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:
September 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 November 10, 2000, there
were approximately 76,712,000 shares of Common Stock, $.01 par value
outstanding.
1 of 25
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 nine month
periods ended September 30, 1999 and Statement of Cash Flow for the nine month
period ended September 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 25
OUTBACK STEAKHOUSE, INC.
CONSOLIDATED BALANCE SHEETS
(in thousands)
September 30, December 31,
2000 1999
ASSETS (unaudited)
CURRENT ASSETS ----------- ------------
Cash and cash equivalents.............. $ 88,341 $ 92,623
Inventories............................ 22,157 26,088
Other current assets................... 24,368 24,500
---------- --------
Total current assets................ 134,866 143,211
PROPERTY, FIXTURES AND EQUIPMENT, NET.... 665,045 607,028
INVESTMENTS IN AND ADVANCES TO
UNCONSOLIDATED AFFILIATES, NET........ 30,896 21,272
OTHER ASSETS............................. 100,451 80,771
---------- --------
$ 931,258 $852,282
========== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable....................... $ 27,708 $ 33,974
Sales taxes payable.................... 10,206 10,354
Accrued expenses....................... 44,158 29,628
Unearned revenue....................... 9,720 45,188
Income taxes payable................... 13,935 10,166
Current portion of long-term debt...... 619 1,625
-------- --------
Total current liabilities........... 106,346 130,935
DEFERRED INCOME TAXES..................... 10,439 4,659
LONG-TERM DEBT............................ 10,946 1,519
OTHER LONG-TERM LIABILITIES............... 4,000 4,500
-------- --------
Total liabilities................... 131,731 141,613
INTEREST OF MINORITY PARTNERS IN -------- --------
CONSOLIDATED PARTNERSHIPS............. 17,299 17,704
-------- --------
STOCKHOLDERS' EQUITY
Common stock, $0.01 par value, 200,000
shares authorized; 78,233 and 77,519
shares issued; and 76,823 and 77,404
outstanding as of September 30, 2000
and December 31, 1999, respectively... 782 775
Additional paid-in capital............. 207,948 194,251
Retained earnings...................... 607,605 501,384
-------- --------
Less treasury stock, 1,410 and 115 shares 816,335 696,410
at September 30, 2000 and December 31,
1999, respectively, at cost (34,107) (3,445)
-------- --------
Total stockholders' equity........... 782,228 692,965
-------- --------
$931,258 $852,282
======== ========
See notes to unaudited consolidated financial statements.
3 of 25
OUTBACK STEAKHOUSE, INC.
CONSOLIDATED STATEMENTS OF INCOME
(in thousands except per share data, unaudited)
Three Months Ended Nine Months Ended
September 30, September 30,
2000 1999 2000 1999
-------- -------- -------- --------
Restaurant sales....................$480,239 $406,549 $1,418,630 $1,210,244
Other revenues ..................... 4,863 3,454 12,889 9,170
-------- -------- ---------- ---------
TOTAL REVENUES ...................$485,102 $410,003 $1,431,519 $1,219,414
COSTS AND EXPENSES: -------- -------- ---------- ---------
Cost of sales .................... 184,918 155,037 535,389 461,074
Labor & other related ............ 115,570 98,195 335,953 287,647
Other restaurant operating ....... 91,417 75,606 267,719 225,189
Depreciation and amortization..... 15,005 11,982 43,731 34,948
General & administrative.......... 17,766 14,086 55,899 43,877
Income from operations
of unconsolidated affiliates... (697) (207) (1,766) (784)
-------- -------- ---------- ---------
Total costs and expenses..... 423,979 354,699 1,236,925 1,051,951
INCOME FROM OPERATIONS.............. 61,123 55,304 194,594 167,463
OTHER INCOME (EXPENSE), NET......... 91 (515) (536) (1,919)
INTEREST INCOME ................... 1,223 141 3,523 558
INCOME BEFORE ELIMINATION OF -------- -------- ---------- ---------
MINORITY PARTNERS' INTEREST
AND INCOME TAXES.................. 62,437 54,930 197,581 166,102
ELIMINATION OF MINORITY PARTNERS'
INTEREST.......................... 7,933 6,843 27,350 22,512
-------- -------- ---------- ---------
INCOME BEFORE PROVISION FOR INCOME
TAXES............................. 54,504 48,087 170,231 143,590
PROVISION FOR INCOME TAXES.......... 19,121 15,891 60,784 49,720
-------- -------- ---------- ---------
NET INCOME .........................$ 35,383 $ 32,196 $ 109,447 $ 93,870
======== ======== ========== =========
BASIC EARNINGS PER COMMON SHARE.....$ 0.46 $ 0.42 $ 1.41 $ 1.22
BASIC WEIGHTED AVERAGE NUMBER OF ======== ======== ========== =========
COMMON SHARES OUTSTANDING.......... 77,629 77,340 77,743 77,025
======== ======== ========== =========
DILUTED EARNINGS PER COMMON SHARE...$ 0.45 $ 0.40 $ 1.38 $ 1.18
DILUTED WEIGHTED AVERAGE NUMBER OF ======== ======== ========== =========
COMMON SHARES OUTSTANDING.......... 79,036 79,678 79,593 79,392
======== ======== ========== =========
PRO FORMA (see Note 1):
PROVISION FOR INCOME TAXES.......... 16,403 51,262
-------- --------
NET INCOME.......................... $ 31,684 $ 92,328
======== ========
BASIC EARNINGS PER COMMON SHARE..... $ 0.41 $ 1.20
======== ========
DILUTED EARNINGS PER COMMON SHARE... $ 0.40 $ 1.16
======== ========
See notes to unaudited consolidated financial statements.
