**UNITED
        STATES**
 **SECURITIES
        AND EXCHANGE COMMISSION**
 **Washington,
        D.C. 20549**
 
 **FORM
        10-Q**
 
 **(Mark
                  One)**[X]
              **Quarterly
                  Report Pursuant to Section 13 or 15(d) of the Securities Exchange
                  Act of
                  1934**For
                  the quarterly period ended**June
                  30, 2005**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.**
 **(Exact
        name of registrant as specified in its charter)**
 
 
 
 **DELAWARE**
              **59-3061413**(State
                  or other jurisdiction of
                incorporation
                  or organization)
              (I.R.S.
                  Employer
                Identification
                  No.)
 
 **2202
        North West Shore Boulevard, Suite 500, Tampa, Florida
        33607**
 (Address
        of principal executive offices) (Zip Code)
 
 **(813)
        282-1225**
 (Registrant's
        telephone number, including area code)
 
 Indicate
        by check mark whether the registrant (1) has filed all reports required to
        be
        filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
        the
        preceding 12 months (or for such shorter period that the registrant was required
        to file such reports), and (2) has been subject to such filing requirements
        for
        the past 90 days.
 
 YES x NO 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
        August 5, 2005, the registrant had outstanding 74,618,102 shares of Common
        Stock, $.01 par value.
 
   Table
            of Contents
  
 
 **OUTBACK
        STEAKHOUSE, INC.**
 
 **INDEX
        TO QUARTERLY REPORT ON FORM 10-Q**
 **For
        the Quarterly Period Ended June 30, 2005**
 
 **TABLE
        OF CONTENTS**
 
 
 **PART
                  I — FINANCIAL INFORMATION****Page
                  No****.**Item 1.
              Consolidated
                  Financial Statements:Consolidated
                  Balance Sheets — June 30, 2005 (Unaudited) and
                  December 31, 2004
              3Consolidated
                  Statements of Income (Unaudited) — For the Three
                  and Six Months Ended June 30, 2005 and 2004
              4Consolidated
                  Statements of Cash Flows (Unaudited) — For the Six
                  Months Ended June 30, 2005 and 2004
              5Notes
                  to Consolidated Financial Statements
                  (Unaudited)
              7Item 2.
              Management's
                  Discussion and Analysis of Financial Condition
                  and Results of Operations
              22Item 3.
              Quantitative
                  and Qualitative Disclosures About Market
                  Risk
              46Item 4.
              Controls
                  and Procedures
              47**PART
                  II****—****OTHER INFORMATION**Item 1.
              Legal
                  Proceedings
              48Item
                  2.
              Unregistered
                  Sales of Equity Securities and Use of
                  Proceeds
              49Item
                  4.
              Submission
                  of Matters to a Vote of Security
                  Holders
              50Item 6.
              Exhibits
              51Signatures
              53
 
  2
 Table
            of Contents
  **PART
        I: FINANCIAL INFORMATION**
 
 **Item
        1. CONSOLIDATED FINANCIAL STATEMENTS**
 
 **Outback
        Steakhouse, Inc.**
 **CONSOLIDATED
        BALANCE SHEETS** **** **(IN
        THOUSANDS)**
 
 **JUNE
                  30,**
              
              **DECEMBER
                  31,****2005**
              
              **2004****(UNAUDITED)**ASSETSCurrent
                  AssetsCash
                  and cash equivalents
              
              $
              68,103
              
              $
              87,977Short-term
                  investments
              
              
              1,772
              
              
              1,425Inventories
              
              
              57,947
              
              
              63,448Deferred
                  income tax asset
              
              
              15,615
              
              
              12,969Other
                  current assets
              
              
              52,653
              
              
              53,068Total
                  current assets
              
              
              196,090
              
              
              218,887Property,
                  fixtures and equipment, net
              
              
              1,306,093
              
              
              1,235,151Investments
                  in and advances to unconsolidated affiliates, net
              
              
              18,127
              
              
              16,254Deferred
                  income tax asset
              
              
              24,217
              
              
              6,660Goodwill
              
              
              111,843
              
              
              107,719Intangible
                  assets, net
              
              
              20,989
              
              
              21,683Other
                  assets
              
              
              106,756
              
              
              71,438Notes
                  receivable collateral for franchisee guarantee
              
              
              30,178
              
              
              30,239$
              1,814,293
              
              $
              1,708,031LIABILITIES
                  AND STOCKHOLDERS' EQUITYCurrent
                  LiabilitiesAccounts
                  payable
              
              $
              76,123
              
              $
              74,162Sales
                  taxes payable
              
              
              20,083
              
              
              26,735Accrued
                  expenses
              
              
              128,085
              
              
              97,124Current
                  portion of partner deposit and accrued buyout liability
              
              
              17,673
              
              
              13,561Unearned
                  revenue
              
              
              31,213
              
              
              100,895Income
                  taxes payable
              
              
              6,366
              
              
              87Current
                  portion of long-term debt
              
              
              55,926
              
              
              54,626Total
                  current liabilities
              
              
              335,469
              
              
              367,190Partner
                  deposit and accrued buyout liability
              
              
              66,528
              
              
              63,102Deferred
                  rent
              
              
              48,665
              
              
              44,075Long-term
                  debt
              
              
              84,888
              
              
              59,900Guaranteed
                  debt of franchisee
              
              
              30,283
              
              
              30,343Other
                  long-term liabilities
              
              
              43,925
              
              
              6,114Total
                  liabilities
              
              
              609,758
              
              
              570,724Commitments
                  and contingenciesInterest
                  of minority partners in consolidated partnerships
              
              
              47,878
              
              
              48,905Stockholders'
                  EquityCommon
                  stock, $0.01 par value, 200,000 shares authorized; 78,750 and 78,750
                  shares issued;74,456
                  and 73,767 shares outstanding as of June 30, 2005 and December
                  31, 2004,
                  respectively
              
              
              788
              
              
              788Additional
                  paid-in capital
              
              
              281,928
              
              
              271,109Retained
                  earnings
              
              
              1,084,627
              
              
              1,025,447Accumulated
                  other comprehensive loss
              
              
              (985
              )
              
              (2,118
              )Unearned
                  compensation related to outstanding restricted stock
              
              
              (20,297
              )
              
              -1,346,061
              
              
              1,295,226Less
                  treasury stock, 4,294 and 4,983 shares at June 30, 2005 and December
                  31,
                  2004, respectively, at cost
              
              
              (189,404
              )
              
              (206,824
              )Total
                  stockholders’ equity
              
              
              1,156,657
              
              
              1,088,402$
              1,814,293
              
              $
              1,708,031
  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)**
  **THREE
                    MONTHS ENDED**
                
                **SIX
                    MONTHS ENDED****JUNE
                    30,**
                
                **JUNE
                    30,****2005**
                
                **2004**
                
                **2005**
                
                **2004****(restated)**
                
                
                
                **(restated)**RevenuesRestaurant
                    sales
                
                $
                910,120
                
                $
                800,260
                
                $
                1,800,161
                
                $
                1,589,473Other
                    revenues
                
                
                5,669
                
                
                4,500
                
                
                10,750
                
                
                9,011Total
                    revenues
                
                
                915,789
                
                
                804,760
                
                
                1,810,911
                
                
                1,598,484Costs
                    and expensesCost
                    of sales
                
                
                331,936
                
                
                302,029
                
                
                657,106
                
                
                594,466Labor
                    and other related
                
                
                219,647
                
                
                191,598
                
                
                431,851
                
                
                379,492Other
                    restaurant operating
                
                
                191,571
                
                
                163,060
                
                
                370,453
                
                
                320,865Distribution
                    expense to employee partners, excluding stock expense
                
                
                23,550
                
                
                19,259
                
                
                46,037
                
                
                37,782Employee
                    partner stock buyout expense
                
                
                2,213
                
                
                2,318
                
                
                4,475
                
                
                4,397Depreciation
                    and amortization
                
                
                30,892
                
                
                24,845
                
                
                60,342
                
                
                49,322General
                    and administrative
                
                
                41,926
                
                
                32,809
                
                
                82,051
                
                
                65,056Provision
                    for impaired assets and restaurant closings
                
                
                7,679
                
                
                -
                
                
                8,455
                
                
                -Income
                    from operations of unconsolidated affiliates
                
                
                4
                
                
                (407
                )
                
                101
                
                
                (660
                )Total
                    costs and expenses
                
                
                849,418
                
                
                735,511
                
                
                1,660,871
                
                
                1,450,720Income
                    from operations
                
                
                66,371
                
                
                69,249
                
                
                150,040
                
                
                147,764Other
                    income (expense), net
                
                
                (89
                )
                
                (216
                )
                
                (1,023
                )
                
                (1,089
                )Interest
                    income
                
                
                450
                
                
                278
                
                
                818
                
                
                610Interest
                    expense
                
                
                (1,513
                )
                
                (694
                )
                
                (2,671
                )
                
                (1,399
                )Income
                    before elimination of minority partners'interest
                    and income taxes
                
                
                65,219
                
                
                68,617
                
                
                147,164
                
                
                145,886Elimination
                    of minority partners' interest
                
                
                2,962
                
                
                2,674
                
                
                6,390
                
                
                6,842Income
                    before provision for income taxes
                
                
                62,257
                
                
                65,943
                
                
                140,774
                
                
                139,044Provision
                    for income taxes
                
                
                21,852
                
                
                22,632
                
                
                49,411
                
                
                47,902Net
                    income
                
                $
                40,405
                
                $
                43,311
                
                $
                91,363
                
                $
                91,142Basic
                    earnings per common share
                
                $
                0.55
                
                $
                0.58
                
                $
                1.24
                
                $
                1.23Basic
                    weighted average number of shares outstanding
                
                
                74,001
                
                
                74,289
                
                
                73,901
                
                
                74,388Diluted
                    earnings per common share
                
                $
                0.53
                
                $
                0.56
                
                $
                1.19
                
                $
                1.17Diluted
                    weighted average number of shares outstanding
                
                
                76,925
                
                
                77,983
                
                
                76,965
                
                
                78,204Cash
                    dividends per common share
                
                $
                0.13
                
                $
                0.13
                
                $
                0.26
                
                $
                0.26
 See
        notes
        to unaudited consolidated financial statements.
  4
 Table
            of Contents
  **Outback
        Steakhouse, Inc.**
 **CONSOLIDATED
        STATEMENTS OF CASH FLOWS**
 **(IN
        THOUSANDS, UNAUDITED)**
  **SIX
                    MONTHS ENDED****JUNE
                    30,****2005**
                
                **2004****(restated)**Cash
                    flows from operating activities:Net
                    income
                
                $
                91,363
                
                $
                91,142Adjustments
                    to reconcile net income to cash provided by operating
                    activities:Depreciation
                    and amortization
                
                
                60,342
                
                
                49,322Provision
                    for impaired assets and restaurant closings
                
                
                8,455
                
                
                -Restricted
                    stock expense
                
                
                845
                
                
                -Employee
                    partner stock buyout expense
                
                
                4,475
                
                
                4,397Minority
                    partners’ interest in consolidated partnerships’ income
                
                
                6,390
                
                
                6,842Income
                    from operations of unconsolidated affiliates
                
                
                101
                
                
                (660
                )Change
                    in deferred income taxes
                
                
                (20,203
                )
                
                (2,951
                )Loss
                    on disposal of property, fixtures and equipment
                
                
                2,280
                
                
                1,968Change
                    in assets and liabilities, net of effects of acquisitions and
                    FIN 46
                    consolidations:Decrease
                    in inventories
                
                
                5,501
                
                
                15,468Increase
                    in other current assets
                
                
                (993
                )
                
                (16,110
                )Increase
                    in goodwill, intangibles and other assets
                
                
                (4,035
                )
                
                (3,132
                )Increase
                    in accounts payable, sales taxes payable and accrued expenses
                
                
                26,291
                
                
                15,593Increase
                    in partner deposit and accrued buyout liability
                
                
                4,962
                
                
                2,918Decrease
                    in long-term liability
                
                
                (1,189
                )
                
                -Increase
                    in deferred rent
                
                
                4,590
                
                
                2,910Decrease
                    in unearned revenue
                
                
                (69,682
                )
                
                (58,191
                )Increase
                    in income taxes payable
                
                
                17,098
                
                
                10,174Net
                    cash provided by operating activities
                
                
                136,591
                
                
                119,690Cash
                    flows used in investing activities:Purchase
                    of investment securities
                
                
                (1,591
                )
                
                (55,311
                )Maturities
                    and sales of investment securities
                
                
                1,244
                
                
                62,153Cash
                    paid for acquisition of business, net of cash acquired
                
                
                (5,200
                )
                
                (3,738
                )Capital
                    expenditures
                
                
                (135,493
                )
                
                (114,476
                )Proceeds
                    from the sale of property, fixtures and equipment
                
                
                2,719
                
                
                2,426Increase
                    in cash from adoption of FIN 46
                
                
                -
                
                
                1,080Payments
                    from unconsolidated affiliates
                
                
                71
                
                
                110Investments
                    in and advances to unconsolidated affiliates
                
                
                (337
                )
                
                (350
                )Net
                    cash used in investing activities
                
                
                (138,587
                )
                
                (108,106
                )
 (CONTINUED...)
  5
 Table
            of Contents
  **Outback
        Steakhouse, Inc.**
 **CONSOLIDATED
        STATEMENTS OF CASH FLOWS**
 **(IN
        THOUSANDS, UNAUDITED)**
  **SIX
                    MONTHS ENDED****JUNE
                    30,****2005**
                
                **2004****(restated)**Cash
                    flows used in financing activities:Proceeds
                    from issuance of long-term debt
                
