<TABLE>
<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C.
20549
FORM 10-Q
QUARTERLY REPORT UNDER SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For Quarter Ended: Commission File Number:
June 30, 2000 1-15935
------------------- ------------------------
OUTBACK STEAKHOUSE, INC.
------------------------------------------------------
(Exact name of registrant as specified in its charter)
DELAWARE 59-3061413
------------------------------- ----------------------------------
(State or other jurisdiction of (IRS Employer Identification Number)
incorporation or organization)
2202 North Westshore Boulevard, 5th Floor
Tampa, FL 33607
---------------------------------------------------
(Address of principal executive offices) (Zip Code)
(813) 282-1225
---------------------------------------------------
(Registrant's telephone number, including area code)
Indicate by check mark whether the 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 .
---- -----
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date. As of August 10, 2000, there
were approximately 77,894,000 shares of Common Stock, $.01 par value outstanding.
1 of 22
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OUTBACK STEAKHOUSE, INC.
PART I: FINANCIAL INFORMATION
Item 1. Financial Statements
The accompanying unaudited consolidated financial statements have been
prepared by Outback Steakhouse, Inc. and Affiliates (the "Company") pursuant to
the rules and regulations of the Securities and Exchange Commission.
Accordingly, they do not include all of the information and footnotes required
by generally accepted accounting principles for complete financial statements.
In the opinion of the Company, all adjustments (consisting only of normal
recurring entries) necessary for the fair presentation of the Company's results
of operations, financial position and cash flows for the periods presented have
been included.
The Consolidated Statements of Income for the three month and six month
periods ended June 30, 1999 and Statement of Cash Flow for the six month period
ended June 30, 1999 have been restated to reflect the Company's merger with its
New England franchisee. The merger was accounted for using the pooling of
interests method of accounting; and accordingly, all the historical information
has been restated to reflect the merger.
2 of 22
<PAGE>
OUTBACK STEAKHOUSE, INC.
CONSOLIDATED BALANCE SHEETS
(in thousands)
June 30 December 31,
2000 1999
ASSETS (unaudited)
CURRENT ASSETS ----------- ------------
Cash and cash equivalents.............. $112,631 $ 92,623
Inventories............................ 24,656 26,088
Other current assets................... 22,416 24,500
-------- --------
Total current assets................ 159,703 143,211
PROPERTY, FIXTURES AND EQUIPMENT, NET.... 640,717 607,028
INVESTMENTS IN AND ADVANCES TO
UNCONSOLIDATED AFFILIATES, NET........ 25,486 21,272
OTHER ASSETS............................. 93,414 80,771
-------- --------
$919,320 $852,282
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable....................... $ 31,415 $ 33,974
Sales taxes payable.................... 10,623 10,354
Accrued expenses....................... 42,729 29,628
Unearned revenue....................... 17,010 45,188
Income taxes payable................... 13,201 10,166
Current portion of long-term debt...... 558 1,625
-------- --------
Total current liabilities........... 115,536 130,935
DEFERRED INCOME TAXES..................... 2,293 4,659
LONG-TERM DEBT............................ 1,091 1,519
OTHER LONG-TERM LIABILITIES............... 4,000 4,500
-------- --------
Total liabilities................... 122,920 141,613
INTEREST OF MINORITY PARTNERS IN -------- --------
CONSOLIDATED PARTNERSHIPS............. 16,762 17,704
-------- --------
STOCKHOLDERS' EQUITY
Common stock, $0.01 par value, 200,000
shares authorized; 78,119 and 77,519
shares issued; and 78,119 and 77,404
outstanding as of June 30, 2000 and
December 31, 1999, respectively....... 781 775
Additional paid-in capital............. 206,635 194,251
Retained earnings...................... 572,222 501,384
-------- --------
779,638 696,410
Less treasury stock, 115 shares at
December 31, 1999, at cost............ (3,445)
-------- --------
Total stockholders' equity........... 779,638 692,965
-------- --------
$919,320 $852,282
======== ========
See notes to unaudited consolidated financial statements.
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OUTBACK STEAKHOUSE, INC.
