UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
_______________
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2001
or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ______________________ to
______________________
Commission File Number: 1-15935
OUTBACK STEAKHOUSE, INC.(R)
------------------------------------------------------
(Exact name of registrant as specified in its charter)
_______________
DELAWARE 59-3061413
---------------- ----------------
(State or other (IRS Employer
jurisdiction of Identification No.)
incorporation or
organization)
2202 NORTH WESTSHORE BOULEVARD, 5TH 33607
FLOOR, TAMPA, FLORIDA
---------------------------------------- ----------
(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 9, 2001,
there were approximately 76,769,522 shares of Common Stock, $.01 par value
outstanding.
1 of 27
OUTBACK STEAKHOUSE, INC.(R)
PART I: FINANCIAL INFORMATION
Item 1. Financial Statements
The accompanying unaudited consolidated financial statements have been
prepared by Outback Steakhouse, Inc.(R) 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.
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OUTBACK STEAKHOUSE, INC.(R)
CONSOLIDATED BALANCE SHEETS
(in thousands)
June 30, December 31,
2001 2000
(unaudited)
--------- ----------
ASSETS
CURRENT ASSETS
Cash and cash equivalents........... $68,333 $131,604
Inventories......................... 35,075 27,871
Other current assets................ 32,435 22,572
--------- ----------
Total current assets................ 135,843 182,047
PROPERTY, FIXTURES AND EQUIPMENT, NET. 736,415 693,975
INVESTMENTS IN AND ADVANCES TO
UNCONSOLIDATED AFFILIATES, NET...... 47,938 29,655
OTHER ASSETS.......................... 147,347 116,858
--------- ----------
$1,067,543 $1,022,535
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable.................... $32,772 $37,162
Sales taxes payable................. 12,327 11,580
Accrued expenses.................... 45,535 46,266
Unearned revenue.................... 17,481 54,458
Income taxes payable................ 13,621
Current portion of long-term debt... 8,595 4,958
--------- ---------
Total current liabilities........... 116,710 168,045
DEFERRED INCOME TAXES................. 13,223 14,382
LONG-TERM DEBT........................ 12,516 11,678
OTHER LONG-TERM LIABILITIES........... 26,000 4,000
--------- ----------
Total liabilities................... 168,449 198,105
INTEREST OF MINORITY PARTNERS IN --------- ----------
CONSOLIDATED PARTNERSHIPS........... 16,074 16,840
--------- ----------
STOCKHOLDERS' EQUITY
Common stock, $0.01 par value,
200,000 shares authorized;
78,514 and 78,514
shares issued; and 76,778 and
76,632 outstanding as of
June 30, 2001 and
December 31, 2000, respectively..... 785 785
Additional paid-in capital.......... 217,668 214,541
Retained earnings................... 707,113 638,383
--------- ----------
925,566 853,709
Less treasury stock, 1,736 shares and
1,882 shares at June 30, 2001 and
December 31, 2000, respectively,
at cost............................. (42,546) (46,119)
--------- ----------
Total stockholders' equity.......... 883,020 807,590
--------- ----------
$1,067,543 1,022,535
========= =========
See notes to unaudited consolidated financial statements.
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OUTBACK STEAKHOUSE, INC.(R)
CONSOLIDATED STATEMENTS OF INCOME
(in thousands except per share data, unaudited)
Three Months Ended Six Months Ended
June 30, June 30,
2001 2000 2001 2000
REVENUES ------- -------- --------- --------
Restaurant sales............... $534,309 $477,417 $1,050,963 $938,391
Other revenues................. 4,535 4,203 9,134 8,026
------- -------- --------- --------
TOTAL REVENUES............... 538,844 481,620 1,060,097 946,417
COSTS AND EXPENSES: ------- -------- --------- --------
Cost of sales................ 205,344 178,772 400,468 350,471
Labor & other related........ 127,910 112,694 250,900 220,383
Other restaurant operating... 105,548 88,651 206,691 177,001
Depreciation & amortization.. 16,821 14,300 32,789 28,027
General & administrative..... 20,478 19,704 40,111 38,133
Income from operations of
unconsolidated affiliates.. (977) (702) (1,978) (1,069)
------- -------- --------- --------
Total costs and expenses... 475,124 413,419 928,981 812,946
INCOME FROM OPERATIONS.......... 63,720 68,201 131,116 133,471
OTHER INCOME (EXPENSE), NET..... 275 (34) (589) (627)
INTEREST INCOME (EXPENSE), NET.. 772 1,477 1,994 2,300
INCOME BEFORE ELIMINATION OF ------- -------- --------- --------
MINORITY PARTNERS' INTEREST
AND INCOME TAXES............. 64,767 69,644 132,521 135,144
ELIMINATION OF MINORITY PARTNERS'
INTEREST..................... 8,550 9,540 17,656 19,417
------- -------- --------- --------
INCOME BEFORE PROVISION FOR
INCOME TAXES................. 56,217 60,104 114,865 115,727
PROVISION FOR INCOME TAXES...... 19,671 21,806 40,432 41,663
------- -------- --------- --------
NET INCOME...................... $36,546 $ 38,298 $ 74,433 $74,064
======= ======== ========= =======
BASIC EARNINGS PER COMMON SHARE. $0.48 $0.49 $0.97 $0.95
BASIC WEIGHTED AVERAGE NUMBER OF ======= ======== ========= =======
COMMON SHARES OUTSTANDING.... 76,538 77,977 76,539 77,800
======= ======== ========= =======
DILUTED EARNINGS PER COMMON SHARE $0.47 $0.48 $0.95 $0.93
DILUTED WEIGHTED AVERAGE NUMBER ======= ======== ========= =======
OF COMMON SHARES OUTSTANDING. 78,265 80,397 78,010 79,872
======= ======== ========= =======
See notes to unaudited consolidated financial statements.
