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, 2004

OR

o            TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from _____________ to _____________.

1-15935
(Commission File Number)
___________________________

OUTBACK STEAKHOUSE, INC.
(Exact name of Registrant as specified in its charter)

___________________________

Delaware (State or other jurisdiction of incorporation or organization)		59-3061413 (I.R.S. Employer Identification No.)
2202 N. West Shore Boulevard, Suite 500 Tampa, Florida (Address of principal executive offices)		33607 (Zip Code)

(813) 282-1225
(Registrant's telephone number, including area code)
___________________________

                Indicate by check mark whether 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 report(s)), and (2) has been subject to such filing requirements for the past 90 days.

YES  x  NO  o

Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act).

YES  x  NO  o

              As of May 5, 2004, the registrant had outstanding 74,330,134 shares of Common Stock, $.01 par value.

OUTBACK STEAKHOUSE, INC.

QUARTERLY REPORT ON FORM 10‑Q
For the Quarterly Period Ended March 31, 2004

INDEX

                                                                                                                                                                                                                   

2

Table of Contents

PART I:  FINANCIAL INFORMATION

Item 1.  CONSOLIDATED FINANCIAL STATEMENTS

OUTBACK STEAKHOUSE, INC.
CONSOLIDATED BALANCE SHEETS

(in thousands)

  See notes to unaudited consolidated financial statements.

3

Table of Contents

OUTBACK STEAKHOUSE, INC.
CONSOLIDATED STATEMENTS OF INCOME
(in thousands except per share data, unaudited)

See notes to unaudited consolidated financial statements.

4

Table of Contents

OUTBACK STEAKHOUSE, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands, unaudited)

See notes to unaudited consolidated financial statements.

5

Table of Contents

OUTBACK STEAKHOUSE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)

1.         Basis of Presentation

The accompanying unaudited consolidated financial statements have been prepared by Outback Steakhouse, Inc. (the "Company") pursuant to the rules and regulations of the Securities and Exchange Commission. Accordingly, they do not include all the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of the Company, all adjustments (consisting only of normal recurring entries) necessary for the fair presentation of the Company's results of operations, financial position and cash flows for the periods presented have been included.  These financial statements should be read in conjunction with the financial statements and financial notes thereto included in the Company's 2003 Annual Report on Form 10-K.

The results of operations for the interim periods are not necessarily indicative of the results to be expected for the full year.

2.         Stock-Based Compensation

The Company accounts for its stock-based employee compensation under the intrinsic value method.  No stock-based employee compensation cost is reflected in net income to the extent options granted had an exercise price equal to or exceeding the fair market value of the underlying common stock on the date of grant.  The following table provides pro forma net income and earnings per share amounts using the fair value based method of Statement of Financial Accounting Standards (“SFAS”) No. 123, “Accounting for Stock-Based Compensation”:

		THREE MONTHS ENDED
		MARCH 31,
		2004			2003
Net income		$	48,331		$	42,575
Stock-based employee compensation expense included in net income,
	net of related taxes		1,272			803
Total stock-based employee compensation expense determined
	under fair value based method, net of related taxes		(4,421	)		(3,932	)
Pro forma net income		$	45,182		$	39,446
Earnings per common share:
	Basic	$	0.65		$	0.56
	Basic - pro forma	$	0.61		$	0.52
	Diluted	$	0.62		$	0.54
	Diluted - pro forma	$	0.58		$	0.50

The preceding pro forma results were calculated with the use of the Black Scholes option-pricing model. The following assumptions were used for the quarters ended March 31, 2004 and 2003, respectively: (1) risk-free interest rates of 2.80% and 2.78%; (2) dividend yield of 1.27% and 1.50%; (3) expected lives of 5.0 years; and (4) volatility of 30.4% and 32.0%. Results may vary depending on the assumptions applied within the model. Compensation expense recognized in providing pro forma disclosures may not be representative of the effects on net income for future periods.