                
                59,530
                
                
                17,123Proceeds
                    from minority partners' contributions
                
                
                3,169
                
                
                2,459Distributions
                    to minority partners
                
                
                (8,919
                )
                
                (8,061
                )Repayments
                    of long-term debt
                
                
                (33,242
                )
                
                (10,378
                )Dividends
                    paid
                
                
                (19,289
                )
                
                (19,330
                )Payments
                    for purchase of treasury stock
                
                
                (50,526
                )
                
                (63,172
                )Proceeds
                    from reissuance of treasury stock
                
                
                31,399
                
                
                27,105Net
                    cash used in financing activities
                
                
                (17,878
                )
                
                (54,254
                )Net
                    decrease in cash and cash equivalents
                
                
                (19,874
                )
                
                (42,670
                )Cash
                    and cash equivalents at the beginning of the period
                
                
                87,977
                
                
                102,892Cash
                    and cash equivalents at the end of the period
                
                $
                68,103
                
                $
                60,222Supplemental
                    disclosures of cash flow information:Cash
                    paid for interest
                
                $
                2,636
                
                $
                1,202Cash
                    paid for income taxes
                
                
                52,633
                
                
                45,464Supplemental
                    disclosures of non-cash items:Purchase
                    of minority and employee partners' interests in cash flows of
                    their
                    restaurants
                
                $
                2,489
                
                $
                -Litigation
                    liability and insurance receivable
                
                
                39,000
                
                
                -Debt
                    assumed under FIN 46R
                
                
                -
                
                
                28,743Issuance
                    of restricted stock
                
                
                21,142
                
                
                -
 See
        notes
        to unaudited consolidated financial statements.
  6
 Table
            of Contents
  **Outback
        Steakhouse, Inc.**
 **NOTES
        TO CONSOLIDATED FINANCIAL STATEMENTS**
 **(UNAUDITED)**
 
 1.  Basis
        of
        Presentation and Restatement of Previously Issued Consolidated Financial
        Statements
 
 This
        Note
        should be read in conjunction with Note 1, “Summary of Significant Accounting
        Policies” under Notes to Consolidated Financial Statements included in Item 8,
“Financial Statements and Supplementary Data” of the Annual Report on Form 10-K
        (“2004 10-K”) of Outback Steakhouse, Inc. (the “Company”).
 
 Basis
        of
        Presentation
 
 The
        accompanying unaudited consolidated financial statements have been prepared
        by
        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 2004 10-K.
 
 The
        results of operations for interim periods are not necessarily indicative
        of the
        results to be expected for the full year.
 
 Restatement
        of Previously Issued Consolidated Financial Statements
 
 The
        Company began a review of its lease accounting policies following announcements
        beginning in December 2004 that several restaurant companies were revising
        their
        accounting practices for leases. Upon completion of its review, the Company
        changed its lease accounting in 2004 and has restated certain historical
        financial information for prior periods to correct errors in its lease
        accounting policies.
 
 Changes
        to the Company’s lease accounting policies include adjusting lease terms, as
        defined in Statement
        of Financial Accounting Standards (“SFAS”) No. 13,
“Accounting for Leases,” as amended, to include option renewals that are
        reasonably assured of being exercised, including the straight-line effect
        over
        the lease term of escalating rents during the option periods and recognizing
        the
        effect of pre-opening “rent holidays” over the related lease terms.
 
 The
        Company restated its consolidated balance sheet at December 31, 2003, and
        the
        consolidated statements of income, stockholders' equity and cash flows for
        the
        years ended December 31, 2003 and 2002. The Company also restated the quarterly
        financial information for fiscal 2003 and the first three quarters of fiscal
        2004. The impact of the restatement on periods prior to 2002 has been reflected
        as an adjustment to retained earnings of $15,240,000 as of December 31, 2001
        in
        the Consolidated Statements of Stockholders' Equity included in the Company’s
        2004 10-K.
 
 The
        Company did not amend its previously filed Annual Reports on Form 10-K or
        Quarterly Reports on Form 10-Q for the restatement, and the financial statements
        and related financial information contained in those reports should no longer
        be
        relied upon.
 
 The
        Consolidated Financial Statements as of and for the three and six months
        ended
        June 30, 2004 included in this Form 10-Q have been restated to reflect the
        adjustments described above. The effects of the Company’s restatement on
        previously reported Consolidated Financial Statements as of and for the three
        and six months ended June 30, 2004 are summarized below.
  7
 Table
            of Contents
  **Outback
        Steakhouse, Inc.**
 **NOTES
        TO CONSOLIDATED FINANCIAL STATEMENTS**
 **(UNAUDITED)**
 
 1.  Basis
        of
        Presentation and Restatement of Previously Issued Consolidated Financial
        Statements (continued)
 
 The
        following table reflects the effect of the restatement on the Consolidated
        Statements of Income (in thousands):
  **THREE
                    MONTHS ENDED JUNE 30,**
                
                **SIX
                    MONTHS ENDED JUNE 30,****2004**
                
                **2004**
                
                **2004**
                
                **2004****as
                    previously reported**
                
                **as
                    restated**
                
                **as
                    previously reported**
                
                **as
                    restated**Selected
                    Statement of Income Data:Other
                    restaurant operating (1)
                
                $
                161,525
                
                $
                163,060
                
                $
                317,889
                
                $
                320,865Total
                    costs and expenses
                
                
                733,976
                
                
                735,511
                
                
                1,447,744
                
                
                1,450,720Income
                    from operations
                
                
                70,784
                
                
                69,249
                
                
                150,740
                
                
                147,764Income
                    before elimination of minority partners'interest
                    and income taxes
                
                
                70,152
                
                
                68,617
                
                
                148,862
                
                
                145,886Elimination
                    of minority partners' interest
                
                
                2,918
                
                
                2,674
                
                
                7,315
                
                
                6,842Income
                    before provision for income taxes
                
                
                67,234
                
                
                65,943
                
                
                141,547
                
                
                139,044Provision
                    for income taxes
                
                
                23,135
                
                
                22,632
                
                
                49,117
                
                
                47,902Net
                    income
                
                
                44,099
                
                
                43,311
                
                
                92,430
                
                
                91,142Basic
                    earnings per common share
                
                $
                0.59
                
                $
                0.58
                
                $
                1.24
                
                $
                1.23Diluted
                    earnings per common share
                
                $
                0.57
                
                $
                0.56
                
                $
                1.18
                
                $
                1.17
 ____________
 (1)
                  The
                      “as previously reported” amounts have been adjusted for the
                      reclassification discussed in this Note 1 of Notes to Unaudited
                      Consolidated Financial Statements.
 The
            following table reflects the effect of the restatement on the Consolidated
            Balance Sheet (in thousands):
 
 **JUNE
                  30,****2004**
              
              **2004****as
                  previously reported**
              
              **as
                  restated**Selected
                  Balance Sheet Data:Investments
                  in and advances to unconsolidated affiliates, net
              
              $
              16,186
              
              $
              15,517Total
                  assets
              
              
              1,546,162
              
              
              1,545,493Deferred
                  rent
              
              
              2,051
              
              
              40,364Deferred
                  income tax liability
              
              
              13,165
              
              
              (1,114
              )Total
                  liabilities
              
              
              390,816
              
              
              414,850Interest
                  of minority partners in consolidated partnerships
              
              
              79,903
              
              
              77,533Retained
                  earnings
              
              
              999,337
              
              
              977,004Total
                  stockholders' equity
              
              
              1,075,443
              
              
              1,053,110Total
                  liabilities and stockholders' equity
              
              
              1,546,162
              
              
              1,545,493
  8
 Table
            of Contents
  **Outback
        Steakhouse, Inc.**
 **NOTES
        TO CONSOLIDATED FINANCIAL STATEMENTS**
 **(UNAUDITED)**
 
 1.  Basis
        of
        Presentation and Restatement of Previously Issued Consolidated Financial
        Statements (continued)
 
 The
        following table reflects the effect of the restatement on the Consolidated
        Statement of Cash Flows (in thousands):
  **SIX
                    MONTHS ENDED JUNE 30,****2004**
                
                **2004****as
                    previously reported**
                
                **as
                    restated**Selected
                    Cash Flow Data:Net
                    income
                
                $
                92,430
                
                $
                91,142Minority
                    partners’ interest in consolidated partnerships’ income
                
                
                7,315
                
                
                6,842Change
                    in deferred income taxes
                
                
                (1,736
                )
                
                (2,951
                )Increase
                    in deferred rent
                
                
                -
                
                
                2,910
 Reclassification
 
 Certain
        prior year amounts shown in the accompanying Consolidated Financial Statements
        have been reclassified to conform to the 2005 presentation. These
        classifications relate to complimentary and employee meals which had previously
        been included in revenues, with a corresponding offset in operating expenses
        in
        each period affected. In the current presentation, no revenue or expense
        is
        recorded for these transactions. For the three and six months ended June
        30,
        2004, this reclassification totaled $22,605,000 and $44,984,000, respectively.
        In addition, certain management training and supervision costs have been
        reclassified from other restaurant operating expense to general and
        administrative expense. For the three and six months ended June 30, 2004,
        this
        reclassification totaled $2,115,000 and $3,967,000, respectively. These
        reclassifications had no effect on total assets, total liabilities,
        stockholders’ equity or net income.
 
  9
 Table
            of Contents
  **Outback
        Steakhouse, Inc.**
 **NOTES
        TO CONSOLIDATED FINANCIAL STATEMENTS**
 **(UNAUDITED)**
 
 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.
        SFAS
        No. 123R, “Share-Based Payment” will be adopted January 1, 2006. See Note 13 of
        Notes to Unaudited Consolidated Financial Statements. The following table
        provides pro forma net income and earnings per share amounts using the fair
        value based method of SFAS No. 123, “Accounting for Stock-Based Compensation”
        (in thousands, except per share data):
  **THREE
                    MONTHS ENDED**
                
                **SIX
                    MONTHS ENDED****JUNE
                    30,**
                
                **JUNE
                    30,****2005**
                
                **2004**
                
                **2005**
                
                **2004****(restated)**
                
                
                
                **(restated)**Net
                    income
                
                $
                40,405
                
                $
                43,311
                
                $
                91,363
                
                $
                91,142Stock-based
                    employee compensation expense included innet
                    income, net of related taxes
                
                
                2,117
                
                
                1,414
                
                
                3,497
                
                
                2,686Total
                    stock-based employee compensation expense determinedunder
                    fair value based method, net of related taxes
                
                
                (5,841
                )
                
                (4,959
                )
                
                (10,973
                )
                
                (9,380
                )Pro
                    forma net income
                
                $
                36,681
                
                $
                39,766
                
                $
                83,887
                
                $
                84,448Earnings
                    per common share:Basic
                
                $
                0.55
                
                $
                0.58
                
                $
                1.24
                
                $
                1.23Basic
                    - pro forma
                
                $
                0.50
                
                $
                0.54
                
                $
                1.14
                
                $
                1.14Diluted
                
                $
                0.53
                
                $
                0.56
                
                $
                1.19
                
                $
                1.17Diluted
                    - pro forma
                
                $
                0.48
                
                $
                0.52
                
                $
                1.11
                
                $
                1.10
 The
        preceding pro forma results were calculated with the use of the Black-Scholes
        option pricing model. The following assumptions were used for the three months
        ended June 30, 2005 and 2004, respectively: (1) risk-free interest rates
        of 4.1%
        and 3.8%; (2) dividend yield of 1.24% and 1.25%; (3) expected lives of 6.3
        and
        5.0 years; and (4) volatility of 28.9% and 30.2%. The following assumptions
        were
        used for the six months ended June 30, 2005 and 2004, respectively: (1)
        risk-free interest rates of 4.2% and 3.3%; (2) dividend yield of 1.24% and
        1.26%; (3) expected lives of 6.3 and 5.0 years; and (4) volatility of 29.0%
        and
        30.3%. 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 years or under SFAS
        No.
        123R, when adopted.
 
 On
        April
        27, 2005, the Company’s Board of Directors approved a grant of restricted common
        stock to the Company’s Chief Executive Officer under the Amended and Restated
        Stock Option Plan. Under the terms of the grant, 300,000 shares of restricted
        common stock were issued and will vest as follows: on December 31, 2009,
        90,000
        shares, plus an additional 30,000 shares if the market capitalization of
        the
        Company exceeds $6,060,000,000; on December 31, 2011, 90,000 shares, plus
        an
        additional 30,000 shares if the market capitalization of the Company exceeds
        $8,060,000,000; and on December 31, 2014, the balance of all remaining unvested
        shares.
 
