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 March 31, 2002
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 WEST SHORE BOULEVARD, 5TH 33607
FLOOR, TAMPA, FLORIDA (Zip Code)
(Address of principal executive offices)
(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 May 9, 2002,
there were approximately 77,216,000 shares of Common Stock, $.01 par value
outstanding.
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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)
March 31, December 31,
2002 2001
ASSETS (unaudited)
CURRENT ASSETS --------- --------
Cash and cash equivalents........... $105,355 $115,928
Short term investments.............. 20,403 20,310
Inventories......................... 36,101 38,775
Other current assets................ 20,342 31,347
--------- --------
Total current assets................ 182,201 206,360
PROPERTY, FIXTURES AND EQUIPMENT, NET. 841,620 813,065
INVESTMENTS IN AND ADVANCES TO
UNCONSOLIDATED AFFILIATES, NET...... 53,800 46,485
OTHER ASSETS.......................... 168,743 171,838
--------- --------
$1,246,364 $1,237,748
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable.................... $34,741 $47,179
Sales taxes payable................. 14,058 13,096
Accrued expenses.................... 62,847 56,587
Unearned revenue.................... 23,797 60,135
Income taxes payable................ 11,393
Current portion of long-term debt... 12,572 12,763
--------- --------
Total current liabilities........... 159,408 189,760
DEFERRED INCOME TAXES................. 23,577 22,878
LONG-TERM DEBT........................ 14,253 13,830
OTHER LONG-TERM LIABILITIES........... 24,500 24,500
--------- --------
Total liabilities................... 221,738 250,968
INTEREST OF MINORITY PARTNERS IN --------- --------
CONSOLIDATED PARTNERSHIPS........... 45,827 44,936
--------- --------
STOCKHOLDERS' EQUITY
Common stock, $0.01 par value, 200,000
shares authorized; 78,554 and 78,554
shares issued; and 76,964 and 76,913
outstanding as of March 31, 2002 and
December 31, 2001, respectively..... 786 786
Additional paid-in capital.......... 224,757 220,648
Retained earnings................... 799,882 762,414
--------- --------
1,025,425 983,848
Less treasury stock, 1,590 shares
and 1,641 shares at March 31, 2002
and December 31, 2001,
respectively, at cost............... (46,626) (42,004)
--------- --------
Total stockholders' equity.......... 978,799 941,844
--------- --------
$1,246,364 $1,237,748
========== ==========
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
March 31,
2002 2001
REVENUES ------- --------
Restaurant sales............... $574,555 $516,654
Other revenues................. 4,434 4,599
------- --------
TOTAL REVENUES............... 578,989 521,253
COSTS AND EXPENSES: ------- --------
Cost of sales................ 214,808 195,124
Labor & other related........ 138,302 122,990
Other restaurant operating... 114,049 101,045
Depreciation & amortization.. 17,938 15,968
General & administrative..... 21,129 19,262
Income from operations of
unconsolidated affiliates.. (1,552) (1,001)
------- --------
Total costs and expenses.. 504,674 453,388
------- --------
INCOME FROM OPERATIONS.......... 74,315 67,865
OTHER INCOME (EXPENSE), NET..... (317) (1,235)
INTEREST INCOME (EXPENSE), NET.. 236 1,124
INCOME BEFORE ELIMINATION OF ------- --------
MINORITY PARTNERS' INTEREST
AND INCOME TAXES............. 74,234 67,754
ELIMINATION OF MINORITY PARTNERS'
INTEREST..................... 10,368 9,106
------- --------
INCOME BEFORE PROVISION FOR
INCOME TAXES.................. 63,866 58,648
PROVISION FOR INCOME TAXES...... 22,481 20,761
------- --------
NET INCOME...................... $41,385 $ 37,887
======= ========
BASIC EARNINGS PER COMMON SHARE. $ 0.54 $ 0.50
BASIC WEIGHTED AVERAGE NUMBER OF ======= ========
COMMON SHARES OUTSTANDING.... 77,078 76,539
======= ========
DILUTED EARNINGS PER COMMON SHARE $ 0.52 $ 0.49
DILUTED WEIGHTED AVERAGE NUMBER ======= ========
OF COMMON SHARES OUTSTANDING.. 80,039 77,755
======= ========
See notes to unaudited consolidated financial statements.
