NASDAQ_TXRH_2018

Texas Roadhouse, Inc. and Subsidiaries

Notes to Consolidated Financial Statements

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

F-10

(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 ...................................... $350,000

General liability ............................................ $500,000

Employee healthcare ........................................ $325,000

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 25, 2018, we operated 491
restaurants, each as a single operating segment, and franchised an additional 91 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

We recognize revenue from restaurant sales when food and beverage products are sold. Deferred revenue primarily
represents our liability for gift cards that have been sold, but not yet redeemed. When the gift cards are redeemed, we
recognize restaurant sales and reduce deferred revenue. We also recognize revenue from our franchising of Texas
Roadhouse restaurants. This includes franchise royalties, initial and upfront franchise fees, fees paid to our domestic
marketing and advertising fund, and fees for supervisory and administrative services. For further discussion of revenue,
see note 3.

(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 25, 2018,
December 26, 2017 and December 27, 2016. Domestic company and franchise restaurants are required to remit a