6

Table of Contents

OUTBACK STEAKHOUSE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)

3.         Other Current Assets

Other current assets consisted of the following (in thousands):

	MARCH 31,			DECEMBER 31,
	2004			2003
	(UNAUDITED)
Deposits	$	2,242		$	2,218
Accounts receivable		11,642			12,855
Accounts receivable - franchisees		2,269			2,633
Prepaid expenses		24,162			18,485
Other current assets		1,904			1,338
	$	42,219		$	37,529

4.         Property, Fixtures and Equipment, Net

Property, fixtures and equipment consisted of the following (in thousands):

	MARCH 31,			DECEMBER 31,
	2004			2003
	(UNAUDITED)
Land	$	172,162		$	170,815
Buildings & building improvements		553,784			516,081
Furniture & fixtures		159,354			145,151
Equipment		378,372			347,560
Leasehold improvements		270,924			259,914
Construction in progress		35,478			38,548
Accumulated depreciation		(465,238	)		(428,523	)
	$	1,104,836		$	1,049,546

5.         Goodwill

The change in the carrying amount of goodwill for the three months ended March 31, 2004 is as follows (in thousands):

December 31, 2003	$	86,745
Acquisitions (see Note 11 of Notes to Unaudited Consolidated Financial Statements)		4,722
March 31, 2004	$	91,467

7

Table of Contents

OUTBACK STEAKHOUSE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)

6.         Other Assets

Other assets consisted of the following (in thousands):

	MARCH 31,			DECEMBER 31,
	2004			2003
	(UNAUDITED)
Other assets	$	54,143		$	51,389
Liquor licenses, net of accumulated amortization of $3,781 and $3,617, respectively		9,848			9,619
Deferred license fee, net of valuation provision of approximately $2,250 and $2,000
at March 31, 2004 and December 31, 2003		12,750			13,000
	$	76,741		$	74,008

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.  The Company has deferred recognition of a gain of $1,189,000 associated with the transaction until such time as the fees due under the licensing agreement are realized.  (See Note 9 of Notes to Unaudited Consolidated Financial Statements.)

Other assets includes approximately $16,245,000 as of March 31, 2004 and December 31, 2003, in loans to the Company’s operating partners in the Outback/Fleming’s, LLC (the “LLC”, which is a consolidated entity) for its partners’ share of capital to build new restaurants required beyond the initial capital contributed by the Company pursuant to the LLC agreement. The Company expects to continue to make advances to its operating partners for the construction of new restaurants, and the assets of the LLC will continue to collateralize these advances.  The Company periodically assesses the loan balance for impairment, which is generally measured by expected future cash flows of the restaurant system as compared to the partners’ interest in the LLC. The Company has a 51% ownership interest in the LLC, and is subject to a purchase or sale option after the twentieth restaurant is opened, which may require the Company to purchase an additional 40% in the LLC at a market value as determined by the terms of the LLC agreement.  The twentieth restaurant is scheduled to open in the second half of 2004.

In February 2004, the Company acquired the future royalty payments of one of the cofounders of Bonefish Grill in accordance with the terms of the Bonefish agreements, as the founder was killed in a boating accident in January 2004.  The Company paid approximately $978,000 for the royalty interest, which is now included in other assets in the Unaudited Consolidated Balance Sheet.

7.         Accrued Expenses

Accrued expenses consisted of the following (in thousands):

	MARCH 31,			DECEMBER 31,
	2004			2003
	(UNAUDITED)
Accrued payroll and other compensation	$	32,344		$	30,103
Accrued insurance		20,570			18,669
Accrued property taxes		8,873			8,985
Other accrued expenses		32,422			24,608
	$	94,209		$	82,365

During 2003, the Company recorded a provision for impaired assets and restaurant closings of approximately $5,319,000, which included approximately $1,200,000 for one Outback Steakhouse restaurant closing in Puerto Rico, and approximately $1,944,000 for one Fleming's Prime Steakhouse and Wine Bar closing in Dallas.  The remainder of the provision was for the reduction in carrying value of five Outback Steakhouses.  The restaurant closing provision primarily consisted of the write down of the Dallas building and write off of leasehold improvements and furniture and fixtures as well as expenses to terminate the Puerto Rico restaurant’s property lease.  Remaining accrued restaurant closing expenses of approximately $231,000 and $307,000 were included in other accrued expenses as of March 31, 2004 and December 31, 2003, respectively, related to the restaurant closing provision.