 On
        June
        13, 2005, the Company granted 50,000
        shares of its restricted common stock to the Senior Vice President of Real
        Estate and Development as an inducement grant in connection with his hiring.
        These shares were not issued under any existing stock plan of the Company.
        Under
        the terms of the grant, the 50,000 shares of restricted stock will vest as
        follows: on June 13, 2008, 10,000 shares; on June 13, 2010, 10,000 shares;
        on
        June 13, 2012, 15,000 shares; and on June 13, 2015, the balance of all remaining
        unvested shares.
  10
 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):
 **JUNE
                  30,**
              
              **DECEMBER
                  31,****2005**
              
              **2004****(UNAUDITED)**Prepaid
                  expenses
              
              $
              19,256
              
              $
              23,020Accounts
                  receivable
              
              
              24,212
              
              
              19,473Accounts
                  receivable - franchisees
              
              
              1,519
              
              
              2,228Assets
                  held for sale
              
              
              3,410
              
              
              4,810Deposits
              
              
              3,070
              
              
              2,537Other
                  current assets
              
              
              1,186
              
              
              1,000$
              52,653
              
              $
              53,068
 
 4.  Property,
        Fixtures and Equipment, Net
 
 Property,
        fixtures and equipment, net, consisted of the following (in
        thousands):
 
 **JUNE
                  30,**
              
              **DECEMBER
                  31,****2005**
              
              **2004****(UNAUDITED)**Land
              
              $
              197,310
              
              $
              196,137Buildings
                  & building improvements
              
              
              644,969
              
              
              603,856Furniture
                  & fixtures
              
              
              204,614
              
              
              184,949Equipment
              
              
              464,815
              
              
              425,197Leasehold
                  improvements
              
              
              318,003
              
              
              305,618Construction
                  in progress
              
              
              63,050
              
              
              52,373Accumulated
                  depreciation
              
              
              (586,668
              )
              
              (532,979
              )$
              1,306,093
              
              $
              1,235,151
 
 During
        the six months ended June 30, 2005, the Company recorded a provision for
        a
        restaurant closing of approximately $776,000 for an Outback Steakhouse in
        Tennessee and a provision for a partial impairment of approximately $98,000
        for
        a Bonefish Grill in Washington.
  11
 Table
            of Contents
  **Outback
        Steakhouse, Inc.**
 **NOTES
        TO CONSOLIDATED FINANCIAL STATEMENTS**
 **(UNAUDITED)**
 
 4.  Property,
        Fixtures and Equipment, Net (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
            original 76 properties included 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 on September 20, 2005. 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.
 
 In
            October 2004, the Company received $1,100,000 from Chi-Chi’s when it
            exercised the right to exclude one property from the designation rights
            listing.
            Additionally, in October 2004, the Company completed an assignment of
            designation rights to a third party on 25 properties in exchange for
            $9,975,000.
            Both transactions reduced the total purchase price of the remaining properties.
            The Company required Chi-Chi’s to retain 18 properties, leaving 32 properties to
            which the Company had rights as of June 30, 2005. In July 2005, the Company
            executed its option on the 10 remaining sale-leaseback properties with
            reversion
            rights and purchase options for approximately $1,400,000. Thus, the remaining
            properties include 22 properties with owned land and building, eight
            ground
            leases and two leases. As of June 30, 2005, the Company had not designated
            15 of
            these properties.
  12
 Table
            of Contents
  **Outback
        Steakhouse, Inc.** ****
 **NOTES
        TO CONSOLIDATED FINANCIAL STATEMENTS**
 **(UNAUDITED)**
 
 5.  Goodwill
        and Intangible Assets, Net
 
 The
        change in the carrying amount of goodwill for the six months ended June
        30,
        200 5
        is as
        follows (in thousands):
 
 December
                  31, 2004
              
              $
              107,719Acquisition
                  (see Note 11 of Notes to Unaudited Consolidated Financial Statements)
              
              
              4,124June
                  30, 2005
              
              $
              111,843
 
 Intangible
        assets, net, consisted of the following (in thousands):
 **WEIGHTED
                  AVERAGE**
              
              **JUNE
                  30,**
              
              **DECEMBER
                  31,****AMORTIZATION**
              
              **2005**
              
              **2004****PERIOD
                  (YEARS)**
              
              **(UNAUDITED)**Trademarks
                  (gross)
              
              
              21
              
              $
              12,344
              
              $
              12,344Less:
                  accumulated amortization
              
              
              
              
              
              (603
              )
              
              (295
              )Net
                  trademarks
              
              
              
              
              
              11,741
              
              
              12,049Trade
                  dress (gross)
              
              
              11
              
              
              6,777
              
              
              6,777Less:
                  accumulated amortization
              
              
              
              
              
              (646
              )
              
              (320
              )Net
                  trade dress
              
              
              
              
              
              6,131
              
              
              6,457Favorable
                  leases (gross, lives ranging from 2 to 24 years)
              
              
              20
              
              
              3,224
              
              
              3,224Less:
                  accumulated amortization
              
              
              
              
              
              (107
              )
              
              (47
              )Net
                  favorable leases
              
              
              
              
              
              3,117
              
              
              3,177Intangible
                  assets, less total accumulated amortization of $1,356 and$662
                  at June 30, 2005 and December 31, 2004, respectively
              
              
              18
              
              $
              20,989
              
              $
              21,683
 
 The
        aggregate amortization expense related to these intangible assets was $694,000
        for the six months ended June 30, 2005. Annual amortization expense related
        to
        these intangible assets for the next five years is anticipated to be
        approximately $1,500,000.
  13
 Table
            of Contents
  **Outback
        Steakhouse, Inc.**
 **NOTES
        TO CONSOLIDATED FINANCIAL STATEMENTS**
 **(UNAUDITED)**
 
 6.  Other
        Assets
 
 Other
        assets consisted of the following (in thousands):
  **JUNE
                    30,**
                
                **DECEMBER
                    31,****2005**
                
                **2004****(UNAUDITED)**Other
                    assets
                
                $
                49,780
                
                $
                47,089Insurance
                    receivable
                
                
                39,000
                
                
                -Liquor
                    licenses, net of accumulated amortization of $4,643 and $4,291
                    at June 30,
                    2005and
                    December 31, 2004, respectively
                
                
                15,567
                
                
                13,699Deferred
                    license fee, net of valuation provision of approximately $0 and
                    $3,000
                    atJune
                    30, 2005 and December 31, 2004, respectively.
                
                
                2,409
                
                
                10,650$
                106,756
                
                $
                71,438
 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. A s
          of July
          19, 2005, the Company began renegotiating the terms of this licensing agreement,
          and as a result, the Company assessed the recoverability of the carrying
          value
          of the associated deferred license fee and determined that an impairment
          charge
          was necessary. Thus, a $7,581,000 pretax charge has been recorded against
          the
          deferred license fee to reflect management’s best estimate of its current net
          realizable value as of June 30, 2005. The Company expects that negotiation
          of
          the deferred license fee will be finalized during the third quarter. See
          Notes 9
          and 14 of Notes to Unaudited Consolidated Financial Statements related
          to Other
          assets - insurance receivable.
 7.  Accrued
        Expenses
 
 Accrued
        expenses consisted of the following (in thousands):
 
 **JUNE
                  30,**
              
              **DECEMBER
                  31,****2005**
              
              **2004****(UNAUDITED)**Accrued
                  payroll and other compensation
              
              $
              47,566
              
              $
              38,552Accrued
                  insurance
              
              
              27,030
              
              
              21,818Accrued
                  property taxes
              
              
              12,500
              
              
              9,068Other
                  accrued expenses
              
              
              40,989
              
              
              27,686$
              128,085
              
              $
              97,124
 
 Remaining
        accrued restaurant closing expenses of less than $100,000 were
        included in other accrued expenses as of June 30, 2005 and December 31, 2004,
        related to restaurant closing provisions.
  14
 Table
            of Contents
  **Outback
        Steakhouse, Inc.**
 **NOTES
        TO CONSOLIDATED FINANCIAL STATEMENTS**
 **(UNAUDITED)**
 
 8.  Debt
 
 Long-term
        debt consisted of the following (in thousands):
 
 **JUNE
                  30,**
              
              **DECEMBER
                  31,****2005**
              
              **2004****(UNAUDITED)**Revolving
                  lines of credit, uncollateralized, interest rates ranging from
                  3.36% to
                  4.02% atJune
                  30, 2005 and 2.89% to 3.05% at December 31, 2004,
                  respectively
              
              $
              74,000
              
              $
              55,000Outback
                  Korea notes payable, interest rates ranging from 5.45% to 7.00%
                  atJune
                  30, 2005 and December 31, 2004
              
              
              36,462
              
              
              27,717Outback
                  Japan notes payable, uncollateralized, interest rates at 0.85%
                  atJune
                  30, 2005 and ranging from 0.95% to 0.96% at December 31,
                  2004
              
              
              5,505
              
              
              5,769Outback
                  Japan revolving lines of credit, interest rates ranging from 0.68%
                  to
                  0.76% atJune
                  30, 2005 and 0.68% to 0.77% at December 31, 2004
              
              
              17,340
              
              
              18,895Other
                  notes payable, uncollateralized, interest rates ranging
                  from2.07%
                  to 7.00% at June 30, 2005 and December 31, 2004
              
              
              7,507
              
              
              7,145Guaranteed
                  debt of franchisee
              
              
              30,283
              
              
              30,343171,097
              
              
              144,869Less
                  current portion
              
              
              55,926
              
              
              54,626Less
                  guaranteed debt of franchisee
              
              
              30,283
              
              
              30,343Long-term
                  debtof
                  Outback Steakhouse, Inc.
              
              $
              84,888
              
              $
              59,900
 
 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 3.33% to 3.66% at June 30, 2005 and ranging
        from 2.42% to 2.78% at December 31, 2004). At June 30, 2005, the unused portion
        of the revolving line of credit was $76,000,000.
 
 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 June 30, 2005,
        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.
        On
        April 28, 2005, the Company amended this $20,000,000 line
        of
        credit to a maximum borrowing of $30,000,000. This 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
        letter of credit advances. The credit agreement contains certain restrictions
        and conditions as defined in the agreement. At June 30, 2005 and December
        31,
        2004, $20,072,000 and $11,782,000, respectively, of the line of credit was
        committed for the issuance of letters of credit as required by insurance
        companies that underwrite the Company’s workers’ compensation insurance and
        also, where required, for construction of new restaurants.
  15
 Table
            of Contents
  **Outback
        Steakhouse, Inc.**
 **NOTES
        TO CONSOLIDATED FINANCIAL STATEMENTS**
 **(UNAUDITED)**
 
 8.  Debt
        (continued)
 
 As
        of
        June 30, 2005, the Company had approximately $7,507,000 of notes payable
        at
        interest rates ranging from 2.07% to 7.00%. 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.
 
 The
        Company has notes payable with banks bearing interest at rates ranging from
        5.45% 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
        July 2005 to January 2007. As of June 30, 2005 and December 31, 2004, the
        outstanding balance was approximately $36,462,000 and $27,717,000, respectively.
        Certain of the notes payable are collateralized by lease and other deposits.
        At
        June 30, 2005 and December 31, 2004, collateralized notes totaled approximately
        $31,346,000 and $25,346,000, respectively.
 
 The
        Company has notes payable with banks to finance the development of the Company’s
        restaurants in Japan (“Outback Japan”). The notes are payable to banks,
        collateralized by lease deposits of approximately $3,300,000 and $3,600,000
        at
        June 30, 2005 and December 31, 2004, respectively, and letters of credit
        and
        bear interest at 0.85% and at rates ranging from 0.95% to 0.96% at June 30,
        2005
        and December 31, 2004, respectively. The notes are denominated and payable
        in
        Japanese yen, with outstanding balances as of June 30, 2005 maturing in
        September 2005. As of June 30, 2005 and December 31, 2004, outstanding balances
        totaled approximately $5,505,000 and $5,769,000, 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 June 30, 2005 and December 31, 2004, the
        Company had borrowed approximately $9,790,000 and $10,260,000, respectively,
        on
        the line of
        credit
        at an average interest rate of 0.69%, with draws as of June 30, 2005 maturing
        from August 2005 to June 2006. The revolving line of credit contains certain
        restrictions and conditions as defined in the agreement. As of June 30, 2005,
        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 to 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 June 30, 2005
        and
        December 31, 2004, the Company had borrowed approximately $7,550,000 and
        $8,635,000, respectively, on the line of credit at an average interest rate
        of
        0.76%, with draws as of June 30, 2005 maturing from July 2005 to September
        2005.
        The revolving line of credit contains certain restrictions and conditions
        as
        defined in the agreement. As of June 30, 2005, 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 for a limited liability company, T-Bird
          Nevada,
          LLC (“T-Bird”), owned by its California franchisee. This line of credit bears
          interest at rates ranging from 50 to 90 basis points over LIBOR and matures
          in
          December 2008. The Company was required to consolidate T-Bird effective
          January
          1, 2004 upon adoption of FIN 46R. At June 30, 2005 and December 31, 2004,
          the
          outstanding balance on the line of credit was approximately $30,283,000
          and
          $30,343,000, respectively, and is included in the Company’s Consolidated Balance
          Sheets as long-term debt. T-Bird uses proceeds from the line of credit
          for the
          purchase of real estate and construction of buildings to be opened as Outback
          Steakhouse restaurants and leased to the Company’s franchisees. According to the
          terms of the line of credit, T-Bird may borrow, repay, re-borrow or prepay
          advances at any time before the ter mination
          date of the agreement.


16
 Table
            of Contents
  **Outback
        Steakhouse, Inc.**
 **NOTES
        TO CONSOLIDATED FINANCIAL STATEMENTS**
 **(UNAUDITED)**
 
 8.  Debt
        (continued)
 
 If
        a
        default under the line of credit were to occur requiring the Company to perform
        under the guarantee obligation, the Company has the right to
        call into
        default all of its franchise agreements in California and exercise
        any
        rights and remedies under those agreements as well as the right to recourse
        under loans T-Bird has made to individual corporations in California which
        own
        the land and/or building which is leased to those franchise locations. Events
        of
        default are defined in the line of credit agreement and include the Company’s
        covenant commitments under existing lines of credit. The Company is not the
        primary obligor on the line of credit and it is not aware of any non-compliance
        with the underlying terms of the line of credit agreement that would result
        in
        it having to perform in accordance with the terms of the guarantee. 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
        $64,000 and $176,000 as of June 30, 2005 and December 31, 2004,
        respectively.
  DEBT
        GUARANTEES
 
 The
        Company is the guarantor of an uncollateralized line of credit that permits
        borrowing of up to a maximum of $24,500,000 for its joint venture partner,
        RY-8,
        Inc. (“RY-8”), in the development of Roy's restaurants. The line of credit
        originally expired in December 2004 and was renewed with a new termination
        date
        of June 30, 2007. According to the terms of the credit agreement, RY-8 may
        borrow, repay, re-borrow or prepay advances at any time before the termination
        date of the agreement. On the termination date of the agreement, the entire
        outstanding principal amount of the loan then outstanding and any accrued
        interest is due. At June 30, 2005 and December 31, 2004, the outstanding
        balance
        on the line of credit was approximately $22,391,000 and $21,987,000,
        respectively.
 
