analysis . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Summary Compensation Table . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Grants of Plan-Based Awards in Fiscal Year 2017 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Outstanding Equity Awards . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Options Exercised and Stock Vested . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Termination, Change of Control and Change of Responsibility Payments . . . . . . . . . . . . . . . . . .
AUDIT COMMITTEE REPORT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Related Party Transactions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
PRESENTATION OF PROPOSALS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Proposal 1—Election of Directors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Proposal 2—Ratification of Independent Auditors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Proposal 3—Advisory Vote on Approval of Executive Compensation . . . . . . . . . . . . . . . . . . . . .
SHAREHOLDER PROPOSALS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
SHAREHOLDERS’ COMMUNICATIONS WITH THE BOARD . . . . . . . . . . . . . . . . . . . . . . . . . .
FORM 10-K . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
OTHER BUSINESS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
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TEXAS ROADHOUSE, INC.
6040 Dutchmans Lane
Louisville, Kentucky 40205
PROXY STATEMENT
2018 ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD MAY 17, 2018
This proxy statement and accompanying proxy card are being furnished in connection with the
solicitation of proxies by the board of directors (the ‘‘Board’’) of Texas Roadhouse, Inc., a Delaware
corporation, to be voted at the 2018 Annual Meeting of Shareholders (the ‘‘Annual Meeting’’) and any
adjournments thereof. In this proxy statement, references to the ‘‘Company,’’ ‘‘we,’’ ‘‘us’’ or ‘‘our’’ refer
to Texas Roadhouse, Inc. This proxy statement and accompanying proxy card are first being mailed to
shareholders on or about April 6, 2018.
The Annual Meeting will be held at the Texas Roadhouse Support Center located at 6040
Dutchmans Lane, Louisville, Kentucky on Thursday, May 17, 2018 at 9:00 a.m. eastern daylight time,
for the purposes set forth in this proxy statement and the accompanying notice of Annual Meeting.
SUMMARY OF MATTERS REQUIRING SHAREHOLDER ACTION
Proposal 1—Election of Directors
The affirmative vote of a plurality of the votes entitled to be cast by the holders of the Company’s
common stock present in person or represented by proxy is required to elect each nominee. Election by
a plurality means that the director nominee with the most votes for the available slot is elected for that
slot. You may vote ‘‘FOR’’ each nominee or you may ‘‘WITHHOLD AUTHORITY’’ to vote for each
nominee. Unless you ‘‘WITHHOLD AUTHORITY’’ to vote for a nominee, your proxy will be voted
‘‘FOR’’ the election of the individuals nominated as directors.
Our Board has adopted a majority voting policy for uncontested director elections. Under this
policy, any nominee who receives fewer ‘‘FOR’’ votes than ‘‘WITHHOLD’’ votes is required to offer
his or her resignation. Our nominating and corporate governance committee would then consider the
offer of resignation and make a recommendation to our independent directors as to the action to be
taken with respect to the offer.
The Board recommends that you vote ‘‘FOR’’ the nominees.
Proposal 2—Ratification of Independent Auditors
The proposal to ratify the appointment of KPMG LLP as the Company’s independent auditors for
the fiscal year ending December 25, 2018 must be approved by the affirmative vote of a majority of the
shares present (in person or by proxy) and entitled to vote. You may vote ‘‘FOR’’ or ‘‘AGAINST’’ the
ratification, or you may ‘‘ABSTAIN’’ from voting on this proposal. A vote to ‘‘ABSTAIN’’ will have the
same effect as a vote ‘‘AGAINST’’ this proposal.
The Board recommends that you vote ‘‘FOR’’ this proposal.
Proposal 3—Advisory Vote on Approval of Executive Compensation
The outcome of the advisory vote on whether to approve the executive compensation detailed in this
proxy statement (including the Compensation Discussion and Analysis, the Executive Compensation
section and the other related executive compensation tables and related discussions) will be determined
by the affirmative vote of a majority of the shares present (in person or by proxy) and entitled to vote.
1
You may vote ‘‘FOR’’ or ‘‘AGAINST’’ approval of the executive compensation, or you may ‘‘ABSTAIN’’
from voting on this proposal. A vote to ‘‘ABSTAIN’’ will have the same effect as a vote ‘‘AGAINST’’
approval of the executive compensation.
The Board recommends that you vote ‘‘FOR’’ this proposal.
Other Matters
As of the date of this proxy statement, the Board knows of no matters that will be presented for
consideration at the Annual Meeting other than those matters discussed in this proxy statement. If any
other matters should properly come before the Annual Meeting and call for a vote of shareholders,
validly executed proxies in the enclosed form returned to us will be voted in accordance with the
recommendation of the Board, or, in the absence of such a recommendation, in accordance with the
judgment of the proxy holders. Any such additional matter must be approved by an affirmative vote of
a majority of the shares present (in person or by proxy) and entitled to vote at the Annual Meeting.
2
Record Date and Voting Securities
INFORMATION ABOUT PROXIES AND VOTING
The Board has fixed the record date (the ‘‘Record Date’’) for the Annual Meeting as the close of
business on March 19, 2018. Only shareholders of record at the close of business on the Record Date
will be entitled to vote at the Annual Meeting and at any adjournment or postponement thereof. At
the close of business on the Record Date, there were outstanding 71,412,469 shares of common stock,
each of which is entitled to one vote per share on all matters to be considered at the Annual Meeting.
The presence in person or by proxy of the holders of a majority of the shares of common stock
will constitute a quorum for the transaction of business at the Annual Meeting. Shares of common
stock represented by properly executed proxies received before the close of voting at the Annual
Meeting will be voted as directed by such shareholders, unless revoked as described below.
Revocability of Proxies
A shareholder who completes and returns the proxy card that accompanies this proxy statement may
revoke that proxy at any time before the closing of the polls at the Annual Meeting. A shareholder may
revoke a proxy by voting at a later date by one of the methods described on the proxy card or by filing a
written notice of revocation with, or by delivering a duly executed proxy bearing a later date to, the
Corporate Secretary of the Company at the Company’s main office address at any time before the
Annual Meeting. Shareholders may also revoke proxies by delivering a duly executed proxy bearing a
later date to the inspector of election at the Annual Meeting before the close of voting or by attending
the Annual Meeting and voting in person. You may attend the Annual Meeting even though you have
executed a proxy, but your presence at the Annual Meeting will not automatically revoke your proxy.
Solicitation of Proxies
The cost of solicitation of proxies being solicited on behalf of the Board will be borne by us. In
addition to solicitation by mail, proxies may be solicited personally, by telephone or other means by our
directors, officers or employees, who receive no additional compensation for these solicitation activities.
We will, upon request, reimburse brokerage houses and persons holding common stock in the names of
their nominees for their reasonable out-of-pocket expenses in sending materials to their principals.
Other Voting Considerations
Broker Non-Votes
Under rules of the New York Stock Exchange, matters subject to shareholder vote are classified as
‘‘routine’’ or ‘‘non-routine.’’ In the case of routine matters, brokers may vote shares held in ‘‘street
name’’ in their discretion if they have not received voting instructions from the beneficial owner. In the
case of non-routine matters, brokers may not vote shares unless they have received voting instructions
from the beneficial owner (‘‘broker non-votes’’); therefore, it is important that you complete and return
your proxy early so that your vote may be recorded.
The election of directors (Proposal 1) is a non-routine matter under the applicable rules so broker
non-votes may occur. However, broker non-votes do not count as shares entitled to vote. Because the
election is decided by a plurality of shares present (in person or by proxy) and entitled to vote at the
Annual Meeting, and because our majority voting policy for directors only considers ‘‘FOR’’ votes and
‘‘WITHHOLD’’ votes, any broker non-votes will not affect the outcome of this proposal.
The ratification of the appointment of the Company’s independent auditors (Proposal 2) is a
routine matter under the applicable rules so broker non-votes should not occur. In addition, because
3
this matter is routine and brokers may vote as stated above, the number of votes cast, plus the number
of abstentions, on Proposal 2 will be used to establish whether a quorum is present.
The advisory vote on the approval of executive compensation (Proposal 3) and any other matters
that may properly come before the Annual Meeting are also non-routine matters under the applicable
rules so broker non-votes may occur. Because broker non-votes do not count as shares entitled to vote,
they do not affect the outcome of the vote on Proposal 3.
Abstentions
Abstentions will be counted for purposes of calculating whether a quorum is present. The effect of
an abstention on each proposal where ‘‘ABSTAIN’’ is a voting choice is discussed above.
Executed but Unmarked Proxies
If no instructions are given, shares represented by properly executed but unmarked proxies will be
voted in accordance with the recommendation of the Board, or, in the absence of such a recommendation,
in accordance with the judgment of the proxy holders.
4
Director Biographies
CORPORATE GOVERNANCE AND OUR BOARD
Gregory N. Moore. Mr. Moore, 68, served as the Senior Vice President and Controller of Yum!
Brands, Inc. until he retired in 2005. Yum! Brands is the worldwide parent company of Taco Bell, KFC
and Pizza Hut. Prior to becoming Yum! Brands’ Controller, Mr. Moore was the Vice President and
General Auditor of Yum! Brands. Before that, he was with PepsiCo, Inc. and held the position of Vice
President, Controller of Taco Bell and Controller of PepsiCo Wines & Spirits International, a division of
PepsiCola International. Before joining PepsiCo, he was an Audit Manager with Arthur Young &
Company in its New York, New York and Stamford, Connecticut offices. Mr. Moore is a certified public
accountant in the States of New York and California. In July 2011, Mr. Moore joined the board of
Newegg, Inc., a privately held on-line retailer specializing in computer and computer-related equipment,
and serves as the chair of the audit committee. Mr. Moore also serves on the board of EF&TRH
Restaurants (HK) Holding Limited, a Texas Roadhouse, Inc. joint venture in China. Mr. Moore has
served as a director since 2005 and was nominated as a director because of his extensive financial and
accounting experience in the restaurant industry. As a result of these and other professional experiences,
Mr. Moore possesses particular knowledge and experience that strengthens the Board’s collective
qualifications, skills and experience.
James F. Parker. Mr. Parker, 71, retired as Chief Executive Officer and Vice-Chairman of the
Board of Southwest Airlines Co., a position he held from June 2001 through July 2004. Before serving
at Southwest Airlines as Chief Executive Officer, Mr. Parker served as General Counsel of that
company from 1986 until June 2001, and was previously a shareholder in the San Antonio, Texas law
firm of Oppenheimer, Rosenberg, Kelleher and Wheatley. Mr. Parker serves as a member of the board
of directors of Sammons Enterprises, Inc. and the board of directors of two wholly owned subsidiaries
of Sammons Enterprises, Inc., Midland Life Insurance Company and North American Company for
Life and Health Insurance, all private companies. Mr. Parker also serves as the chairman of the
compensation committee for Sammons Enterprises, Inc. and on the audit committees for Sammons
Enterprises, Inc., Midland Life Insurance Company and North American Company for Life and Health
Insurance. Mr. Parker has served as a director since 2004 and was nominated as a director because of
his chief executive experience, his knowledge of the value-based service industry and the similarity of
cultures between Southwest Airlines and Texas Roadhouse. As a result of these and other professional
experiences, Mr. Parker possesses particular knowledge and experience that strengthens the Board’s
collective qualifications, skills and experience.
W. Kent Taylor. Mr. Taylor, 62, is our founder, Chairman, and Chief Executive Officer, a position he
resumed in August 2011. Mr. Taylor previously served as Chief Executive Officer from 2000 until 2004, at
which time Mr. Taylor became Chairman of the Company, an executive position. Before his founding of
our concept in 1993, Mr. Taylor founded and co-owned Buckhead Bar and Grill in Louisville, Kentucky.
Mr. Taylor was appointed to the Board of Directors of Papa John’s International, Inc. in May 2011.
Mr. Taylor has served as a director since 2004 and is being nominated as a director because of his chief
executive experience, his knowledge of the restaurant industry and his intimate knowledge of the Company
as its founder. As a result of these and other professional experiences, Mr. Taylor possesses particular
knowledge and experience that strengthens the Board’s collective qualifications, skills and experience.
Kathleen M. Widmer. Ms. Widmer, 56, is the President of the Johnson & Johnson Consumer OTC
division, which provides healthcare solutions through well-known and trusted over the counter medicines
and products, a position she has held since August 2015. She was previously with Johnson & Johnson for
21 years, until 2009, where she held numerous positions, including serving as Vice President, Marketing,
McNeil Consumer Healthcare. Prior to re-joining Johnson & Johnson, she served as Executive Vice
President and Chief Marketing Officer at Elizabeth Arden, Inc. from 2009 to 2015, and was responsible
for the global growth strategy and marketing execution of the Elizabeth Arden Brand as well as the
5
company’s extensive portfolio of fragrances. In 2017, she was appointed to the board of directors for the
Wounded Warrior Project. She is a graduate of the U.S. Military Academy in West Point, N.Y. and
served for five years as a U.S. Army officer. She held positions of increasing responsibility in the Field
Artillery, reaching the rank of Captain and Battery Commander of a 400-soldier training unit in Fort
Sill, Oklahoma. Ms. Widmer has served as a director since 2013 and was nominated as a director
because of her extensive marketing experience in the retail sector and her knowledge of the global
retail industry. As a result of these and other professional experiences, Ms. Widmer possesses particular
knowledge and experience that strengthens the Board’s collective qualifications, skills and experience.
James R. Zarley. Mr. Zarley, 73, has served as chairman, chief executive officer and chairman of
the board of Conversant, a single-source provider of media, technology and services across major
interactive marketing channels which previously operated under the name ValueClick, Inc., and was a
member of Conversant’s board of directors from 1999 until his retirement in 2014. Mr. Zarley shaped
the company into a global leader in online marketing solutions. Prior to joining Conversant, Mr. Zarley
was chief operating officer of Hiway Technologies, where he was a leading member of the management
team that closed the merger with Verio in 1999. Prior to that, Mr. Zarley was chairman and chief
executive officer of Best Internet until it merged with Hiway Technologies in 1998. Mr. Zarley also
founded and later sold Quantech Information Services, now an ADP company. In addition, he spent
19 years at RCA in various senior management roles. Currently, he serves on the board of directors of
several private companies. Mr. Zarley has served as a director since 2004 and is being nominated as a
director because of his chief executive experience in a developing industry, his information technology
experience and his experience in acquisitions. As a result of these and other professional experiences,
Mr. Zarley possesses particular knowledge and experience that strengthens the Board’s collective
qualifications, skills and experience.
Board Declassification
Historically, the Board was divided into three separate classes of directors. After careful consideration
and review of past votes of our shareholders on Board declassification in prior years, together with prior
communications with our investors and shareholders, the Board determined that a shareholder proposal to
eliminate the classification of the Board was in the best interest of the Company and its shareholders and
elected to recommend that the shareholders of the Company vote to declassify the Board beginning at the
2017 annual meeting. Following receipt of the majority of votes at the 2016 annual meeting to declassify the
Board, the Company memorialized the declassification of the Board in the Amendment to Amended and
Restated Articles of Incorporation for the Company dated May 19, 2016. Each director will continue to
serve for the remainder of their respective term until the 2019 annual meeting at which all of the
directors will be eligible for re-election for one-year terms. Messrs. Taylor and Zarley are currently
nominated for re-election for a term of one year. The term for each of Messrs. Moore and Parker and
Ms. Widmer is scheduled to expire at the 2019 annual meeting.
Meetings of the Board
The Board met on six occasions and its standing committees (audit committee, compensation
committee, and nominating and corporate governance committee) met on 24 occasions during our fiscal
year ended December 26, 2017. Each incumbent director attended at least 75% of the aggregate
number of meetings of the Board and its committees on which such director served during his or her
period of service. In addition, the Company expects all members of the Board to attend the Annual
Meeting. All incumbent directors attended the 2017 annual meeting. Four regular Board meetings are
currently scheduled for the fiscal year 2018. Executive sessions of non-employee directors, without
management directors or employees present, are typically scheduled in conjunction with each regularly
scheduled Board meeting. The role of each standing committee is more fully discussed below.
6
Leadership Structure of the Board and Role of the Board in Risk Oversight
The Board currently includes four independent directors and one employee director, and the
positions of Chairman and Chief Executive Officer are occupied by the same individual. As noted
above, Mr. Taylor was named Chairman of the Board in recognition of his founding and continuing
leadership role in the Company and has held that position since 2004. Mr. Taylor also resumed the
position of Chief Executive Officer in August 2011. Mr. Taylor previously served as Chief Executive
Officer from 2000 until 2004. We believe that the Company and its shareholders are best served by
having Mr. Taylor serve in both positions because he is the person most familiar with our unique
culture, business model, and the challenges we face in the current macro-economic environment.
Mr. Taylor’s wealth of knowledge regarding Company operations and the industry in which we compete
positions him to best identify matters for Board review and deliberation. Additionally, the combined
role of Chairman and Chief Executive Officer unifies the Board with management and eliminates
conflict between two leaders. We believe that the Company can more effectively execute its current
strategy and business plans to maximize shareholder value if our Chairman is also a member of the
management team.
While the Board considers all of its members equally responsible and accountable for oversight
and guidance of its activities, they also have designated a Lead Independent director, who is elected
annually by a majority of the Board. Mr. Moore currently serves as the Lead Independent director. The
responsibility and authority of the independent Lead Director are delineated in our Corporate
Governance Guidelines, which can be found on the Company’s website at www.texasroadhouse.com.
The Board is responsible for overseeing the Company’s risk management strategies, including the
Company’s implementation of appropriate processes to administer day-to-day risk management. The
Board is informed about risk management matters as part of its role in the general oversight and
approval of corporate matters. The Board gives clear guidance to the Company’s management on the
risks it believes face the Company, such as the matters disclosed as risk factors in the Company’s
Annual Report on Form 10-K. Furthermore, the Board has delegated certain risk management
responsibilities to its audit and compensation committees.
Through the audit committee’s charter, the Board has authorized it to oversee the Company’s risk
assessment and risk management policies. The audit committee, in fulfilling its oversight responsibilities,
regularly and comprehensively reviews specific risk matters which have been identified by management.
The Company’s internal auditors regularly report directly to the audit committee on the results of
internal audits, the scope and frequency of which are based on comprehensive risk assessments which
have been approved by the audit committee. Additionally, a risk committee comprised of Company
management regularly updates the audit committee on the results of its risk management activities, which
are based on the Company’s prioritized risk overview that is updated at least annually and reviewed with
the audit committee. The audit committee is routinely advised of operational, financial, legal, and
cybersecurity risks both during and outside of regularly scheduled meetings, and the audit committee
reviews and monitors specific activities to manage these risks, such as insurance plans, hedging
strategies and internal controls.
Through the compensation committee’s charter, the Board has authorized it to oversee officer and
director compensation programs. The compensation committee, in fulfilling its oversight responsibilities,
designs the compensation packages applicable to the executive officers and Board members. The
compensation committee also consults with management on the payments of bonuses and grants of
stock awards to key employees on a quarterly basis.
The audit committee and the compensation committee jointly perform an annual risk assessment of
our compensation programs for all employees to determine whether these programs encourage
unnecessary or excessive risk taking. In conducting this review, each of our compensation programs is
evaluated on a number of criteria aimed at identifying any incentive programs that deviate from our risk
7
management objectives. Based on this review in 2017, both the audit committee and the compensation
committee concluded that we have the right combination of rewards and incentives to drive company
performance, without encouraging unnecessary or excessive risk taking by our employees. Specifically, the
audit and compensation committees identified the following components of our compensation programs
that mitigate the likelihood of excessive risk taking to meet performance targets: equity incentive
compensation in the form of restricted stock units; long term contracts and a financial buy-in requirement
for restaurant management; a guaranteed base salary within our support center management personnel;
minimums and maximums on profit sharing compensation within our support center management
personnel; robust internal controls; operational focus on top line sales growth; and, a business model
which focuses on a strong balance sheet, relatively low debt, prudent growth, and sustainable long-term
profitability.
The Board’s oversight roles, including the roles of the audit committee and the compensation
committee, combined with the leadership structure of the Board to include Company management,
allow the Board to effectively administer risk management policies while also effectively and efficiently
addressing Company objectives.
Committees of the Board
The Board has three standing committees: the audit committee, the compensation committee, and
the nominating and corporate governance committee. The Board has adopted a written charter for each
of these committees, which sets out the functions and responsibilities of each committee. The charters of
these committees are available in their entirety on the Company’s website, www.texasroadhouse.com.
Please note, however, that the information contained on the website is not incorporated by reference in,
nor considered to be a part of, this proxy statement. The Board has also designated one of its members
as an international liaison, responsible for overseeing the Company’s efforts in international expansion
and reporting to the Board on those efforts.
Audit Committee. As described in its charter, the primary purpose of the audit committee is to
assist our Board in fulfilling its oversight responsibility relating to: (i) the integrity of the Company’s
consolidated financial statements, (ii) the Company’s compliance with legal and regulatory requirements,
(iii) the independence and performance of the Company’s internal and external auditors, and (iv) the
Company’s internal controls and financial reporting practices. The audit committee is also directly
responsible for the following: (a) pre-approving all audit and permitted non-audit services provided by
our independent auditors, (b) the appointment, compensation, retention and oversight of the Company’s
independent auditors, and (c) periodically evaluating whether or not the Company should rotate the
independent auditors utilized by the Company. The audit committee reviews all of the Company’s
earnings press releases and Quarterly and Annual Reports on Form 10-Q and Form 10-K, respectively,
prior to filing with the Securities and Exchange Commission (‘‘SEC’’). The audit committee is also
responsible for producing an annual report on its activities for inclusion in this proxy statement. All of
the members of the audit committee are ‘‘independent,’’ as that term is defined in the listing standards
under NASDAQ Marketplace Rule 5605(a)(2) and meet the criteria for independence under the
Sarbanes-Oxley Act of 2002 and the rules adopted by the SEC. The audit committee is currently
comprised of Messrs. Moore, Parker, and Zarley. Mr. Moore chairs the audit committee. The Board
evaluated the credentials of and designated Mr. Moore as an audit committee financial expert. The
audit committee met 15 times during fiscal year 2017.
Compensation Committee. As described in its charter, the compensation committee: (i) assists the
Board in fulfilling its responsibilities relating to the design, administration and oversight of employee
compensation programs and benefit plans of the Company’s executive officers, (ii) discharges the
Board’s duties relating to the compensation of the Company’s executive officers and directors, and
(iii) reviews the performance of the Company’s executive officers. The compensation committee is also
responsible for reviewing and discussing with management the ‘‘Compensation Discussion and Analysis’’
8
in this proxy statement and recommending its inclusion in this proxy statement to the Board. All of the
members of the compensation committee are ‘‘independent’’ under all applicable rules, including the
listing standards under NASDAQ Marketplace Rule 5605(a)(2) and the requirements of the SEC. The
current members of the compensation committee are Ms. Widmer and Messrs. Moore, Parker, and
Zarley. Mr. Parker chairs the compensation committee. The compensation committee met six times
during fiscal year 2017.
Nominating and Corporate Governance Committee. As described in its charter, the nominating and
corporate governance committee assists our Board in: (i) identifying individuals qualified to become
Board members and recommending nominees to the Board either to be presented at the annual
meeting or to fill any vacancies, (ii) considering and reporting periodically to the Board on matters
relating to the identification, selection and qualification of director candidates, (iii) developing and
recommending to the Board a set of corporate governance principles, and (iv) overseeing the
evaluation of the Board, its committees, and its incumbent members. The nominating and corporate
governance committee routinely evaluates the size and composition of the Board and the variety of
professional expertise represented by the Board members in relation to the Company’s business. All of
the members of the nominating and corporate governance committee are ‘‘independent’’ under all
applicable rules, including the listing standards under NASDAQ Marketplace Rule 5605(a)(2) and the
requirements of the SEC. The current members of the nominating and corporate governance
committee are Ms. Widmer and Messrs. Moore, Parker, and Zarley. Mr. Moore chairs the nominating
and corporate governance committee. The nominating and corporate governance committee met three
times during fiscal year 2017.
Policy Regarding Consideration of Candidates for Director
Shareholder recommendations for Board membership should include, among other items, the
name of the candidate, age, contact information, present principal occupation or employment,
qualifications and skills, background, last five years’ employment and business experience, a description
of current or previous service as director of any corporation or organization, other relevant biographical
information, and the nominee’s consent to service on the Board. A shareholder nominee will be
requested to complete a detailed questionnaire in the form that current directors and officers complete.
The nominating and corporate governance committee may consider such other factors as it may
deem are in the best interest of the Company and its shareholders. The Board has adopted corporate
governance guidelines which provide that, if and when the Board determines that it is necessary or
desirable to add or replace a director, the nominating and corporate governance committee will seek
diverse candidates, taking into account diversity in all respects (including gender, race, age, board
service, background, education, skill set, and financial acumen, along with knowledge and experience in
areas that are relevant to the Company’s business), when forming the nominee pool. The nominating
and corporate governance committee has reviewed the process used in the selection of director
candidates and concluded that the pool contained a diverse group of candidates. The manner in which
the nominating and corporate governance committee evaluates a potential nominee will not differ
based on whether the nominee is recommended by a shareholder of the Company.
The Company currently retains a corporate recruiter to assist in identifying candidates for open
positions at the Company. Upon request, this recruiter also assists in identifying and evaluating
candidates for director, but the Company does not pay an additional fee for this service.
Compensation of Directors
As further discussed in the ‘‘Compensation Discussion and Analysis,’’ the compensation committee
engaged Towers Watson as an independent compensation consultant in 2017 to advise the compensation
committee on executive and non-employee director compensation. Specifically, the compensation
9
committee asked the compensation consultant to provide market data, review the design of the executive
and non-employee director compensation packages, and provide recommendations on cash and equity
compensation for our executive officers and non-employee directors. As described more fully below, the
following table summarizes the total compensation earned for fiscal year 2017 for each of the
non-employee directors.
2017 Director Compensation Table
Name
Fees Earned
or Paid in Cash ($)
Grant Date Fair
Value of
Stock Awards ($)(1)
Gregory N. Moore . . . . . . . . . . . . . . . . . . . . . . . . . . . .
James F. Parker . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
James R. Ramsey . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Kathleen M. Widmer . . . . . . . . . . . . . . . . . . . . . . . . . .
James R. Zarley . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
97,000(2)
48,000(3)
13,750(4)
31,000
38,000
—
—
—
—
—
Total ($)
97,000
48,000
13,750
31,000
38,000
(1) No stock grants or option awards were made during the period covered by this table. In November
2016, the compensation committee expressly clarified its intent that no additional stock compensation
will be granted for services rendered by the non-employee directors during the three year period
from 2015 through 2017. Further, in January 2018, the compensation committee agreed that
beginning with the 2018 fiscal year, the total compensation for any non-employee director may not
exceed $500,000, which amount shall be calculated by adding (i) the total cash compensation to be
paid for services rendered by a non-employee director in any given fiscal year to (ii) the grant date
value of any restricted stock units granted to such non-employee director in that fiscal year.
(2) This amount includes a $20,000 annual fee for serving as the Lead Independent director, a $20,000
annual fee for serving as the chairperson of the audit committee, and a $15,000 annual fee for
serving as the international liaison.
(3) This amount includes a $10,000 annual fee for serving as the chairperson of the compensation
committee.
(4) On May 2, 2017, James R. Ramsey, an independent director, notified the Company of his decision
to withdraw his name from nomination for re-election as a director at the Company’s 2017 annual
meeting. This amount reflects amounts earned by Mr. Ramsey for his partial 2017 fiscal year
service.
Non-employee directors each received a fee of $12,500 for their 2017 fiscal year service. In
addition and for their 2017 fiscal year service, the Lead Independent director received a fee of $20,000,
the chairperson of the audit committee received a fee of $20,000, the chairperson of the compensation
committee received a fee of $10,000, and the international liaison received a fee of $15,000. Each
non-employee director received $2,000 for each Board meeting he or she attended in person and $500
for each Board meeting he or she participated in telephonically. Additionally, each non-employee
director received $1,000 for each committee meeting he or she attended in person and $500 for each
committee meeting he or she participated in telephonically.
In January 2015, the non-employee directors were each granted 25,500 restricted stock units, which
vest in one-third increments of 8,500 restricted stock units each year over three years, subject to the
non-employee director’s continued service on the Board. Similar to our compensation philosophy for
our Named Executive Officers, we believe that issuing these restricted stock units to our non-employee
directors aligns their interests with those of our shareholders. Specifically, since the bulk of each
non-employee director’s compensation lies in the value of the restricted stock units granted, the
non-employee directors are motivated to continually improve the Company’s performance in the hope
10
that the performance will be reflected by the stock price on the vesting date of their restricted stock
units. Moreover, because the restricted stock unit awards for our non-employee directors vest over a
period of time and their value varies in response to investor sentiment regarding overall Company
performance at the time of vesting, we believe that these restricted stock unit awards drive director
alignment with maximizing shareholder value.
Code of Conduct
The Board has approved and adopted a Code of Conduct that applies to all directors, officers and
employees, including the Company’s principal executive officer and the principal financial officer. The
Code of Conduct is available in its entirety on the Company’s website, www.texasroadhouse.com. The
Company intends to post amendments to, or waivers from, its Code of Conduct, if any, that apply to
the principal executive officer and the principal financial officer on its website.
Stock Ownership Guidelines
Our Board has adopted stock ownership guidelines to further align the financial interests of the
Company’s executive officers and non-employee directors with the interests of our shareholders. The
guidelines provide that our Chief Executive Officer should own, at a minimum, the lesser of 100,000
shares or $2,500,000 in then-current market value, our President should own, at a minimum, the lesser
of 40,000 shares or $1,000,000 in then-current market value, and our other named executive officers
and non-employee directors should own, at a minimum, the lesser of 10,000 shares or $500,000 in
then-current market value. The officers and directors are expected to achieve the stock ownership
levels under these guidelines within five years of assuming their respective positions.
All named executive officers and non-employee directors who have been in their role for five years
are in compliance with the guidelines. We anticipate that any people who are new to their roles within
the last five years will, to the extent they are not currently in compliance, be in compliance with the
guidelines within the required time frame.
11
STOCK OWNERSHIP INFORMATION
The following table sets forth as of March 1, 2018 certain information with respect to the beneficial
ownership of the Company’s common stock of (i) each executive officer named in the Summary
Compensation Table (the ‘‘Named Executive Officers’’), (ii) each non-employee director or nominee for
director of the Company, (iii) all non-employee directors, nominees and current Named Executive
Officers as a group, and (iv) each shareholder known by the Company to be the owner of 5% or more of
the Company’s common stock.
Name
Directors, Nominees and Named Executive Officers:
W. Kent Taylor(3) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Scott M. Colosi
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Celia P. Catlett . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
S. Chris Jacobsen . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Gregory N. Moore . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
James F. Parker . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Kathleen M. Widmer . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
James R. Zarley . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Directors, Nominees and All Named Executive Officers as a Group (8 Persons) .
Other 5% Beneficial Owners**
Capital Research Global Investors(4) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
333 South Hope Street
Los Angeles, California 90071
Common Stock(1)
Common
Stock
Ownership(2)
Percent
3,779,473
63,202
12,429
16,533
87,650
92,060
18,950
136,300
4,206,597
5.29%
*
*
*
*
*
*
*
5.89%
5,439,698
7.6%
Blackrock, Inc.(5) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
7,530,702
10.6%
55 East 52nd Street
New York, New York 10022
The Vanguard Group(6) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
5,376,002
7.56%
100 Vanguard Boulevard
Malvern, Pennsylvania 19355
* Represents beneficial ownership of less than 1.0% of the outstanding shares of class.
** This information is based on stock ownership reports on Schedule 13G filed by each of these
shareholders with the SEC as of March 1, 2018.
(1) Based upon information furnished to the Company by the named persons and information
contained in filings with the SEC. Under the rules of the SEC, a person is deemed to beneficially
own shares over which the person has or shares voting or investment power or has the right to
acquire beneficial ownership within 60 days, and such shares are deemed to be outstanding for the
purpose of computing the percentage beneficially owned by such person or group. However, we do
not consider shares of which beneficial ownership can be acquired within 60 days to be outstanding
when we calculate the percentage ownership of any other person. ‘‘Common Stock Ownership’’
includes (a) stock held in joint tenancy, (b) stock owned as tenants in common, (c) stock owned or
held by spouse or other members of the reporting person’s household, and (d) stock in which the
reporting person either has or shares voting and/or investment power, even though the reporting
person disclaims any beneficial interest in such stock.
(2) The following table lists the shares to which each named person has the right to acquire beneficial
ownership within 60 days of March 1, 2018 through the vesting of restricted stock units granted
12
pursuant to our long-term incentive plan; these shares are included in the totals above as described
in footnote(1):
Name
Shares which
may be acquired
within 60 days
pursuant to
stock awards
W. Kent Taylor . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Scott M. Colosi
Celia P. Catlett . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
S. Chris Jacobsen . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Gregory N. Moore . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
James F. Parker . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Kathleen M. Widmer . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
James R. Zarley . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Directors, Nominees and All Named Executive Officers as a Group (8 Persons) . . .
—
—
—
—
—
—
—
—
—
(3) Mr. Taylor’s address is c/o Texas Roadhouse, Inc., 6040 Dutchmans Lane, Louisville,
Kentucky 40205.
(4) As reported on the Schedule 13G/A filed by Capital Research Group Investors with the SEC on
February 14, 2018, it has sole voting and dispositive power with respect to these shares.
(5) As reported on the Schedule 13G/A filed by Blackrock, Inc. with the SEC on February 9, 2018, it
has sole voting power with respect to 7,341,960 shares and sole dispositive power with respect to
7,530,702 shares.
(6) As reported on the Schedule 13G/A filed by The Vanguard Group with the SEC on February 12,
2018, it has sole voting power with respect to 129,491 shares, sole dispositive power with respect to
5,243,560 shares, and shared dispositive power with respect to 132,442 shares.
Section 16(a) Beneficial Ownership Reporting Compliance
Section 16(a) of the Exchange Act requires the Company’s directors and officers, and persons who
beneficially own more than 10% of a registered class of the Company’s equity securities, to file with the
SEC initial reports of stock ownership and reports of changes in stock ownership and to provide the
Company with copies of all such filed forms. Based solely on its review of such copies or written
representations from reporting persons, the Company believes that all reports were filed on a timely
basis during the fiscal year ended December 26, 2017.
13
Compensation Discussion and Analysis
EXECUTIVE COMPENSATION
The Company’s compensation committee reviews and establishes executive compensation in
connection with each Named Executive Officer’s employment agreement.
We entered into new employment agreements (individually, the ‘‘2018 Employment Agreement’’,
and collectively, the ‘‘2018 Employment Agreements’’) with W. Kent Taylor, Scott M. Colosi, Celia P.
Catlett, and S. Chris Jacobsen, each a Named Executive Officer, on December 26, 2017, each of which
has an effective date of January 8, 2018 and expires on January 7, 2021. During fiscal year 2017, each
of Messrs. Taylor and Colosi and Ms. Catlett were party to employment agreements dated January 8,
2015, each of which expired on January 7, 2018 (individually, the ‘‘2015 Employment Agreement’’, and
collectively, the ‘‘2015 Employment Agreements’’), and Mr. Jacobsen was a party to an employment
agreement dated February 11, 2016, which expires on January 7, 2019 (the ‘‘2016 Employment
Agreement’’). Notwithstanding the initial terms and conditions of the 2016 Employment Agreement,
the 2018 Employment Agreement for Mr. Jacobsen supersedes and replaces his 2016 Employment
Agreement effective as of January 8, 2018. As used herein, the 2015 Employment Agreements and the
2016 Employment Agreement shall be referred to collectively as the ‘‘Prior Employment Agreements’’
and with respect to any Named Executive Officer, as a ‘‘Prior Employment Agreement’’.
To assist in setting compensation under the 2018 Employment Agreements and pursuant to the
authority granted under its charter, the compensation committee engaged Towers Watson as an
independent compensation consultant in 2017 to advise the compensation committee on executive and
director compensation, together with analysis and services related to such executive and director
compensation. Specifically, the compensation committee asked the consultant to provide market data,
review the design of the executive and director compensation packages, and provide recommendations
on cash and equity compensation for our executive officers and directors. Towers Watson does not
currently provide any other services to the Company, and the compensation committee has determined
that Towers Watson has sufficient independence from us and our executive officers to allow it to offer
objective information and advice. All fees paid to Towers Watson during fiscal year 2017 were in
connection with their engagement by the compensation committee for the above services.
Similar to the Prior Employment Agreements, each 2018 Employment Agreement establishes a
base salary throughout the term of the agreement, and a cash incentive bonus amount based on the
achievement of defined goals to be established by the compensation committee. Unlike the Prior
Employment Agreements which granted restricted stock units over a three year period, each 2018
Employment Agreement for Ms. Catlett and Messrs. Colosi and Taylor provides for an annual grant of
restricted stock units, which grants the officers the conditional right to receive shares of our common
stock upon vesting; however, the grants to our Chief Executive Officer and our President are bifurcated
into grants which vest over a period of service and grants which are based on the achievement of
defined goals to be established by the compensation committee. Because Mr. Jacobsen’s 2016
Employment Agreement included a grant of restricted stock units relating to his 2018 service, his 2018
Employment Agreement does not include an initial grant of restricted stock units. In addition, each of
Mr. Jacobsen’s and Ms. Catlett’s 2018 Employment Agreements provides for a ‘‘retention’’ grant of
restricted stock units, which vest upon completion of the term of the agreement on the condition that
the officer is still serving the Company on the vesting date. Mr. Taylor’s 2018 Employment Agreement
also provides for a long-term ‘‘retention’’ grant of restricted stock units, which vest on January 8, 2023
on the condition that Mr. Taylor is still serving the Company on the vesting date. Moreover, each
officer has agreed not to compete with us during the term of his or her employment and for a period
of two years following his or her termination of employment, unless the officer’s employment is
terminated without cause following a change in control, in which case the officer has agreed not to
compete with us through the date of the last payment of the officer’s severance payments. Finally, the
14
2018 Employment Agreements also contain a ‘‘clawback’’ provision that enables the Company to seek
reimbursement to the Company of any compensation paid to any Named Executive Officer which is
required to be recovered by any law, governmental regulation or order, or stock exchange listing
requirement.
The compensation packages for our Named Executive Officers offer base salaries and target cash
bonus amounts which are modest within the casual dining restaurant sector and feature restricted stock
unit awards, the value of which is dependent upon the performance of the Company and the price of
our common stock. The underlying philosophy reflected by this approach is that, because a significant
amount of each officer’s compensation lies in the value of the restricted stock units granted, the
officers are motivated to continually improve the Company’s performance in the hope that the
performance will be reflected by the stock price on the vesting date of their restricted stock units and
beyond. In addition, by conditioning a significant portion of our Chief Executive Officer’s and our
President’s restricted stock unit grants upon the achievement of defined performance goals to be
established by the compensation committee, combined with the stock ownership guidelines for our
executive officers more particularly described above, we have created a more direct relationship
between the compensation of our top executives and shareholder value, while also achieving what we
believe is the right combination of rewards and incentives to drive company performance without
encouraging unnecessary or excessive risk taking. Additionally, by only providing one year’s worth of
restricted stock units to our Named Executive Officers in the 2018 Employment Agreements, the
compensation committee has the opportunity to adjust a significant portion of the compensation for the
Named Executive Officers on an annual basis to more accurately reflect the overall performance of the
Company. Overall, we believe this approach provides the Named Executive Officers with a compensation
package which promotes the sustained profitability of the Company and aligns the interests of our
executive officers with those of our shareholders. The compensation packages also reflect a pragmatic
response to external market conditions; that is, total compensation that is competitive with comparable
positions in similar industries, including the casual dining sector of the restaurant industry, but which is
reasonable and in the best interests of our shareholders.
We believe that the overall design of the compensation packages, along with the culture and values
of our Company, allows us to attract and retain top talent, while also keeping the Named Executive
Officers focused on both long-term business development and short-term financial growth.
In deciding to continue and modify many of our existing executive compensation practices, our
compensation committee considered that the holders of over 83% of the votes cast at our 2017 annual
meeting on an advisory basis approved the compensation of our Named Executive Officers as disclosed
in the proxy statement for the 2017 annual meeting. While the compensation committee consulted with
each of the Named Executive Officers in advance of the final approval of the 2018 Employment
Agreements, none of the Named Executive Officers, including Mr. Taylor, participated in the creation
of their own compensation packages.
Elements of Compensation
Base Salary
Base salaries for our Named Executive Officers are designed to provide a secure base of
compensation which will be effective in motivating and retaining key executives.
15
Each officer’s Prior Employment Agreement established an annual salary for the years shown in
the table below.
2015
(through
January 7, 2016)
($)
2016
(through
January 7, 2017)
($)
2017
(through
January 7, 2018)
($)
W. Kent Taylor
. . . . . . . . . . . . . . . . . . . . . . . . . . . . .
525,000
525,000
525,000
Chairman, Chief Executive Officer
Scott M. Colosi . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
450,000
450,000
450,000
President, Chief Financial Officer
Celia P. Catlett
. . . . . . . . . . . . . . . . . . . . . . . . . . . . .
250,000
275,000
300,000
General Counsel, Corporate Secretary
S. Chris Jacobsen . . . . . . . . . . . . . . . . . . . . . . . . . . . .
—
300,000
300,000
Chief Marketing Officer
Each officer’s 2018 Employment Agreement establishes an annual salary for the years shown in the
table below.
2018
(through
January 7, 2019)
($)
2019
(through
January 7, 2020)
($)
2020
(through
January 7, 2021)
($)
W. Kent Taylor
. . . . . . . . . . . . . . . . . . . . . . . . . . . . .
525,000
525,000
525,000
Chairman, Chief Executive Officer
Scott M. Colosi . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
450,000
450,000
450,000
President, Chief Financial Officer
Celia P. Catlett
. . . . . . . . . . . . . . . . . . . . . . . . . . . . .
315,000
315,000
325,000
General Counsel, Corporate Secretary
S. Chris Jacobsen . . . . . . . . . . . . . . . . . . . . . . . . . . . .
300,000
315,000
325,000
Chief Marketing Officer
Incentive Bonus
Incentive bonuses are designed to reward our Named Executive Officers for the success of the
Company, as measured by growth in the Company’s earnings per diluted share (‘‘EPS’’) and overall
pre-tax profit, and for each officer’s individual contribution to that success. It is our belief that a
significant amount of each officer’s compensation should be tied to the performance of the Company.