4 of 25
OUTBACK STEAKHOUSE, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands, unaudited) Nine Months Ended September 30,
2000 1999
Cash flows from operating activities: -------- --------
Net income.................................. $109,447 $ 93,870
Adjustments to reconcile net income to
cash provided by operating activities:
Depreciation.............................. 40,744 33,153
Amortization.............................. 3,718 2,152
Minority partners' interest in
consolidated partnerships' income........ 27,350 22,512
Income from unconsolidated affiliates..... (1,766) (784)
Change in assets and liabilities:
Decrease in inventories.................. 3,931 2,571
Decrease (increase) in other current assets. 132 (6,248)
Increase in other assets................. (19,638) (6,691)
Increase (decrease) in accounts payable,
sales taxes payable, and accrued expenses 8,116 (5,789)
Increase in income taxes payable.......... 3,769 10,768
Decrease in unearned revenue.............. (35,468) (29,004)
Increase in deferred income taxes......... 5,780 2,316
Decrease in other long-term liabilities (500)
-------- --------
Net cash provided by operating activities 145,615 118,826
Cash flows used in investing activities: -------- --------
Capital expenditures....................... (98,761) (78,154)
Payments from unconsolidated affiliates.... 210 64
Change in investments in and advances to
unconsolidated affiliates................. (8,068) (7,091)
-------- --------
Net cash used in investing activities.... (106,619) (85,181)
Cash flows used in financing activities: -------- --------
Adjustments from stock transactions........ 9,944 12,668
Proceeds from issuance of long-term debt... 10,000
Proceeds from minority partners' contributions 1,000 625
Distributions to minority partners
and stockholders.......................... (28,755) (30,444)
Repayments of long-term debt............... (1,579) (34,021)
Purchase of treasury stock................. (34,107) (7,230)
Proceeds from reissuance of treasury stock. 219 11,178
Net cash used in financing -------- --------
activities............................. (43,278) (47,224)
Net decrease in cash -------- --------
and cash equivalents..................... (4,282) (13,579)
Cash and cash equivalents at beginning
of period................................ 92,623 84,035
-------- --------
Cash and cash equivalents at end of period.. $ 88,341 $ 70,456
======== ========
Supplemental disclosures of cash flow information:
Cash paid for interest................... $ 30 $ 540
Cash paid for income taxes............... $ 45,548 $ 26,243
Supplemental disclosures of non-cash items:
Purchase of minority partners' interest.. $ 3,760 $ 2,511
See notes to unaudited consolidated financial statements.
