Texas Roadhouse, Inc. - Quarter Report: 2012 March (Form 10-Q)

Table of Contents

 

 

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-Q

 

 

For the transition period from               to              

 

Commission File Number 000-50972

 

Texas Roadhouse, Inc.

(Exact name of registrant specified in its charter)

 

 

6040 Dutchmans Lane, Suite 200

Louisville, Kentucky 40205

(Address of principal executive offices) (Zip Code)

 

(502) 426-9984

(Registrant’s telephone number, including area code)

 

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   x  No  o.

 

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulations S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes   x  No  o.

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company.  See the definitions of “large accelerated filer”, “accelerated filer”, and “smaller reporting company” in Rule 12b-2 of the Exchange Act.  (Check one):

 

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).   Yes  o  No  x.

 

The number of shares of common stock outstanding were 69,957,305 on April 25, 2012.

 

 

Table of Contents

 

TABLE OF CONTENTS

 

PART I. FINANCIAL INFORMATION
Item 1 — Financial Statements — Texas Roadhouse, Inc. and Subsidiaries		3
Condensed Consolidated Balance Sheets — March 27, 2012 and December 27, 2011		3
Condensed Consolidated Statements of Income and Comprehensive Income — For the 13 Weeks Ended March 27, 2012 and March 29, 2011		4
Condensed Consolidated Statements of Stockholders’ Equity — For the 13 Weeks Ended March 27, 2012		5
Condensed Consolidated Statements of Cash Flows — For the 13 Weeks Ended March 27, 2012 and March 29, 2011		6
Notes to Condensed Consolidated Financial Statements		7
Item 2 — Management’s Discussion and Analysis of Financial Condition and Results of Operations		15
Item 3 — Quantitative and Qualitative Disclosures About Market Risk		26
Item 4 — Controls and Procedures		27
PART II. OTHER INFORMATION
Item 1 — Legal Proceedings		28
Item 1A — Risk Factors		28
Item 2 — Unregistered Sales of Equity Securities and Use of Proceeds		29
Item 3 — Defaults Upon Senior Securities		29
Item 4 — Mine Safety Disclosures		29
Item 5 — Other Information		29
Item 6 — Exhibits		29
Signatures		30

 

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PART I — FINANCIAL INFORMATION

 

ITEM 1 — FINANCIAL STATEMENTS

 

Texas Roadhouse, Inc. and Subsidiaries

Condensed Consolidated Balance Sheets

(in thousands, except share and per share data)

 

		(unaudited)
		March 27, 2012			December 27, 2011
Assets
Current assets:
Cash and cash equivalents		$	77,322		$	73,731
Receivables, net of allowance for doubtful accounts of $28 at March 27, 2012 and $39 at December 27, 2011		12,793			16,526
Inventories, net		9,822			10,730
Prepaid income taxes		—			575
Prepaid expenses		7,636			7,045
Deferred tax assets		5,246			3,367
Total current assets		112,819			111,974
Property and equipment, net		507,873			497,217
Goodwill		110,946			110,946
Intangible assets, net		8,773			9,042
Other assets		12,329			11,491
Total assets		$	752,740		$	740,670
Liabilities and Stockholders’ Equity
Current liabilities:
Current maturities of long-term debt and obligations under capital leases		$	312		$	304
Accounts payable		32,758			32,744
Deferred revenue — gift cards		25,216			44,058
Accrued wages		26,788			23,701
Income tax payable		9,967			—
Accrued taxes and licenses		12,221			12,381
Dividends payable		6,270			5,535
Other accrued liabilities		24,113			17,649
Total current liabilities		137,645			136,372
Long-term debt and obligations under capital leases, excluding current maturities		51,520			61,601
Stock option and other deposits		4,567			4,546
Deferred rent		18,014			17,133
Deferred tax liabilities		7,695			8,715
Fair value of derivative financial instruments		4,325			4,247
Other liabilities		13,358			12,234
Total liabilities		237,124			244,848
Texas Roadhouse, Inc. and subsidiaries stockholders’ equity:
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, 69,877,507 and 69,186,967 shares issued and outstanding at March 27, 2012 and December  27, 2011, respectively)		70			69
Additional paid in capital		212,124			206,019
Retained earnings		301,024			288,425
Accumulated other comprehensive loss		(2,650		)	(2,609		)
Total Texas Roadhouse, Inc. and subsidiaries stockholders’ equity		510,568			491,904
Noncontrolling interests		5,048			3,918
Total equity		515,616			495,822
Total liabilities and equity		$	752,740		$	740,670

 

See accompanying notes to condensed consolidated financial statements.

 

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Texas Roadhouse, Inc. and Subsidiaries

Condensed Consolidated Statements of Income and Comprehensive Income

(in thousands, except per share data)

(unaudited)

 

		13 Weeks Ended
		March 27, 2012			March 29, 2011
Revenue:
Restaurant sales		$	322,012		$	281,320
Franchise royalties and fees		2,857			2,465
Total revenue		324,869			283,785
Costs and expenses:
Restaurant operating costs:
Cost of sales		109,655			93,541
Labor		93,347			82,720
Rent		6,252			5,657
Other operating		51,229			45,281
Pre-opening		3,585			1,890
Depreciation and amortization		11,347			10,600
Impairment and closures		19			26
General and administrative		20,033			13,861
Total costs and expenses		295,467			253,576
Income from operations		29,402			30,209
Interest expense, net		605			565
Equity income from investments in unconsolidated affiliates		(41		)	(103		)
Income before taxes		28,838			29,747
Provision for income taxes		9,085			9,272
Net income including noncontrolling interests		$	19,753		$	20,475
Less: Net income attributable to noncontrolling interests		884			682
Net income attributable to Texas Roadhouse, Inc. and subsidiaries		$	18,869		$	19,793
Other comprehensive (loss) income, net of tax:
Unrealized (loss) gain on derivatives, net of tax of $0.1 million		(41		)	108
Total comprehensive income		$	18,828		$	19,901
Net income per common share attributable to Texas Roadhouse, Inc. and subsidiaries:
Basic		$	0.27		$	0.27
Diluted		$	0.27		$	0.27
Weighted-average shares outstanding:
Basic		69,405			72,052
Diluted		70,830			73,727
Cash dividends declared per share		$	0.09		$	0.08

 

See accompanying notes to condensed consolidated financial statements.