Pursuant to the terms of the Texas Roadhouse, Inc. Cash Bonus Plan (the ‘‘Cash Bonus Plan’’), the
compensation committee may award an annual cash incentive to the Named Executive Officers, which
is the grant of a right to receive a payment of cash that is subject to targets and maximums, and that is
contingent on achievement of performance objectives during the Company’s fiscal year. These cash
incentives are also subject to the terms and conditions of the Prior Employment Agreements and the
2018 Employment Agreements.
Under the Cash Bonus Plan, the compensation committee established a two-pronged approach to
tying the incentive compensation to the Company’s performance. Under this approach, 50% of the
target incentive bonus is awarded based on whether the Company achieves an annual EPS growth
target of 10% (the ‘‘EPS Performance Goal’’). The other 50% is based on a profit sharing pool (the
‘‘Profit Sharing Pool’’) comprised of 1.5% of the Company’s pre-tax profits (income before taxes minus
income attributable to non-controlling interests, as reported in our audited consolidated financial
statements), which pool is distributed among our Named Executive Officers and certain other members
of the Company’s director-level management based on a pre-determined percentage interest in the pool
and subject to certain pre-determined maximum amounts. After the end of the fiscal year, the
16
compensation committee determines whether and to what extent the EPS Performance Goal has been
met, and the portion of the Profit Sharing Pool to which each officer is entitled. Depending on the
level of achievement of the EPS Performance Goal each year, 50% of the incentive bonus may be
reduced to a minimum of $0 or increased to a maximum of two times the target amount. Each 1%
change from the EPS Performance Goal results in an increase or decrease of 10% of the portion of the
target bonus amount attributable to the achievement of the EPS Performance Goal. For example, if we
achieve 11% EPS growth, the bonus payable would be 110% of the portion of the target bonus
attributable to the achievement of the EPS Performance Goal. Conversely, if we achieve 9% EPS
growth, the bonus payable would be 90% of the portion of the target bonus attributable to the
achievement of the EPS Performance Goal. The remaining 50% of the officers’ incentive bonus will
fluctuate directly with Company pre-tax profits at fixed participation percentages and maximum
amounts which are determined within 60 days following the commencement of the Company’s fiscal
year and while the pre-tax profits are not yet determined. The annual profit sharing component allows
the Named Executive Officers to participate in a profit sharing pool with other members of the
Company’s director-level management team. By allowing this level of participation in the Company’s
overall profits, the compensation committee encourages responsible growth and aligns the interests of
the officers with those of other management employees of the Company. This portion of the incentive
bonus may be reduced to a minimum of $0 if the Company ceases to be profitable or for other reasons
that the compensation committee determines, and may be increased to a maximum of two times the
target amount established for each individual participant. Both portions of the incentive bonus can be
adjusted downward (but not upward) by the compensation committee in its discretion. Cash incentive
bonuses with respect to fiscal year 2017 were paid at 135.3% of the total target amount, based on
actual EPS growth of 13.0% and a pre-tax profit (Profit Sharing Pool) of $180,106,845 during fiscal
year 2017.
The actual amounts earned by each Named Executive Officer for fiscal year 2017 are more fully
described in ‘‘Executive Compensation.’’ The target bonus amount, along with the minimum and
maximum bonus amounts, are set forth below:
Executive Incentive Compensation for the Fiscal Year 2017
Target Bonus Minimum Bonus Maximum Bonus
($)
($)
($)
W. Kent Taylor . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
525,000
Chairman, Chief Executive Officer
Scott M. Colosi . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
350,000
President, Chief Financial Officer
Celia P. Catlett . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
125,000
General Counsel, Corporate Secretary
S. Chris Jacobsen . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
175,000
0
0
0
0
1,050,000
700,000
250,000
350,000
Chief Marketing Officer
Stock Awards
We make equity awards in the form of restricted stock units, which represent the conditional right
to receive one share of our common stock upon satisfaction of the vesting requirements. Restricted
stock units offer the Named Executive Officers a financial interest in the Company and align their
interests with those of our shareholders. We also believe that the market price of our publicly traded
common stock represents the most appropriate metric for determining the value of the equity portion
of our Named Executive Officers’ compensation packages. The overall compensation packages for our
Named Executive Officers offer base salaries and target cash bonus amounts which are modest within the
casual dining restaurant sector and feature restricted stock unit awards, the value of which is dependent
17
upon the performance of the Company and the price of our common stock. The underlying philosophy
reflected by this approach is that, because a significant amount of each officer’s compensation lies in the
value of the restricted stock units granted, the officers are motivated to continually improve the Company’s
performance in the hope that the performance will be reflected by the stock price on the vesting date of
their restricted stock units and beyond. Because the restricted stock unit awards for our Named Executive
Officers vest over a period of time and their value varies in response to investor sentiment regarding overall
Company performance at the time of vesting, we believe that these service based awards are inherently
performance based. By only providing one year’s worth of restricted stock units to our Named Executive
Officers in the 2018 Employment Agreements, the compensation committee has the opportunity to adjust a
significant portion of the compensation for the Named Executive Officers on an annual basis to more
accurately reflect the overall performance of the Company. The Prior Employment Agreements for
Messrs. Colosi and Jacobsen and Ms. Catlett also provide for a ‘‘retention’’ grant of restricted stock units,
which vest upon completion of the term of the agreement on the condition that the officer is still serving
the Company on the vesting date. Additionally, each of Mr. Jacobsen’s and Ms. Catlett’s 2018 Employment
Agreements provides for a ‘‘retention’’ grant of restricted stock units, which vest upon completion of the
term of their 2018 Employment Agreement on the condition that the officer is still serving the Company on
the vesting date, and Mr. Taylor’s 2018 Employment Agreement provides for a long-term ‘‘retention’’ grant
of restricted stock units, which vest on January 8, 2023 on the condition that Mr. Taylor is still serving the
Company on the vesting date.
In addition, both the Prior Employment Agreements and the 2018 Employment Agreements for
Messrs. Taylor and Colosi contain bifurcated awards of service based restricted stock units and performance
based restricted stock units. While the 2018 Employment Agreements for Messrs. Taylor and Colosi contain
an annual grant of service based restricted stock units which vest over a one year period of service (as
opposed to a three year grant of service based restricted stock units that vest over a three year period in
their respective Prior Employment Agreements), both the Prior Employment Agreements and the 2018
Employment Agreements contain grants of performance based restricted stock units which are based on the
achievement of defined goals to be established by the compensation committee. For the performance based
awards, the compensation committee has established a two-pronged approach which mirrors the approach
used for annual cash incentive bonuses. Under this approach, a percentage of the target equity award is
based on whether the Company achieves the annual EPS Performance Goal, and a percentage is based on
the Profit Sharing Pool comprised of 1.5% of the Company’s pre-tax profits (income before taxes minus
income attributable to non-controlling interests, as reported in our audited financial statements). After the
end of the fiscal year, the compensation committee determines whether and to what extent the EPS
Performance Goal has been met, and the portion of the Profit Sharing Pool to which each officer is
entitled. Each 1% change from the EPS Performance Goal results in an increase or decrease of 10% of
the portion of the target amount attributable to the achievement of the EPS Performance Goal. For
example, if we achieve 11% EPS growth, the number of shares awarded would be 110% of the portion
of the target amount attributable to the achievement of the EPS Performance Goal. Conversely, if we
achieve 9% EPS growth, the award would be 90% of the portion of the target amount attributable to
the achievement of the EPS Performance Goal. The remaining percentage of the officers’ equity award
will fluctuate directly with Company pre-tax profits at fixed participation percentages and maximum
amounts which are determined within 60 days following the commencement of the Company’s fiscal
year and while the pre-tax profits are not yet determined. Both portions of the performance based
equity award may be reduced to a minimum of 0 or increased to a maximum of two times the target
amount for each individual participant. Both portions of the performance based equity award can also be
adjusted downward (but not upward) by the compensation committee in its discretion. Performance based
equity awards with respect to fiscal year 2017 were paid at 135.3% of the total target amount, based on
actual EPS growth of 13.0% and a pre-tax profit (Profit Sharing Pool) of $180,106,845 during fiscal year
2017. For discussion of the percentages assigned by the compensation committee to each component of
the performance based equity awards for Messrs. Taylor and Colosi, refer to the associated tables below.
18
The number of restricted stock units granted to each officer reflects each officer’s job responsibilities
and individual contribution to the success of the Company.
Service Based Restricted Stock Units
The number of service based restricted stock units granted under the Prior Employment Agreements
are shown in the table below. Except as noted, the grants vest in one-third increments for Messrs. Taylor
and Colosi and Ms. Catlett each January 8 over a three-year period beginning on January 8, 2016 and
ending on January 8, 2018, while Mr. Jacobsen’s grants vest in one-third increments each January 8 over
a three-year period beginning on January 8, 2017 and ending on January 8, 2019.
Total
Service Based
Restricted
Stock Units
granted
pursuant to
Prior
Employment
Agreements
45,000
80,000
40,000
—
—
—
Service Based
Restricted
Stock
Service Based
Restricted
Stock
Service Based
Restricted
Stock
Service Based
Restricted
Stock
Units vesting on Units vesting on Units vesting on Units vesting on
January 8, 2016 January 8, 2017 January 8, 2018 January 8, 2019
pursuant to
Prior
Employment
Agreements
pursuant to
Prior
Employment
Agreements
pursuant to
Prior
Employment
Agreements(1)
pursuant to
Prior
Employment
Agreements(2)
W. Kent Taylor . . . . . . . . . . . . . .
15,000
15,000
15,000
Chairman, Chief Executive
Officer
Scott M. Colosi
. . . . . . . . . . . . .
20,000
20,000
40,000
President, Chief Financial
Officer
Celia P. Catlett . . . . . . . . . . . . . .
General Counsel, Corporate
Secretary
S. Chris Jacobsen . . . . . . . . . . . .
Chief Marketing Officer
10,000
10,000
20,000
—
10,000
10,000
15,000
35,000
(1) With respect to Mr. Colosi and Ms. Catlett, this number includes a retention grant of restricted
stock units which vested on January 8, 2018.
(2) With respect to Mr. Jacobsen, this number represents the grant of 10,000 restricted stock units
previously granted to Mr. Jacobsen under the 2016 Employment Agreement, together with a
retention grant of 5,000 restricted stock units previously granted to Mr. Jacobsen under the 2016
Employment Agreement, which will vest on January 8, 2019, provided Mr. Jacobsen is still serving
the Company on the vesting date. Because Mr. Jacobsen’s 2016 Employment Agreement included
a grant of restricted stock units relating to his 2018 service, his 2018 Employment Agreement does
not include an initial grant of restricted stock units.
19
Except as noted below, the number of service based restricted stock units granted under the 2018
Employment Agreements are shown in the table below.
Service Based
Restricted
Stock
Units vesting
on
January 8,
2019
pursuant to
2018
Employment
Agreements
Service Based
Restricted
Stock
Units vesting
on
January 8,
2021
pursuant to
2018
Employment
Agreements(1)
Service Based
Restricted
Stock
Units vesting
on
January 8,
2023
pursuant to
2018
Employment
Agreements(2)
Total
Service Based
Restricted
Stock
Units granted
pursuant to
2018
Employment
Agreements
W. Kent Taylor . . . . . . . . . . . . . . . . . . . . . . . .
10,000
Chairman, Chief Executive Officer
Scott M. Colosi
. . . . . . . . . . . . . . . . . . . . . . .
10,000
President, Chief Financial Officer
—
—
Celia P. Catlett . . . . . . . . . . . . . . . . . . . . . . . .
10,000
10,000
General Counsel, Corporate Secretary
S. Chris Jacobsen . . . . . . . . . . . . . . . . . . . . . .
—
10,000
Chief Marketing Officer
75,000
85,000
—
—
—
10,000
20,000
10,000
(1) With respect to Mr. Jacobsen and Ms. Catlett, this number represents a retention grant of restricted
stock units which will vest on January 8, 2021, provided the officer is still serving the Company on
the vesting date.
(2) With respect to Mr. Taylor, this number represents a retention grant of restricted stock units which
will vest on January 8, 2023 provided Mr. Taylor is still serving the Company on the vesting date.
Performance Based Restricted Stock Units
The number of performance based restricted stock units granted to Messrs. Taylor and Colosi for
2017 fiscal year under their respective Prior Employment Agreement, and the number of shares of
common stock which actually vested based on the Company’s performance, are shown in the table
below:
Target Number of
Performance Based
Restricted Stock
Units Granted for
2017 pursuant to
Prior Employment
Agreements
Minimum
Number
of Performance
Based Restricted
Stock Units
pursuant to
Prior
Employment
Agreements
Maximum
Number
of Performance
Based Restricted
Stock Units
pursuant to
Prior
Employment
Agreements
Actual Number of
Shares Issued for
2017 following
Certification of
2017 Performance
Goals(1)
W. Kent Taylor . . . . . . . . . . . . . . . .
85,000
Chairman, Chief Executive
Officer
Scott M. Colosi
. . . . . . . . . . . . . . .
President, Chief Financial Officer
30,000
0
0
170,000
114,991
60,000
40,585
(1) The performance based restricted stock units attributable to the 2017 fiscal year were issued on
February 15, 2018. The compensation committee determined that 50% of the performance based
restricted stock unit award for the 2017 fiscal year would be based on an EPS growth target of
10%, which portion would be reduced or increased by 10% for every 1% of annual growth in EPS
less than or in excess of the 10% goal, and that 50% of the performance based restricted stock
unit award for the 2017 fiscal year would be based on a pre-tax profit target opportunity equal to
20
the percentage payout of 1.5% of pre-tax earnings divided by the bonus pool target set by the
compensation committee for the performance period.
The number of performance based restricted stock units granted to Messrs. Taylor and Colosi
under their respective 2018 Employment Agreements is shown in the table below. The actual number
of shares that will be issued to each of Messrs. Taylor and Colosi for fiscal year 2018 based on
achievement of the performance goals assigned to these grants by the compensation committee will not
be calculated until the first quarter of 2019.
Target Number
of Performance
Based
Restricted
Stock
Units vesting
on January 8,
2019 pursuant
to 2018
Employment
Agreements(1)
Minimum
Number of
Performance
Based
Restricted
Stock
Units pursuant
to 2018
Employment
Agreements
W. Kent Taylor . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Scott M. Colosi . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
50,000
40,000
0
0
Maximum
Number of
Performance
Based
Restricted
Stock
Units pursuant
to 2018
Employment
Agreements
100,000
80,000
(1) The compensation committee determined that 50% of the performance based restricted stock unit
award for 2018 would be based on an EPS growth target of 10%, which portion would be reduced
or increased by 10% for every 1% of annual growth in EPS less than or in excess of the 10% goal,
and that 50% of the performance based restricted stock unit award for 2018 would be based on a
pre-tax profit target opportunity equal to the percentage payout of 1.5% of pre-tax earnings
divided by the bonus pool target set by the compensation committee for the performance period.
The performance based restricted stock unit award for Messrs. Taylor and Colosi with respect to
fiscal year 2018 will be certified in the first quarter of 2019.
The 2018 Employment Agreements further provide that the compensation committee may, in its
discretion, grant additional performance based restricted stock units to Messrs. Taylor and Colosi with
respect to future performance periods.
Separation and Change in Control Arrangements
Except in the event of a change in control, the Prior Employment Agreement with Mr. Taylor
provides that no severance would be paid to him upon termination of employment, but he would be
entitled to receive a gift of a crisp $100 bill if his employment were to be terminated by the Company
without cause before the end of the term. Mr. Taylor’s 2018 Employment Agreement contains the same
provision. The Prior Employment Agreement for each of Messrs. Colosi and Jacobsen and Ms. Catlett
provides that, except in the event of a change in control, if the Company terminates their employment
without cause before the end of the term and the applicable executive officer signs a release of all claims
against the Company, then the Company will pay a severance payment equal to any bonus for a year
already ended (even if not yet paid at termination), plus the officer’s base salary for a period of 180 days,
and payment of a fixed sum ($175,000 for Mr. Colosi, $87,500 for Mr. Jacobsen and $62,500 for
Ms. Catlett). The 2018 Employment Agreement for each of Messrs. Colosi and Jacobsen and Ms. Catlett
contains the same provision, except that the fixed sum payments are the following: $175,000 for
Mr. Colosi, $100,000 for Mr. Jacobsen and $92,500 for Ms. Catlett. Similar payments are due to the
officers under both the Prior Employment Agreements and the 2018 Employment Agreements if
employment was or is terminated by reason of death or disability before the end of the term. The
Company provides these severance payments to allow for a period of transition and in exchange for a full
release of claims against the Company. The salary component of the severance payments is subject to
deductions and withholdings and is to be paid to the officers in periodic installments in accordance with
21
our normal payroll practices. The fixed sum is paid in a single lump sum, and any bonus component of
the severance payments for a performance period that ended before termination is to be paid on the
same date as the payment would have been made had his or her employment not been terminated.
Both the Prior Employment Agreements and the 2018 Employment Agreements also provide that if
the officer’s employment is terminated other than for cause following a change in control, or if the officer
resigns for good reason following a change in control because he or she is required to relocate, and the
Company’s successor does not agree to be bound by the agreement, or the officer’s responsibilities, pay
or total benefits are reduced, then in such an event each such officer will receive severance payments in
an amount equal to the officer’s base salary and incentive bonus through the end of the term of the
agreement but not less than one year. In addition, the officer’s unvested stock awards, if any, will become
vested as of the date of termination. Moreover, with respect to each of the officers under their respective
2018 Employment Agreement, if his or her employment is terminated under such circumstances and the
officer has not yet been granted service-based restricted stock units or performance-based restricted stock
units, as applicable under the respective officer’s 2018 Employment Agreements, for either or both of the
second and third years of his or her employment agreement, the officer will be issued the target number
of restricted stock units set forth above for each of these years, and, in the case of Mr. Jacobsen, 10,000
restricted stock units. The payments and acceleration of vesting of the stock awards are contingent upon
the officer signing a full release of claims against the Company. The salary component of the severance
payments is subject to deductions and withholdings and is to be paid to the officers in periodic
installments in accordance with our normal payroll practices or in a lump sum at the discretion of the
compensation committee and in compliance with Section 409A of the Internal Revenue Code. The bonus
component of the severance payments to the officers is to be paid on the same date as the payment
would have been made had his or her employment not been terminated.
According to the terms of both the Prior Employment Agreements and the 2018 Employment
Agreements, a change in control means that one of the following events has taken place: (1) the
shareholders of the Company approve (a) a merger or statutory plan of exchange involving the
Company (‘‘Merger’’) in which the Company is not the continuing or surviving corporation or pursuant
to which the Common Stock, $0.001 par value (‘‘Common Stock’’) would be converted into cash,
securities or other property, other than a Merger involving the Company in which the holders of
Common Stock immediately prior to the Merger have substantially the same proportionate ownership
of common stock of the surviving corporation after the Merger, or (b) a sale, lease, exchange, or other
transfer (in one transaction or a series of related transactions) of all or substantially all of the assets of
the Company or the adoption of any plan or proposal for the liquidation or dissolution; (2) during any
period of 12 months or less, individuals who at the beginning of such period constituted a majority of
the Board cease for any reason to constitute a majority thereof unless the nomination or election of
such new directors was approved by a vote of at least two-thirds of the directors then still in office who
were directors at the beginning of such period; (3) a tender or exchange offer (other than one made by
(a) the Company, or (b) Mr. Taylor or any corporation, limited liability company, partnership, or other
entity in which Mr. Taylor owns a direct or indirect ownership of 50% or more, or controls 50% or
more of the voting power [collectively, the ‘‘Taylor Parties’’]) is made for the Common Stock (or
securities convertible into Common Stock) and such offer results in a portion of those securities being
purchased and the offeror after the consummation of the offer is the beneficial owner (as determined
pursuant to Section 13(d) of the Securities Exchange Act of 1934, as amended [the ‘‘Exchange Act’’]),
directly or indirectly, of securities representing in excess of the greater of at least 20% of the voting
power of outstanding securities of the Company or the percentage of the voting power of the
outstanding securities of the Company collectively held by all of the Taylor Parties; or (4) any person
other than a Taylor Party becomes the beneficial owner of securities representing in excess of the
greater of 20% of the aggregate voting power of the outstanding securities of the Company as disclosed
in a report on Schedule 13D of the Exchange Act or the percentage of the voting power of the
outstanding securities of the Company collectively held by all of the Taylor Parties. No change of
22
control will be deemed to have occurred for purposes of either an individual Prior Employment
Agreement or an individual 2018 Employment Agreement by virtue of any transaction which results in
the affected Named Executive Officer, or a group of persons which includes the affected Named
Executive Officer, acquiring, directly or indirectly, securities representing 20% or more of the voting
power of outstanding securities of the Company.
The estimated amounts that would have been payable to a Named Executive Officer under both
the Prior Employment Agreements and the 2018 Employment Agreements are more fully described in
‘‘Termination, Change of Control and Change of Responsibility Payments.’’
Compensation Committee Report
The compensation committee has reviewed and discussed the ‘‘Compensation Discussion and
Analysis’’ required by Item 402(b) of Regulation S-K with management. Based on such review and
discussions, the compensation committee recommended to the Board that the ‘‘Compensation
Discussion and Analysis’’ be included in this proxy statement and incorporated by reference into the
Company’s Annual Report on Form 10-K for the year ended December 26, 2017.
All members of the compensation committee concur in this report.
James F. Parker, Chair
Gregory N. Moore
Kathleen M. Widmer
James R. Zarley
23
Summary Compensation Table
The following table sets forth the total compensation earned with respect to the fiscal years 2017,
2016, and 2015 for Mr. Taylor, our Chairman and Chief Executive Officer, and Mr. Colosi, our
President and Chief Financial Officer. It also includes such information for each of our three other
most highly compensated executive officers during fiscal year 2017, as and if applicable.
Name and Principal
Position
Salary Bonus
($)(1)
($)
Year
Grant Date
Fair Value
of Stock
Awards
($)(2)
President, Chief
Financial Officer
Chairman, Chief
Executive Officer
W. Kent Taylor . . . . . . . 2017 525,000 — 7,314,300
2016 525,000 — 3,389,800
2015 525,000 — 7,419,450
2,709,000
1,196,400
4,848,000
1,083,600
—
1,390,800
541,800
1,338,911
Scott M. Colosi . . . . . . . 2017 450,000
2016 450,000
2015 450,000
Celia P. Catlett . . . . . . . 2017 300,000
2016 275,000
2015 250,000
S. Chris Jacobsen . . . . . 2017 300,000
Chief Marketing Officer 2016 300,000
General Counsel,
Corporate Secretary
200
200
200
200
200
200
200
200
Non-equity
Incentive Plan
Compensation Compensation
All Other
($)
710,240
859,342
632,949
473,494
572,895
421,966
169,105
204,605
150,702
236,747
204,605
($)
8,670
8,949
8,679
8,670
8,949
8,679
8,670
8,949
8,679
8,670
8,949
Actual
Actual
Compensation Compensation
for Fiscal
Year Using
Vesting Date
Share Price
($)(4)
for Fiscal
Year Using
Grant Date
Share Price
($)(5)(6)
8,674,196(i)
8,437,123(i)
5,358,564(i)
5,538,603(ii)
4,190,143(ii)
2,867,989(ii)
1,621,175(iii)
945,754(iii)
754,781(iii)
1,117,217(iv)
1,060,472(iv)
6,351,301(i)
6,660,634(i)
5,388,923(i)
3,941,694(ii)
3,402,416(ii)
2,882,380(ii)
1,173,375(iii)
836,454(iii)
757,281(iii)
902,317(iv)
960,915(iv)
Total
($)(3)
8,558,210
4,783,091
8,586,078
3,641,364
2,228,444
5,728,845
1,561,575
488,754
1,800,381
1,087,417
1,852,665
(1) This column represents holiday bonus awards paid to the Named Executive Officers for the fiscal
years ended December 26, 2017, December 27, 2016, and December 29, 2015.
(2) Reflects the grant date fair value computed in accordance with ASC 718 of performance based
restricted stock units and service based restricted stock units granted pursuant to the Company’s
long term incentive plan using the closing price of the Company’s common stock on the last
trading day immediately preceding the grant date. These are not amounts paid to or received by
the Named Executive Officers. For discussion of the valuation assumptions used in these
computations, see Note 13 to the consolidated financial statements in the Company’s Annual
Report on Form 10-K for the fiscal year ended December 26, 2017.
The Company cautions that the amounts reported in the Summary Compensation Table for these
awards may not represent the amounts that the Named Executive Officers will actually realize
from the awards. Whether, and to what extent, a Named Executive Officer realizes value will
depend on the Company’s actual operating performance, stock price fluctuations and the Named
Executive Officer’s continued service with the Company. Additional information on all outstanding
stock and option awards is reflected in the ‘‘Grants of Plan-Based Awards Table’’ and the
‘‘Outstanding Equity Awards at Fiscal Year End Table.’’
(3) With respect to Messrs. Taylor and Colosi and Ms. Catlett, amounts include the grant date fair value
of the performance based restricted stock units and service based restricted stock units granted to
the Named Executive Officers during the applicable year (as and if applicable). The service grants
for Messrs. Taylor and Colosi and Ms. Catlett vest in one-third increments each January 8 over a
three-year period beginning on January 8, 2016 and ending on January 8, 2018, subject to continued
service to the Company, and the performance grants to Messrs. Taylor and Colosi vest individually
over an approximately one year period, subject to certification by the compensation committee of the
level of satisfaction of the performance criteria. The amount set forth in the Summary Compensation
Table for the 2017 fiscal year for Mr. Taylor lists a value representing the grant date value for 75,000
restricted stock units granted under his 2018 Employment Agreement which will vest on January 8,
2023 provided Mr. Taylor is still serving the Company on the vesting date. Additionally, the amount
set forth in the Summary Compensation Table for the 2015 fiscal year lists a value representing the
24
grant date fair value for the entirety of the performance based restricted stock units and/or service
based restricted stock units (as and if applicable) granted to the Named Executive Officers, even
though Messrs. Taylor and Colosi only received the value of the one-third increment of service based
restricted stock units and first grant of performance based restricted stock units, and Ms. Catlett only
received the value of the one-third increment of service based restricted stock units. Amounts
relating to these performance based restricted stock units and service based restricted stock units are
not amounts paid to or received by the Named Executive Officers during the time periods reflected
in the table.
With respect to Mr. Jacobsen, the grants made during fiscal year 2016 reflect service based
restricted stock units that vest in one-third increments each January 8 over a three-year period
beginning on January 8, 2017 and ending on January 8, 2019, subject to Mr. Jacobsen’s continued
service to the Company. Amounts reported in the column titled ‘‘Grant Date Fair Value of Stock
Awards’’ and the column titled ‘‘Total’’ are not amounts paid to or received by Mr. Jacobsen
during fiscal year 2016.
(4) Includes salary, bonus, non-equity incentive plan compensation, all other compensation, and the
estimated value at vesting of the portion of the stock awards attributable to the officer’s service for
the relevant fiscal year (regardless of whether granting or vesting occurred during such fiscal year).
The estimated per unit value at vesting was calculated using the closing price of the Company’s
common stock on the last trading day immediately preceding the vesting date, as follows:
(i)
for Mr. Taylor in 2017, 15,000 service based restricted stock units which vested on January 8,
2018 at $57.16, and 114,991 performance based restricted stock units which vested on
January 8, 2018 at $57.16; for Mr. Taylor in 2016, 15,000 service based restricted stock units
which vested on January 8, 2017 at $45.70, and 139,132 performance based restricted stock
units which vested on January 8, 2017 at $45.70; and for Mr. Taylor in 2015, 15,000 service
based restricted stock units which vested on January 8, 2016 at $34.52, and 106,435
performance based restricted stock units which vested on January 8, 2016 at $34.52.
(ii) for Mr. Colosi in 2017, 40,000 service based restricted stock units which vested on January 8,
2018 at $57.16, and 40,585 performance based restricted stock units which vested on
January 8, 2018 at $57.16; for Mr. Colosi in 2016, 20,000 service based restricted stock units
which vested on January 8, 2017 at $45.70 and 49,105 performance based restricted stock units
which vested on January 8, 2017 at $45.70; and for Mr. Colosi in 2015, 20,000 service based
restricted stock units which vested on January 8, 2016 at $34.52, and 37,565 performance
based restricted stock units which vested on January 8, 2016 at $34.52.
(iii) for Ms. Catlett in 2017, 20,000 service based restricted stock units which vested on January 8,
2018 at $57.16; for Ms. Catlett in 2016, 10,000 service based restricted stock units which vested
on January 8, 2017 at $45.70; and for Ms. Catlett in 2015, 10,000 service based restricted stock
units which vested on January 8, 2016 at $34.52.
(iv) for Mr. Jacobsen in 2017, 10,000 service based restricted stock units which vested on
January 8, 2018 at $57.16; and for Mr. Jacobsen in 2016, 10,000 service based restricted stock
units which vested on January 8, 2017 at $45.70 and 2,125 service based restricted stock units
which vested on February 26, 2017 at $42.22.
(5) Includes salary, bonus, non-equity incentive plan compensation, all other compensation, and the
grant date value of the portion of the stock awards attributable to the officer’s service for the
relevant fiscal year (regardless of whether granting or vesting occurred during such fiscal year).
25
The per unit grant date value was calculated using the closing price of the Company’s common
stock on the last trading day immediately preceding the granting date, as follows:
(i)
for Mr. Taylor in 2017, 15,000 service based restricted stock units granted on January 8, 2015
at $34.77 and 114,991 performance based restricted stock units granted on November 9, 2016
at $39.88; for Mr. Taylor in 2016, 15,000 service based restricted stock units granted on
January 8, 2015 at $34.77, and 139,132 performance based restricted stock units granted on
November 19, 2015 at $34.11; and for Mr. Taylor in 2015, 15,000 service based restricted stock
units granted on January 8, 2015 at $34.77, and 106,435 performance based restricted stock
units granted on January 8, 2015 at $34.77.
(ii) for Mr. Colosi in 2017, 40,000 service based restricted stock units granted on January 8, 2015
at $34.77 and 40,585 performance based restricted stock units granted on November 9, 2016 at
$39.88; for Mr. Colosi in 2016, 20,000 service based restricted stock units granted on
January 8, 2015 at $34.77 and 49,105 performance based restricted stock units granted on
November 19, 2015 at $34.11; and for Mr. Colosi in 2015, 20,000 service based restricted stock
units granted on January 8, 2015 at $34.77, and 37,565 performance based restricted stock
units granted on January 8, 2015 at $34.77.
(iii) for Ms. Catlett in 2017, 20,000 service based restricted stock units granted on January 8, 2015
at $34.77; for Ms. Catlett in 2016, 10,000 service based restricted stock units granted on
January 8, 2015 at $34.77; and for Ms. Catlett in 2015, 10,000 service based restricted stock
units granted on January 8, 2015 at $34.77.
(iv) for Mr. Jacobsen in 2017, 10,000 service based restricted stock units granted on February 11,
2016 at $35.67; and for Mr. Jacobsen in 2016, 10,000 service based restricted stock units
granted on February 11, 2016 at $35.67 and 2,125 service based restricted stock units granted
on February 26, 2016 at $42.57.
(6) In comparing the grant date stock value and the vesting date stock value for the service based
restricted stock units and/or performance based restricted stock units attributable to the applicable
fiscal year for each executive officer, the difference in compensation for each executive officer is
directly connected to the increase and/or decrease in the share price, which is consistent with our
compensation philosophy for our executive officers (more particularly described above).
26
Grants of Plan-Based Awards in Fiscal Year 2017
The following table presents information with respect to grants of stock awards to the applicable
Named Executive Officers during fiscal year 2017.
Grants of Plan-Based Awards Table
Name
Grant Date
Minimum Target
Maximum
W. Kent Taylor
Service Based RSUs vesting
Estimated Future Payouts
Under Equity Incentive Plan
Awards(1)
All Other
Stock Awards:
Number of
Shares of
Stock or
Units
(#)(2)
Grant Date
Fair Value of
Stock and
Option Awards
($)(3)
January 8, 2019 . . . . . . . . December 26, 2017 —
—
— 10,000
541,800
Performance Based RSUs
vesting January 8, 2019 . . December 26, 2017
0
50,000(4) 100,000
—
2,709,000
Service Based RSUS vesting
January 8, 2023 . . . . . . . . December 26, 2017 —
Scott M. Colosi
Service Based RSUs vesting
January 8, 2019 . . . . . . . . December 26, 2017 —
Performance Based RSUs
—
—
— 75,000
4,063,500
— 10,000
541,800
vesting January 8, 2019 . . December 26, 2017
0
40,000(4)
80,000
—
2,167,200
Celia Catlett
Service Based RSUs vesting
January 8, 2019 . . . . . . . . December 26, 2017 —
Service Based RSUs vesting
January 8, 2021 . . . . . . . . December 26, 2017 —
S. Chris Jacobsen
Service Based RSUs vesting
January 8, 2021 . . . . . . . . December 26, 2017 —
—
—
—
— 10,000
541,800
— 10,000
541,800
— 10,000
541,800
(1) These amounts reflect the minimum, target, and maximum number of shares issuable under
performance awards. The related performance targets and certain results are described in detail in
the ‘‘Compensation Discussion and Analysis’’.
(2) Each stock award consists of restricted stock units, where each unit represents the conditional right
to receive one share of our common stock upon satisfaction of vesting requirements. See the
‘‘Compensation Discussion and Analysis’’ for the conditions of accelerated vesting upon
termination of employment other than for cause.
(3) Reflects the grant date fair value computed in accordance with FASB ASC Topic 718 of the target
number of performance based units and restricted stock units granted to the Named Executive
Officers using the closing price of the Company’s common stock on the last trading day immediately
preceding the grant date, which was $54.18. These are not amounts paid to or received by the
Named Executive Officers. For discussion of the assumptions used in determining these values, see
Note 13 to the consolidated financial statements in the Company’s Annual Report on Form 10-K for
the fiscal year ended December 26, 2017.
(4) The amount represents the target award opportunity. Performance based equity awards with
respect to fiscal year 2017 were paid at 135.3% of the total target amount, based on actual EPS
growth of 13.0% and a pre-tax profit (Profit Sharing Pool) of $180,106,845 during fiscal year 2017.
27
Outstanding Equity Awards
The following table presents information with respect to outstanding stock option awards, stock
awards, and equity incentive plan awards as of December 26, 2017 by the Named Executive Officers.
Outstanding Equity Awards at Fiscal Year End Table
Option Awards
Stock Awards
Equity Incentive Plan
Awards
Number of
Securities
Underlying
Unexercised Unexercised Option
Number of
Securities
Underlying
Options
Options
Exercise Option
Number
of
Shares or
Units of
Stock
That
Have Not
Vested
(#)
Number
of
Market
Value of
Shares or Shares or
Units of Units of
Stock
That
Stock
That
Have Not Have Not
Vested
($)(1)
Vested
(#)
Market
Value of
Shares or
Units of
Stock
That
Have Not
Vested
($)(1)
NA
100,000(2) 5,408,000
135,000(3) 7,300,800
Expiration
Date
Price
($)
NA
Exercisable Unexercisable
Name
W. Kent Taylor . . . . . . . . .
Chairman, Chief Executive
Officer
Scott M. Colosi . . . . . . . . .
President, Chief Financial
Officer
Celia P. Catlett
. . . . . . . . .
General Counsel,
Corporate Secretary
S. Chris Jacobsen . . . . . . . .
Chief Marketing Officer
(#)
—
—
—
—
(#)
—
—
—
—
NA
NA
50,000(4) 2,704,000
70,000(5) 3,785,600
NA
NA
40,000(6) 2,163,200
NA
NA
35,000(7) 1,892,800
—
—
—
—
(1) Market value was computed using the Company’s closing stock price on December 26, 2017, the
date the Company’s fiscal year ended, which was $54.08.
(2) The vesting schedule is as follows: 15,000 shares on January 8, 2018, 10,000 shares on January 8,
2019 and 75,000 shares on January 8, 2023.
(3) Consists of performance awards which will vest and be earned, if at all, at the time of a determination
by our compensation committee that certain Company performance measures have been satisfied. If
and to the extent earned, the vesting schedule is as follows: 85,000 shares on January 8, 2018 and
50,000 shares on January 8, 2019.
(4) The vesting schedule is as follows: 40,000 shares on January 8, 2018 and 10,000 shares on
January 8, 2019.
(5) Consists of performance awards which will vest and be earned, if at all, at the time of a determination
by our compensation committee that certain Company performance measures have been satisfied. If
and to the extent earned, the vesting schedule is as follows: 30,000 shares on January 8, 2018 and
40,000 shares on January 8, 2019.
(6) The vesting schedule is as follows: 20,000 shares on January 8, 2018, 10,000 shares on January 8,
2019 and 10,000 shares on January 8, 2021.
(7) The vesting schedule is as follows: 10,000 shares on January 8, 2018, 15,000 shares on January 8,
2019, and 10,000 shares on January 8, 2021.
See the ‘‘Compensation Discussion and Analysis’’ for the conditions of accelerated vesting upon
termination of employment other than for cause.
28
Options Exercised and Stock Vested
The following table presents information with respect to stock options exercised and stock awards
vested during the fiscal year ended December 26, 2017 by the Named Executive Officers.
Option Exercises and Stock Vested Table
Name
W. Kent Taylor . . . . . . . . . . . . . . . . . . . . .
Chairman, Chief Executive Officer
Scott M. Colosi
. . . . . . . . . . . . . . . . . . . .
President, Chief Financial Officer
Celia P. Catlett . . . . . . . . . . . . . . . . . . . . .
General Counsel, Corporate Secretary
S. Chris Jacobsen . . . . . . . . . . . . . . . . . . .
Chief Marketing Officer
Option Awards
Stock Awards
Number of
Shares Acquired
on Exercise
(#)
Value Realized
on Exercise
($)(1)
Number of
Shares Acquired
on Vesting
(#)
Value Realized
on Vesting
($)(2)
—
—
—
—
—
—
—
—
154,132
7,043,832(i)
69,105
3,158,099(ii)
10,000
12,125
457,000(iii)
546,718(iv)
(1) To the extent applicable, the value realized upon exercise of options represents the difference
between the market value of the underlying securities at exercise and the exercise price of the
options.
(2) The value realized upon vesting of restricted stock units represents the fair value of the underlying
shares based on the closing price of the Company’s common stock on the trading day immediately
preceding the vesting date, which is in accordance with the following:
(i) $45.70 with respect to the 15,000 service based restricted stock units which vested on
January 8, 2017, and $45.70 with respect to the 139,132 performance based restricted stock
units which vested on January 8, 2017 but became reportable on February 16, 2017.
(ii) $45.70 with respect to the 20,000 service based restricted stock units which vested on
January 8, 2017, and $45.70 with respect to the 49,105 performance based restricted stock
units which vested on January 8, 2017 but became reportable on February 16, 2017.
(iii) $45.70 with respect to the 10,000 restricted stock units which vested on January 8, 2017.
(iv) $45.70 with respect to the 10,000 restricted stock units which vested on January 8, 2017 and
2,125 service based restricted stock units which vested on February 26, 2017 at $42.22.
Termination, Change of Control and Change of Responsibility Payments
If a Named Executive Officer had resigned or been terminated for cause prior to the expiration of
the term of his or her Prior Employment Agreement or 2018 Employment Agreement, the officer
would have received payment of his or her annual base salary then in effect through the date of
resignation or termination.
If a Named Executive Officer had been terminated prior to the expiration of the term of his or
her Prior Employment Agreement as a result of death or disability, such officer’s beneficiary or estate
would have been entitled to receive an amount equal to such officer’s annual base salary then in effect
through the date of termination due to death or disability, plus any earned but unpaid bonus, plus the
amount of such officer’s annual base salary then in effect for 180 days following the termination, plus a
fixed bonus amount as follows: for Mr. Taylor, $262,500; for Mr. Colosi, $175,000; for Ms. Catlett,
$62,500; and for Mr. Jacobsen, $87,500.
29
If a Named Executive Officer had been terminated prior to the expiration of the term of his or
her 2018 Employment Agreement as a result of death or disability, such officer’s beneficiary or estate
would have been entitled to receive an amount equal to such officer’s annual base salary then in effect
through the date of termination due to death or disability, plus any earned but unpaid bonus, plus the
amount of such officer’s annual base salary then in effect for 180 days following the termination, plus a
fixed bonus amount as follows: for Mr. Taylor, $262,500; for Mr. Colosi, $175,000; for Ms. Catlett,
$92,500; and for Mr. Jacobsen, $100,000.
The following table lists the estimated amounts payable to a Named Executive Officer pursuant to
the Prior Employment Agreements if his or her employment had been terminated without cause
unrelated to a change of control on December 26, 2017, the last day of our fiscal year, provided that
each officer signed a full release of all claims against us.
Termination Payments Table
Name
Estimated
Cash
Payments
($)(1)
Estimated
Value of
Newly Vested
Stock Awards
($)(2)
Total
($)
W. Kent Taylor . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
100
5,408,000
5,408,100
Chairman, Chief Executive Officer
Scott M. Colosi . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
870,412
3,785,600
4,656,012
President, Chief Financial Officer
Celia P. Catlett
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
379,550
1,081,600
1,461,150
General Counsel, Corporate Secretary
S. Chris Jacobsen . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
472,192
1,352,000
1,824,192
Chief Marketing Officer
(1) Mr. Taylor is entitled to a crisp $100 bill upon the termination of his employment without cause. If
the employment of Mr. Colosi had been terminated under those circumstances, he would have
received any bonus for a year already ended (even if not yet paid at termination), plus the
proportionate share of his annual base salary then in effect ($450,000) for 180 days, plus $175,000.
If the employment of Ms. Catlett had been terminated under those circumstances, she would have
received any bonus for a year already ended (even if not yet paid at termination), plus the
proportionate share of her annual base salary then in effect ($300,000) for 180 days, plus $62,500.
If the employment of Mr. Jacobsen had been terminated under those circumstances, he would
have received any bonus for a year already ended (even if not yet paid at termination), plus the
proportionate share of his annual base salary then in effect ($300,000) for 180 days, plus $87,500.