5 of 25
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 nine month
periods ended September 30, 1999 and Statement of Cash Flow for the nine month
period ended September 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):
September 30, December 31,
2000 1999
-------- ---------
Deposits.......................... $1,681 $ 1,253
Accounts receivable............... 8,884 6,116
Accounts receivable franchisees... 4,560 6,291
Prepaid expenses.................. 8,024 9,444
Other current assets.............. 1,219 1,396
------- -------
$24,368 $24,500
======= =======
6 of 25
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):
September 30, December 31,
2000 1999
-------- --------
Land.............................. $ 130,756 $120,978
Buildings & building improvements. 313,071 289,261
Furniture & fixtures.............. 79,295 72,452
Equipment......................... 203,402 168,705
Leasehold improvements............ 126,620 115,340
Construction in progress.......... 28,640 19,495
Accumulated depreciation.......... (216,739) (179,203)
-------- --------
$ 665,045 $607,028
========= ========
4. Other Assets
Other assets consisted of the following (in thousands):
September 30, December 31,
2000 1999
------------ -----------
Intangible assets, net(including liquor
licenses............................... $ 73,567 $ 61,508
Other assets.............................. 26,884 19,263
--------- --------
$ 100,451 $ 80,771
========= ========
5. Long-term Debt
Long-term debt consisted of the following (in thousands):
September 30, December 31,
2000 1999
------------ ----------
Note payable to corporation, collateralized
by real estate, interest at 9.0%........ $ 13 $ 119
Other notes payable, uncollateralized,
interest rates ranging from 5.63% to 7.99% 1,552 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
Revolving line of credit, interest at
7.24% at September 30, 2000 10,000
-------- --------
11,565 3,144
Less current portion 619 1,625
-------- --------
Long-term debt $ 10,946 $ 1,519
======== ========
7 of 25
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") (6.62% to 6.76% at September 30, 2000 and 5.82% to 6.13% at December
31, 1999). At September 30, 2000 and December 31, 1999 the unused portion of
the revolving line of credit was $115,000,000 and $125,000,000, respectively.
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 September
30, 2000, approximately $836,000 of the line of credit was committed for the
issuance of letters of credit, $736,000 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 September 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 September 30, 2000 and December 31, 1999 the
balance on the line of credit was approximately $20,420,000 and $19,220,000,
respectively.
The Company is the guarantor of an uncollateralized line of credit that
permits borrowing of up to a maximum of $12,000,000, maturing in December
2003, for one of its joint venture partners. At September 30, 2000 the unused
portion of the line of credit was $12,000,000.
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 September 30, 2000 and December 31, 1999, the
outstanding balance was approximately $60,000,000 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."
8 of 25
6. Accrued Expenses
Accrued expenses consisted of the following (in thousands):
September 30, December 31,
2000 1999
-------- ---------
[S] [C] [C]
Accrued payroll and other compensation $ 16,478 $12,616
Accrued advertising................... 3,191 1,149
Accrued rent.......................... 2,795 1,934
Accrued insurance..................... 9,725 7,837
Accrued property taxes................ 7,421 5,078
Other accrued expenses................ 4,548 1,014
-------- -------
$ 44,158 $29,628
======== =======
7. Subsequent Event
During October 2000, the Company entered into an agreement with
Margaritaville Holdings, LLC to develop a new restaurant format
named "Cheeseburger in Paradise." The Company paid $1,000,000 to
Margaritaville Holdings, LLC for future consulting services and
proprietary marks' licenses. Pursuant to the Agreement, the Company
is committed to additional payments if the number of units opened
reaches a certain level.
9 of 25
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 Nine Months Ended
September 30, September 30,
---------------- ----------------
2000 1999 2000 1999
REVENUES ------ ------ ------ ------
Restaurant sales................. 99.0% 99.2% 99.1% 99.2%
Other revenues................... 1.0 0.8 0.9 0.8
------ ------ ------ ------
TOTAL REVENUES.................... 100.0 100.0 100.0 100.0
COSTS AND EXPENSES:
Cost of sales (2) ............... 38.5 38.1 37.7 38.1
Labor & other related (2) ....... 24.1 24.2 23.7 23.8
Other restaurant operating (2) .. 19.0 18.6 18.9 18.6
Depreciation and amortization.... 3.1 2.9 3.1 2.9
General & administrative......... 3.7 3.4 3.9 3.6
Income from operations of
unconsolidated affiliates...... (0.1) (0.1) (0.1) (0.1)
Total costs and expenses...... 87.4 86.5 86.4 86.3
------ ------ ------ ------
INCOME FROM OPERATIONS............ 12.6 13.5 13.6 13.7
OTHER INCOME (EXPENSE), NET....... (*) (0.1) (*) (0.2)
INTEREST INCOME................... 0.3 (*) 0.2 (*)
------ ------ ------ ------
INCOME BEFORE ELIMINATION OF
MINORITY PARTNERS' INTEREST
AND INCOME TAXES................ 12.9 13.4 13.8 13.6
ELIMINATION OF MINORITY PARTNERS'
INTEREST........................ 1.6 1.7 1.9 1.8
------ ------ ------ ------
INCOME BEFORE PROVISION FOR
INCOME TAXES.................... 11.2 11.7 11.9 11.8
PROVISION FOR INCOME TAXES(3) .... 3.9 4.0 4.3 4.2
------ ------ ------ ------
NET INCOME(3) .................... 7.3% 7.7% 7.6% 7.6%
====== ====== ====== ======
(*) Percentages are less than 1/10 of one percent of total revenues.