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OUTBACK STEAKHOUSE, INC.(R)
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands, unaudited)
Six Months Ended
June 30,
2001 2000
Cash flows from operating activities: -------- --------
Net income.............................. $74,433 $ 74,064
Adjustments to reconcile net income to
cash provided by operating
activities:
Depreciation.......................... 29,667 25,705
Amortization.......................... 3,122 2,322
Minority partners' interest in
consolidated partnerships' income.. 17,656 19,417
Income from unconsolidated affiliates. (1,978) (1,069)
Change in assets and liabilities:
(Increase) decrease in inventories. (7,204) 1,432
(Increase) decrease in other
current assets................... (8,363) 2,084
Decrease (increase) in other assets 5,618 (14,965)
(Decrease) increase in accounts
payable, sales taxes payable and
accrued expenses................. (4,374) 10,811
(Decrease) increase in income
taxes payable.................... (13,621) 3,035
Decrease in unearned revenue....... (36,977) (28,178)
Decrease in deferred income taxes.. (1,159) (2,366)
Decrease in other long-term
liabilities........................ (500)
-------- --------
Net cash provided by operating
activities....................... 56,820 91,792
Cash flows used in investing activites: -------- --------
Capital expenditures.................. (86,675) (59,394)
Change in investments in and advances
to unconsolidated affiliates....... (16,305) (3,145)
-------- --------
Net cash used in investing
activities....................... (102,980) (62,539)
Cash flows from financing activities: -------- --------
Proceeds from issuance of common
stock................................ 12,390
Proceeds from issuance of long-term
debt................................. 14,533
Proceeds from minority partners'
contributions........................ 3,223 800
Distributions to minority partners.... (21,645) (21,159)
Repayments of long-term debt.......... (10,058) (1,495)
Payments for purchase of treasury
stock............................... (16,276)
Proceeds from reissuance of treasury
stock............................... 13,112 219
-------- --------
Net cash used in financing
activities....................... (17,111) (9,245)
-------- --------
Net increase (decrease) in cash and
cash equivalents....................... (63,271) 20,008
Cash and cash equivalents at beginning
of period.............................. 131,604 92,623
-------- --------
Cash and cash equivalents at end of
period................................. $ 68,333 $112,631
======== ========
Supplemental disclosures of cash flow
information:
Cash paid for interest................ $ 356
Cash paid for income taxes............ $ 40,363 $ 35,233
Supplemental disclosures of non-cash
items:
Assets/liabilities of businesses
transferred under
contractual arrangements............. $ 22,000
Purchase of minority partners'
interest............................. 4,161
See notes to unaudited consolidated financial statements.
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OUTBACK STEAKHOUSE, INC.(R)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1. Basis of Presentation
The accompanying unaudited consolidated financial statements have been
prepared by Outback Steakhouse, Inc.(R) (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.
Certain amounts shown in the 2000 consolidated financial statements
have been reclassified to conform to the 2001 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, 2000 consolidated balance sheet has been derived from