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OUTBACK STEAKHOUSE, INC.(R)
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands, unaudited)
Three Months Ended
March 31,
2002 2001
Cash flows from operating activities: -------- --------
Net income............................... $ 41,385 $ 37,887
Adjustments to reconcile net income to
cash provided by operating activities:
Depreciation........................... 17,336 14,439
Amortization........................... 602 1,529
Minority partners' interest in
consolidated partnerships' income... 10,368 9,106
Income from unconsolidated affiliates.. (1,552) (1,001)
Change in assets and liabilities:
Decrease (increase) in inventories.. 2,674 (5,684)
Decrease (increase) in other
current assets.................. 11,005 (5,947)
Decrease (increase) in other assets. 2,493 (2,154)
Increase in accounts payable,
sales taxes payable, and accrued
expenses.......................... (5,216) (3,397)
Decrease in unearned revenue........ (36,338) (32,577)
Increase in income taxes payable.... 15,502 7,692
Increase in deferred income taxes... 699 117
Net cash provided by operating -------- --------
activities....................... 58,958 20,010
Cash flows used in investing activities: -------- --------
Purchase of investment securities...... (93)
Capital expenditures................... (45,891) (42,189)
Change in investments in and advances
to unconsolidated affiliates........... (5,763) (9,440)
Net cash used in investing -------- --------
activities....................... (51,747) (51,629)
Cash flows from financing activities: -------- --------
Proceeds from issuance of long-term debt 232 1,218
Proceeds from minority partners'
contributions........................ 2,732 325
Distributions to minority partners..... (12,209) (9,660)
Payments for purchase of treasury
stock................................ (21,253) (15,054)
Proceeds from reissuance of treasury
stock................................ 12,714 2,120
Net cash used in financing -------- --------
activities........................ (17,784) (21,051)
Net decrease in cash and cash -------- --------
equivalents............................ (10,573) (52,670)
Cash and cash equivalents at beginning
of period.............................. 115,928 131,604
Cash and cash equivalents at end of -------- --------
period................................. $105,355 $ 78,934
Supplemental disclosures of cash flow ======== ========
information:
Cash paid for interest................. $ 93 $ 179
Cash paid for income taxes............. $ 280 $ 12,796
Supplemental disclosures of non-cash items:
Assets/liabilities of businesses trans-
ferred under contractual arrangements.. $ 22,000
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 2001 consolidated financial statements
have been reclassified to conform to the 2002 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, 2001 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
2001 Annual Report.
2. Other Current Assets
Other current assets consisted of the following (in thousands):
March 31, December 31,
2002 2001
(unaudited)
----------- -----------
Deposits (including income tax deposits). $ 1,911 $ 9,275
Accounts receivable...................... 3,677 7,710
Accounts receivable franchisees.......... 2,887 3,560
Prepaid expenses......................... 10,356 8,212
Other current assets..................... 1,511 2,590
-------- -------
$ 20,342 $31,347
========= =======
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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):
March 31, December 31,
2002 2001
(unaudited)
----------- -----------
Land................................ $161,366 $ 158,314
Buildings & building improvements... 406,055 382,793
Furniture & fixtures................ 105,033 99,767
Equipment........................... 254,987 238,285
Leasehold improvements.............. 196,626 185,623
Construction in progress............ 19,091 35,464
Accumulated depreciation............ (301,538) (287,181)
--------- ---------
$841,620 $ 813,065
======== =========
4. Other Assets
Other assets consisted of the following (in thousands):
March 31, December 31,
2002 2001
(unaudited)
---------- -----------
Intangible assets, net (including
liquor licenses)................. $ 95,600 $ 94,453
Other assets........................ 38,643 42,885
Assets of business transferred under
contractual arrangement........... 15,500 15,500
Deferred license fee................ 19,000 19,000
-------- --------
$168,743 $171,838
======== ========
As of March 31, 2002, "Other Assets" included the following
intangible assets subject to amortization (in thousands):
March 31, December 31,
2002 2001
(unaudited)
----------- -----------
Non-compete/non-disclosure and related
contractual agreements. $12,115 $10,141
Accumulated amortization (5,084) (4,482)
------- -------
$ 7,031 $ 5,659
======= =======
Aggregate amortization expense on the intangible assets subject
to amortization was approximately $602,000 for the three months ended
March 31, 2002 and is estimated to be approximately $2,500,000 for each
of the years ended December 31, 2002 through 2006. The net carrying amount
of goodwill as of December 31, 2001 and March 31, 2002 was
approximately $79,661,000.