(1) Amounts for the three months and nine months ended September 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 nine months ended September 30, 1999 are
pro forma. See Note 1 of Notes to Consolidated Financial Statements.
10 of 25
Results of Operations (continued)
Three Months Ended Nine Months Ended
September 30, September 30,
---------------- ----------------
2000 1999 2000 1999
------ ------ ------ ------
System-wide sales (millions of dollars):
Outback Steakhouse restaurants
Company owned - domestic and
international..................... $ 432 $ 372 $ 1,278 $ 1,107
Domestic franchised and
joint venture..................... 81 67 239 196
International franchised and
joint venture..................... 19 17 54 44
------ ------ ------ ------
Total........................ 532 456 1,571 1,347
------ ------ ------ ------
Carrabba's Italian Grills
Company owned................... 42 34 127 103
Joint venture................... 13 8 35 23
------ ------ ------ ------
Total........................ 55 42 162 126
------ ------ ------ ------
Other restaurants
Company owned................... 6 13
------ ------ ------ ------
System-wide total................. $ 593 $ 498 $ 1,746 $ 1,473
====== ====== ====== ======
September 30,
--------------
2000 1999
Number of restaurants (at end of the period): ---- ----
Outback Steakhouses
Company owned - domestic and international....... 508 467
Domestic franchised and joint venture............ 101 89
International franchised and joint venture....... 37 32
--- ---
Total......................................... 646 588
Carrabba's Italian Grills --- ---
Company owned.................................... 60 53
Joint venture.................................... 18 14
--- ---
Total........................................ 78 67
Fleming's Prime Steakhouse and Wine Bars --- ---
Company owned.................................... 3
Roy's --- ---
Company owned.................................... 1
Joint venture.................................... 1
--- ---
Total............................................ 2
Zazarac --- ---
Company owned.................................... 1
--- ---
System-wide total.................................. 730 655
=== ===
11 of 25
Three months ended September 30, 2000 and 1999
Revenues. Total revenues increased by 18.3% to $485,102,000 during
the third quarter of 2000 as compared with $410,003,000 in the same period in
1999. The increase was attributable to the opening of new restaurants after
September 30, 1999, increased same store customer counts, menu price increases
of approximately 1.0 and 2.5% at Outback Steakhouse in September 2000 and
December 1999, respectively, menu price increases of approximately 1.5% and
0.7% at Carrabba's Italian Grills in October 2000 and June 2000, respectively,
and per store revenue increases during the quarter of 7.0% and 10.5% 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
September 30,
----------------
2000 1999
Average unit volumes(weekly): -------- --------
Outback Steakhouse........... $ 64,488 $ 61,595
Carrabba's Italian Grills.... $ 54,700 $ 48,301
Per person check averages:
Outback Steakhouse........... $ 17.93 $ 17.22
Carrabba's Italian Grills.... $ 19.49 $ 18.71
Year to year percentage change:
Same-store sales:
Outback Steakhouse........... 7.0% 5.4%
Carrabba's Italian Grills.... 10.5% 6.8%
Same-store customer counts:
Outback Steakhouse........... 3.9% 3.2%
Carrabba's Italian Grills.... 5.3% 3.8%
Costs and expenses. Cost of sales, consisting of food and beverage
costs, as a percentage of restaurant sales, increased in the third quarter of
2000 to 38.5% of restaurant sales as compared with 38.1% in the same period in
1999. The increase was attributable to higher commodity costs during the
period, particularly beef costs, partially offset by higher menu prices.
Labor and other related expenses decreased as a percentage of
restaurant sales by 0.1% to 24.1% in the third quarter of 2000 as compared
with 24.2% in the same period in 1999. The decrease resulted from the sales
leverage achieved from higher average unit volumes, partially offset by higher
hourly wage rates resulting from a competitive labor market.