 

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Texas Roadhouse, Inc. and Subsidiaries

Condensed Consolidated Statements of Stockholders’ Equity

(in thousands, except share data)

(unaudited)

 

		Shares		Par Value			Paid in Capital			Retained Earnings			Accumulated Other Comprehensive  Loss			Total Texas Roadhouse, Inc. and Subsidiaries			Noncontrolling Interests			Total
Balance, December 27, 2011		69,186,967		$	69		$	206,019		$	288,425		$	(2,609	)	$	491,904		$	3,918		$	495,822
Net income		—		—			—			18,869			—			18,869			884			19,753
Unrealized loss on derivatives, net of tax of $0.1 million		—		—			—			—			(41		)	(41		)	—			(41		)
Distributions to noncontrolling interests		—		—			—			—			—			—			(763		)	(763		)
Minority interest contribution		—		—			—			—			—			—			1,009			1,009
Minority interest liquidation adjustments		—		—			(357		)	—			—			(357		)	—			(357		)
Dividends declared ($0.09 per share)		—		—			—			(6,270		)	—			(6,270		)	—			(6,270		)
Shares issued under stock option plan including tax effects		479,591		1			4,897			—			—			4,898			—			4,898
Settlement of restricted stock units		304,839		—			—			—			—			—			—			—
Indirect repurchase of shares for minimum tax withholdings		(93,890	)	—			(1,488		)	—			—			(1,488		)	—			(1,488		)
Share-based compensation		—		—			3,053			—			—			3,053			—			3,053
Balance, March 27, 2012		69,877,507		$	70		$	212,124		$	301,024		$	(2,650	)	$	510,568		$	5,048		$	515,616

 

See accompanying notes to condensed consolidated financial statements.

 

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Texas Roadhouse, Inc. and Subsidiaries

Condensed Consolidated Statements of Cash Flows

(in thousands)

(unaudited)

 

		13 Weeks Ended
		March 27, 2012			March 29, 2011
Cash flows from operating activities:
Net income including noncontrolling interests		$	19,753		$	20,475
Depreciation and amortization		11,347			10,600
Deferred income taxes		(2,861		)	(313		)
Loss on disposition of assets		1,007			539
Equity income from investments in unconsolidated affiliates		(41		)	(103		)
Distributions received from investments in unconsolidated affiliates		103			80
Provision for doubtful accounts		11			(31		)
Share-based compensation expense		3,053			2,960
Changes in operating working capital:
Receivables		3,722			442
Inventories		908			638
Prepaid expenses and other current assets		(591		)	307
Other assets		(760		)	(1,309		)
Accounts payable		14			1,593
Deferred revenue — gift cards		(18,842		)	(16,836		)
Accrued wages		3,087			2,061
Excess tax benefits from share-based compensation		(295		)	(236		)
Prepaid income taxes and income taxes payable		10,837			9,518
Accrued taxes and licenses		(160		)	(170		)
Other accrued liabilities		6,463			940
Deferred rent		881			593
Other liabilities		1,124			388
Net cash provided by operating activities		$	38,760		$	32,136
Cash flows from investing activities:
Capital expenditures — property and equipment		(22,839		)	(12,458		)
Proceeds from sale of property and equipment, including insurance proceeds		98			49
Net cash used in investing activities		$	(22,741	)	$	(12,409	)
Cash flows from financing activities:
Repayments of revolving credit facility, net		(10,000		)	—
Proceeds from minority interest contributions and other		512			—
Distributions to noncontrolling interest holders		(763		)	(611		)
Excess tax benefits from share-based compensation		295			236
Proceeds from stock option and other deposits		21			315
Repurchase shares of common stock		—			(25,269		)
Indirect repurchase of shares for minimum tax withholdings		(1,488		)	(1,539		)
Principal payments on long-term debt and capital lease obligations		(73		)	(67		)
Proceeds from exercise of stock options		4,603			2,413
Dividends paid to stockholders		(5,535		)	—
Net cash used in financing activities		$	(12,428	)	$	(24,522	)
Net increase (decrease) in cash and cash equivalents		3,591			(4,795		)
Cash and cash equivalents — beginning of period		73,731			82,215
Cash and cash equivalents — end of period		$	77,322		$	77,420
Supplemental disclosures of cash flow information:
Interest, net of amounts capitalized		$	656		$	426
Income taxes, net of refunds		$	1,110		$	66

 

See accompanying notes to condensed consolidated financial statements.

 

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Texas Roadhouse, Inc. and Subsidiaries

Notes to Condensed Consolidated Financial Statements

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

(unaudited)

 

1)   Basis of Presentation

 

The accompanying unaudited condensed consolidated financial statements include the accounts of Texas Roadhouse, Inc. (the “Company”, “we” and/or “our”), our wholly-owned subsidiaries and subsidiaries in which we own more than 50 percent interest, as of and for the 13 weeks ended March 27, 2012 and March 29, 2011.  Our wholly-owned subsidiaries include: Texas Roadhouse Holdings LLC (“Holdings”), Texas Roadhouse Development Corporation (“TRDC”), Texas Roadhouse Management Corp. (“Management Corp.”) and Aspen Creek, LLC (“Aspen Creek”).  We and our subsidiaries operate restaurants under the names Texas Roadhouse and Aspen Creek. Holdings also provides supervisory and administrative services for certain other franchise and license restaurants. TRDC sells franchise rights and collects the franchise royalties and fees.  Management Corp. provides management services to the Company, Holdings, Aspen Creek and certain other license and franchise restaurants.  All material balances and transactions between the consolidated entities have been eliminated.