the audited consolidated 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
2000 Annual Report.
2. Other Current Assets
Other current assets consisted of the following (in thousands):
June 30, December 31,
2001 2000
(unaudited)
--------- ------------
Deposits (including income tax deposits).. $ 6,704 $ 1,543
Accounts receivable....................... 6,420 5,549
Accounts receivable franchisees........... 5,047 5,100
Prepaid expenses.......................... 12,388 8,315
Other current assets...................... 1,876 2,065
-------- ------- -
$32,435 $22,572
======= =======
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OUTBACK STEAKHOUSE, INC.(R)
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,
2001 2000
(unaudited)
-------- --------
Land............................... $145,798 $135,710
Buildings & building improvements.. 340,425 322,078
Furniture & fixtures............... 90,489 82,347
Equipment.......................... 215,308 212,713
Leasehold improvements............. 165,548 139,426
Construction in progress........... 36,454 32,360
Accumulated depreciation........... (257,607) (230,659)
-------- --------
$736,415 $693,975
======== ========
4. Other Assets
Other assets consisted of the following (in thousands):
June 30, December 31,
2001 2000
(unaudited)
--------- --------
Intangible assets, net (including
liquor licenses)................. $ 80,598 $ 77,329
Other assets....................... 30,749 39,529
Assets of business transferred
under contractual arrangement.... 15,500
Deferred license fee............... 20,500
------- --------
$147,347 $116,858
======= =======
In January 2001, the Company entered into a ten year licensing agreement
with an entity owned by minority interest owners of certain non-restaurant
operations (referred to in some Company literature as Outback Sports). The
licensing agreement transferred the right and license to use certain assets
of these non-restaurant operations. License fees payable over the term of
the agreement total approximately $22,000,000 of which $20,500,000 is
included in "Other Assets" and the current portion of $1,500,000 is
included in "Other Current Assets". The net book value of these assets was
approximately $15,500,000 and was reclassified from the line item entitled
"Property, Fixtures and Equipment" to "Other Assets". The corresponding
long-term liability is included in the line item entitled "Other Long Term
Liabilities". The Company has deferred the gain associated with the
transaction until such time as the amounts due under the licensing
agreement are realized. See Note 7 of Notes to Unaudited Consolidated
Financial Statements.
7 of 27
5. Long-term Debt
Long-term debt consisted of the following (in thousands):
June 30, December 31,
2001 2000
(unaudited)
--------- -------
Revolving line of credit, interest at
4.47% and 7.16% at June 30, 2001
and December 31, 2000, respectively... $10,000 $10,000
Other notes payable, uncollateralized,
interest rates ranging from 5.63% to
7.99%................................. 11,111 6,623
Notes payable to corporation,
collateralized by real estate,
interest at 9.0%...................... 13
------ -------
21,111 16,636
Less current portion.................... 8,595 4,958
------ -------
Long-term debt.......................... $12,516 $11,678
====== ======
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") (3.84% to 3.91% at June 30, 2001 and 6.20% to 6.56%
at December 31, 2000). At June 30, 2001 and December 31, 2000 the unused
portion of the revolving line of credit was $115,000,000. The line matures
in December 2004.
The Company has a $15,000,000 uncollateralized line of credit bearing
interest at rates ranging from 57.5 to 95.0 basis points over LIBOR.
Approximately $4,350,000 of the line of credit was committed for the
issuance of letters of credit at June 30, 2001.
The Company has a $10,000,000 uncollateralized line of credit to
support the Company's international operations. As of June 30, 2001 and
December 31, 2000, the outstanding balance was approximately $7,415,000 and
$4,323,000, respectively.
The Company is the guarantor of an uncollateralized line of credit,
maturing in December 2004, that permits borrowing of up to a maximum of
$35,000,000 for one of its franchisees. At June 30, 2001 and December 31,
2000, the balance on the line of credit was approximately $24,754,000 and
$22,470,000, respectively.
The Company is the guarantor of an uncollateralized line of credit,
maturing December 2003, that permits borrowing of up to a maximum of
$12,000,000 for one of its joint venture partners. At June 30, 2001 and
December 31, 2000, the outstanding balance was approximately $9,450,000 and
$6,552,000, respectively.
The Company is the guarantor of bank loans made to certain
franchisees. At June 30, 2001 and December 31, 2000, the outstanding
balance on the loans was approximately $554,000 and $670,000, respectively.
8 of 27
OUTBACK STEAKHOUSE, INC.(R)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
5. Long-term Debt (continued)
The Company is the guarantor of up to approximately $9,445,000 of a
$68,000,000 note for an unconsolidated affiliate in which the Company has a
22.22% equity interest. At June 30, 2001 and December 31, 2000, the
outstanding balance was approximately $65,000,000.
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,
2001 2000
(unaudited)
--------- --------
Accrued payroll and other
compensation............... $17,029 $ 15,722
Accrued insurance............ 12,254 11,012
Accrued property taxes....... 7,406 6,129
Other accrued expenses....... 8,846 13,403
------ --------
$45,535 $ 46,266
====== =======
7. Other Long Term Liabilities
Other long term liabilities consisted of the following (in thousands):
June 30, December 31,
2001 2000
(unaudited)
--------- --------
Accrued insurance............ $ 4,000 $ 4,000
Other deferred liability..... 22,000
------ --------
$26,000 $ 4,000
====== =======
In January 2001, the Company entered into a ten year licensing
agreement with an entity owned by minority interest owners of certain non-
restaurant operations. The licensing agreement transferred the right and
license to use certain assets of these non-restaurant operations. License
fees payable over the term of the agreement total approximately
$22,000,000. The Company has deferred the gain associated with the
transaction until such time as the amounts due under the licensing
agreement are realized. The corresponding long-term asset is included in
the line item entitled "Other Assets". See Note 4 of Notes to Unaudited
Consolidated Financial Statements.
