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 September 30, 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 November 1, 2004, the registrant had outstanding 73,764,854 shares of Common Stock, $0.01 par value.

OUTBACK STEAKHOUSE, INC.

QUARTERLY REPORT ON FORM 10‑Q
For the Quarterly Period Ended September 30, 2004

INDEX

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PART I:  FINANCIAL INFORMATION

Item 1.  CONSOLIDATED FINANCIAL STATEMENTS

OUTBACK STEAKHOUSE, INC.
CONSOLIDATED BALANCE SHEETS
(in thousands)

				SEPTEMBER 30,
				2004			DECEMBER 31,
				(UNAUDITED)			2003
ASSETS
Current Assets
	Cash and cash equivalents			$	65,654		$	102,892
	Short-term investments				8,535			20,824
	Inventories				49,492			59,608
	Deferred income tax asset				14,549			11,757
	Other current assets				47,385			37,529
		Total current assets			185,615			232,610
Property, fixtures and equipment, net					1,169,997			1,049,546
Investments in and advances to unconsolidated affiliates, net					17,013			31,878
Goodwill					109,318			86,745
Intangible assets					9,783			-
Other assets					105,531			74,008
Notes receivable collateral for franchisee guarantee					29,189			-
				$	1,626,446		$	1,474,787
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
	Accounts payable			$	70,965		$	58,533
	Sales taxes payable				22,835			21,402
	Accrued expenses				100,118			82,365
	Unearned revenue				18,557			82,670
	Income taxes payable				12,938			2,358
	Current portion of long-term debt				51,545			48,901
	Guaranteed debt of franchisee				29,293			-
		Total current liabilities			306,251			296,229
Partner deposit and accrued buyout liability					74,238			63,045
Deferred income tax liability					10,780			14,482
Long-term debt					99,342			9,550
Other long-term liabilities					5,189			5,189
	Total liabilities				495,800			388,495
Commitments and contingencies
Interest of minority partners in consolidated partnerships					48,261			60,022
Stockholders' Equity
	Common stock, $0.01 par value, 200,000 shares authorized; 78,750 and
		78,750 shares issued; 73,795 and 74,279 shares outstanding as of
		September 30, 2004 and December 31, 2003, respectively			788			788
	Additional paid-in capital				269,183			254,852
	Retained earnings				1,019,615			934,516
	Accumulated other comprehensive loss				(2,496	)		(2,078	)
					1,287,090			1,188,078
	Less treasury stock, 4,955 and 4,471 shares at September 30, 2004
		and December 31, 2003, respectively, at cost			(204,705	)		(161,808	)
	Total stockholders’ equity				1,082,385			1,026,270
				$	1,626,446		$	1,474,787

See notes to unaudited consolidated financial statements.

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

				THREE MONTHS ENDED						NINE MONTHS ENDED
				SEPTEMBER 30,						SEPTEMBER 30,
				2004			2003			2004			2003
Revenues
	Restaurant sales			$	798,618		$	680,919		$	2,433,075		$	2,011,716
	Other revenues				4,924			4,420			14,920			14,562
		Total revenues			803,542			685,339			2,447,995			2,026,278
Costs and expenses
	Cost of sales				293,666			247,646			888,132			728,833
	Labor & other related				200,822			167,563			602,731			494,714
	Other restaurant operating				178,607			145,040			523,449			422,687
	Distribution expense to employee partners, excluding stock expense				17,867			14,224			55,649			45,256
	Employee partner stock buyout expense				1,269			1,266			5,666			3,956
	Depreciation and amortization				26,828			21,755			76,150			62,266
	General & administrative				34,181			26,985			95,836			74,463
	Hurricane property and inventory losses				3,024			-			3,024			-
	Provision for impaired assets and restaurant closings				2,394			5,319			2,394			5,319
	Income from operations of unconsolidated affiliates				(407	)		(1,543	)		(1,067	)		(4,482	)
		Total costs and expenses			758,251			628,255			2,251,964			1,833,012
Income from operations					45,291			57,084			196,031			193,266
Other income (expense), net					(370	)		(191	)		(1,459	)		(781	)
Interest income					337			192			947			1,165
Interest expense					(1,009	)		(487	)		(2,408	)		(1,264	)
Income before elimination of minority partners'
	interest and income taxes				44,249			56,598			193,111			192,386
Elimination of minority partners' interest					951			(247	)		8,266			1,865
Income before provision for income taxes					43,298			56,845			184,845			190,521
Provision for income taxes					15,024			19,254			64,141			65,653
Net income				$	28,274		$	37,591		$	120,704		$	124,868
Basic earnings per common share				$	0.38		$	0.50		$	1.63		$	1.66
Basic weighted average number of shares outstanding					73,896			75,099			74,223			75,415
Diluted earnings per common share				$	0.37		$	0.48		$	1.55		$	1.59
Diluted weighted average number of shares outstanding					76,869			78,354			77,782			78,333
Cash dividends per common share				$	0.13		$	0.12		$	0.39		$	0.36