CONSOLIDATED STATEMENTS OF INCOME
(in thousands except per share data, unaudited)
Three Months Ended Six Months Ended
June 30, June 30,
2000 1999 2000 1999
-------- -------- -------- --------
Restaurant sales..................... $477,417 $414,602 $938,391 $803,695
Other revenues....................... 4,203 2,913 8,026 5,716
-------- -------- -------- --------
TOTAL REVENUES..................... $481,620 $417,515 $946,417 $809,411
COSTS AND EXPENSES: -------- -------- -------- --------
Cost of sales...................... 178,772 156,774 350,471 306,037
Labor & other related.............. 112,694 97,533 220,383 189,452
Other restaurant operating......... 101,814 87,835 202,706 171,136
General & administrative........... 20,841 16,454 40,455 31,204
Income from operations
of unconsolidated affiliates.... (702) (342) (1,069) (577)
-------- -------- -------- --------
Total costs and expenses...... 413,419 358,254 812,946 697,252
INCOME FROM OPERATIONS............... 68,201 59,261 133,471 112,159
OTHER INCOME (EXPENSE), NET.......... (34) (901) (627) (1,404)
INTEREST INCOME...................... 1,477 215 2,300 417
INCOME BEFORE ELIMINATION OF......... -------- -------- -------- --------
MINORITY PARTNERS' INTEREST
AND INCOME TAXES................... 69,644 58,575 135,144 111,172
ELIMINATION OF MINORITY PARTNERS'
INTEREST........................... 9,540 8,337 19,417 15,669
-------- -------- -------- --------
INCOME BEFORE PROVISION FOR INCOME
TAXES.............................. 60,104 50,238 115,727 95,503
PROVISION FOR INCOME TAXES........... 21,806 17,760 41,663 33,829
-------- -------- -------- --------
NET INCOME........................... $ 38,298 $ 32,478 $ 74,064 $ 61,674
======== ======== ======== ========
BASIC EARNINGS PER COMMON SHARE...... $0.49 $0.42 $0.95 $0.80
BASIC WEIGHTED AVERAGE NUMBER OF ======== ======== ======== ========
COMMON SHARES OUTSTANDING........... 77,977 77,209 77,800 76,865
======== ======== ======== ========
DILUTED EARNINGS PER COMMON SHARE.... $0.48 $0.41 $0.93 $0.78
DILUTED WEIGHTED AVERAGE NUMBER OF ======== ======== ======== ========
COMMON SHARES OUTSTANDING........... 80,397 79,795 79,872 79,247
======== ======== ======== ========
PRO FORMA (see Note 1):
PROVISION FOR INCOME TAXES........... 18,337 34,859
-------- --------
NET INCOME........................... $ 31,901 $ 60,644
======== ========
BASIC EARNINGS PER COMMON SHARE...... $0.41 $0.79
======== ========
DILUTED EARNINGS PER COMMON SHARE.... $0.40 $0.77
======== ========
See notes to unaudited consolidated financial statements.
4 of 22
OUTBACK STEAKHOUSE, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands, unaudited) Six Months Ended June 30,
2000 1999
Cash flows from operating activities: -------- --------
Net income.................................. $ 74,064 $ 61,674
Adjustments to reconcile net income to
cash provided by operating activities:
Depreciation.............................. 26,839 21,749
Amortization.............................. 2,322 1,413
Minority partners' interest in
consolidated partnerships' income........ 19,417 15,669
Income from unconsolidated affiliates..... (1,069) (577)
Change in assets and liabilities:
Decrease in inventories.................. 1,432 3,586
Decrease (increase) in other current assets 2,084 (4,125)
Increase in other assets................. (14,965) (86)
Increase (decrease) in accounts payable,
sales taxes payable, and accrued expenses 10,811 (3,247)
Increase in income taxes payable.......... 3,035 3,019
Decrease in unearned revenue.............. (28,178) (22,114)
(Decrease) increase in deferred income taxes (2,366) 1,665
Decrease in other long-term liabilities (500)
-------- --------
Net cash provided by operating activities 92,926 78,626
Cash flows used in investing activities: -------- --------
Capital expenditures....................... (60,528) (48,108)
Payments from unconsolidated affiliates.... 210 64
Change in investments in and advances to
unconsolidated affiliates................. (3,355) (5,539)
------- --------
Net cash used in investing activities.... (63,673) (53,583)
Cash flows from financing activities: ------- --------
Adjustments from stock transactions........ 12,390 10,660
Proceeds from minority partners' contributions 800 625
Distributions to minority partners
and shareholders.......................... (21,159) (21,157)
Repayments of long-term debt............... (1,495) (33,916)
Proceeds from reissuance of treasury stock. 219 11,178
Net cash used in financing -------- --------
activities............................. (9,245) (32,610)
-------- --------
Net increase (decrease) in cash
and cash equivalents..................... 20,008 (7,567)
Cash and cash equivalents at beginning
of period................................ 92,623 84,035
-------- --------
Cash and cash equivalents at end of period.. $112,631 $ 76,468
======== ========
Supplemental disclosures of cash flow information:
Cash paid for interest................... $ 470
Cash paid for income taxes............... $ 35,233 21,089
Supplemental disclosures of non-cash items:
Purchase of minority partners' interest.. 2,511
See notes to unaudited consolidated financial statements.
5 of 22
OUTBACK STEAKHOUSE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1. Basis of Presentation
The accompanying unaudited consolidated financial statements have been
prepared by Outback Steakhouse, Inc. (the "Company") pursuant to the rules and
regulations of the Securities and Exchange Commission. Accordingly, they do not
include all the information and footnotes required by generally accepted
accounting principles for complete financial statements. In the opinion of the
Company, all adjustments (consisting only of normal recurring entries) necessary
for the fair presentation of the Company's results of operations, financial
position and cash flows for the periods presented have been included.