 

As of March 27, 2012 and March 29, 2011, we owned 5.0% to 10.0% equity interest in 22 and 21 franchise restaurants, respectively.  While we exercise significant control over these franchise restaurants, we do not consolidate their financial position, results of operations or cash flows as it is immaterial to our consolidated financial position, results of operations and/or cash flows. Our investment in these unconsolidated affiliates is included in Other assets in our condensed consolidated balance sheets and we record our percentage share of net income earned by these unconsolidated affiliates in our condensed consolidated statements of income and comprehensive income under Equity income from investments in unconsolidated affiliates.

 

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 condensed consolidated financial statements and the reporting of revenue and expenses during the period to prepare these condensed consolidated financial statements in conformity with U.S. generally accepted accounting principles (“GAAP”). Significant items subject to such estimates and assumptions include the carrying amount of property and equipment, goodwill, obligations related to insurance reserves, income taxes and share-based compensation expense. Actual results could differ from those estimates.

 

In the opinion of management, the accompanying unaudited condensed consolidated financial statements reflect all adjustments, consisting only of normal recurring adjustments, necessary to present fairly our financial position, results of operations and cash flows for the periods presented.  The financial statements have been prepared in accordance with GAAP, except that certain information and footnotes have been condensed or omitted pursuant to rules and regulations of the Securities and Exchange Commission (“SEC”).  Operating results for the 13 weeks ended March 27, 2012 are not necessarily indicative of the results that may be expected for the year ending December 25, 2012.  The unaudited condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and notes thereto included in our Annual Report on Form 10-K for the year ended December 27, 2011.

 

Our significant interim accounting policies include the recognition of income taxes using an estimated annual effective tax rate.

 

(2)   Share-based Compensation

 

We may grant incentive and non-qualified stock options to purchase shares of common stock, stock bonus awards (restricted stock unit awards (“RSUs”)) and restricted stock awards under the Texas Roadhouse, Inc. 2004 Equity Incentive Plan (the “Plan”).  Beginning in 2008, we changed the method by which we provide share-based compensation to our employees by eliminating stock option grants and, instead, granting RSUs as a form of share-based compensation.  An RSU is the conditional right to receive one share of common stock upon satisfaction of the vesting requirement.

 

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

 

		13 Weeks Ended
		March 27, 2012			March 29, 2011
Labor expense		$	1,006		$	938
General and administrative expense		2,047			2,022
Total share-based compensation expense		$	3,053		$	2,960

 

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A summary of share-based compensation activity by type of grant as of March 27, 2012 and changes during the period then ended is presented below.

 

Summary Details for Plan Share Options

 

		Shares		Weighted- Average Exercise Price			Weighted-Average Remaining Contractual Term (years)		Aggregate Intrinsic Value
Outstanding at December 27, 2011		3,486,642		$	12.02
Granted		—		—
Forfeited		(37,023	)	15.62
Exercised		(479,591	)	9.60
Outstanding at March 27, 2012		2,970,028		$	12.36		3.41		$	13,818
Exercisable at March 27, 2012		2,955,584		$	12.36		3.40		$	13,752

 

The total intrinsic value of options exercised during the 13 weeks ended March 27, 2012 and March 29, 2011 was $3.4 million and $1.5 million, respectively.  As of March 27, 2012, with respect to unvested stock options, there was an immaterial amount of unrecognized compensation cost that is expected to be recognized over a weighted-average period of less than a year.  The total grant date fair value of stock options vested for the 13 week periods ended March 27, 2012 and March 29, 2011 was $0.1 million and $0.2 million, respectively.

 

Summary Details for RSUs

 

		Shares		Weighted- Average Grant Date Fair Value
Outstanding at December 27, 2011		1,186,480		$	13.71
Granted		930,614		15.45
Forfeited		(19,550	)	13.63
Vested		(304,839	)	12.30
Outstanding at March  27, 2012		1,792,705		$	14.86

 

As of March 27, 2012, with respect to unvested RSUs, there was $18.2 million of unrecognized compensation cost that is expected to be recognized over a weighted-average period of 1.7 years.  The vesting terms of the RSUs range from 1.0 to 5.0 years.  The total grant date fair value of RSUs vested for the 13 week periods ended March 27, 2012 and March 29, 2011 was $3.7 million and $3.5 million, respectively.

 

(3)   Long-term Debt and Obligations Under Capital Leases

 

Long-term debt and obligations under capital leases consisted of the following:

 

		March 27, 2012			December 27, 2011
Installment loans, due 2012 — 2020		$	1,629		$	1,679
Obligations under capital leases		203			226
Revolver		50,000			60,000
		51,832			61,905
Less current maturities		312			304
		$	51,520		$	61,601

 

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The weighted-average interest rate for installment loans outstanding was 10.57% at March 27, 2012 and December 27, 2011.  The debt is secured by certain land and buildings.

 

On August 12, 2011, we entered into a new $200.0 million five-year revolving credit facility with a syndicate of commercial lenders led by JPMorgan Chase Bank, N.A., PNC Bank, National Association, and Wells Fargo, National Association.  This facility replaced our previous five-year revolving credit facility.  The new facility expires on August 11, 2016.  The terms of the facility require us to pay interest on outstanding borrowings at London Interbank Offered Rate (“LIBOR”) plus a margin of 0.875% to 1.875%, depending on our leverage ratio, or the Alternate Base Rate, which is the higher 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%.  We are also required to pay a commitment fee of 0.150% to 0.350% per year on any unused portion of the facility, depending on our leverage ratio.  The weighted-average interest rate for the revolver at March 27, 2012 and December 27, 2011 was 4.09% and 3.20%, respectively, including the impact of interest rate swaps as discussed in note 4.  At March 27, 2012, we had $50.0 million outstanding under the credit facility and $145.7 million of availability, net of $4.3 million of outstanding letters of credit.