 RY-8’s
        obligations under the line of credit are unconditionally guaranteed by the
        Company and Roy’s Holdings, Inc, (“RHI”). If an event of default occurs (as
        defined in the agreement, and including the Company’s covenant commitments under
        existing lines of credit), then the total outstanding balance, including
        any
        accrued interest, is immediately due from the guarantors.
 
 If
        an
        event of default occurs and RY-8 is unable to pay the outstanding balance
        owed,
        the Company would, as guarantor, be liable for this balance. However, in
        conjunction with the credit agreement, RY-8 and RHI have entered into an
        Indemnity Agreement and a Pledge of Interest and Security Agreement in favor
        of
        the Company. These agreements provide that if the Company is required to
        perform
        its obligation as guarantor pursuant to the credit agreement, then RY-8 and
        RHI
        will indemnify OSI against all losses, claims, damages or liabilities which
        arise out of or are based upon its guarantee of the credit agreement. RY-8’s and
        RHI’s obligations under these agreements are collateralized by a first priority
        lien upon and a continuing security interest in any and all of RY-8’s interests
        in the joint venture.
 
 As
        a
        result of the Company’s recourse provisions and collateral, the estimated fair
        value of the guarantee to be recorded is immaterial to its financial condition
        and financial statements.
 
 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. However, the existing note has a put feature that allows the
        lender to require full payment of the note as of December 31, 2005. If Kentucky
        Speedway is unable to make its payment on the note, the Company would be
        responsible for its guarantee at that time. At June 30, 2005 and December
        31,
        2004, the outstanding balance and the Company’s guarantee on the
        note were approximately $65,000,000 and $9,445,000, respectively. This guarantee
        has not been modified since the effective date of FIN 45, “Guarantor’s
        Accounting and Disclosure Requirements for Guarantees, Including Indirect
        Guarantees of Indebtedness of Others” and is thus not subject to the recognition
        or measurement requirements of FIN 45.
  17
 Table
            of Contents
  **Outback
        Steakhouse, Inc.**
 **NOTES
        TO CONSOLIDATED FINANCIAL STATEMENTS**
 **(UNAUDITED)**
 
 8.  Debt
        (continued)
 
 DEBT
        GUARANTEES (continued)
 
 The
        Company’s contractual unconsolidated debt guarantees as of June 30, 2005 are
        summarized in the table below (in thousands):
 
 **CURRENT**
              
              **LONG-TERM****TOTAL**
              
              **PORTION**
              
              **PORTION**Debtguarantees
              
              $
              34,009
              
              $
              9,455
              
              $
              24,554Amount
                  outstanding under debt guarantees
              
              
              31,900
              
              
              9,455
              
              
              22,445
 
 9.  Other
        Long-term Liabilities
 
 Other
        long-term liabilities consisted of the following (in thousands):
  **JUNE
                    30,**
                
                **DECEMBER
                    31,****2005**
                
                **2004****(UNAUDITED)**Litigation
                
                $
                39,000
                
                $
                -Accrued
                    insurance
                
                
                4,000
                
                
                4,000Other
                    deferred liability
                
                
                925
                
                
                2,114$
                43,925
                
                $
                6,114
 See
        Notes
        6 and 14 of Notes to Unaudited Consolidated Financial Statements related
        to
        Other long-term liabilities - litigation.
 
 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 June 30, 2005 and 2004 was
        $40,815,000 and $42,981,000, respectively, which included the effect of gains
        and (losses) from translation adjustments of approximately $410,000 and
        ($330,000), respectively. Total comprehensive income for the six months ended
        June 30, 2005 and 2004 was $92,496,000 and $90,750,000, respectively, which
        included the effect of gains and (losses) from translation adjustments of
        approximately $1,133,000 and ($392,000), respectively.
  18
 Table
            of Contents
  **Outback
        Steakhouse, Inc.**
 **NOTES
        TO CONSOLIDATED FINANCIAL STATEMENTS**
 **(UNAUDITED)**
 
 11.  Business
        Combinations
 
 On
        January 1, 2005, the Company acquired the 50% minority ownership interests
        of
        its partner in four Carrabba's restaurants in Ohio for approximately $5,200,000
        in cash and the assumption of the employee partner buyout liability for these
        stores of approximately $590,000. 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 $4,100,000 associated with this transaction,
        all of which is expected to be deductible for income tax purposes. See Note
        15
        of Notes to Unaudited Consolidated Financial Statements.
 
 On
        an
        unaudited pro forma basis, the effect of this acquisition was 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**
                
                **SIX
                    MONTHS ENDED****JUNE
                    30,**
                
                **JUNE
                    30,****2005**
                
                **2004**
                
                **2005**
                
                **2004****(restated)**
                
                
                
                **(restated)**Net
                    income
                
                $
                40,405
                
                $
                43,311
                
                $
                91,363
                
                $
                91,142Basic
                    weighted average number of common shares outstanding
                
                
                74,001
                
                
                74,289
                
                
                73,901
                
                
                74,388Basic
                    earnings per common share
                
                $
                0.55
                
                $
                0.58
                
                $
                1.24
                
                $
                1.23Effect
                    of dilutive stock options
                
                
                2,924
                
                
                3,694
                
                
                3,064
                
                
                3,816Diluted
                    weighted average number of common shares outstanding
                
                
                76,925
                
                
                77,983
                
                
                76,965
                
                
                78,204Diluted
                    earnings per common share
                
                $
                0.53
                
                $
                0.56
                
                $
                1.19
                
                $
                1.17
 Diluted
        earnings per common share excludes antidilutive stock options of approximately
        1,608,000 and 611,000 for the three months ended June 30, 2005 and 2004,
        respectively, and approximately 518,000 and 424,000 for the six months ended
        June 30, 2005 and 2004, respectively.
 
 13.  Recently
        Issued Financial Accounting Standards
 
 “Share-Based
        Payment”
 
 In
        December 2004, the FASB issued SFAS No. 123 (Revised), “Share-Based Payment,” a
        revision of SFAS No. 123, “Accounting for Stock-Based Compensation.” SFAS No.
        123R requires the fair value measurement of all stock-based payments to
        employees, including grants of employee stock options, and recognition of
        those
        expenses in the statement of operations. SFAS No. 123R is effective at the
        beginning of the next fiscal year after June 15, 2005. The Company will continue
        to account for stock-based compensation using the intrinsic value method
        until
        adoption of SFAS No. 123R on January 1, 2006. Historically, the compensation
        expense recognized related to stock options under this method has been minimal.
        As a result, adoption of the provisions of SFAS No. 123R is expected to have
        a
        significant impact to reported net income and earnings per share. The Company
        has not yet determined the method of adoption or the effect of adopting SFAS
        No.
        123R and has not determined whether the adoption will result in amounts that
        are
        similar to the current pro forma disclosures under SFAS No. 123.
  19
 Table
            of Contents
  **Outback
        Steakhouse, Inc.**
 **NOTES
        TO CONSOLIDATED FINANCIAL STATEMENTS**
 **(UNAUDITED)**
 
 13.  Recently
        Issued Financial Accounting Standards (Continued)
 
 “Accounting
        Changes and Error Corrections”
 
 On
        June
        1, 2005, the FASB issued SFAS No. 154, “Accounting Changes and Error
        Corrections,” which will require entities that voluntarily make a change in
        accounting principle to apply that change retrospectively to prior periods’
        financial statements, unless this would be impracticable. SFAS No. 154
        supersedes Accounting Principles Board Opinion No. 20, “Accounting Changes”
        (“APB 20”), which previously required that most voluntary changes in accounting
        principle be recognized by including in the current period’s net income the
        cumulative effect of changing to the new accounting principle. SFAS 154 also
        makes a distinction between “retrospective application” of an accounting
        principle and the “restatement” of financial statements to reflect the
        correction of an error.
 
 Another
        significant change in practice under SFAS No. 154 will be that if an entity
        changes its method of depreciation, amortization, or depletion for long-lived,
        non-financial assets, the change must be accounted for as a change in accounting
        estimate. Under APB 20, such a change would have been reported as a change
        in
        accounting principle. SFAS No. 154 applies to accounting changes and error
        corrections that are made in fiscal years beginning after December 15, 2005.
        The
        Company does not believe the adoption of SFAS No. 154 will have a material
        impact on its financial statements.
 
 Proposed
        Accounting Pronouncement
 
 “Accounting
        for Uncertain Tax Positions”
 
 In
        July 2005, the FASB published an Exposure Draft of a proposed
        Interpretation, “Accounting for Uncertain Tax Positions.” The Exposure Draft
        seeks to reduce the significant diversity in practice associated with
        recognition and measurement in the accounting for income taxes. It would
        apply
        to all tax positions accounted for in accordance with SFAS 109, “Accounting for
        Income Taxes.” The Exposure Draft requires that a tax position meet a “probable
        recognition threshold” for the benefit of the uncertain tax position to be
        recognized in the financial statements and assumes that tax authorities will
        examine the uncertain tax position. The Exposure Draft contains guidance
        with
        respect to the measurement of the benefit that is recognized for an uncertain
        tax position, when that benefit should be derecognized, and other matters.
        This
        proposed Interpretation would clarify the accounting for uncertain tax positions
        in accordance with SFAS 109. This Interpretation, once approved, is expected
        to
        be effective as of the end of the first fiscal year ending after
        December 15, 2005. We are currently evaluating the impact this proposed
        Interpretation would have on our results of operations, which could result
        in a
        significant cumulative charge upon adoption.
  20
 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 “dramshop” 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 appealed the verdict to the Indiana Court of Appeals.
        On July 25, 2005, the Court of Appeals affirmed the verdict of the trial
        courts.
        The Company intends to petition the Court of Appeals for rehearing and if
        necessary to seek review by the Supreme Court of Indiana. 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. The excess insurance carrier has 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 is vigorously defending this case. Activity in
        this case has been held in abeyance pending the decision of the appellate
        court
        in the “dramshop” case. The Company has filed counter-claims against the
        excess carrier
        and cross-claims against the primary carrier and its third-party administrator.
        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.
 
 As
        a
        result of the affirmation verdict by the Court of Appeals, the Company has
        recorded the $39,000,000 verdict as a non-current liability in its Unaudited
        Consolidated Balance Sheet as well as a non-current receivable for the same
        amount which would be due from insurance carriers should this verdict prevail
        upon appeal.
 
 15.  Related
        Parties
 
 On
        January 1, 2005, the Company acquired four joint venture Carrabba’s restaurants
        from limited partnerships in which two executive officers had ownership
        interests  (see
        Note
        11 of Notes to Unaudited Consolidated Financial Statements). These executive
        officers received approximately $141,000 and $202,000 as a result of their
        ownership interests in those joint venture restaurants.
 
 16.  Subsequent
        Events
  On
          July
          22, 2005, the Company’s wholly-owned subsidiary OS Tropical, Inc. and
          Cheeseburger Holding Company, LLC (an entity controlled by Jimmy Buffett)
          entered into certain agreements. Pursuant to these agreements, Cheeseburger
          Holding Company, LLC transferred to OS Tropical, Inc. its 50% interest
          in
          Cheeseburger in Paradise, LLC. OS Tropical, Inc. is now the sole owner
          of
          Cheeseburger in Paradise, LLC, the entity that owns and develops Cheeseburger
          in
          Paradise restaurants. In addition, the sublicense agreement between Cheeseburger
          Holding Company, LLC and Cheeseburger in Paradise, LLC was amended and
          restated
          to change the royalty paid by Cheeseburger in Paradise, LLC from 2.0% to
          4.5% of
          net sales.
  On
        August
        1, 2005, two executive officers of the Company assigned to the Company their
        interests in certain restaurants operated by subsidiaries or affiliates of
        the
        Company. The first contributed an aggregate amount of approximately $317,000
        in
        17 restaurants operating as either Carrabba's Italian Grills or Bonefish
        Grills.
        The officer agreed to assign his interests in the 17 restaurants to the Company
        for an aggregate purchase price of approximately $286,000. The second
        contributed an aggregate amount of approximately $246,000 in 25 restaurants
        operating as Outback Steakhouses, Carrabba's Italian Grills or Bonefish
        Grills. The officer agreed to assign his interests in the 25
        restaurants to the Company for an aggregate purchase price of approximately
        $268,000.
  21
 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. Comparisons to reported amounts for 2004 are based upon
        restated results as discussed in Note 1 of the Notes to Unaudited Consolidated
        Financial Statements.
 
 **Overview**
 
 We
        are
        one of the largest casual dining restaurant companies in the world, with
        eight
        restaurant concepts, ove r
        1,200 system-wide
        restaurants and 2004 annual revenues for Company-owned stores exceeding $3.2
        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
        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 (customer spending patterns at restaurants are generally highest
        in
        the first quarter of the year and lowest in the third quarter of the year)
        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 generally do not 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 encouraging customers to visit
        frequently and also recommending 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.
  22
 Table
            of Contents
  **Outback
        Steakhouse, Inc.**
 **MANAGEMENT'S
        DISCUSSION AND ANALYSIS OF**
 **FINANCIAL
        CONDITION AND RESULTS OF OPERATIONS**
 
 **Overview
        (continued)**
 
 Key
        factors that 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.
 
 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 2005.
 