The Consolidated Statements of Income for the three month and six month
periods ended June 30, 1999 and Statement of Cash Flow for the six month period
ended June 30, 1999 have been restated to reflect the Company's merger with its
New England franchisee that was completed November 30, 1999. The merger was
accounted for using the pooling of interests method of accounting; and
accordingly, all the historical information has been restated to reflect the
merger. The pro forma income tax provision and pro forma net income amounts
presented for 1999 reflect the anticipated income tax as if the New England
franchisee had not elected to be taxed under Subchapter S of the Internal
Revenue Code.
Certain amounts shown in the 1999 consolidated financial statements have
been reclassified to conform to the 2000 presentation. These reclassifications
did not have an effect on total assets, total liabilities, stockholders'
equity or net income.
The results of operations for the interim periods are not necessarily
indicative of the results to be expected for the full year.
The December 31, 1999 Balance Sheet has been derived from the audited
financial statements but does not include all of the disclosures required by
generally accepted accounting principles. It is suggested that these financial
statements be read in conjunction with the financial statements and financial
notes thereto included in the Company's 1999 Annual Report.
2. Other Current Assets
Other current assets consisted of the following (in thousands):
June 30, December 31,
2000 1999
-------- ---------
Deposits ......................... $ 1,315 $ 1,253
Accounts receivable............... 5,342 6,116
Accounts receivable franchisees... 3,912 6,291
Prepaid expenses.................. 10,586 9,444
Other current assets.............. 1,261 1,396
-------- --------
$ 22,416 $ 24,500
======== =========
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OUTBACK STEAKHOUSE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
3. Property, Fixtures and Equipment, Net. Property, fixtures and equipment
consisted of the following (in thousands):
June 30, December 31,
2000 1999
--------- --------
Land.............................. $ 125,484 $120,978
Buildings & building improvements. 303,671 289,261
Furniture & fixtures.............. 76,037 72,452
Equipment......................... 194,283 168,705
Leasehold improvements............ 120,403 115,340
Construction in progress.......... 26,881 19,495
Accumulated depreciation.......... (206,042) (179,203)
-------- --------
$ 640,717 $607,028
========= ========
4. Other Assets
Other assets consisted of the following (in thousands):
June 30, December 31,
2000 1999
Intangible assets, net(including liquor -------- --------
licenses)...................... $ 71,800 $ 61,508
Other assets...................... 21,614 19,263
--------- --------
$ 93,414 $ 80,771
========= ========
5. Long-term Debt
Long-term debt consisted of the following (in thousands):
June 30, December 31,
2000 1999
--------- --------
Note payable to corporation, collateralized
by real estate, interest at 9.0%........ $ 45 $ 119
Other notes payable, uncollateralized,
interest rates ranging from 5.63% to 7.99% 1,604 2,378
Notes payable to banks, collateralized
by property, fixtures and equipment,
interest at rates ranging from 8.02%
to 9.9% at December 31, 1999............ 647
------ ------
1,649 3,144
Less current portion 558 1,625
----- ------
Long-term debt $1,091 $1,519
====== ======
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OUTBACK STEAKHOUSE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
The Company has an uncollateralized revolving line of credit that permits
borrowing up to a maximum of $125,000,000 at rates ranging from 57.5 to 95.0
basis points over the 30,60, 90 or 180 day London Interbank Offered Rate
("LIBOR") (6.64% to 7.00% at June 30, 2000 and 5.82% to 6.13% at December 31,
1999). At June 30, 2000 and December 31, 1999 the unused portion of the
revolving line of credit was $125,000,000. The line matures in December 2002.
The Company has a $7,500,000 uncollateralized line of credit bearing interest
at rates ranging from 50 to 75 basis points over LIBOR. At June 30, 2000,
approximately $3,917,000 of the line of credit was committed for the issuance
of letters of credit, $817,000 of which was to collateralize loans made by the
bank to certain franchisees.
The Company has a $15,000,000 uncollateralized line of credit bearing interest
at rates ranging from 57.5 to 95 basis points over LIBOR. Approximately
$2,750,000 of the line of credit was committed for the issuance of letters of
credit at June 30, 2000.
The Company is the guarantor of an uncollateralized line of credit that
permits borrowing of up to a maximum of $25,000,000, maturing in March 2002, for
one of its franchisees. At June 30, 2000 and December 31, 1999 the balance on the
line of credit was approximately $20,170,000 and $19,220,000 respectively.
The Company is the guarantor of up to approximately $8,333,000 of a
$60,000,000 note for an unconsolidated affiliate in which the Company has an
18.5% equity interest. At June 30, 2000 and December 31, 1999, the outstanding
balance was approximately $52,404,000 and $16,828,000, respectively.