 

The lenders’ obligation to extend credit under the facility depends on us maintaining certain financial covenants, including a minimum consolidated fixed charge coverage ratio of 2.00 to 1.00 and a maximum consolidated leverage ratio of 3.00 to 1.00.  The credit facility permits us to incur additional secured or unsecured indebtedness outside the facility, except for the incurrence of secured indebtedness that in the aggregate exceeds 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.  We were in compliance with all covenants as of March 27, 2012.

 

(4)           Derivative and Hedging Activities

 

We enter into derivative instruments for risk management purposes only, including derivatives designated as hedging instruments under Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“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 minimize the credit risk by entering into transactions with high-quality counterparties whose credit rating is evaluated on a quarterly basis.  Our counterparty in the interest rate swaps is JPMorgan Chase Bank, N.A.  Market risk is the adverse effect on the value of a financial instrument that results from a change in interest rates, commodity prices or the market price of our common stock.  We minimize market risk by establishing and monitoring parameters that limit the types and degree of market risk that may be taken.

 

Interest Rate Swaps

 

On October 22, 2008, we entered into an interest rate swap, starting on November 7, 2008, with a notional amount of $25.0 million to hedge a portion of the cash flows of our variable rate credit facility.  We have designated the interest rate swap as a cash flow hedge of our exposure to variability in future cash flows attributable to interest payments on a $25.0 million tranche of floating rate debt borrowed under our revolving credit facility.  Under the terms of the swap, we pay a fixed rate of 3.83% on the $25.0 million notional amount and receive payments from the counterparty based on the 1-month LIBOR rate for a term ending on November 7, 2015, effectively resulting in a fixed rate LIBOR component of the $25.0 million notional amount.

 

On January 7, 2009, we entered into an interest rate swap, starting on February 7, 2009, with a notional amount of $25.0 million to hedge a portion of the cash flows of our variable rate credit facility.  We have designated the interest rate swap as a cash flow hedge of our exposure to variability in future cash flows attributable to interest payments on a $25.0 million tranche of floating rate debt borrowed under our revolving credit facility.  Under the terms of the swap, we pay a fixed rate of 2.34% on the $25.0 million notional amount and receive payments from the counterparty based on the 1-month LIBOR rate for a term ending on January 7, 2016, effectively resulting in a fixed rate LIBOR component of the $25.0 million notional amount.

 

We entered into the above interest rate swaps with the objective of eliminating the variability of our interest cost that arises because of changes in the variable interest rate for the designated interest payments.  Changes in the fair value of the interest rate swap will be reported as a component of accumulated other comprehensive income.  We will reclassify any gain or loss from accumulated other comprehensive income (“AOCI”), net of tax, in our condensed consolidated balance sheet to interest expense in our condensed consolidated statement of income and comprehensive income when the interest rate swap expires or at the time we choose to terminate the swap.  See note 9 for fair value discussion of these interest rate swaps.

 

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The following table summarizes the fair value and presentation in the condensed consolidated balance sheets for derivatives designated as hedging instruments under FASB ASC 815:

 

		Balance		Derivative Assets						Derivative Liabilities
		Sheet Location		March 27, 2012			December 27, 2011			March 27, 2012			December 27, 2011
Derivative Contracts Designated as Hedging Instruments under ASC 815		(1)
Interest rate swaps				$	—		$	—		$	4,325		$	4,247
Total Derivative Contracts				$	—		$	—		$	4,325		$	4,247

 

(1)                            Derivative assets and liabilities are included in fair value of derivative financial instruments in the condensed consolidated balance sheets.

 

The following table summarizes the effect of derivative instruments in the condensed consolidated statements of income and comprehensive income for the 13 weeks ended March 27, 2012 and March 29, 2011:

 

																Location of
								Location of		Amount of Gain (Loss)						Gain (Loss)
		Amount of (Loss) Gain						Gain (Loss)		Reclassified from AOCI						Recognized		Amount of Gain (Loss)
		Recognized in AOCI						Reclassified		to Income (effective						in Income		Recognized in Income
		(effective portion)						from AOCI		portion)						(ineffective		(ineffective portion)
		2012			2011			to Income		2012			2011			portion)		2012			2011
Interest rate swaps		$	(41	)	$	108		—		$	35		$	33		—		$	—		$	—

 

(5)           Recent Accounting Pronouncements

 

Comprehensive Income

(ASU 2011-05)

 

In June 2011, the FASB issued ASU 2011-05, Presentation of Comprehensive Income.  ASU 2011-05 eliminates the option to present the components of other comprehensive income as part of the statement of changes in stockholders’ equity, which was our presentation, and also requires presentation of reclassification adjustments from other comprehensive income to net income on the face of the financial statements.  In December 2011, the FASB issued ASU 2011-12, Deferral of the Effective Date for Amendments to the Presentation of Reclassifications of Items Out of Accumulated Other Comprehensive Income in ASU 2011-05, to defer the effective date of the specific requirement to present items that are reclassified out of accumulated comprehensive income to net income alongside their respective components of net income and other comprehensive income.  All other provisions of this update are effective for annual and interim reporting periods beginning after December 15, 2011 (our 2012 fiscal year).  The adoption of this new guidance had no impact on our consolidated financial position, results of operations or cash flows, though it changed our income statement presentation.