(2) Each officer’s restricted stock units would have become immediately vested upon a termination of
his or her employment without cause. The amounts shown in this column represent the value of
the restricted stock units outstanding under the Prior Employment Agreements at the closing price
of our common stock on December 26, 2017, which was $54.08. The number of restricted stock
units which would have vested on that date is shown in ‘‘Outstanding Equity Awards.’’
The following table lists the estimated amounts payable to a Named Executive Officer if his or her
employment had been terminated without cause following a change of control, or if any of the officers
had resigned his or her position for good reason following a change of control, on December 26, 2017,
the last day of our fiscal year, provided that each officer signed a full release of claims against us.
30
Change in Control, Change in Responsibilities Payments Table
Name
Estimated
Cash
Payments
($)(1)
Estimated
Value of
Newly Vested
Stock Awards
($)(2)
Total
($)
W. Kent Taylor . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
1,754,487
5,408,000
7,162,487
Chairman, Chief Executive Officer
Scott M. Colosi
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
1,268,562
3,785,600
5,054,162
President, Chief Financial Officer
Celia P. Catlett . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
590,817
1,081,600
1,672,417
General Counsel, Corporate Secretary
S. Chris Jacobsen . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
890,857
1,352,000
2,242,857
Chief Marketing Officer
(1) If the employment of any of the officers had been terminated without cause following a change of
control, or if any of the officers had resigned his or her position for good reason following a
change of control, the officer would have received the amount of his or her then current base
salary and target incentive bonus through the end of the term of the officer’s employment
agreement, but not less than one year. Had an officer’s employment been so terminated on
December 26, 2017, each of Messrs. Colosi and Taylor and Ms. Catlett would have received
payment through December 26, 2018, and Mr. Jacobsen would have received payment through
January 7, 2019.
The table below details the estimated payment for each officer.
Name
Salary
($)
Bonus
($)
Total
Estimated
Payments
($)
W. Kent Taylor . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
519,247
1,235,240
1,754,487
Chairman, Chief Executive Officer
Scott M. Colosi . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
445,068
823,494
1,268,562
President, Chief Financial Officer
Celia P. Catlett
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
296,712
294,105
590,817
General Counsel, Corporate Secretary
S. Chris Jacobsen . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
304,110
586,747
890,857
Chief Marketing Officer
(2) Each officer’s restricted stock units would have become immediately vested upon a termination of
his or her employment without cause following a change of control, or if any of the officers had
resigned his or her position for good reason following a change of control. In addition, if either or
both of Messrs. Taylor and Colosi had not yet been granted performance based restricted stock
units for either or both of the second or third years of his employment agreement, they would be
issued the target number of units set forth in their respective Prior Employment Agreements and
as more particularly identified in the Grants of Plan-Based Awards Table above for each such year.
The amounts shown in this column represent the value of the restricted stock units at the closing
price of our common stock on December 26, 2017, which was $54.08. The number of restricted
stock units which would have vested on that date are shown in ‘‘Outstanding Equity Awards’’.
31
AUDIT COMMITTEE REPORT
The audit committee of the Board is composed of three directors, all of whom meet the criteria
for independence under the applicable NASDAQ and SEC rules and the Sarbanes-Oxley Act. The
audit committee acts under a written charter adopted by the Board, a copy of which is available on the
Company’s website at www.texasroadhouse.com.
The audit committee has prepared the following report on its activities and with respect to the
Company’s audited consolidated financial statements for the fiscal year ended December 26, 2017 (the
‘‘Audited Financial Statements’’).
(cid:129) The audit committee met 15 times during fiscal year 2017. The audit committee’s meetings
included private sessions with the Company’s independent auditors and internal auditors, as well
as executive sessions consisting of only audit committee members. The audit committee also met
periodically in private sessions with management, including Named Executive Officers (as
needed);
(cid:129) The audit committee reviewed the acknowledgement process for the Company’s Code of
Conduct, and the corresponding results;
(cid:129) The audit committee reviewed the scope, plans and results of the testing performed by the
Company’s internal auditors and independent auditors in their assessments of internal control
over financial reporting and the consolidated financial statements;
(cid:129) The audit committee reviewed matters submitted to it via the Company’s whistleblower hotline
and/or other reporting mechanisms regarding concerns about allegedly questionable financial,
accounting and/or auditing matters (if any);
(cid:129) The audit committee reviewed with management, including the internal auditors and the
General Counsel, and the independent auditors, the Company’s practices with respect to risk
assessment and risk management. The overall adequacy and effectiveness of the Company’s
legal, regulatory and ethical compliance programs were also reviewed, as well as the Company’s
cybersecurity controls and system standards;
(cid:129) The audit committee reviewed with the General Counsel the Company’s disclosures with respect
to current lawsuits;
(cid:129) The audit committee reviewed comment letters received from the Securities and Exchange
Commission, if any, together with management’s response to such letters;
(cid:129) The audit committee pre-approved all audit, audit-related and permissible non-audit services
provided to the Company by KPMG LLP, the Company’s independent auditors for the fiscal
year 2017, before management engaged the independent auditors for those purposes, pursuant
to and in accordance with the Texas Roadhouse, Inc. Policy for Pre-Approval of Services
Provided by External Audit Firm (which is available on the Company’s website,
www.texasroadhouse.com);
(cid:129) On a quarterly basis, the audit committee discussed with KPMG LLP the matters required to be
discussed by the Public Company Accounting Oversight Board Auditing Standard No. 1301,
Communications with Audit Committees;
(cid:129) The audit committee discussed with KPMG LLP their written disclosures and letter required by
applicable requirements of the Public Company Accounting Oversight Board regarding the
independent auditors’ communications with the audit committee concerning independence;
(cid:129) The audit committee reviewed the selection, application and disclosure of critical accounting
policies;
32
(cid:129) The audit committee reviewed the Company’s earnings press releases prior to issuance;
(cid:129) The audit committee reviewed and discussed the Company’s Audited Financial Statements for
the fiscal year 2017 with management and the independent auditors;
(cid:129) The audit committee reviewed the Company’s Quarterly and Annual Reports on Form 10-Q and
Form 10-K prior to filing with the SEC; and
(cid:129) Based on the review and discussion referred to above, and in reliance thereon, the audit
committee recommended to the Board that the Audited Financial Statements be included in the
Company’s Annual Report on Form 10-K for the fiscal year ended December 26, 2017, for filing
with the SEC.
All members of the audit committee concur in this report.
Gregory N. Moore, Chair
James F. Parker
James R. Zarley
Related Party Transactions
The audit committee’s charter provides that the audit committee will review and approve any
transactions between us and any of our executive officers, directors, and 5% shareholders, or any
members of their immediate families, in which the amount involved exceeds the threshold limits
established by the regulations of the SEC. In reviewing a related-party transaction, the audit committee
considers the material terms of the transaction, including whether the terms are generally available to
an unaffiliated third party under similar circumstances. Unless specifically noted, the transactions
described below were entered into before our initial public offering and the subsequent formation of
the audit committee.
Grants of Franchise or License Rights
We have licensed or franchised restaurants to companies owned in part by current executive
officers. The licensing or franchise fees paid by these companies to us range from 0.0% to 4.0% of
restaurant sales, which is less than the amount we typically charge to franchisees. We believe that
allowing certain executive officers with ownership interests in our restaurants that pre-dated our initial
public offering to continue to maintain those ownership interests adds an ongoing benefit to the
Company by making the executive officers more invested in the overall success of the brand. Ownership
of franchised restaurants by our current executive officers is listed below.
33
Restaurant
Name and Ownership
Billings, MT . . . . . . . . . . . W. Kent Taylor (27.5%)
Scott M. Colosi (2.0%)
Everett, MA . . . . . . . . . . . W. Kent Taylor (28.75%)
Scott M. Colosi (5.05%)
Fargo, ND . . . . . . . . . . . . .
Lexington, KY . . . . . . . . . . W. Kent Taylor (5.0%)
McKinney, TX . . . . . . . . . .
Scott M. Colosi (2.0%)
Melbourne, FL . . . . . . . . . W. Kent Taylor (17.0%)
Muncie, IN . . . . . . . . . . . . W. Kent Taylor (4.91%)
Omaha, NE . . . . . . . . . . . .
Port Arthur, TX . . . . . . . . . W. Kent Taylor (15.0%)
Scott M. Colosi (3.0%)
Scott M. Colosi (10.99%)
Wichita, KS . . . . . . . . . . . . W. Kent Taylor (24.05%)
Scott M. Colosi (4.0%)
Initial
Franchise
Fee
Royalty
Rate
Royalties
Paid to
Us in Fiscal
Year 2017
($)
Management or
Supervision Fees
Paid to Us
in Fiscal
Year 2017
($)
—
—
—
—
—
—
—
—
—
—
4.0% 197,909
24,739
4.0% 260,220
4.0% 190,316
2.0% 104,941
4.0% 259,071
—
—
—
50,000
4.0% 191,384
4.0% 213,113
32,528
23,540
—
32,384
113,338
—
25,253
26,639
4.0% 336,873
41,252
For the 2017 fiscal year, the total amount of distributions received by Mr. Taylor and Mr. Colosi
relating to their ownership interests in the above-referenced franchised restaurants were $1,578,407 and
$160,537, respectively. These amounts do not reflect compensation paid by the Company to Mr. Taylor
and/or Mr. Colosi during the 2017 fiscal year; rather, these amounts were paid by the applicable
franchise entity and reflect a return on investment in these separate restaurant locations.
On March 19, 2004, we entered into a preliminary franchise agreement with a company which is
95% owned by Mr. Taylor to develop a restaurant at a location which is to be determined. The terms
of the preliminary franchise agreement provide for no initial franchise fees and royalties of 3.5% of
restaurant sales. During fiscal year 2017, we received no payment from this franchise restaurant, as
none was due.
The franchise agreements and preliminary franchise agreement that we have entered into with our
executive officers contain the same terms and conditions as those agreements that we enter into with
our other domestic franchisees except, in some instances, the initial franchise fees and the royalty rates,
which are currently $40,000 and 4.0%, respectively, for our other domestic franchisees. We have the
contractual right, but not the obligation, to acquire the restaurants owned by our executive officers
based on a pre-determined valuation formula which is the same as the formula contained in the
domestic franchise agreements that we have entered into with other franchisees with whom we have
such rights. A preliminary agreement for a franchise may be terminated if the franchisee does not
identify and obtain our approval of its restaurant management personnel, locate and obtain our
approval of a suitable site for the restaurant or does not demonstrate to us that it has secured
necessary capital and financing to develop the restaurant. Once a franchise agreement has been entered
into, it may be terminated if the franchisee defaults in the performance of any of its obligations under
the agreement, including its obligations to operate the restaurant in strict accordance with our
standards and specifications. A franchise agreement may also be terminated if a franchisee becomes
insolvent, fails to make its required payments, creates a threat to the public health or safety, ceases to
operate the restaurant or misuses the Texas Roadhouse trademarks.
Other Related Transactions
We entered into real estate lease agreements for franchise restaurants located in Everett, MA, of
which Mr. Taylor beneficially owns 28.75% and Fargo, ND, of which Mr. Colosi owns 5.05%, before
our granting franchise rights for those restaurants. We have subsequently assigned the leases to the
34
franchisees, but we remain contingently liable if a franchisee defaults under the terms of a lease. The
Everett lease expires in February 2023, and the Fargo lease expires in July 2021.
In 2016, Mr. Taylor loaned $300,000 to Texas Roadhouse of Billings, LLC for capital improvements,
which loan was paid off on December 19, 2017. We own 5.0% of the franchise entity, Mr. Taylor
beneficially owns 27.5% of the franchise entity, and Mr. Colosi beneficially owns 2.0% of the franchise
entity. The loan had a maturity date of January 15, 2018 and had an interest rate of LIBOR plus 0.44%.
35
PRESENTATION OF PROPOSALS
PROPOSAL 1
ELECTION OF DIRECTORS
The Company’s bylaws provide for not less than one and not more than 15 directors. Our Board
currently consists of five directors. At the Annual Meeting, we are electing two directors for a term of
one year each. Although it is not anticipated that any of the nominees listed below will decline or be
unable to serve, if that should occur, the proxy holders may, in their discretion, vote for a substitute
nominee.
Nominee for Election as a Director
Set forth below are the Board members who will stand for re-election at the Annual Meeting,
together with their age, all Company positions and offices they currently hold, and the year in which
they joined the Board.
Name
Age
Position or Office
Director Since
W. Kent Taylor . . . . . . . . . . . . . . .
James R. Zarley . . . . . . . . . . . . . .
62 Director; Chairman & CEO
73
Director
2004
2004
Recommendation
THE BOARD RECOMMENDS THAT SHAREHOLDERS VOTE ‘‘FOR’’ THE ELECTION OF
THE NOMINEES FOR THE DIRECTORS OF THE COMPANY SET FORTH ABOVE FOR ONE
YEAR EACH.
36
PROPOSAL 2
RATIFICATION OF INDEPENDENT AUDITORS
As more particularly described in this proxy statement, the audit committee is directly responsible for
managing the Company’s independent auditors, which includes, without limitation, (i) pre-approving all
audit and permitted non-audit services provided by our independent auditors, and (ii) the appointment,
compensation, retention and oversight of the Company’s independent auditors. In connection with the
same and pursuant to its charter, the audit committee has appointed the firm of KPMG LLP to serve as
the independent auditors to audit the consolidated financial statements and the internal control over
financial reporting of the Company for the fiscal year which ends on December 25, 2018. The Board and
the audit committee jointly agree that the continued retention of KPMG LLP is in the best interest of
the Company and its shareholders. Accordingly, a resolution will be presented at the Annual Meeting to
ratify the appointment of KPMG LLP. If the shareholders fail to ratify the appointment of KPMG LLP,
the audit committee will take this result into account when appointing an independent auditor for fiscal
year 2018. Even if the appointment is ratified, the audit committee in its discretion may direct the
appointment of a different independent registered public accounting firm as the Company’s independent
auditors at any time during the year if the audit committee believes that such a change would be in the
best interests of the Company and its shareholders. One or more representatives of KPMG LLP are
expected to be present at the Annual Meeting, will have the opportunity to make a statement if they
desire to do so, and will be available to respond to appropriate questions.
Fees Paid to the Independent Auditors
We paid the following fees to KPMG LLP for fiscal years 2017 and 2016:
Audit Fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Audit-related Fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Tax Fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
All Other Fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2017($)
2016($)
685,000
50,664
55,632
780,000
—
64,534
— 24,279
791,296
868,813
Audit Fees
KPMG LLP charged $685,000 in fiscal year 2017 and $780,000 in fiscal year 2016 for audit fees.
These include professional services in connection with the audit of the Company’s annual consolidated
financial statements and its internal control over financial reporting. They also include reviews of the
Company’s consolidated financial statements included in the Company’s Quarterly and Annual Reports
on Form 10-Q and Form 10-K and for services that are normally provided by the accountant in
connection with statutory and regulatory filings or engagements for the fiscal years shown. Finally, the
fees for fiscal years 2017 and 2016 contain $15,000 and $140,000, respectively, relating to accounting
software conversions.
Audit-related Fees
KPMG LLP charged the Company $50,664 for audit-related services in fiscal year 2017. These
include professional services in connection with statutory audits.
Tax Fees
KPMG LLP charged $55,632 for tax consulting services in fiscal year 2017 and $65,534 for tax
consulting services in fiscal year 2016.
37
All Other Fees
KPMG LLP charged $24,279 for permissible non-audit services in fiscal year 2016. These include
professional services in connection with the preparation and delivery of training materials on global
anti-bribery and anti-corruption policies.
Pre-approval Policies and Procedures
The audit committee pre-approved all audit, audit-related and permissible non-audit services
provided to the Company by KPMG LLP before management engaged the auditors for those purposes.
The policy of the audit committee is to review all engagement letters for accounting firms for non-audit
services.
Recommendation
THE BOARD RECOMMENDS A VOTE ‘‘FOR’’ THE RATIFICATION OF KPMG LLP AS THE
COMPANY’S INDEPENDENT AUDITORS FOR THE 2018 FISCAL YEAR.
38
ADVISORY VOTE ON APPROVAL OF EXECUTIVE COMPENSATION
PROPOSAL 3
The Board requests shareholder approval of the compensation of the Company’s Named Executive
Officers as described in the ‘‘Compensation Discussion and Analysis,’’ the Executive Compensation
section and the other related executive compensation tables and related discussions in this proxy
statement. As an advisory vote, the outcome of the voting on this proposal is not binding upon the
Company; however, the compensation committee, which is responsible for establishing and administering
the Company’s executive compensation program, values the opinions expressed by shareholders on this
proposal and will consider the outcome of the vote when making future compensation decisions for
Named Executive Officers. Additionally, the compensation committee invites shareholders to express any
questions or concerns regarding the Company’s compensation philosophy for Named Executive Officers
by correspondence addressed to Texas Roadhouse, Inc. Compensation Committee, 6040 Dutchmans Lane,
Louisville, Kentucky 40205.
The objective of the compensation committee in setting and evaluating the compensation of our
Named Executive Officers is to promote the sustained profitability of the Company. Compensation for
the Named Executive Officers is divided into three key components: (1) base salary, which provides a
secure base of compensation and serves to motivate and retain our Named Executive Officers; (2) a
cash bonus, which rewards our Named Executive Officers for the success of the Company as measured
by growth in the Company’s earnings per diluted share and its overall pre-tax profit, and for each
officer’s individual contribution to that success; and (3) grants of restricted stock units, which offer the
Named Executive Officers a financial interest in the long-term success of the Company and align their
interests with those of our shareholders. The compensation packages for our Named Executive Officers
offer base salaries and target cash bonus amounts which are modest within the casual dining restaurant
sector and feature restricted stock unit awards, the value of which is dependent upon the performance
of the Company and the price of our common stock.
The underlying philosophy reflected by this approach is that, because a significant amount of each
officer’s compensation lies in the value of the restricted stock units granted, the officers are motivated to
continually improve the Company’s performance in the hope that the performance will be reflected by
the stock price on the vesting date of their restricted stock units and beyond. In addition, by conditioning
a significant portion of our Chief Executive Officer’s and our President’s restricted stock unit grants upon
the achievement of defined performance goals to be established by the compensation committee,
combined with the stock ownership guidelines for our executive officers more particularly described above
in this proxy statement, we have created a more direct relationship between the compensation of our top
executives and shareholder value, while also achieving what we believe is the right combination of
rewards and incentives to drive Company performance without encouraging unnecessary or excessive risk
taking. Additionally, by only providing one year’s worth of restricted stock units to our Named Executive
Officers in the 2018 Employment Agreements, the compensation committee has the opportunity to adjust
a significant portion of the compensation for the Named Executive Officers on an annual basis to more
accurately reflect the overall performance of the Company. Overall, we believe this approach provides the
Named Executive Officers with a compensation package which promotes the sustained profitability of the
Company and aligns the interests of our executive officers with those of our shareholders. The
compensation packages also reflect a pragmatic response to external market conditions; that is, total
compensation that is competitive with comparable positions in similar industries, including the casual
dining sector of the restaurant industry, but which is reasonable and in the best interests of our
shareholders.
This structure, along with the culture and values of our Company, allows the Company to attract
and retain top talent, while also encouraging our officers to keep their focus on both long-term
business development and short-term financial growth. The Board was pleased to receive shareholder
39
approval of the compensation packages of our Named Executive Officers in the advisory vote at the
2017 annual meeting and again requests approval of the compensation packages of our Named
Executive Officers.
Recommendation
THE BOARD RECOMMENDS THAT SHAREHOLDERS VOTE ‘‘FOR’’ THE EXECUTIVE
COMPENSATION DETAILED IN THIS PROXY STATEMENT.
40
SHAREHOLDER PROPOSALS
Under Rule 14a-8 promulgated under the Exchange Act, shareholders may present proposals to be
included in the Company proxy statement for consideration at the next annual meeting of its
shareholders by submitting their proposals to the Company in a timely manner. Any such proposal must
comply with Rule 14a-8.
The Company’s bylaws, a copy of which is available on the Company’s website,
www.texasroadhouse.com, require shareholders who intend to propose business for consideration by
shareholders at the 2019 annual meeting, other than shareholder proposals that are included in the proxy
statement, to deliver written notice to the principal executive offices of the Company on or before
December 7, 2018. This notice must include a description of the business desired to be brought before
the annual meeting, the name and address of the shareholder proposing such business and of the
beneficial owner, if any, on whose behalf the business is being brought, the class, series and number of
shares of the Company which are beneficially owned by the shareholder and such other beneficial owner
and any material interest of the shareholder and such other beneficial owner in such business. Similar
requirements are set forth in the Company’s bylaws with respect to shareholders desiring to nominate
candidates for election as director. Exchange Act rules permit management to vote proxies in its
discretion in certain cases if the shareholder does not comply with these deadlines, and in certain other
cases notwithstanding the shareholder’s compliance with these deadlines. If a shareholder submitting a
matter to be raised at the Company’s next annual meeting desires that such matter be included in the
Company’s proxy statement for that meeting, such matter must be submitted to the Company no later
than December 7, 2018.
The rules of the SEC set forth standards for what shareholder proposals the Company is required
to include in a proxy statement for an annual meeting.
SHAREHOLDERS’ COMMUNICATIONS WITH THE BOARD
Shareholders that want to communicate in writing with the Board, or specific directors individually,
may send proposed communications to the Company’s General Counsel and Corporate Secretary, Celia
Catlett, at 6040 Dutchmans Lane, Louisville, Kentucky 40205. The proposed communication will be
reviewed by Ms. Catlett and by the audit committee. If the communication is appropriate and serves to
advance or improve the Company or its performance, it will be forwarded to the Board or the
appropriate director.
FORM 10-K
The Company’s Annual Report on Form 10-K for the fiscal year ended December 26, 2017,
accompanies this proxy statement. The Company’s Annual Report does not form any part of the
material for solicitation of proxies.
Any shareholder who wishes to obtain, without charge, a copy of the Company’s Annual Report on
Form 10-K for the fiscal year ended December 26, 2017, which includes financial statements, and is
required to be filed with the SEC, may access it at www.texasroadhouse.com in the Investors section or
may send a written request to Celia Catlett, General Counsel and Corporate Secretary, Texas
Roadhouse, Inc., 6040 Dutchmans Lane, Louisville, Kentucky 40205.
The Board is not aware of any other matters to be presented at the Annual Meeting other than
those set forth herein and routine matters incident to the conduct of the meeting. If any other matters
should properly come before the Annual Meeting or any adjournment or postponement thereof, the
OTHER BUSINESS
41
persons named in the proxy, or their substitutes, intend to vote on such matters in accordance with
their best judgment.
By Order of the Board of Directors,
16MAR201217592224
Celia Catlett
Corporate Secretary
Louisville, Kentucky
April 6, 2018
Please vote your shares through any of the methods described on the proxy card as promptly as
possible, whether or not you plan to attend the Annual Meeting in person. If you do attend the Annual
Meeting, you may still vote in person, since the proxy may be revoked at any time before its exercise by
delivering a written revocation of the proxy to the Company’s Corporate Secretary.
42
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT
OF 1934
For the fiscal year ended December 26, 2017
OR
For the transition period from to
Texas Roadhouse, Inc.
(Exact name of registrant specified in its charter)
000-50972
(Commission File Number)
20-1083890
(IRS Employer
Identification Number)
Delaware
(State or other jurisdiction of
incorporation or organization)
6040 Dutchmans Lane
Louisville, Kentucky 40205
(Address of principal executive offices) (Zip Code)
(502) 426-9984
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
Title of Each Class
Common Stock, par value $0.001 per share
Name of Each Exchange on Which Registered
Nasdaq Global Select Market
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes No .
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Exchange Act. Yes
No .
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 Regulation S-T 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 if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein and will not be
contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this
Form 10-K or any amendment to the Form 10-K. .
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting
company, or emerging growth company. See definitions of "large accelerated filer," "accelerated filer", "smaller reporting company," and
“emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer
Non-accelerated filer
Accelerated filer
(Do not check if smaller reporting company)
Smaller reporting company
Emerging growth company
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 aggregate market value of the voting stock held by non-affiliates of the registrant as of the last day of the second fiscal quarter ended
June 27, 2017 was $3,390,987,770 based on the closing stock price of $50.98. Shares of voting stock held by each officer and director have been
excluded in that such persons may be deemed to be affiliates. This determination of affiliate status is not necessarily a conclusive determination
for other purposes. The market value calculation was determined using the closing stock price of our common stock on the Nasdaq Global Select
Market.
The number of shares of common stock outstanding were 71,355,927 on February 14, 2018.
Portions of the registrant’s definitive Proxy Statement for the registrant’s 2018 Annual Meeting of Stockholders, which is expected to be
filed pursuant to Regulation 14A within 120 days of the registrant’s fiscal year ended December 26, 2017, are incorporated by reference into
Part III of the Form 10-K. With the exception of the portions of the Proxy Statement expressly incorporated by reference, such document shall not
be deemed filed with this Form 10-K.
TABLE OF CONTENTS
Business
Risk Factors
Unresolved Staff Comments
Properties
Legal Proceedings
Mine Safety Disclosures
Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer
Purchases of Equity Securities
Selected Financial Data
Management’s Discussion and Analysis of Financial Condition and Results of Operations
Quantitative and Qualitative Disclosures About Market Risk
Financial Statements and Supplementary Data
Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
Controls and Procedures
Other Information
Directors, Executive Officers and Corporate Governance
Executive Compensation
Security Ownership of Certain Beneficial Owners and Management and Related
Stockholder Matters
Certain Relationships and Related Transactions and Director Independence
Principal Accounting Fees and Services
Exhibits, Financial Statement Schedules
Form 10-K Summary
Signatures
PART I
Item 1.
Item 1A.
Item 1B.
Item 2.
Item 3.
Item 4.
PART II
Item 5.
Item 6.
Item 7.
Item 7A.
Item 8.
Item 9.
Item 9A.
Item 9B.
PART III
Item 10.
Item 11.
Item 12.
Item 13.
Item 14.
PART IV
Item 15.
Item 16.
Page
5
16
28
29
30
30
31
33
35
52
52
52
53
53
54
54
54
54
54
55
58
2
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
This Annual Report on Form 10-K contains statements about future events and expectations that constitute
forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and
Section 21E of the Securities Exchange Act of 1934, as amended. Forward-looking statements are based on our beliefs,
assumptions and expectations of our future financial and operating performance and growth plans, taking into account
the information currently available to us. These statements are not statements of historical fact. Forward-looking
statements involve risks and uncertainties that may cause our actual results to differ materially from the expectations of
future results we express or imply in any forward-looking statements. In addition to the other factors discussed under
"Risk Factors" elsewhere in this report, factors that could contribute to these differences include, but are not limited to:
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
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•
•
•
our ability to raise capital in the future;
our ability to successfully execute our growth strategies;
our ability to successfully open new restaurants, acquire franchise restaurants and/or execute other strategic
transactions;
our ability to increase and/or maintain sales and profits at our existing restaurants;
our ability to integrate the franchise or other restaurants which we acquire or develop;
the continued service of key management personnel;
health concerns about our food products;
our ability to attract, motivate and retain qualified employees;
the impact of federal, state or local government laws and regulations relating to our employees and the sale of
food and alcoholic beverages;
the impact of litigation, including remedial actions, payment of damages and expenses and negative publicity;
the cost of our principal food products;
labor shortages or increased labor costs, such as health care, market wage levels and workers’ compensation
insurance costs;
inflationary increases in the costs of construction and/or real estate;
changes in consumer preferences and demographic trends;
the impact of initiatives by competitors and increased competition generally;
our ability to successfully expand into new and existing domestic and international markets;
risks associated with partnering in markets with franchisees or other investment partners with whom we have
no prior history and whose interests may not align with ours;
risks associated with developing new restaurant concepts and our ability to open new concepts;
security breaches of confidential customer information in connection with our electronic processing of credit
and debit card transactions or the failure of our information technology systems;
the rate of growth of general and administrative expenses associated with building a strengthened corporate
infrastructure to support our growth initiatives;
negative publicity regarding food safety, health concerns and other food or beverage related matters, including
the integrity of our or our suppliers’ food processing;
3
•
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our franchisees’ adherence to the terms of the franchise agreement;
potential fluctuation in our quarterly operating results due to seasonality and other factors;
supply and delivery shortages or interruptions;
our ability to adequately protect our intellectual property;
volatility of actuarially determined self-insurance losses and loss estimates;
adoption of new, or changes in existing, accounting policies and practices;
changes in and/or interpretations of federal and state tax laws;
adverse weather conditions which impact guest traffic at our restaurants; and
unfavorable general economic conditions in the markets in which we operate that adversely affect consumer
spending.
The words "believe," "may," "should," "anticipate," "estimate," "expect," "intend," "objective," "seek," "plan,"
"strive," "goal," "projects," "forecasts," "will" or similar words or, in each case, their negative or other variations or
comparable terminology, identify forward-looking statements. We qualify any forward-looking statements entirely by
these cautionary factors.
Other risks, uncertainties and factors, including those discussed under "Risk Factors," or those currently deemed
immaterial or unknown, could cause our actual results to differ materially from those projected in any forward-looking
statements we make.
We assume no obligation to publicly update or revise these forward-looking statements for any reason, or to update
the reasons actual results could differ materially from those anticipated in these forward-looking statements, even if new
information becomes available in the future.
4
ITEM 1—BUSINESS
PART I
Texas Roadhouse, Inc. (the "Company") was incorporated under the laws of the state of Delaware in 2004. The
principal executive office is located in Louisville, Kentucky.
General Development of Business
The Company is a growing restaurant company operating predominately in the casual dining segment. Our founder,
chairman and chief executive officer, W. Kent Taylor, started the business in 1993 with the opening of the first Texas
Roadhouse restaurant in Clarksville, Indiana. Since then, we have grown to 549 restaurants in 49 states and seven
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 December 26, 2017, we owned and operated 462
restaurants and franchised an additional 70 domestic restaurants and 17 international restaurants.
Financial Information about Operating Segments
We consider our restaurant and franchising operations as similar and have aggregated them into a single reportable
segment. The majority of the restaurants operate in the U.S. within the casual dining segment of the restaurant industry,
providing similar products to similar customers, and possessing similar pricing structures, resulting in similar long-term
expected financial performance characteristics. Each of our 462 company restaurants is considered an operating
segment.
Narrative Description of Business
Of the 462 restaurants we owned and operated at the end of 2017, we operated 440 as Texas Roadhouse restaurants
and 20 as Bubba’s 33 restaurants. In addition, we operated two restaurants outside of the casual dining segment. In 2018,
we plan to open approximately 30 company restaurants. While the majority of our restaurant growth in 2018 will be
Texas Roadhouse restaurants, we currently expect to open up to seven Bubba’s 33 restaurants. Throughout this report,
we use the term "restaurants" to include Texas Roadhouse and Bubba’s 33, unless otherwise noted.
Texas Roadhouse is a moderately priced, full-service, casual dining restaurant concept offering an assortment of
specially seasoned and aged steaks hand-cut daily on the premises and cooked to order over open grills. In addition to
steaks, we also offer our guests a selection of ribs, seafood, chicken, pork chops, pulled pork and vegetable plates, and
an assortment of hamburgers, salads and sandwiches. The majority of our entrées include two made-from-scratch side
items, and we offer all our guests a free unlimited supply of roasted in-shell peanuts and fresh baked yeast rolls.
Bubba’s 33 is a family-friendly, sports restaurant concept featuring scratch-made food, ice cold beer and signature
drinks. Our menu features burgers, pizza and wings as well as a wide variety of appetizers, sandwiches and dinner
entrées. Our first Bubba’s 33 restaurant opened in May 2013 in Fayetteville, North Carolina.
The operating strategy that underlies the growth of our concepts is built on the following key components:
• Offering high quality, freshly prepared food. We place a great deal of emphasis on providing our guests with
high quality, freshly prepared food. At our Texas Roadhouse restaurants, we hand-cut all but one of our
assortment of steaks and make our sides from scratch. As part of our process, we have developed proprietary
recipes to provide consistency in quality and taste throughout all restaurants. We expect a management level
employee to inspect every entrée before it leaves the kitchen to confirm it matches the guest’s order and meets
our standards for quality, appearance and presentation. In addition, we employ a team of product coaches
whose function is to provide continual, hands-on training and education to our kitchen staff for the purpose of
promoting consistent adherence to recipes, food preparation procedures, food safety standards, food
appearance, freshness and portion size.
5
• Offering performance-based manager compensation. We offer a performance-based compensation program to
our individual restaurant managers and multi-restaurant operators, who are called "managing partners" and
"market partners," respectively. Each of these partners earns a base salary plus a performance bonus, which
represents a percentage of each of their respective restaurant’s pre-tax income. By providing our partners with
a significant stake in the success of our restaurants, we believe that we are able to attract and retain talented,
experienced and highly motivated managing and market partners.
• Focusing on dinner. In a high percentage of our restaurants, we limit our operating hours to dinner only during
the weekdays with approximately one half of our restaurants offering lunch on Friday. By focusing on dinner,
our restaurant teams have to prepare for and manage only one shift per day during the week. We believe this
allows our restaurant teams to offer higher quality, more consistent food and service to our guests. In addition,
we believe the dinner focus provides a better "quality-of-life" for our management teams and, therefore, is a
key ingredient in attracting and retaining talented and experienced management personnel.
• Offering attractive price points. We offer our food and beverages at moderate price points that we believe are
as low as or lower than those offered by many of our competitors. Within each menu category, we offer a
choice of several price points with the goal of fulfilling each guest’s budget and value expectations. For
example, at our Texas Roadhouse restaurants, our steak entrées, which include the choice of two side items,
generally range from $9.99 to $10.99 for our 6-ounce Sirloin to $26.99 for our 23-ounce Porterhouse T-Bone.
The per guest average check for the Texas Roadhouse restaurants we owned and operated in 2017 was $16.83.
Per guest average check represents restaurant sales divided by the number of guests served. We consider each
sale of an entrée to be a single guest served. Our per guest average check is higher as a result of our weekday
dinner only focus. At our Bubba’s 33 restaurants, our entrées range from $9.49 for our Classic Cheeseburger
to $19.99 for our 16 inch Meaty Meaty pizza.
• Creating a fun and comfortable atmosphere with a focus on high quality service. We believe the service
quality and atmosphere we establish in our restaurants is a key component for fostering repeat business. We
focus on keeping our table-to-server ratios low to allow our servers to truly focus on their guests and serve their
needs in a personal, individualized manner. Our Texas Roadhouse restaurants feature a rustic southwestern
lodge décor accentuated with hand-painted murals, neon signs, and southwestern prints, rugs and artifacts.
Additionally, we offer jukeboxes, which continuously play upbeat country hits. Our Bubba’s 33 restaurants
feature walls lined with televisions playing sports events and music videos and are decorated with sports
jerseys, neon signs and other local flair.
Unit Prototype and Economics
We design our restaurant prototypes to provide a relaxed atmosphere for our guests, while also focusing on
restaurant-level returns over time. Our current prototypical Texas Roadhouse restaurants consist of a freestanding
building with approximately 7,100 to 7,500 square feet of space constructed on sites of approximately 1.7 to 2.0 acres or
retail pad sites, with seating of approximately 58 to 68 tables for a total of 270 to 300 guests, including 18 bar seats, and
parking for approximately 160 vehicles either on-site or in combination with some form of off-site cross parking
arrangement. Our current prototypes are adaptable to in-line and end-cap locations and/or spaces within an enclosed mall
or a shopping center. Our prototypical Bubba’s 33 restaurant remains under development as we continue to open
additional restaurants. We expect most future Bubba’s 33 restaurants to range between 7,100 and 7,600 square feet
depending on the location with seating for approximately 270 guests.
6
As of December 26, 2017, we leased 322 properties and owned 140 properties. Our 2017 average unit volume for
all Texas Roadhouse company restaurants open before June 28, 2016 was $5.0 million. The time required for a new
Texas Roadhouse restaurant to reach a steady level of cash flow is approximately three to six months. For 2017, the
average capital investment, including pre-opening expenses and a capitalized rent factor, for the 23 Texas Roadhouse
company restaurants opened during the year was approximately $5.3 million, broken down as follows:
Average Cost
Land(1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 1,265,000 $
2,170,000
Building(2) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Furniture and Equipment . . . . . . . . . . . . . . . . . . . .
1,150,000
Pre-opening costs . . . . . . . . . . . . . . . . . . . . . . . . . .
660,000
Other(3) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
5,000
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 5,250,000
High
Low
750,000 $ 2,300,000
3,095,000
1,255,000
1,165,000
75,000
1,595,000
1,010,000
425,000
—
(1) Represents the average cost for land acquisitions or 10x’s initial base rent in the event the land is leased.
(2) Includes site work costs.
(3) Primarily liquor licensing costs, where applicable. This cost varies based on the licensing requirements in each state.
Our average capital investment for Texas Roadhouse restaurants opened in 2016 and 2015 was $5.0 million and
$4.7 million, respectively. The increase in our 2017 average capital investment was primarily due to higher building
costs at certain more expensive locations. We expect our average capital investment for restaurants to be opened in 2018
to be approximately $5.3 million.
Our average capital investment for the Bubba’s 33 restaurants opened in 2017, 2016 and 2015 was $6.1 million,
$6.5 million and $6.1 million, respectively. The decrease in our 2017 average capital investment was primarily due to
lower costs associated with a smaller prototype. We expect our average capital investment for restaurants to be opened in
2018 to be approximately $6.8 million. The increase in our 2018 average capital investment is primarily due to higher
costs at one urban site in New Jersey as well as higher rent and pre-opening costs. We continue to evaluate our Bubba’s
33 prototype.
We remain focused on driving sales and managing restaurant investment costs in order to maintain our restaurant
development in the future. Our capital investment (including cash and non-cash costs) for new restaurants varies
significantly depending on a number of factors including, but not limited to: the square footage, layout, scope of any
required site work, type of construction labor (union or non-union), local permitting requirements, our ability to
negotiate with landowners and/or landlords, cost of liquor and other licenses and hook-up fees, geographical location
and weather delays.
Site Selection
We continue to refine our site selection process. In analyzing each prospective site, our real estate team, as well as
our restaurant market partners, devotes significant time and resources to the evaluation of local market demographics,
population density, household income levels and site-specific characteristics such as visibility, accessibility, traffic
generators, proximity of other retail activities, traffic counts and parking. We work actively with real estate brokers in
target markets to select high quality sites and to maintain and regularly update our database of potential sites. We
typically require three to six months to locate, approve and control a restaurant site and typically six to 12 additional
months to obtain necessary permits. Upon receipt of permits, we require approximately four to five months to construct,
equip and open a restaurant.
7
Existing Restaurant Locations
As of December 26, 2017, we had 462 company restaurants and 87 franchise restaurants in 49 states and seven
foreign countries as shown in the chart below.
Number of Restaurants
Company Franchise Total
Alabama . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Alaska . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Arizona . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Arkansas . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
California . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Colorado . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Connecticut . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Delaware . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Florida . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Georgia . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Idaho . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Illinois . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Indiana . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Iowa . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Kansas . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Kentucky . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Louisiana . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Maine . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Maryland . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Massachusetts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Michigan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Minnesota . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Mississippi . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Missouri . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Montana . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Nebraska . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Nevada. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
New Hampshire . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
New Jersey . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
New Mexico . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
New York . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
North Carolina . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
North Dakota . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Ohio . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Oklahoma . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Oregon . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Pennsylvania . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Rhode Island . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
South Carolina . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
South Dakota . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Tennessee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Texas . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Utah . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Vermont . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Virginia . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Washington . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
West Virginia . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Wisconsin . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Wyoming . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total domestic restaurants . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Bahrain . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Kuwait . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Philippines . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Qatar . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Saudi Arabia . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Taiwan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
United Arab Emirates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total international restaurants . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total system-wide restaurants . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
8
2
17
4
3
15
5
2
30
7
5
15
18
9
5
11
9
3
7
10
14
4
3
14
—
3
1
3
7
5
18
18
2
30
7
2
23
3
2
2
13
63
9
1
15
1
2
10
2
462
—
—
—
—
—
—
—
—
462
—
—
—
—
7
1
—
2
1
6
—
—
8
—
1
2
1
—
6
1
3
—
—
—
1
1
—
—
—
—
—
—
1
2
—
—
6
—
6
—
2
5
1
—
—
—
3
3
—
70
1
3
2
2
1
3
5
17
87
8
2
17
4
10
16
5
4
31
13
5
15
26
9
6
13
10
3
13
11
17
4
3
14
1
4
1
3
7
5
18
18
3
32
7
2
29
3
8
2
15
68
10
1
15
1
5
13
2
532
1
3
2
2
1
3
5
17
549
8
Food
Menu. Our restaurants offer a wide variety of menu items at attractive prices that are designed to appeal to a broad
range of consumer tastes. At Texas Roadhouse restaurants, our dinner entrée prices generally range from $8.99 to
$26.99. We offer a broad assortment of specially seasoned and aged steaks, all cooked over open grills and all but one
hand-cut daily on the premises. We also offer our guests a selection of ribs, seafood, chicken, pork chops, pulled pork
and vegetable plates, and an assortment of hamburgers, salads and sandwiches. Entrée prices include unlimited peanuts,
fresh baked yeast rolls and most include the choice of two made-from-scratch sides. Other menu items include specialty
appetizers such as the "Cactus Blossom®" and "Rattlesnake Bites®". We also provide a "12 & Under" menu for children
that includes a selection of smaller-sized entrées served with one side item and a beverage at prices generally between
$3.99 and $8.99. At Bubba’s 33 restaurants, our menu prices, excluding appetizers, generally range from $9.49 to
$19.99. We offer a broad assortment of wings, sandwiches, pizzas and burgers, including our signature bacon grind
patty. In addition, we also offer our guests a selection of chicken, beef and seafood. Our Bubba’s 33 restaurants also
offer an extensive selection of draft beer. We provide a "12 & Under" menu for children at our Bubba’s 33 restaurants
that includes a selection of items, including a beverage, at prices generally between $3.99 and $5.99.
Most of our restaurants feature a full bar that offers an extensive selection of draft and bottled beer, major brands of
liquor and wine as well as made in-house margaritas. Managing partners are encouraged to tailor their beer selection to
include regional and local brands. Alcoholic beverages at our Texas Roadhouse restaurants accounted for 10.5% of
restaurant sales in fiscal 2017.