7 of 25
OUTBACK STEAKHOUSE, INC.(R)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
4. Other Assets (continued)
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
outstanding and consists of $19,000,000 included in "Other Assets" and the
current portion of $1,500,000 included in "Other Current Assets" in the
Consolidated Balance Sheet. 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" in the Consolidated
Balance Sheet. The corresponding long-term liability is included in the
line item entitled "Other Long Term Liabilities" in the Consolidated
Balance Sheet. 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.
5. Long-term Debt
Long-term debt consisted of the following (in thousands):
March 31, December 31,
2002 2001
(unaudited)
--------- -----------
Revolving line of credit, interest
at 2.79% and 3.67% at March 31,
2002 and December 31, 2001,
respectively......................... $10,000 $10,000
Other notes payable, uncollateralized,
interest rates ranging from 4.40% to
7.50% at both March 31, 2002
and December 31, 2001................ 16,825 16,593
------ -------
26,825 26,593
Less current portion................... 12,572 12,763
------ -------
Long-term debt......................... $14,253 $13,830
======= =======
The Company has an uncollateralized revolving line of credit which
permits borrowing up to a maximum of $125,000,000 at 57.5 basis points over
the 30, 60, 90 or 180 day London Interbank Offered Rate (LIBOR) (1.87% to
2.33% at March 31, 2002 and 1.87% to 1.98% at December 31, 2001). At March
31, 2002 and December 31, 2001 the unused portion of the revolving line of
credit was $115,000,000. The line includes a credit facility fee of 17.5
basis points and 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 $3,850,000 and $4,350,000 of the line of credit was committed
for the issuance of letters of credit at March 31, 2002 and December 31,
2001, respectively. The remaining $11,150,000 at March 31, 2002 is
available to the Company.
8 of 25
OUTBACK STEAKHOUSE, INC.(R)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
5. Long-term Debt (continued)
The Company has notes payable with banks bearing interest at 7.5% to
support the Company's international operations. As of March 31, 2002 and
December 31, 2001, the outstanding balance was approximately $11,920,000
and $12,194,000, respectively. The notes mature in July 2002.
The Company is the guarantor of two uncollateralized lines of credit
that permit borrowing of up to $25,000,000 to support the Company's
international operations. At March 31, 2002 and December 31, 2001, the
borrowings totalled approximately $16,766,000 and $8,215,000, respectively.
The Company is the guarantor of an uncollateralized line of credit
which permits borrowing of up to $35,000,000, maturing in December 2004,
for one of its franchisees. At March 31, 2002 and December 31, 2001, the
outstanding balance was approximately $27,963,000 and $26,354,000,
respectively.
The Company is the guarantor of an uncollateralized line of credit
which permits borrowing of up to a maximum of $24,500,000, maturing in
December 2004, for one of its joint venture partners. At both March 31,
2002 and December 31, 2001, the outstanding balance was approximately
$19,427,000.
The Company is the guarantor of bank loans made to certain
franchisees. At March 31, 2002 and December 31, 2001, the outstanding
balance on the loans was approximately $366,000 and $437,000, respectively.
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 both March 31, 2002 and December 31, 2001, the
outstanding balance on the note was approximately $68,000,000.
See "Liquidity and Capital Resources" in Item 2, "Management's
Discussion and Analysis of Financial Condition and Results of Operations."