 

Goodwill and Other Intangibles

(ASU 2011-08)

 

In September 2011, the FASB issued ASU 2011-08, Intangibles — Goodwill and Other, Testing Goodwill for Impairment, which permits an entity to make a qualitative assessment of whether it is more likely than not that a reporting unit’s fair value is less than its carrying value before applying the two-step goodwill impairment model that is currently in place.  If it is determined through the qualitative assessment that a reporting unit’s fair value is more likely than not greater than its carrying value, the remaining impairment steps would be unnecessary.  The qualitative assessment is optional, allowing companies to go directly to the quantitative assessment.  This update is effective for annual and interim goodwill impairment tests performed in fiscal years beginning after December 15, 2011 (our 2012 fiscal year).  The adoption of this new guidance has no impact on the content of our financial statements or disclosures.

 

(6)           Commitments and Contingencies

 

The estimated cost of completing capital project commitments at March 27, 2012 and December 27, 2011 was approximately $57.9 million and $58.6 million, respectively.

 

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We entered into real estate lease agreements for franchise restaurants located in Everett, MA, Longmont, CO, Montgomeryville, PA, Fargo, ND and Logan, UT before granting franchise rights for those restaurants. We have subsequently assigned the leases to the franchisees, but remain contingently liable if a franchisee defaults under the terms of a lease.  The Longmont lease was assigned in October 2003 and expires in May 2014, the Everett lease was assigned in September 2002 and expires in February 2018, the Montgomeryville lease was assigned in October 2004 and expires in June 2021, the Fargo lease was assigned in February 2006 and expires in July 2016 and the Logan lease was assigned in January 2009 and expires in August 2019.  As the fair value of the guarantees is not considered significant, no liability has been recorded.  As discussed in note 7, the Everett, MA, Longmont, CO, and Fargo, ND restaurants are owned, in whole or part, by certain of our officers, directors or 5% shareholders.

 

We currently buy most of our beef from four suppliers. Although there are a limited number of beef suppliers, management believes that other suppliers could provide a similar product on comparable terms. A change in suppliers, however, could cause supply shortages 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.

 

On September 30, 2011, the U.S. Equal Employment Opportunity Commission (“EEOC”) filed a lawsuit styled Equal Employment Opportunity Commission v. Texas Roadhouse, Inc., Texas Roadhouse Holdings LLC, Texas Roadhouse Management Corp. in the United States District Court, District of Massachusetts, Civil Action Number 1:11-cv-11732. The complaint alleges that applicants over the age of 40 were denied employment in our restaurants in bartender, host, server and server assistant positions due to their age.  The EEOC is seeking injunctive relief, remedial actions, payment of damages to the applicants and costs.  We believe we have meritorious defenses to the claims made by the EEOC, and we intend to vigorously defend against them.  We have filed a response to the complaint.  Based on the preliminary status of this matter, we cannot estimate the possible amount or range of loss, if any, associated with this matter.

 

On January 19, 2011, a Massachusetts putative class action was filed styled Jenna Crenshaw, Andrew Brickley, et al, and all others similarly situated v. Texas Roadhouse, Inc., Texas Roadhouse Holdings, LLC, Texas Roadhouse of Everett, LLC and Texas Roadhouse Management Corp., d/b/a Texas Roadhouse. The complaint is pending in the United States District Court, District of Massachusetts, Civil Action Number 1:11-cv-10549. The complaint alleges a failure to comply with Massachusetts wage laws specifically that we improperly shared pooled tips with ineligible employees. Currently, we operate nine restaurants in the state.  The parties began mediation in late February 2012 and on April 30, 2012, filed a Settlement Agreement (“the Agreement”) seeking preliminary court approval to settle the lawsuit.  Under the Agreement, the company agrees to pay $5.0 million, which includes payment of the plaintiffs’ attorneys’ fees, payment of expenses to administer the settlement, and individual payments to resolve the claims of servers employed in Massachusetts restaurants from January 18, 2005 through the date of final court approval.  The Agreement is subject to final approval of the court, which could take several months.  A preliminary approval hearing will be held on May 3, 2012.  As a result of the Agreement, we have recorded a $5.0 million charge which is included in general and administrative expenses in our condensed consolidated statements of income and comprehensive income for the 13 weeks ended March 27, 2012.

 

We are involved in various other claims and legal actions arising in the normal course of business. In the opinion of management, the ultimate disposition of these matters will not have a material effect on our consolidated financial position, results of operations or cash flows.

 

(7)   Related Party Transactions

 

The Longview, Texas restaurant, which was acquired by us in connection with the completion of our initial public offering, leases the land and restaurant building from an entity controlled by Steven L. Ortiz, our Chief Operating Officer. The lease term is 15 years and will terminate in November 2014. The lease can be renewed for two additional terms of five years each. Rent is approximately $19,000 per month. The lease can be terminated if the tenant fails to pay the rent on a timely basis, fails to maintain the insurance specified in the lease, fails to maintain the building or property or becomes insolvent. Total rent payments were approximately $56,000 for each of the 13 week periods ending March 27, 2012 and March 29, 2011.

 

The Bossier City, Louisiana restaurant, of which Steven L. Ortiz beneficially owns 66.0% and we own 5.0%, leases the land and building from an entity owned by Mr. Ortiz.  The lease term is 15 years and will terminate on March 31, 2020.  Rent is approximately $16,600 per month and escalates 10% each five year period during the term.  The next rent escalation is in the second quarter of 2015.  The lease can be terminated if the tenant fails to pay rent on a timely basis, fails to maintain insurance, abandons the property or becomes insolvent.  Total rent payments were approximately $50,000 for each of the 13 week periods ended March 27, 2012 and March 29, 2011.