We strive to maintain a consistent menu at our restaurants over time. We continually review our menu to consider
enhancements to existing menu items or the introduction of new items. We change our menu only after guest feedback
and an extensive study of the operational and economic implications. To maintain our high levels of food quality and
service, we generally remove one menu item for every new menu item introduced to facilitate our ability to execute high
quality meals on a focused range of menu items.
Food Quality and Safety. We are committed to serving a varied menu of high quality, great tasting food items with
an emphasis on freshness. We have developed proprietary recipes to promote consistency in quality and taste throughout
all restaurants and provide a unique flavor experience to our guests. At each domestic Texas Roadhouse restaurant, a
trained meat cutter hand cuts our steaks and other restaurant employees prepare our side items and yeast rolls from
scratch in the restaurants daily. At both Texas Roadhouse and Bubba’s 33 restaurants, we assign individual kitchen
employees to the preparation of designated food items in order to focus on quality, consistency, speed and food safety.
Additionally, we expect a management level employee to inspect every entrée before it leaves the kitchen to confirm it
matches the guest’s order and meets our standards for quality, appearance and presentation.
We employ a team of product coaches whose function is to provide continual, hands-on training and education to
the kitchen staff in our restaurants for the purpose of reinforcing food quality, recipe consistency, food preparation
procedures, food safety and sanitation standards, food appearance, freshness and portion size. The product coach team
supports substantially all restaurants system-wide.
Food safety is of utmost importance to us. We currently utilize several programs to help facilitate adherence to
proper food preparation procedures and food safety standards including our daily taste and temperature procedures. We
have a food team whose function, in conjunction with our product coaches, is to develop, enforce and maintain programs
designed to promote compliance with food safety guidelines. As a requirement of our quality assurance process, primary
food items purchased from qualified vendors have been inspected by reputable, outside inspection services confirming
that the vendor is compliant with United States Food and Drug Administration ("FDA") and United States Department of
Agriculture ("USDA") guidelines.
We perform food safety and sanitation audits on our restaurants each year and these results are reviewed by various
members of operations and management. To maximize adherence to food safety protocols, we have incorporated
HACCP (Hazard Analysis Critical Control Points) principles and critical procedures (such as hand washing) in each
recipe. In addition, most of our product coaches and food team members have obtained or are in the process of obtaining
their Certified Professional-Food Safety designation from the National Environmental Health Association.
Purchasing. Our purchasing philosophy is designed to supply fresh, quality products to the restaurants at
competitive prices while maximizing operating efficiencies. We negotiate directly with suppliers for substantially all
food and beverage products to maximize quality and freshness and obtain competitive prices.
9
Food and supplies are ordered by and shipped directly to the domestic restaurants. Most food products used in the
operation of our restaurants are distributed to individual restaurants through an independent national distribution
company. We strive to qualify more than one supplier for all key food items and believe that beef of comparable quality
as well as all other essential food and beverage products are available, upon short notice, from alternative qualified
suppliers.
Service
Service Quality. We believe that guest satisfaction and our ability to continually evaluate and improve the guest
experience at each of our restaurants is important to our success. We employ a team of service coaches whose function is
to provide consistent, hands-on training and education to our managers and service staff in our restaurants for the
purpose of reinforcing service quality and consistency, staff attitude and team work and manage interaction in the dining
room.
Guest Satisfaction. Through the use of guest surveys, our websites, "texasroadhouse.com" and "bubbas33.com," a
toll-free guest response telephone line, social media, and personal interaction in the restaurant, we receive valuable
feedback from guests. Additionally, we employ an outside service to administer a "Secret Shopper" program whereby
trained individuals periodically dine and comprehensively evaluate the guest experience at each of our domestic
restaurants. Particular attention is given to food, beverage and service quality, cleanliness, staff attitude and teamwork,
and manager visibility and interaction. The resulting reports are used for follow up training and providing feedback to
both staff and management. We continue to evaluate and implement processes relating to guest satisfaction, including
reducing guest wait times and improving host interaction with the guest.
Atmosphere. The atmosphere of our restaurants is intended to appeal to broad segments of the population including
children, families, couples, adults and business persons. Substantially all Texas Roadhouse restaurants are of our
prototype design, reflecting a rustic southwestern lodge atmosphere. The interiors feature pine and stained concrete
floors and are decorated with hand-painted murals, neon signs, southwestern prints, rugs and artifacts. The restaurants
contain jukeboxes that continuously play upbeat country hits. Guests may also view a display-baking area, where our
fresh baked yeast rolls are prepared, and a meat cooler displaying fresh cut steaks. While waiting for a table, guests can
enjoy complimentary roasted in-shell peanuts and upon being seated at a table, guests can enjoy fresh baked yeast rolls
along with roasted in-shell peanuts. Our Bubba’s 33 restaurants feature walls lined with televisions playing a variety of
sports events and music videos and are decorated with sports jerseys, neon signs and other local flair.
People
Management Personnel. Each of our restaurants is generally staffed with one managing partner, one kitchen
manager, one service manager and one or more additional assistant managers. Managing partners are single restaurant
operators who have primary responsibility for the day-to-day operations of the entire restaurant. Kitchen managers have
primary responsibility for managing operations relating to our food preparation and food quality, and service managers
have primary responsibility for managing our service quality and guest experiences. The assistant managers support our
kitchen and service managers; these managers are collectively responsible for the operations of the restaurant in the
absence of a managing partner. All managers are responsible for maintaining our standards of quality and performance.
We use market partners to oversee the operation of our restaurants. Generally, each market partner may oversee as many
as 10 to 15 managing partners and their respective management teams. Market partners are also responsible for the
hiring and development of each restaurant’s management team and assisting in the site selection process. Through
regular visits to the restaurants, the market partners facilitate adherence to all aspects of our concepts, strategies and
standards of quality. To further facilitate adherence to our standards of quality and to maximize uniform execution
throughout the system, we employ product coaches and service coaches who regularly visit the restaurants to assist in
training of both new and existing employees and to grade food and service quality. The attentive service and high quality
food, which results from each restaurant having a managing partner, at least two to three managers and the hands-on
assistance of a product coach and a service coach, are critical to our success.
Training and Development. All restaurant employees are required to complete varying degrees of training before
and during employment. Our comprehensive training program emphasizes our operating strategy, procedures and
standards and is conducted individually at our restaurants and in groups in Louisville, Kentucky.
Our managing and market partners are generally required to have significant experience in the full-service
restaurant industry and are generally hired at a minimum of nine to 12 months before their placement in a new or
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existing restaurant to allow time to fully train in all aspects of restaurant operations. All managing partners, kitchen and
service managers and other management employees are required to complete an extensive training program of up to
20 weeks, which includes training for every position in the restaurant. Trainees are validated at pre-determined points
during their training by a market partner, managing partner, product coach and service coach.
A number of our restaurants have been certified as training centers by our training department. This certification
confirms that the training center adheres to established operating procedures and guidelines. Additionally, most
restaurants are staffed with training coordinators responsible for ongoing daily training needs.
For new restaurant openings, a full team of designated trainers, each specializing in a specific restaurant position, is
deployed to the restaurant at least 10 days before opening. Formal employee training begins seven days before opening
and follows a uniform, comprehensive training course as directed by a service coach.
Marketing
Our marketing strategy aims to promote our brands while retaining a localized focus. We strive to increase
comparable restaurant sales by increasing the frequency of visits by our current guests and attracting new guests to our
restaurants and also by communicating and promoting our brands’ food quality, the guest experience and value. We
accomplish these objectives through three major initiatives.
Local Restaurant Marketing. Given our strategy to be a neighborhood destination, local restaurant marketing is
integral in developing brand awareness in each market. Managing partners are encouraged to participate in creative
community-based marketing. We also engage in a variety of promotional activities, such as contributing time, money
and complimentary meals to charitable, civic and cultural programs. We employ marketing coordinators at the restaurant
and market level to develop and execute the majority of the local marketing strategies.
In-restaurant Marketing. A significant portion of our marketing fund is spent communicating with our guests
inside our restaurants through point of purchase materials. We believe special promotions such as Valentine’s Day and
Mother’s Day drive notable repeat business. Our eight-week holiday gift card campaign is one of our most impactful
promotions.
Advertising. Our restaurants do not rely on national advertising to promote the brand. Earned media on a local level
is a critical part of our strategy that features our products and people. Our restaurants use a permission-based email
loyalty program, as well as social media and digital marketing, to promote the brand and engage with our guests. Our
approach to media aligns with our focus on local store marketing and community involvement.
Restaurant Franchise Arrangements
Franchise Restaurants. As of December 26, 2017, we had 22 franchisees that operated 87 Texas Roadhouse
restaurants in 23 states and seven foreign countries. Domestically, franchise rights are granted for specific restaurants
only, as we have not granted any rights to develop a territory in the United States. We are currently not accepting new
domestic franchisees. Approximately 75% of our franchise restaurants are operated by nine franchisees and no
franchisee operates more than 13 restaurants.
Our standard domestic franchise agreement has a term of 10 years with two renewal options for an additional five
years each if certain conditions are satisfied. Our current form of domestic franchise agreement generally requires the
franchisee to pay a royalty fee of 4.0% of gross sales. We may, at our discretion, waive or reduce the royalty fee on a
temporary or permanent basis. "Gross sales" means the total selling price of all services and products related to the
restaurant. Gross sales do not include:
•
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employee discounts or other discounts;
tips or gratuities paid directly to employees by guests;
any federal, state, municipal or other sales, value added or retailer’s excise taxes; or
adjustments for net returns on salable goods and discounts allowed to guests on sales.
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Domestic franchisees are currently required to pay 0.3% of gross sales to a national marketing fund for system-wide
promotions and related marketing efforts. We have the ability under our agreements to increase the required marketing
fund contribution up to 2.5% of gross sales. We may also charge a marketing fee of 0.5% of gross sales, which we may
use for market research and to develop system-wide promotional and marketing materials. A franchisee’s total required
marketing contribution or spending will not be more than 3.0% of gross sales.
Our standard domestic franchise agreement gives us the right, but not the obligation, to compel a franchisee to
transfer its assets to us in exchange for shares of our stock, or to convert its equity interests into shares of our stock. The
amount of shares that a franchisee would receive is based on a formula that is included in the franchise agreement.
We have entered into area development and franchise agreements for the development and operation of Texas
Roadhouse restaurants in several foreign countries. In 2010, we entered into an agreement for the development of Texas
Roadhouse restaurants in eight countries in the Middle East over a 10-year period. In 2015, we amended our agreement
in the Middle East to add one additional country to the territory. In addition to the Middle East, we currently have signed
franchise and/or development agreements for the development of Texas Roadhouse restaurants in Taiwan, the
Philippines, Mexico, China and South Korea. We currently have 12 restaurants open in five countries in the Middle East,
three restaurants open in Taiwan and two in the Philippines for a total of 17 restaurants in seven foreign countries. 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 the
named countries. The term of the agreements may be extended. We anticipate that the specific business terms of any
future franchise agreement for international restaurants might vary significantly from the standard terms of our domestic
agreements and from the terms of existing international agreements, depending on the territory to be franchised and the
extent of franchisor-provided services to each franchisee.
Any of our franchise agreements, whether domestic or international, may be terminated if the franchisee defaults in
the performance of any of its obligations under the development or franchise agreement, including its obligations to
develop the territory or operate its restaurants in accordance with our standards and specifications. A franchise
agreement may also be terminated if a franchisee becomes insolvent, fails to make its required payments, creates a threat
to the public health or safety, ceases to operate the restaurant, or misuses the Texas Roadhouse trademarks.
Franchise Compliance Assurance. We have various systems in place to promote compliance with our systems and
standards, both during the development and operation of franchise restaurants. We actively work with our franchisees to
support successful franchise operations as well as compliance with the Texas Roadhouse standards and procedures.
During the restaurant development phase, we consent to the selection of restaurant sites and make available copies of our
prototype building plans to franchisees. In addition, we ensure that the building design is in compliance with our
standards. We provide training to the managing partner and up to three other managers of a franchisee’s first restaurant.
We also provide trainers to assist in the opening of every domestic franchise restaurant; we provide trainers to assist our
international franchisees in the opening of their restaurants until such time as they develop an approved restaurant
opening training program. Finally, on an ongoing basis, we conduct reviews on all franchise restaurants to determine
their level of effectiveness in executing our concept at a variety of operational levels. Our franchisees are required to
follow the same standards and procedures regarding equipment and food purchases, preparation and safety procedures as
we maintain in our company restaurants. Reviews are conducted by seasoned operations teams and focus on key areas
including health, safety and execution proficiency.
Management Services. We provide management services to 24 of the franchise restaurants in which we and/or our
founder have an ownership interest and six additional franchise restaurants in which neither we nor our founder have an
ownership interest. Such management services include accounting, operational supervision, human resources, training,
and food, beverage and equipment consulting for which we receive monthly fees of up to 2.5% of gross sales. We also
make available to these restaurants certain legal services, restaurant employees and employee benefits on a pass-through
cost basis. In addition, we receive a monthly fee from eight franchise restaurants in which we have an ownership interest
and 16 franchise restaurants in which neither we nor our founder have an ownership interest for providing payroll and
accounting services.
Information Technology
All of our company restaurants utilize computerized management information systems, which are designed to
improve operating efficiencies, provide restaurant and Support Center management with timely access to financial and
operating data and reduce administrative time and expense. With our current information systems, we have the ability to
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query, report and analyze this intelligent data on a daily, weekly, period, quarterly and year-to-date basis and beyond, on
a company-wide, regional or individual restaurant basis. Together, this enables us to closely monitor sales, food and
beverage costs and labor and operating expenses at each of our restaurants. We have a number of systems and reports
that provide comparative information that enables both restaurant and Support Center management to supervise the
financial and operational performance of our restaurants and to recognize and understand trends in the business. Our
accounting department uses a standard, integrated system to prepare monthly profit and loss statements, which provides
a detailed analysis of sales and costs. These monthly profit and loss statements are compared both to the
restaurant-prepared reports and to prior periods. Restaurant hardware and software support for all of our restaurants is
provided and coordinated from the restaurant Support Center in Louisville, Kentucky. Currently, we utilize cable, digital
subscriber lines (DSL) or T-1 technology at the restaurant level, which serves as a high-speed, secure communication
link between the restaurants and our Support Center as well as our credit and gift card processors. We guard against
business interruption by maintaining a disaster recovery plan, which includes storing critical business information
off-site, maintaining a redundant data center, testing the disaster recovery plan and providing on-site power backup.
We accept credit cards and gift cards as payment at our restaurants. We have systems and processes in place that
focus on the protection of our guests’ credit card information and other private information that we are required to
protect, such as our employees’ personal information. Our systems have been carefully designed and configured to
safeguard against data loss or compromise. We submit our systems to regular audit and review, including the
requirements of Payment Card Industry Data Security Standards. We also periodically scan our networks to assess
vulnerability. See Risk Factors in Item 1A of this Form 10-K for a discussion of risks associated with breaches of
security related to confidential guest and/or employee information.
We believe that our current systems and practice of implementing regular updates will position us well to support
current needs and future growth. Information systems projects are prioritized based on strategic, financial, regulatory and
other business advantage criteria.
Competition
Competition in the restaurant industry is intense. We compete with well-established food service companies on the
basis of taste, quality and price of the food offered, service, atmosphere, location, take-out and delivery options and
overall dining experience. Our competitors include a large and diverse group of restaurant chains and individual
restaurants that range from independent local operators that have opened restaurants in various markets to
well-capitalized national restaurant companies. We also face competition from meal kit delivery services as well as the
supermarket industry. In addition, improving product offerings of fast casual and quick-service restaurants, together with
negative economic conditions could cause consumers to choose less expensive alternatives. Although we believe that we
compete favorably with respect to each of the above factors, other restaurants and retail establishments compete for the
same casual dining guests, quality site locations and restaurant-level employees as we do. We expect intense competition
to continue in all of these areas.
Trademarks
Our registered trademarks and service marks include, among others, our trade names and our logo and proprietary
rights related to certain core menu offerings. We have registered all of our significant marks for our restaurants with the
United States Patent and Trademark Office. We have registered or have registrations pending for our most significant
trademarks and service marks in 47 foreign jurisdictions including the European Union. To better protect our brand, we
have also registered various Internet domain names. We believe that our trademarks, service marks and other proprietary
rights have significant value and are important to our brand-building efforts and the marketing of our restaurant
concepts.
Government Regulation
We are subject to a variety of federal, state, local and international laws affecting our business. For a discussion of
the risks and potential impact on our business of a failure by us to comply with applicable laws and regulations, see Item
1A, Risk Factors.
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Each of our restaurants is subject to permitting and licensing requirements and regulations by a number of
government authorities, which may include, among others, alcoholic beverage control, health and safety, sanitation,
labor, zoning and public safety agencies in the state and/or municipality in which each restaurant is located. The
development and operation of restaurants depends on selecting and acquiring suitable sites, which are subject to zoning,
land use, environmental, traffic and other regulations. In addition to domestic regulations, our international business
exposes us to additional regulations, including antitrust and tax requirements, anti-boycott legislation, import/export and
customs regulations and other international trade regulations, the USA Patriot Act and the Foreign Corrupt Practices Act.
We are subject to laws and regulations relating to the preparation and sale of food, including regulations regarding
product safety, nutritional content and menu labeling. We are or may become subject to laws and regulations requiring
disclosure of calorie, fat, trans-fat, salt and allergen content. Several states and local jurisdictions have adopted or are
considering various food and menu nutritional labeling requirements, many of which are inconsistent or are interpreted
differently from one jurisdiction to another and many of which may be superseded by the new federal regulations under
the Patient Protection and Affordable Care Act of 2010 ("PPACA") which are scheduled to go into effect on May 7,
2018. However, future regulatory action is expected as a result of the current political environment which may result in
changes to the federal nutritional disclosure requirements.
In 2017, the sale of alcoholic beverages accounted for 10.5% of our Texas Roadhouse restaurant sales. In order to
serve alcoholic beverages in our restaurants, we must comply with alcoholic beverage control regulations which require
each of our restaurants to apply to a state authority, and, in certain locations, county or municipal authorities, for a
license or permit to sell alcoholic beverages on the premises. These licenses or permits must be renewed annually and
may be revoked or suspended for cause at any time. Alcoholic beverage control regulations affect numerous aspects of
restaurant operations, including minimum age of patrons and employees, hours of operation, advertising, training,
wholesale purchasing, inventory control and handling, storage and dispensing of alcoholic beverages. State and local
authorities in many jurisdictions routinely monitor compliance with alcoholic beverage laws. The failure of a restaurant
to obtain or retain these licenses or permits would have a material adverse effect on the restaurant’s operations. We are
also subject in certain states to "dram shop" statutes, which generally provide a person injured by an intoxicated person
the right to recover damages from an establishment that wrongfully served alcoholic beverages to the intoxicated person.
Consistent with industry standards, we carry liquor liability coverage as part of our existing comprehensive general
liability insurance as well as excess umbrella coverage.
Our restaurant operations are also subject to federal and state labor laws governing such matters as minimum and
tipped wage requirements, overtime pay, health benefits, unemployment tax rates, workers’ compensation rates, work
eligibility requirements, working conditions, safety standards, and hiring and employment practices. We have many
restaurants located in states or municipalities where the minimum and/or tipped wage is greater than the federal
minimum and/or tipped wage. In 2016, the Department of Labor published changes related to the Fair Labor Standards
Act ("FLSA") which 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. Despite the injunction,
we continued with the implementation of changes to our overtime policies as originally planned. We have implemented
the provisions of the PPACA as it relates to health care reform and related rules and regulations and continue to monitor
the impact of this law on our business. We anticipate that additional legislation increasing minimum and/or tipped wage
standards will be enacted in future periods and in other jurisdictions. Further regulatory action is also expected as a
result of the current political environment which may result in changes to healthcare eligibility, design and cost structure.
A significant number of our hourly restaurant personnel receive tips as part of their compensation and are paid at or
above a minimum wage rate after giving effect to applicable tips. We rely on our employees to accurately disclose the
full amount of their tip income. We base our FICA tax reporting on the disclosures provided to us by such tipped
employees.
Our facilities must comply with the applicable requirements of the Americans with Disabilities Act of 1990
("ADA") and related state accessibility statutes. Under the ADA and related state laws, we must provide equivalent
service to disabled persons and make reasonable accommodation for their employment. In addition, when constructing
or undertaking remodeling of our restaurants, we must make those facilities accessible.
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We are subject to laws relating to information security, privacy, cashless payments and consumer credit protection
and fraud. An increasing number of governments and industry groups worldwide have established data privacy laws and
standards for the protection of personal information, including social security numbers, financial information (including
credit card numbers), and health information.
Seasonality
Our business is also subject to minor seasonal fluctuations. Historically, sales in most of our restaurants have been
higher during the winter months of each year. Holidays, changes in weather, severe weather and similar conditions may
impact sales volumes seasonally in some operating regions. As a result, our quarterly operating results and comparable
restaurant sales may fluctuate as a result of seasonality. Accordingly, results for any one quarter are not necessarily
indicative of results to be expected for any other quarter or for any year and comparable restaurant sales for any
particular future period may decrease.
Employees
As of December 26, 2017, we employed approximately 56,300 people in the company restaurants we own and
operate and our corporate Support Center. This amount includes 588 executive and administrative personnel and 2,160
restaurant management personnel, while the remainder were hourly restaurant personnel. Many of our hourly restaurant
employees work part-time. None of our employees are covered by a collective bargaining agreement.
Executive Officers of the Company
Set forth below are the name, age, position and a brief account of the business experience of each of our executive
officers:
Name
W. Kent Taylor . . . . . . . . . .
Scott M. Colosi . . . . . . . . . .
Celia P. Catlett . . . . . . . . . . .
S. Chris Jacobsen . . . . . . . .
Age
Position
62 Chairman and Chief Executive Officer
53 President and Chief Financial Officer
41 General Counsel and Corporate Secretary
52 Chief Marketing Officer
W. Kent Taylor. Mr. Taylor founded Texas Roadhouse in 1993. He resumed his role as Chief Executive Officer in
August 2011, a position he held between May 2000 and October 2004. He was named Chairman of the Company and
Board in October 2004. Before his founding of our concept, Mr. Taylor founded and co-owned Buckhead Bar and Grill
in Louisville, Kentucky. Mr. Taylor has over 35 years of experience in the restaurant industry.
Scott M. Colosi. Mr. Colosi was appointed President in August 2011 and resumed his role as Chief Financial
Officer in January 2015. Previously, Mr. Colosi served as our Chief Financial Officer from September 2002 to August
2011. From 1992 until September 2002, Mr. Colosi was employed by YUM! Brands, Inc., owner of the KFC, Pizza Hut
and Taco Bell brands. During this time, Mr. Colosi served in various financial positions and, immediately prior to
joining us, was Director of Investor Relations. Mr. Colosi has over 25 years of experience in the restaurant industry.
Celia P. Catlett. Ms. Catlett was appointed General Counsel in November 2013. She joined Texas Roadhouse in
May 2005 and served as Associate General Counsel from July 2010 until her appointment as General Counsel. She has
served as Corporate Secretary since 2011. Prior to joining us, Ms. Catlett practiced law in New York City. Ms. Catlett
has over 15 years of legal experience, including over 10 years of experience in the restaurant industry.
S. Chris Jacobsen. Mr. Jacobsen was appointed Chief Marketing Officer in February 2016. Mr. Jacobsen joined
Texas Roadhouse in January 2003 and has served as Vice President of Marketing since 2011. Prior to joining us, Mr.
Jacobsen was employed by Papa John’s International and Waffle House, Inc. where he held various senior level
marketing positions. He has over 20 years of restaurant industry experience.
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Website Access to Reports
We make our Annual Report on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K, and
amendments to those reports, filed or furnished pursuant to section 13(a) or 15(d) of the Securities Exchange Act of
1934, available, free of charge on or through the Internet website, www.texasroadhouse.com, as soon as reasonably
practicable after we electronically file such material with, or furnish it to, the Securities and Exchange Commission
("SEC").
ITEM 1A. RISK FACTORS
From time to time, in periodic reports and oral statements and in this Annual Report on Form 10-K, we present
statements about future events and expectations that constitute forward-looking statements within the meaning of
Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as
amended. Forward-looking statements are based on our beliefs, assumptions and expectations of our future financial and
operating performance and growth plans, taking into account the information currently available to us. These statements
are not statements of historical fact. Forward-looking statements involve risks and uncertainties that may cause our
actual results to differ materially from the expectations of future results we express or imply in any forward-looking
statements.
Careful consideration should be given to the risks described below. If any of the risks and uncertainties described in
the cautionary factors described below actually occurs, our business, financial condition and results of operations, and
the trading price of our common stock could be materially and adversely affected. Moreover, we operate in a very
competitive and rapidly changing environment. New factors emerge from time to time and it is not possible to predict
the impact of all these factors on our business, financial condition or results of operations.
If we fail to manage our growth effectively, it could harm our business.
Risks Related to our Growth and Operating Strategy
Failure to manage our growth effectively could harm our business. We have grown significantly since our
inception and intend to continue growing in the future. Our objective is to grow our business and increase stockholder
value by (1) expanding our base of company restaurants (and, to a lesser extent, franchise restaurants) that are profitable
and (2) increasing sales and profits at existing restaurants. While both these methods of achieving our objective are
important to us, historically the most significant means of achieving our objective has been through opening new
restaurants and operating these restaurants on a profitable basis. As we open and operate more restaurants, our rate of
expansion relative to the size of our existing restaurant base will decline, which may make it increasingly difficult to
achieve levels of sales and profitability growth that we have seen in the past. In addition, our existing restaurant
management systems, financial and management controls and information systems may not be adequate to support our
planned expansion. Our ability to manage our growth effectively will require us to continue to enhance these systems,
procedures and controls and to locate, hire, train and retain management and operating personnel. We also place a lot of
importance on our culture, which we believe has been an important contributor to our success. As we grow, we may
have difficulty maintaining our culture or adapting it sufficiently to meet the needs of our operations. We cannot assure
you that we will be able to respond on a timely basis to all of the changing demands that our planned expansion will
impose on management and on our existing infrastructure. If we are unable to manage our growth effectively, our
business and operating results could be materially adversely impacted.
Our growth strategy, which primarily depends on our ability to open new restaurants that are profitable, is subject to
many factors, some of which are beyond our control.
We cannot assure you that we will be able to open new restaurants in accordance with our expansion plans. We
have experienced delays in opening some of our restaurants in the past and may experience delays in the future. Delays
or failures in opening new restaurants could materially adversely affect our growth strategy. One of our biggest
challenges in executing our growth strategy is locating and securing an adequate supply of suitable new restaurant sites.
Competition for suitable restaurant sites in our target markets is intense. Our ability to open new restaurants will also
depend on numerous other factors, some of which are beyond our control, including, but not limited to, the following:
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our ability to find sufficient suitable locations for new restaurant sites;
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our ability to hire, train and retain qualified operating personnel, especially market partners and managing
partners;
our ability to negotiate suitable purchase or lease terms;
the availability of construction materials and labor;
our ability to control construction and development costs of new restaurants;
our ability to secure required governmental approvals and permits in a timely manner, or at all;
the delay or cancellation of new site development by developers and landlords;
our ability to secure liquor licenses;
general economic conditions;
the cost and availability of capital to fund construction costs and pre-opening expenses; and
the impact of inclement weather, natural disasters and other calamities.
Once opened, we anticipate that our new restaurants will generally take several months to reach planned operating
levels due to start-up inefficiencies typically associated with new restaurants. We cannot assure you that any restaurant
we open will be profitable or obtain operating results similar to those of our existing restaurants. Some of our new
restaurants will be located in areas where we have little or no meaningful experience. Restaurants opened in new
markets may open at lower average weekly sales volume than restaurants opened in existing markets and may have
higher restaurant-level operating expense ratios than in existing markets. Sales at restaurants opened in new markets may
take longer to reach average unit volume, if at all, thereby affecting our overall profitability. Our ability to operate new
restaurants profitably will depend on numerous factors, including those discussed below impacting our average unit
volume and comparable restaurant sales growth, some of which are beyond our control, including, but not limited to, the
following:
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competition, either from our competitors in the restaurant industry or our own restaurants;
consumer acceptance of our restaurants in new domestic or international markets;
changes in consumer tastes and/or discretionary spending patterns;
lack of market awareness of our brands;
the ability of the market partner and the managing partner to execute our business strategy at the new
restaurant;
general economic conditions which can affect restaurant traffic, local labor costs, and prices we pay for the
food products and other supplies we use;
changes in government regulation;
road construction and other factors limiting access to the restaurant; and
the impact of inclement weather, natural disasters and other calamities.
Our failure to successfully open new restaurants that are profitable in accordance with our growth strategy could
harm our business and future prospects. In addition, our inability to open new restaurants and provide growth
opportunities for our employees could result in the loss of qualified personnel which could harm our business and future
prospects.
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You should not rely on past changes in our average unit volume or our comparable restaurant sales growth as an
indication of our future results of operations because they may fluctuate significantly.
A number of factors have historically affected, and will continue to affect, our average unit volume and comparable
restaurant sales growth, including, among other factors:
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consumer awareness and understanding of our brands;
our ability to execute our business strategy effectively;
unusual initial sales performance by new restaurants;
competition, either from our competitors in the restaurant industry or our own restaurants;
the impact of inclement weather, natural disasters and other calamities;
consumer trends and seasonality;
our ability to increase menu prices without adversely impacting guest traffic counts or per person average
check growth;
introduction of new menu items;
negative publicity regarding food safety, health concerns, quality of service, and other food or beverage related
matters, including the integrity of our or our suppliers’ food processing;
general economic conditions, which can affect restaurant traffic, local labor costs and prices we pay for the
food products and other supplies we use; and
effects of actual or threatened terrorist attacks.
Our average unit volume and comparable restaurant sales growth may not increase at rates achieved in the past,
which may affect our sales growth and will continue to be a critical factor affecting our profitability. In addition,
changes in our average unit volume and comparable restaurant sales growth could cause the price of our common stock
to fluctuate substantially.
The development of new restaurant concepts may not contribute to our growth.
The development of new restaurant concepts may not be as successful as our experience in the development of the
Texas Roadhouse concept domestically. In May 2013, we launched a new concept, Bubba’s 33, a family-friendly, sports
restaurant, which currently has lower brand awareness and less operating experience than most Texas Roadhouse
restaurants and a higher initial investment cost. As a result, the development of the Bubba’s 33 concept may not
contribute to our average unit volume growth and/or profitability in a meaningful way. As of December 26, 2017, we
have expanded the concept to 20 restaurants and expect to open up to seven additional locations in 2018. However, we
can provide no assurance that new units will be accepted in the markets targeted for the expansion of this concept or that
we will be able to achieve our targeted returns when opening new locations. In the future, we may determine not to
move forward with any further expansion of Bubba’s 33 or other concepts. These decisions could limit our overall long-
term growth. Additionally, expansion of Bubba’s 33 or other concepts might divert our management’s attention from
other business concerns and could have an adverse impact on our core Texas Roadhouse business.
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Our expansion into international markets may present increased economic, political, regulatory and other risks.
As of December 26, 2017, our operations include 17 Texas Roadhouse franchise restaurants in seven countries
outside the United States, and we expect to have further international expansion in the future. The entrance into
international markets may not be as successful as our experience in the development of the Texas Roadhouse concept
domestically or any success we have had in international restaurants. In addition, operating in international markets may
require significant resources and management attention and will subject us to regulatory, economic, and political risks
that are different from and incremental to those in the United States. In addition to the risks that we face in the United
States, our international operations involve risks that could adversely affect our business, including:
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the need to adapt our brand for specific cultural and language differences;
new and different sources of competition;
the ability to identify appropriate business partners;
difficulties and costs associated with staffing and managing foreign operations;
difficulties in adapting and sourcing product specifications for international restaurant locations;
fluctuations in currency exchange rates, which could impact revenues and expenses of our international
operations and expose us to foreign currency exchange rate risk;
difficulties in complying with local laws, regulations, and customs in foreign jurisdictions;
unexpected changes in regulatory requirements;
political or social unrest, economic instability and destabilization of a region;
effects of actual or threatened terrorist attacks;
compliance with U.S. laws such as the Foreign Corrupt Practices Act, and similar laws in foreign jurisdictions;
differences in enforceability of intellectual property and contract rights;
adverse tax consequences;
profit repatriation and other restrictions on the transfer of funds; and
different and more stringent user protection, data protection, privacy and other laws.
Our failure to manage any of these risks successfully could harm our future international operations and our overall
business and results of our operations.
We are also subject to governmental regulations throughout the world impacting the way we do business with our
international franchisees. These include antitrust and tax requirements, anti-boycott regulations, import/export/customs
and other international trade regulations, the USA Patriot Act and the Foreign Corrupt Practices Act. Failure to comply
with any such legal requirements could subject us to monetary liabilities and other sanctions, which could adversely
impact our business and financial performance.
Acquisition of existing restaurants from our domestic franchisees and other strategic transactions may have
unanticipated consequences that could harm our business and our financial condition.
We plan to opportunistically acquire existing restaurants from our domestic franchisees over time. Additionally,
from time to time, we evaluate potential mergers, acquisitions, joint ventures or other strategic initiatives to acquire or
develop additional concepts. To successfully execute any acquisition or development strategy, we will need to identify
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suitable acquisition or development candidates, negotiate acceptable acquisition or development terms and obtain
appropriate financing.
Any acquisition or future development that we pursue, including the on-going development of new concepts,
whether or not successfully completed, may involve risks, including:
• material adverse effects on our operating results, particularly in the fiscal quarters immediately following the
acquisition or development as the restaurants are integrated into our operations;
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risks associated with entering into new domestic or international markets or conducting operations where we
have no or limited prior experience;
risks inherent in accurately assessing the value, future growth potential, strengths, weaknesses, contingent and
other liabilities and potential profitability of acquisition candidates, and our ability to achieve projected
economic and operating synergies; and
the diversion of management’s attention from other business concerns.
Future acquisitions of existing restaurants from our franchisees or other strategic partners, which may be
accomplished through a cash purchase transaction, the issuance of shares of common stock or a combination of both,
could have a dilutive impact on holders of our common stock, and result in the incurrence of debt and contingent
liabilities and impairment charges related to goodwill and other tangible and intangible assets, any of which could harm
our business and financial condition.
Approximately 14% of our company restaurants are located in Texas and, as a result, we are sensitive to economic
and other trends and developments in that state.
As of December 26, 2017, we operated a total of 63 company restaurants in Texas. As a result, we are particularly
susceptible to adverse trends and economic conditions in this state, including its labor market. In addition, given our
geographic concentration in this state, negative publicity regarding any of our restaurants in Texas could have a material
adverse effect on our business and operations, as could other occurrences in Texas such as local strikes, energy shortages
or extreme fluctuations in energy prices, droughts, earthquakes, fires or other natural disasters.
Changes in consumer preferences and discretionary spending could adversely affect our business.
Our success depends, in part, upon the popularity of our food products. Shifts in consumer preferences away from
our restaurants or cuisine, particularly beef, would harm our business. Also, our success depends to a significant extent
on discretionary consumer spending, which is influenced by general economic conditions and the availability of
discretionary income. Accordingly, we may experience declines in sales during economic downturns or during periods
of uncertainty. Any material decline in the amount of discretionary spending could have a material adverse effect on our
business, results of operations, financial condition or liquidity.
Our quarterly operating results may fluctuate significantly and could fall below the expectations of securities analysts
and investors due to a number of factors, some of which are beyond our control, resulting in a decline in our stock
price.
Our quarterly operating results may fluctuate significantly because of several factors, including:
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the timing of new restaurant openings and related expenses;
restaurant operating costs for our newly-opened restaurants, which are often materially greater during the first
several months of operation than thereafter;
labor availability and costs for hourly and management personnel including mandated changes in federal and/or
state minimum and tipped wage rates, overtime regulations, state unemployment tax rates, or health benefits;
profitability of our restaurants, particularly in new markets;
changes in interest rates;
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the impact of litigation, including negative publicity;
increases and decreases in average unit volume and comparable restaurant sales growth;
impairment of long-lived assets, including goodwill, and any loss on restaurant relocations or closures;
general economic conditions which can affect restaurant traffic, local labor costs, and prices we pay for the
food products and other supplies we use;
negative publicity regarding food safety, health concerns and other food and beverage related matters,
including the integrity of our or our suppliers’ food processing;
negative publicity relating to the consumption of beef or other products we serve;
changes in consumer preferences and competitive conditions;
expansion to new domestic and/or international markets;
adverse weather conditions which impact guest traffic at our restaurants;
increases in infrastructure costs;
adoption of new, or changes in existing, accounting policies or practices;
changes in and/or interpretations of federal and state tax laws;
actual self-insurance claims varying from actuarial estimates;
fluctuations in commodity prices;
competitive actions; and
the impact of inclement weather, natural disasters and other calamities.
Our business is also subject to minor seasonal fluctuations. Historically, sales in most of our restaurants have been
higher during the winter months of each year. Holidays, changes in weather, severe weather and similar conditions may
impact sales volumes seasonally in some operating regions. As a result, our quarterly operating results and comparable
restaurant sales may fluctuate as a result of seasonality. Accordingly, results for any one quarter are not necessarily
indicative of results to be expected for any other quarter or for any year and comparable restaurant sales for any
particular future period may decrease. In the future, operating results may fall below the expectations of securities
analysts and investors. In that event, the price of our common stock could decrease.
Changes in food and supply costs could adversely affect our results of operations.
Risks Related to the Restaurant Industry
Our profitability depends in part on our ability to anticipate and react to changes in food and supply costs. Any
increase in food prices, particularly proteins, could adversely affect our operating results. In addition, we are susceptible
to increases in food costs as a result of factors beyond our control, such as food supply constrictions, weather conditions,
food safety concerns, product recalls, global market and trade conditions, and government regulations. We cannot
predict whether we will be able to anticipate and react to changing food costs by adjusting our purchasing practices and
menu prices, and a failure to do so could adversely affect our operating results. Extreme and/or long term increases in
commodity prices could adversely affect our future results, especially if we are unable, primarily due to competitive
reasons, to increase menu prices. Additionally, if there is a time lag between the increasing commodity prices and our
ability to increase menu prices or if we believe the commodity price increase to be short in duration and we choose not
to pass on the cost increases, our short-term results could be negatively affected. Also, if we adjust pricing there is no
assurance that we will realize the full benefit of any adjustment due to changes in our guests’ menu item selections and
guest traffic.
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We currently purchase the majority of our beef from three beef suppliers under annual contracts. While we maintain
relationships with additional suppliers, if any of these vendors were unable to fulfill its obligations under its contracts,
we could encounter supply shortages and incur higher costs to secure adequate supplies, either of which would harm our
business.
Our business could be adversely affected by increased labor costs or labor shortages.
Labor is a primary component in the cost of operating our business. We devote significant resources to recruiting
and training our restaurant managers and hourly employees. Increased labor costs due to competition, unionization,
increased minimum and tipped wages, changes in overtime pay, state unemployment rates or employee benefits costs, or
otherwise would adversely impact our operating expenses.
Increased competition for qualified employees caused by a shortage in the labor pool exerts upward pressure on
wages paid to attract and retain such personnel, resulting in higher labor costs, together with greater recruitment and
training expense. We could suffer from significant indirect costs, including restaurant disruptions due to management or
hourly labor turnover and potential delays in new restaurant openings. A shortage in the labor pool could also cause our
restaurants to be required to operate with reduced staff which could negatively impact our ability to provide adequate
service levels to our guests resulting in adverse guest reactions and a possible reduction in guest traffic counts.
We have many restaurants located in states or municipalities where the minimum and/or tipped wage is greater
than the federal minimum and/or tipped wage. We anticipate that additional legislation increasing minimum and/or
tipped wage standards will be enacted in future periods and in other jurisdictions. In 2016, the Department of Labor
published changes related to the FLSA which 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. Despite the injunction, we continued with the implementation as originally defined by the Department
of Labor. We have implemented the provisions of the PPACA as it relates to health care reform and related rules and
regulations and continue to monitor the impact of this law on our business. Further regulatory action is expected as a
result of the current political environment which may result in changes to healthcare eligibility, design and cost structure.
Any increases in minimum or tipped wages or increases in employee benefits costs will result in higher labor costs.
Our operating margin will be adversely affected to the extent that we are unable or are unwilling to offset any
increase in these labor costs through higher prices on our products. Our distributors and suppliers also may be affected
by higher minimum wage and benefit standards which could result in higher costs for goods and services supplied to us.
Our success depends on our ability to attract, motivate and retain qualified employees to keep pace with our growth
strategy. If we are unable to do so, our results of operations may also be adversely affected.
Our objective to increase sales and profits at existing restaurants could be adversely affected by macroeconomic
conditions.
During 2018 and beyond, the U.S. and global economies could suffer from a downturn in economic activity.
Recessionary economic cycles, higher interest rates, higher fuel and other energy costs, inflation, increases in
commodity prices, higher levels of unemployment, higher consumer debt levels, higher tax rates and other changes in
tax laws or other economic factors that may affect consumer spending or buying habits could adversely affect the
demand for our products. As in the past, we could experience reduced guest traffic or we may be unable or unwilling to
increase the prices we can charge for our products to offset higher costs or fewer transactions, either of which could
reduce our sales and profit margins. Also, landlords or other tenants in the shopping centers in which some of our
restaurants are located may experience difficulty as a result of macroeconomic trends or cease to operate, which could in
turn negatively affect guest traffic at our restaurants. All of these factors could have a material adverse impact on our
business, results of operations, financial condition or liquidity.
Our success depends on our ability to compete with many food service businesses.
The restaurant industry is intensely competitive. We compete with many well-established food service companies
on the basis of taste, quality and price of products offered, guest service, atmosphere, location, take-out and delivery
options and overall guest experience. Our competitors include a large and diverse group of restaurant chains and
individual restaurants that range from independent local operators that have opened restaurants in various markets to
well-capitalized national restaurant companies. We also face competition from the supermarket industry which offers
"convenient" meals in the form of improved entrées and side dishes from the deli section. In addition, improving product
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offerings of fast casual and quick-service restaurants, together with negative economic conditions could cause consumers
to choose less expensive alternatives. Many of our competitors or potential competitors have substantially greater
financial and other resources than we do, which may allow them to react to changes in pricing, marketing and the casual
dining segment of the restaurant industry better than we can. As our competitors expand their operations, we expect
competition to intensify. We also compete with other restaurant chains and other retail establishments for quality site
locations and employees.