 Our
        industry’s challenges and risks include, but are not limited to, the potential
        for further government regulation, the availability of qualified 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. Additionally, our planned development schedule
        is subject to risk because of rising real estate and construction costs,
        and our
        results are affected by consumer tolerance of price increases. 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 pre-opening expenses from the development
        of new restaurants and our expansion strategy, among other factors that may
        affect our results in the remainder of 2005.
   23
 Table
            of Contents
  **Outback
        Steakhouse, Inc.**
 **MANAGEMENT'S
        DISCUSSION AND ANALYSIS OF**
 **FINANCIAL
        CONDITION AND RESULTS OF OPERATIONS**
 
 **Results
        of Operations**
 
 The
        following tables set forth, for the periods indicated, (i) percentages that
        items in our Unaudited Consolidated Statements of Income bear to total revenues
        or restaurant sales, as indicated, and (ii) selected operating data:
 
 **THREE
                  MONTHS ENDED**
              
              **SIX
                  MONTHS ENDED****JUNE
                  30,**
              
              **JUNE
                  30,****2005**
              
              **2004**
              
              **2005**
              
              **2004****(restated)**
              
              
              
              **(restated)**RevenuesRestaurant
                  sales
              
              
              99.4
              %
              
              99.4
              %
              
              99.4
              %
              
              99.4
              %Other
                  revenues
              
              
              0.6
              
              
              0.6
              
              
              0.6
              
              
              0.6Total
                  revenues
              
              
              100.0
              
              
              100.0
              
              
              100.0
              
              
              100.0Costs
                  and expensesCost
                  of sales (1)
              
              
              36.5
              
              
              37.7
              
              
              36.5
              
              
              37.4Labor
                  and other related (1)
              
              
              24.1
              
              
              23.9
              
              
              24.0
              
              
              23.9Other
                  restaurant operating (1)
              
              
              21.0
              
              
              20.4
              
              
              20.6
              
              
              20.2Distribution
                  expense to employee partners, excludingstock
                  expense (1)
              
              
              2.6
              
              
              2.4
              
              
              2.6
              
              
              2.4Employee
                  partner stock buyout expense (1)
              
              
              0.2
              
              
              0.3
              
              
              0.2
              
              
              0.3Depreciation
                  and amortization
              
              
              3.4
              
              
              3.1
              
              
              3.3
              
              
              3.1General
                  and administrative
              
              
              4.6
              
              
              4.1
              
              
              4.5
              
              
              4.1Provision
                  for impaired assets and restaurant closings
              
              
              0.8
              
              
              -
              
              
              0.5
              
              
              -Income
                  from operations of unconsolidated affiliates
              
              
              *
              
              
              (0.1
              )
              
              *
              
              
              (*
              )Total
                  costs and expenses
              
              
              92.8
              
              
              91.4
              
              
              91.7
              
              
              90.8Income
                  from operations
              
              
              7.2
              
              
              8.6
              
              
              8.3
              
              
              9.2Other
                  income (expense), net
              
              
              (*
              )
              
              (*
              )
              
              (0.1
              )
              
              (0.1
              )Interest
                  income
              
              
              *
              
              
              *
              
              
              *
              
              
              0.1Interest
                  expense
              
              
              (0.1
              )
              
              (0.1
              )
              
              (0.1
              )
              
              (0.1
              )Income
                  before elimination of minority partners' interest andincome
                  taxes
              
              
              7.1
              
              
              8.5
              
              
              8.1
              
              
              9.1Elimination
                  of minority partners' interest
              
              
              0.3
              
              
              0.3
              
              
              0.4
              
              
              0.4Income
                  before provision for income taxes
              
              
              6.8
              
              
              8.2
              
              
              7.7
              
              
              8.7Provision
                  for income taxes
              
              
              2.4
              
              
              2.8
              
              
              2.7
              
              
              3.0Net
                  income
              
              
              4.4
              %
              
              5.4
              %
              
              5.0
              %
              
              5.7
              %
 __________________
 (1)
              As
                  a
                  percentage of restaurant sales.
 *
              Less
                  than 1/10 of one percent of total
                  revenues.
  24
 Table
            of Contents
 **Outback
        Steakhouse, Inc.**
 **MANAGEMENT'S
        DISCUSSION AND ANALYSIS OF**
 **FINANCIAL
        CONDITION AND RESULTS OF OPERATIONS**
 
 **Results
        of Operations (continued)**
 
 System-wide
        sales grew by 13.1% for the quarter ended June 30, 2005. 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, are provided in
        the
        two tables below:
 
 **THREE
                  MONTHS ENDED**
              
              **SIX
                  MONTHS ENDED****JUNE
                  30,**
              
              **JUNE
                  30,****2005**
              
              **2004**
              
              **2005**
              
              **2004**OUTBACK
                  STEAKHOUSE, INC. RESTAURANT SALES (in millions):Outback
                  SteakhousesDomestic
              
              $
              574
              
              $
              561
              
              $
              1,148
              
              $
              1,120International
              
              
              63
              
              
              39
              
              
              121
              
              
              73Total
              
              
              637
              
              
              600
              
              
              1,269
              
              
              1,193Carrabba's
                  Italian Grills
              
              
              147
              
              
              122
              
              
              285
              
              
              241Other
                  restaurants
              
              
              126
              
              
              78
              
              
              246
              
              
              155Total
                  Company-owned restaurant sales
              
              $
              910
              
              $
              800
              
              $
              1,800
              
              $
              1,589
 
 The
        following information presents sales for 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. Our 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. Our 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 changes in the restaurant system, which we believe is
        important information regarding the health of our restaurant
        brands.
 
 **THREE
                  MONTHS ENDED**
              
              **SIX
                  MONTHS ENDED****JUNE
                  30,**
              
              **JUNE
                  30,****2005**
              
              **2004**
              
              **2005**
              
              **2004**FRANCHISE
                  AND DEVELOPMENT JOINT VENTURE SALES (in millions) (1):Outback
                  SteakhousesDomestic
              
              $
              93
              
              $
              88
              
              $
              182
              
              $
              174International
              
              
              27
              
              
              22
              
              
              56
              
              
              44Total
              
              
              120
              
              
              110
              
              
              238
              
              
              218Other
                  restaurants
              
              
              3
              
              
              3
              
              
              6
              
              
              6Total
                  franchise and development joint venture sales (1)
              
              $
              123
              
              $
              113
              
              $
              244
              
              $
              224Income
                  from franchise and development joint ventures (2)
              
              $
              5
              
              $
              4
              
              $
              9
              
              $
              8
 __________________
 (1)
              Franchise
                  and development joint venture sales are not included in our Company
                  revenues as reported in our Consolidated Statements of
                  Income.
 (2)
              Represents
                  the franchise royalty and portion of total income included in our
                  Consolidated Statements of Income in the line items Other revenues
                  or
                  Income from operations of unconsolidated
                  affiliates.
 25
 Table
            of Contents
  **Outback
        Steakhouse, Inc.**
 **MANAGEMENT'S
        DISCUSSION AND ANALYSIS OF**
 **FINANCIAL
        CONDITION AND RESULTS OF OPERATIONS**
 
 **Results
        of Operations (continued)**
 
 **JUNE
                  30,****2005**
              
              **2004**Number
                  of restaurants (at end of the period):Outback
                  SteakhousesCompany-owned
                  - domestic
              
              
              656
              
              
              637Company-owned
                  - international
              
              
              82
              
              
              63Franchised
                  and development joint venture-
                  domestic
              
              
              104
              
              
              100Franchised
                  and development joint venture-
                  international
              
              
              55
              
              
              52Total
              
              
              897
              
              
              852Carrabba's
                  Italian GrillsCompany-owned
              
              
              184
              
              
              159Bonefish
                  GrillsCompany-owned
              
              
              72
              
              
              39Franchised
              
              
              4
              
              
              4Total
              
              
              76
              
              
              43Fleming’s
                  Prime Steakhouse and Wine BarsCompany-owned
              
              
              32
              
              
              24Roy’sCompany-owned
              
              
              19
              
              
              18Cheeseburger
                  in ParadiseCompany-owned
              
              
              17
              
              
              5Paul
                  Lee's Chinese KitchensCompany-owned
              
              
              3
              
              
              -Lee
                  Roy Selmon’sCompany-owned
              
              
              2
              
              
              2System-wide
                  total
              
              
              1,230
              
              
              1,103
 
  26
 Table
            of Contents
 **Outback
        Steakhouse, Inc.**
 **MANAGEMENT'S
        DISCUSSION AND ANALYSIS OF**
 **FINANCIAL
        CONDITION AND RESULTS OF OPERATIONS**
 
 **Three
        months ended June 30, 2005 and 2004**
 
 REVENUES
 
 *Restaurant
        sales.* Restaurant sales increased by 13.7% to $910,120,000 during the second quarter
        of
        2005 compared with $800,260,000 in the same period in 2004. The increase
        in
        restaurant sales was primarily attributable to additional revenues of
        approximately $84,903,000 from the opening of new restaurants after June
        30,
        2004, as well as increases in sales at existing restaurants. The following
        table
        includes additional information about changes in restaurant sales at domestic
        Company-owned restaurants for the three months ended June 30, 2005 and
        2004:
 
 **THREE
                  MONTHS ENDED****JUNE
                  30,****2005**
              
              **2004**Average
                  unit volumes (weekly) for restaurants opened for one year or
                  more:Outback
                  Steakhouses
              
              $
              67,814
              
              $
              68,639Carrabba's
                  Italian Grills
              
              
              64,919
              
              
              60,581Fleming's
                  Prime Steakhouse and Wine Bars
              
              
              91,201
              
              
              87,667Roy's
              
              
              72,166
              
              
              68,475Bonefish
                  Grills
              
              
              61,632
              
              
              62,470Average
                  unit volumes (weekly) for restaurants opened for less than one
                  year:Outback
                  Steakhouses
              
              $
              57,428
              
              $
              59,000Carrabba's
                  Italian Grills
              
              
              56,026
              
              
              59,369Fleming's
                  Prime Steakhouse and Wine Bars
              
              
              71,000
              
              
              65,351Roy's
              
              
              118,659
              (1)
              
              66,365Bonefish
                  Grills
              
              
              61,289
              
              
              58,813Operating
                  weeks:Outback
                  Steakhouses
              
              
              8,508
              
              
              8,218Carrabba's
                  Italian Grills
              
              
              2,316
              
              
              2,021Fleming's
                  Prime Steakhouse and Wine Bars
              
              
              416
              
              
              303Roy's
              
              
              247
              
              
              234Bonefish
                  Grills
              
              
              911
              
              
              502Year
                  to year percentage change:Menu
                  price increases (2):Outback
                  Steakhouses
              
              
              4.7
              %
              
              2.0
              %Carrabba's
                  Italian Grills
              
              
              2.8
              %
              
              1.5
              %Bonefish
                  Grills
              
              
              3.0
              %
              
              2.9
              %Same-store
                  sales (stores open 18 months or more):Outback
                  Steakhouses
              
              
              -0.9
              %
              
              2.2
              %Carrabba's
                  Italian Grills
              
              
              8.3
              %
              
              1.6
              %Fleming's
                  Prime Steakhouse and Wine Bars
              
              
              13.2
              %
              
              15.4
              %Roy's
              
              
              5.8
              %
              
              11.7
              %Bonefish
                  Grills
              
              
              2.9
              %
              
              7.2
              %
 __________________
 (1)
              Represents
                  one restaurant.
 (2)
              Reflects
                  nominal amounts of menu price changes, prior to any change in product
                  mix
                  because of price increases, and may not reflect amounts effectively
                  paid
                  by the customer. Menu price increases are not provided for Fleming's
                  and
                  Roy's as a significant portion of their sales come from specials,
                  which
                  fluctuate daily.
 27
 Table
            of Contents
  **Outback
        Steakhouse, Inc.**
 **MANAGEMENT'S
        DISCUSSION AND ANALYSIS OF**
 **FINANCIAL
        CONDITION AND RESULTS OF OPERATIONS**
 
 **Three
        months ended June 30, 2005 and 2004 (continued)**
 
 *Other
        revenues.* Other
        revenues, consisting primarily of initial franchise fees and royalties,
        increased by $1,169,000 to $5,669,000 in the second quarter of 2005 as compared
        with $4,500,000 in 2004. This increase primarily resulted from higher initial
        franchise fees and royalties from additional stores opened and operated as
        franchises during the second quarter of 2005 compared with the same period
        in
        2004 and increased international royalties.
 
 COSTS
        AND EXPENSES
 
 *Cost
        of sales.* Cost of
        sales, consisting of food and beverage costs, decreased 1.2% to 36.5% as
        a
        percentage of restaurant sales in the second quarter of 2005 compared with
        the
        same period in 2004. Decreases in cost of sales were attributable to an increase
        in the proportion of consolidated sales associated with our non-Outback
        Steakhouse restaurants that have lower cost of goods sold ratios than Outback
        Steakhouses. In addition, menu price increases reduced cost of sales as a
        percentage of restaurant sales and increases in commodity costs for beef
        and
        pork during the period were partially offset by decreases in dairy and produce
        costs, particularly butter, onions and potatoes.
 
 *Labor
        and other related expenses* .
Labor
        and
        other related expenses include all direct and indirect labor costs incurred
        in
        operations, except for distribution expense to employee partners and employee
        partner stock buyout expense, described below. Labor and other related expenses
        increased 0.2% as a percentage of restaurant sales to 24.1% in the second
        quarter of 2005 compared with the same period in 2004. The lower average
        unit
        volumes at domestic Outback Steakhouses, a minimum wage increase in New York,
        Illinois and Florida and increases in the proportion of new restaurant formats,
        which have higher average labor costs than domestic Outback Steakhouses and
        Carrabba's Italian Grills, caused this increase in labor and other related
        expenses as a percentage of restaurant sales.
 