8

Table of Contents

OUTBACK STEAKHOUSE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)

8.         Long-term Debt

Long-term debt consisted of the following (in thousands):

		MARCH 31,			DECEMBER 31,
		2004			2003
		(UNAUDITED)
Revolving lines of credit, interest at 1.83% at March 31, 2004 and
	December 31, 2003	$	10,000		$	10,000
Outback Korea notes payable, interest rates ranging from 5.90% to 7.00% at
	March 31, 2004 and 5.60% to 6.00% at December 31, 2003		24,169			21,130
Outback Japan notes payable, uncollateralized, interest rates ranging from
	0.76% to 1.88% at March 31, 2004 and 0.68% to 1.88% at December 31, 2003		11,072			16,249
Outback Japan revolving lines of credit, interest rates ranging from 0.76% to 0.77% at
	March 31, 2004 and 0.77% at December 31, 2003, respectively		10,992			5,648
Other notes payable, uncollateralized, interest rates ranging
	from 2.07% to 7.00% at March 31, 2004 and
	2.40% to 7.00% at December 31, 2003		6,107			5,424
Guaranteed debt of franchisee			28,743			-
			91,083			58,451
Less current portion			48,040			48,901
Less current guaranteed debt of franchisee			28,743			-
Long-term debtof Outback Steakhouse, Inc.		$	14,300		$	9,550

LONG-TERM DEBT

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) (ranging from 1.09% to 1.16% at March 31, 2004 and ranging from 1.12% to 1.22% at December 31, 2003).  At March 31, 2004 and December 31, 2003, the unused portion of the revolving line of credit was $115,000,000. The credit agreement matures in December 2004.  Subsequent to March 31, 2004, the Company replaced this line of credit with a new facility, and therefore classified the $10,000,000 owed as long-term debt in the Consolidated Balance Sheet.  (See Note 15 of Notes to Unaudited Consolidated Financial Statements).

The revolving line of credit contains certain restrictions and conditions as defined in the agreement which require the Company to maintain net worth of $618,500,000 as of March 31, 2004, a fixed charge coverage at a minimum of 3.5 to 1.0, and a maximum total debt to EBITDA ratio of 2.0 to 1.0. At March 31, 2004, the Company was in compliance with all of the above debt covenants.

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 $11,882,000 and $8,942,000 of the line of credit was committed for the issuance of letters of credit at March 31, 2004 and December 31, 2003, respectively, as required by insurance companies that underwrite the Company’s workers’ compensation insurance and also where required for construction of new restaurants.  The remaining $3,118,000 at March 31, 2004 is available to the Company.  Subsequent to March 31, 2004, the Company replaced this line of credit with a new facility.  (See Note 15 of Notes to Unaudited Consolidated Financial Statements).

As of March 31, 2004, the Company had approximately $6,107,000 of notes payable at interest rates ranging from 2.07% to 7.00%, which mature through 2009.  These notes have been primarily issued for buyouts of general manager interests in the cash flows of their restaurants and generally are payable over five years.

9

Table of Contents

OUTBACK STEAKHOUSE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)

8.         Long-term Debt (continued)

The Company has notes payable with banks bearing interest at rates ranging from 5.90% to 6.00% to finance development of the Company’s restaurants in Korea.  The notes are denominated and payable in Korean won and mature at dates ranging from August 2004 to March 2005. As of March 31, 2004 and December 31, 2003, the outstanding balance was approximately $24,169,000 and $21,130,000, respectively.  Certain of the notes payable are collateralized by lease and other deposits. At March 31, 2004 and December 31, 2003, collateralized notes totaled approximately $20,865,000 and $16,490,000, respectively.

In April 2003, the Company obtained a controlling interest in its franchised restaurants in Japan (“Outback Japan”). As a result, upon closing of the transaction the Company became directly liable for notes outstanding that it had previously guaranteed. The notes are payable to banks, collateralized by lease deposits of approximately $3,300,000 and letters of credit and bear interest at rates ranging from 0.76% to 1.88%. The notes are denominated and payable in Japanese yen, with outstanding balances maturing at dates ranging from April through September 2004. As of March 31, 2004 and December 31, 2003, outstanding balances totaled approximately $11,072,000 and $16,249,000, respectively.

In October 2003, Outback Japan established a revolving line of credit to finance the development of new restaurants in Japan and refinance certain notes payable.  The line permits borrowing up to a maximum of $10,000,000 with interest at 70.0, 82.5 or 107.5 basis points over LIBOR. The line matures in December 2004. As of March 31, 2004 and December 31, 2003, the Company had borrowed approximately $9,790,000 and $5,648,000, respectively, on the line of credit at an interest rate of 0.77%, maturing in June and August 2004.  The revolving line of credit contains certain restrictions and conditions as defined in the agreement.  As of March 31, 2004, the Company was in compliance with all of the debt covenants.  Subsequent to March 31, 2004, Outback Japan amended this line of credit.  (See Note 15 of Notes to Unaudited Consolidated Financial Statements.)