The food service industry is affected by litigation and publicity concerning food quality, health and other issues,
which can cause guests to avoid our restaurants and result in significant liabilities or litigation costs.
Food service businesses can be adversely affected by litigation and complaints from guests, consumer groups or
government authorities resulting from food quality, illness, injury or other health concerns or operating issues stemming
from one restaurant or a limited number of restaurants. Adverse publicity about these allegations may negatively affect
us, regardless of whether the allegations are true, by discouraging guests from eating at our restaurants. We could also
incur significant liabilities if a lawsuit or claim results in a decision against us or litigation costs regardless of the result.
Given the marked increase in the use of social media platforms and similar devices in recent years, individuals have
access to a broad audience of consumers and other interested persons. The availability of information on social media
platforms is virtually immediate as is its impact. Many social media platforms immediately publish the content their
subscribers and participants post, often without filters or checks on the accuracy of the content posted. Information
concerning our company may be posted on such platforms at any time. Information posted may be adverse to our
interests or may be inaccurate, each of which may harm our business. The harm may be immediate without affording us
an opportunity for redress or correction. These factors could have a material adverse effect on our business.
Health concerns relating to the consumption of beef or other food products could affect consumer preferences and
could negatively impact our results of operations.
Like other restaurant chains, consumer preferences could be affected by health concerns about the consumption of
beef, the key ingredient in many of our menu items, or negative publicity concerning food quality and food safety,
including food-borne illnesses. In addition, consumer preferences may be impacted by current and future menu-labeling
requirements. A number of jurisdictions around the U.S. have adopted regulations requiring that chain restaurants
include calorie information on their menu boards or make other nutritional information available. Nation-wide nutrition
disclosure requirements included in the U.S. health care reform law are scheduled to go into effect as of May 7, 2018.
However future regulatory action is expected as a result of the current political environment which may result in changes
to the nutrition disclosure requirements. We cannot make any assurances regarding our ability to effectively respond to
changes in consumer health perceptions or our ability to successfully implement the nutrient content disclosure
requirements and to adapt our menu offerings to trends in eating habits. The imposition of menu-labeling laws could
have an adverse effect on our results of operations and financial position, as well as the restaurant industry in general.
The labeling requirements and any negative publicity concerning any of the food products we serve may adversely affect
demand for our food and could result in a decrease in guest traffic to our restaurants. If we react to the labeling
requirements or negative publicity by changing our concept or our menu offerings or their ingredients, we may lose
guests who do not prefer the new concept or products, and we may not be able to attract sufficient new guests to produce
the revenue needed to make our restaurants profitable. In addition, we may have different or additional competitors for
our intended guests as a result of a change in our concept and may not be able to compete successfully against those
competitors. A decrease in guest traffic to our restaurants as a result of these health concerns or negative publicity or as a
result of a change in our menu or concept could materially harm our business.
Food safety and food-borne illness concerns may have an adverse effect on our business by reducing demand and
increasing costs.
Food safety is a top priority, and we dedicate substantial resources to help our guests enjoy safe, quality food
products. However, food-borne illnesses and food safety issues occur in the food industry from time to time. Any report
or publicity, whether true or not, linking us to instances of food-borne illness or other food safety issues, including food
tampering or contamination, could adversely affect our brands and reputation as well as our revenue and profits. In
addition, instances of food-borne illness, food tampering or food contamination occurring solely at restaurants of our
competitors could result in negative publicity about the food service industry generally and adversely impact our revenue
and profits.
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Furthermore, our reliance on third-party food suppliers and distributors increases the risk that food-borne illness
incidents could be caused by factors outside of our control and that multiple locations would be affected rather than a
single restaurant. We cannot assure that all food items are properly maintained during transport throughout the supply
chain and that our employees will identify all products that may be spoiled and should not be used in our restaurants. If
our guests become ill from food-borne illnesses, we could be forced to temporarily close some restaurants. Furthermore,
any instances of food contamination, whether or not at our restaurants, could subject us or our suppliers to a food recall.
The United States and other countries have experienced, or may experience in the future, outbreaks of viruses, such
as the Norovirus, Ebola, Avian Flu, SARS and H1N1. To the extent that a virus is food-borne, future outbreaks may
adversely affect the price and availability of certain food products and cause our guests to eat less of a product. To the
extent that a virus is transmitted by human-to-human contact, our employees or guests could become infected, or could
choose, or be advised or required, to avoid gathering in public places, any one of which could adversely affect our
business.
The possibility of future misstatement exists due to inherent limitations in our control systems, which could adversely
affect our business.
We cannot be certain that our internal control over financial reporting and disclosure controls and procedures will
prevent all possible error and fraud. A control system, no matter how well conceived and operated, can provide only
reasonable, not absolute, assurance that the objectives of the control system are met. Because of inherent limitations in
all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of error
or fraud, if any, in our company have been detected. These inherent limitations include the realities that judgments in
decision-making can be faulty and that breakdowns can occur because of simple error or mistake, which could have an
adverse impact on our business.
We rely heavily on information technology, and any material failure, weakness or interruption could prevent us from
effectively operating our business.
We rely heavily on information systems in all aspects of our operations, including point-of-sale systems, financial
systems, marketing programs, cyber-security and various other processes and transactions. Our point-of-sale processing
in our restaurants includes payment of obligations, collection of cash, credit and debit card transactions and other
processes and procedures. Our ability to efficiently and effectively manage our business depends significantly on the
reliability and capacity of these systems. As our business needs continue to evolve, these systems will require upgrading
and maintenance over time, consequently requiring significant future commitments of resources and capital. The failure
of these systems to operate effectively, maintenance problems, upgrading or transitioning to new platforms could result
in delays in guest service and reduce efficiency in our operations.
We outsource certain business processes to third-party vendors that subject us to risks, including disruptions in
business and increased costs.
Some business processes are currently outsourced to third parties. Such processes include information technology
processes, gift card tracking, sales and authorization, credit card authorization and processing, insurance claims
processing, payroll tax filings, check payment processing, and other accounting processes. We also continue to evaluate
our other business processes to determine if additional outsourcing is a viable option to accomplish our goals. We make
a diligent effort to validate that all providers of outsourced services maintain customary internal controls, such as
redundant processing facilities and adequate security frameworks to guard against breaches or data loss; however, there
are no guarantees that failures will not occur. Failure of third parties to provide adequate services or internal controls
over their processes could have an adverse effect on our results of operations, financial condition or ability to accomplish
our financial and management reporting.
We may incur costs and adverse revenue consequences resulting from breaches of security related to confidential
guest and/or employee information or the fraudulent use of credit cards.
The nature of our business involves the receipt and storage of information about our guests and employees.
Hardware, software or other applications we develop and procure from third parties may contain defects in design or
manufacture or other problems that could unexpectedly compromise information security. Unauthorized parties may also
attempt to gain access to our systems and facilities through fraud, trickery or other forms of deceiving our employees or
vendors. In addition, we accept electronic payment cards for payment in our restaurants. During 2017, approximately
78% of our transactions were by credit or debit cards, and such card usage could increase. Other retailers have
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experienced actual or potential security breaches in which credit and debit card along with employee information may
have been stolen. We may in the future become subject to claims for purportedly fraudulent transactions arising out of
alleged theft of guest and/or employee information, and we may also be subject to lawsuits or other proceedings relating
to these types of incidents. Any such claim or proceeding could cause us to incur significant unplanned expenses in
excess of our insurance coverage, which could have a material adverse impact on our financial condition and results of
operations. Further, adverse publicity resulting from these allegations may result in material adverse revenue
consequences for us and our restaurants.
On October 1, 2015, the payment card industry began to shift liability for certain transactions to retailers who are
not able to accept Europay, Mastercard, and Visa ("EMV") chip card transactions. We are still assessing the impact of
the implementation of EMV. Until the implementation of EMV chip card technology is completed by us, we may be
liable for costs incurred by payment card issuing banks and other third parties or subject to higher transaction fees,
which could have an adverse effect on our business, financial condition and cash flows.
We may not be able to obtain and maintain licenses and permits necessary to operate our restaurants and compliance
with governmental laws and regulations could adversely affect our operating results.
The restaurant industry is subject to various federal, state and local government regulations, including those relating
to the sale of food and alcoholic beverages. Such regulations are subject to change from time to time, sometimes without
notice to us. The failure to obtain and maintain these licenses, permits and approvals, including liquor licenses, could
adversely affect our operating results. Difficulties or failure to obtain the required licenses and approvals could delay or
result in our decision to cancel the opening of new restaurants. Local authorities may revoke, suspend or deny renewal of
our liquor licenses if they determine that our conduct violates applicable regulations.
In addition to our having to comply with these licensing requirements, various federal and state labor laws govern
our relationship with our employees and affect operating costs. These laws include minimum and tipped wage
requirements, overtime pay, health benefits, unemployment tax rates, workers’ compensation rates, work eligibility
requirements and working conditions. A number of factors could adversely affect our operating results, including:
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additional government-imposed increases in minimum and/or tipped wages, overtime pay, paid leaves of
absence, sick leave, and mandated health benefits;
increased tax reporting and tax payment requirements for employees who receive gratuities;
any failure of our employees to comply with laws and regulations governing citizenship or residency
requirements resulting in disruption of our work force and adverse publicity;
a reduction in the number of states that allow gratuities to be credited toward minimum wage requirements; and
increased employee litigation including claims under federal and/or state wage and hour laws.
The federal Americans with Disabilities Act prohibits discrimination on the basis of disability in public
accommodations and employment. Although our restaurants are designed to be accessible to the disabled, we could be
required to make modifications to our restaurants to provide service to, or make reasonable accommodations for disabled
persons.
Our failure or inability to enforce our trademarks or other proprietary rights could adversely affect our competitive
position or the value of our brand.
We own certain common law trademark rights and a number of federal and international trademark and service
mark registrations, including our trade names and logos, and proprietary rights relating to certain of our core menu
offerings. We believe that our trademarks and other proprietary rights are important to our success and our competitive
position. We, therefore, devote appropriate resources to the protection of our trademarks and proprietary rights. The
protective actions that we take, however, may not be enough to prevent unauthorized usage or imitation by others, which
could harm our image, brand or competitive position and, if we commence litigation to enforce our rights, cause us to
incur significant legal fees. Our inability to register or protect our marks and other propriety rights in foreign
jurisdictions could adversely affect our competitive position in international markets.
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We cannot assure you that third parties will not claim that our trademarks or menu offerings infringe upon their
proprietary rights. Any such claim, whether or not it has merit, could be time-consuming, result in costly litigation, cause
delays in introducing new menu items in the future or require us to enter into royalty or licensing agreements. As a
result, any such claim could have a material adverse effect on our business, results of operations, financial condition or
liquidity.
We are subject to increasing legal complexity and could be party to litigation that could adversely affect us.
Increasing legal complexity will continue to affect our operations and results. We could be subject to legal
proceedings that may adversely affect our business, including class actions, administrative proceedings, government
investigations, employment and personal injury claims, claims alleging violations of federal and state laws regarding
consumer, workplace and employment matters, wage and hour claims, discrimination and similar matters,
landlord/tenant disputes, disputes with current and former suppliers, claims by current and former franchisees, and
intellectual property claims (including claims that we infringed upon another party’s trademarks, copyrights or patents).
Inconsistent standards imposed by governmental authorities can adversely affect our business and increase our exposure
to litigation which could result in significant judgments, including punitive and liquidated damages, and injunctive relief.
Occasionally, our guests file complaints or lawsuits against us alleging that we are responsible for an illness or
injury they suffered as a result of a visit to our restaurants, or that we have problems with food quality or operations. In
addition, we are subject to "dram shop" statutes. These statutes generally allow a person injured by an intoxicated person
to recover damages from an establishment that wrongfully served alcoholic beverages to the intoxicated person. Some
litigation against restaurant chains has resulted in significant judgments, including punitive damages, under dram shop
statutes. Because a plaintiff may seek punitive damages, which may not be covered by insurance, this type of action
could have an adverse impact on our financial condition and results of operations.
Litigation involving our relationship with franchisees and the legal distinction between our franchisees and us for
employment law purposes, if determined adversely, could increase costs, negatively impact the business prospects of our
franchisees and subject us to incremental liability for their actions. We are also subject to the legal and compliance risks
associated with privacy, data collection, protection and management, in particular as it relates to information we collect
when we provide optional technology-related services to franchisees.
Our operating results could also be affected by the following:
• The relative level of our defense costs and nature and procedural status of pending proceedings;
• The cost and other effects of settlements, judgments or consent decrees, which may require us to make
disclosures or to take other actions that may affect perceptions of our brand and products;
• Adverse results of pending or future litigation, including litigation challenging the composition and preparation
of our products, or the appropriateness or accuracy of our marketing or other communication practices; and
• The scope and terms of insurance or indemnification protections that we may have.
Regardless of whether any claims against us are valid or whether we are liable, claims may be expensive to defend
and may divert time and money away from our operations and hurt our performance. A judgment significantly in excess
of any applicable insurance coverage could materially adversely affect our financial condition or results of operations.
Further, adverse publicity resulting from these claims may hurt our business.
Our current insurance may not provide adequate levels of coverage against claims.
We currently maintain insurance customary for businesses of our size and type. However, there are types of losses
we may incur that cannot be insured against or that we believe are not economically reasonable to insure. Such damages
could have a material adverse effect on our business, results of operations and/or liquidity. In addition, we self-insure a
significant portion of expected losses under our health, workers’ compensation, general liability, employment practices
liability and property insurance programs. Unanticipated changes in the actuarial assumptions and management
estimates underlying our reserves for these losses could result in materially different amounts of expense under these
programs, which could have a material adverse effect on our financial condition, results of operations and liquidity.
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Decreased cash flow from operations, or an inability to access credit could negatively affect our business initiatives or
may result in our inability to execute our revenue, expense, and capital allocation strategies.
Our ability to fund our operating plans and to implement our capital allocation strategies depends on sufficient cash
flow from operations and/or other financing, including the use of funding under our amended revolving credit facility.
We also may seek access to the debt and/or equity capital markets. There can be no assurance, however, that these
sources of financing will be available on terms favorable to us, or at all. Our capital allocation strategies include, but are
not limited to, new restaurant development, payment of dividends, refurbishment of existing restaurants, repurchases of
our common stock and franchise acquisitions. If we experience decreased cash flow from operations, our ability to fund
our operations and planned initiatives, and to take advantage of growth opportunities, may be delayed or negatively
affected. In addition, these disruptions or a negative effect on our revenues could affect our ability to borrow or comply
with our covenants under our amended revolving credit facility. If we are unable to raise additional capital, our growth
could be impeded.
Our existing credit facility limits our ability to incur additional debt.
The lenders’ obligation to extend credit under our amended revolving credit facility depends on our maintaining
certain financial covenants, 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. If we are unable to maintain these ratios, we would be unable to
obtain additional financing under this amended revolving credit facility. The amended revolving credit facility permits
us to incur additional secured or unsecured indebtedness outside the revolving credit facility, except for the incurrence of
secured indebtedness that in the aggregate is equal to or greater than $125.0 million and 20% of our consolidated
tangible net worth or circumstances where the incurrence of secured or unsecured indebtedness would prevent us from
complying with our financial covenants. If we are unable to borrow additional capital, our growth could be impeded.
We may be required to record additional impairment charges in the future.
In accordance with accounting guidance as it relates to the impairment of long-lived assets, we make certain
estimates and projections with regard to company restaurant operations, as well as our overall performance in connection
with our impairment analyses for long-lived assets. When impairment triggers are deemed to exist for any company
restaurant, the estimated undiscounted future cash flows for the restaurant are compared to its carrying value. If the
carrying value exceeds the undiscounted cash flows, an impairment charge would be recorded equal to the difference
between the carrying value and the estimated fair value.
We also review the value of our goodwill on an annual basis and when events or changes in circumstances indicate
that the carrying value of goodwill or other intangible assets may exceed the fair value of such assets. The estimates of
fair value are based upon the best information available as of the date of the assessment and incorporate management
assumptions about expected future cash flows and contemplate other valuation measurements and techniques.
The estimates of fair value used in these analyses require the use of judgment, certain assumptions and estimates of
future operating results. If actual results differ from our estimates or assumptions, additional impairment charges may be
required in the future. If impairment charges are significant, our results of operations could be adversely affected.
If we lose the services of any of our key management personnel, our business could suffer.
Our future success depends on the continued services and performance of our key management personnel. Our
future performance will depend on our ability to motivate and retain these and other key officers and managers,
particularly regional market partners, market partners and managing partners. Competition for these employees is
intense. The loss of the services of members of our senior management team or other key officers or managers or the
inability to attract additional qualified personnel as needed could materially harm our business.
Our franchisees could take actions that could harm our business.
Our franchisees are contractually obligated to operate their restaurants in accordance with Texas Roadhouse
standards. We also provide training and support to franchisees. However, most franchisees are independent third parties
that we do not control, and these franchisees own, operate and oversee the daily operations of their restaurants. As a
result, the ultimate success and quality of any franchise restaurant rests with the franchisee. If franchisees do not
successfully operate restaurants in a manner consistent with our standards, the Texas Roadhouse image and reputation
could be harmed, which in turn could adversely affect our business and operating results.
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Risks Related to Our Corporate Structure, Our Stock Ownership and Our Common Stock
Provisions in our charter documents and Delaware law may delay or prevent our acquisition by a third party.
Our certificate of incorporation and by-laws contain several provisions that may make it more difficult for a third
party to acquire control of us without the approval of our Board of Directors. These provisions include, among other
things, advance notice for raising business or making nominations at meetings and "blank check" preferred stock. Blank
check preferred stock enables our Board of Directors, without approval of the stockholders, to designate and issue
additional series of preferred stock with such dividend, liquidation, conversion, voting or other rights, including the right
to issue convertible securities with no limitations on conversion, as our Board of Directors may determine. The issuance
of blank check preferred stock may adversely affect the voting and other rights of the holders of our common stock as
our Board of Directors may designate and issue preferred stock with terms that are senior to our common stock. These
provisions may make it more difficult or expensive for a third party to acquire a majority of our outstanding common
stock. These provisions also may delay, prevent or deter a merger, acquisition, tender offer, proxy contest or other
transaction that might otherwise result in our stockholders receiving a premium over the market price for their common
stock.
The Delaware General Corporation Law prohibits us from engaging in "business combinations" with "interested
shareholders" (with some exceptions) unless such transaction is approved in a prescribed manner. The existence of this
provision could have an anti-takeover effect with respect to transactions not approved in advance by the Board of
Directors, including discouraging attempts that might result in a premium over the market price for our common stock.
There can be no assurance that we will continue to pay dividends on our common stock.
Payment of cash dividends on our common stock is subject to compliance with applicable laws and depends on,
among other things, our results of operations, financial condition, level of indebtedness, capital requirements, business
prospects and other factors that our Board of Directors may deem relevant. Although we have paid dividends in the past,
there can be no assurance that we will continue to pay any dividends in the future.
Our business could be negatively affected as a result of actions of activist stockholders, and such activism could
impact the trading value of our common stock.
We value constructive input from our stockholders and the investment community. Our Board of Directors and
management team are committed to acting in the best interests of all of our stockholders. There is no assurance that the
actions taken by our Board of Directors and management in seeking to maintain constructive engagement with our
stockholders will be successful.
Responding to actions by activist shareholders can be costly and time-consuming, disrupting our operations and
diverting the attention of management and our employees. Such activities could interfere with our ability to execute our
strategic plan. The perceived uncertainties as to our future direction also resulting from activist strategies could also
affect the market price and volatility of our common stock.
ITEM 1B—UNRESOLVED STAFF COMMENTS
None.
28
ITEM 2—PROPERTIES
Properties
Our Support Center is located in Louisville, Kentucky. We occupy this facility under leases with Paragon Centre
Holdings, LLC, a limited liability company in which we have a minority ownership position. As of December 26, 2017,
we leased 100,546 square feet. Our leases expire December 31, 2030 including all applicable extensions. Of the 462
company restaurants in operation as of December 26, 2017, we owned 140 locations and leased 322 locations, as shown
in the following table.
State
Alabama . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Alaska . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Arizona . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Arkansas . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
California . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Colorado . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Connecticut . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Delaware . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Florida . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Georgia . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Idaho . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Illinois . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Indiana . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Iowa . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Kansas . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Kentucky . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Louisiana . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Maine . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Maryland . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Massachusetts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Michigan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Minnesota . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Mississippi . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Missouri . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Nebraska . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Nevada. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
New Hampshire . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
New Jersey . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
New Mexico . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
New York . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
North Carolina . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
North Dakota . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Ohio . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Oklahoma . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Oregon . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Pennsylvania . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Rhode Island . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
South Carolina . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
South Dakota . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Tennessee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Texas . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Utah . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Vermont . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Virginia . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Washington . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
West Virginia . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Wisconsin . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Wyoming . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Owned Leased Total
8
2
17
4
3
15
5
2
30
7
5
15
18
9
5
11
9
3
7
10
14
4
3
14
3
1
3
7
5
18
18
2
30
7
2
23
3
2
2
13
63
9
1
15
1
2
10
2
462
3
—
6
—
1
7
—
1
7
3
1
2
12
2
2
4
2
—
—
1
3
1
1
2
1
—
2
—
1
3
5
—
12
2
—
3
—
—
1
—
36
—
—
6
—
1
4
2
140
5
2
11
4
2
8
5
1
23
4
4
13
6
7
3
7
7
3
7
9
11
3
2
12
2
1
1
7
4
15
13
2
18
5
2
20
3
2
1
13
27
9
1
9
1
1
6
—
322
Additional information concerning our properties and leasing arrangements is included in note 2(p) and note 7 to
the Consolidated Financial Statements appearing in Part II, Item 8 of this Annual Report on Form 10-K.
29
ITEM 3—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 effect on us and, as of the date of this report, we are not party to any
litigation that we believe could have a material adverse effect on our business.
ITEM 4—MINE SAFETY DISCLOSURES
Not applicable.
30
PART II
ITEM 5—MARKET FOR THE REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER
MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES
Our common stock is traded on the Nasdaq Global Select Market under the symbol TXRH. Dividend information
and the quarterly high and low sales prices of our common stock by quarter were as follows:
High
Low
Dividends
Declared
Year ended December 26, 2017
First Quarter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 49.69 $ 40.28 $ 0.21
Second Quarter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 51.91 $ 43.59 $ 0.21
Third Quarter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 51.74 $ 44.29 $ 0.21
Fourth Quarter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 55.99 $ 47.70 $ 0.21
Year ended December 27, 2016
First Quarter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 43.76 $ 33.80 $ 0.19
Second Quarter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 46.81 $ 40.51 $ 0.19
Third Quarter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 49.00 $ 40.32 $ 0.19
Fourth Quarter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 50.51 $ 37.23 $ 0.19
The number of holders of record of our common stock as of February 14, 2018 was 213.
On February 16, 2018, our Board of Directors authorized the payment of a cash dividend of $0.25 per share of
common stock. This payment will be distributed on March 29, 2018, to shareholders of record at the close of business on
March 14, 2018. The declaration and payment of cash dividends on our common stock is at the discretion of our Board
of Directors, and any decision to declare a dividend will be based on a number of factors, including, but not limited to,
earnings, financial condition, applicable covenants under our amended credit facility and other contractual restrictions,
or other factors deemed relevant.
Unregistered Sales of Equity Securities
There were no equity securities sold by the Company during the period covered by this Annual Report on
Form 10-K that were not registered under the Securities Act of 1933, as amended.
Issuer Repurchases of Securities
On May 22, 2014, our Board of Directors approved a stock repurchase program under which we may repurchase up
to $100.0 million of our common stock. For the 52 weeks ended December 26, 2017, we did not repurchase any shares
of common stock. As of December 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. All repurchases to date under our stock repurchase program have
been made through open market transactions. The timing and the amount of any repurchases will be determined by
management under parameters established by our Board of Directors, based on an evaluation of our stock price, market
conditions and other corporate considerations.
Since commencing our repurchase program in 2008, we have repurchased a total of 14,844,851 shares of common
stock at a total cost of $216.6 million through December 26, 2017 under authorizations from our Board of Directors.
Stock Performance Graph
The following graph sets forth cumulative total return experienced by holders of the Company’s common stock
compared to the cumulative total return of the Russell 3000 Restaurant Index and the Russell 3000 Index for the five
year period ended December 26, 2017, the last trading day of our fiscal year. The graph assumes the values of the
investment in our common stock and each index was $100 on December 25, 2012 and the reinvestment of all dividends
paid during the period of the securities comprising the indices.
Note: The stock price performance shown on the graph below does not indicate future performance.
31
Comparison of Cumulative Total Return Since December 25, 2012
Among Texas Roadhouse, Inc., the Russell 3000 Index and the Russell 3000 Restaurant Index
360
340
320
300
280
260
240
220
200
180
160
140
120
100
80
60
40
20
0
Russell 3000 Restaurant
Texas Roadhouse, Inc.
Russell 3000
12/25/2012 12/31/2013 12/30/2014 12/29/2015 12/27/2016 12/26/2017
Texas Roadhouse, Inc. . . . . . . . . . . . . . . . . . . . . $ 100.00 $ 165.28 $ 200.83 $ 214.39 $ 294.65 $ 339.83
Russell 3000 . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 100.00 $ 130.98 $ 146.09 $ 144.94 $ 159.51 $ 191.62
Russell 3000 Restaurant . . . . . . . . . . . . . . . . . . . $ 100.00 $ 126.73 $ 132.96 $ 157.26 $ 163.51 $ 194.51
32
ITEM 6—SELECTED CONSOLIDATED FINANCIAL DATA
We derived the selected consolidated financial data as of and for the years 2017, 2016, 2015, 2014 and 2013 from
our audited consolidated financial statements.
The Company utilizes a 52 or 53 week accounting period that typically ends on the last Tuesday in December. The
Company utilizes a 13 or 14 week accounting period for quarterly reporting purposes. Fiscal year 2013 was 53 weeks in
length while fiscal years 2017, 2016, 2015 and 2014 were 52 weeks in length. Our historical results are not necessarily
indicative of our results for any future period.
2017
Fiscal Year
2016
2014
2015
(in thousands, except per share data)
2013
Consolidated Statements of Income:
Revenue:
Restaurant sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 2,203,017 $ 1,974,261 $ 1,791,446 $ 1,568,556 $ 1,410,118
12,467
16,514
Franchise royalties and fees . . . . . . . . . . . . . . . . . . . . .
1,422,585
Total revenue . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,219,531
119,715
186,206
118,227
186,117
34,140
48,581
84,087
137,536 $
3,664
6,010
15,922
1,807,368
144,565
144,247
42,986
101,261 $
4,367
13,592
1,582,148
130,449
129,967
38,990
90,977 $
3,955
16,453
1,990,714
171,900
171,756
51,183
120,573 $
4,975
Income from operations . . . . . . . . . . . . . . . . . . . . . . . . . . .
Income before taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Provision for income taxes . . . . . . . . . . . . . . . . . . . . . . . .
Net income including noncontrolling interests . . . . . . . . . $
Less: Net income attributable to noncontrolling interests .
Net income attributable to Texas Roadhouse, Inc. and
subsidiaries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Net income per common share:
131,526 $
115,598 $
96,894 $
87,022 $
80,423
Basic . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Diluted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
1.85 $
1.84 $
1.64 $
1.63 $
1.38 $
1.37 $
1.25 $
1.23 $
1.15
1.13
Weighted average shares outstanding(1):
Basic . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Diluted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
70,989
71,527
70,396
71,052
70,032
70,747
69,719
70,608
70,089
71,362
Cash dividends declared per share . . . . . . . . . . . . . . . . . . . $
0.84 $
0.76 $
0.68 $
0.60 $
0.48
33
2017
2016
Fiscal Year
2015
($ in thousands)
2014
2013
Consolidated Balance Sheet Data:
Cash and cash equivalents . . . . . . . . . . . . . . . . . . . . . . $
Total assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Long-term debt and obligations under capital
leases, net of current maturities . . . . . . . . . . . . . . . . . .
Total liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Noncontrolling interests . . . . . . . . . . . . . . . . . . . . . . .
Texas Roadhouse, Inc. and subsidiaries
stockholders’ equity(2) . . . . . . . . . . . . . . . . . . . . . . . . $
Selected Operating Data (unaudited):
Restaurants:
150,918
1,330,623
$
112,944
1,179,971
$
59,334
1,032,706
$
86,122
943,142
$
94,874
877,644
51,981
479,232
12,312
52,381
421,729
8,016
25,550
355,524
7,520
50,693
328,186
7,064
50,990
283,784
6,201
839,079
$
750,226
$
669,662
$ 607,892
$ 587,659
Company-Texas Roadhouse . . . . . . . . . . . . . . . . . .
Company-Bubba’s 33 . . . . . . . . . . . . . . . . . . . . . . .
Company-Other . . . . . . . . . . . . . . . . . . . . . . . . . . .
Franchise - Domestic . . . . . . . . . . . . . . . . . . . . . . .
Franchise - International . . . . . . . . . . . . . . . . . . . . .
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Company restaurant information:
Store weeks . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Comparable restaurant sales growth(3) . . . . . . . . .
Texas Roadhouse restaurants only:
440
20
2
70
17
549
413
16
2
73
13
517
392
7
2
72
10
483
368
3
1
70
9
451
345
1
—
70
4
420
23,274
21,583
20,020
18,565
17,426
4.5 %
3.5 %
7.2 %
4.7 %
3.4 %
Comparable restaurant sales growth(3) . . . . . . . .
4,973
Average unit volume(4) . . . . . . . . . . . . . . . . . . . . $
Net cash provided by operating activities . . . . . . . . . . $
286,373
Net cash used in investing activities . . . . . . . . . . . . . . $ (178,156)
(70,243)
Net cash used in financing activities . . . . . . . . . . . . . . $
4.5 %
4,805
$
$
257,065
$ (164,738)
(38,717)
$
3.6 %
4,664
$
$
227,941
$ (173,203)
(81,526)
$
7.2 %
4,355
$
$ 191,713
$ (124,240)
$ (76,225)
4.7 %
4,186
$
$ 173,836
$ (111,248)
$ (49,460)
3.4 %
(1) See note 11 to the Consolidated Financial Statements.
(2) See note 10 to the Consolidated Financial Statements.
(3) Comparable restaurant sales growth reflects the change in sales over the same period of the prior year for the
comparable restaurant base. We define the comparable restaurant base to include those restaurants open for a full
18 months before the beginning of the later fiscal period, excluding sales from restaurants closed during the period.
(4) Average unit volume represents the average annual restaurant sales from Texas Roadhouse company restaurants
open for a full six months before the beginning of the period measured, excluding sales from restaurants closed
during the period. Although 2013 contained 53 weeks, for comparative purposes, 2013 average unit volume was
adjusted to a 52 week basis. Additionally, average unit volume of company restaurants for 2016, 2014 and 2013 in
the table above was adjusted to reflect the restaurant sales of any acquired franchise restaurants.
34
ITEM 7—MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The discussion and analysis below for the Company should be read in conjunction with the consolidated financial
statements and the notes to such financial statements (pages F-1 to F-26), "Forward-looking Statements" (page 3) and
Risk Factors set forth in Item 1A.
Our Company
Texas Roadhouse, Inc. is a growing restaurant company operating predominately in the casual dining segment. Our
founder, chairman and chief executive officer, W. Kent Taylor, started the business in 1993 with the opening of the first
Texas Roadhouse restaurant in Clarksville, Indiana. Since then, we have grown to 549 restaurants in 49 states and seven
foreign countries. Our mission statement is "Legendary Food, Legendary Service®." Our operating strategy is designed
to position each of our restaurants as the local hometown destination for a broad segment of consumers seeking
high-quality, affordable meals served with friendly, attentive service. As of December 26, 2017, our 549 restaurants
included:
•
•
462 "company restaurants," of which 444 were wholly-owned and 18 were majority-owned. The results of
operations of company restaurants are included in our consolidated statements of income and comprehensive
income. The portion of income attributable to noncontrolling interests in company restaurants that are not
wholly-owned is reflected in the line item entitled "Net income attributable to noncontrolling interests" in our
consolidated statements of income and comprehensive income. Of the 462 restaurants we owned and operated
at the end of 2017, we operated 440 as Texas Roadhouse restaurants and operated 20 as Bubba’s 33 restaurants.
In addition, we operated two restaurants outside of the casual dining segment.
87 "franchise restaurants," 24 of which we have a 5.0% to 10.0% ownership interest. The income derived from
our minority interests in these franchise restaurants is reported in the line item entitled "Equity income from
investments in unconsolidated affiliates" in our consolidated statements of income and comprehensive income.
Additionally, we provide various management services to these 24 franchise restaurants, as well as six
additional franchise restaurants in which we have no ownership interest. All of the franchise restaurants
operated as Texas Roadhouse restaurants. Of the 87 franchise restaurants, 70 are domestic restaurants and 17
are international restaurants.
We have contractual arrangements which grant us the right to acquire at pre-determined formulas (i) the remaining
equity interests in 16 of the 18 majority-owned company restaurants and (ii) 67 of the domestic franchise restaurants.
Throughout this report, we use the term "restaurants" to include Texas Roadhouse and Bubba’s 33, unless otherwise
noted.
Presentation of Financial and Operating Data
We operate on a fiscal year that typically ends on the last Tuesday in December. Fiscal years 2017, 2016 and 2015
were 52 weeks in length, while the quarters for those years were 13 weeks in length.
Long-term Strategies to Grow Earnings Per Share
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 ability to expand our restaurant
base is influenced by many factors beyond our control and, therefore, we may not be able to achieve our anticipated
growth.
In 2017, we opened 27 company restaurants while our franchise partners opened five restaurants. We currently
plan to open approximately 30 company restaurants in 2018 including up to seven Bubba’s 33 restaurants. In addition,
35
we anticipate our existing franchise partners will open as many as six, primarily international, Texas Roadhouse
restaurants in 2018.
Our average capital investment for the 23 Texas Roadhouse restaurants opened during 2017, including pre-opening
expenses and a capitalized rent factor, was $5.3 million. We expect our average capital investment for Texas Roadhouse
restaurants opening in 2018 to be approximately $5.3 million. For 2017, the average capital investment, including pre-
opening expenses and a capitalized rent factor, for the four Bubba’s 33 restaurants opened during the year was $6.1
million. We expect our average capital investment for Bubba’s 33 restaurants opening in 2018 to be approximately $6.8
million. The increase in our 2018 average capital investment for our Bubba’s 33 restaurants is primarily due to higher
costs at one urban site in New Jersey as well as higher rent and pre-opening costs. We continue to evaluate our Bubba’s
33 prototype.
We remain focused on driving sales and managing restaurant investment costs in order to maintain our restaurant
development in the future. Our capital investment (including cash and non-cash costs) for new restaurants varies
significantly depending on a number of factors including, but not limited to: the square footage, layout, scope of any
required site work, type of construction labor (union or non-union), local permitting requirements, our ability to
negotiate with landlords, cost of liquor and other licenses and hook-up fees and geographical location.
We have entered into area development and franchise agreements for the development and operation of Texas
Roadhouse restaurants in several foreign countries. In 2010, we entered into an agreement for the development of Texas
Roadhouse restaurants in eight countries in the Middle East over a 10-year period. In 2015, we amended our agreement
in the Middle East to add one additional country to the territory. In addition to the Middle East, we currently have signed
franchise and/or development agreements for the development of Texas Roadhouse restaurants in Taiwan, the
Philippines, Mexico, China and South Korea. We currently have 12 restaurants open in five countries in the Middle East,
three restaurants open in Taiwan and two in the Philippines for a total of 17 restaurants in seven foreign countries. 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 the
named countries. The term of the agreements may be extended. We anticipate that the specific business terms of any
future franchise agreement for international restaurants might vary significantly from the standard terms of our domestic
agreements and from the terms of existing international agreements, depending on the territory to be franchised and the
extent of franchisor-provided services to each franchisee.
Maintaining and/or Improving Restaurant Level Profitability. We plan to maintain, or possibly increase, restaurant
level profitability (restaurant margin) through a combination of increased comparable restaurant sales and operating cost
management. Restaurant margin is not a U.S. generally accepted accounting principle ("GAAP") measure and should not
be considered in isolation, or as an alternative from income from operations. See further discussion of restaurant margin
below. In 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, in any given year, depending on the level of inflation we experience. In
addition to restaurant margin, as a percentage of restaurant 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, 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 in certain restaurants.
Leveraging Our Scalable Infrastructure. To support our growth, we continue to make investments in our
infrastructure. 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 are able to leverage our infrastructure in future years 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 repurchases of common stock. In 2011, our Board of Directors declared our first quarterly
dividend of $0.08 per share of common stock. We have consistently grown our per share dividend each year since that
time and our long-term strategy includes increasing our regular quarterly dividend amount over time. On February 16,
36
2018, our Board of Directors declared a quarterly dividend of $0.25 per share of common stock. The declaration and
payment of cash dividends on our common stock is at the discretion of our Board of Directors, and any decision to
declare a dividend will be based on a number of factors, including, but not limited to, earnings, financial condition,
applicable covenants under our amended credit facility and other contractual restrictions, or other factors deemed
relevant.
In 2008, our Board of Directors approved our first stock repurchase program. Since then, we have paid
$216.6 million through our authorized stock repurchase programs to repurchase 14,844,851 shares of our common stock
at an average price per share of $14.59. On May 22, 2014, our Board of Directors approved a stock repurchase program
under which we may repurchase up to $100.0 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. All
repurchases to date have been made through open market transactions. As of December 26, 2017, $69.9 million remains
authorized for repurchase.
Key Operating Personnel
Key management personnel who have a significant impact on the performance of our restaurants include kitchen
managers, service managers, assistant managers, managing partners and market partners. Managing partners are single
restaurant operators who have primary responsibility for the day-to-day operations of the entire restaurant. Kitchen
managers have primary responsibility for managing operations relating to our food preparation and food quality, and
service managers have primary responsibility for managing our service quality and guest experiences. The assistant
managers support our kitchen and service managers; these managers are collectively responsible for the operations of the
restaurant in the absence of a managing partner. All managers are responsible for maintaining our standards of quality
and performance. We use market partners to oversee the operation of our restaurants. Generally, each market partner
may oversee as many as 10 to 15 managing partners and their respective management teams. Market partners are also
responsible for the hiring and development of each restaurant’s management team and assist in the site selection process
for new restaurants. Through regular visits to the restaurants, the market partners facilitate adherence to all aspects of
our concepts, strategies and standards of quality.
Managing partners and market partners are required, as a condition of employment, to sign a multi-year
employment agreement. The annual compensation of our managing partners and market partners includes a base salary
plus a percentage of the pre-tax income of the restaurant(s) they operate or supervise. Managing partners and market
partners are eligible to participate in our equity incentive plan and, as a general rule, are required to make deposits of
$25,000 and $50,000, respectively. Generally, the deposits are refunded after five years of service.
Key Measures We Use To Evaluate Our Company
Key measures we use to evaluate and assess our business include the following:
Number of Restaurant Openings. Number of restaurant openings reflects the number of restaurants opened during a
particular fiscal period. For company restaurant openings, we incur pre-opening costs, which are defined below, before
the restaurant opens. Typically, new Texas Roadhouse restaurants open with an initial start-up period of higher than
normalized sales volumes, which decrease to a steady level approximately three to six months after opening. However,
although sales volumes are generally higher, so are initial costs, resulting in restaurant margins that are generally lower
during the start-up period of operation and increase to a steady level approximately three to six months after opening.
Comparable Restaurant Sales Growth. Comparable restaurant sales growth reflects the change in sales for
company restaurants over the same period of the prior year for the comparable restaurant base. We define the
comparable restaurant base to include those restaurants open for a full 18 months before the beginning of the period
measured excluding restaurants closed during the period. Comparable restaurant sales growth can be impacted by
changes in guest traffic counts or by changes in the per person average check amount. Menu price changes and the mix
of menu items sold can affect the per person average check amount.
Average Unit Volume. Average unit volume represents the average annual restaurant sales for company restaurants
open for a full six months before the beginning of the period measured excluding sales on restaurants 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.
37
Store Weeks. Store weeks represent the number of weeks that our company restaurants were open during the
reporting period.
Restaurant Margin. Restaurant margin (in dollars and as a percentage of restaurant sales) represents restaurant sales
less restaurant-level operating costs, including cost of sales, labor, rent and other operating costs. Restaurant margin is not
a measurement determined in accordance with GAAP and should not be considered in isolation, or as an alternative, to
income from operations. This non-GAAP measure is not indicative of overall company performance and profitability in
that this measure does not accrue directly to the benefit of shareholders due to the nature of the costs excluded. Restaurant
margin is widely regarded as a useful metric by which to evaluate restaurant-level operating efficiency and performance.
In calculating restaurant margin, we exclude certain non-restaurant-level costs that support operations, including pre-
opening and general and administrative expenses, but do not have a direct impact on 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 as presented may not be comparable to other similarly
titled measures of other companies in our industry. A reconciliation of income from operations to restaurant margin is
included in the Results of Operations section below.
Other Key Definitions
Restaurant Sales. Restaurant sales include gross food and beverage sales, net of promotions and discounts, for all
company restaurants. Sales taxes collected from customers and remitted to governmental authorities are accounted for on
a net basis and therefore are excluded from restaurant sales in the consolidated statements of income and comprehensive
income.
Franchise Royalties and Fees. Franchise royalties consist of royalties, as defined in our franchise agreement, paid
to us by our domestic and international franchisees. Domestic and/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.
Restaurant Cost of Sales. Restaurant cost of sales consists of food and beverage costs of which as much as 50%
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, 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 sharing incentive compensation expenses earned by our restaurant managing partners and market partners
are also included in restaurant other operating expenses.
Pre-opening Expenses. Pre-opening expenses, which are charged to operations as incurred, consist of expenses
incurred before the opening of a new restaurant and are comprised principally of opening team and training
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 a number of factors, including the size and physical layout of each
location; the number of management and hourly employees required to operate each restaurant; the availability of
qualified restaurant staff members; the cost of travel and lodging for different geographic areas; the timing of the
restaurant opening; and the extent of unexpected delays, if any, in obtaining final licenses and permits to open the
restaurants.