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, pre-opening expenses,
and other occupancy costs. A substantial portion of these expenses are fixed or
indirectly variable. These costs increased by 0.4% of restaurant sales to 19.0%
in the third quarter of 2000, as compared with 18.6% in the same period in
1999. The increase resulted primarily from higher advertising spending during
the nine months related to Outback Steakhouse's national cable and broadcast
programs and higher operating expenses associated with the new restaurant
formats. 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.
12 of 25
Depreciation and amortization costs increased by 0.2% of total
revenues to 3.1% in the third quarter of 2000, as compared with 2.9% in the
same period in 1999. The increase resulted primarily from additional
depreciation related to new unit development, "Take-away room" additions and
new restaurant formats and additional amortization of goodwill related to the
purchase of Outback Steakhouses in Korea, and Roy's and Fleming's Prime
Steakhouse and Wine Bars.
General and administrative costs increased by $3,680,000 to $17,766,000
in the third quarter of 2000 compared with $14,086,000 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 $697,000 during the third quarter of 2000 as compared with
income of $207,000 during the same period in 1999. This increase was
attributable to additional stores operating as development joint ventures in
the third 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 $5,819,000,
to $61,123,000, in the third quarter of 2000 as compared with $55,304,000 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 income was
$91,000 during the third quarter of 2000 as compared with net expense of
$515,000 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 $1,233,000 during the third
quarter of 2000 as compared with interest income of $141,000 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 third quarter of 2000 compared with the same period in 1999. The
amount of interest capitalized in connection with restaurant construction was
approximately $30,000 in the third quarter of 2000.
Elimination of minority partners' 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. These costs were 1.6% and 1.7% of revenues during
the quarters ended September 30, 2000 and 1999, respectively. The decrease in
this ratio reflected the change in overall restaurant operating margins.
13 of 25
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 35.1% during the third quarter of 2000 and the pro forma effective
income tax rate was 34.1% during the third quarter of 1999. The increase in the
effective rate resulted from the decrease in FICA tip credits the Company was
able to utilize in the current period, partially offset by state tax savings
associated with changes in the corporate state tax structure implemented in the
third quarter of 1999.
Pro forma net income and earnings per share. Net income for the third
quarter of 2000 was $35,383,000 as compared with pro forma net income of
$31,684,000 in the same period in 1999. Basic earnings per share increased to
$0.46 during the third 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 289,000 shares from 77,340,000 shares at
September 30, 1999 to 77,629,000 at September 30, 2000. The increase was
primarily due to the issuance of shares for stock option exercises, partially
offset by the purchase of treasury shares during the third quarter of 2000.
Diluted earnings per share increased to $0.45 during the third 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 decreased by approximately
642,000 shares from 79,678,000 shares at September 30, 1999 to 79,036,000
shares at September 30, 2000. The decrease was primarily due to the decreased
dilutive effect of outstanding stock options because of lower average stock
prices over the period and by the purchase of treasury shares during the third
quarter of 2000, partially offset by the issuance of shares for stock option
exercises.
14 of 25
Nine months ended September 30, 2000 and 1999
Revenues. Total revenues increased by 17.4% to $1,431,519,000 during
the nine months of 2000 as compared with $1,219,414,000 in the same period in
1999. The increase was attributable to the opening of new restaurants after
September 30, 1999, increased same store customer counts, menu price increases
of approximately 1.0% and 2.5% at Outback Steakhouse in September 2000 and
December 1999, respectively, menu price increases of approximately 1.5%
and 0.7% at Carrabba's Italian Grills in October 2000 and June 2000,
respectively, and per store revenue increases during the first nine months of
2000 of 7.0% and 11.6% for Outback Steakhouse and Carrabba's Italian Grills,
respectively. The following table depicts additional activities which
influenced the period to period changes in revenues:
Nine Months Ended
September 30,
----------------
2000 1999
Average unit volumes(weekly): --------- ---------
Outback Steakhouse........... $ 65,250 $ 63,282
Carrabba's Italian Grills.... $ 55,521 $ 49,634
Per person check averages:
Outback Steakhouse........... $ 18.34 $ 17.48
Carrabba's Italian Grills.... $ 19.33 $ 18.61
Year to year percentage change:
Same-store sales:
Outback Steakhouse........... 7.0% 5.7%
Carrabba's Italian Grills.... 11.6% 6.3%
Same-store customer counts:
Outback Steakhouse........... 3.7% 2.7%
Carrabba's Italian Grills.... 7.0% 0.1%
Costs and expenses. Cost of sales as a percentage of restaurant sales,
decreased by 0.4% to 37.7% in the nine months 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, partially offset
by higher beef prices.