 

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We have 15 franchise and license restaurants owned, in whole or part, by certain of our officers, directors or 5% shareholders as of March 27, 2012 and March 29, 2011. These entities paid us fees of approximately $0.6 million and $0.5 million during both of the 13 week periods ended March 27, 2012 and March 29, 2011, respectively.  As disclosed in note 6, we are contingently liable on leases which are related to three of these restaurants.

 

(8)   Earnings Per Share

 

The share and net income per share data for all periods presented are based on the historical weighted-average shares outstanding.  The diluted earnings per share calculations show the effect of the weighted-average stock options, RSUs and restricted stock awards outstanding from our equity incentive plan as discussed in note 2.

 

The following table summarizes the options and nonvested stock that were outstanding but not included in the computation of diluted earnings per share because their inclusion would have had an anti-dilutive effect:

 

		13 Weeks Ended
		March 27, 2012		March 29, 2011
Options		299,572		310,504
Nonvested stock		12,885		210
Total		312,457		310,714

 

The following table sets forth the calculation of weighted-average shares outstanding (in thousands) as presented in the accompanying condensed consolidated statements of income and comprehensive income:

 

		13 Weeks Ended
		March 27, 2012			March 29, 2011
Net income attributable to Texas Roadhouse, Inc. and subsidiaries		$	18,869		$	19,793
Basic EPS:
Weighted-average common shares outstanding		69,405			72,052
Basic EPS		$	0.27		$	0.27
Diluted EPS:
Weighted-average common shares outstanding		69,405			72,052
Dilutive effect of stock options and restricted stock		1,425			1,675
Shares — diluted		70,830			73,727
Diluted EPS		$	0.27		$	0.27

 

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

Level 2           Inputs other than quoted prices included within Level 1 that are observable for the assets, either directly or indirectly.

Level 3           Inputs that are unobservable for the asset.

 

There were no transfers among levels within the fair value hierarchy during the 13 week period ended March 27, 2012.

 

The following table presents the fair values for our financial assets and liabilities measured on a recurring basis:

 

		Fair Value Measurements
		Level		March 27, 2012			December 27, 2011
Interest rate swaps		2		$	(4,325	)	$	(4,247	)
Deferred compensation plan - assets		1		7,545			6,748
Deferred compensation plan - liabilities		1		(7,539		)	(6,714		)
Total				$	(4,319	)	$	(4,213	)

 

The fair value of our interest rate swaps were determined based on the present value of expected future cash flows considering the risks involved, including nonperformance risk, and using discount rates appropriate for the duration. See note 4 for discussion of our interest rate swaps.

 

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 our condensed consolidated financial statements. These investments are considered trading securities and are reported at fair value based on third-party broker statements.  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 condensed consolidated statements of income and comprehensive income.

 

The following table presents the fair values for our financial assets and liabilities measured on a nonrecurring basis:

 

		Fair Value Measurements
		Level		March 27, 2012			December 27, 2011
Long-lived assets held for sale		2		$	1,398		$	1,398
Long-lived assets held for use		2		992			1,017
Goodwill		3		992			992
Total				$	3,382		$	3,407

 

Long-lived assets held for sale include land and building and are valued using Level 2 inputs, primarily an independent third party appraisal.  These assets are included in Property and equipment in our condensed consolidated balance sheets as we do not expect to sell these assets in the next 12 months.  Costs to market and/or sell the assets are factored into the estimates of fair value.

 

Long-lived assets held for use include building, equipment and furniture and fixtures and are valued using Level 2 inputs, primarily independent third party appraisals.  These assets are included in Property and equipment in our condensed consolidated balance sheets.

 

Goodwill in the table above relates to two underperforming restaurants in which the carrying value of the associated goodwill was reduced to fair value, based on their historical results and anticipated future trends of operations.

 

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At March 27, 2012 and December 27, 2011, the fair value of cash and cash equivalents, accounts receivable and accounts payable approximated their carrying value based on the short-term nature of these instruments. The fair value of our long-term debt is estimated based on the current rates offered to us for instruments of similar terms and maturities. The carrying amounts and related estimated fair values for our debt are as follows:

 

		March 27, 2012						December 27, 2011
		Carrying Amount			Fair Value			Carrying Amount			Fair Value
Installment loans — Level 2		$	1,629		$	1,972		$	1,679		$	2,044
Revolver — Level 1		50,000			50,000			60,000			60,000

 

(10)  Stock Repurchase Program

 

On February 16, 2012, 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.  Historically, repurchases under our stock repurchase program are 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 its evaluation of our stock price, market conditions and other corporate considerations.

 

We did not repurchase any shares of our common stock during the 13 weeks ended March 27, 2012 through this authorized stock repurchase program.  For the 13 weeks ended March 29, 2011, we paid approximately $25.3 million to repurchase 1.5 million shares of our common stock at an average stock price of $16.85 through a previously authorized stock repurchase program.  These shares were recorded in Treasury stock in the condensed consolidated balance sheets at March 29, 2011.  These shares were retired in the second quarter of 2011.

 

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ITEM 2.  MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

 

CAUTIONARY STATEMENT

 

This report contains forward-looking statements based on our current expectations, estimates and projections about our industry, management’s beliefs, and certain assumptions made by us.  Words such as “anticipates,” “expects,” “intends,” “plans,” “believes,” “seeks,” “estimates,” “may,” “will” and variations of these words or similar expressions are intended to identify forward-looking statements.  In addition, any statements that refer to expectations, projections or other characterizations of future events or circumstances, including any underlying assumptions, are forward-looking statements.  Such statements are not guarantees of future performance and are subject to certain risks, uncertainties and assumptions that are difficult to predict.  Therefore, our actual results could differ materially and adversely from those expressed in any forward-looking statements as a result of various factors.  The section entitled “Risk Factors” in our Annual Report on Form 10-K for the year ended December 27, 2011, and in our other Securities and Exchange Commission (“SEC”) filings, discusses some of the important risk factors that may affect our business, results of operations, or financial condition.  You should carefully consider those risks, in addition to the other information in this report, and in our other filings with the SEC, before deciding to invest in our company or to maintain or increase your investment.  We undertake no obligation to revise or update publicly any forward-looking statements for any reason.  The information contained in this Form 10-Q is not a complete description of our business or the risks associated with an investment in our common stock.  We urge you to carefully review and consider the various disclosures made by us in this report and in our other reports filed with the SEC that discuss our business in greater detail and advise interested parties of certain risks, uncertainties and other factors that may affect our business, results of operations or financial condition.