See "Liquidity and Capital Resources" in Item 2, "Management's Discussion and
Analysis of Financial Condition and Results of Operations."
6. Accrued Expenses
Accrued expenses consisted of the following (in thousands):
June 30, December 31,
2000 1999
-------- ---------
<S> <C> <C>
Accrued payroll and other compensation $15,737 $12,616
Accrued advertising................... 4,454 1,149
Accrued rent.......................... 2,783 1,934
Accrued insurance..................... 9,502 7,837
Accrued property taxes................ 6,469 5,078
Other accrued expenses................ 3,784 1,014
------- -------
$42,729 $29,628
======= =======
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OUTBACK STEAKHOUSE, INC.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Results of Operations (1)
The following table sets forth, for the periods indicated, (i) the percentages which the items in the Company's
Consolidated Statements of Income bear to total revenues, or restaurant sales as indicated, and (ii) selected operating
data:
Three Months Ended Six Months Ended
June 30, June 30,
---------------- ----------------
2000 1999 2000 1999
REVENUES ------ ------ ------ ------
Restaurant sales................ 99.1% 99.3% 99.2% 99.3%
Other revenues.................. 0.9 0.7 0.8 0.7
------ ------ ------ ------
TOTAL REVENUES................... 100.0 100.0 100.0 100.0
COSTS AND EXPENSES:
Cost of sales (2)............... 37.4 37.8 37.3 38.1
Labor & other related (2)....... 23.6 23.5 23.5 23.6
Other restaurant operating (2).. 21.3 21.2 21.6 21.3
General & administrative........ 4.3 3.9 4.3 3.9
Income from operations of
unconsolidated affiliates..... (0.1) (0.1) (0.1) (0.1)
Total costs and expenses..... 85.8 85.8 85.9 86.1
------ ------ ------ ------
INCOME FROM OPERATIONS........... 14.2 14.2 14.1 13.9
OTHER INCOME (EXPENSE), NET...... (*) (0.2) (0.1) (0.2)
INTEREST INCOME.................. 0.3 0.1 0.2 0.1
------ ------ ------ ------
INCOME BEFORE ELIMINATION OF
MINORITY PARTNERS' INTEREST
AND INCOME TAXES............... 14.5 14.0 14.3 13.7
ELIMINATION OF MINORITY PARTNERS'
INTEREST....................... 2.0 2.0 2.1 1.9
------ ------ ------ ------
INCOME BEFORE PROVISION FOR
INCOME TAXES................... 12.5 12.0 12.2 11.8
PROVISION FOR INCOME TAXES(3).... 4.5 4.4 4.4 4.3
------ ------ ------ ------
NET INCOME(3).................... 8.0% 7.6% 7.8% 7.5%
====== ====== ====== ======
(*)Percentages are less than 1/10 of one percent of total revenues.
(1) Amounts for the three months and six months ended June 30, 1999 have been restated to reflect the merger
discussed in Note 1 of Notes to Consolidated Financial Statements.
(2) As a percentage of restaurant sales.
(3) Amounts for the three months and six months ended June 30, 1999 are pro forma. See Note 1 of Notes to
Consolidated Financial Statements.
9 of 22
Results of Operations (continued)
Three Months Ended Six Months Ended
June 30, June 30,
---------------- ----------------
2000 1999 2000 1999
------ ------ ------ ------
System-wide sales (millions of dollars):
Outback Steakhouse restaurants
Company owned - domestic and
international...................$ 430 $ 380 $ 846 $ 735
Domestic franchised and
joint venture................... 81 67 158 129
International franchised and
joint venture................... 19 14 35 27
------ ------ ------ ------
Total........................... 530 461 1,039 891
------ ------ ------ ------
Carrabba's Italian Grills
Company owned...................... 43 35 85 69
Joint venture...................... 11 8 22 15
------ ------ ------ ------
Total........................... 54 43 107 84
------ ------ ------ ------
Other restaurants
Company owned...................... 4 7
------ ------ ------ ------
System-wide total....................$ 588 $ 504 $1,153 $ 975
====== ====== ====== ======
June 30,
--------------
2000 1999
---- ----
Number of restaurants (at end of the period):
Outback Steakhouses
Company owned - domestic and international..... 495 454
Domestic franchised and joint venture.......... 99 86
International franchised and joint venture..... 34 25
--- ---
Total....................................... 628 565
--- ---
Carrabba's Italian Grills
Company owned................................. 58 53
Joint venture................................. 16 13
--- ---
Total...................................... 74 66
Fleming's Prime Steakhouse and Wine Bars --- ---
Company owned.................................. 3
Roy's --- ---
Company owned.................................. 1
Zazarac --- ---
Company owned.................................. 1
--- ---
System-wide total................................ 707 631
=== ===
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<PAGE>
Three months ended June 30, 2000 and 1999
Revenues. Total revenues increased by 15.4% to $481,620,000 during the second quarter of 2000 as
compared with $417,515,000 in the same period in 1999. The increase was attributable to the opening of new
restaurants after June 30, 1999, increased same store customer counts, menu price increases of approximately