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OUTBACK STEAKHOUSE, INC.(R)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
6. Accrued Expenses
Accrued expenses consisted of the following (in thousands):
March 31, December 31,
2002 2001
(unaudited)
--------- ---------
Accrued payroll and other compensation.. $19,233 $19,207
Accrued insurance....................... 12,916 13,206
Accrued property taxes.................. 6,862 6,970
Other accrued expenses.................. 23,836 17,204
------- -------
$62,847 $56,587
======= =======
7. Other Long Term Liabilities
Other long term liabilities consisted of the following (in thousands):
March 31, December 31,
2002 2001
(unaudited)
--------- -----------
Accrued insurance....................... $ 4,000 $ 4,000
Other deferred liability................ 20,500 20,500
-------- ---------
$ 24,500 $ 24,500
======== =========
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
of which $20,500,000 is outstanding. 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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OUTBACK STEAKHOUSE, INC.(R)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
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 No. 141, "Business Combinations", and FAS No. 142, "Goodwill and Other
Intangible Assets". FAS No. 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 No. 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.
Adoption of FAS No.142 effective January 1, 2002 is estimated to result
in the elimination of approximately $3,000,000 to $5,500,000 of annual
amortization, subject to the identification of separately recognized
intangibles which would continue to be amortized under the new rules. The
Company is in 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 No. 142. Such impairment charges, if any,
will be recognized in accordance with the provisions of FAS No. 142 in the
quarter ended June 30, 2002.
The following table represents net income and earnings per share
for prior periods had FAS No. 142 been in effect for those periods (in
thousands except per share data, unaudited):
Three Months Ended March 31,
2002 2001
----------- ----------
Reported net income............... $41,385 $ 37,887
Add back: Goodwill amortization... 791
-------- ----------
Adjusted net income............... $41,385 $ 38,678
======= =========
BASIC EARNINGS PER SHARE
Reported net income............... $ 0.54 $ 0.50
Goodwill amortization............. 0.01
-------- ----------
Adjusted net income............... $ 0.54 $ 0.51
======= =========
DILUTED EARNINGS PER SHARE
Reported net income............... $ 0.52 $ 0.49
Goodwill amortization............. 0.01
------- ---------
Adjusted net income............... $ 0.52 $ 0.50
======= =========
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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 Ended
March 31,
----------------
2002 2001
REVENUES ------ -------
Restaurant sales.............. 99.2% 99.1%
Other revenues................ 0.8 0.9
----- ------
TOTAL REVENUES................ 100.0 100.0
COSTS AND EXPENSES:
Cost of sales(1)............ 37.4 37.8
Labor & other related(1).... 24.1 23.8
Other restaurant operating(1) 19.8 19.6
Depreciation & amortization. 3.1 3.1
General & administrative.... 3.6 3.7
Income from operations of
unconsolidated affiliates.. (0.3) (0.2)
Total costs and expenses. 87.2 87.0
----- ------
INCOME FROM OPERATIONS........ 12.8 13.0
OTHER INCOME (EXPENSE), NET... (0.1) (0.2)
INTEREST INCOME............... ( *) 0.2
----- ------
INCOME BEFORE ELIMINATION OF
MINORITY PARTNERS' INTEREST
AND INCOME TAXES............ 12.8 13.0
ELIMINATION OF MINORITY
PARTNERS' INTEREST.......... 1.8 1.7
----- ------
INCOME BEFORE PROVISION FOR
INCOME TAXES................ 11.0 11.3
PROVISION FOR INCOME TAXES.... 3.9 4.0
----- ------
NET INCOME.................... 7.1% 7.3%
===== ======
(*)Percentages are less than 1/10 of one percent of total revenues.
(1) As a percentage of restaurant sales.