See notes to unaudited consolidated financial statements.

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

				NINE MONTHS ENDED SEPTEMBER 30,
				2004			2003
Cash flows from operating activities:
Net income				$	120,704		$	124,868
Adjustments to reconcile net income to cash provided by operating activities:
	Depreciation and amortization				76,150			62,266
	Provision for impaired assets and restaurant closings and hurricane losses				5,418			5,319
	Employee partner stock buyout expense				5,666			3,956
	Minority partners’ interest in consolidated partnerships’ income				8,266			1,865
	Income from operations of unconsolidated affiliates				(1,067	)		(4,482	)
	Decrease in deferred income taxes				(6,494	)		(5,476	)
	Loss on disposal of property, fixtures and equipment				2,990			2,746
	Change in assets and liabilities, net of effects of acquisitions and FIN 46 consolidations:
		Decrease (increase) in inventories			11,183			(18,314	)
		Increase in other current assets			(9,158	)		(1,920	)
		(Increase) decrease in other assets			(7,494	)		4,603
		Increase in accounts payable, sales taxes payable and accrued expenses			27,383			10,771
		Increase (decrease) in partner deposit and accrued buyout liability			6,459			(1,176	)
		Decrease in unearned revenue			(65,701	)		(55,667	)
		Increase (decrease) in income taxes payable			24,911			(1,662	)
		Decrease in other long-term liabilities			-			(1,000	)
			Net cash provided by operating activities		199,216			126,697
Cash flows used in investing activities:
	Purchase of investment securities				(60,125	)		(27,907	)
	Maturities and sales of investment securities				72,414			27,747
	Cash paid for acquisitions of businesses, net of cash acquired				(28,066	)		(47,677	)
	Cash paid for designation rights				(42,500	)		-
	Capital expenditures				(181,141	)		(135,379	)
	Proceeds from the sale of property, fixtures and equipment				2,426			2,273
	Increase in cash from adoption of FIN 46				1,080			-
	Payments from unconsolidated affiliates				235			11,143
	Distributions to unconsolidated affiliates				(121	)		(2,649	)
	Investments in and advances to unconsolidated affiliates				(800	)		(1,345	)
			Net cash used in investing activities		(236,598	)		(173,794	)
Cash flows from financing activities:
	Proceeds from issuance of long-term debt				123,449			22,868
	Proceeds from minority partners' contributions				3,042			7,571
	Distributions to minority partners				(12,144	)		(3,223	)
	Repayments of long-term debt				(31,013	)		(642	)
	Dividends paid				(28,925	)		(27,153	)
	Payments for purchase of treasury stock				(84,955	)		(93,746	)
	Proceeds from reissuance of treasury stock				30,690			27,986
			Net cash provided by (used in) financing activities		144			(66,339	)
Net decrease in cash and cash equivalents					(37,238	)		(113,436	)
Cash and cash equivalents at the beginning of the period					102,892			187,578
Cash and cash equivalents at the end of the period				$	65,654		$	74,142
Supplemental disclosures of cash flow information:
	Cash paid for interest			$	2,055		$	1,375
	Cash paid for income taxes			$	48,507		$	67,131
Supplemental disclosures of non-cash items:
	Purchase of minority and employee partners' interests in cash flows of their restaurants			$	932		$	8,402
	Assets received for note			$	-		$	5,569

See notes to unaudited consolidated financial statements.