In February 2004, Outback Japan established an additional revolving line of credit to finance the development of new restaurants in Japan and refinance certain notes payable.  The line permits borrowing up to a maximum of $10,000,000 with interest of LIBOR divided by a percentage equal to 1.00 minus the Eurocurrency Reserve Percentage. The line matures in December 2006. As of March 31, 2004, the Company had borrowed approximately $1,202,000 on the line of credit at an interest rate of 0.77%, maturing in September 2004.  The revolving line of credit contains certain restrictions and conditions as defined in the agreement.  As of March 31, 2004, the Company was in compliance with all of the debt covenants.

The Company is the guarantor of an uncollateralized line of credit that permits borrowing of up to $35,000,000, maturing in December 2004, for a limited liability company owned by its California franchisee.  The Company was required to consolidate the entity holding this debt (“T-Bird”) effective January 1, 2004 upon adoption of a new accounting standard (see Note 13 of Notes to Unaudited Consolidated Financial Statements).  At March 31, 2004, the outstanding balance on the line of credit was $28,743,000 and is included in the Company’s Consolidated Balance Sheet.  The Company also guarantees additional term loans associated with the owner of T-Bird, which are not consolidated, and which had outstanding balances of approximately $352,000 as of March 31, 2004.  As of December 31, 2003, the outstanding balance was approximately $28,583,000, and was disclosed as a guarantee, but was not consolidated in the Company’s financial statements.  The line of credit bears interest at rates ranging from 57.5 to 95.0 basis points over LIBOR based on T-Bird’s ratio of consolidated debt to EBITDA, as defined by the line of credit agreement. 

10

Table of Contents

OUTBACK STEAKHOUSE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)

8.         Long-term Debt (continued)

DEBT GUARANTEES

In November 2002, the FASB issued Interpretation No. 45 (“FIN 45”), “Guarantor’s Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others.”  FIN 45 requires that upon the issuance of a guarantee, the guarantor must recognize the liability for the fair value of the obligation it assumes under the guarantee.  FIN 45 provides that initial recognition and measurement should be applied on a prospective basis to guarantees issued or modified after December 31, 2002, irrespective of the guarantor’s fiscal year end.  The disclosure requirements are effective for financial statements of both interim and annual periods that end after December 15, 2002.  The Company has complied with the disclosure requirements and did not have any modifications of outstanding guarantees subsequent to December 31, 2002 through March 31, 2004.  The Company has the following outstanding debt guarantees, all of which existed prior to December 31, 2002, that could require recognition in the Consolidated Financial Statements if future modifications occur or upon renewal of the guarantee.

The Company is the guarantor of an uncollateralized line of credit that permits borrowing of up to a maximum of $24,500,000, maturing in December 2004, for its joint venture partner in the development of Roy’s restaurants. At March 31, 2004 and December 31, 2003, the outstanding balance was approximately $21,541,000 and $21,435,000, respectively.

The Company is the guarantor of up to $9,445,000 of a $68,000,000 note for an unconsolidated affiliate, Kentucky Speedway, in which the Company has a 22.22% equity interest and for which the Company operates catering and concession facilities. Payments on this note began in December 2003 with final maturity December 2022. At March 31, 2004 and December 31, 2003, the outstanding balance and our guarantee on the note were approximately $66,550,000 and $9,244,000, respectively.

The Company’s contractual unconsolidated debt guarantees as of March 31, 2004 are summarized in the table below (in thousands):

				CURRENT			LONG-TERM
	TOTAL			PORTION			PORTION
Debtguarantees	$	33,744		$	24,715		$	9,029
Amount outstanding under debt guarantees	$	30,785		$	21,756		$	9,029

9.         Other Long-term Liabilities

Other long-term liabilities consisted of the following (in thousands):

	MARCH 31,			DECEMBER 31,
	2004			2003
	(UNAUDITED)
Accrued insurance	$	4,000		$	4,000
Other deferred liability		1,189			1,189
	$	5,189		$	5,189

11

Table of Contents

OUTBACK STEAKHOUSE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)

10.        Foreign Currency Translation and Comprehensive Income

For all significant non-U.S. operations, the functional currency is the local currency.  Assets and liabilities of those operations are translated into U.S. dollars using the exchange rates in effect at the balance sheet date.  Results of operations are translated using the average exchange rates for the reporting period.  Translation gains and losses are reported as a separate component of accumulated other comprehensive income (loss) in stockholders’ equity. 