38
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. Impairment and closure costs include any impairment of long-lived assets,
including 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 advertising costs incurred less amounts remitted by franchise
restaurants. Supervision and accounting fees received from certain franchise restaurants are offset against G&A. G&A
also includes share-based compensation expense related to executive officers, support center employees and area
managers, including market partners and the realized and unrealized holding gains and losses related to the investments
in our deferred compensation plan, as well as offsetting compensation expense.
Interest Expense, Net. Net interest expense includes the cost of 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.
Equity Income from Unconsolidated Affiliates. As of December 26, 2017, December 27, 2016 and December 29,
2015, we owned a 5.0% to 10.0% equity interest in 24 franchise restaurants. Additionally, as of December 26, 2017,
December 27, 2016 and December 29, 2015, we owned a 40% equity interest in four non-Texas Roadhouse restaurants
as part of a joint venture agreement with a casual dining restaurant operator in China. Equity income from
unconsolidated affiliates represents our percentage share of net income earned by these unconsolidated affiliates.
Net Income Attributable to Noncontrolling Interests. Net income attributable to noncontrolling interests represents
the portion of income attributable to the other owners of the majority-owned restaurants. Our consolidated subsidiaries at
December 26, 2017 included 18 majority-owned restaurants, all of which were open. At December 27, 2016 and
December 29, 2015, our consolidated subsidiaries included 16 majority-owned restaurants, all of which were open.
2017 Financial Highlights
Total revenue increased $228.8 million or 11.5% to $2.2 billion in 2017 compared to $2.0 billion in 2016 primarily
due to the opening of new restaurants combined with an increase in average unit volume driven by comparable
restaurant sales growth. Store weeks and comparable restaurant sales increased 7.8% and 4.5%, respectively, at
company restaurants in 2017.
Restaurant margin increased $37.5 million to $406.4 million in 2017 from $368.9 million in 2016 while restaurant
margin, as a percentage of restaurant sales, decreased 24 basis points to 18.4% in 2017 compared to 18.7% in 2016. The
decrease in restaurant margin, as a percentage of sales, was 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 2.4% driven by lower food costs, primarily beef.
Net income increased $15.9 million or 13.8% to $131.5 million in 2017 compared to $115.6 million in 2016
primarily due to the increase in restaurant margin partially offset by higher G&A and depreciation costs. G&A costs in
2017 included a pre-tax charge of $14.9 million ($9.2 million after-tax) related to the settlement of a legal matter. The
impact of the legal charge was partially offset by a pre-tax charge recorded in 2016 of $7.3 million ($4.5 million after-
tax) related to a separate legal matter. Our income tax rate decreased to 26.1% from 29.8% in the prior year primarily
due to the impact of new tax legislation, which resulted in a $6.5 million reduction in income tax expense. Diluted
earnings per share increased 13.0% to $1.84 from $1.63 in the prior year.
39
2017
$
%
Results of Operations
Fiscal Year
2016
%
$
(In thousands)
2015
$
%
2,203,017
16,514
2,219,531
99.3
0.7
100.0
1,974,261
16,453
1,990,714
99.2
0.8
100.0
1,791,446
15,922
1,807,368
99.1
0.9
100.0
Consolidated Statements of Income:
Revenue:
Restaurant sales . . . . . . . . . . . . . . . . . . .
Franchise royalties and fees . . . . . . . . . .
Total revenue . . . . . . . . . . . . . . . . . . . . . . . .
Costs and expenses:
(As a percentage of restaurant sales)
Restaurant operating costs (excluding
depreciation and amortization shown
separately below):
Cost of sales . . . . . . . . . . . . . . . . . . . . .
Labor . . . . . . . . . . . . . . . . . . . . . . . . . .
Rent . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other operating . . . . . . . . . . . . . . . . . .
721,550
687,545
44,807
342,702
32.8
31.2
2.0
15.6
0.9
4.2
NM
5.6
91.6
8.4
0.1
(0.1)
8.4
2.2
669,203
590,256
40,580
305,290
19,547
82,964
179
110,795
1,818,814
171,900
1,255
(1,111)
171,756
51,183
33.9
29.9
2.1
15.5
1.0
4.2
NM
5.6
91.4
8.6
0.1
(0.1)
8.6
2.6
644,001
524,203
37,183
275,296
19,116
69,694
974
92,336
1,662,803
144,565
1,959
(1,641)
144,247
42,986
19,274
93,499
654
123,294
2,033,325
186,206
1,577
(1,488)
186,117
48,581
137,536
6.2
120,573
6.1
101,261
6,010
0.3
4,975
0.2
4,367
131,526
5.9
115,598
5.8
96,894
35.9
29.3
2.1
15.4
1.1
3.9
0.1
5.1
92.0
8.0
0.1
(0.1)
8.0
2.4
5.6
0.2
5.4
(As a percentage of total revenue)
Pre-opening . . . . . . . . . . . . . . . . . . . . . .
Depreciation and amortization . . . . . . . .
Impairment and closure . . . . . . . . . . . . .
General and administrative . . . . . . . . . . .
Total costs and expenses . . . . . . . . . . . . . . .
Income from operations . . . . . . . . . . . . . . . .
Interest expense, net . . . . . . . . . . . . . . . . . .
Equity income from investments in
unconsolidated affiliates . . . . . . . . . . . . . . .
Income before taxes . . . . . . . . . . . . . . . . . . .
Provision for income taxes . . . . . . . . . . . . .
Net income including noncontrolling
interests . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net income attributable to noncontrolling
interests . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net income attributable to Texas
Roadhouse, Inc. and subsidiaries . . . . . . . . .
NM – Not meaningful
Reconciliation of Income from Operations to Restaurant Margin
Fiscal Year
2016
2015
2017
Income from operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 186,206
$ 171,900
$ 144,565
Less:
Franchise royalties and fees . . . . . . . . . . . . . . . . . . . . . . . . . . .
Add:
Pre-opening . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Depreciation and amortization . . . . . . . . . . . . . . . . . . . . . . . . .
Impairment and closure . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
General and administrative . . . . . . . . . . . . . . . . . . . . . . . . . . .
16,514
16,453
15,922
19,274
93,499
654
123,294
19,547
82,964
179
110,795
19,116
69,694
974
92,336
Restaurant margin . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 406,413
$ 368,932
$ 310,763
Restaurant margin $/store week . . . . . . . . . . . . . . . . . . . . . . . .
Restaurant margin (as a percentage of restaurant sales) . . . . .
$ 17,462
18.4%
$ 17,094
18.7%
$ 15,523
17.3%
40
Restaurant Unit Activity
Balance at December 30, 2014 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Company openings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Franchise openings - Domestic . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Franchise openings - International . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Balance at December 29, 2015 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Company openings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Franchise openings - Domestic . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Franchise openings - International . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Balance at December 27, 2016 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Company openings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Franchise openings - Domestic . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Franchise openings - International . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Balance at December 26, 2017 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Restaurant Sales
Total
451
29
2
1
483
30
1
3
517
27
1
4
549
Texas
Roadhouse
447
24
2
1
474
21
1
3
499
23
1
4
527
Bubba's 33 Other
3
4
—
—
7
9
—
—
16
4
—
—
20
1
1
—
—
2
—
—
—
2
—
—
—
2
Restaurant sales increased by 11.6% in 2017 compared to 2016 and increased 10.2% in 2016 compared to 2015.
The following table summarizes certain key drivers and/or attributes of restaurant sales at company restaurants for the
periods presented. Company restaurant count activity is shown in the restaurant unit activity table above.
Company Restaurants:
Increase in store weeks . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Increase in average unit volume . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other(1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total increase in restaurant sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2017
2016
2015
7.8 %
3.5
0.3
11.6 %
7.8 %
3.0
(0.6)
10.2 %
7.8 %
7.2
(0.8)
14.2 %
Store weeks . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Comparable restaurant sales growth . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
23,274
21,583
20,020
4.5 %
3.5 %
7.2 %
Texas Roadhouse restaurants only:
Comparable restaurant sales growth . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Average unit volume (in thousands) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 4,973
4.5 %
3.6 %
7.2 %
$ 4,805
$ 4,664
Weekly sales by group:
Comparable restaurants (380, 358 and 330 units, respectively) . . . . . . . . . . . . 96,572
Average unit volume restaurants (27, 18 and 28 units, respectively)(2) . . . . . 82,526
Restaurants less than six months old (33, 37 and 34 units for each period) . . 92,208
92,875
81,743
87,059
89,729
89,182
90,742
(1) Includes the impact of the year-over-year change in sales volume of all non-Texas Roadhouse restaurants, along
with Texas Roadhouse restaurants open less than six months before the beginning of the period measured, and, if
applicable, the impact of restaurants closed or acquired during the period.
(2) Average unit volume restaurants include restaurants open a full six to 18 months before the beginning of the period
measured.
41
The increases in restaurant sales for all periods presented were primarily attributable to the opening of new
restaurants combined with an increase in average unit volume driven by comparable restaurant sales growth.
Comparable restaurant sales growth for all periods presented was due to an increase in our guest traffic counts and an
increase in our per person average check as shown in the table below.
Guest traffic counts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Per person average check . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Comparable restaurant sales growth . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
3.6 %
0.9 %
4.5 %
2.1 %
1.4 %
3.5 %
5.4 %
1.8 %
7.2 %
2017
2016
2015
The increase in our per person average check for the periods presented was primarily driven by menu price
increases shown below, which were taken as a result of inflationary pressures, primarily commodities and/or labor.
Q4 2017 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Q2 2017 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Q4 2016 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Q4 2015 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Q4 2014 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Menu Price
Increases
0.3%
0.5%
1.0%
2.0%
1.8%
In all periods presented, average guest check did not increase in line with the menu price increases implemented as
guests shifted to lower menu price items and/or purchased fewer beverages.
In 2018, we plan to open approximately 30 company restaurants. While the majority of our restaurant growth in
2018 will be Texas Roadhouse restaurants, we currently expect to open up to seven Bubba’s 33 restaurants. We have
either begun construction or have sites under contract for purchase or lease for 29 of our expected 2018 openings. In
March 2018, we expect to implement a menu price increase of approximately 0.8%.
Franchise Royalties and Fees
Franchise royalties and fees increased $0.1 million or 0.4% in 2017 compared to 2016 and increased $0.5 million or
3.3% in 2016 compared to 2015. The increases in both periods were attributed to an increase in average unit volume at
domestic restaurants, driven by comparable restaurant sales growth, and the opening of new franchise restaurants. For
2017, the increase was partially offset by the loss of royalties associated with the acquisition of four franchise restaurants
in Q1 2017. For both 2017 and 2016, the increases were partially offset by a decrease in average unit volume at
international restaurants, driven by a decrease in comparable restaurant sales at those locations. In 2017, franchise
comparable restaurant sales increased 2.9% which included an increase in domestic franchise comparable restaurant
sales of 4.2%. In 2016, franchise comparable restaurant sales increased 2.0% which included an increase in domestic
franchise comparable restaurant sales of 3.3%. Franchise restaurant count activity is shown in the restaurant unit activity
table above.
We anticipate our existing franchise partners will open as many as six, primarily international, Texas Roadhouse
restaurants in 2018.
Restaurant Cost of Sales
Restaurant cost of sales, as a percentage of restaurant sales, decreased to 32.8% in 2017 from 33.9% in 2016 and
from 35.9% in 2015. These decreases in 2017 and 2016 were primarily attributed to commodity deflation and menu
pricing actions. Operating efficiencies also contributed to the decrease in 2016. Commodity deflation of approximately
2.4% and 3.8% in 2017 and 2016, respectively, was driven by lower food costs, primarily beef. Recent menu pricing
actions are summarized in our discussion of restaurant sales above.
For 2018, we expect commodity costs to be relatively flat with fixed price contracts for approximately 45% of our
overall food costs and the remainder subject to fluctuating market prices.
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Restaurant Labor Expenses
Restaurant labor expense, as a percentage of restaurant sales, increased to 31.2% in 2017 compared to 29.9%. This
increase was primarily attributed to higher average wage rates, current staffing initiatives, and a change in our
compensation structure, as discussed below, partially offset by the benefit from an increase in average unit volume.
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 2016 a federal judge blocked the implementation of the changes. Despite
the injunction, we continued with the implementation of changes to our overtime policies as originally planned.
Restaurant labor expense, as a percentage of restaurant sales, increased to 29.9% in 2016 compared to 29.3% in
2015. The increase was primarily attributed to higher average wage rates and higher costs related to incentive bonus
compensation, partially offset by the benefit from an increase in average unit volume.
In 2018, we anticipate our labor costs will be pressured by mid-single digit inflation due to increases in state-
mandated minimum and tipped wage rates, ongoing labor market pressures and current staffing initiatives. These
increases may or may not be offset by additional menu price adjustments or guest traffic growth.
Restaurant Rent Expense
Restaurant rent expense, as a percentage of restaurant sales, remained relatively unchanged at 2.0% in 2017
compared to 2.1% in both 2016 and 2015. In all periods presented, the benefit from an increase in average unit volume
was offset by an increase in rent expense, as a percentage of restaurant sales, related to newer restaurants.
Restaurant Other Operating Expenses
Restaurant other operating expense, as a percentage of restaurant sales, increased to 15.6% in 2017 from 15.5% in
2016. The increase was primarily attributed to higher costs associated with credit card charges, general liability
insurance and disaster claims as well as higher gift card fees and breakage. These increases were partially offset by
lower costs related to incentive compensation along with an increase in average unit volume. General liability insurance
increased due to the reduction of costs recorded in the prior year from changes in our claims development history
included in our quarterly actuarial reserve estimate. Disaster claims increased due to hurricane related damage and costs
related to other uninsured events.
Restaurant other operating expenses, as a percentage of restaurant sales, increased to 15.5% in 2016 from 15.4% in
2015. This increase was primarily attributed to higher third party gift card fees and higher costs related to incentive
compensation partially offset by an increase in average unit volume and lower costs associated with utilities. Higher
third party gift card fees were primarily due to the continued growth of our third-party gift card program while improved
restaurant margins led to higher bonus expense. Utility costs were lower primarily due to lower electricity and natural
gas rates.
Restaurant Pre-opening Expenses
Pre-opening expenses in 2017 decreased to $19.3 million from $19.5 million in 2016. In 2016, pre-opening
expenses increased to $19.5 million from $19.1 million in 2015. These changes are primarily due to the number of
restaurant openings in a given year and the timing of restaurant openings. In 2017, we opened 27 company restaurants
compared to 30 company restaurants in 2016 and 29 restaurants in 2015. Pre-opening costs will fluctuate from period to
period based on the specific pre-opening costs incurred for each restaurant, the number and timing of restaurant openings
and the number and timing of restaurant managers hired.
Depreciation and Amortization Expenses ("D&A")
D&A, as a percentage of revenue, remained unchanged at 4.2% in 2017 compared to 2016. In 2016, D&A, as a
percentage of revenue, increased to 4.2% from 3.9% in 2015. In all periods presented, the increase in D&A is primarily
due to increased investment in short-lived assets, such as equipment at existing restaurants, and higher depreciation, as a
percentage of revenue, at new restaurants, offset by an increase in average unit volume.
43
Impairment and Closure Costs
Impairment and closure costs were $0.7 million, $0.2 million and $1.0 million in 2017, 2016 and 2015,
respectively. In 2017, we recorded $0.7 million of closure costs primarily related to the relocation of one restaurant. In
2016 and 2015, we recorded $0.2 million and $1.0 million, respectively, of closure costs related to the relocation of three
restaurants. See note 15 in the Consolidated Financial Statements for further discussion regarding closures and
impairments recorded in 2017, 2016 and 2015.
General and Administrative Expenses ("G&A")
G&A, as a percentage of total revenue, remained flat at 5.6% in 2017 compared to 2016. The benefit from an
increase in average unit volume and lower incentive and shared-based compensation was offset by a pre-tax charge of
$14.9 million ($9.2 million after-tax), or $0.13 per diluted share, related to legal fees and the settlement of a legal matter.
The impact of the legal charge was partially offset by a pre-tax charge recorded in 2016 of $7.3 million ($4.5 million
after-tax) or $0.06 per diluted share, related to a separate legal matter.
G&A, as a percentage of total revenue, increased to 5.6% in 2016 from 5.1% in 2015. This increase was primarily
attributed to a pre-tax charge of $7.3 million ($4.5 million after-tax) related to the settlement of a legal matter, along
with higher costs associated with incentive compensation expense partially offset by an increase in average unit volume.
The $7.3 million charge had a $0.06 impact on diluted earnings per share in 2016.
We are currently subject to various claims and contingencies that arise from time to time in the ordinary course of
business, including those related to litigation, business transactions, employee-related matters and taxes, among others.
See note 12 to the Consolidated Financial Statements for further discussion of these matters.
Interest Expense, Net
Net interest expense increased to $1.6 million in 2017 compared to $1.3 million in 2016. Net interest expense
decreased to $1.3 million in 2016 compared to $2.0 million in 2015. The increase in 2017 was primarily due to higher
interest rates while the decrease in 2016 was primarily due to the expiration of our interest rate swaps. See note 16 to the
Consolidated Financial Statements for further discussion of interest rate swaps.
Income Taxes
Our effective tax rate decreased to 26.1% in 2017 compared to 29.8% in 2016 primarily due to the adoption of
Accounting Standards Update 2016-09, Compensation – Stock Compensation and new tax legislation that was enacted in
late 2017. 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. During 2017, we recognized $3.4 million, or $0.05 per
share, as an income tax benefit related to the new guidance requirements. As a result of the new tax legislation,
significant tax changes were enacted including a reduction of the federal corporate tax rate from 35.0% to 21.0% and
changes in the federal taxes paid on foreign sourced earnings. These changes are generally effective beginning with our
fiscal year 2018. During 2017, we recognized $3.1 million, or $0.04 per share, as an income tax benefit related to the
new tax legislation which includes an income tax benefit of approximately $3.8 million to revalue our deferred tax
balances as of the enactment date and an income tax expense of approximately $0.7 million related to our foreign
operations. This amount could be impacted as interpretations of the new tax legislation change. See note 8 for a
reconciliation of the statutory federal income tax rate to our effective tax rate. For 2018, we expect the effective tax rate
to be 15.0% to 16.0%.
Our effective tax rate remained unchanged at 29.8% in 2016 compared to 2015 primarily due to the benefit of
lower state income tax rates which were offset by lower FICA tip credits as a percentage of pre-tax income.
44
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):
Net cash provided by operating activities . . . . . . . . . . . $ 286,373 $ 257,065 $ 227,941
Net cash used in investing activities . . . . . . . . . . . . . . . (178,156) (164,738) (173,203)
(38,717)
Net cash used in financing activities . . . . . . . . . . . . . . .
(81,526)
53,610 $ (26,788)
Net increase (decrease) in cash and cash equivalents . . $
(70,243)
37,974 $
2017
Fiscal Year
2016
2015
Net cash provided by operating activities was $286.4 million in 2017 compared to $257.1 million in 2016. The
increase was primarily due to an increase in net income and non-cash items such as depreciation and amortization
expense along with an increase in working capital. The increase in net income was primarily driven by an increase in
comparable restaurant sales at existing restaurants, the continued opening of new restaurants and lower commodity costs,
primarily beef, partially offset by higher labor and general and administrative expenses. The increase in working capital
was primarily due to an increase in cash flows related to a change in the timing of payments for accrued wages.
Net cash provided by operating activities was $257.1 million in 2016 compared to $227.9 million in 2015. The
increase was primarily due to an increase in net income and non-cash items such as depreciation and amortization
expense partially offset by a decrease in working capital. The increase in net income was primarily driven by an
increase in comparable restaurant sales at existing restaurants, the continued opening of new restaurants and lower
commodity costs, primarily beef. The decrease in working capital was primarily due to a decrease in cash flows related
to a change in the timing of payments for accrued wages along with accounts payable partially offset by deferred
revenue related to gift cards due to higher gift 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 $178.2 million in 2017 compared to $164.7 million in 2016. The increase
was primarily due to the acquisition of four franchise restaurants in Q1 2017 for an aggregate purchase price of $16.5
million.
Net cash used in investing activities was $164.7 million in 2016 compared to $173.2 million in 2015. The decrease
was primarily due to lower spending related to new restaurant openings in future years partially offset by higher average
capitalized costs in 2016. Capital expenditures in 2016 related to restaurant openings in future years was approximately
$22.6 million compared to approximately $35.3 million in 2015.
We require capital principally for the development of new company restaurants, the refurbishment 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. As of
December 26, 2017, 140 of the 462 company restaurants have been developed on land which we own.
45
The following table presents a summary of capital expenditures related to the development of new restaurants and
the refurbishment of existing restaurants (in thousands):
2017
2016
2015
New company restaurants . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 109,626 $ 107,518 $ 117,283
Refurbishment of existing restaurants(1) . . . . . . . . . . . . . . . . . . . .
56,192
Total capital expenditures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 161,628 $ 164,738 $ 173,475
52,002
57,220
Restaurant-related repairs and maintenance expense(2) . . . . . . . . $
25,819 $
22,368 $
20,607
(1) Includes capital expenditures related to support center office.
(2) These amounts were recorded as an expense as incurred.
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 2018, we expect our capital expenditures to be approximately $165.0 million to
$175.0 million, the majority of which will relate to planned restaurant openings, including approximately 30 restaurant
openings in 2018. This amount excludes any cash used for franchise acquisitions. We intend to satisfy our capital
requirements over the next 12 months with cash on hand, net cash provided by operating activities and, if needed, funds
available under our amended credit facility. For 2018, we anticipate net cash provided by operating activities will exceed
capital expenditures, which we currently plan to use to pay dividends, as approved by our Board of Directors, repurchase
common stock, and/or repay borrowings under our amended credit facility.
Net cash used in financing activities was $70.2 million in 2017 compared to $38.7 million in 2016. The increase is
primarily due to borrowings on our amended revolving credit facility that occurred in Q1 2016 and an increase in
dividends paid. These increases were partially offset by decreased spending on share repurchases, along with proceeds
from noncontrolling interest contributions.
Net cash used in financing activities was $38.7 million in 2016 compared to $81.5 million in 2015. The decrease
was primarily due to an increase in borrowings on our amended revolving credit facility partially offset by higher
dividend payments and lower proceeds from stock option exercises in 2016.
On May 22, 2014, our Board of Directors approved a stock repurchase program under which it authorized us to
repurchase up to $100.0 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. All repurchases to date under
our stock repurchase program have been made through open market transactions. The timing and the amount of any
repurchases will be determined by management under parameters established by our Board of Directors, based on an
evaluation of our stock price, market conditions and other corporate considerations. During 2017, we made no share
repurchases and had $69.9 million remaining under our authorized stock repurchase program as of December 26, 2017.
We paid cash dividends of $58.2 million in 2017. On December 6, 2017, our Board of Directors authorized the
payment of a regular quarterly cash dividend of $0.21 per share of common stock to shareholders of record at the close
of business on December 13, 2017. This payment was distributed on December 29, 2017. On February 16, 2018, our
Board of Directors authorized the payment of a quarterly cash dividend of $0.25 per share of common stock. This
payment will be distributed on March 29, 2018 to shareholders of record at the close of business on March 14, 2018. The
increase in the dividend per share amount reflects the increase in our regular annual dividend rate from $0.84 per share
in 2017 to $1.00 per share in 2018. The declaration and payment of cash dividends on our common stock is at the
discretion of our Board of Directors, and any decision to declare a dividend will be based on a number of factors,
including, but not limited to, earnings, financial condition, applicable covenants under our amended credit facility and
other contractual restrictions, or other factors deemed relevant.
We paid distributions of $5.2 million to equity holders of all of our 18 majority-owned company restaurants in 2017
YTD. In 2016, we paid distributions of $4.5 million to equity holders of all of our 16 majority-owned restaurants.
On August 7, 2017, we entered into the Amended and Restated Credit Agreement (the "Amended Credit
Agreement") with respect to our revolving credit facility with a syndicate of commercial lenders led by JP Morgan
Chase Bank, N.A., PNC Bank, N.A., and Wells Fargo Bank, N.A. The amended revolving credit facility remains an
46
unsecured, revolving credit agreement under which we may borrow up to $200.0 million with the option to increase the
amended revolving credit facility by an additional $200.0 million subject to certain limitations. The Amended Credit
Agreement extends the maturity date of our revolving credit facility until August 5, 2022.
The terms of the Amended Credit Agreement require us to pay interest on outstanding borrowings at the London
Interbank Offered Rate ("LIBOR") plus a margin of 0.875% to 1.875% and to pay a commitment fee of 0.125% to
0.30% per year on any unused portion of the amended revolving credit facility, depending on our consolidated net
leverage ratio, or the Alternate Base Rate, which is the highest of the issuing banks’ prime lending rate, the Federal
Reserve Bank of New York rate plus 0.50% or the Adjusted Eurodollar Rate for a one month interest period on such day
plus 1.0%. The weighted-average interest rate for the amended revolving credit facility at December 26, 2017 and
December 27, 2016 was 2.37% and 1.57%, respectively, including the impact of the interest rate swap which expired on
January 7, 2016. At December 26, 2017, we had $50.0 million outstanding under our amended revolving credit facility
and $142.5 million of availability, net of $7.5 million of outstanding letters of credit.
The lenders’ obligation to extend credit pursuant to the Amended Credit Agreement depends on us maintaining
certain financial covenants, including a minimum consolidated fixed charge coverage ratio of 2.00 to 1.00 and a
maximum consolidated leverage ratio of 3.00 to 1.00. The Amended Credit Agreement permits us to incur additional
secured or unsecured indebtedness outside the amended revolving credit facility, except for the incurrence of secured
indebtedness that in the aggregate is equal to or greater than $125.0 million and 20% of our consolidated tangible net
worth. We were in compliance with all financial covenants as of December 26, 2017.
Contractual Obligations
The following table summarizes the amount of payments due under specified contractual obligations as of
December 26, 2017 (in thousands):
Payments Due by Period
Less than
More than
Long-term debt obligations. . . . . . . . . . . . . . . . . . . $
Interest(1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Operating lease obligations . . . . . . . . . . . . . . . . . . .
Capital obligations. . . . . . . . . . . . . . . . . . . . . . . . . .
Total contractual obligations(2) . . . . . . . . . . . . . . . $ 1,063,045 $ 197,324 $
9
1,407
45,911
149,997
23
2,851
91,289
—
1,927
4,322
621,324
—
94,163 $ 143,985 $ 627,573
50,031
2,474
91,480
—
Total
51,990 $
11,054
850,004
149,997
1 year
1 - 3 Years 3 - 5 Years
5 years
(1) Uses interest rates as of December 26, 2017 for our variable rate debt. We assumed $50.0 million remains
outstanding on the amended revolving credit facility until the expiration date. We calculated interest payments by
using the weighted average interest rate of 2.37%, which was the interest rate associated with our amended
revolving credit facility at December 26, 2017.
(2) Excluded from this amount are certain immaterial items including unrecognized tax benefits under Accounting
Standards Codification ("ASC") 740 and the one-time transition tax on foreign earnings required under the new tax
legislation.
We have no material minimum purchase commitments with our vendors that extend beyond a year. See notes 4 and
7 to the Consolidated Financial Statements for details of contractual obligations.
Off-Balance Sheet Arrangements
Except for operating leases (primarily restaurant leases), we do not have any off-balance sheet arrangements.
47
Guarantees
As of December 26, 2017 and December 27, 2016, we are contingently liable for $15.6 million and $16.4 million,
respectively, for seven leases, 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
December 26, 2017 as the likelihood of default was deemed to be less than probable and the fair value of the guarantees
is not considered significant.
Lease
Assignment Date
Current Lease
Term Expiration
Everett, Massachusetts (1)(2) . . . . . . . . . . . . . . . . . . . . . . . . . September 2002 February 2023
Longmont, Colorado (1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . October 2003 May 2019
Montgomeryville, Pennsylvania (1) . . . . . . . . . . . . . . . . . . . . October 2004 March 2021
Fargo, North Dakota (1)(2) . . . . . . . . . . . . . . . . . . . . . . . . . . . February 2006
July 2021
Logan, Utah (1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
January 2009 August 2019
Irving, Texas (3) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . December 2013 December 2019
Louisville, Kentucky (3)(4) . . . . . . . . . . . . . . . . . . . . . . . . . . December 2013 November 2023
(1) Real estate lease agreements for restaurant locations which we entered into before granting franchise rights to those
restaurants. We have subsequently assigned the leases to the franchisees, but remain contingently liable, under the
terms of the lease, if the franchisee defaults.
(2) As discussed in note 18, these restaurants are owned, in whole or part, by certain officers, directors and 5%
shareholders of the Company.
(3) Leases associated with restaurants which were sold. The leases were assigned to the acquirer, but we remain
contingently liable under the terms of the lease if the acquirer defaults.
(4) We may be released from liability after the initial lease term expiration contingent upon certain conditions being
met by the acquirer.
Recent Accounting Pronouncements
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 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 term 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 accounting fees,
supervision fees 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 the classification of
certain transactions including discounts on third party gift card sales. We expect to use the cumulative-effect method of
adoption and do not believe this adoption will have a material impact on our consolidated balance sheets and the related
48
statements of income and comprehensive income, stockholders’ equity, and cash flows and the related notes, or a
material effect on our internal control over financial reporting.
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 $850.0 million as of December 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. 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). 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.
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
49
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). 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.
Critical Accounting Policies and Estimates
The above discussion and analysis of our financial condition and results of operations are based upon our
consolidated financial statements, which have been prepared in accordance with U.S. GAAP. The preparation of these
financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities,
revenue and expenses, and disclosures of contingent assets and liabilities. Our significant accounting policies are
described in note 2 to the accompanying consolidated financial statements. Critical accounting policies are those that we
believe are most important to portraying our financial condition and results of operations and also require the greatest
amount of subjective or complex judgments by management. Judgments or uncertainties regarding the application of
these policies may result in materially different amounts being reported under different conditions or using different
assumptions. We consider the following policies to be the most critical in understanding the judgments that are involved
in preparing the consolidated financial statements.
Impairment of Long-lived Assets. We evaluate long-lived assets related to each restaurant to be held and used in the
business, such as property and equipment and intangible assets subject to amortization, for impairment whenever events
and circumstances indicate that the carrying amount of a restaurant may not be recoverable. When we evaluate
restaurants, cash flows are the primary indicator of impairment. Recoverability of assets to be held and used is measured
by comparison of the carrying amount of the restaurant to estimated undiscounted future cash flows expected to be
generated by the restaurant. Under our policies, trailing 12-month cash flow results below $300,000 at the individual
restaurant level signals a potential impairment. In our evaluation of restaurants that do not meet the cash flow threshold,
we estimate future undiscounted cash flows from operating the restaurant over its estimated useful life, which can be a
period of over 20 years. In the estimation of future cash flows, we consider the period of time the restaurant has been
open, the trend of operations over such period and future periods and expectations for future sales growth. We limit
assumptions about important factors such as trend of future operations and sales growth to those that are supportable
based upon our plans for the restaurant and actual results at comparable restaurants. Both qualitative and quantitative
information are considered when evaluating for potential impairments. As we assess the ongoing expected cash flows
and carrying amounts of our long-lived assets, these factors could cause us to realize a material impairment charge.
If assets are determined to be impaired, we measure the impairment charge by calculating the amount by which the
asset carrying amount exceeds its fair value. The determination of asset fair value is also subject to significant judgment.
We generally measure estimated fair value by independent third party appraisal or discounting estimated future cash
flows. When fair value is measured by discounting estimated future cash flows, the assumptions used are consistent with
what we believe hypothetical market participants would use. We also use a discount rate that is commensurate with the
risk inherent in the projected cash flows. If these assumptions change in the future, we may be required to record
impairment charges for these assets.
At December 26, 2017, we had nine restaurants whose trailing 12-month cash flows did not meet the $300,000
threshold. However, the future undiscounted cash flows from operating each of these restaurants over their remaining
estimated useful lives exceeded their respective remaining carrying values and no assets were determined to be impaired.
50
See note 15 in the Consolidated Financial Statements for further discussion regarding closures and impairments
recorded in 2017, 2016 and 2015, including the impairments of goodwill and other long-lived assets.
Goodwill. Goodwill is tested annually for impairment, and is tested more frequently if events and circumstances
indicate that the asset might be impaired. We have assigned goodwill to our reporting units, which we consider to be the
individual restaurant level. An impairment loss is recognized to the extent that the carrying amount exceeds the implied
fair value of goodwill. The determination of impairment consists of two steps. First, we determine the fair value of the
reporting unit and compare it to its carrying amount. The fair value of the reporting unit may be based on several
valuation approaches including capitalization of earnings, discounted cash flows, comparable public company market
multiples and comparable acquisition market multiples. Second, if the carrying amount of the reporting unit exceeds its
fair value, an impairment loss is recognized for any excess of the carrying amount of the reporting unit’s goodwill over
the implied fair value of the goodwill. The implied fair value of goodwill is determined by allocating the fair value of the
reporting unit, in a manner similar to a purchase price allocation. The residual fair value after this allocation is the
implied fair value of the reporting unit goodwill.
The valuation approaches used to determine fair value are subject to key judgments and assumptions that are
sensitive to change such as appropriate revenue growth rates, operating margins, weighted average cost of capital, and
comparable company and acquisition market multiples. In estimating the fair value using the capitalization of earnings or
discounted cash flows methods we consider the period of time the restaurant has been open, the trend of operations over
such period and future periods, expectations of future sales growth and terminal value. Assumptions about important
factors such as the trend of future operations and sales growth are limited to those that are supportable based upon the
plans for the restaurant and actual results at comparable restaurants. When developing these key judgments and
assumptions, we consider economic, operational and market conditions that could impact fair value. The judgments and
assumptions used are consistent with what we believe hypothetical market participants would use. However, estimates
are inherently uncertain and represent only our reasonable expectations regarding future developments. If the estimates
used in performing the impairment test prove inaccurate, the fair value of the restaurants may ultimately prove to be
significantly lower, thereby causing the carrying value to exceed the fair value and indicating impairment has occurred.
At December 26, 2017, we had 69 reporting units, primarily at the restaurant level, with allocated goodwill of
$121.0 million. The average amount of goodwill associated with each reporting unit is $1.8 million with six reporting
units having goodwill in excess of $4.0 million. We did not record any impairment charges as a result of our annual
impairment analysis in 2017. We are not currently monitoring any restaurants for potential impairment. Since we
determine the fair value of goodwill at the restaurant level, any significant decreases in cash flows at these restaurants or
others could trigger an impairment charge in the future. The fair value of each of our reporting units was substantially in
excess of their respective carrying values as of the 2017 goodwill impairment test. See note 15 in the Consolidated
Financial Statements for further discussion regarding closures and impairments recorded in 2017, 2016 and 2015,
including the impairments of goodwill and other long-lived assets.
Income Taxes. Deferred tax assets and liabilities are recognized based upon anticipated future tax consequences
attributable to differences between financial statement carrying values of assets and liabilities and their respective tax
bases. A valuation allowance is established to reduce the carrying value of deferred tax assets if it is considered more
likely than not that such assets will not be realized. Any change in the valuation allowance would be charged to income
in the period such determination was made.
An uncertain tax position taken or expected to be taken in a tax return is recognized in the financial statements
when it is more likely than not (i.e., a likelihood of more than fifty percent) that the position would be sustained upon
examination by tax authorities that have full knowledge of all relevant information. A recognized tax position is then
measured at the largest amount of benefit that is greater than fifty percent likely of being realized upon settlement.
Effects of Inflation
We have not operated in a period of high general inflation for the last several years; however, we have experienced
material increases in certain commodity costs, specifically beef, in the past. In addition, a significant number of our
employees are paid at rates related to the federal and/or state minimum wage and, accordingly, increases in minimum
wage have increased our labor costs for the last several years. We have increased menu prices and made other
adjustments over the past few years, in an effort to offset increases in our restaurant and operating costs resulting from
inflation. Whether we are able and/or choose to continue to offset the effects of inflation will determine to what extent, if
any, inflation affects our restaurant profitability in future periods.
51
ITEM 7A—QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
We are exposed to market risk from changes in interest rates on 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%, depending on our leverage ratio, or the Alternate Base Rate, which is the highest of the
issuing bank’s 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 December 26, 2017, we had $50.0 million outstanding under the amended
revolving credit facility, which bears interest at approximately 87.5 to 187.5 basis points (depending on our leverage
ratios) over LIBOR. Should interest rates based on these variable rate borrowings increase by one percentage point, our
estimated annual interest expense would increase by $0.5 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
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-term financial results could be negatively affected.
We are subject to business risk as our beef supply is highly dependent upon three vendors. If these vendors were
unable to fulfill their obligations under their contracts, we may encounter supply shortages and incur higher costs to
secure adequate supplies, any of which would harm our business.
ITEM 8—FINANCIAL STATEMENTS AND SUPPLEMENTARY FINANCIAL DATA
See Index to Consolidated Financial Statements at Item 15.
ITEM 9—CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
52
ITEM 9A—CONTROLS AND PROCEDURES
Evaluation of disclosure controls and procedures
We have evaluated the effectiveness of the design and operation of our disclosure controls and procedures pursuant
to, and as defined in, Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended, as of the
end of the period covered by this report. Based on the evaluation, performed under the supervision and with the
participation of our management, including the Chief Executive Officer (the "CEO") and the Chief Financial Officer (the
"CFO"), our management, including the CEO and CFO, concluded that our disclosure controls and procedures were
effective as of December 26, 2017.
Changes in internal control
During the fourth quarter of 2017, there were no changes with respect to our internal control over financial
reporting that materially affected, or are reasonably likely to materially affect, our internal control over financial
reporting.
Management’s Report on Internal Control over Financial Reporting
Under Section 404 of the Sarbanes-Oxley Act of 2002, our management is required to assess the effectiveness of
the Company’s internal control over financial reporting as of the end of each fiscal year and report, based on that
assessment, whether the Company’s internal control over financial reporting is effective.
Management of the Company is responsible for establishing and maintaining adequate internal control over
financial reporting. As defined in Exchange Act Rule 13a-15(f), internal control over financial reporting is a process
designed by, or under the supervision of, our principal executive and principal financial officers and effected by our
Board of Directors, management and other personnel, to provide reasonable assurance regarding the reliability of
financial reporting and the preparation of financial statements for external purposes in accordance with generally
accepted accounting principles. Therefore, internal control over financial reporting determined to be effective can
provide only reasonable assurance with respect to financial statement preparation and may not prevent or detect all
misstatements.
Under the supervision and with the participation of our management, including our CEO and CFO, we assessed the
effectiveness of the Company’s internal control over financial reporting as of the end of the period covered by this
report. In this assessment, the Company applied criteria based on the "Internal Control—Integrated Framework (2013)"
issued by the Committee of Sponsoring Organizations of the Treadway Commission. These criteria are in the areas of
control environment, risk assessment, control activities, information and communication, and monitoring. The
Company’s assessment included documenting, evaluating and testing the design and operating effectiveness of its
internal control over financial reporting. Based upon this evaluation, our management concluded that our internal control
over financial reporting was effective as of December 26, 2017.
KPMG LLP, the independent registered public accounting firm that audited our Consolidated Financial Statements
included in the Annual Report on Form 10-K, has also audited the effectiveness of the Company’s internal control over
financial reporting as of December 26, 2017 as stated in their report at F-2.
ITEM 9B—OTHER INFORMATION
None.
53
PART III
ITEM 10—DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
Information regarding our directors is incorporated herein by reference to the information set forth under "Election
of Directors" in our Definitive Proxy Statement to be dated approximately April 6, 2018.
Information regarding our executive officers has been included in Part I of this Annual Report under the caption
"Executive Officers of the Company."
Information regarding our corporate governance is incorporated herein by reference to the information set forth in
our Definitive Proxy Statement to be dated approximately April 6, 2018.
ITEM 11—EXECUTIVE COMPENSATION
Incorporated by reference from our Definitive Proxy Statement to be dated approximately April 6, 2018.
ITEM 12—SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND
RELATED STOCKHOLDER MATTERS
Incorporated by reference from our Definitive Proxy Statement to be dated approximately April 6, 2018.
Equity Compensation Plans
As of December 26, 2017, shares of common stock authorized for issuance under our equity compensation plans are
summarized in the following table. See note 13 to the Consolidated Financial Statements for a description of the plans.
Plan Category
Plans approved by stockholders(1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Plans not approved by stockholders . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
1,154,991
—
1,154,991
Shares to Be
Issued Upon
Vest Date
Shares
Available for
Future Grants
4,077,534
—
4,077,534
(1) See note 13 to the Consolidated Financial Statements.
ITEM 13—CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR
INDEPENDENCE
Incorporated by reference from our Definitive Proxy Statement to be dated approximately April 6, 2018.
ITEM 14—PRINCIPAL ACCOUNTING FEES AND SERVICES
Incorporated by reference from our Definitive Proxy Statement to be dated approximately April 6, 2018.
54
ITEM 15—EXHIBITS, FINANCIAL STATEMENT SCHEDULES
1. Consolidated Financial Statements
PART IV
Description
Reports of Independent Registered Public Accounting Firm . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Consolidated Balance Sheets as of December 26, 2017 and December 27, 2016 . . . . . . . . . . . . . . . . . . .
Consolidated Statements of Income and Comprehensive Income for the years ended December 26,
2017, December 27, 2016 and December 29, 2015 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Consolidated Statements of Stockholders’ Equity for the years ended December 26, 2017, December
27, 2016 and December 29, 2015 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Consolidated Statements of Cash Flows for the years ended December 26, 2017, December 27, 2016
and December 29, 2015 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Notes to Consolidated Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Page Number
in Report
F-1
F-4
F-5
F-6
F-7
F-8
2. Financial Statement Schedules
Omitted due to inapplicability or because required information is shown in our Consolidated Financial Statements
or notes thereto.
3. Exhibits
Exhibit
No.