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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 (the “SEC”). 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 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” (in thousands, except per share data):

		THREE MONTHS ENDED							NINE MONTHS ENDED
		SEPTEMBER 30,							SEPTEMBER 30,
		2004			2003				2004			2003
Net income		$	28,274		$	37,591			$	120,704		$	124,868
Stock-based employee compensation expense included in net income,
	net of related taxes		774			791				3,460			2,492
Total stock-based employee compensation expense determined
	under fair value based method, net of related taxes		(4,532	)		(4,089	)			(13,912	)		(12,126	)
Pro forma net income		$	24,516		$	34,293			$	110,252		$	115,234
Earnings per common share:
	Basic	$	0.38		$	0.50			$	1.63		$	1.66
	Basic - pro forma	$	0.33		$	0.46			$	1.49		$	1.53
	Diluted	$	0.37		$	0.48			$	1.55		$	1.59
	Diluted - pro forma	$	0.33		$	0.45			$	1.44		$	1.50

In 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.

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

3.         Other Current Assets

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

	SEPTEMBER 30,			DECEMBER 31,
	2004			2003
	(UNAUDITED)
Deposits	$	2,537		$	2,218
Accounts receivable		17,050			12,855
Accounts receivable - franchisees		1,407			2,633
Prepaid expenses		25,391			18,485
Other current assets		1,000			1,338
	$	47,385		$	37,529

4.         Property, Fixtures and Equipment, Net

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

	SEPTEMBER 30,			DECEMBER 31,
	2004			2003
	(UNAUDITED)
Land	$	178,352		$	170,815
Buildings & building improvements		578,784			516,081
Furniture & fixtures		174,990			145,151
Equipment		408,117			347,560
Leasehold improvements		289,294			259,914
Construction in progress		46,959			38,548
Accumulated depreciation		(506,499	)		(428,523	)
	$	1,169,997		$	1,049,546

5.         Goodwill and Intangible Assets

The change in the carrying amount of goodwill for the nine months ended September 30, 2004 is as follows (in thousands):

December 31, 2003	$	86,745
Acquisitions (see Note 11 of Notes to Unaudited Consolidated Financial Statements)		23,385
Impairment loss (see Note 7 of Notes to Unaudited Consolidated Financial Statements)		(812	)
September 30, 2004	$	109,318

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

5.         Goodwill and Intangible Assets (continued)

Intangible assets consisted of the following (in thousands):

	WEIGHTED AVERAGE			SEPTEMBER 30,			DECEMBER 31,
	AMORTIZATION			2004			2003
	PERIOD (YEARS)			(UNAUDITED)
Trademarks (gross)	15			$	4,000		$	-
Less: accumulated amortization					(67	)		-
Net trademarks					3,933			-
Trade dress (gross)	10				6,000			-
Less: accumulated amortization					(150	)		-
Net trade dress					5,850			-
Intangible assets, less total accumulated amortization of $217	12			$	9,783		$	-

Annual amortization expense related to these intangible assets for the next five years is anticipated to be approximately $870,000.

6.         Other Assets

Other assets consisted of the following (in thousands):

		SEPTEMBER 30,			DECEMBER 31,
		2004			2003
		(UNAUDITED)
Other assets		$	42,819		$	51,389
Designation rights			41,864			-
Liquor licenses, net of accumulated amortization of $4,118 and $3,617 at September 30, 2004
	and December 31, 2003, respectively		9,948			9,619
Deferred license fee, net of valuation provision of approximately $2,750 and $2,000
	at September 30, 2004 and December 31, 2003, respectively		10,900			13,000
		$	105,531		$	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.)