Comprehensive income includes net income and foreign currency translation adjustments.  Total comprehensive income for the three months ended March 31, 2004 was $48,269,000, which included the effect of losses from translation adjustments of approximately $62,000 during the quarter.

11.        Business Combinations

On March 1, 2004, the Company acquired the 36% minority ownership interests of its partners in nine Carrabba's restaurants in Texas for approximately $3,738,000 in cash.  No minority interest for these stores has been reflected in the consolidated financial statements since that date.  The Company recorded goodwill of approximately $4,722,000 associated with this transaction, all of which is expected to be deductible for income tax purposes.

12.        Earnings Per Share

The following table represents the computation of basic and diluted earnings per common share as required by SFAS No. 128 “Earnings Per Share” (in thousands, except per share data):

	THREE MONTHS ENDED
	MARCH 31,
	2004			2003
Net income	$	48,331		$	42,575
Basic weighted average number of common shares outstanding		74,487			75,755
Basic earnings per common share	$	0.65		$	0.56
Effect of dilutive stock options		4,012			2,460
Diluted weighted average number of common shares outstanding		78,499			78,215
Diluted earnings per common share	$	0.62		$	0.54

Diluted earnings per common share excludes antidilutive stock options of approximately 2,354,000 for the first quarter of 2003.  There were no antidilutive options for the first quarter of 2004.

13.        Recently Issued Financial Accounting Standards

“Consolidation of Variable Interest Entities”

In January 2003, the FASB issued Interpretation No. 46 (“FIN 46”), “Consolidation of Variable Interest Entities.”  This interpretation of Accounting Research Bulletin 51, “Consolidated Financial Statements,” addresses consolidation by business enterprises of variable interest entities in which an enterprise absorbs a majority of the entity’s expected losses, receives a majority of the entity’s expected residual returns, or both, as a result of ownership, contractual or other financial interests in the entity.  The interpretation requires that if a business enterprise has a controlling financial interest in a variable interest entity, the assets, liabilities, and results of the activities of the variable interest entity must be included in the consolidated financial statements with those of the business enterprise. 

This interpretation applies immediately to variable interest entities created after January 31, 2003 and to variable interest entities in which an enterprise obtains an interest after that date.  FIN 46 initially applied to preexisting variable interest entities no later than the beginning of the first interim reporting period beginning after June 15, 2003.  However, the implementation deadline was delayed by the FASB to periods ending after March 15, 2004 and the FASB issued a revised “FIN 46R” in December 2003.  The Company adopted FIN 46R effective January 1, 2004 and is an investor in several variable interest entities as discussed below.

12

Table of Contents

OUTBACK STEAKHOUSE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)

13.        Recently Issued Financial Accounting Standards (continued)

“Consolidation of Variable Interest Entities” (continued)

The Company’s joint ventures in the Outback/Fleming’s LLC (the “LLC”) and the Roy’s/Outback Joint Venture (the “Roy’s JV”) have historically been consolidated by the Company.  These ventures are considered variable interest entities under the provisions of FIN 46, and the Company has continued consolidating them upon adoption of that interpretation.  The LLC and the Roy’s JV restaurant systems consist of approximately 17 and 13 restaurants, respectively, as of March 31, 2004. 

The Company has ownership interests in 33 individual joint ventures that were previously reported by the Company as unconsolidated development joint ventures.  As of January 1, 2004, the Company consolidated those joint ventures, which consist of 29 Carrabba's Italian Grills, two Outback Steakhouses, one Roy’s and one Bonefish Grill, as it is the primary beneficiary of those entities.  The Company has ownership interests in 11 individual 50/50 joint ventures that remained unconsolidated upon adoption of FIN 46, as the Company was not deemed the primary beneficiary.

The Company has a minority investment in an unconsolidated affiliate in which it has a 22.22% equity interest and for which it operates catering and concession facilities.  Additionally, the Company guarantees a portion of the affiliate’s debt (see Note 8 of Notes to Unaudited Consolidated Financial Statements).  Although the Company holds an interest in this variable interest entity, it is currently believed that the Company is not the primary beneficiary of this entity and therefore it was not consolidated upon adoption of FIN 46.