2.5% at Outback Steakhouse in December 1999, and comparable store revenue increases during the quarter of 5.6% and
12.6% at Outback Steakhouse and Carrabba's Italian Grills, respectively. The following table depicts additional
activities that influenced the period to period changes in revenues:
Three Months Ended
June 30,
----------------
2000 1999
------ ------
Average unit volumes(weekly):
Outback Steakhouses.......... $ 66,888 $ 64,731
Carrabba's Italian Grills.... 57,085 50,731
Per person check averages:
Outback Steakhouses.......... 17.76 17.45
Carrabba's Italian Grills.... 19.32 18.47
Year to year percentage change:
Same-store sales:
Outback Steakhouses.......... 5.6% 6.1%
Carrabba's Italian Grills.... 12.6% 6.6%
Same store customer counts:
Outback Steakhouses.......... 3.5% 2.7%
Carrabba's Italian Grills.... 6.4% (0.4)%
Costs and expenses. Costs of sales, consisting of food and beverage costs, as a percentage of restaurant sales,
decreased in the second quarter of 2000 to 37.4% of restaurant sales as compared with 37.8% in the same period
in 1999. The decrease was attributable to higher menu prices and commodity cost decreases in dairy products,
partially offset by an increase in produce costs.
Labor and other related expenses increased as a percentage of restaurant sales by 0.1% to 23.6% in the
second quarter of 2000 as compared with 23.5% in the same period in 1999. The increase resulted from higher
hourly wage rates resulting from a competitive labor market and additional labor used to facilitate the rollout of
Outback Steakhouse's "Take-away" initiative, partially offset by higher average unit volumes.
Other restaurant operating expenses include all other unit-level operating costs, the major components of
which are operating supplies, rent, repairs and maintenance, advertising expenses, utilities, depreciation, pre-opening
expenses, and other occupancy costs. A substantial portion of these expenses are fixed or indirectly variable. These
costs increased by 0.1% of restaurant sales to 21.3% in the second quarter of 2000, as compared with 21.2% in
the same period in 1999. The increase resulted primarily from higher advertising spending related to Outback
Steakhouse's national cable program and increased operating supplies expense related to Outback Steakhouse's
"Take-away" program. The increase was partially offset by higher average unit volumes for both Outback
Steakhouse and Carrabba's Italian Grills, which reduces the fixed and indirectly variable costs as a percentage of
restaurant sales.
11 of 22
General and administrative costs increased by $4,387,000 to $20,841,000
in the second quarter of 2000 compared with $16,454,000 during the same period
in 1999. This increase resulted from an increase in overall administrative costs
associated with operating additional Outback Steakhouses, Carrabba's Italian
Grills and Fleming's Prime Steakhouses as well as costs associated with the
development of new restaurant formats and other affiliated businesses.
Income from operations of unconsolidated affiliates represents the
Company's portion of the income from Outback Steakhouses and Carrabba's Italian
Grills operated as development joint ventures. Income from the development joint
ventures was $702,000 during the second quarter of 2000 as compared with income
of $342,000 during the same period in 1999. This increase was attributable to
additional stores operating as development joint ventures in the second quarter
of 2000 and to an increase in average unit volumes and improved operating
margins.
Income from operations. As a result of the increase in revenues, the
changes in the relationship between revenues and expenses discussed above and the
opening of new restaurants, income from operations increased by $8,940,000, to
$68,201,000, in the second quarter of 2000 as compared with $59,261,000 in the
same period in 1999.
Other income (expense), net. Other income (expense) includes the net of
revenues and expenses from non-restaurant operations. Net other expense was
$34,000 during the second quarter of 2000 as compared with net expense of
$901,000 in the same period in 1999. The improvement in the net expense resulted
from increased revenues and stabilization of operating costs associated with non-
restaurant operations.
Interest income. Interest income was $1,477,000 during the second
quarter of 2000 as compared with interest income of $215,000 in the same period
in 1999. The period to period change in interest income resulted from higher
average cash balances and higher interest rates on short term investments during
the second quarter of 2000 compared with the same period in 1999.
Elimination of minority partners' interests. The allocation of minority
partners' income included in this line item represents their portion of income
from operations included in consolidated operating results attributable to the
ownership interests of restaurant managers and area operating partners in Company
owned restaurants. These costs were 2.0% of revenues during both of the quarters
ended June 30, 2000 and 1999.