As of December 31, 2003, other assetsincluded approximately $16,245,000 of 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 had a 51% ownership interest in the LLC, and was subject to a purchase or sale option to purchase an additional 39% in the LLC after the twentieth restaurant was opened.  The LLC opened its twentieth restaurant in 2004 and on September 1, 2004, the Company exercised its purchase option.  The loans were satisfied as part of the purchase and were not outstanding as of September 30, 2004 (see Note 11 of Notes to Unaudited Consolidated Financial Statements).

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, upon his death 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.

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

6.         Other Assets (continued)

On August 3, 2004, the Company was approved by the United States Bankruptcy Court for the District of Delaware as the successful bidder at an auction of designation rights for 76 properties of Chi-Chi’s, Inc. and its affiliates. The Company’s objective in acquiring these rights is to have access to restaurant sites for conversion to one of its concepts under its current expansion plans.  The properties include 23 locations with owned land and building, 15 sale-leaseback properties with reversion rights and purchase options, 23 ground leases and 15 leases.  The properties include any real property, furniture, fixtures and equipment and liquor licenses.  The designation rights allow the Company to transfer properties to itself, to transfer properties to others or to require Chi-Chi’s to retain properties.  The right to designate properties will expire one year from the date of closing, which occurred September 20, 2004.  The purchase price for the designation rights was $42,500,000.  The Company is responsible for paying the carrying costs on each of the properties from the closing date until the date the property is designated for transfer. 

The Company has not yet completed the allocation and valuation of the purchase price of the assets acquired, as independent appraisals have not been finalized.  In the fourth quarter, the Company expects to complete the purchase price allocation for the properties it intends to keep and in the future those assets will be included in components of property, fixtures and equipment.

Prior to September 30, 2004, Chi-Chi’s exercised a right to exclude one property from the designation rights listing, for which the Company received a $1,100,000 payment in October 2004.  Additionally, in October 2004, the Company completed an assignment of designation rights on 25 properties (see Note 15 of Notes to Unaudited Consolidated Financial Statements).  Both transactions will reduce the total purchase price for the remaining 50 properties.

7.         Accrued Expenses

Accrued expenses consisted of the following (in thousands):

	SEPTEMBER 30,			DECEMBER 31,
	2004			2003
	(UNAUDITED)
Accrued payroll and other compensation	$	30,804		$	30,103
Accrued insurance		24,045			18,669
Accrued property taxes		13,112			8,985
Accrued rent		5,306			3,350
Other accrued expenses		26,851			21,258
	$	100,118		$	82,365

During the nine months ended September 30, 2004, the Company recorded a provision for impaired assets and restaurant closings of approximately $2,394,000, which included approximately $415,000 for the impairment of two domestic Outback Steakhouse restaurants, $1,893,000 for one Outback Steakhouse restaurant closing in Japan (which includes $812,000 of goodwill written off for this location), and $86,000 for one Carrabba's Italian Grill restaurant closing in Georgia.  Additionally, during August and September 2004, four hurricanes caused losses from property damage and inventory spoilage of approximately $3,024,000, which included $1,300,000 from the destruction of the Outback Steakhouse restaurant in the Cayman Islands.  The Company has decided not to reopen this location.

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 domestic 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 $215,000 and $307,000 were included in other accrued expenses as of September 30, 2004 and December 31, 2003, respectively, related to the restaurant closing provisions.

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

8.         Long-term Debt

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

		SEPTEMBER 30,			DECEMBER 31,
		2004			2003
		(UNAUDITED)
Revolving lines of credit, uncollateralized, interest rates ranging from 1.84% to 2.47%
	at September 30, 2004 and 1.83% at December 31, 2003, respectively	$	95,000		$	10,000
Outback Korea notes payable, interest rates ranging from 5.90% to 7.00% at
	September 30, 2004 and 5.60% to 6.00% at December 31, 2003		26,884			21,130
Outback Japan notes payable, uncollateralized, interest rates ranging from
	0.95% to 1.88% at September 30, 2004 and 0.68% to 1.88% at December 31, 2003		6,493			16,249
Outback Japan revolving lines of credit, interest rates ranging from 0.68% to 0.77% at
	September 30, 2004 and 0.77% at December 31, 2003		15,910			5,648
Other notes payable, uncollateralized, interest rates ranging
	from 2.07% to 7.00% at September 30, 2004 and
	2.40% to 7.00% at December 31, 2003		6,600			5,424
Guaranteed debt of franchisee			29,293			-
			180,180			58,451
Less current portion			51,545			48,901
Less current guaranteed debt of franchisee			29,293			-
Long-term debtof Outback Steakhouse, Inc.		$	99,342		$	9,550