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8. Recently Issued Financial Accounting Standards
"Business Combinations" and "Goodwill and Other Intangible Assets"
On June 30, 2001, the Financial Accounting Standards Board finalized
FAS 141, "Business Combinations", and FAS 142, "Goodwill and Other
Intangible Assets". FAS 141 requires all business combinations initiated
after June 30, 2001, to be accounted for using the purchase method of
accounting. With the adoption of FAS 142 effective January 1, 2002,
goodwill is no longer subject to amortization. Rather, goodwill will be
subject to at least an annual assessment for impairment by applying a fair-
value-based test. Under the new rules, an acquired intangible asset should
be separately recognized if the benefit of the intangible asset is obtained
through contractual or other legal rights, or if the intangible asset can
be sold, transferred, licensed, rented, or exchanged regardless of the
acquirer's intent to do so. These intangible assets will be required to be
amortized over their useful lives.
As of June 30, 2001, the Company had approximately $73,500,000 of
goodwill, net of accumulated amortization of $12,800,000. Adoption of FAS
142 effective January 1, 2002 will result in the elimination of
approximately $5,400,000 of annual amortization, subject to the
identification of separately recognized intangibles which would continue to
be amortized under the new rules. The Company is beginning the process of
performing the initial impairment testing of all goodwill and has not yet
quantified any initial impairment charge that might result upon adoption of
FAS 142.
10 of 27
OUTBACK STEAKHOUSE, INC.(R)
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Results of Operations
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 Six Months
Ended Ended
June 30, June 30,
-------------- --------------
2001 2000 2001 2000
REVENUES ------ ----- ------ ------
Restaurant sales................ 99.2% 99.1% 99.1% 99.2%
Other revenues.................. 0.8 0.9 0.9 0.8
----- ------ ----- ------
TOTAL REVENUES.................. 100.0 100.0 100.0 100.0
COSTS AND EXPENSES:
Cost of sales (1)............... 38.4 37.4 38.1 37.3
Labor & other related (1)..... 23.9 23.6 23.9 23.5
Other restaurant operating(1). 19.8 18.6 19.7 18.9
Depreciation & amortization... 3.1 3.0 3.1 3.0
General & administrative...... 3.8 4.1 3.8 4.0
Income from operations of
unconsolidated affiliates.... (0.2) (0.1) (0.2) (0.1)
Total costs and expenses.... 88.2 85.8 87.6 85.9
----- ------ ----- ------
INCOME FROM OPERATIONS.......... 11.8 14.2 12.4 14.1
OTHER INCOME (EXPENSE), NET..... 0.1 (*) (0.1) (0.1)
INTEREST INCOME................. 0.1 0.3 0.2 0.2
----- ------ ----- ------
INCOME BEFORE ELIMINATION OF
MINORITY PARTNERS' INTEREST
AND INCOME TAXES.............. 12.0 14.5 12.5 14.3
ELIMINATION OF MINORITY
PARTNERS' INTEREST............ 1.6 2.0 1.7 2.1
----- ------ ----- ------
INCOME BEFORE PROVISION FOR
INCOME TAXES.................. 10.4 12.5 10.8 12.2
PROVISION FOR INCOME TAXES...... 3.6 4.5 3.8 4.4
----- ------ ----- ------
NET INCOME...................... 6.8% 8.0% 7.0% 7.8%
===== ====== ===== ======
(*)Percentages are less than 1/10 of one percent of total revenues.
(1) As a percentage of restaurant sales.
