NASDAQ_TXRH_2018

Texas Roadhouse, Inc. and Subsidiaries

Notes to Consolidated Financial Statements

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

F-12

(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
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 15 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 a free standing derivative instrument that had been designated and qualified as a cash flow hedge that 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 25, 2018, December 26, 2017 and December 27,
2016.