NASDAQ_TXRH_2019

Texas Roadhouse, Inc. and Subsidiaries

Notes to Consolidated Financial Statements

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

F-12

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. See note 16 for further discussion of amounts
recorded as part of our impairment analysis.

(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
Property ................................................................. $250,000
Employee healthcare ....................................................... $350,000

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 31, 2019, we operated 514
restaurants, each as a single operating segment, and franchised an additional 97 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.

We adopted ASC 606, Revenue from Contracts with Customers, as of the beginning of our 2018 fiscal year. This
ASC requires an entity to allocate the transaction price received from customers to each separate and distinct
performance obligation and recognize revenue as these performance obligations are satisfied. This standard replaces
most existing revenue recognition guidance in conformity with generally accepted accounting principles in the United
States ("GAAP"). The adoption of this standard did not have an impact on our recognition of sales from company
restaurants or our recognition of continuing fees from franchisees, which are based on a percentage of franchise
restaurant sales. As further detailed below, the adoption of this standard did have an impact on the recognition of initial
franchise fees and upfront fees from international development agreements. In addition, certain transactions that were
previously recorded as expense prior to adoption are now classified as revenue. We utilized the cumulative-effect