11 of 27
Results of Operations (continued)
Three Months Six Months
Ended Ended
June 30, June 30,
-------------- --------------
2001 2000 2001 2000
------ ------ ------ ------
System-wide sales (millions of dollars):
Outback Steakhouse restaurants
Company owned - domestic and
international.................... $473 $430 $929 $846
Domestic franchised and joint
venture.......................... 94 81 181 158
International franchised and
joint venture.................... 19 19 40 35
------ ------ ------ ------
Total.............................. 586 530 1,150 1,039
------ ------ ------ ------
Carrabba's Italian Grills
Company owned...................... 50 43 98 85
Joint venture...................... 18 11 34 22
------ ------ ------ ------
Total.............................. 68 54 132 107
------ ------ ------ ------
Other restaurants
Company owned and joint venture.... 11 4 24 7
------ ------ ------ ------
System-wide total.................... $665 $588 $1,306 $1,153
====== ====== ====== ======
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Results of Operations (continued)
June 30,
------------
2001 2000
---- ------
Number of restaurants (at end of the period):
Outback Steakhouses
Company owned - domestic and international.. 543 495
Domestic franchised and joint venture....... 111 99
International franchised and joint venture.. 49 34
--- ---
Total....................................... 703 628
--- ---
Carrabba's Italian Grills
Company owned............................... 63 58
Joint venture............................... 25 16
--- ---
Total....................................... 88 74
--- ---
Fleming's Prime Steakhouse and Wine Bars
Company owned............................... 3 3
Joint venture............................... 4
--- ---
Total....................................... 7 3
--- ---
Roy's
Company owned............................... 1 1
Joint venture............................... 6
--- ---
Total....................................... 7 1
--- ---
Zazarac
Company owned............................... 2 1
--- ---
Lee Roy Selmon's
Company owned............................... 1
--- ---
System-wide total............................. 808 707
=== ===
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Three months ended June 30, 2001 and 2000
Revenues. Total revenues increased by 11.9% to $538,844,000 during
the second quarter of 2001 as compared with $481,620,000 in the same period
in 2000. The increase was attributable to the opening of new restaurants
after June 30, 2000, menu price increases of approximately 3.4% at Outback
Steakhouse and approximately 4.6% at Carrabba's Italian Grills after June
2000, and per store revenue increases during the quarter of 0.7% and 7.0%
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,
----------------
2001 2000
--------- ---------
Average unit volumes (weekly):
Outback Steakhouses.............. $67,558 $66,888
Carrabba's Italian Grills........ 61,341 57,085
Per person check averages:
Outback Steakhouses.............. $18.28 $17.76
Carrabba's Italian Grills........ 19.36 19.32
Year to year percentage change:
Same-store sales:
Outback Steakhouses............ 0.7% 5.6%
Carrabba's Italian Grills...... 7.0% 12.6%
Same-store customer counts:
Outback Steakhouses............ (2.1)% 3.5%
Carrabba's Italian Grills...... 6.8% 6.4%
Costs and expenses. Costs of sales, consisting of food and beverage
costs, as a percentage of restaurant sales, increased in the second quarter
of 2001 to 38.4% of restaurant sales as compared with 37.4% in the same
period in 2000. The increase was attributable to commodity cost increases
in beef and butter, partially offset by higher menu price and favorable
produce and alcoholic beverage costs.
Labor and other related expenses include all direct and indirect labor
costs incurred in restaurant operations. Labor expenses increased as a
percentage of restaurant sales by 0.3% to 23.9% in the second quarter of
2001 as compared with 23.6% in the same period in 2000. The increase
resulted from higher hourly wage rates, a new hourly employee bonus program
and enhanced employee health insurance benefits. The increase was partially
offset by higher average unit volumes at Outback Steakhouse and Carrabba's
Italian Grills.
14 of 27
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
costs, and other occupancy costs. A substantial portion of these expenses
are fixed or indirectly variable. These costs increased by 1.2% of
restaurant sales to 19.8% in the second quarter of 2001, as compared with
18.6% in the same period in 2000. The increase was attributable to higher
natural gas prices and expenses associated with opening new restaurant
formats. The increase was also attributable to an increase in the
proportion of new format restaurants (Fleming's, Roy's, Selmon's and
Zazarac) and international Outback Steakhouses in operation which have
higher average restaurant operating expenses than domestic Outback
Steakhouses and Carrabba's Italian Grills. The increase was partially
offset by lower advertising expense and higher average unit volumes for
both Outback Steakhouse and Carrabba's Italian Grills which reduced the
fixed and indirectly variable costs as a percentage of restaurant sales.
Depreciation and amortization costs increased by 0.1% of total
revenues to 3.1% in the second quarter of 2001, as compared with 3.0% in
the same period in 2000. The increase resulted primarily from additional
depreciation related to new unit development, "Take-away" room additions,
new restaurant formats which have higher average construction costs than
Outback Steakhouse and Carrabba's Italian Grills and additional
amortization of goodwill associated with the purchase of ownership
interests from area operating partners.
General and administrative costs increased by $774,000 to $20,478,000
in the second quarter of 2001 compared with $19,704,000 during the same
period in 2000. This increase resulted from an increase in overall
administrative costs associated with operating additional domestic and
international 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 from Outback Steakhouses and Carrabba's
Italian Grills operated as development joint ventures. Income from the
development joint ventures was $977,000 during the second quarter of 2001
as compared with income of $702,000 during the same period in 2000. This
increase was attributable to additional stores operating as development
joint ventures in the second quarter of 2001 and to an increase in average
unit volumes.
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 decreased by
$4,481,000, to $63,720,000, in the second quarter of 2001 as compared with
$68,201,000 in the same period in 2000.
Other income (expense), net. Other income (expense) includes the net
of revenues and expenses from non-restaurant operations. Net other income
was $275,000 during the second quarter of 2001 as compared with net expense
of $34,000 in the same period in 2000. The improvement in other income
resulted from the elimination of the Company's interest in Outback
Sports and increased event revenues associated with other non-restaurant
operations during the second quarter of 2001.