 *Other
        restaurant operating expenses* .
        Other
        restaurant operating expenses include certain unit-level operating costs
        such as
        operating supplies, rent, repair and maintenance, advertising expenses,
        utilities, pre-opening costs and other occupancy costs. Substantial portions
        of
        these expenses are fixed or indirectly variable. These costs increased 0.6%
        to
        21.0% as a percentage of restaurant sales in the second quarter of 2005 compared
        with the same period in 2004. This
        increase resulted from an increase in the proportion of new format restaurants
        and international Outback Steakhouses in operation, which have higher average
        restaurant operating expenses as a percentage of restaurant sales than domestic
        Outback Steakhouses and Carrabba's Italian Grills, as well as higher utility
        costs and increases in the rates we are charged by credit card companies.
        In
        addition, compared to 2004, Carrabba’s accelerated the timing of its advertising
        spending to the second quarter of 2005 as opposed to later in the
        year.
 
 *Distribution
        expense to employee partners, excluding stock expense.* Distribution
        expense to employee partners, excluding stock expense, includes distributions
        to
        managing partners and area operating partners of their percentage of restaurant
        cash flows pursuant to their interest agreements, and cash buyouts of managing
        partners’ rights in the cash flows of their restaurants. These costs increased
        0.2% as a percentage of restaurant sales to 2.6% in the second quarter of
        2005
        compared with the same period in 2004. The increase was primarily attributable
        to higher cash buyouts recorded for ten Outback Steakhouse managing partners
        during the second quarter of 2005.
 
 *Employee
        partner stock buyout expense.* Employee
        partner stock buyout expense includes non-cash expenses recorded for the
        accrual
        of future buyouts of area operating partners’ rights to the cash flows of their
        restaurants. Upon buyout, area operating partners generally receive common
        stock
        in exchange for their rights in the cash flows of a restaurant. Employee
        partner
        stock buyout expense decreased 0.1%  as
        a
        percentage of restaurant sales to 0.2% of
        restaurant sales for the second quarter of 2005 compared with the same period
        in
        2004. Decreases in expense due to buyouts of existing restaurants were partially
        offset by new restaurants opened by area operating partners.
  28
 Table
            of Contents
  **Outback
        Steakhouse, Inc.**
 **MANAGEMENT'S
        DISCUSSION AND ANALYSIS OF**
 **FINANCIAL
        CONDITION AND RESULTS OF OPERATIONS**
 
 **Three
        months ended June 30, 2005 and 2004 (continued)**
 
 *Depreciation
        and amortization* .
        Depreciation and amortization costs increased 0.3% as a percentage of total
        revenues to 3.4% in the second quarter of 2005 compared to the same period
        in
        2004. Increased depreciation expense as a percentage of total revenues resulted
        from lower average unit volumes at domestic Outback Steakhouses during the
        quarter, the continued rollout of a new point of sale system to our Outback
        Steakhouse restaurants, remodeling of restaurants and higher depreciation
        costs
        for certain of our new restaurant formats, which have higher average
        construction costs than an Outback Steakhouse.
 
 *General
        and administrative* .
General
        and administrative costs increased by $9,117,000 to $41,926,000 in the second
        quarter of 2005 compared with $32,809,000 during the same period in 2004. 
        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, Bonefish Grills
        and Cheeseburger in Paradise restaurants. Additionally, the increase
        resulted from approximately $570,000 of compensation expense recognized for
        restricted stock benefits for certain members of senior management,
        approximately $1,200,000 of carrying costs associated with the acquisition
        of
        designation rights from Chi-Chi’s in 2004, legal fees and settlements,
        additional expenditures to support Korean operations and an increase in spending
        on technology projects. These increases were partially offset by the reduction
        in consulting fees paid for supply chain management projects in 2004 that
        did
        not recur in 2005.
 
 *Provision
        for impaired assets and restaurant closing.* A
        provision of approximately $98,000 was recorded during the second quarter
        of
        2005 for the partial impairment of one
        Company-owned Bonefish Grill restaurant in Washington. Also,
        an
        impairment charge of $7,581,000 was recorded against the deferred license
        fee
        receivable associated with certain non-restaurant operations to reflect
        management’s best estimate of its current net realizable value as of June 30,
        2005.
  *Income
        from operations of unconsolidated affiliates* .
        Income
        from operations of unconsolidated affiliates represents our portion of net
        income from restaurants operated as development joint ventures. Income from
        development joint ventures decreased by $411,000 to a loss of $4,000 during
        the
        second quarter of 2005 compared with income of $407,000 during the same period
        in 2004.  This
        decrease was attributable primarily to a write-down of approximately $574,000
        of
        an Outback Steakhouse operated as a joint venture in Pennsylvania.
        Operating performance issues and our inability to obtain more favorable lease
        terms resulted in a decision not to extend the lease for this restaurant
        past
        the initial term.
 
 *Income
        from operations* . As
        a
        result of the increase in revenues, provisions for impaired assets, the opening
        of new restaurants and the changes in the relationships between revenues
        and
        expenses discussed above, income from operations decreased by $2,878,000
        to
        $66,371,000 in the second quarter of 2005 compared with $69,249,000 in the
        same
        period in 2004.
 
 *Interest
        income* .
        Interest income was $450,000 during the second quarter of 2005 compared with
        $278,000 in the same period in 2004. Interest
        income increased due to higher interest rates on short-term investment balances
        during the second quarter of 2005 compared with the same period in 2004.
        Interest income for the quarters ended June 30, 2005 and 2004 included interest
        of approximately $255,000 and $122,000, respectively, from notes receivable
        held
        by a limited liability company owned by our California franchisee.
 
 *Interest
        expense* .
        Interest expense was $1,513,000 during the second quarter of 2005 compared
        with
        $694,000 in the same period in 2004. The
        increase in interest expense was due to higher average debt balances and
        higher
        interest rates during the second quarter of 2005 compared with the second
        quarter of 2004. Interest
        expense for the quarters ended June 30, 2005 and 2004 included approximately
        $255,000 and $122,000, respectively, of expense from outstanding borrowings
        on
        the line of credit held by a limited liability company owned by our California
        franchisee.
  29
 Table
            of Contents
  **Outback
        Steakhouse, Inc.**
 **MANAGEMENT'S
        DISCUSSION AND ANALYSIS OF**
 **FINANCIAL
        CONDITION AND RESULTS OF OPERATIONS**
 
 **Three
        months ended June 30, 2005 and 2004 (continued)**
 
 *Elimination
        of minority partners' interest* .
        This
        line item represents the portion of income or loss from operations included
        in
        consolidated operating results attributable to our partners’ ownership
        interests. As a percentage of revenues, minority partners’ income remained flat
        at 0.3% during
        the quarters ended June 30, 2005 and 2004, respectively.
 
 *Provision
        for income taxes* .
        The
        provision for income taxes in the second quarter of both 2005 and 2004 reflects
        expected income taxes due at federal statutory rates and state income tax
        rates,
        net of the federal benefit. The effective income tax rate was 35.1% during
        the
        second quarter of 2005 and 34.3% during the second quarter of 2004. The increase
        in the rate resulted from non-deductibility of certain management compensation
        during the second quarter of 2005.  Approximately
        21% of our international restaurants in which we have a direct investment
        are
        owned through a Cayman Island corporation.
 
 *Net
        income and earnings per share* .
        Net
        income for the second quarter of 2005 was $40,405,000 compared with $43,311,000
        in the same period in 2004. Basic earnings per share decreased to $0.55 during
        the second quarter of 2005 compared with $0.58 for the same period in 2004
        as a
        result of the decreas e
        in net
        income and a decrease in basic weighted average shares outstanding of
        approximately 288,000 shares. Th e
        decrease in basic weighted average shares outstanding for the quarter ended
        June
        30, 2005 compared with June 30, 2004 was primarily due to common
        stock repurchases ,
        partially offset by the issuance of shares under stock option plans.  Diluted
        earnings per share decreased to $0.53 during the second quarter of 2005 compared
        with $0.56 for the same period in 2004 as a resu lt
        of the
        decrease in net income and the decrease in diluted weighted average shares
        outstanding of approximately 1,058,000 shares. The decrease
        in diluted weighted average shares outstanding for the quarter ended June
        30,
        2005 compared with June 30, 2004 was primarily due to common
        stock repurchases, partially offset by the issuance of shares under stock
        option
        plans.
  30
 Table
            of Contents
 **Outback
        Steakhouse, Inc.**
 **MANAGEMENT'S
        DISCUSSION AND ANALYSIS OF**
 **FINANCIAL
        CONDITION AND RESULTS OF OPERATIONS**
 
 **Six
        months ended June 30, 2005 and 2004**
 
 REVENUES
 
 *Restaurant
        sales.* Restaurant sales increased by 13.3% to $1,800,161,000 during the first half
        of
        2005 compared with $1,589,473,000 in the same period in 2004. The increase
        in
        restaurant sales was primarily attributable to additional revenues of
        approximately $148,863,000 from the opening of new restaurants after June
        30,
        2004, as well as increases in sales at existing restaurants. The following
        table
        includes additional information about changes in restaurant sales at domestic
        Company-owned restaurants for the six months ended June 30, 2005 and
        2004:
 
 **SIX
                  MONTHS ENDED****JUNE
                  30,****2005**
              
              **2004**Average
                  unit volumes (weekly) for restaurants opened for one year or
                  more:Outback
                  Steakhouses
              
              $
              68,377
              
              $
              68,664Carrabba's
                  Italian Grills
              
              
              64,603
              
              
              61,064Fleming's
                  Prime Steakhouse and Wine Bars
              
              
              94,607
              
              
              91,967Roy's
              
              
              74,236
              
              
              71,130Bonefish
                  Grills
              
              
              64,330
              
              
              66,687Average
                  unit volumes (weekly) for restaurants opened for less than one
                  year:Outback
                  Steakhouses
              
              $
              58,052
              
              $
              63,470Carrabba's
                  Italian Grills
              
              
              55,058
              
              
              59,438Fleming's
                  Prime Steakhouse and Wine Bars
              
              
              75,298
              
              
              64,093Roy's
              
              
              113,288
              (1)
              
              69,224Bonefish
                  Grills
              
              
              60,053
              
              
              59,961Operating
                  weeks:Outback
                  Steakhouses
              
              
              16,889
              
              
              16,361Carrabba's
                  Italian Grills
              
              
              4,523
              
              
              3,960Fleming's
                  Prime Steakhouse and Wine Bars
              
              
              822
              
              
              589Roy's
              
              
              487
              
              
              468Bonefish
                  Grills
              
              
              1,716
              
              
              962Year
                  to year percentage change:Menu
                  price increases (2):Outback
                  Steakhouses
              
              
              4.4
              %
              
              2.3
              %Carrabba's
                  Italian Grills
              
              
              2.5
              %
              
              1.4
              %Bonefish
                  Grills
              
              
              2.7
              %
              
              2.3
              %Same-store
                  sales (stores open 18 months or more):Outback
                  Steakhouses
              
              
              -0.7
              %
              
              4.4
              %Carrabba's
                  Italian Grills
              
              
              6.3
              %
              
              3.4
              %Fleming's
                  Prime Steakhouse and Wine Bars
              
              
              11.8
              %
              
              17.4
              %Roy's
              
              
              4.6
              %
              
              14.7
              %Bonefish
                  Grills
              
              
              1.7
              %
              
              11.5
              %
 __________________
 (1)
              Represents
                  one restaurant.
 (2)
              Reflects
                  nominal amounts of menu price changes, prior to any change in product
                  mix
                  because of price increases, and may not reflect amounts effectively
                  paid
                  by the customer. Menu price increases are not provided for Fleming's
                  and
                  Roy's as a significant portion of their sales come from specials,
                  which
                  fluctuate daily.
 31
 Table
            of Contents
  **Outback
        Steakhouse, Inc.**
 **MANAGEMENT'S
        DISCUSSION AND ANALYSIS OF**
 **FINANCIAL
        CONDITION AND RESULTS OF OPERATIONS**
 
 **Six
        months ended June 30, 2005 and 2004 (continued)**
 
 *Other
        revenues.* Other
        revenues, consisting primarily of initial franchise fees and royalties,
        increased by $1,739,000 to $10,750,000 in the first half of 2005 as compared
        with $9,011,000 in 2004. This
        increase primarily resulted from higher initial franchise fees and royalties
        from additional stores opened and operated as franchises during the first
        six
        months of 2005 compared with the same period in 2004.
 
 COSTS
        AND EXPENSES
 
 *Cost
        of sales.* Cost of
        sales, consisting of food and beverage costs, decreased 0.9% to 36.5% as
        a
        percentage of restaurant sales in the first half of 2005 compared with the
        same
        period in 2004. Decreases in cost of sales were attributable to an increase
        in
        the proportion of consolidated sales associated with our non-Outback Steakhouse
        restaurants that have lower cost of goods sold ratios than Outback Steakhouses.
        In addition, menu price increases reduced cost of sales as a percentage of
        restaurant sales and increases in commodity costs for beef and pork during
        the
        period were partially offset by decreases in certain dairy and produce costs,
        particularly butter, onions and potatoes.
 