3.1
Amended and Restated Certificate of Incorporation of Registrant (incorporated by reference to Exhibit 3.1
of the Registrant’s Quarterly Report on Form 10-Q for the period ended June 28, 2016)(File No. 000-
50972)
Description
3.2
Bylaws of Registrant (incorporated by reference to Exhibit 3.3 to the Registration Statement on Form S-1 of
Registrant (File No. 333-115259))
4.1
Registration Rights Agreement, dated as of May 7, 2004, among Registrant and others (incorporated by
reference to Exhibit 4.3 to the Registration Statement on Form S-1 of Registrant (File No. 333-115259))
10.1*
Texas Roadhouse, Inc. 2004 Equity Incentive Plan (incorporated by reference to Exhibit 4.1 to the
Registration Statement on Form S-8 of Registrant (File No. 333-121241))
10.2
Form of Director and Executive Officer Indemnification Agreement (incorporated by reference to
Exhibit 10.9 to the Registration Statement on Form S-1 of Registrant (File No. 333-115259))
10.3
Form of Limited Partnership Agreement and Operating Agreement for certain company-managed Texas
10.6
10.7
Roadhouse restaurants, including schedule of the owners of such restaurants and the aggregate interests held
by directors, executive officers and 5% stockholders who are parties to such an agreement (incorporated by
reference to Exhibit 10.10 to the Registration Statement on Form S-1 of Registrant (File No. 333-115259))
Form of Franchise Agreement and Preliminary Agreement for a Texas Roadhouse restaurant franchise,
including schedule of directors, executive officers and 5% stockholders which have entered into either
agreement (incorporated by reference to Exhibit 10.14 to the Registration Statement on Form S-1 of
Registrant (File No. 333-115259))
Schedule of the owners of company-managed Texas Roadhouse restaurants and the aggregate interests held
by directors, executive officers and 5% stockholders who are parties to Limited Partnership Agreements and
Operating Agreements as of December 26, 2017 the form of which is set forth in Exhibit 10.3 of this
Form 10-K
10.8
Schedule of the directors, executive officers and 5% stockholders which have entered into Franchise
Agreements or Preliminary Agreements for a Texas Roadhouse Franchise as of December 26, 2017 the
form of which is set forth in Exhibit 10.6 of this Form 10-K
10.11
Amended and Restated Lease Agreement (Two Paragon Centre) dated January 1, 2006 between Paragon
Centre Holdings, LLC and Texas Roadhouse Holdings LLC (incorporated by reference to Exhibit 10.17 of
Registrant’s Quarterly Report on Form 10-Q for the quarter ended June 27, 2006) (File No. 000-50972)
55
Exhibit
No.
10.12
10.13
10.14
Description
First Amendment to Amended and Restated Lease Agreement (Two Paragon Centre) dated December 18,
2006 between Paragon Centre Holdings LLC and Texas Roadhouse Holdings LLC (incorporated by
reference to Exhibit 10.21 of Registrant’s Annual Report on Form 10-K for the year ended December 26,
2006) (File No. 000-50972)
Second Amendment to Amended and Restated Lease Agreement (Two Paragon Centre) dated May 10, 2007
between Paragon Centre Holdings, LLC and Texas Roadhouse Holdings, LLC (incorporated by reference to
Exhibit 10.2 of the Registrant’s Quarterly Report on Form 10-Q for the quarter ended June 26, 2007) (File
No. 000-50972)
Third Amendment to Amended and Restated Lease Agreement (Two Paragon Centre) dated September 7,
2007 between Paragon Centre Holdings, LLC and Texas Roadhouse Holdings, LLC (incorporated by
reference to Exhibit 10.1 of the Registrant’s Quarterly Report on Form 10-Q for the quarter ended
September 25, 2007) (File No. 000-50972)
10.15
Fourth Amendment dated July 22, 2009, and Fifth Amendment dated November 15, 2013, to Amended and
Restated Lease Agreement (Two Paragon Centre) between Paragon Centre Holdings, LLC and Texas
Roadhouse Holdings, LLC (incorporated by reference to Exhibit 10.15 to the Registrant’s Annual Report on
Form 10-K for the year ended December 30, 2014 (File No. 000-50972))
10.16* Form of Restricted Stock Unit Award Agreement under the 2004 Equity Incentive Plan (incorporated by
reference to Exhibit 10.19 of Registrant’s Annual Report on Form 10-K for the year ended December 25,
2007 (File No. 000-50972))
10.17* Form of First Amendment to Restricted Stock Unit Award Agreement under the 2004 Equity Incentive Plan
with non-management directors (incorporated by reference to Exhibit 10.20 of Registrant’s Annual Report
on Form 10-K for the year ended December 30, 2008 (File No. 000-50972))
10.18* Amendment to Texas Roadhouse, Inc. 2004 Equity Incentive Plan (incorporated by reference to
Exhibit 10.21 of Registrant’s Annual Report on Form 10-K for the year ended December 30, 2008 (File
No. 000-50972))
10.19* Texas Roadhouse, Inc. 2013 Long-Term Incentive Plan (incorporated by reference from Appendix A to the
Texas Roadhouse, Inc. Proxy Statement on Schedule 14A filed with the Securities and Exchange
Commission on April 5, 2013 (File No. 000-50972))
10.20* Form of Restricted Stock Unit Award under the Texas Roadhouse, Inc. 2013 Long-Term Incentive Plan
(incorporated by reference to Exhibit 10.2 of Registrant’s Quarterly Report on Form 10-Q for the quarter
ended June 25, 2013 (File No. 000-50972))
10.21* Texas Roadhouse, Inc. Cash Bonus Plan for cash incentive awards granted pursuant to the Texas
Roadhouse, Inc. 2013 Long-Term Incentive Plan (incorporated by reference to Exhibit 10.3 of Registrant’s
Quarterly Report on Form 10-Q for the quarter ended June 25, 2013 (File No. 000-50972))
10.22* Employment Agreement between the Registrant and W. Kent Taylor, entered into as of January 8, 2015
(incorporated by reference to Exhibit 10.35 to the Registrant’s Annual Report on Form 10-K for the year
ended December 30, 2014 (File No. 000-50972))
10.23* Employment Agreement between the Registrant and Scott M. Colosi, entered into as of January 8, 2015
(incorporated by reference to Exhibit 10.36 to the Registrant’s Annual Report on Form 10-K for the year
ended December 30, 2014 (File No. 000-50972))
10.24* Employment Agreement between the Registrant and Celia Catlett, entered into as of January 8, 2015
(incorporated by reference to Exhibit 10.38 to the Registrant’s Annual Report on Form 10-K for the year
ended December 30, 2014 (File No. 000-50972))
10.25* Employment Agreement between the Registrant and W. Kent Taylor entered into as of December 26, 2017
10.26* Employment Agreement between the Registrant and Scott M. Colosi entered into as of December 26, 2017
10.27* Employment Agreement between the Registrant and Celia Catlett entered into as of December 26, 2017
10.28* Employment Agreement between the Registrant and S. Chris Jacobsen entered into as of December 26,
2017
10.29* Form of Performance Stock Unit Award Agreement under the Texas Roadhouse, Inc. 2013 Long-Term
Incentive Plan (incorporated by reference to Exhibit 10.36 to the Registrant’s Annual Report on Form 10-K
for the year ended December 29, 2015 (File No. 000-50972))
56
Exhibit
No.
Description
10.30* Amended and Restated Form of Restricted Stock Unit Award Agreement under the Texas Roadhouse, Inc.
2013 Long-Term Incentive Plan for officers (incorporated by reference to Exhibit 10.40 to the Registrant’s
Annual Report on Form 10-K for the year ended December 30, 2014 (File No. 000-50972))
10.31* Amended and Restated Form of Restricted Stock Unit Award Agreement under the Texas Roadhouse, Inc.
2013 Long-Term Incentive Plan for non-officers (incorporated by reference to Exhibit 10.41 to the
Registrant’s Annual Report on Form 10-K for the year ended December 30, 2014 (File No. 000-50972))
10.32* Second Amended and Restated Deferred Compensation Plan of Texas Roadhouse Management Corp., as
amended December 19, 2007 and December 31, 2008 (incorporated by reference to Exhibit 10.42 to the
Registrant’s Annual Report on Form 10-K for the year ended December 30, 2014 (File No. 000-50972))
10.33* Third Amended and Restated Deferred Compensation Plan of Texas Roadhouse Management Corp.,
10.34
10.35
10.36
10.37
effective January 1, 2010 (incorporated by reference to Exhibit 10.43 to the Registrant’s Annual Report on
Form 10-K for the year ended December 30, 2014 (File No. 000-50972))
Lease Agreement dated December 11, 2012 between Paragon Centre Holdings, LLC and Texas Roadhouse
Holdings LLC (incorporated by reference to Exhibit 10.42 to the Registrant’s Annual Report on Form 10-K
for the year ended December 29, 2015 (File No. 000-50972))
First Amendment to Lease Agreement dated January 10, 2013 between Paragon Centre Holdings, LLC and
Texas Roadhouse Holdings LLC (incorporated by reference to Exhibit 10.43 to the Registrant’s Annual
Report on Form 10-K for the year ended December 29, 2015 (File No. 000-50972))
Second Amendment to Lease Agreement dated February 11, 2015 between Paragon Centre Holdings, LLC
and Texas Roadhouse Holdings LLC (incorporated by reference to Exhibit 10.44 to the Registrant’s Annual
Report on Form 10-K for the year ended December 29, 2015 (File No. 000-50972))
Third Amendment to Lease Agreement dated January 26, 2016 between Paragon Centre Holdings, LLC and
Texas Roadhouse Holdings LLC (incorporated by reference to Exhibit 10.45 to the Registrant’s Annual
Report on Form 10-K for the year ended December 29, 2015 (File No. 000-50972))
10.38* Employment agreement between the Registrant and S. Chris Jacobsen, entered into as of February 11, 2016
(incorporated by reference to Exhibit 10.46 to the Registrant’s Annual Report on Form 10-K for the year
ended December 29, 2015 (File No. 000-50972))
10.39* Form of Nonqualified Stock Option Agreement under Texas Roadhouse, Inc. 2013 Long-Term Incentive
Plan (incorporated by reference to Exhibit 10.47 to the Registrant’s Annual Report on Form 10-K for the
year ended December 29, 2015 (File No. 000-50972))
10.40
Fourth Amendment to Lease Agreement dated January 13, 2017 between Paragon Centre Holdings, LLC
and Texas Roadhouse Holdings LLC (incorporated by reference to Exhibit 10.36 to the Registrant’s Annual
Report on Form 10-K for the year ended December 27, 2016 (File No. 000-50972))
10.41
Fifth Amendment to Lease Agreement dated November 2, 2017 between Paragon Centre Holdings, LLC
and Texas Roadhouse Holdings LLC
10.42
10.43
Consent Decree dated March 31, 2017, among Texas Roadhouse, Inc., Texas Roadhouse Holdings LLC,
Texas Roadhouse Management Corp. and the EEOC (incorporated by reference to Exhibit 10.1 to the
Registrant’s Current Report on Form 8-K dated March 31, 2017 (File No. 000-50972))
Amended and Restated Credit Agreement dated as of August 7, 2017, by and among Texas Roadhouse Inc.,
and the lenders named therein and JPMorgan Chase Bank, N.A., as Administrative Agent (incorporated by
reference to Exhibit 10.1 to the Registrant’s Current Report on Form 8-K dated August 7, 2017 (File No.
000-50972))
21.1
23.1
31.1
31.2
32.1
List of Subsidiaries
Consent of KPMG LLP, Independent Registered Public Accounting Firm
Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002
32.2
Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002
57
Exhibit
No.
101
Description
The following financial statements from the Texas Roadhouse, Inc. Annual Report on Form 10-K for the
year ended December 26, 2017, filed February 23, 2018, formatted in eXtensible Business Reporting
Language (XBRL): (i) Consolidated Balance Sheets, (ii) Consolidated Statements of Income and
Comprehensive Income, (iii) Consolidated Statements of Stockholders’ Equity, (iv) Consolidated
Statements of Cash Flows, and (v) the Notes to the Consolidated Financial Statements.
* Management contract or compensatory plan or arrangement required to be filed as an exhibit to Form 10-K.
ITEM 16. FORM 10-K SUMMARY
Not applicable.
58
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, as amended, the
registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
SIGNATURES
TEXAS ROADHOUSE, INC.
By:
/s/ W. KENT TAYLOR
W. Kent Taylor
Chairman of the Company, Chief Executive
Officer, Director
Date: February 23, 2018
Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, this Annual Report has been
signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.
Signature
Title
Date
/s/ W. KENT TAYLOR
W. Kent Taylor
/s/ SCOTT M. COLOSI
Scott M. Colosi
/s/ GREGORY N. MOORE
Gregory N. Moore
/s/ JAMES F. PARKER
James F. Parker
/s/ KATHY WIDMER
Kathy Widmer
/s/ JAMES R. ZARLEY
James R. Zarley
February 23, 2018
February 23, 2018
February 23, 2018
February 23, 2018
February 23, 2018
February 23, 2018
Chairman of the Company, Chief
Executive Officer, Director
(Principal Executive Officer)
President, Chief Financial Officer
(Principal Financial Officer and
Principal Accounting Officer)
Director
Director
Director
Director
59
(This page has been left blank intentionally.)
Report of Independent Registered Public Accounting Firm
To the Stockholders and Board of Directors
Texas Roadhouse, Inc.:
Opinion on the Consolidated Financial Statements
We have audited the accompanying consolidated balance sheets of Texas Roadhouse, Inc. and subsidiaries (the
"Company") as of December 26, 2017 and December 27, 2016, the related consolidated statements of income and
comprehensive income, stockholders’ equity, and cash flows for each of the years in the three-year period ended
December 26, 2017, and the related notes (collectively, the "consolidated financial statements"). In our opinion, the
consolidated financial statements present fairly, in all material respects, the financial position of the Company as of
December 26, 2017 and December 27, 2016, and the results of its operations and its cash flows for each of the years in
the three-year period ended December 26, 2017, in conformity with U.S. generally accepted accounting principles.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United
States) ("PCAOB"), the Company’s internal control over financial reporting as of December 26, 2017, based on criteria
established in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of
the Treadway Commission, and our report dated February 23, 2018 expressed an unqualified opinion on the
effectiveness of the Company’s internal control over financial reporting.
Basis for Opinion
These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to
express an opinion on these consolidated financial statements based on our audits. We are a public accounting firm
registered with the PCAOB and are required to be independent with respect to the Company in accordance with the
U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the
PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material
misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material
misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that
respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and
disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used
and significant estimates made by management, as well as evaluating the overall presentation of the consolidated
financial statements. We believe that our audits provide a reasonable basis for our opinion.
/s/ KPMG LLP
We have served as the Company’s auditor since 1998.
Louisville, Kentucky
February 23, 2018
F-1
Report of Independent Registered Public Accounting Firm
To the Stockholders and Board of Directors
Texas Roadhouse, Inc.:
Opinion on Internal Control Over Financial Reporting
We have audited Texas Roadhouse, Inc. and subsidiaries’ (the "Company") internal control over financial reporting as of
December 26, 2017, based on criteria established in Internal Control – Integrated Framework (2013) issued by the
Committee of Sponsoring Organizations of the Treadway Commission. In our opinion, the Company maintained, in all
material respects, effective internal control over financial reporting as of December 26, 2017, based on criteria
established in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of
the Treadway Commission.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United
States) ("PCAOB"), the consolidated balance sheets of the Company as of December 26, 2017 and December 27, 2016,
the related consolidated statements of income and comprehensive income, stockholders’ equity, and cash flows for each
of the years in the three-year period ended December 26, 2017, and the related notes (collectively, the "consolidated
financial statements"), and our report dated February 23, 2018 expressed an unqualified opinion on those consolidated
financial statements.
Basis for Opinion
The Company’s management is responsible for maintaining effective internal control over financial reporting and for its
assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management’s
Report on Internal Control over Financial Reporting appearing under Item 9A. Our responsibility is to express an
opinion on the Company’s internal control over financial reporting based on our audit. We are a public accounting firm
registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S.
federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the
PCAOB.
We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was
maintained in all material respects. Our audit of internal control over financial reporting included obtaining an
understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing
and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audit also
included performing such other procedures as we considered necessary in the circumstances. We believe that our audit
provides a reasonable basis for our opinion.
Definition and Limitations of Internal Control Over Financial Reporting
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding
the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with
generally accepted accounting principles. A company’s internal control over financial reporting includes those policies
and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the
transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are
recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting
principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of
management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely
detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the
financial statements.
F-2
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements.
Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become
inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may
deteriorate.
/s/ KPMG LLP
Louisville, Kentucky
February 23, 2018
F-3
Texas Roadhouse, Inc. and Subsidiaries
Consolidated Balance Sheets
(in thousands, except share and per share data)
Assets
Current assets:
December 26, December 27,
2017
2016
112,944
150,918 $
Cash and cash equivalents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Receivables, net of allowance for doubtful accounts of $43 at December 26, 2017 and $33 at
December 27, 2016 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Inventories, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Prepaid income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Prepaid expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Deferred tax assets, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total current assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Property and equipment, net of accumulated depreciation of $527,710 at December 26, 2017 and
$457,102 at December 27, 2016 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Goodwill . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Intangible assets, net of accumulated amortization of $12,675 at December 26, 2017 and $11,753 at
3,622
December 27, 2016 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
29,465
Total assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 1,330,623 $ 1,179,971
Liabilities and Stockholders’ Equity
Current liabilities:
76,496
16,306
—
13,361
—
257,081
56,127
16,088
954
12,150
1,996
200,259
830,054
116,571
912,147
121,040
2,700
37,655
Current maturities of long-term debt and obligation under capital lease . . . . . . . . . . . . . . . . . . . . . . $
Accounts payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Deferred revenue-gift cards . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accrued wages . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Income taxes payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accrued taxes and licenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Dividends payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other accrued liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total current liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Long-term debt and obligation under capital lease, excluding current maturities . . . . . . . . . . . . . . . . . .
Stock option and other deposits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Deferred rent . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Deferred tax liabilities, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Texas Roadhouse, Inc. and subsidiaries stockholders’ equity:
9 $
57,579
156,627
29,678
2,494
21,997
14,945
46,669
329,998
51,981
7,699
42,141
5,301
42,112
479,232
167
50,789
129,558
26,039
—
19,698
13,418
39,858
279,527
52,381
7,491
36,103
12,268
33,959
421,729
—
—
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, 71,168,897 and
70,619,737 shares issued and outstanding at December 26, 2017 and December 27, 2016,
respectively) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Additional paid-in-capital . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Retained earnings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accumulated other comprehensive loss . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total Texas Roadhouse, Inc. and subsidiaries stockholders’ equity . . . . . . . . . . . . . . . . . . . . . . . . . .
Noncontrolling interests . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
71
219,626
530,723
(194)
750,226
8,016
758,242
Total liabilities and equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 1,330,623 $ 1,179,971
71
236,548
602,499
(39)
839,079
12,312
851,391
See accompanying notes to Consolidated Financial Statements.
F-4
Texas Roadhouse, Inc. and Subsidiaries
Consolidated Statements of Income and Comprehensive Income
(in thousands, except per share data)
Fiscal Year Ended
December 26, December 27, December 29,
2016
2015
2017
Revenue:
Restaurant sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Franchise royalties and fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total revenue . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Costs and expenses:
Restaurant operating costs (excluding depreciation and
amortization shown separately below):
Cost of sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Labor . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Rent . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other operating . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Pre-opening . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Depreciation and amortization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Impairment and closure . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
General and administrative . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total costs and expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Income from operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Interest expense, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Equity income from investments in unconsolidated affiliates . . . . . . . . . .
Income before taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Provision for income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net income including noncontrolling interests . . . . . . . . . . . . . . . . . . . . . .
Less: Net income attributable to noncontrolling interests . . . . . . . . . . . . .
Net income attributable to Texas Roadhouse, Inc. and subsidiaries . . . . .
Other comprehensive income (loss), net of tax:
Unrealized gain on derivatives, net of tax of ($-), ($18) and ($513),
respectively . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Foreign currency translation adjustment, net of tax of ($97), $70 and
$91, respectively . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total other comprehensive income (loss), net of tax . . . . . . . . . . . . . . . . .
Total comprehensive income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net income per common share attributable to Texas Roadhouse, Inc. and
subsidiaries:
$ 2,203,017 $ 1,974,261 $ 1,791,446
15,922
1,807,368
16,453
1,990,714
16,514
2,219,531
721,550
687,545
44,807
342,702
19,274
93,499
654
123,294
2,033,325
186,206
1,577
(1,488)
186,117
48,581
137,536
6,010
131,526 $
669,203
590,256
40,580
305,290
19,547
82,964
179
110,795
1,818,814
171,900
1,255
(1,111)
171,756
51,183
120,573
4,975
115,598 $
644,001
524,203
37,183
275,296
19,116
69,694
974
92,336
1,662,803
144,565
1,959
(1,641)
144,247
42,986
101,261
4,367
96,894
$
—
27
817
155
155
131,681 $
(112)
(85)
115,513 $
(144)
673
97,567
$
Basic . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Diluted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
$
1.85 $
1.84 $
1.64 $
1.63 $
1.38
1.37
Weighted average shares outstanding:
Basic . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Diluted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Cash dividends declared per share . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
70,989
71,527
70,396
71,052
$
0.84 $
0.76 $
70,032
70,747
0.68
See accompanying notes to Consolidated Financial Statements.
F-5
Texas Roadhouse, Inc. and Subsidiaries
Consolidated Statements of Stockholders’ Equity
(tabular amounts in thousands, except share data)
Accumulated Total Texas
Additional
Par
Paid-in-
Value Capital
Shares
Retained Comprehensive
Earnings
Loss
Other
Roadhouse, Inc.
and
Subsidiaries
Noncontrolling
Interests
Total
1
(1)
—
—
—
—
—
—
(245,973)
—
1,030,184
(321,789)
8,976
(11,396)
(8,572)
22,825
—
—
—
22
—
—
96,894
—
—
—
(35,733)
(11,919)
—
—
—
—
—
—
—
—
—
—
— —
Balance, December 30, 2014 . . . . . . . . . . . . . . . . . . 69,628,781 $ 70 $ 189,168 $ 419,436 $
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other comprehensive income, net . . . . . . . . . . . . . .
Distributions to noncontrolling interest holders . . . . .
Noncontrolling interests liquidation adjustments . . . .
Dividends declared and paid ($0.51 per share) . . . . . .
Dividends declared ($0.17 per share) . . . . . . . . . . . .
Shares issued under share-based compensation plans
including tax effects . . . . . . . . . . . . . . . . . . . . . . . .
Repurchase of shares of common stock . . . . . . . . . .
Indirect repurchase of shares for minimum
tax withholdings . . . . . . . . . . . . . . . . . . . . . . . . . .
Share-based compensation . . . . . . . . . . . . . . . . . . .
Balance, December 29, 2015 . . . . . . . . . . . . . . . . . . 70,091,203 $ 70 $ 201,023 $ 468,678 $
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other comprehensive loss, net . . . . . . . . . . . . . . . . .
Distributions to noncontrolling interest holders . . . . .
Dividends declared and paid ($0.57 per share) . . . . . .
Dividends declared ($0.19 per share) . . . . . . . . . . . .
Shares issued under share-based compensation plans
including tax effects . . . . . . . . . . . . . . . . . . . . . . . .
Repurchase of shares of common stock . . . . . . . . . .
Indirect repurchase of shares for minimum
tax withholdings . . . . . . . . . . . . . . . . . . . . . . . . . .
Share-based compensation . . . . . . . . . . . . . . . . . . .
Balance, December 27, 2016 . . . . . . . . . . . . . . . . . . 70,619,737 $ 71 $ 219,626 $ 530,723 $
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other comprehensive income, net . . . . . . . . . . . . . .
Noncontrolling interests contribution . . . . . . . . . . . .
Distributions to noncontrolling interest holders . . . . .
Dividends declared and paid ($0.63 per share) . . . . . .
Dividends declared ($0.21 per share) . . . . . . . . . . . .
Shares issued under share-based compensation plans
including tax effects . . . . . . . . . . . . . . . . . . . . . . . .
Indirect repurchase of shares for minimum
tax withholdings . . . . . . . . . . . . . . . . . . . . . . . . . .
Cumulative effect of change in accounting principle .
Share-based compensation . . . . . . . . . . . . . . . . . . .
Balance, December 26, 2017 . . . . . . . . . . . . . . . . . . 71,168,897 $ 71 $ 236,548 $ 602,499 $
—
—
— —
— —
—
—
—
—
— —
131,526
—
—
—
(44,736)
(14,945)
— —
— —
— —
— —
— —
115,598
—
—
(40,135)
(13,418)
(1)
— —
—
—
879,042
1
(114,700) —
(235,808) —
— —
(11,638)
69
26,934
—
—
—
—
—
—
—
—
—
—
—
(9,312)
26,067
5,958
(4,110)
—
(69)
—
(251,029)
800,189
—
—
—
—
1,557
—
1
(782) $
—
673
—
—
—
—
607,892 $
96,894
673
—
22
(35,733)
(11,919)
7,064 $ 614,956
4,367 101,261
673
—
(3,911)
(3,911)
—
22
— (35,733)
(11,919)
—
—
—
8,977
(11,397)
—
8,977
— (11,397)
—
—
(109) $
—
(85)
—
—
—
—
—
—
—
(194) $
—
155
—
—
—
—
(8,572)
22,825
669,662 $
115,598
(85)
—
(40,135)
(13,418)
5,959
(4,110)
(9,312)
26,067
750,226 $
131,526
155
—
—
(44,736)
(14,945)
—
(8,572)
— 22,825
7,520 $ 677,182
120,573
4,975
(85)
—
(4,479)
(4,479)
(40,135)
—
(13,418)
—
—
—
5,959
(4,110)
—
—
(9,312)
26,067
8,016 $ 758,242
6,010 137,536
155
3,457
(5,171)
— (44,736)
(14,945)
—
—
3,457
(5,171)
—
1,558
—
1,558
—
—
—
(39) $
(11,639)
—
26,934
839,079 $
— (11,639)
—
—
— 26,934
12,312 $ 851,391
See accompanying notes to Consolidated Financial Statements.
F-6
Texas Roadhouse, Inc. and Subsidiaries
Consolidated Statements of Cash Flows
(in thousands)
December 26, December 27, December 29,
2016
2015
2017
Cash flows from operating activities:
Net income including noncontrolling interests . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Deferred income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Loss on disposition of assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Impairment and closure costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Equity income from investments in unconsolidated affiliates . . . . . . . . . . . . . . . . . . . . . . . . .
Distributions of income received from investments in unconsolidated affiliates . . . . . . . . . . . .
Provision for doubtful accounts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Share-based compensation expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Changes in operating working capital:
Receivables . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Inventories . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Prepaid expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accounts payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Deferred revenue—gift cards . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accrued wages . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Excess tax benefits from share-based compensation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Prepaid income taxes and income taxes payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accrued taxes and licenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other accrued liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Deferred rent . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net cash provided by operating activities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Cash flows from investing activities:
$
137,536 $
120,573 $
101,261
93,499
(5,069)
4,961
600
(1,488)
1,424
10
26,934
(20,379)
(48)
(1,211)
(7,401)
1,601
26,678
3,639
—
3,448
2,299
5,148
6,038
8,154
286,373
82,964
5,994
5,125
139
(1,111)
1,901
27
26,067
(10,733)
(455)
(855)
(4,229)
138
28,284
(10,194)
(3,291)
2,300
919
3,326
4,610
5,566
257,065
69,694
411
5,455
974
(1,641)
502
(4)
22,825
(11,395)
(1,377)
(743)
(2,276)
7,611
21,812
5,858
(4,540)
2,994
1,187
1,991
4,529
2,813
227,941
Capital expenditures—property and equipment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Acquisition of franchise restaurants, net of cash acquired . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Proceeds from sale of property and equipment, including insurance proceeds . . . . . . . . . . . . . . .
Net cash used in investing activities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(161,628)
(16,528)
—
(178,156)
(164,738)
—
—
(164,738)
(173,475)
—
272
(173,203)
Cash flows from financing activities:
Proceeds from revolving credit facility, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Debt issuance costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Proceeds from financing lease obligation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Proceeds from noncontrolling interest contribution . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Repurchase of shares of common stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Distributions to noncontrolling interest holders . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Excess tax benefits from share-based compensation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Proceeds from stock option and other deposits, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Indirect repurchase of shares for minimum tax withholdings . . . . . . . . . . . . . . . . . . . . . . . . . . .
Principal payments on long-term debt and capital lease obligation . . . . . . . . . . . . . . . . . . . . . . .
Proceeds from exercise of stock options . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Dividends paid to shareholders . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net cash used in financing activities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net increase in cash and cash equivalents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Cash and cash equivalents—beginning of period . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Cash and cash equivalents—end of period . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Supplemental disclosures of cash flow information:
Interest paid, net of amounts capitalized . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Income taxes paid . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Capital expenditures included in current liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Obligation under capital lease . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
$
$
$
$
—
(476)
—
3,457
—
(5,171)
—
740
(11,639)
(558)
1,558
(58,154)
(70,243)
37,974
112,944
150,918 $
25,000
—
—
—
(4,110)
(4,479)
3,291
419
(9,312)
(145)
2,673
(52,054)
(38,717)
53,610
59,334
112,944 $
1,216 $
50,201 $
12,156 $
— $
1,011 $
42,890 $
2,781 $
2,000 $
(25,000)
—
3,000
—
(11,397)
(3,911)
4,540
1,422
(8,572)
(128)
4,696
(46,176)
(81,526)
(26,788)
86,122
59,334
2,321
39,581
3,726
—
See accompanying notes to Consolidated Financial Statements.
F-7
Texas Roadhouse, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
(Tabular amounts in thousands, except share and per share data)
(1) Description of Business
The accompanying Consolidated Financial Statements include the accounts of Texas Roadhouse, Inc. ("TRI"), our
wholly-owned subsidiaries and subsidiaries in which we have a controlling interest (collectively, the "Company," "we,"
"our" and/or "us") as of December 26, 2017 and December 27, 2016 and for each of the years in the three-year period
ended December 26, 2017.
As of December 26, 2017, we owned and operated 462 restaurants and franchised an additional 87 restaurants in 49
states and seven foreign countries. Of the 462 company restaurants that were operating at December 26, 2017, 444 were
wholly-owned and 18 were majority-owned.
As of December 27, 2016, we owned and operated 431 restaurants and franchised an additional 86 restaurants in 49
states and six foreign countries. Of the 431 company restaurants that were operating at December 27, 2016, 415 were
wholly-owned and 16 were majority-owned.
(2) Summary of Significant Accounting Policies
(a) Principles of Consolidation
As of December 26, 2017 and December 27, 2016, we owned a 5.0% to 10.0% equity interest in 24 restaurants.
Additionally, as of December 26, 2017 and December 27, 2016, we owned a 40% equity interest in four non-Texas
Roadhouse restaurants as part of a joint venture agreement with a casual dining restaurant operator in China. The
unconsolidated restaurants are accounted for using the equity method. Our investments in these unconsolidated affiliates
are included in Other assets in our consolidated balance sheets, and we record our percentage share of net income earned
by these unconsolidated affiliates in our consolidated statements of income and comprehensive income under Equity
income from investments in unconsolidated affiliates. All significant intercompany balances and transactions for these
unconsolidated restaurants as well as the entities whose accounts have been consolidated have been eliminated.
(b) Fiscal Year
We utilize a 52 or 53 week accounting period that typically ends on the last Tuesday in December. We utilize a
13 week accounting period for quarterly reporting purposes, except in years containing 53 weeks when the fourth quarter
contains 14 weeks. Fiscal years 2017, 2016 and 2015 were 52 weeks in length.
(c) Cash and Cash Equivalents
We consider all highly liquid debt instruments with original maturities of three months or less to be cash
equivalents. Cash and cash equivalents also included receivables from credit card companies, which amounted to $7.2
million and $8.8 million at December 26, 2017 and December 27, 2016, respectively, because the balances are settled
within two to three business days.
(d) Receivables
Receivables consist principally of amounts due from retail gift card providers, certain franchise restaurants for
reimbursement of labor costs, pre-opening and other expenses, and franchise restaurants for royalty fees.
Receivables are recorded at the invoiced amount and do not bear interest. The allowance for doubtful accounts is
our best estimate of the amount of probable credit losses in our existing accounts receivable. We determine the
allowance based on historical write-off experience. We review our allowance for doubtful accounts quarterly. Past due
balances over 120 days and a specified amount are reviewed individually for collectability. Account balances are
charged off against the allowance after all means of collection have been exhausted and the potential for recovery is
considered remote.
F-8
Texas Roadhouse, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
(Tabular amounts in thousands, except share and per share data)
(e) Inventories
Inventories, consisting principally of food, beverages and supplies, are valued at the lower of cost (first-in, first-out)
or net realizable value.
(f) Pre-opening Expenses
Pre-opening expenses, which are charged to operations as incurred, consist of expenses incurred before the opening
of a new restaurant and are comprised principally of opening team and training compensation and benefits, travel
expenses, rent, food, beverage and other initial supplies and expenses.
(g) Property and Equipment
Property and equipment are stated at cost. Expenditures for major renewals and betterments are capitalized while
expenditures for maintenance and repairs are expensed as incurred. Depreciation is computed on property and
equipment, including assets located on leased properties, over the shorter of the estimated useful lives of the related
assets or the underlying lease term using the straight-line method. In most cases, assets on leased properties are
depreciated over a period of time which includes both the initial term of the lease and one or more option periods. See
note 2(p) for further discussion of leases and leasehold improvements.
The estimated useful lives are:
Land improvements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10 - 25 years
Buildings and leasehold improvements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10 - 25 years
Furniture, fixtures and equipment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3 - 10 years
The cost of purchasing transferable liquor licenses through open markets in jurisdictions with a limited number of
authorized liquor licenses are capitalized as indefinite-lived assets and included in Property and equipment, net.
Repairs and maintenance expense amounted to $25.8 million, $22.4 million and $20.6 million for the years ended
December 26, 2017, December 27, 2016 and December 29, 2015, respectively. These costs are included in other
operating costs in our consolidated statements of income and comprehensive income.
(h) Impairment of Goodwill
Goodwill represents the excess of cost over fair value of assets of businesses acquired. In accordance with the
provisions of Financial Accounting Standards Board ("FASB") Accounting Standards Codification ("ASC") 350,
Intangibles – Goodwill and Other ("ASC 350"), we perform tests to assess potential impairments at the end of each
fiscal year or during the year if an event or other circumstance indicates that goodwill may be impaired. Our assessment
is performed at the reporting unit level, which is at the individual restaurant level. In the first step of the review process,
we compare the estimated fair value of the restaurant with its carrying value, including goodwill. If the estimated fair
value of the restaurant exceeds its carrying amount, no further analysis is needed. If the estimated fair value of the
restaurant is less than its carrying amount, the second step of the review process requires the calculation of the implied
fair value of the goodwill by allocating the estimated fair value of the restaurant to all of the assets and liabilities of the
restaurant as if it had been acquired in a business combination. The residual fair value after this allocation is the implied
fair value of the reporting unit goodwill. If the carrying value of the goodwill associated with the restaurant exceeds the
implied fair value of the goodwill, an impairment loss is recognized for that excess amount.
The valuation approaches used to determine fair value are subject to key judgments and assumptions that are
sensitive to change such as judgments and assumptions about appropriate revenue growth rates, operating margins,
weighted average cost of capital and comparable company and acquisition market multiples. In estimating the fair value
using the capitalization of earnings method or discounted cash flows, we consider the period of time the restaurant has
been open, the trend of operations over such period and future periods, expectations of future sales growth and terminal
F-9
Texas Roadhouse, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
(Tabular amounts in thousands, except share and per share data)
value. Assumptions about important factors such as the trend of future operations and sales growth are limited to those
that are supportable based upon the plans for the restaurant and actual results at comparable restaurants. When
developing these key judgments and assumptions, we consider economic, operational and market conditions that could
impact fair value. The judgments and assumptions used are consistent with what we believe hypothetical market
participants would use. However, estimates are inherently uncertain and represent only our reasonable expectations
regarding future developments. If the estimates used in performing the impairment test prove inaccurate, the fair value
of the restaurants may ultimately prove to be significantly lower, thereby causing the carrying value to exceed the fair
value and indicating impairment has occurred.
In 2017, 2016 and 2015, as a result of our annual goodwill impairment analysis, we determined that there was no
goodwill impairment. Refer to note 6 for additional information related to goodwill and intangible assets.
(i) Other Assets
Other assets consist primarily of deferred compensation plan assets, investments in unconsolidated affiliates,
deposits and costs related to the issuance of debt. The debt issuance costs are being amortized to interest expense over
the term of the related debt. For further discussion of the deferred compensation plan, see note 14.
(j) Impairment or Disposal of Long-lived Assets
In accordance with ASC 360-10-05, Property, Plant and Equipment, long-lived assets related to each restaurant to
be held and used in the business, such as property and equipment and intangible assets subject to amortization, are
reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of a restaurant
may not be recoverable. When we evaluate restaurants, cash flows are the primary indicator of impairment.
Recoverability of assets to be held and used is measured by a comparison of the carrying amount of the restaurant to
estimated undiscounted future cash flows expected to be generated by the restaurant. Under our policies, trailing 12-
month cash flow results below $300,000 at the individual restaurant level signals potential impairment. In our
evaluation of restaurants that do not meet the cash flow threshold, we estimate future undiscounted cash flows from
operating the restaurant over its estimated useful life, which can be for a period of over 20 years. In the estimation of
future cash flows, we consider the period of time the restaurant has been open, the trend of operations over such period
and future periods and expectations of future sales growth. Assumptions about important factors such as the trend of
future operations and sales growth are limited to those that are supportable based upon the plans for the restaurant and
actual results at comparable restaurants. If the carrying amount of the restaurant exceeds its estimated undiscounted
future cash flows, an impairment charge is recognized by the amount by which the carrying amount exceeds the fair
value of the assets. We generally measure fair value by independent third party appraisal or discounting estimated future
cash flows. When fair value is measured by discounting estimated future cash flows, the assumptions used are consistent
with what we believe hypothetical market participants would use. We also use a discount rate that is commensurate with
the risk inherent in the projected cash flows. The adjusted carrying amounts of assets to be held and used are
depreciated over their remaining useful life. In 2017, 2016 and 2015, as a result of our impairment analysis, we
determined that there was no impairment. For further discussion regarding closures and impairments recorded in 2017,
2016 and 2015 refer to note 15.
F-10
Texas Roadhouse, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
(Tabular amounts in thousands, except share and per share data)
(k) Insurance Reserves
We self-insure a significant portion of expected losses under our health, workers’ compensation, general liability,
employment practices liability, and property insurance programs. We purchase insurance for individual claims that
exceed the retention amounts listed below:
Employment practices liability/Class Action . . . . . . . . . . . . . . . . . . . . $250,000 / $2,000,000
Workers’ compensation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
General liability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Employee healthcare . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$350,000
$250,000
$275,000
In addition, we purchase property insurance for claims that exceed $50,000 after an aggregate deductible of
$250,000.
We record a liability for unresolved claims and for an estimate of incurred but not reported claims based on
estimates provided by management, a third party administrator and/or actuary. The estimated liability is based on a
number of assumptions and factors regarding economic conditions, the frequency and severity of claims and claim
development history and settlement practices. Our assumptions are reviewed, monitored, and adjusted when warranted
by changing circumstances.
(l) Segment Reporting
We consider our restaurant and franchising operations as similar and have aggregated them into a single reportable
segment. The majority of the restaurants operate in the U.S. within the casual dining segment of the restaurant industry,
providing similar products to similar customers. The restaurants also possess similar pricing structures, resulting in
similar long-term expected financial performance characteristics. As of December 26, 2017, we operated 462
restaurants, each as a single operating segment, and franchised an additional 87 restaurants. Revenue from external
customers is derived principally from food and beverage sales. We do not rely on any major customers as a source of
revenue.
(m) Revenue Recognition
Revenue from restaurant sales is recognized when food and beverage products are sold. Deferred revenue primarily
represents our liability for gift cards that have been sold, but not yet redeemed. When the gift cards are redeemed, we
recognize restaurant sales and reduce deferred revenue.
For some of the gift cards that were sold, the likelihood of redemption is remote. When the likelihood of a gift
card's redemption is determined to be remote, we record a breakage adjustment and reduce deferred revenue by the
amount never expected to be redeemed. We use historic gift card redemption patterns to determine when the likelihood
of a gift card's redemption becomes remote and have determined that approximately 4% of the value of the gift cards
sold by our company and our third party retailers will never be redeemed. This breakage adjustment is recorded
consistent with the historic redemption pattern of the associated gift card. As a result, the amount of unredeemed gift
card liability included in deferred revenue is the full value of unredeemed gift cards less the amortized portion of the
breakage rates. We record our gift card breakage adjustment as a reduction of other operating expense in our
consolidated statements of income and comprehensive income. We review and adjust our estimates on a semi-annual
basis.
We franchise Texas Roadhouse restaurants. We execute franchise agreements for each franchise restaurant which
sets out the terms of our arrangement with the franchisee. Our franchise agreements typically require the franchisee to
pay an initial, non-refundable fee and continuing fees based upon a percentage of sales. Subject to our approval and
payment of a renewal fee, a franchisee may generally renew the franchise agreement upon its expiration. We collect
ongoing royalties of generally 4.0% of gross sales from our domestic franchisees, along with royalties paid to us by our
international franchisees. These ongoing royalties are reflected in the accompanying consolidated statements of income
F-11
Texas Roadhouse, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
(Tabular amounts in thousands, except share and per share data)
and comprehensive income as franchise royalties and fees. We recognize initial franchise fees as franchise royalties and
fees after performing substantially all initial services or conditions required by the franchise agreement, which is
generally upon the opening of a restaurant. We received initial franchise fees of $0.3 million for each of the years ended
December 26, 2017, December 27, 2016 and December 29, 2015. Continuing franchise royalties are recognized as
revenue as the fees are earned. We also enter into area development agreements for the development of international
Texas Roadhouse restaurants. Upfront fees from development agreements are deferred and recognized as franchise
royalties and fees on a pro-rata basis as restaurants under the development agreement are opened. We also perform
supervisory and administrative services for certain franchise restaurants for which we receive management fees, which
are recognized as the services are performed. Revenue from supervisory and administrative services is recorded as a
reduction of general and administrative expenses in the accompanying consolidated statements of income and
comprehensive income. Total revenue from supervisory and administrative services recorded for the years ended
December 26, 2017, December 27, 2016 and December 29, 2015 was approximately $1.2 million, $1.1 million and
$1.1 million, respectively.