Labor and other related expenses decreased as a percentage of
restaurant sales by 0.1% to 23.7% in the nine months of 2000 as compared with
23.8% in the same period in 1999. The decrease resulted from higher average
unit volumes during the first nine 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 18.9% in the first nine months of 2000 as compared with 18.6% in the
same period in 1999. The increase resulted primarily from higher advertising
spending during the nine 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.
15 of 25
Depreciation and amortization increased by 0.2% of total revenues to
3.1% in the first nine months of 2000, as compared with 2.9% in the same period
in 1999. The increase resulted primarily from additional depreciation related
to new unit development, "Take-away room" additions and new restaurant formats
and additional amortization of goodwill related to the purchase of Outback
Steakhouses in Korea, and Roy's and Flemings Prime Steakhouse and Wine Bars.
General and administrative costs increased by $12,022,000 to $55,899,000
during the first nine months of 2000 as compared with $43,877,000 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, Fleming's Prime Steakhouses and Roy's 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 or loss from Outback Steakhouses and Carrabba's
Italian Grills operated as development joint ventures. Income from the joint
ventures was $1,766,000 in the first nine months of 2000 as compared with
income of $784,000 in the same period in 1999. This increase was attributable
to additional stores operating as development joint ventures in the first nine
months 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
$27,131,000, to $194,594,000 in the first nine months of 2000 as compared
with $167,463,000 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
$536,000 during the first nine months of 2000 as compared with net other
expense of $1,919,000 in the same period in 1999. The decrease in the net
expense resulted from increased revenues and an improvement in margins
associated with non-restaurant operations during the nine month period.
Interest income. Interest income was $3,523,000 during the first nine
months of 2000 as compared with interest income of $558,000 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 nine 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
1.9% and 1.8% during the nine months ended September 30, 2000 and 1999,
respectively. The increase in this ratio reflected the increase in overall
restaurant operating margins.
16 of 25
Provision for income taxes. The provision for income taxes in the first
nine months 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 and the pro forma effective income tax rate was
the same during the first nine months of 2000 and 1999. The effective rate was
35.7% during both periods.
Net income and earnings per common share. Net income for the first
nine months of 2000 was $109,447,000 as compared with pro forma net income of
$92,328,000 in the same period in 1999. Basic earnings per share increased to
$1.41 during the first nine months of 2000, as compared with pro forma basic
earnings per share of $1.20 in the same period in 1999. Diluted earnings per
share increased to $1.38 during the first nine months of 2000, as compared with
pro forma diluted earnings per share of $1.16 in the same period in 1999.
17 of 25
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 Nine Months Ended
December 31, September 30, September 30,
1999 2000 1999
Net cash provided by --------- ---------- ----------
operating activities...... $ 192,662 $ 145,615 $ 118,826
Net cash used in investing
activities................ (127,700) (106,619) (85,181)
Net cash used in
financing activities...... (56,374) (43,278) (47,224)
----------- --------- ---------
Net increase (decrease) in
cash and cash equivalents... $ 8,588 $ (4,282) $ (13,579)
========= ========= =========
The Company requires capital principally for the development of new Company
owned, joint venture restaurants and other affilated businesses. Capital
expenditures totaled approximately $116,746,000 for year ended December 31,
1999 and $98,761,000 and $78,154,000 during the first nine 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 purchased three Outback
Steakhouses in Korea in the first quarter of 2000 and will also develop future
Company owned Outback Steakhouses in Korea. During 1999, the Company also
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, of
which approximately $3,000,000 has been contributed as of September 30, 2000.
At September 30, 2000, the Company had three uncollateralized lines of
credit totaling $147,500,000. Approximately $3,586,000 is committed for the
issuance of letters of credit, some of which are to collateralize loans made by
the bank to certain franchisees. As of September 30, 2000, the Company had
drawn $10,000,000 on the line of credit to finance the development of new
restaurants. The Company expects that its capital requirements through the
next twelve months 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 September
30, 2000, the borrowings totaled approximately $20,420,000. 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 a maximum of $12,000,000, maturing in December,
2003, for one of its joint venture partners. At September 30, 2000 the unused
portion of the line of credit was $12,000,000.
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 September 30, 2000 the outstanding balance on the
note was $60,000,000.