The Company is a franchisor of 144 restaurants as of March 31, 2004, but does not possess any ownership interests in its franchisees and generally does not provide financial support to franchisees in its typical franchise relationship.  These franchise relationships were not deemed variable interest entities and were not consolidated upon adoption of FIN 46.  However, the Company guarantees an uncollateralized line of credit that permits borrowing of up to $35,000,000, maturing in December 2004, for one of its franchisees (see Note 8 of Notes to Unaudited Consolidated Financial Statements).  The limited liability company that holds this line of credit was deemed to be a variable interest entity and was consolidated by the Company effective January 1, 2004.  This entity draws on its line of credit to loan funds to corporations in California to purchase and/or build land and buildings for lease to individual Outback Steakhouse franchisee partnerships.  Therefore, it holds as collateral the notes receivable and underlying assets from these corporations in offsetting amounts to the debt owed to the bank, which are both now included in the Company’s Consolidated Balance Sheet and Statement of Income as of and for the quarter ended March 31, 2004.

The following table reflects the approximate effect of consolidation of the above entities on the Company’s Unaudited Consolidated Statement of Income and Balance Sheet as of and through the period ended March 31, 2004 (in thousands):

Revenues				$	23,843
Income from operations of unconsolidated affiliates					(1,000	)
Elimination of minority partners’ interest					1,050
Net income					-
Basic and diluted earnings per common share					-
Current assets					2,845
Property, fixtures and equipment, net					25,206
Current liabilities					5,858
Interest of minority partners in consolidated partnerships					6,148

13

Table of Contents

OUTBACK STEAKHOUSE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)

14.  Commitments and Contingencies

In June 2003, in a civil case against the Company in Indiana state court alleging liability under the "dram shop" liquor liability statute, a jury returned a verdict in favor of the two plaintiffs who were injured by a drunk driver.  The portion of the verdict against the Company was $39,000,000.  The Company intends to appeal the decision and believes it has valid grounds for appeal.  The Company has insurance coverage related to this case provided by its primary carrier for $21,000,000 and by an excess insurance carrier for the balance of the verdict of approximately $19,000,000.  During the quarter ended September 30, 2003, the excess insurance carrier filed a declaratory judgment suit claiming it was not notified of the case and is therefore not liable for its portion of the verdict.  The Company does not believe the excess carrier’s case has any merit and the Company intends to vigorously defend the case.  If the excess carrier’s suit were to succeed, the Company believes it would have rights against the primary carrier and its third party administrator to recover any amounts the Company may have to pay.

In January 2004, one of the cofounders of Bonefish Grill was killed in a boating accident.  Under the terms of the Bonefish agreements, the Company will purchase the ownership interest of this founder in the Bonefish partnership.  The purchase price of the ownership interest will be assessed at the fair market value of actual restaurants open and in operation at the time of purchase, estimated to be approximately $9,000,000.

15.        Subsequent Events

On April 21, 2004, the Board of Directors declared a quarterly dividend of $0.13 per share of the Company’s common stock. The dividend is payable June 4, 2004 to shareholders of record as of May 21, 2004.

During the quarter ended 2004, the Board of Directors approved an amendment and restatement (the “Amendment”) of the Company’s Amended and Restated Stock Option Plan (the “Plan”) to allow for the grant of shares of restricted common stock under the Plan and to increase the number of shares for which options and shares of restricted common stock may be granted under the Plan by 1,000,000, or from 22,500,000 to 23,500,000.  This amendment was approved by vote of the shareholders of the Company on April 21, 2004.

Effective April 27, 2004, the Company replaced a $125,000,000 revolving credit facility that was scheduled to mature in December 2004, with a new uncollateralized three-year $150,000,000 revolving bank credit facility that matures in June 2007.  The revolving line of credit permits borrowing at interest rates ranging from 50 to 90 basis points over the 30, 60, 90 or 180 day London Interbank Offered Rate (LIBOR).  The credit agreement contains certain restrictions and conditions as defined in the agreement that require the Company to maintain consolidated net worth equal to or greater than consolidated total debt and a maximum total consolidated debt to EBITDAR (earnings before interest, taxes, depreciation, amortization and rent) ratio of 3.0 to 1.0.

The Company also replaced a $15,000,000 line of credit that was scheduled to mature in December 2004, with a new $20,000,000 uncollateralized line of credit.  The new line of credit matures in June 2007 and permits borrowing at interest rates ranging from 50 to 90 basis points over LIBOR for loan draws and 65 to 112.5 basis points over LIBOR for letters of credit.  The credit agreement contains certain restrictions and conditions as defined in the agreement.