15 of 27
Interest income (expense), net. Interest income was $772,000 during
the second quarter of 2001 as compared with interest income of $1,477,000
in the same period in 2000. The period to period change in interest income
resulted from lower average cash balances and lower interest rates on short
term investments during the second quarter of 2001 compared with the same
period in 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. As a percentage of
revenues, these allocations were 1.6% and 2.0% during the quarters ended
June 30, 2001 and 2000 respectively. The decrease in the ratio is the
result of the purchase of minority interests in 52 restaurants from area
operating partners after June 30, 2000 and the decrease in overall
restaurant operating margins.
Provision for income taxes. The provision for income taxes in the
second quarter of both 2001 and 2000 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 35.0% during the second
quarter of 2001 and the effective income tax rate was 36.3% during the
second quarter of 2000. The decrease in the effective tax rate resulted
from tax savings associated with changes in the corporate state tax
structure and an increase in FICA tip credits the Company was able to
utilize in the second quarter of 2001.
Net income and earnings per share. Net income for the second quarter
of 2001 was $36,546,000 as compared with $38,298,000 in the same period in
2000. Basic earnings per share decreased to $0.48 during the second quarter
of 2001 as compared with $0.49 for the same period in 2000. Diluted
earnings per share decreased to $0.47 during the second quarter of 2001 as
compared with $0.48 for the same period in 2000.
16 of 27
Six months ended June 30, 2001 and 2000
Revenues. Total revenues increased by 12.0% to $1,060,097,000 during
the first half of 2001 as compared with $946,417,000 in the same period in
2000. The increase was primarily attributable to the opening of new
restaurants after June 30, 2000, menu price increases of approximately 3.4%
at Outback Steakhouse and approximately 4.6% at Carrabba's Italian Grills
and same store revenue increases during the first half of 2001 of 1.5% and
6.9% for Outback Steakhouse and Carrabba's Italian Grills, respectively.
The following table depicts additional activities that influenced the
period to period changes in revenues:
Six Months Ended
June 30,
----------------
2001 2000
------- -------
Average unit volumes(weekly):
Outback Steakhouses........... $67,645 $66,193
Carrabba's Italian Grills..... 61,642 56,829
Per person check averages:
Outback Steakhouses........... $18.46 $17.89
Carrabba's Italian Grills..... 19.61 19.35
Year to year percentage change:
Same-store sales:
Outback Steakhouses........ 1.5% 5.8%
Carrabba's Italian Grills.. 6.9% 11.5%
Same-store customer counts:
Outback Steakhouses........ (1.4)% 3.9%
Carrabba's Italian Grills.. 5.5% 6.4%
Costs and expenses. Cost of sales as a percentage of restaurant sales,
increased by 0.8% to 38.1% in the first half of 2001 as compared with 37.3%
in the same period in 2000. The increase was attributable to increases in
beef and butter costs partially offset by higher menu prices.
Labor and other related expenses increased as a percentage of
restaurant sales by 0.4% to 23.9% in the first half of 2001 as compared
with 23.5% in the same period in 2000. The increase resulted from higher
hourly wage rates resulting from a competitive labor market, a new hourly
employee bonus program and enhanced employee health insurance benefits. The
increase was partially offset by higher unit volumes at Outback Steakhouse
and Carrabba's Italian Grills.
Other restaurant operating expenses increased by 0.8% of restaurant
sales to 19.7% in the first half of 2001 as compared with 18.9% in the same
period in 2000. The increase was attributable to higher natural gas prices
and expense associated with opening new restaurant formats. The increase
was also attributable to an increase in the proportion of new format
restaurants (Fleming's, Roy's, Selmon's and Zazarac) and international
Outback Steakhouses in operation, which have higher average restaurant
operating expenses than domestic Outback Steakhouses and Carrabba's Italian
Grills. The increase was partially offset by lower advertising expense and
higher average unit volumes for both Outback Steakhouse and Carrabba's
Italian Grills, which reduced the fixed and indirectly variable costs as a
percentage of restaurant sales.
17 of 27
Depreciation and amortization costs increased by 0.1% of total
revenues to 3.1% in the second half of 2001, as compared with 3.0% in the
same period in 2000. The increase resulted primarily from additional
depreciation related to new unit development, "Take-away" room additions,
new restaurant formats, which have higher average construction costs than
Outback Steakhouse and Carrabba's Italian Grills and additional
amortization of goodwill associated with the purchase of ownership
interests from area operating partners.
General and administrative costs increased by $1,978,000 to
$40,111,000 during the first half of 2001 as compared to with $38,133,000
during the same period in 2000. This increase resulted from an increase in
overall administrative costs associated with operating additional domestic
and international Outback Steakhouses, Carrabba's Italian Grills, Fleming's
Prime Steakhouses and Roy's as well as costs associated with the
development of new restaurants and other affiliated businesses.
Income from operations of unconsolidated affiliates was $1,978,000 in
the first six months of 2001 as compared with income of $1,069,000 in the
same period in 2000. 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.