12 of 22
Provision for income taxes. The provision for income taxes in both
quarters reflected expected income taxes due at federal statutory rates and state
income tax rates, net of the federal benefit. The effective income tax rate was
36.3% during the second quarter of 2000 and the pro forma effective income tax
rate was 36.5% during the second quarter of 1999. The decrease in the effective
rate resulted from state tax savings associated with changes in the corporate
state tax structure implemented in the third quarter of 1999, partially offset
by the decrease in FICA tip credits the Company was able to utilize in the
current period.
Pro forma net income and earnings per share. Net income for the second
quarter of 2000 was $38,298,000 as compared with pro forma net income of
$31,901,000 in the same period in 1999. Basic earnings per share increased to
$0.49 during the second quarter of 2000 as compared with pro forma basic earnings per share
of $0.41 for the same period in 1999. Basic weighted shares outstanding increased
by approximately 768,000 shares from 77,209,000 shares at June 30, 1999 to
77,977,000 at June 30, 2000. The increase was primarily due to the issuance of
shares for stock option exercises. Diluted earnings per share increased to $0.48
during the second quarter of 2000 as compared with pro forma diluted earnings per share of
$0.40 for the same period in 1999. Diluted weighted shares outstanding increase
by approximately 602,000 shares from 79,795,000 shares at June 30, 1999 to
80,397,000 shares at June 30, 2000. The increase was primarily due to the
issuance of shares for stock option exercises and partially offset by the
decreased dilutive effect of outstanding stock options because of lower average
stock prices over the period.
13 of 22
<PAGE>
Six months ended June 30, 2000 and 1999
Revenues. Total revenues increased by 16.9% to $946,417,000 during the
first half of 2000 as compared with $809,411,000 in the same period in 1999. The
increase was attributable to the opening of new restaurants after June 30, 1999,
increased same store customer counts, a menu price increase of 2.5% at Outback
Steakhouse in December 1999, and comparable store revenue increases during the first
half of 2000 of 5.8% and 11.5% for Outback Steakhouse and Carrabba's Italian
Grills, respectively. The following table depicts additional activities which
influenced the period to period changes in revenues:
Six Months Ended
June 30,
----------------
2000 1999
------ ------
Average unit volumes(weekly):
Outback Steakhouses.......... $ 66,193 $ 64,133
Carrabba's Italian Grills.... 56,829 50,301
Per person check averages:
Outback Steakhouses.......... 17.89 17.60
Carrabba's Italian Grills.... 19.35 18.49
Year to year percentage change:
Same-store sales:
Outback Steakhouses.......... 5.8% 5.8%
Carrabba's Italian Grills.... 11.5% 6.0%
Same-store customer counts:
Outback Steakhouses.......... 3.9% 2.4%
Carrabba's Italian Grills.... 6.4% (1.8)%
Costs and expenses. Cost of sales as a percentage of restaurant sales,
decreased by 0.8% to 37.3% in the first half of 2000 as compared with 38.1% in
the same period in 1999. The decrease was attributable to higher menu prices and
commodity cost decreases in produce and dairy products.
Labor and other related expenses decreased as a percentage of restaurant
sales by 0.1% to 23.5% in the first half of 2000 as compared with 23.6% in the
same period in 1999. The decrease resulted from higher average unit volumes
during the first six months of 2000 at Outback Steakhouse and Carrabba's Italian
Grills, partially offset by higher hourly wage rates resulting from a competitive
labor market and additional labor used to facilitate the rollout of Outback Steakhouse's
"Take-away" initiative.
Other restaurant operating expenses increased by 0.3% of restaurant sales
to 21.6% in the first half of 2000 as compared with 21.3% in the same period in
1999. The increase resulted primarily from higher advertising spending during the
six months related to Outback Steakhouse's national cable program and increased
operating supplies expense related to Outback Steakhouse's "Take-away" program.
The increase was partially offset by higher average unit volumes for both Outback
Steakhouse and Carrabba's Italian Grills, which reduces the fixed and indirectly
variable costs as a percentage of restaurant sales.
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General and administrative costs increased by $9,251,000 to $40,455,000
during the first half of 2000 as compared to with $31,204,000 during the same
period in 1999. This increase resulted from an increase in overall administrative
costs associated with operating additional Outback Steakhouses, Carrabba's
Italian Grills and Fleming's Prime Steakhouses as well as costs associated with
the development of new restaurants and other affiliated businesses.
Income from operations of unconsolidated affiliates represents the
Company's portion of the income or loss from Outback Steakhouses and Carrabba's
Italian Grills operated as development joint ventures. Income from the joint
ventures was $1,069,000 in the first six months of 2000 as compared with income
of $577,000 in the same period in 1999. This increase was attributable to
additional stores operating as development joint ventures in the first half of
2000 and to an increase in average unit volumes and improved operating margins.
Income from operations. As a result of the increase in revenues, the
changes in the relationship between revenues and expenses discussed above and the
opening of new restaurants, income from operations increased by $21,312,000, to
$133,471,000 in the first half of 2000 as compared with $112,159,000 in the same
period in 1999.