Effective April 27, 2004, Outback Japan amended its $10,000,000 revolving credit facility that was scheduled to mature in December 2004, with a new maturity date in June 2007.   Additionally, the revolving line of credit now permits borrowing at interest rates ranging from 70 to 107.5 basis points over LIBOR.  The credit agreement amendment contains certain restrictions and conditions as defined in the agreement.

14

Table of Contents

OUTBACK STEAKHOUSE, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS

ITEM 2.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS 

Management’s discussion and analysis of financial condition and results of operations should be read in conjunction with the Unaudited Consolidated Financial Statements and the related Notes.

Overview

We are one of the largest casual dining restaurant companies in the world, with seven restaurant concepts, over 1,000 system-wide restaurants and 2003 annual revenues for Company-owned stores exceeding $2.7 billion.  We operate in all 50 states and in 21 countries internationally, predominantly through Company-owned stores, but we also operate under a variety of partnerships and franchises.  Our primary focus as a company of restaurants is to provide a quality product together with quality service across all of our brands.  This goal entails offering consumers of different demographic backgrounds an array of dining alternatives suited for differing needs.  Our sales are primarily generated through a diverse customer base, which includes people eating in our restaurants as regular users who return for meals several times a week or on special occasions such as birthday parties, private events, and for business entertainment.  Secondarily, we generate revenues through sale of franchises and ongoing royalties as well as the sale and redemption of gift certificates.

The restaurant industry is a highly competitive and fragmented business, which is subject to sensitivity from changes in the economy, trends in lifestyles and fluctuating costs.  Operating margins for restaurants are susceptible to fluctuations in prices of commodities, which include among other things, beef, chicken, seafood, butter, cheese, produce and other necessities to operate a store such as natural gas or other energy supplies.  Additionally, the restaurant industry is characterized by a high initial capital investment, coupled with high labor costs.  The combination of these factors underscores our initiatives to drive increased sales at existing stores in order to raise margins and profits, because the incremental sales contribution to profits from every additional dollar of sales above the minimum costs required to open, staff and operate a store is very high.  We are not a company focused on growth in the number of restaurants just to generate additional sales.  Our expansion and operation strategies are to balance investment costs and the economic factors of operation, in order to generate reasonable, sustainable margins and achieve acceptable returns on investment from our restaurant concepts.

Promotion of our Outback Steakhouse and Carrabba's Italian Grill restaurants is assisted by the use of national broadcast and spot television and radio media, which we have also begun to use for our Bonefish Grill brand.  We advertise on television in spot markets when our brands achieve sufficient penetration to make a meaningful broadcast schedule affordable.  We rely on word-of-mouth customer experience, grassroots marketing in local venues, direct mail and national print media to support broadcast media and as the primary campaigns for our upscale casual and newer brands.  We do not run price specials or attempt to lure customers with discounts, as is common to many restaurants in the casual dining industry.  Our advertising dollars are targeted to promote and maintain brand image and develop consumer awareness. We strive to drive sales through excellence in execution rather than through discounting and other short-lived marketing efforts.  Our marketing strategy of getting people to visit frequently and also recommend our restaurants to others complements what we believe are the fundamental elements of success: convenient sites, service-oriented employees, and flawless execution in a well-managed restaurant. 

Key factors which can be used in evaluating and understanding our restaurants and assessing our business include the following:

–          Average unit volumes – a per store calculated average sales amount, which helps us gauge the changes in consumer traffic, pricing and development of the brand;

–          Operating margins –store revenues after deduction of the main store-level operating costs (including cost of sales, restaurant operating expenses, and labor and related costs);

–          System-wide sales – a total sales volume for all company-owned, franchise, and unconsolidated joint venture stores, regardless of ownership to interpret the health of our brands; and

–          Same-store or comparable sales – a year-over-year comparison of sales volumes for stores that are open in both years order to remove the impact of new openings in comparing the operations of existing stores.

15

Table of Contents

OUTBACK STEAKHOUSE, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Overview (continued)

Our consolidated operating results are affected by the growth of our newer brands.  As we continue to develop and expand new restaurant concepts at different rates, our cost of sales, labor costs, restaurant operating expenses, and income from operations change from the mix of brands in our portfolio with slightly different operating characteristics.  Labor and related expenses are higher at our new format stores than have typically been experienced at Outback Steakhouses.  However, cost of sales at those stores is lower than those at Outback.  These trends are expected to continue with our planned development of stores in 2004.