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 decreased by
$2,355,000, to $131,116,000 in the first half of 2001 as compared with
$133,471,000 in the same period in 2000.
Other income (expense), net. Other income (expense) includes the net
of revenues and expenses from non-restaurant operations. Net other expense
was $589,000 during the first six months of 2001 as compared with net other
expense of $627,000 in the same period in 2000. The decrease in the net
expense resulted from the elimination of the Company's interest in Outback
Sports and increased revenues in the first six months associated with other
non-restaurant operations.
Interest income (expense), net. Interest income was $1,994,000 during
the first six months of 2001 as compared with interest income of $2,300,000
in the same period in 2000. The decrease in interest income resulted from
lower average cash balances and lower interest rates on short term
investments during the first six months of 2001 compared with the same
period in 2000.
Elimination of minority interests. As a percentage of
revenues, these allocations were 1.7% and 2.1% during the six months ended
June 30, 2001 and 2000, respectively. The decrease in this ratio is the
result of the purchase of minority interests in 52 restaurants from area
operating partners after June 30, 2000 and the decrease in overall
restaurant operating margins.
18 of 27
Provision for income taxes. The provision for income taxes in the
first half of both 2001 and 2000 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 35.2% during the first six
months of 2001 and the effective income tax rate was 36.0% during the first
six months of 2000. The decrease in the effective tax rate resulted from
tax savings associated with changes in the corporate state tax structure
and an increase in FICA tip credits the Company was able to utilize in the
first six months of 2001.
Net income and earnings per common share. Net income for the first
half of 2001 was $74,433,000 as compared with pro forma net income of
$74,064,000 in the same period in 2000. Basic earnings per share increased
to $0.97 during the first half of 2001, as compared with $0.95 in the same
period in 2000. Diluted earnings per share increased to $0.95 during the
first half of 2001, as compared with $0.93 in the same period in 2000.
19 of 27
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,
2000 2001 2000
--------- -------- ---------
Net cash provided by
operating activities........ $239,546 $ 56,820 $91,792
Net cash used in investing
activities.................. (145,819) (102,980) (62,539)
Net cash used in financing
activities.................. (54,746) (17,111) (9,245)
-------- -------- -------
Net increase (decrease) in
cash and cash equivalents... $38,981 $(63,271) $20,008 $ $ $
======== ======== =======
The Company requires capital principally for the development of new
Company owned and joint venture restaurants. Capital expenditures totaled
approximately $139,893,000 for year ended December 31, 2000 and $86,675,000
and $59,394,000 during the first six months of 2001 and 2000, 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 anticipates that 80% to 90% of the
Company owned restaurants to be open in 2001 will be free-standing units.
The Company has formed joint ventures to develop Outback Steakhouses
in Brazil and the Philippines. During the second quarter of 2001, the
Company purchased three Outback Steakhouses in Puerto Rico and will also
develop future Company owned Outback Steakhouses in Puerto Rico. The
Company is also developing Company owned restaurants internationally in the
Philippines and Korea. In 1999, the Company 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
$10,368,000 has been incurred spent as of June 30, 2001.
At June 30, 2001, the Company had two uncollateralized lines of credit
totaling $140,000,000. Approximately $4,350,000 is committed for the
issuance of letters of credit. The Company also guarantees $554,000 in
loans made by banks to certain franchisees. As of June 30, 2001, the
Company had drawn $10,000,000 on the revolving line of credit to finance
the development of new restaurants. The Company expects that its capital
requirements through the end of 2001 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 has a $10,000,000 uncollateralized line of credit to
support the Company's international operations. As of June 30, 2001, the
outstanding balance was approximately $7,415,000.
The Company is the guarantor of an uncollateralized line of credit
that permits borrowing of up to a maximum of $35,000,000, maturing in
December 2004, for one of its franchisees. At June 30, 2001 and December
31, 2000, the balance on the line of credit was approximately $24,754,000
and $22,470,000, respectively. See Note 5 of Notes to Unaudited
Consolidated Financial Statements. 20 of 27
The Company is the guarantor of an uncollateralized line of credit
that permits borrowing of up to a maximum of $12,000,000, maturing December
2003, for one of its joint venture partners. At June 30, 2001, the
outstanding balance was approximately $9,450,000.
The Company is the guarantor of up to approximately $9,445,000 of a
$68,000,000 note for an unconsolidated affiliate in which the Company has a
22.2% equity interest. At June 30, 2001 the outstanding balance on the note
was approximately $65,000,000.
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 June 30, 2001, the Company
has repurchased approximately 2,641,000 shares of its Common Stock for
approximately $64,891,000 under the repurchase program.
OTHER
See Notes 4 and 7 of Notes to Unaudited Consolidated Financial
Statements for discussion of the Company's $22,000,000 licensing agreement
for use of the assets of some of its non-restaurant operations.
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 that 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 forward-looking statements in the section entitled "Cautionary
Statement" below.