12 of 25
Results of Operations (continued)
Three Months Ended
March 31,
--------------
2002 2001
------ ------
System-wide sales (millions of dollars):
Outback Steakhouse restaurants
Company owned................... $486 $456
Domestic franchised and
development joint venture.... 93 87
International franchised and
development joint venture.... 23 21
------ ------
Total........................... 602 564
------ ------
Carrabba's Italian Grills
Company owned................... 62 48
Development joint venture....... 22 16
------ ------
Total........................... 84 64
------ ------
Other restaurants
Company owned................... 27 13
Franchised and development
joint venture................. 3 -
------ ------
Total........................... 30 13
------ ------
System-wide total................. $716 $641
====== ======
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Results of Operations (continued)
March 31,
------------
2002 2001
---- ------
Number of restaurants (at end of the period):
Outback Steakhouses
Company owned............................. 581 531
Domestic franchised and development
joint venture........................... 116 109
International franchised and development
joint venture........................... 49 42
--- ---
Total..................................... 746 682
--- ---
Carrabba's Italian Grills
Company owned............................. 77 60
Development joint venture................. 28 21
--- ---
Total..................................... 105 81
--- ---
Fleming's Prime Steakhouse and Wine Bars
Company owned............................. 13 5
--- ---
Roy's
Company owned............................. 12 6
Franchised and development joint venture.. 2 -
--- ---
Total..................................... 14 6
--- ---
Zazarac
Company owned............................. - 1
--- ---
Lee Roy Selmon's
Company owned............................. 1 1
--- ---
Bonefish Grills
Company owned............................. 4 -
Development joint venture................. 1 -
--- ---
Total..................................... 5 -
--- ---
System-wide total........................... 884 776
=== ===
14 of 25
Three months ended March 31, 2002 and 2001
Revenues. Total revenues increased by 11.1% to $578,989,000 during
the first quarter of 2002 as compared with $521,253,000 in the same period
in 2001. The increase was attributable to the opening of new restaurants
after March 31, 2001, menu price increases at Outback Steakhouse and
Carrabba's Italian Grills after March 2001, and per store revenue increase
during the quarter of 3.1% at Carrabba's Italian Grills, partially offset
by per store revenue decrease of 1.2% at Outback Steakhouse. The following
table depicts additional activities that influenced the period to period
changes in revenues:
Three Months Ended
March 31,
----------------
2002 2001
--------- ---------
Average unit volumes (weekly):
Outback Steakhouses................. $66,238 $67,735
Carrabba's Italian Grills........... 64,253 61,980
Per person check averages:
Outback Steakhouses................. $19.01 $18.62
Carrabba's Italian Grills........... 19.71 19.64
Year to year percentage change:
Same-store sales:
Outback Steakhouses............... (1.2%) 2.3%
Carrabba's Italian Grills......... 3.1% 8.6%
Same-store customer counts:
Outback Steakhouses............... (3.2%) (0.9%)
Carrabba's Italian Grills......... 2.7% 7.6%
Costs and expenses. Costs of sales, consisting of food and beverage
costs, as a percentage of restaurant sales, decreased in the first quarter
of 2002 to 37.4% of restaurant sales as compared with 37.8% in the same
period in 2001. The decrease was attributable to commodity cost decreases
in beef and seafood, particularly shrimp, partially offset by higher
produce costs. The decrease was also attributable to higher menu prices at
Carrabba's Italian Grills and an increase in the proportion of new
restaurant formats (Fleming's, Roy's and Bonefish Grills) which have lower
average food costs than Outback Steakhouses and Carrabba's Italian Grills.
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 24.1% in the first quarter of
2002 as compared with 23.8% in the same period in 2001. The increase
resulted from higher hourly wage rates, enhanced employee health insurance
benefits, lower average unit volumes at Outback Steakhouse and an increase
in the proportion of new restaurant formats (Fleming's, Roy's and Selmon's)
which have higher average labor costs than Outback Steakhouse and
Carrabba's Italian Grills.
15 of 25
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 0.2% of
restaurant sales to 19.8% in the first quarter of 2002, as compared with
19.6% in the same period in 2001. The increase was attributable to lower
average unit volumes at Outback Steakhouse and expenses associated with
opening new restaurant formats. The increase was also attributable to an
increase in the proportion of new restaurant formats (Fleming's, Roy's and
Selmon's) 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 higher average unit volumes for Carrabba's Italian Grills which
reduced the fixed and indirectly variable costs as a percentage of
restaurant sales.
Depreciation and amortization costs were 3.1% of total revenues in
both the first quarter of 2002 and 2001. The impact of reduced amortization
expense due to the adoption of SFAS No. 142 "Goodwill and Other Intangible
Assets" was offset by higher depreciation costs. The increase in
depreciation costs resulted primarily from additional depreciation related
to new unit development, new restaurant formats which have higher average
construction costs than Outback Steakhouse and Carrabba's Italian Grills
and lower average unit volumes at Outback Steakhouse, Roy's and Fleming's
Prime Steakhouse.