LONG-TERM DEBT

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) (ranging from 1.84% to 2.17% at September 30, 2004 and ranging from 1.12% to 1.22% at December 31, 2003).  At September 30, 2004, the unused portion of the revolving line of credit was $55,000,000. 

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 to maintain a ratio of total consolidated debt to EBITDAR (earnings before interest, taxes, depreciation, amortization and rent) equal to or less than 3.0 to 1.0.  At September 30, 2004, the Company was in compliance with these debt covenants.

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.  Approximately $11,782,000 and $8,942,000 of the line of credit was committed for the issuance of letters of credit at September 30, 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 $8,218,000 at September 30, 2004 is available to the Company. 

As of September 30, 2004, the Company had approximately $6,600,000 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.

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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 7.00% 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 October 2004 to September 2005. As of September 30, 2004 and December 31, 2003, the outstanding balance was approximately $26,884,000 and $21,130,000, respectively.  Certain of the notes payable are collateralized by lease and other deposits. At September 30, 2004 and December 31, 2003, collateralized notes totaled approximately $21,985,000 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 $3,400,000 and letters of credit and bear interest at rates ranging from 0.95% to 1.88%. The notes are denominated and payable in Japanese yen, with outstanding balances maturing in October 2004 and March 2005. As of September 30, 2004 and December 31, 2003, outstanding balances totaled approximately $6,493,000 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 rates ranging from 70.0 to 107.5 basis points over LIBOR. The line originally matured in December 2004, but was amended in April 2004 with a new maturity date in June 2007.  As of September 30, 2004 and December 31, 2003, the Company had borrowed approximately $9,701,000 and $5,648,000, respectively, on the line of credit at an average interest rate of 0.69%, with draws maturing from December 2004 to February 2005.  The revolving line of credit contains certain restrictions and conditions as defined in the agreement.  As of September 30, 2004, the Company was in compliance with all of the debt covenants. 

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 September 30, 2004, the Company had borrowed approximately $6,209,000 on the line of credit at an average interest rate of 0.76%, with draws maturing from October 2004 to March 2005.  The revolving line of credit contains certain restrictions and conditions as defined in the agreement.  As of September 30, 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 September 30, 2004, the outstanding balance on the line of credit was $29,293,000 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 $235,000 as of September 30, 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. 

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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 September 30, 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 September 30, 2004 and December 31, 2003, the outstanding balance was approximately $21,778,000 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 in December 2022. At September 30, 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 September 30, 2004 are summarized in the table below (in thousands):

				CURRENT			LONG-TERM
	TOTAL			PORTION			PORTION
Debt guarantees	$	33,979		$	24,715		$	9,264
Amount outstanding under debt guarantees		31,257			21,993			9,264

9.         Other Long-term Liabilities

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

	SEPTEMBER 30,			DECEMBER 31,
	2004			2003
	(UNAUDITED)
Accrued insurance	$	4,000		$	4,000
Other deferred liability		1,189			1,189
	$	5,189		$	5,189

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 and nine months ended September 30, 2004 was $28,248,000 and $120,286,000, respectively, which included the effect of losses from translation adjustments of approximately $26,000 and $418,000, respectively.

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

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.  The Company completed this acquisition because it believes the additional cash flows provided from 100% ownership of these restaurants will meet its internally required rate of return and provide additional shareholder value.  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.