 

OVERVIEW

 

Texas Roadhouse is a growing, moderately priced, full-service restaurant chain. Our founder, chairman and chief executive officer, W. Kent Taylor, started the business in 1993 with the opening of the first Texas Roadhouse in Clarksville, Indiana.  Since then, we have grown to 373 restaurants in 47 states.  In addition, we opened our first international franchise-owned Texas Roadhouse in Dubai, UAE in 2011.  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 March 27, 2012, our 374 restaurants included:

 

·  302 “company restaurants,” of which 290 were wholly-owned and 12 were majority-owned.  The results of operations of company restaurants are included in our condensed consolidated statements of income and comprehensive income. The portion of income attributable to minority interests in company restaurants that are not wholly-owned is reflected in the line item entitled “Net income attributable to noncontrolling interests” in our condensed consolidated statements of income and comprehensive income.

 

· 72 “franchise restaurants,” of which 69 were franchise restaurants and three were license restaurants. We have a 5.0% to 10.0% ownership interest in 22 franchise restaurants.  The income derived from our minority interests in these franchise restaurants is reported in the line item entitled “Equity income from investments in unconsolidated affiliates” in our condensed consolidated statements of income and comprehensive income. Additionally, we provide various management services to these franchise restaurants, as well as seven additional franchise restaurants in which we have no ownership interest.

 

We have contractual arrangements which grant us the right to acquire at pre-determined valuation formulas (i) the remaining equity interests in ten of the 12 majority-owned company restaurants, and (ii) 65 of the franchise restaurants.

 

Presentation of Financial and Operating Data

 

Throughout this report, the 13 weeks ended March 27, 2012 and March 29, 2011 are referred to as Q1 2012 and Q1 2011, respectively.

 

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

 

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

 

Expanding Our Restaurant Base.   We will continue to evaluate opportunities to develop Texas Roadhouse restaurants in existing and new domestic and international markets. Domestically, we will remain focused primarily on mid-sized markets where we believe a significant demand for our restaurants exists because of population size, income levels, 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.

 

Our average capital investment for Texas Roadhouse restaurants opened during 2011, including pre-opening expenses, was $3.76 million.  This average includes 10 times the annual base rent amount for restaurants where we do not own the land.  We anticipate that

 

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our 2012 development costs will be fairly consistent with our 2011 costs.  We continue to focus on driving sales and managing restaurant development costs in order to further increase our restaurant development in the future.

 

We may, at our discretion, add franchise restaurants, domestically and/or internationally, primarily with franchisees who have demonstrated prior success with the Texas Roadhouse or other restaurant concepts and in markets in which the franchisee demonstrates superior knowledge of the demographics and restaurant operating conditions.  In conjunction with this strategy, we signed our first international franchise agreement in April 2010 for the development of Texas Roadhouse restaurants in eight countries in the Middle East over the next 10 years, the first of which opened in August 2011.  Additionally, in 2010, we entered into a joint venture agreement with a casual dining restaurant operator in China for the minority ownership in three non-Texas Roadhouse restaurants, two of which were open as of the end of Q1 2012.  We may also look to acquire franchise restaurants under terms favorable to us and our stockholders.  Additionally, from time to time, we may evaluate potential mergers, acquisitions, joint ventures or other strategic initiatives to acquire or develop additional concepts.  Of the 302 restaurants we owned and operated at March 27, 2012, 299 operated as Texas Roadhouse restaurants, while three operated under the name of Aspen Creek.  We currently plan to open 25 restaurants in 2012, all of which will be company-owned Texas Roadhouse restaurants.  In addition, our existing franchise partners will open 2 to 3 Texas Roadhouse restaurants in 2012.

 

Maintaining and/or Improving Restaurant Level Profitability.   We plan to maintain, or possibly increase, restaurant level profitability through a combination of increased comparable restaurant sales and operating cost management. In Q1 2012, our average unit volumes and comparable restaurant sales increased 5.7% and 6.0%, respectively, for Texas Roadhouse restaurants.  The growth in these measures was due to a combination of menu price increases taken throughout 2011 and 2012 and higher guest traffic counts.  We believe the increased guest traffic counts is due to our continued focus on encouraging repeat visits by our guests through our continued commitment to operational standards relating to our quality of food and service, along with an improvement in the overall economy.  We also continue to drive various localized marketing programs in order to attract new guests and increase the frequency of visits of our existing guests.  In an effort to partially offset inflationary pressures, we have increased menu prices approximately 2.2% and 2.5% to 3.0% in 2012 and 2011, respectively.  In general, we continue to maintain our conservative approach on pricing as we remain focused on the long-term success of Texas Roadhouse.  This may create a challenge in terms of maintaining and/or increasing restaurant margins, as a percentage of sales, in any given year, depending on the level of inflation we experience.  In addition to restaurant margin, as a percentage of sales, we also focus on restaurant margin growth per store week as a measure of restaurant level profitability.

 

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 systems, real estate, human resources, legal, marketing and operations. Typically, general and administrative costs have increased at a slower growth rate than our revenue.  Whether we are able to continue leveraging our infrastructure will depend, in part, on our new restaurant openings and our comparable restaurant sales growth rate going forward.  In 2012, our general and administrative costs will increase at a faster growth rate than our revenue as a result of a legal settlement charge of $5.0 million recorded in Q1 2012.