General and administrative costs increased by $1,867,000 to
$21,129,000 in the first quarter of 2002 compared with $19,262,000 during
the same period in 2001. 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, Roy's and Bonefish Grills 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 $1,552,000 during the first quarter of 2002
as compared with income of $1,001,000 during the same period in 2001. This
increase was attributable to additional stores operating as development
joint ventures in the first quarter of 2002 compared with the first quarter
of 2001 and to an increase in average unit volumes at Carrabba's Italian
Grills.
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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
$6,450,000, to $74,315,000, in the first quarter of 2002 as compared with
$67,865,000 in the same period in 2001.
Other income (expense), net. Other income (expense) includes the net
of revenues and expenses from non-restaurant operations. Net other expense
was $317,000 during the first quarter of 2002 as compared with net other
expense of $1,235,000 in the same period in 2001. The decrease in other
expense resulted from decreased costs associated with other non-restaurant
operations, gain of approximately $500,000 on the sale of an airplane and
approximately $300,000 of lower costs related to life insurance cash
surrender values during the first quarter of 2002 compared with the first
quarter of 2001.
Interest income (expense), net. Interest income was $236,000 during
the first quarter of 2002 as compared with interest income of $1,124,000 in
the same period in 2001. The period to period change in interest income
resulted from lower interest rates on short term investments during the
first quarter of 2002 compared with the same period in 2001 and increased
interest expense due to higher average debt balances during the first
quarter of 2002 compared with the first quarter of 2001.
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 and the ownership interests
in certain other restaurants in which the Company is the majority owner.
As a percentage of revenues, these allocations were 1.8% and 1.7% during
the quarters ended March 31, 2002 and 2001, respectively. The increase in
the ratio is the result of improved performance of the new restaurant
formats.
Provision for income taxes. The provision for income taxes in the
first quarter of both 2002 and 2001 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 quarter
of 2002 and was 35.4% during the first quarter of 2001. The decrease
resulted from tax savings associated with changes in the Company's
corporate state tax structure.
Net income and earnings per share. Net income for the first quarter of
2002 was $41,385,000 as compared with $37,887,000 in the same period in
2001. Basic earnings per share increased to $0.54 during the first quarter
of 2002 as compared with $0.50 for the same period in 2001. Diluted
earnings per share increased to $0.52 during the first quarter of 2002 as
compared with $0.49 for the same period in 2001.
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Liquidity and Capital Resources
The following table presents a summary of the Company's cash flows
from operating, investing and financing activities for the periods
indicated (in thousands).
Year Ended Three Months Ended
December 31, March 31, March 31,
2001 2002 2001
--------- --------- ---------
Net cash provided by
operating activities.....$ 228,821 $ 58,958 $ 20,010
Net cash used in investing
activities............... (233,662) (51,747) (51,629)
Net cash used in financing
activities............... (10,835) (17,784) (21,051)
------ -------- --------
Net decrease in cash and
cash equivalents............$ (15,676) $(10,573) $(52,670)
========= ======== ========
The Company requires capital principally for the development of
restaurants. Capital expenditures totalled approximately $201,039,000 for
the year ended December 31, 2001 and $45,891,000 and $42,189,000 during the
first three months of 2002 and 2001, respectively. The Company either
leases its restaurants under operating leases for periods ranging from five
to thirty years (including renewal periods) or purchases free standing
restaurants where it is cost effective.
During 2001, the Company entered into an agreement with the founders
of Bonefish Grill ("Bonefish") to develop and operate Bonefish restaurants.
Under the terms of the Bonefish agreement, the Company purchased the
Bonefish restaurant operating system for approximately $1,500,000. In
addition, the interest in three existing Bonefish Grills was contributed to
a partnership formed between the Bonefish founders and the Company, and, in
exchange, the Company committed to the first $7,500,000 of future
development costs of which approximately $1,353,000 had been expended as of
March 31, 2002.
During 1999, the Company formed joint ventures to develop Outback
Steakhouses in Brazil and the Philippines. The Company purchased four
Outback Steakhouses in Korea in the first quarter of 2000 and will 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 ("Fleming's").
Under the terms of the Fleming's agreement, the Company purchased three
existing Fleming's for $12,000,000 and committed to the first $13,000,000
of future development costs, all of which had been invested as of December
31, 2001.