On September 1, 2004, the Company acquired an additional 39% ownership interest in the joint venture that operates Fleming’s for approximately $24,300,000 in cash and $14,700,000 paid in satisfaction of amounts outstanding under loans previously made by the Company to the joint venture partners (see Note 6 of Notes to Unaudited Consolidated Financial Statements).  The Company completed this acquisition because it believes as development of new restaurants continues the additional cash flows provided from 90% ownership of this joint venture will meet its internally required rate of return and provide additional shareholder value.  Since the date of acquisition, the Company has reduced the minority partners’ remaining interest to 10% in the consolidated financial statements.  The Company has not yet completed the allocation of the purchase price, as independent appraisals of certain tangible and intangible assets are not yet complete.  The preliminary allocation of the purchase price resulted in tax-deductible goodwill of approximately $18,663,000.

On an unaudited pro forma basis, the effects of the acquisitions were not significant to the Company’s results of operations.

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						NINE MONTHS ENDED
	SEPTEMBER 30,						SEPTEMBER 30,
	2004			2003			2004			2003
Net income	$	28,274		$	37,591		$	120,704		$	124,868
Basic weighted average number of common shares outstanding		73,896			75,099			74,223			75,415
Basic earnings per common share	$	0.38		$	0.50		$	1.63		$	1.66
Effect of dilutive stock options		2,973			3,255			3,559			2,918
Diluted weighted average number of common shares outstanding		76,869			78,354			77,782			78,333
Diluted earnings per common share	$	0.37		$	0.48		$	1.55		$	1.59

Diluted earnings per common share excludes antidilutive stock options of approximately 2,541,000 and 15,000 for the third quarter of 2004 and 2003, respectively, and approximately 1,678,000 and 802,000 for the nine months ended September 30, 2004 and 2003, respectively.

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. 

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

13.        Recently Issued Financial Accounting Standards (continued)

“Consolidation of Variable Interest Entities” (continued)

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.

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 were considered variable interest entities under the provisions of FIN 46 upon adoption of that interpretation, and the Company continued consolidating them after January 1, 2004.  The Roy’s JV restaurant system consists of 14 restaurants as of September 30, 2004.  On September 1, 2004, the Company acquired an additional 39% interest in the LLC and the venture is no longer considered a variable interest entity.  However, the Company continues to consolidate the LLC according to Accounting Research Bulletin No. 51, “Consolidated Financial Statements.”

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 12 individual 50/50 joint ventures that remain 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, 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 146 restaurants as of September 30, 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 an entity affiliated with its California 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 entities in California to purchase and/or build land and buildings for lease to individual Outback Steakhouse franchisees.  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 Sheets and Statements of Income beginning January 1, 2004 and for the quarter and nine months ended September 30, 2004.

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

13.        Recently Issued Financial Accounting Standards (continued)

“Consolidation of Variable Interest Entities” (continued)

The following table reflects the approximate effect of consolidation of the above entities on the Company’s Unaudited Consolidated Statement of Income for the nine months ended September 30, 2004 and Unaudited Consolidated Balance Sheet as of January 1, 2004 (in thousands):

Revenues				$	63,889
Income from operations of unconsolidated affiliates					(3,179	)
Elimination of minority partners’ interest					2,835
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

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 is appealing 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 died.  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 October 14, 2004, the Company raised $1.6 million for Dine Out for Disaster Relief, a fund-raising event sponsored by the Florida Restaurant Association to provide relief to victims of the hurricanes in August and September. The Company contributed 100% of customer purchases on that date in its Florida restaurants, approximately 150 locations. The Company will take a charge to earnings for its contribution in the quarter ending December 31, 2004.

On October 27, 2004, the Board of Directors declared a quarterly dividend of $0.13 per share of the Company’s common stock. The dividend is payable December 3, 2004 to shareholders of record as of November 19, 2004.

On October 20, 2004, the Company agreed to assign its designation rights for 25 of the Chi-Chi’s properties to a third party for $9,975,000.  (See Note 6 of Notes to Unaudited Consolidated Financial Statements).

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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 eight 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 20 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 sales 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, seasonality 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 and spot television and radio media, which we have also begun to use in certain markets 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 in order to remove the impact of new openings in comparing the operations of existing stores.

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