Sales taxes collected from customers and remitted to governmental authorities are accounted for on a net basis and
therefore are excluded from revenue in the consolidated statements of income and comprehensive income.
(n) Income Taxes
We account for income taxes in accordance with ASC 740, Income Taxes, under which deferred assets and
liabilities are recognized based upon anticipated future tax consequences attributable to differences between financial
statement carrying values of assets and liabilities and their respective tax bases. We recognize both interest and penalties
on unrecognized tax benefits as part of income tax expense. A valuation allowance is established to reduce the carrying
value of deferred tax assets if it is considered more likely than not that such assets will not be realized. Any change in
the valuation allowance would be charged to income in the period such determination was made.
(o) Advertising
We have a domestic system-wide marketing and advertising fund. We maintain control of the marketing and
advertising fund and, as such, have consolidated the fund’s activity for the years ended December 26, 2017, December
27, 2016 and December 29, 2015. Domestic company and franchise restaurants are required to remit a designated
portion of sales, currently 0.3%, to the advertising fund. These reimbursements do not exceed the costs incurred by the
advertising fund throughout the year associated with various marketing programs which are developed internally by us.
Therefore, the net amount of the advertising costs incurred less amounts remitted by franchise restaurants is included in
general and administrative expense in our consolidated statements of income and comprehensive income.
Other costs related to local restaurant area marketing initiatives are included in other operating costs in our
consolidated statements of income and comprehensive income. These costs and the company-owned restaurant
contribution amounted to approximately $14.5 million, $13.3 million and $11.7 million for the years ended December
26, 2017, December 27, 2016 and December 29, 2015, respectively.
(p) Leases and Leasehold Improvements
We lease land and/or buildings for the majority of our restaurants under non-cancelable lease agreements. Our land
and/or building leases typically have initial terms ranging from 10 to 15 years, and certain renewal options for one or
more five-year periods. We account for leases in accordance with ASC 840, Leases, and other related authoritative
guidance. When determining the lease term, we include option periods for which failure to renew the lease imposes a
penalty on us in such an amount that renewal appears, at the inception of the lease, to be reasonably assured. The
primary penalty to which we are subject is the economic detriment associated with the existence of leasehold
improvements which might become impaired if we choose not to continue the use of the leased property.
Certain of our operating leases contain predetermined fixed escalations of the minimum rent during the original
term of the lease. For these leases, we recognize the related rent expense on a straight-line basis over the lease term and
F-12
Texas Roadhouse, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
(Tabular amounts in thousands, except share and per share data)
record the difference between the amounts charged to operations and amounts paid as deferred rent. We generally do not
receive rent concessions or leasehold improvement incentives upon opening a restaurant that is subject to a lease. We
may receive rent holidays, which would begin on the possession date and end when the lease commences, during which
no cash rent payments are typically due under the terms of the lease. Rent holidays are included in the lease term when
determining straight-line rent expense.
Additionally, certain of our operating leases contain clauses that provide for additional contingent rent based on a
percentage of sales greater than certain specified target amounts. We recognize contingent rent expense prior to the
achievement of the specified target that triggers the contingent rent, provided achievement of the target is considered
probable. This may result in some variability in rent expense as a percentage of sales over the term of the lease in
restaurants where we pay contingent rent.
The judgment regarding the probable term for each restaurant property lease impacts the classification and
accounting for a lease as capital or operating, the rent holiday and/or escalation in payments that are taken into
consideration when calculating straight-line rent and the term over which leasehold improvements for each restaurant are
amortized. The material factor we consider when making this judgment is the total amount invested in the restaurant at
the inception of the lease and whether management believes that renewal appears reasonably assured. While a different
term may produce materially different amounts of depreciation, amortization and rent expense than reported, our
historical lease renewal rates support the judgments made. We have not made any changes to the nature of the
assumptions used to account for leases in any of the fiscal years presented in our consolidated financial statements.
Sale leasebacks are transactions through which assets (such as restaurant properties) are sold and subsequently
leased back. The resulting leases generally qualify and are accounted for as operating leases. Financing leases are
generally the product of a sale leaseback transaction that does not meet the criteria for sale leaseback accounting. The
result of a financing lease is the retention of the "sold" assets within land, building and equipment with a financing lease
obligation equal to the amount of proceeds received recorded as a component of other liabilities on our consolidated
balance sheets.
(q) Use of Estimates
We have made a number of estimates and assumptions relating to the reporting of assets and liabilities, the
disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reporting of
revenue and expenses during the period to prepare these consolidated financial statements in conformity with generally
accepted accounting principles in the United States ("GAAP"). Significant items subject to such estimates and
assumptions include the carrying amount of property and equipment, goodwill, obligations related to insurance reserves,
leases and leasehold improvements, legal reserves, gift card discounts and breakage and income taxes. Actual results
could differ from those estimates.
(r) Comprehensive Income
ASC 220, Comprehensive Income, establishes standards for reporting and the presentation of comprehensive
income and its components in a full set of financial statements. Comprehensive income consists of net income and other
comprehensive income (loss) items that are excluded from net income under GAAP. Other comprehensive income
(loss) consists of the effective unrealized portion of changes in fair value of cash flow hedges through January 2016 and
foreign currency translation adjustments. The foreign currency translation adjustment included in comprehensive income
on the consolidated statements of income and comprehensive income represents the unrealized impact of translating the
financial statements of our foreign investment. This amount is not included in net income and would only be realized
upon the disposition of the business.
(s) Fair Value of Financial Instruments
Fair value is defined as the price that we would receive to sell an asset or pay to transfer a liability in an orderly
transaction between market participants on the measurement date. We use a three-tier fair value hierarchy based upon
F-13
Texas Roadhouse, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
(Tabular amounts in thousands, except share and per share data)
observable and non-observable inputs that prioritizes the information used to develop our assumptions regarding fair
value. Fair value measurements are separately disclosed by level within the fair value hierarchy. Refer to note 14 for
further discussion of fair value measurement.
(t) Derivative Instruments and Hedging Activities
We do not use derivative instruments for trading purposes. We account for derivatives and hedging activities in
accordance with ASC 815, Derivatives and Hedging, which requires that all derivative instruments be recorded on the
consolidated balance sheet at their respective fair values. The accounting for changes in the fair value of a derivative
instrument is dependent upon whether the derivative has been designated and qualifies as part of a hedging relationship.
We had two free standing derivative instruments that had been designated and qualified as cash flow hedges. The first
interest rate swap agreement expired in November 2015 while the second expired in January 2016. For derivative
instruments that are designated and qualify as a cash flow hedge, the effective portion of the gain or loss on the
derivative instrument is reported as a component of other comprehensive income (loss) and reclassified into earnings in
the same period or periods during which the hedged transactions affect earnings. There was no hedge ineffectiveness
recognized during the years ended December 26, 2017, December 27, 2016 and December 29, 2015.
(3) 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. For the two majority-owned
restaurants, we received a noncontrolling interest contribution of $3.5 million. 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.
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:
Current assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Property and equipment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Goodwill . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Current liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
170
$
12,281
4,469
(392)
$ 16,528
Pro forma results of operations and revenue and earnings for the years ended December 26, 2017 and December 27,
2016 have not been presented because the effect of the acquisitions was not material to our consolidated financial
position, results of operations or cash flows.
F-14
Texas Roadhouse, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
(Tabular amounts in thousands, except share and per share data)
(4) Long-term Debt and Obligation Under Capital Lease
Long-term debt consisted of the following:
Installment loan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Obligation under capital lease . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Revolver . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Less current maturities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
2017
— $
1,990
50,000
51,990
9
51,981 $
2016
550
1,998
50,000
52,548
167
52,381
December 26, December 27,
Maturities of long-term debt at December 26, 2017 are as follows:
2018 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
2019 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2020 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2021 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2022 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Thereafter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
9
11
12
14
50,017
1,927
$ 51,990
The interest rate for our installment loan outstanding at December 27, 2016 was 10.46%. The installment loan was
repaid during the 52 weeks ended December 26, 2017.
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 this amendment, the lease qualified as a capital lease.
On August 7, 2017, we entered into the Amended and Restated Credit Agreement (the "Amended Credit
Agreement") with respect to our revolving credit facility with a syndicate of commercial lenders led by JPMorgan Chase
Bank, N.A., PNC Bank, N.A., and Wells Fargo Bank, N.A. The amended revolving credit facility remains an unsecured,
revolving credit agreement under which we may borrow up to $200.0 million with the option to increase the amended
revolving credit facility by an additional $200.0 million subject to certain limitations. The Amended Credit Agreement
extends the maturity date of our revolving credit facility until August 5, 2022.
The terms of the Amended Credit Agreement require us to pay interest on outstanding borrowings at the London
Interbank Offered Rate ("LIBOR") plus a margin of 0.875% to 1.875% and to pay a commitment fee of 0.125% to
0.30% per year on any unused portion of the amended revolving credit facility, in each case depending on our
consolidated net leverage ratio, or the Alternate Base Rate, which is the highest of the issuing banks’ prime lending rate,
the Federal Reserve Bank of New York rate plus 0.50% or the Adjusted Eurodollar Rate for a one month interest period
on such day plus 1.0%. The weighted-average interest rate for the amended revolving credit facility as of December 26,
2017 and December 27, 2016 was 2.37% and 1.57%, respectively. As of December 26, 2017, we had $50.0 million
outstanding under the amended revolving credit facility and $142.5 million of availability, net of $7.5 million of
outstanding letters of credit.
The lenders’ obligation to extend credit pursuant to the Amended Credit Agreement depends on us maintaining
certain financial covenants, including a minimum consolidated fixed charge coverage ratio of 2.00 to 1.00 and a
maximum consolidated leverage ratio of 3.00 to 1.00. The Amended Credit Agreement permits us to incur additional
secured or unsecured indebtedness outside the amended revolving credit facility, except for the incurrence of secured
indebtedness that in the aggregate is equal to or greater than $125.0 million and 20% of our consolidated tangible net
worth. We were in compliance with all financial covenants as of December 26, 2017.
F-15
Texas Roadhouse, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
(Tabular amounts in thousands, except share and per share data)
(5) Property and Equipment, Net
Property and equipment were as follows:
December 26, December 27,
Land and improvements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Buildings and leasehold improvements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Furniture, fixtures and equipment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Construction in progress . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Liquor licenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accumulated depreciation and amortization . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2017
124,126 $
757,293
500,954
47,457
10,027
1,439,857
(527,710)
912,147 $
2016
119,338
668,519
459,127
30,394
9,778
1,287,156
(457,102)
830,054
$
The amount of interest capitalized in connection with restaurant construction was approximately $0.4 million for
the year ended December 26, 2017, $0.3 million for the year ended December 27, 2016 and $0.7 million for the year
ended December 29, 2015.
(6) Goodwill and Intangible Assets
The changes in the carrying amount of goodwill and intangible assets are as follows:
Balance as of December 29, 2015 (1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Additions. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Amortization expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Disposals and other, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Impairment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Balance as of December 27, 2016 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Additions. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Amortization expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Disposals and other, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Impairment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Balance as of December 26, 2017 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Goodwill Intangible Assets
4,827
—
(1,205)
—
—
3,622
—
(922)
—
—
2,700
116,571
—
—
—
—
116,571
4,469
—
—
—
121,040
(1) Net of $4.8 million of accumulated goodwill impairment losses.
Intangible assets consist of reacquired franchise rights. The gross carrying amount and accumulated amortization of
the intangible assets at December 26, 2017 were $15.4 million and $12.7 million, respectively. As of December 27,
2016, the gross carrying amount and accumulated amortization of the intangible assets was $15.4 million and
$11.8 million. We amortize reacquired franchise rights on a straight-line basis over the remaining term of the franchise
operating agreements, which varies by restaurant. Amortization expense for the next five years is expected to range
F-16
Texas Roadhouse, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
(Tabular amounts in thousands, except share and per share data)
from $0.2 million to $0.7 million. Refer to note 3 for discussion of the acquisition completed on December 28, 2016.
(7) Leases
The following is a schedule of future minimum lease payments required for operating leases that have initial or
remaining non-cancellable terms in excess of one year as of December 26, 2017:
2018 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 45,911
46,157
2019 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
45,132
2020 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
45,514
2021 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2022 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
45,966
Thereafter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
621,324
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 850,004
Operating
Leases
Rent expense for operating leases consisted of the following:
Minimum rent—occupancy . . . . . . . . . . . $
Contingent rent . . . . . . . . . . . . . . . . . . . . .
Rent expense, occupancy . . . . . . . . . . .
Minimum rent—equipment and other . . .
Rent expense . . . . . . . . . . . . . . . . . . . . . $
December 26, 2017 December 27, 2016 December 29, 2015
36,104
1,079
37,183
3,952
41,135
43,621 $
1,186
44,807
5,087
49,894 $
39,405 $
1,175
40,580
4,379
44,959 $
(8) Income Taxes
Components of our income tax provision for the years ended December 26, 2017, December 27, 2016 and
December 29, 2015 are as follows:
Fiscal Year Ended
December 26, 2017 December 27, 2016 December 29, 2015
Current:
Federal . . . . . . . . . . . . . . . . . . . . . . . . . $
State . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Foreign . . . . . . . . . . . . . . . . . . . . . . . . .
Total current . . . . . . . . . . . . . . . . . . . .
Deferred:
Federal . . . . . . . . . . . . . . . . . . . . . . . . .
State . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total deferred . . . . . . . . . . . . . . . . . . .
Income tax provision . . . . . . . . . . . . . . . . $
43,108 $
10,233
309
53,650
(4,830)
(239)
(5,069)
48,581 $
36,201 $
8,786
202
45,189
5,364
630
5,994
51,183 $
33,403
8,821
351
42,575
274
137
411
42,986
Our pre-tax income is substantially derived from domestic restaurants.
F-17
Texas Roadhouse, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
(Tabular amounts in thousands, except share and per share data)
A reconciliation of the statutory federal income tax rate to our effective tax rate for December 26, 2017,
December 27, 2016 and December 29, 2015 is as follows:
December 26, 2017
December 27, 2016
December 29, 2015
Tax at statutory federal rate . . . . . . .
State and local tax, net of federal
benefit . . . . . . . . . . . . . . . . . . . . . . . . .
FICA tip tax credit . . . . . . . . . . . . . . .
Work opportunity tax credit . . . . . . .
Stock compensation . . . . . . . . . . . . . .
Net income attributable to
noncontrolling interests . . . . . . . . . . .
Tax reform . . . . . . . . . . . . . . . . . . . . .
Other . . . . . . . . . . . . . . . . . . . . . . . . . .
Total . . . . . . . . . . . . . . . . . . . . . . . . . .
35.0 %
35.0 %
35.0 %
3.3
(7.0)
(0.9)
(1.8)
(1.1)
(1.7)
0.3
26.1 %
3.4
(6.8)
(0.8)
(0.1)
(0.9)
—
—
29.8 %
3.5
(7.2)
(0.9)
(0.2)
(1.0)
—
0.6
29.8 %
Our effective tax rate decreased to 26.1% in 2017 compared to 29.8% in 2016 primarily due to the adoption of
Accounting Standards Update 2016-09, Compensation – Stock Compensation and new tax legislation that was enacted in
late 2017. 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. During 2017, we recognized $3.4 million, or $0.05 per
share, as an income tax benefit related to the new guidance requirements. As a result of the new tax legislation,
significant tax changes were enacted including a reduction of the federal corporate tax rate from 35.0% to 21.0% and
changes in the federal taxes paid on foreign sourced earnings. These changes are generally effective beginning with our
fiscal year 2018. During 2017, we recognized $3.1 million, or $0.04 per share, as an income tax benefit related to the
new tax legislation which includes an income tax benefit of approximately $3.8 million to revalue our deferred tax
balances as of the enactment date and an income tax expense of approximately $0.7 million related to our foreign
operations.
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 consolidated balance sheets. We adopted
ASU 2015-17 on a prospective basis.
F-18
Texas Roadhouse, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
(Tabular amounts in thousands, except share and per share data)
Components of deferred tax assets (liabilities) are as follows:
December 26, 2017 December 27, 2016
Deferred tax assets:
Deferred revenue—gift cards . . . . . . . . . . . . . . . . . . . . . . $
Insurance reserves . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other reserves . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Share-based compensation . . . . . . . . . . . . . . . . . . . . . . . .
Deferred rent . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Deferred compensation . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total deferred tax asset . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Deferred tax liabilities:
Property and equipment . . . . . . . . . . . . . . . . . . . . . . . . . . .
Goodwill and intangibles . . . . . . . . . . . . . . . . . . . . . . . . . .
Other liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total deferred tax liability . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net deferred tax liability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Current deferred tax asset . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Noncurrent deferred tax liability . . . . . . . . . . . . . . . . . . . . . .
Net deferred tax liability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
10,355 $
3,638
621
6,022
10,338
6,737
1,866
39,577
(35,430)
(4,697)
(4,751)
(44,878)
(5,301) $
— $
(5,301)
(5,301) $
10,887
5,049
587
8,642
13,400
8,422
3,261
50,248
(48,390)
(5,978)
(6,152)
(60,520)
(10,272)
1,996
(12,268)
(10,272)
We have not provided any valuation allowance as we believe the realization of our deferred tax assets is more likely
than not.
A reconciliation of the beginning and ending liability for unrecognized tax benefits, all of which would impact the
effective tax rate if recognized, is as follows:
Balance at December 29, 2015 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Additions to tax positions related to prior years . . . . . . . . . . . . . . . . . . . . . . . . . .
Additions to tax positions related to current year . . . . . . . . . . . . . . . . . . . . . . . . .
Reductions due to statute expiration . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Reductions due to exam settlements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Balance at December 27, 2016 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Additions to tax positions related to prior years . . . . . . . . . . . . . . . . . . . . . . . . . .
Additions to tax positions related to current year . . . . . . . . . . . . . . . . . . . . . . . . .
Reductions due to statute expiration . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Reductions due to exam settlement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Balance at December 26, 2017 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
405
23
274
(4)
(187)
511
36
389
(2)
(128)
806
As of December 26, 2017 and December 27, 2016, the total amount of accrued penalties and interest related to
uncertain tax provisions was not material.
All entities for which unrecognized tax benefits exist as of December 26, 2017 possess a December tax year-end.
As a result, as of December 26, 2017, the tax years ended December 30, 2014, December 29, 2015 and December 27,
2016 remain subject to examination by all tax jurisdictions. As of December 26, 2017, no audits were in process by a tax
jurisdiction that, if completed during the next twelve months, would be expected to result in a material change to our
unrecognized tax benefits. Additionally, as of December 26, 2017, no event occurred that is likely to result in a
significant increase or decrease in the unrecognized tax benefits through December 25, 2018.
F-19
Texas Roadhouse, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
(Tabular amounts in thousands, except share and per share data)
(9) Preferred Stock
Our Board of Directors is authorized, without further vote or action by the holders of common stock, to issue from
time to time up to an aggregate of 1,000,000 shares of preferred stock in one or more series. Each series of preferred
stock will have the number of shares, designations, preferences, voting powers, qualifications and special or relative
rights or privileges as shall be determined by the Board of Directors, which may include, but are not limited to, dividend
rights, voting rights, redemption and sinking fund provisions, liquidation preferences, conversion rights and preemptive
rights. There were no shares of preferred stock outstanding at December 26, 2017 and December 27, 2016.
(10) Stockholders’ Equity
On May 22, 2014, our Board of Directors approved a stock repurchase program under which we may repurchase up
to $100.0 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. All repurchases to date under our stock
repurchase program have been made through open market transactions. The timing and the amount of any repurchases
will be determined by management under parameters established by our Board of Directors, based on an evaluation of
our stock price, market conditions and other corporate considerations.
We did not repurchase any shares of common stock during the year ended December 26, 2017. As of December 26,
2017, we had approximately $69.9 million remaining under our authorized stock repurchase program. For the years
ended December 27, 2016 and December 29, 2015, we paid approximately $4.1 million and $11.4 million to repurchase
114,700 and 321,789 shares of our common stock, respectively.
(11) 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 RSUs
outstanding and certain performance stock units ("PSUs") from our equity incentive plans as discussed in note 13.
The following table summarizes the nonvested stock that was outstanding but not included in the computation of
diluted earnings per share because their inclusion would have had an anti-dilutive effect:
Fiscal Year Ended
2016
2017
2,082
2015
1,243
2
Nonvested stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
F-20
Texas Roadhouse, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
(Tabular amounts in thousands, except share and per share data)
PSUs are not included in the diluted earnings per share calculation until the performance-based criteria have been
met. See note 13 for further discussion of PSUs.
The following table sets forth the calculation of earnings per share and weighted average shares outstanding (in
thousands) as presented in the accompanying consolidated statements of income and comprehensive income:
December 26, December 27, December 29,
2016
2017
2015
Net income attributable to Texas Roadhouse, Inc.
and subsidiaries . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Basic EPS:
Weighted-average common shares outstanding . .
Basic EPS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Diluted EPS:
Weighted-average common shares outstanding . .
Dilutive effect of nonvested stock . . . . . . . . . . . . .
Shares-diluted . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Diluted EPS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
131,526 $
115,598 $
96,894
70,989
70,396
1.85 $
1.64 $
70,032
1.38
70,989
538
71,527
70,396
656
71,052
1.84 $
1.63 $
70,032
715
70,747
1.37
(12) Commitments and Contingencies
The estimated cost of completing capital project commitments at December 26, 2017 and December 27, 2016 was
approximately $150.0 million and $157.5 million, respectively.
As of December 26, 2017 and December 27, 2016, we are contingently liable for $15.6 million and $16.4 million,
respectively, for seven leases 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
December 26, 2017 as the likelihood of default was deemed to be less than probable and the fair value of the guarantees
is not considered significant.
Current Lease
Term Expiration
Everett, Massachusetts (1)(2) . . . . . . . . . . . . . . . . . . . . . . . . . September 2002 February 2023
Longmont, Colorado (1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . October 2003 May 2019
Montgomeryville, Pennsylvania (1) . . . . . . . . . . . . . . . . . . . . October 2004 March 2021
Fargo, North Dakota (1)(2) . . . . . . . . . . . . . . . . . . . . . . . . . . . February 2006
July 2021
Logan, Utah (1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
January 2009 August 2019
Irving, Texas (3) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . December 2013 December 2019
Louisville, Kentucky (3)(4) . . . . . . . . . . . . . . . . . . . . . . . . . . December 2013 November 2023
Assignment Date
Lease
(1) Real estate lease agreements for restaurant locations which we entered into before granting franchise rights to those
restaurants. We have subsequently assigned the leases to the franchisees, but remain contingently liable, under the
terms of the lease, if the franchisee defaults.
(2) As discussed in note 18, these restaurants are owned, in whole or part, by certain officers, directors and 5%
shareholders of the Company.
(3) Leases associated with restaurants which were sold. The leases were assigned to the acquirer, but we remain
contingently liable under the terms of the lease if the acquirer defaults.
(4) We may be released from liability after the initial contractual lease term expiration contingent upon certain
conditions being met by the acquirer.
F-21
Texas Roadhouse, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
(Tabular amounts in thousands, except share and per share data)
During the year ended December 26, 2017, we bought most of our beef from three suppliers. Although there are a
limited number of beef suppliers, we believe that other suppliers could provide a similar product on comparable terms. A
change in suppliers, however, could cause supply shortages, higher costs to secure adequate supplies and a possible loss
of sales, which would affect operating results adversely. We have no material minimum purchase commitments with our
vendors that extend beyond a year.
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
consolidated statements of income and comprehensive income.
On July 15, 2016, the Florida Circuit Court in Palm Beach County approved a settlement agreement styled Andrew
Lovett and Semaj Miller, individually and on behalf of others, v. Texas Roadhouse Management Corp. (Case no. 50-
2016-CA-007714-MB-AO) resolving alleged violations of the Fair Labor Standards Act asserted on behalf of a
purported nationwide class of current and former employees in exchange for a settlement payment not to exceed $9.5
million. For the 52 weeks ended December 27, 2016, we recorded a charge of $7.3 million ($4.5 million after-tax) to
cover the costs of the settlement including payments to opt-in members and class attorneys, as well as related settlement
administration costs. The pre-tax charge was recorded in general and administrative expenses in our consolidated
statements of income and comprehensive income.
Occasionally, we are a defendant in litigation arising in the ordinary course of business, including "slip and fall"
accidents, employment related claims, claims related to our service of alcohol, and claims from guests or employees
alleging illness, injury or food quality, health or operational concerns. In the opinion of management, the ultimate
disposition of these matters, most of which are covered by insurance, will not have a material effect on our consolidated
financial position, results of operations or cash flows.
(13) 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
stock, stock appreciation rights, and full value awards, including restricted stock, restricted stock units ("RSUs"),
deferred stock units, performance stock and performance stock units ("PSUs"). This plan replaced the Texas Roadhouse,
Inc. 2004 Equity Incentive Plan.
The following table summarizes the share-based compensation recorded in the accompanying consolidated
statements of income and comprehensive income:
Labor expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
General and administrative expense . . . . . . . . . . . . . . . .
Total share-based compensation expense . . . . . . . . . . . . $
Fiscal Year Ended
December 26, December 27, December 29,
2016
6,124 $
19,943
26,067 $
2017
7,171 $
19,763
26,934 $
2015
5,329
17,496
22,825
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
F-22
Texas Roadhouse, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
(Tabular amounts in thousands, except share and per share data)
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, as a result of the new
guidance requirements, on a prospective basis, all excess tax benefits and tax deficiencies are recognized within the
income tax provision in the consolidated statements of income and comprehensive income in the period in which the
restricted shares vest or options are exercised. See note 8 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 two 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 a performance obligation along with the
satisfaction of the vesting requirement. In 2017, all remaining unexercised stock options expired leaving only RSUs and
PSUs outstanding. Share-based compensation activity by type of grant as of December 26, 2017 and changes during the
period 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
919,463 $
Outstanding at December 27, 2016 . . . . . . . . . . . . . .
577,644
Granted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Forfeited . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(50,401)
Vested . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (496,715)
Outstanding at December 26, 2017 . . . . . . . . . . . . . .
949,991 $
37.06
48.76
38.09
38.01
43.62
1.4
$
51,402
As of December 26, 2017, with respect to unvested RSUs, there was $23.2 million of unrecognized compensation
cost that is expected to be recognized over a weighted-average period of 1.4 years. The vesting terms of the RSUs range
from approximately 1.0 to 5.0 years. The total intrinsic value of RSUs vested during the years ended December 26,
2017, December 27, 2016 and December 29, 2015 was $23.4 million, $21.5 million and $25.1 million, respectively. The
excess tax benefit associated with vested RSUs for the year ended December 26, 2017 was $1.6 million which was
recognized in the income tax provision. The excess tax benefit associated with vested RSUs for the years ended
December 27, 2016 and December 29, 2015 was $1.5 million and $2.8 million, respectively, which was recorded in
additional paid-in-capital in the consolidated balance sheets.
F-23
Texas Roadhouse, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
(Tabular amounts in thousands, except share and per share data)
Summary Details for PSUs
Weighted-Average Weighted-Average
Grant Date Fair
Remaining Contractual Aggregate
Shares
Value
Term (years)
Intrinsic Value
230,000 $
Outstanding at December 27, 2016 . . . . . . . . . . . . . . .
90,000
Granted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
73,237
Incremental Performance Shares (1) . . . . . . . . . . . . . .
Forfeited . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
—
Vested . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (188,237)
Outstanding at December 26, 2017 . . . . . . . . . . . . . . .
205,000 $
37.00
54.18
34.11
—
34.11
46.16
1.0
$
11,086
(1) Additional shares from the November 2015 PSU grant that vested in January 2017 due to exceeding the initial 100%
target.
Beginning in 2015, we granted PSUs to two of our executives subject to a one-year vesting and the achievement of
certain earnings targets, which determine the number of units to vest at the end of the vesting period. Share-based
compensation is recognized for the number of units expected to vest at the end of the period and is expensed beginning
on the grant date and through the performance period. For each grant, PSUs vest after meeting the performance and
service conditions. The total intrinsic value of PSUs vested during the years ended December 26, 2017 and December
27, 2016 was $8.6 million and $5.0 million, respectively.
On January 8, 2018, 155,576 shares vested related to the November 2016 PSU grant and are expected to be
distributed during the 13 weeks ending March 27, 2018. This included 115,000 granted shares and 40,576 incremental
shares due to the grant exceeding the initial 100% target. As of December 26, 2017, with respect to unvested PSUs,
there was $5.1 million of unrecognized compensation cost that is expected to be recognized over a weighted-average
period of 1.0 year. The excess tax benefit associated with vested PSUs for the year ended December 26, 2017 was $0.8
million which was recognized within the income tax provision.
Summary Details for Stock Options
Weighted-
Average Exercise Remaining Contractual
Weighted-Average
Shares
Price
Term (years)
Aggregate
Intrinsic Value
Outstanding at December 27, 2016 . . . . . . . . . . . . . .
Granted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
—
Cancelled/Expired . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(2,836)
Exercised . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (115,237)
Outstanding at December 26, 2017 . . . . . . . . . . . . . .
Exercisable at December 26, 2017 . . . . . . . . . . . . . . .
— $
— $
118,073 $
13.57
—
15.47
13.52
—
—
—
—
$
$
—
—
No stock options were granted or vested during the fiscal years ended December 26, 2017, December 27, 2016 and
December 29, 2015. The total intrinsic value of options exercised during the years ended December 26, 2017, December
27, 2016 and December 29, 2015 was $4.0 million, $6.3 million and $6.5 million, respectively.
For the years ended December 26, 2017, December 27, 2016 and December 29, 2015, cash received before tax
withholdings from options exercised was $1.6 million, $2.7 million and $4.7 million, respectively. The excess tax
benefit associated with options exercised for the year ended December 26, 2017 was $1.0 million which was recognized
within the income tax provision. The excess tax benefit for the years ended December 27, 2016 and December 29, 2015
was $1.8 million and $1.7 million, respectively, which was recorded in additional paid-in-capital in the consolidated
balance sheets.
F-24
Texas Roadhouse, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
(Tabular amounts in thousands, except share and per share data)
(14) Fair Value Measurement
ASC 820, Fair Value Measurements and Disclosures ("ASC 820"), establishes a framework for measuring fair
value and expands disclosures about fair value measurements. ASC 820 establishes a three-level hierarchy, which
requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs in measuring
fair value. The valuation hierarchy is based upon the transparency of inputs to the valuation of an asset or liability on the
measurement date.
Level 1
Level 2
Level 3
Inputs based on quoted prices in active markets for identical assets.
Inputs other than quoted prices included within Level 1 that are observable for the
assets, either directly or indirectly.
Inputs that are unobservable for the asset.
There were no transfers among levels within the fair value hierarchy during the year ended December 26, 2017.
The following table presents the fair values for our financial assets and liabilities measured on a recurring basis:
Deferred compensation plan—assets . . . . . . . . . . . . . 1 $
Deferred compensation plan—liabilities . . . . . . . . . . 1
Fair Value Measurements
Level December 26, 2017 December 27, 2016
21,951
28,754 $
(22,128)
(28,829)
The Second Amended and Restated Deferred Compensation Plan of Texas Roadhouse Management Corp., as
amended, (the "Deferred Compensation Plan") is a nonqualified deferred compensation plan which allows highly
compensated employees to defer receipt of a portion of their compensation and contribute such amounts to one or more
investment funds held in a rabbi trust. We report the accounts of the rabbi trust in other assets and the corresponding
liability in other liabilities in our consolidated financial statements. These investments are considered trading securities
and are reported at fair value based on quoted market prices. The realized and unrealized holding gains and losses related
to these investments, as well as the offsetting compensation expense, are recorded in general and administrative expense
in the consolidated statements of income and comprehensive income.
At December 26, 2017 and December 27, 2016, 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. The fair
value of our amended revolving credit facility at December 26, 2017 and December 27, 2016 approximated its carrying
value since it is a variable rate credit facility (Level 2).
(15) Impairment and Closure Costs
We recorded closure costs of $0.7 million, $0.2 million and $1.0 million for the years ended December 26, 2017,
December 27, 2016 and December 29, 2015, respectively, related to costs associated with the relocation of restaurants.
(16) Derivative and Hedging Activities
We enter into derivative instruments for risk management purposes only, including derivatives designated as
hedging instruments under FASB ASC 815, Derivatives and Hedging ("ASC 815"). We use interest rate-related
derivative instruments to manage our exposure to fluctuations of interest rates. By using these instruments, we expose
ourselves, from time to time, to credit risk and market risk. Credit risk is the failure of the counterparty to perform under
the terms of the derivative contract. When the fair value of a derivative contract is positive, the counterparty owes us,
which creates credit risk for us. We attempt to minimize the credit risk by entering into transactions with high-quality
counterparties whose credit rating is evaluated on a quarterly basis. Market risk is the adverse effect on the value of a
financial instrument that results from a change in interest rates. We attempt to minimize market risk by establishing and
monitoring parameters that limit the types and degree of market risk that may be taken.
F-25
Texas Roadhouse, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
(Tabular amounts in thousands, except share and per share data)
As of December 29, 2015, we had an interest rate swap designated as a hedging instrument under ASC 815 which
was recorded as a derivative liability of approximately $45,000 in other accrued liabilities on the consolidated balance
sheet.
The following table summarizes the effect of our interest rate swaps in the consolidated statements of income and
comprehensive income for the 52 weeks ended December 26, 2017, December 27, 2016 and December 29, 2015,
respectively:
December 26, December 27, December 29,
2016
2015
2017
Gain recognized in AOCI, net of tax (effective portion) (1) . . . . . . . . . . . . . . . . . . $
Loss reclassified from AOCI to income (effective portion) (1) . . . . . . . . . . . . . . . . $
— $
— $
27 $
45 $
817
1,397
(1) The fiscal year ended December 27, 2016 included the effect of one interest rate swap which expired on January 7,
2016, while the fiscal year ended December 29, 2015 included the effect of two interest rate swaps, one of which
expired on November 7, 2015.
The loss reclassified from AOCI to income was recognized in interest expense on our consolidated statements of
income and comprehensive income. For each of the fiscal periods ended December 26, 2017, December 27, 2016 and
December 29, 2015, we did not recognize any gain or loss due to hedge ineffectiveness related to the derivative
instruments in the consolidated statements of income and comprehensive income.
(17) Accumulated Other Comprehensive Loss
The components of the changes in accumulated other comprehensive loss for the 52 weeks ended December 26,
2017 and December 27, 2016 were as follows:
Balance as of December 29, 2015 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other comprehensive loss before reclassifications . . . . . . . . . . . . . . . . . . . . . . .
Reclassification adjustments to income (1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Balance as of December 27, 2016 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Other comprehensive loss before reclassifications . . . . . . . . . . . . . . . . . . . . . . .
Reclassification adjustments to income (1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Balance as of December 26, 2017 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
(1)
For further discussion of amounts reclassified to income, see note 16.
(18) Related Party Transactions
Cash Flow
Hedges
Foreign
Currency
Translation
(82)
(182)
—
70
(194) $
252
—
(97)
(39) $
(27)
—
45
(18)
— $
—
—
—
— $
Accumulated
Other
Comprehensive
Loss
(109)
(182)
45
52
(194)
252
—
(97)
(39)
As of December 26, 2017, December 27, 2016 and December 29, 2015, we had 10 franchise restaurants owned
in whole or part by certain of our officers, directors and 5% stockholders of the Company. These entities paid us fees of
$2.1 million, $2.0 million and $1.8 million for the years ended December 26, 2017, December 27, 2016 and
December 29, 2015, respectively. As discussed in note 12, we are contingently liable on leases which are related to two
of these restaurants.
F-26
Texas Roadhouse, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
(Tabular amounts in thousands, except share and per share data)
(19) Selected Quarterly Financial Data (unaudited)
First
Second
Quarter
2017
Third
Fourth
Quarter
Quarter
Revenue . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 567,686 $ 566,262 $ 540,507 $ 545,076 $ 2,219,531
Total costs and expenses . . . . . . . . . . . . . . . . . . . . . . . . . $ 518,664 $ 512,048 $ 494,996 $ 507,617 $ 2,033,325
Income from operations . . . . . . . . . . . . . . . . . . . . . . . . . $ 49,022 $ 54,214 $ 45,511 $ 37,459 $
186,206
Net income attributable to Texas Roadhouse, Inc.
and subsidiaries (a) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 34,313 $ 37,581 $ 31,014 $ 28,618 $
Basic earnings per common share (a) . . . . . . . . . . . . . . $
0.40 $
Diluted earnings per common share (a) . . . . . . . . . . . . . $
0.40 $
0.21 $
Cash dividends declared per share . . . . . . . . . . . . . . . . . $
131,526
1.85
1.84
0.84
0.44 $
0.43 $
0.21 $
0.53 $
0.53 $
0.21 $
0.48 $
0.48 $
0.21 $
Quarter
Total
First
Second
Quarter
2016
Third
Fourth
Quarter
Quarter
Revenue . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 515,559 $ 508,808 $ 481,637 $ 484,710 $ 1,990,714
Total costs and expenses . . . . . . . . . . . . . . . . . . . . . . . . . $ 462,748 $ 459,026 $ 443,169 $ 453,871 $ 1,818,814
Income from operations . . . . . . . . . . . . . . . . . . . . . . . . . $ 52,811 $ 49,782 $ 38,468 $ 30,839 $
171,900
Net income attributable to Texas Roadhouse, Inc.
and subsidiaries (b) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 35,593 $ 33,605 $ 25,675 $ 20,725 $
Basic earnings per common share (b) . . . . . . . . . . . . . . $
0.29 $
Diluted earnings per common share (b) . . . . . . . . . . . . . $
0.29 $
0.19 $
Cash dividends declared per share . . . . . . . . . . . . . . . . . $
115,598
1.64
1.63
0.76
0.36 $
0.36 $
0.19 $
0.48 $
0.47 $
0.19 $
0.51 $
0.50 $
0.19 $
Quarter
Total
(a) The first quarter of 2017 includes an after-tax charge of $9.2 million, or $0.13 per basic and diluted share, related to
the settlement of a legal matter. See note 12 for further discussion. The fourth quarter of 2017 includes an income
tax benefit of $3.1 million, or $0.04 per basic and diluted share, related to the enactment of new income tax
legislation. See note 8 for further discussion.
(b) The first quarter of 2016 includes an after-tax charge of $3.4 million, or $0.05 per basic and diluted share, related to
the settlement of a legal matter. See note 12 for further discussion.
F-27
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FoodAn Appetite to do better.Serving families safe, nutritious food starts with responsible sourcing and delicious Hand-Cut Steaks.COMMUNITYAt the heart of it all.From veteran heroes to local sports teams, and hunger relief to natural disasters, we’re proud to be part of it all. EMPLOYEESOur secret to success.Once a Roadie, always a Roadie. For a diverse and inclusive culture, partnership is everything. CONSERVATIONWaste not. Want not.From bees to trees, preserving natural resources and reducing food, water, and energy waste is just the start. Putting a in the STAKEfutureCommitted to change well doneWe make it our mission to leave every community better than when we found it.Chicken we put safety first BeefWe partner with industry leaders Salmon 100% Norwegian, harvested responsiblyAll the products we source meet USDA guidelines for safety and follow FDA regulations for the responsible use of antibiotics. Our poultry suppliers follow the National Chicken Council (NCC) poultry welfare guidelines, and we are working towards using only suppliers who deliver meat from farm-raised and cage-free chickens.Our beef suppliers adhere to North American Meat Institute (NAMI) and National Cattlemen’s Beef Association’s (NCBA) Beef Quality Assurance (BQA) animal handling standards. These suppliers are also leaders in sustainable beef production practices, participating in industry organizations that are committed to upholding and reviewing these standards.Texas Roadhouse serves 100% Norwegian Salmon harvested responsibly from the clear, cold waters of Norway. The salmon are raised antibiotic-free, fed an all-natural diet, and given sufficient swimming space and time for slow growth.SERVING SAFE QUALITY FOOD9602_Insert.indd 13/20/18 9:39 PM we serveCOMMUNITYGiving BackTO EVERY RESOURCESPreservingon veterans day, we provided over 250,000 (free) meals to veterans and active military.VeteransWeSince its inception in 2002, Andy’s Outreach Fund hasdistributed over $10 million helped over 7,500 employeesLess waste. More recycle • From recycling to composting, we’re actively working to reduce waste. • Approximately 95% of our stores recycle. • 15,418 tons of cardboard, paper, plastic, glass and metal were recycled from September 2016 to July 2017. • Up to 10 stores are leading the charge on food composting.PLANTING IT FORWARD• In 2017, we donated $50,000 to support the Arbor Day Foundation’s Community Tree Recovery campaign. • We will continue this commitment and donate $50,000 to the Arbor Day Foundation each year through 2021 to support the replanting of trees in areas affected by the recent hurricanes.we areFamilyIn 2017, more than $2 Million Was raised and donated to local non-profits, schools, and organizations in the communities we serve.On September 27, 2017 our stores donated 100% of their profits which was over $500,000to those affected by the hurricanes. 9602_Insert.indd 23/20/18 9:39 PM ShareHOLDER
Information
SUPPORT CENTER
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ANNUAL MEETING
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Texas Roadhouse Support Center
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TRANSFER AGENT
Computershare
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FINANCIAL INQUIRIES
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documents and information,
please visit our website at
www.texasroadhouse.com.
Please contact us by phone
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by sending us an e-mail to
investment@texasroadhouse.com
INDEPENDENT
AUDITORS
KPMG LLP
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MEDIA INQUIRIES
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STOCK LISTING
Texas Roadhouse, Inc.
Common Stock is listed on the NASDAQ
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RESTAURANT
Locations
As of December 26, 2017
Domestic: 532
International: 17
BOARD OF
Directors
Gregory N. Moore
Former Senior Vice President,
Controller
Yum! Brands, Inc.
James F. Parker
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Vice Chairman of the Board
Southwest Airlines Co.
Kathleen M. Widmer
President,
Consumer OTC Division
Johnson & Johnson
James R. Zarley
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Chairman of the Board
Conversant, Inc.
W. Kent Taylor
Founder and Chairman,
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Texas Roadhouse, Inc.
Paul ashton • sherman tx
managing partner of the year
shawn haynes • palm bay fl
meat cutter of the year
mike parker
roadie of the year
united in legendary • hurricane relief
chelsa hernandez
service manager of the year
peter gamez
kitchen manager of the year