18 of 25
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. As
of September 30, 2000, the Company had repurchased 1,410,000 shares of its
Common Stock for approximately $34,107,000 as part of the authorized repurchase
program.
OUTLOOK
The following discussion of the Company's future operating results and
expansion strategy and other statements in this report that are not
historical statements constitute forward-looking statements within the
meaning of the Private Securities Litigation Reform Act of 1995. Forward-
looking statements represent the Company's expectations or belief concerning
future events and may be identified by words such as "believes,"
"anticipates", "expects," "plans," "should" and similar expressions. The
Company's forward-looking statements are subject to risks and uncertainties
that could cause actual results to differ materially from those stated or
implied in the forward-looking statement. We have endeavored to identify
the most significant factors that could cause actual results to differ
materially from those stated or implied in the forward-looking statements
in the section entitled "Cautionary Statement" below.
Future Operating Results.
Fourth Quarter 2000 Revenue Trends. The Company does not plan to take
any actions that would result in any significant changes in specific revenue
trends during the fourth quarter of 2000 compared with the first nine months
of the year for Outback Steakhouse or Carrabba's Italian Grills. The
Company is currently evaluating the effect of increasing menu prices up to
approximately 2.0% in December 2000 for Outback Steakhouse in an effort to
help mitigate continued cost of goods sold and labor cost pressures.
Fourth Quarter 2000 Cost of Revenue. The Company does not expect any
significant fluctuations in costs of revenue for the fourth quarter of 2000
compared with the third quarter 2000 results. The majority of the Company's
fourth quarter beef requirements are under contract and prices are not
anticipated to fluctuate from third quarter rates. The Company has not been
notified of any material expected changes in price of other commodities,
including shrimp, potatoes and onions.
Fourth Quarter 2000 Labor Costs. The Company does not plan to take
any actions that would result in any significant fluctuations in labor
costs, other than seasonal trends and continued wage pressure, for the
fourth quarter of 2000 compared with the third quarter 2000 results.
Fourth Quarter 2000 Restaurant Operating Expenses. The Company does
not plan to take any actions that would result in any significant
fluctuations in other restaurant operating expenses. However, it has been
noted in national media reports that there may be a shortage of natural gas
this winter in certain areas of the country. The Company currently spends
approximately 0.5 of 1% of restaurant sales for natural gas used in its
restaurant operations. Accordingly, a material change in natural gas prices
may affect the Company's future restaurant operating expenses.
19 of 25
2001 Revenue. The Company plans to grow revenues in 2001 by opening
additional restaurants and increasing average unit volumes. The Company's
expansion plans are summarized in this section. The Company is currently
planning for average unit volumes for Outback Steakhouse to increase by
approximately 2 to 3% during 2001. The Company anticipates that the average
unit volume increase will be comprised of price increases totaling
approximately 1 to 2% and customer count increases of approximately 1%. The
Company is currently planning for average unit volumes for Carrabba's
Italian Grills to increase by approximately 4 to 6% during 2001. The
Company anticipates that the average unit volume increase will be comprised
of price increases totaling approximately 3 to 4% and customer count
increases of approximately 1 to 2%. Currently, the Company does not have any
specific plans for broad based programs to increase customer counts.
2001 Cost of Revenue. During the first five months of 2000, the
Company had favorable beef supply contracts. Upon expiration of these
contracts, the Company's beef costs increased by approximately 12-15%, which
resulted in an increase in costs of goods sold of approximately 0.8% of
sales. The Company's current beef contracts expire at the end of February
2001. Although supply contract extensions have not been finalized as of the
date of this report, the Company has been notified by its suppliers that it
should anticipate additional cost increases for the balance of 2001.
Accordingly, the Company expects its costs of goods sold to increase as a
percentage of sales in 2001 as compared with 2000. Although the total
increase is subject to several factors, the current expectation of the
Company is for an increase of 0.4 to 0.6% of sales for the full year.
2001 Labor Costs. During the last few years, the Company has
experienced significant wage rate pressure resulting from a tight labor
market. The Company expects this trend to continue in 2001. In addition, the
Company has been notified by its advisors to expect an increase in the
mandated minimum hourly wage rate of $0.50 in 2001. Although substantially
all of its employees earn more than the mandated minimum wage rate, certain
states in which the Company operates do not recognize the federal tip credit
for computing compliance with the mandated minimum wage. Accordingly, the
Company is planning for an increase in wages paid to tipped employees
working in those states. As a result, the Company is currently planning for
its labor costs to increase by 0.1 to 0.2% of sales in 2001.