Our industry’s challenges and risks include, but are not limited to, the potential for government regulation, the availability of employees, consumer perceptions regarding food safety and/or the health benefits of certain types of food, including attitudes about alcohol consumption, economic conditions and commodity pricing.  We have provided information in our Outlook section that outlines our current beliefs regarding the anticipated changes to our operations resulting from increased beef prices and other commodity costs, continued preopening expenses from the development of new restaurants and our expansion strategy, among other factors that may affect our results in 2004. 

Results of Operations (unaudited)

The following tables set forth, for the periods indicated, (i) the percentages that the items in our Unaudited Consolidated Statements of Income bear to total revenues or restaurant sales, as indicated, and (ii) selected operating data:

16

Table of Contents

OUTBACK STEAKHOUSE, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Results of Operations (unaudited) (continued)

System-wide sales grew by 16.8% for the quarter ended March 31, 2004.  System-wide sales is a non-GAAP financial measure that includes sales of all restaurants operating under our brand names, whether we own them or not.  The two components of system-wide sales, including those of Outback Steakhouse, Inc. and those of franchisees and unconsolidated development joint ventures, is provided below:

		THREE MONTHS ENDED
		MARCH 31,
		2004			2003
OUTBACK STEAKHOUSE, INC. RESTAURANT SALES (in millions):
Outback Steakhouses
	Domestic	$	575		$	505
	International		35			21
	Total		610			526
Carrabba's Italian Grills			122			76
Other restaurants			80			45
Total Company-owned restaurant sales		$	812		$	647

The following information presents sales for the franchised and unconsolidated development joint venture restaurants.  These are restaurants that are not owned by us and from which we only receive a franchise royalty or a portion of their total income.  Management believes that franchise and unconsolidated development joint venture sales information is useful in analyzing our revenues because franchisees and affiliates pay service fees and/or royalties that generally are based on a percent of sales.  Management also uses this information to make decisions about future plans for the development of additional restaurants and new concepts as well as evaluation of current operations.

These sales do not represent sales of Outback Steakhouse, Inc., and are presented only as an indicator of the changes in the restaurant system, which we believe is important information regarding the health of our restaurant brands.

		THREE MONTHS ENDED
		MARCH 31,
		2004			2003
FRANCHISE AND DEVELOPMENT JOINT VENTURE SALES (in millions) (1):
Outback Steakhouses
	Domestic (3)	$	88		$	96
	International		23			24
	Total		111			120
Carrabba's Italian Grills (3)			-			22
Other restaurants (3)			3			4
Total franchise and development joint venture sales (1)		$	114		$	146
Income from franchise and development joint ventures (2) (3)		$	4		$	6
____________
(1)  Franchise and development joint venture sales are not included in Company revenues as reported in our Unaudited Consolidated
	Statements of Income.
(2)  Represents the franchise royalty and portion of total income included in our Unaudited Consolidated Statements of Income in the
	line items Other revenues or Income from operations of unconsolidated affiliates.
(3)  Two Outback Steakhouses, 29 Carrabba's Italian Grills, one Bonefish Grill and one Roy's are now included in Company-owned stores
	as a result of adoption of FIN 46.  Additionally, the 36% minority ownership interests of our partners in nine of the newly
	consolidated Carrabba's were acquired in March 2004.

17

Table of Contents

OUTBACK STEAKHOUSE, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Results of Operations (unaudited) (continued)

		MARCH 31,
		2004			2003
Number of restaurants (at end of the period):
Outback Steakhouses
	Company owned- domestic	629	(1)		589
	Company owned - international	57			33
	Franchised and development joint venture– domestic	100	(1)		118
	Franchised and development joint venture- international	51			55
	Total	837			795
Carrabba's Italian Grills
	Company owned	154	(1)		98
	Development joint venture	-	(1)		29
	Total	154			127
Bonefish Grills
	Company owned	38	(1)		15
	Franchised and development joint venture	4	(1)		4
	Total	42			19
Fleming’s Prime Steakhouse and Wine Bars
	Company owned	22			18
Roy’s
	Company owned	18	(1)		15
	Franchised and development joint venture	-	(1)		2
	Total	18			17
Lee Roy Selmon’s
	Company owned	2			1
Cheeseburger in Paradise
	Company owned	4			1
System-wide total		1,079			978
____________
(1)  Two Outback Steakhouses, 29 Carrabba's Italian Grills, one Bonefish Grill and one Roy's are now included in Company-owned stores
	as a result of adoption of FIN 46.  Additionally, the 36% minority ownership interests of our partners in nine of the newly
	consolidated Carrabba's were acquired in March 2004.

18