Other income (expense), net. Other income (expense) includes the net of
revenues and expenses from non-restaurant operations. Net other expense was
$627,000 during the first six months of 2000 as compared with net other expense of
$1,404,000 in the same period in 1999. The decrease in the net expense resulted
from increased revenues in the second quarter associated with non-restaurant
operations.
Interest income. Interest income was $2,300,000 during the
first six months of 2000 as compared with interest income of $417,000 in the same
period in 1999. The period to period change in interest income resulted from
higher average cash balances and higher interest rates on short term investments
during the first six months of 2000 compared with the same period in 1999.
Elimination of minority interests. The allocation of minority partners'
income included in this line item represents the portion of income from
operations included in consolidated operating results attributable to the
ownership interests of restaurant managers and area operating partners in Company
owned restaurants. As a percentage of revenues, these allocations were 2.1% and
1.9% during the six months ended June 30, 2000 and 1999, respectively. The
increase in this ratio reflected the increase in overall restaurant operating
margins.
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Provision for income taxes. The provision for income taxes in the first
half of both 2000 and 1999 reflected the expected income taxes due at federal
statutory rates and state income tax rates, net of the federal benefit. The
effective income tax rate was 36.0% during the first six months of 2000 and the
pro forma effective income tax rate was 36.5% during the first six months of
1999. The decrease in the effective tax rate resulted from tax savings associated
with changes in the corporate state tax structure implemented in the third
quarter of 1999, partially offset by the decrease in FICA tip credits the Company
was able to utilize in the first six months of 2000.
Net income and earnings per common share. Net income for the first half
of 2000 was $74,064,000 as compared with pro forma net income of $60,644,000 in
the same period in 1999. Basic earnings per share increased to $0.95 during the
first half of 2000, as compared with pro forma basic earning per share of $0.79 in the same period in 1999. Diluted
earnings per share increased to $0.93 during the first half of 2000, as compared
with pro forma diluted earnings per share of $0.77 in the same period in 1999.
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<PAGE>
Liquidity and Capital Resources
The following table presents a summary of the Company's cash flows from
operating, investing and financing activities for the periods indicated (in
thousands).
Year Ended Six Months Ended
December 31, June 30, June 30,
1999 2000 1999
--------- ---------- ----------
Net cash provided by
operating activities $ 192,662 $ 92,926 $ 78,626
Net cash used in investing
activities (127,700) (63,673) (53,583)
Net cash used in
financing activities (56,374) (9,245) (32,610)
--------- -------- --------
Net increase (decrease) in
cash and cash equivalents $ 8,588 $ 20,008 $ (7,567)
========= ======== ========
The Company requires capital principally for the development of new Company
owned and joint venture restaurants. Capital expenditures totaled approximately
$116,746,000 for year ended December 31, 1999 and $60,528,000 and $48,108,000
during the first six months of 2000 and 1999, respectively. The Company either
leases its restaurants under operating leases for periods ranging from five to
twenty years or purchases land and buildings where it is cost effective.
The Company has formed joint ventures to develop Outback Steakhouses in
Brazil and the Philippines. The Company has purchased three Outback Steakhouses
in Korea and will also develop future Company owned Outback Steakhouses in Korea.
The Company also has entered into agreements to develop and operate Roy's
Restaurants and Fleming's Prime Steakhouse and Wine Bars. Under the Fleming's
agreement, the Company has committed to the first $13,000,000 of future
development costs.
At June 30, 2000, the Company had three uncollateralized lines of credit
totaling $147,500,000. Approximately $6,667,000 is committed for the issuance of
letters of credit, some of which are to collateralize loans made by the bank to
certain franchisees. The Company expects that its capital requirements through
the end of 2000 will be met by cash flows from operations and, to the extent
needed, advances on its line of credit. See Note 5 of Notes to Unaudited
Consolidated Financial Statements.
The Company is the guarantor of an uncollateralized line of credit that
permits borrowing of up to $25,000,000 for one of its franchisees. At June 30,
2000, the borrowings totaled approximately $20,170,000. See Note 5 of Notes to
Unaudited Consolidated Financial Statements.
The Company is the guarantor of up to approximately $8,333,000 of a
$60,000,000 note for an unconsolidated affiliate in which the Company has an
18.5% equity interest. At June 20, 2000 the outstanding balance on the note was
approximately $52,404,000.
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On July 26, 2000, the Company's Board of Directors authorized a program to
repurchase up to 4,000,000 shares of the Company's Common Stock. The timing,
price, quantity and manner of the purchases will be made at the discretion of
management and will depend upon market conditions. In addition, the Board of
Directors also authorized a program to repurchase shares on a regular basis to
offset shares issued as a result of stock option exercises. The Company will
fund the repurchase program with available cash and bank credit facilities.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company is exposed to market risk from changes in interest rates on
debt and changes in commodity prices. The Company's exposure to interest rate
risk relates to its revolving lines of credit with its bank. Borrowings under the
agreement bear interest at rates ranging from 50 to 95 basis points over the 30,
60, 90 or 180 London Interbank Offered Rate. At June 30, 2000, and December 31,
1999, the Company did not have an outstanding balance on the line of credit.