 *Labor
        and other related expenses* .
Labor
        and
        other related expenses include all direct and indirect labor costs incurred
        in
        operations, except for distribution expense to employee partners and employee
        partner stock buyout expense, described below. Labor and other related expenses
        increased 0.1% as a percentage of restaurant sales to 24.0% in the first
        half of
        2005 compared with the same period in 2004. The increase was attributable
        to
        lower average unit volumes at domestic Outback Steakhouses, a minimum wage
        increase in New York, Illinois and Florida and increases in the proportion
        of
        new restaurant formats, which have higher average labor costs than domestic
        Outback Steakhouses and Carrabba's Italian Grills.
 *Other
        restaurant operating expenses* .
Other
        restaurant operating expenses include certain unit-level operating costs
        such as
        operating supplies, rent, repair and maintenance, advertising expenses,
        utilities, pre-opening costs and other occupancy costs. Substantial portions
        of
        these expenses are fixed or indirectly variable. These costs increased 0.4%
        to
        20.6% as a percentage of restaurant sales in the first half of 2005 compared
        with the same period in 2004. This increase resulted from an increase in
        the
        proportion of new format restaurants and international Outback Steakhouses
        in
        operation, which have higher average restaurant operating expenses as a
        percentage of restaurant sales than domestic Outback Steakhouses and Carrabba's
        Italian Grills, as well as higher utility costs and increases in the rates
        we
        are charged by credit card companies. These increases were offset by a reduction
        in advertising expense.
 *Distribution
        expense to employee partners, excluding stock expense.* Distribution
        expense to employee partners, excluding stock expense, includes distributions
        to
        managing partners and area operating partners of their percentage of restaurant
        cash flows pursuant to their interest agreements, and cash buyouts of managing
        partners’ rights in the cash flows of their restaurants. These costs increased
        0.2% as a percentage of restaurant sales to 2.6% in the first half of 2005
        compared with the same period in 2004. The increase was primarily attributable
        to higher restaurant operating margins, particularly at international Outback
        Steakhouses, and to higher cash buyouts recorded for ten Outback Steakhouse
        managing partners during the second quarter of 2005.
 
 *Employee
        partner stock buyout expense.* Employee
        partner stock buyout expense includes non-cash expenses recorded for the
        accrual
        of future buyouts of area operating partners’ rights to the cash flows of their
        restaurants. Upon buyout, area operating partners generally receive common
        stock
        in exchange for their rights in the cash flows of a restaurant. Employee
        partner
        stock buyout expense decreased 0.1% as a
        percentage of restaurant sales to 0.2% of
        restaurant sales for the first half of 2005 compared with the same period
        in
        2004. Decreases in expense due to buyouts of existing restaurants were partially
        offset by new restaurants opened by area operating partners.
  32
 Table
            of Contents
  **Outback
        Steakhouse, Inc.**
 **MANAGEMENT'S
        DISCUSSION AND ANALYSIS OF**
 **FINANCIAL
        CONDITION AND RESULTS OF OPERATIONS**
 
 **Six
        months ended June 30, 2005 and 2004 (continued)**
 
 *Depreciation
        and amortization* .
        Depreciation and amortization costs increased 0.2% as a percentage of total
        revenues to 3.3% in the first half of 2005 compared to the same period in
        2004.
        Increased depreciation expense as a percentage of total revenues resulted
        from
        lower average unit volumes at domestic Outback Steakhouses during the quarter,
        the continued rollout of a new point of sale system to our Outback Steakhouse
        restaurants, remodeling of restaurants and higher depreciation costs for
        certain
        of our new restaurant formats, which have higher average construction costs
        than
        an Outback Steakhouse.
 
 *General
        and administrative* .
General
        and administrative costs increased by $16,995,000 to $82,051,000 in the first
        half of 2005 compared with $65,056,000 during the same period in 2004. 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, Bonefish Grills
        and Cheeseburger in Paradise restaurants. Additionally, the increase
        resulted from approximately $2,100,000 in compensation expense recognized
        in the
        first quarter of 2005 associated with our new Chief Executive Officer,
        approximately $570,000 of compensation expense for restricted stock benefits
        for
        certain members of senior management, carrying costs of approximately $2,200,000
        associated with the acquisition of designation rights from Chi-Chi’s in 2004,
        legal fees and settlements, additional expenditures to support Korean operations
        and an increase in spending on technology projects. These increases were
        partially offset by the reduction in consulting fees paid for supply chain
        management projects in 2004 that did not recur in 2005.
 
 *Provision
        for impaired assets and restaurant closing.* A
        provision of approximately $776,000 was recorded during the first quarter
        of
        2005 for the closing of one Company-owned Outback Steakhouse restaurant in
        Tennessee, and a provision of $98,000 was recorded during the second quarter
        of
        2005 for the partial impairment of one Company-owned Bonefish Grill restaurant
        in Washington. Also, an impairment charge of $7,581,000 was recorded against
        the
        deferred license fee receivable associated with certain non-restaurant
        operations to reflect management’s best estimate of its current net realizable
        value as of June 30, 2005.
  *Income
        from operations of unconsolidated affiliates* .
        Income
        from operations of unconsolidated affiliates represents our portion of net
        income from restaurants operated as development joint ventures. Income from
        development joint ventures decreased by $761,000 to a loss of $101,000 during
        the first half of 2005 compared with income of $660,000 during the same period
        in 2004.  This
        decrease was attributable primarily to a write-down of approximately $574,000
        of
        an Outback Steakhouse operated as a joint venture in Pennsylvania.
        Operating performance issues and our inability to obtain more favorable lease
        terms resulted in a decision not to extend the lease for this restaurant
        past
        the initial term.Additionally, this decrease was
        attributable to the adoption of a buyout program for managing and area operating
        partners in certain Outback Steakhouses in our joint venture in
        Brazil.
 
 *Income
        from operations* . As
        a
        result of the increase in revenues, provisions for impaired assets, the opening
        of new restaurants and the changes in the relationships between revenues
        and
        expenses discussed above, income from operations increased by $2,276,000
        to
        $150,040,000 in the first half of 2005 compared with $147,764,000 in the
        same
        period in 2004.
 
 *Interest
        income* .
        Interest income was $818,000 during the first half of 2005 compared with
        $610,000 in the same period in 2004. Interest
        income increased due to higher interest rates on short-term investment balances
        during the first half of 2005 compared with the same period in 2004. Interest
        income for the six months ended June 30, 2005 and 2004 included interest
        of
        approximately $500,000 and $240,000, respectively, from notes receivable
        held by
        a limited liability company owned by our California franchisee.
 
 *Interest
        expense* .
        Interest expense was $2,671,000 during the first half of 2005 compared with
        $1,399,000 in the same period in 2004. The
        increase in interest expense was due to higher average debt balances and
        higher
        interest rates during the first half of 2005 compared with the same period
        in
        2004. Interest
        expense for the six months ended June 30, 2005 and 2004 included approximately
        $500,000 and $240,000, respectively, of expense from outstanding borrowings
        on
        the line of credit held by a limited liability company owned by our California
        franchisee.
  33
 Table
            of Contents
  **Outback
        Steakhouse, Inc.**
 **MANAGEMENT'S
        DISCUSSION AND ANALYSIS OF**
 **FINANCIAL
        CONDITION AND RESULTS OF OPERATIONS**
 
 **Six
        months ended June 30, 2005 and 2004 (continued)**
 
 *Elimination
        of minority partners' interest* .
        This
        line item represents the portion of income or loss from operations included
        in
        consolidated operating results attributable to our partners’ ownership
        interests. As a percentage of revenues, minority partners’ income was flat at
        0.4% during the six months ended June 30, 2005 and 2004,
        respectively.
 
 *Provision
        for income taxes* .
        The
        provision for income taxes in the first half of both 2005 and 2004 reflects
        expected income taxes due at federal statutory rates and state income tax
        rates,
        net of the federal benefit. The effective income tax rate was 35.1% during
        the
        first half of 2005 and 34.5% during the first half of 2004. The increase
        in the
        rate resulted from non-deductibility of certain management compensation during
        the first half of 2005.  Approximately
        21% of our international restaurants in which we have a direct investment
        are
        owned through a Cayman Island corporation.
 
 *Net
        income and earnings per share* .
        Net
        income for the first half of 2005 was $91,363,000 compared with $91,142,000
        in
        the same period in 2004. Basic earnings per share increased to $1.24 during
        the
        first half of 2005 compared with $1.23 for the same period in 2004 as a result
        of the increas e
        in net
        income, partially offset by a decrease in basic weighted average shares
        outstanding of approximately 487,000 shares. Th e
        decrease in basic weighted average shares outstanding for the six months
        ended
        June 30, 2005 compared with June 30, 2004 was primarily due to common
        stock repurchases, partially offset by the issuance of shares under stock
        option
        plans.  Diluted
        earnings per share increased to $1.19 during the first half of 2005 compared
        with $1.17 for the same period in 2004 as a resu lt
        of the
        increase in net income, partially offset by a decrease in diluted weighted
        average shares outstanding of approximately 1,239,000 shares. The decrease
        in diluted weighted average shares outstanding for the six months ended June
        30,
        2005 compared with June 30, 2004 was primarily due to common
        stock repurchases, partially offset by the issuance of shares under stock
        option
        plans.
 
 **Liquidity
        and Capital Resources**
 
 The
        following table presents a summary of our cash flows from operating, investing
        and financing activities for the periods indicated (in thousands):
  **SIX
                    MONTHS ENDED****JUNE
                    30,****2005**
                
                **2004**Net
                    cash provided by operating activities
                
                $
                136,591
                
                $
                119,690Net
                    cash used in investing activities
                
                
                (138,587
                )
                
                (108,106
                )Net
                    cash used in financing activities
                
                
                (17,878
                )
                
                (54,254
                )Net
                    decrease in cash and cash equivalents
                
                $
                (19,874
                )
                $
                (42,670
                )
 We
        require capital principally for the development of new restaurants, remodeling
        older restaurants and investments in technology, and on occasion also use
        capital for acquisitions of franchisees and joint venture partners. We also
        require capital to pay dividends to common stockholders (refer to additional
        discussion in the Dividends section of Management’s Discussion and Analysis of
        Financial Condition and Results of Operations). We also utilize capital to
        repurchase our common stock as part of an ongoing share repurchase program.
        Capital expenditures totaled approximately $254,871,000 for the year ended
        December 31, 2004 and approximately $135,493,000 and $114,476,000 during
        the
        first six months of 2005 and 2004, respectively. We either lease our restaurants
        under operating leases for periods ranging from five to 30 years (including
        renewal periods) or build free-standing restaurants where it is cost
        effective.
  34
 Table
            of Contents
  **Outback
        Steakhouse, Inc.**
 **MANAGEMENT'S
        DISCUSSION AND ANALYSIS OF**
 **FINANCIAL
        CONDITION AND RESULTS OF OPERATIONS**
 
 **Liquidity
        and Capital Resources (continued)**
 
 If
        demand
        for our products and services were to decrease as a result of increased
        competition, changing consumer tastes, changes in local, regional, national
        and
        international economic conditions or changes in the level of consumer acceptance
        of our restaurant brands, our restaurant sales could decline significantly.
        The
        following table sets forth approximate amounts by which cash provided by
        operating activities may decline in the event of a decline in restaurant
        sales
        of 5%, 10% and 15% compared with total revenues for the year ended December
        31,
        2004 (in thousands):
 
 **5%**
              
              **10%**
              
              **15%**Decrease
                  in restaurant sales
              
              $
              (159,165
              )
              $
              (318,330
              )
              $
              (477,495
              )Decrease
                  in cash provided by operating activities
              
              
              (30,003
              )
              
              (60,005
              )
              
              (90,008
              )
 
 The
        estimates above are based on the assumption that cash
        provided by operating activities decreases approximately $0.29 for every
        $1.00 decrease in restaurant sales. These numbers are estimates only and
        do not
        consider other measures we could implement were such decreases in revenue
        to
        occur.
 
 We
        have
        formed joint ventures to develop Outback Steakhouses in Brazil and the
        Philippines. We are also developing Company-owned restaurants internationally
        in
        Puerto Rico, Korea, Hong Kong and Japan.
 
 During
        September 2003, we formed a limited liability company to develop Paul Lee’s
        Chinese Kitchen (“Paul Lee’s”) restaurants, which is included in our
        Consolidated Financial Statements. Under the terms of the agreement, we
        committed to the first $10,000,000 of future development costs to open the
        first
        five restaurants, all of which had been expended as of March 31, 2005.
        Additionally, we are subject to a purchase or sale option if for eighteen
        consecutive months there is no restaurant development, whereby our partner
        may
        purchase our interest in the LLC for five times the restaurant cash flows
        for
        the immediately preceding twelve months.
  On
          August
          3, 2004, we were 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. Our objective in acquiring
          these rights is to have access to restaurant sites for conversion to one
          of our
          own concepts under our current expansion plans. The original 76 properties
          included 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 us to transfer properties
          to
          ourselves, to transfer properties to others or to require Chi-Chi’s to retain
          properties. The right to designate properties will expire on September
          20, 2005.
          The purchase price for the designation rights was $42,500,000. We are
          responsible for paying the carrying costs on each of the properties from
          the
          closing date until the date the property is designated for
          transfer.
 
 In
          October 2004, we received $1,100,000 from Chi-Chi’s when it exercised the
          right to exclude one property from the designation rights listing, which
          reduced
          our total purchase price for the remaining 75 properties. Additionally,
          in
          October 2004, we completed an assignment to a third party of our designation
          rights for 25 properties in exchange for $9,975,000. The third party will
          pay
          the carrying costs on these properties from the closing date until the
          property
          is designated for transfer. We required Chi-Chi’s to retain 18 properties,
          leaving 32 properties to which we had rights as of June 30, 2005. In July
          2005,
          we executed our option on the 10 remaining sale-leaseback properties with
          reversion rights and purchase options for approximately $1,400,000. Thus,
          the
          remaining properties include 22 properties with owned land and building,
          eight
          ground leases and two leases. As of June 30, 2005, we have not designated
          15 of
          these properties.
  35
 Table
            of Contents
  **Outback
        Steakhouse, Inc.**
 **MANAGEMENT'S
        DISCUSSION AND ANALYSIS OF**
 **FINANCIAL
        CONDITION AND RESULTS OF OPERATIONS**
 
 **Liquidity
        and Capital Resources (continued)**
 
 CREDIT
        FACILITIES
 
 Effective
        April 27, 2004, we 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 LIBOR (ranging from 3.33%
        to
        3.66% at June 30, 2005). At June 30, 2005, the unused portion of the line
        of
        credit was $76,000,000.
 