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At March 31, 2002, the Company has two uncollateralized lines of
credit totalling $140,000,000. Approximately $3,850,000 is committed for
the issuance of letters of credit. As of March 31, 2002, 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
end of 2002 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 notes payable with banks bearing interest at 7.5% to
support the Company's international operations. As of March 31, 2002, the
outstanding balance was approximately $11,920,000.
The Company is the guarantor of two uncollateralized lines of credit
that permit borrowing of up to $25,000,000 to support the Company's
international operations. At March 31, 2002 the borrowings totalled
approximately $16,766,000.
The Company is the guarantor of an uncollateralized line of credit
that permits borrowing of up to $35,000,000 for one of its franchisees. At
March 31, 2002, the balance on the line of credit was approximately
$27,963,000.
The Company is the guarantor of an uncollateralized line of credit
that permits borrowing of up to $24,500,000 for one of its joint venture
partners. At March 31, 2002, the outstanding balance was approximately
$19,427,000.
The Company is the guarantor of bank loans made to certain
franchisees. At March 31, 2002, the outstanding balance on the loans was
approximately $366,000.
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 March 31, 2002 the outstanding balance on the
note was approximately $68,000,000.
In connection with the Company's debt guarantees, as noted above, the
Company is not aware of any non-compliance with the terms of the borrowing
agreements that would result in the Company having to perform in accordance
with the terms of the debt guarantees.
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 March 31, 2002, under
these authorizations the Company has repurchased approximately 3,813,000
shares of its Common Stock for approximately $101,118,000.
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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 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 forward-looking statements in
the section entitled "Cautionary Statement" below. The results of
operations for the interim periods are not necessarily indicative of the
results to be expected for the full year.
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, 2001, the Company provided guidance on the outlook for its businesses
in 2002 and factors that may affect the Company's financial results. During
the quarter ended March 31, 2002, average unit volumes at the Company's
Outback Steakhouse units decreased by approximately 2.1%. The Company's
2002 financial and operating plan discussed in Form 10-K planned for
average unit volumes at Outback Steakhouse to be flat for the full year.
To the extent to which average unit volume trends remain weak, the
Company's revenues and operating results may be affected for the remainder
of 2002. The Company will reevaluate Outback menu pricing periodically and
may change as economic and commodity conditions dictate.
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Expansion Strategy.
The Company's goal is to add new restaurants to the Outback system
during the remainder of 2002. The following table presents a summary of the
expected restaurant openings for the full year 2002:
2002
--------
Outback Steakhouses - Domestic
Company owned 38 to 40
Franchised 5 to 6
Outback Steakhouses - International
Company owned 5 to 6
Franchised 8 to 10
Carrabba's Italian Grills
Company owned 10 to 15
Development joint venture 5 to 10
Fleming's Prime Steakhouse and Wine Bars
Company owned 5
Roy's
Company owned 2 to 3
Franchised 1
Lee Roy Selmon's
Company owned 1
Cheeseburger in Paradise
Company owned 1
Bonefish Grill
Company owned 6 to 8
Franchised 1 to 2
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Cautionary Statement
The foregoing Management's Discussion and Analysis of Financial
Condition and Results of Operations contains various "forward-looking
statements" within the meaning of Section 27A of the Securities Exchange
Act of 1933, as amended, and Section 21E of the Securities Exchange Act of
1934, as amended. Forward-looking statements represent the Company's
expectations or belief concerning future events, including the following:
any statements regarding future sales and gross 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",
"should", 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 at acceptable prices,
ability to obtain all required 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.
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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 57.5 to 95 basis points over
the 30, 60, 90 or 180 London Interbank Offered Rate. At March 31, 2002 and
December 31, 2001, the Company had $10,000,000 outstanding on its lines of
credit.
Many 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 price floors and 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 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.
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OUTBACK STEAKHOUSE, INC.(R)
PART II: OTHER INFORMATION
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 February 14, 2002.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf of
the undersigned thereunto duly authorized.
OUTBACK STEAKHOUSE, INC. (R)
Date: May 15, 2002. (Registrant)
By: /s/ Robert S. Merritt
Robert S. Merritt
Senior Vice President,
Finance (Principal Financial
and Accounting Officer)
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