Many of the food products purchased by the Company and its franchisees
are affected by commodity pricing and are, therefore, subject to unpredictable
price volatility. Extreme changes in commodity prices and/or long-term changes
could affect the Company adversely. However, any changes in commodity prices
would also affect the Company's competitors at about the same time as the
Company. The Company expects that in most cases increased commodity prices
could be passed through to its consumers via increases in menu prices. From time
to time, competitive circumstances could limit menu price flexibility, and in
those cases margins would be negatively impacted by increased commodity prices.
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Cautionary Statement
The foregoing Management's Discussion and Analysis of Financial Condition and
Results of Operations contains various "forward-looking statements' within the
meaning of Section 27A of the Securities Exchange Act of 1933, as amended, and
Section 21E of the Securities Exchange Act of 1934, as amended. Forward-looking
statements represent the Company's expectations or belief concerning future
events, including the following: any statements regarding future sales and gross
profits percentages, any statements regarding the continuation of historical
trends, and any statements regarding the sufficiency of the Company's cash
balances and cash generated from operating and financing activities for the
Company's future liquidity and capital resource needs. Without limiting the
foregoing, the words "believes," "anticipates," "plans," "expects," and similar
expressions are intended to identify forward-looking statements. The Company
cautions that these statements are further qualified by important economic and
competitive factors that could cause actual results to differ materially from
those in the forward-looking statements including, without limitation, risks of
the restaurant industry, including a highly competitive industry with many well-
established competitors with greater financial and other resources than the
Company, and the impact of changes in consumer tastes, local, regional and
national economic conditions, demographic trends, traffic patterns, employee
availability and cost increases. In addition, the Company's ability to expand is
dependent upon various factors, such as the availability of attractive sites for
new restaurants, the ability to negotiate suitable lease terms, the ability to
generate or borrow funds to develop new restaurants and obtain various government
permits and licenses and the recruitment and training of skilled management and
restaurant employees. Accordingly, such forward-looking statements do not
purport to be predictions of future events or circumstances and may not be
realized.
The Company notes that a variety of factors could cause the actual results
and experience to differ from the anticipated results referred to in the previous
paragraphs. The Company's forward looking statements regarding its development
schedule for new restaurant openings are subject to a number of risk factors
including:
(i) Ability to obtain appropriate real estate sites at acceptable prices;
(ii) Ability to obtain all required governmental permits including zoning
approvals and liquor licenses on a timely basis;
(iii)Impact of government moratoriums or approval processes which could
result in significant delays;
(iv) Ability to obtain all necessary contractors and sub-contractors;
(v) Union activities such as picketing and hand billing which could
delay construction;
(vi) Weather and acts of God beyond the Company's control resulting in
construction delays.
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<PAGE>
OUTBACK STEAKHOUSE, INC.
PART II: OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders.
The Company held an Annual Meeting of Stockholders on Thursday, April 27,
2000. The matters submitted for vote and the related election results are as
follows:
1. To elect four directors each to serve for a three year term
and until his or her successor is duly elected and qualified.
The results of proxies voted for the election of the directors
are as follows:
Name of Nominee Votes For % of Votes % of Exceptions % of
/Director Eligible Withheld Eligible Eligible
--------------- --------- -------- -------- -------- ---------- --------
Debbi Fields-Rose 70,310,188 90.56% 734,882 0.95% 19,663 0.03%
Edward Leonard Flom 70,306,097 90.56% 738,973 0.95% 19,663 0.03%
Robert S. Merritt 70,318,767 90.57% 726,803 0.94% 19,663 0.03%
Chris T. Sullivan 70,318,885 90.57% 726,185 0.94% 19,663 0.03%
Eligible 77,638,739
2. To transact such other business as may properly come before the meeting.
The results of proxies voted are as follows:
% of
Eligible
-------
For 41,935,458 54.01%
Against 20,645,631 26.59%
Abstain 8,463,981 10.90%
---------- -----
Total 71,045,070 91.51%
========== =====
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Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits
27A- Financial Data Schedules (for SEC use only)
(b) Reports on Form 8-K
There were no reports filed on Form 8-K during
the quarter ended June 30, 2000.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf of the
undersigned thereunto duly authorized.
OUTBACK STEAKHOUSE, INC.
________________________
(Registrant)
Date: August 14, 2000 By: /s/ Robert S. Merritt
__________________ __________________________
Robert S. Merritt
Senior Vice President,
Finance (Principal Financial
and Accounting Officer)
</TABLE>
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