In the Outlook portion of Management's Discussion and Analysis of
financial Condition and Results of Operations in its Annual Report to the
Securities and Exchange Commission on Form 10-K for the year ended December
31, 2000, the Company provided guidance on the outlook for its businesses
in 2001 and factors that may affect the Company's financial results. During
the three months and six months ended June 30, 2001, the Company noted
factors affecting revenue trends. The Company's previous price increase
guidance remains unchanged; however, due to a weaker than expected economy,
customer count trends have weakened relative to trends noted in the Form
10-K. To the extent to which customer count trends remain weak, the
Company's revenues and operating results may be affected for the remainder
of 2001. During the quarter ended and six months ended June 30, 2001, the
Company incurred higher Restaurant Operating Expenses and Cost of Sales
as a result of higher natural gas and dairy prices, respectively, than paid
during the comparable period in 2000 and than anticipated in the Company's
comments discussed above. To the extent to which the prices of these
commodities remain at current levels, the Company's operating results may
be affected for the remainder of 2001.
21 of 27
Expansion Strategy.
The Company's goal is to add new restaurants to the Outback system
during the remainder of 2001. The following table presents a summary of the
expected restaurant openings for the full year 2001:
Outback Steakhouses - Domestic
Company owned 35 to 40
Franchised or joint venture 10 to 12
Outback Steakhouses - International
Company owned 10 to 12
Franchised or joint venture 16 to 18
Carrabba's Italian Grills
Company owned 8 to 10
Joint venture 10 to 12
Fleming's Prime Steakhouse and
Wine Bars
Company owned 0
Joint venture 5 to 6
Roy's
Company owned 0
Joint venture 6 to 8
Zazarac
Company owned 1
Selmon's
Company owned 0
Cheeseburger in Paradise
Joint venture 0
22 of 27
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 profit 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's actual results could differ materially from those stated
or implied in the forward-looking statements included in the discussion of
future operating results and expansion strategy and elsewhere in this
report as a result, among other things, of the following:
(i) The restaurant industry is a highly competitive industry with many
well established competitors;
(ii) 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;
(iii) The Company's ability to expand is dependent upon various factors
such as the availability of attractive sites for new restaurants,
ability to obtain appropriate real estate sites as acceptable prices;
ability to obtain all governmental permits including zoning approvals
and liquor licenses on a timely basis, impact of government
moratoriums or approval processes, which could result in significant
delays, ability to obtain all necessary contractors and
subcontractors, union activities such as picketing and hand billing
that could delay construction, the ability to generate or borrow
funds, the ability to negotiate suitable lease terms, and the ability
to recruit and train skilled management and restaurant employees;
(iv) Price and availability of commodities, including, but not limited to,
such items as beef, chicken, shrimp, pork, dairy, potatoes and onions are
subject to fluctuation and could increase or decrease more than the Company
expects; and/or
(v) Weather and acts of God could result in construction delays and also
adversely affect the results of one or more stores for an
indeterminate amount of time.
23 of 27
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
$140,000,000 revolving lines of credit with its banks. 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, 2001 and
December 31, 2000, the Company had a $10,000,000 outstanding balance on the
lines 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 arrangement
may contain contractual features that limit the price paid by establishing
certain floors and caps. The Company does not use financial instruments to
hedge commodity prices because the Company's 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.
24 of 27
OUTBACK STEAKHOUSE, INC.(R)
PART II: OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders.
The Company held an Annual Meeting of Stockholders on Wednesday, April
25, 2001. 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 Votes % of Votes % of Exceptions % of
Nominee/Director For Eligible Withheld Eligible Eligible
------------- ------- ------- ------- ------- -------- ------
Paul Avery 69,257,562 90.28% 1,193,222 1.56% 0 0.00%
John Brabson 69,256,078 90.28% 1,194,706 1.56% 0 0.00%
Charles Bridges 69,218,174 90.23% 1,232,610 1.61% 0 0.00%
Tim Gannon 69,259,060 90.28% 1,191,724 1.55% 0 0.00%
LeeRoy Selmon 68,989,152 89.93% 1,461,632 1.91% 0 0.00%
Eligible 76,712,574
2. To transact such other business as may properly come before
the meeting. The results of proxies voted are as follows:
% of
Eligible
-------
For 41,814,042 54.51%
Against 20,042,144 26.13%
Abstain 8,594,598 11.20%
---------- --------
Total 70,450,784 91.84%
========== ========
25 of 27
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits
None
(b) Reports on Form 8-K
The Company filed a report on Form 8-K with the Securities and
Exchange Commission dated June 25, 2001.
26 of 27
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. (R)
Date: August 14, 2001. (Registrant)
---------------
By: /s/ Robert S. Merritt
--------------------------
Robert S. Merritt
Senior Vice President,
Finance (Principal Financial
and Accounting Officer
27 of 27