 

Returning Capital to Shareholders.  We continue to look at opportunities to return capital to our shareholders, including repurchases of common stock and payment of dividends.  On February 16, 2012, our Board of Directors approved a stock repurchase program under which we may repurchase up to $100.0 million of our common stock.  Any repurchases will be made through open market transactions.  As of March 27, 2012, $100.0 million remains authorized for repurchase.  Since 2008, we have paid $116.1 million to repurchase 10.5 million shares of our common stock at an average price per share of $11.08 through our authorized stock repurchase programs.

 

On February 16, 2012, our Board of Directors authorized the payment of a cash dividend of $0.09 per share of common stock.  This payment of $6.3 million was distributed on March 30, 2012, to shareholders of record at the close of business on March 14, 2012.  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 credit facility and other contractual restrictions, or other factors deemed relevant.  During 2011, we declared dividends of $22.5 million, or $0.32 per share of common stock.

 

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 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 operating 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 year-over-year sales for the

 

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company restaurants in 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 current interim period 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-owned Texas Roadhouse restaurants open for a full six months before the beginning of the period measured. Average unit volume excludes sales on restaurants closed during the period.  Growth in average unit volumes in excess of comparable restaurant sales growth is generally an indication that newer restaurants are operating with sales levels in excess of the company average. Conversely, growth in average unit volumes less than growth in comparable restaurant sales growth is generally an indication that newer restaurants are operating with sales levels lower than the company average.

 

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

 

Restaurant Margins.  Restaurant margins represent restaurant sales less restaurant operating costs.  Restaurant margins, as a percentage of restaurant sales, may fluctuate based on changes in average unit volumes, inflationary pressures, commodity costs and wage rates.  We also focus on restaurant margin growth per store week as a measure of restaurant level profitability as it provides additional insight on operating performance.

 

Other Key Definitions

 

Restaurant Sales.   Restaurant sales include gross food and beverage sales, net of promotions and discounts, for all company-owned 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 condensed consolidated statements of income and comprehensive income.

 

Franchise Royalties and Fees.   Domestic franchisees typically pay a $40,000 initial franchise fee for each new restaurant.  In addition, at each renewal period, we receive a fee equal to the greater of 30% of the then-current initial franchise fee or $10,000 to $15,000. Franchise royalties consist of royalties in an amount up to 4.0% of gross sales, as defined in our franchise agreement, paid to us by our domestic franchisees.

 

Restaurant Cost of Sales.   Restaurant cost of sales consists of food and beverage 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 managers. 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 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, advertising, repair and maintenance, property taxes, credit card fees and general liability insurance. Profit sharing allocations to 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 salaries, travel expenses, rent, food, beverage and other initial supplies and expenses.

 

Depreciation and Amortization Expenses.   Depreciation and amortization expenses (“D&A”) includes the depreciation of fixed assets and amortization of intangibles with definite lives.

 

Impairment and closure costs.  Impairment and closure costs include any impairment of long-lived assets, including goodwill, associated with restaurants where the carrying amount of the asset is not recoverable and exceeds the fair value of the asset and expenses associated with the closure of a restaurant.  Closure costs also include any gains or losses associated with the sale of a closed restaurant and/or assets held for sale.

 

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.   Supervision and accounting fees received from certain franchise restaurants and license 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.

 

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Interest Expense, Net.   Interest expense includes the cost of our debt 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 March 27, 2012 and March 29, 2011, we owned a 5.0% to 10.0% equity interest in 22 franchise restaurants.  Additionally, as of March 27, 2012, we owned a 40% equity interest in two 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 or controlled restaurants.  Our consolidated subsidiaries at March 27, 2012 and March 29, 2011 included 12 and 11 majority-owned restaurants, respectively, all of which were open.

 

Managing Partners and Market Partners.  Managing partners are single unit operators who have primary responsibility for the day-to-day operations of the entire restaurant and are responsible for maintaining the standards of quality and performance we establish.  Market partners, generally, have supervisory responsibilities for up to 10 to 13 restaurants.  In addition to supervising the operations of our restaurants, they are also responsible for the hiring and development of each restaurant’s management team and assist in the new restaurant site selection process.

 

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Results of Operations

 

		13 Weeks Ended
		March 27, 2012				March 29, 2011
($ in thousands)		$		%		$		%
Revenue:
Restaurant sales		322,012		99.1		281,320		99.1
Franchise royalties and fees		2,857		0.9		2,465		0.9
Total revenue		324,869		100.0		283,785		100.0
Costs and expenses:
(As a percentage of restaurant sales)
Restaurant operating costs:
Cost of sales		109,655		34.1		93,541		33.3
Labor		93,347		29.0		82,720		29.4
Rent		6,252		1.9		5,657		2.0
Other operating		51,229		15.9		45,281		16.1
(As a percentage of total revenue)
Pre-opening		3,585		1.1		1,890		0.7
Depreciation and amortization		11,347		3.5		10,600		3.7
Impairment and closure		19		NM		26		NM
General and administrative		20,033		6.2		13,861		4.9
Total costs and expenses		295,467		90.9		253,576		89.4
Income from operations		29,402		9.1		30,209		10.6
Interest expense, net		605		0.2		565		0.2
Equity income from investments in unconsolidated affiliates		(41	)	NM		(103	)	NM
Income before taxes		28,838		8.9		29,747		10.5
Provision for income taxes		9,085		2.8		9,272		3.3
Net income including noncontrolling interests		19,753		6.1		20,475		7.2
Net income attributable to noncontrolling interests		884		0.3		682		0.2
Net income attributable to Texas Roadhouse, Inc. and subsidiaries		18,869		5.8		19,793		7.0

 

NM — Not meaningful

 

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