2001 Restaurant Operating Expenses. Other than new format expenses,
the Company does not plan to take any actions that would result in material
fluctuations in other restaurant operating expense. However, as noted in the
foregoing discussion on anticipated fourth quarter 2000 costs, changes in
the price of natural gas may have an effect on these costs. Costs incurred
prior to the opening of new restaurants are included in this expense
category. These preopening expenses total approximately $150,000 for each
company-owned and joint venture Outback Steakhouse and Carrabba's Italian
Grill, and $250,000 for each Roy's and Fleming's Prime Steakhouse and Wine
Bar. As a result of the planned opening of new restaurants, restaurant
operating expense may increase in 2001 by 0.1 to 0.2% of sales.
2001 Depreciation and Amortization. The Company expects depreciation
and amortization to increase as it invests in new restaurants. The
Company estimates that its capital expenditures for the development of new
restaurants will be approximately $160,000,000 to $170,000,000 in 2001. The
Company also estimates that it will spend approximately $25,000,000 in 2001
for maintenance capital expenditures and systems development, which will
also result in higher depreciation expense.
2001 General and Administrative Expenses. Based upon its current
plan, the Company expects that total general and administrative costs will
increase by approximately 10 to 12% in 2001 compared with 2000.
20 of 25
Expansion Strategy.
The Company's goal is to add new restaurants to the Outback system during
the remainder of 2000 and the full year 2001. The following table presents a
summary of the expected restaurant openings during the fourth quarter of 2000
and for the full year 2001:
4th Quarter Full Year
2000 2001
Outback Steakhouses - Domestic -------- ---------
Company owned 10 to 11 40 to 45
Franchised or joint venture 7 to 8 8 to 10
Outback Steakhouses - International
Company owned 3 to 4 4 to 5
Franchised or joint venture 4 to 5 18 to 23
Carrabba's Italian Grills
Company owned 0 6 to 8
Joint venture 2 to 3 10 to 12
Fleming's Prime Steakhouse and Wine Bars
Company owned 0 0
Joint venture 1 to 2 5 to 6
Roy's
Company owned 0 0
Joint venture 2 to 3 5 to 6
Zazarac
Company owned 0 1
Selmon's
Company owned 1 0
Cheeseburger in Paradise
Joint venture 0 1
21 of 25
Cautionary Statement
The Company's actual results could differ materially from those stated or
implied in the forward-looking statements included in the discussions of
future operating results and expansion strategy and elsewhere in this report
as a result, among other things, of the following:
* The restaurant industry is a highly
competitive industry with many well-
established competitors.
* The Company's results can be impacted by
changes in consumer tastes and the level of
consumer acceptance of the Company's
restaurant concepts; local, regional and
national economic conditions; the
seasonality of the Company's business;
demographic trends; traffic patterns;
consumer perception of food safety; employee
availability; the cost of advertising and
media; government actions and policies;
inflation; and increases in various costs.
* The Company's ability to expand is dependent
upon various factors such as the
availability of attractive sites for new
restaurants, the ability to generate or
borrow funds, the ability to negotiate
suitable lease terms, the ability to obtain
various permits and licenses to operate
restaurants, and the ability to recruit and
train skilled management and restaurant
employees.
* Prices of commodities, including but not
limited to items such as beef, chicken,
shrimp, dairy, potatoes and onions are
subject to fluctuation and could increase or
decrease more than the Company expects.
* Weather and other acts of God could adversely
affect the results of one or more stores for
an indeterminate amount of time.
22 of 25
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 September 30, 2000 there was $10,000,000 outstanding
on the line of credit. At 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. These commodities are generally purchased based upon market
prices established with vendors. The purchase arrangements may contain
contractual features that limit the price paid by establishing certain price
floors or caps. The Company does not use financial instruments to hedge
commodity prices because these purchase arrangements help control the ultimate
cost paid. 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.
This market risk discussion contains forward-looking statements. Actual
results may differ materially from the discussion based upon general market
conditions and changes in domestic and global financial markets.
23 of 25
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 September 30, 2000.
24 of 25
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: November 14, 2000 By: /s/ Robert S. Merritt
__________________ __________________________
Robert S. Merritt
Senior Vice President,
Finance (Principal Financial
and Accounting Officer)
25 of 25