 The
        credit agreement contains certain restrictions and conditions as defined
        in the
        agreement that require us 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 June 30, 2005, we were in compliance
        with these debt covenants.
 
 We
        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. On
        April
        28, 2005, we amended this $20,000,000 line
        of
        credit to a maximum borrowing of $30,000,000. 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
        letter of credit advances. The credit agreement contains certain restrictions
        and conditions as defined in the agreement. At June 30, 2005 and December
        31,
        2004, $20,072,000 and $11,782,000, respectively, of the line of credit was
        committed for the issuance of letter of credit advances as required by insurance
        companies that underwrite our workers’ compensation insurance and also, where
        required, for construction of new restaurants.
 
 As
        of
        June 30, 2005, we had approximately $7,507,000 of notes payable at interest
        rates ranging from 2.07% to 7.00%. 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.
 
 We
        have
        notes payable with banks bearing interest at rates ranging from 5.45% to
        7.00%
        to finance development of our restaurants in Korea. The notes are denominated
        and payable in Korean won and mature at dates ranging from July 2005 to January
        2007. As of June 30, 2005 and December 31, 2004, the outstanding balance
        was
        approximately $36,462,000 and $27,717,000, respectively. Certain of the notes
        payable are collateralized by lease and other deposits. At June 30, 2005
        and
        December 31, 2004, collateralized notes totaled approximately $31,346,000
        and
        $25,346,000, respectively.
 
 We
        have
        notes payable with banks to finance the development of our restaurants in
        Japan
        (“Outback Japan”). The notes are payable to banks, collateralized by lease
        deposits of approximately $3,300,000 and $3,600,000 at June 30, 2005 and
        December 31, 2004, respectively, and letters of credit and bear interest
        at
        0.85% and at rates ranging from 0.95% to 0.96% at June 30, 2005 and December
        31,
        2004, respectively. The notes are denominated and payable in Japanese yen,
        with
        outstanding balances as of June 30, 2005 maturing in September 2005. As of
        June
        30, 2005 and December 31, 2004, outstanding balances totaled approximately
        $5,505,000 and $5,769,000, respectively.
  36
 Table
            of Contents
  
 **Outback
        Steakhouse, Inc.**
 **MANAGEMENT'S
        DISCUSSION AND ANALYSIS OF**
 **FINANCIAL
        CONDITION AND RESULTS OF OPERATIONS**
 
 **Liquidity
        and Capital Resources (continued)**
 
 CREDIT
        FACILITIES (continued)
 
 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 maximu m
        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 June 30, 2005 and December
        31,
        2004, Outback Japan had borrowed approximately $9,790,000 and $10,260,000,
        respectively, on th e
        line of
        credit at an average interest rate of 0.69%, with draws as of June 30, 2005
        maturing from August 2005 to June 2006. The revolving line of credit contains
        certain restrictions and conditions as defined in the agreement. As of June
        30,
        2005, we were 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 to 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 June 30, 2005
        and
        December 31, 2004, Outback Japan had borrowed approximately $7,550,000 and
        $8,635,000, respectively, on the line of credit at an average interest rate
        of
        0.76%, with draws as of June 30, 2005 maturing from July 2005 to September
        2005.
        The revolving line of credit contains certain restrictions and conditions
        as
        defined in the agreement. As of June 30, 2005, we were in compliance with
        all of
        the debt covenants.
  We
          are
          the guarantor of an uncollateralized line of credit that permits borrowing
          of up
          to $35,000,000 for a limited liability company, T-Bird Nevada, LLC (“T-Bird”),
          owned by a California franchisee. This line of credit bears interest at
          rates
          ranging from 50 to 90 basis points over LIBOR and matures in December 2008.
          We
          were required to consolidate T-Bird effective January 1, 2004 upon adoption
          of
          FIN 46R. At June 30, 2005 and December 31, 2004, the outstanding balance
          on the
          line of credit was approximately $30,283,000 and $30,343,000, respectively,
          and
          is included in our Consolidated Balance Sheets as long-term debt.  T-Bird
          uses proceeds from the line of credit for the purchase of real estate and
          construction of buildings to be operated as Outback Steakhouse restaurants
          and
          leased to our franchisees. According to the terms of the line of credit,
          T-Bird
          may borrow, repay, re-borrow or prepay advances at any time before the
          termination date of the agreement.
  If
        a
        default under the line of credit were to occur requiring us to perform under
        the
        guarantee obligation, we have the right to call into default all of our
        franchisees in California and exercise any rights and remedies under those
        agreements as well as the right to recourse under loans T-Bird has made to
        individual corporations in California which own the land and/or building
        which
        is leased to those franchise locations. Events of default are defined in
        the
        line of credit agreement and include our covenant commitments under existing
        lines of credit. We are not the primary obligor on the line of credit and
        we are
        not aware of any non-compliance with the underlying terms of the line of
        credit
        agreement that would result in us having to perform in accordance with the
        terms
        of the guarantee. We also guarantee additional term loans associated with
        the
        owner of T-Bird, which are not consolidated, and which had outstanding balances
        of approximately $64,000 as of June 30, 2005.
 
 We
        expect
        that our capital requirements through the end of 2005 will be met by cash
        flows
        from operations and, to the extent needed, advances on our lines of
        credit.
  37
 Table
            of Contents
  **Outback
        Steakhouse, Inc.**
 **MANAGEMENT'S
        DISCUSSION AND ANALYSIS OF**
 **FINANCIAL
        CONDITION AND RESULTS OF OPERATIONS**
 
 **Liquidity
        and Capital Resources (continued)**
 
 Our
        primary source of credit is our uncollateralized revolving line of credit
        that
        permits borrowing up to $150,000,000. Based upon provisions of the line of
        credit agreement and operating data and outstanding borrowings as of and
        through
        June 30, 2005, the margin over LIBOR rates charged to us on future amounts
        drawn
        under the line would not be affected unless: (i) outstanding debt balances
        increased by more than $85,000,000; or (ii) earnings before interest, taxes,
        depreciation, amortization and rent decreased more than 10%. In addition,
        based
        upon provisions of the line of credit agreement, availability of funds under
        the
        uncollateralized revolving line of credit would not be affected unless: (i)
        outstanding debt balances increased by more than $388,000,000; (ii) earnings
        before interest, taxes, depreciation, amortization and rent decreased more
        than
        40%; or (iii) our net worth decreased approximately 33%.
 
 DEBT
        GUARANTEES
 
 We
        are
        the guarantor of an uncollateralized line of credit that permits borrowing
        of up
        to a maximum of $24,500,000 for our joint venture partner, RY-8, Inc. (“RY-8”),
        in the development of Roy's restaurants. The line of credit originally expired
        in December 2004 and was renewed with a new termination date of June 30,
        2007.
        According to the terms of the credit agreement, RY-8 may borrow, repay,
        re-borrow or prepay advances at any time before the termination date of the
        agreement. On the termination date of the agreement, the entire outstanding
        principal amount of the loan then outstanding and any accrued interest is
        due.
        At June 30, 2005, the outstanding balance on the line of credit was
        approximately $22,391,000.
 
 RY-8’s
        obligations under the line of credit are unconditionally guaranteed by us
        and
        Roy’s Holdings, Inc. (“RHI”). If an event of default occurs (as defined in the
        agreement, and including our covenant commitments under existing lines of
        credit), then the total outstanding balance, including any accrued interest,
        is
        immediately due from the guarantors.
 
 If
        an
        event of default occurs and RY-8 is unable to pay the outstanding balance
        owed,
        we would, as guarantor, be liable for this balance. However, in conjunction
        with
        the credit agreement, RY-8 and RHI have entered into an Indemnity Agreement
        and
        a Pledge of Interest and Security Agreement in favor of Outback Steakhouse,
        Inc.
        These agreements provide that if we are required to perform our obligation
        as
        guarantor pursuant to the credit agreement, then RY-8 and RHI will indemnify
        us
        against all losses, claims, damages or liabilities which arise out of or
        are
        based upon our guarantee of the credit agreement. RY-8’s and RHI’s obligations
        under these agreements are collateralized by a first priority lien upon and
        a
        continuing security interest in any and all of RY-8’s interests in the joint
        venture.
 
 We
        are
        the guarantor of up to $9,445,000 of a $68,000,000 note for an unconsolidated
        affiliate, Kentucky Speedway, in which we have a 22.22% equity interest and
        for
        which we operate catering and concession facilities.  At
        June
        30, 2005, the outstanding balance on the note and our guarantee on the note
        were
        approximately $65,000,000 and $9,445,000, respectively. The
        existing note has a put feature that allows the lender to require full payment
        of the note as of December 31, 2005. If Kentucky Speedway is unable to make
        its
        payment on the note, the Company would be responsible for its guarantee at
        that
        time.  Our
        investment is included in the line item entitled “Investments In and Advances to
        Unconsolidated Affiliates, Net.” This affiliate has not yet reached its
        operating break-even point. Accordingly, we have made six
        a dditional
        working capital contributions totaling $3,111,000 since
        2001, including a
        contribution of approximately $867,000 in July 2005. We did not make any
        contributions during the first and second quarters of 2005 and
        $800,000 was paid in 2004. We will be required to make another contribution
        of
        approximately $526,000 in September 2005. In addition, based on current
        operating performance, we anticipate making additional contributions in 2006
        of
        approximately $1,500,000 to $2,000,000.  This
        affiliate is expected to incur further operating losses at least through
        2006.
  We
        are
        not aware of any non-compliance with the underlying terms of the borrowing
        agreements for which we provide a guarantee that would result in us having
        to
        perform in accordance with the terms of the guarantee.
  38
 Table
            of Contents
  **Outback
        Steakhouse, Inc.**
 **MANAGEMENT'S
        DISCUSSION AND ANALYSIS OF**
 **FINANCIAL
        CONDITION AND RESULTS OF OPERATIONS**
 
 **Liquidity
        and Capital Resources (continued)**
 
 SHARE
        REPURCHASE
 
 On
        July
        26, 2000, our Board of Directors authorized the repurchase of up to 4,000,000
        shares of our common stock, with the timing, price, quantity and manner of
        the
        purchases to be made at the discretion of management, depending upon market
        conditions. In addition, the Board of Directors also authorized the repurchase
        of shares on a regular basis to offset shares issued as a result of stock
        option
        exercises. On July 23, 2003, our Board of Directors extended both the repurchase
        authorization for an additional 2,500,000 shares of our common stock, and
        the
        authorization to offset shares issued as a result of stock option exercises.
        We
        will fund the repurchase program with available cash and bank credit facilities.
        During the period from the authorization date through June 30, 2005,
        approximately 7,874,000 shares of our common stock have been issued as the
        result of stock option exercises. As of June 30, 2005, under these
        authorizations we have repurchased approximately 12,966,000 shares of our
        common
        stock for approximately $450,784,000.
 
 DIVIDENDS
 
 Our
        Board
        of Directors authorized the following dividends during 2004 and
        2005:
 
 Declaration
              
              Record
              
              Payable
              
              
              Amount
                  per ShareDate
              
              Date
              
              Date
              
              
              of
                  Common StockJanuary
                  28, 2004
              
              February
                  20, 2004
              
              March
                  5, 2004
              
              
              $
              0.13April
                  21, 2004
              
              May
                  21, 2004
              
              June
                  4, 2004
              
              
              
              0.13July
                  21, 2004
              
              August
                  20, 2004
              
              September
                  3, 2004
              
              
              
              0.13October
                  27, 2004
              
              November
                  19, 2004
              
              December
                  3, 2004
              
              
              
              0.13January
                  26, 2005
              
              February
                  18, 2005
              
              March
                  4, 2005
              
              
              
              0.13April
                  27, 2005
              
              May
                  20, 2005
              
              June
                  3, 2005
              
              
              
              0.13July
                  27, 2005
              
              August
                  19, 2005
              
              September
                  2, 2005
              
              
              
              0.13
 
 At
        the
        current dividend rate, the annual dividend payment is expected to be
        between $38,000,000 and $40,000,000 depending
        on the shares outstanding during the respective quarters. We intend to pay
        dividends with cash flow from operations.
 
 **CRITICAL
        ACCOUNTING POLICIES AND ESTIMATES**
 
 Our
        discussion and analysis of our financial condition and results of operations
        are
        based upon our Unaudited Consolidated Financial Statements, which have been
        prepared in accordance with accounting principles generally accepted in the
        United States of America. The preparation of these financial statements requires
        us to make estimates and judgments that affect the reported amounts of assets,
        liabilities, revenues and expenses, and related disclosure of contingent
        assets
        and liabilities during the reporting period. We base our estimates on historical
        experience and on various other assumptions that are believed to be reasonable
        under the circumstances, the results of which form the basis for making
        judgments about the carrying value of assets and liabilities that are not
        readily apparent from other sources. Actual results may differ from these
        estimates under different assumptions or conditions. Our significant accounting
        policies are described in Note 1 of Notes to Consolidated Financial Statements
        included in our 2004 10-K. We consider the following policies to be the most
        critical in understanding the judgments that are involved in preparing our
        financial statements.
  39
 Table
            of Contents
 **Outback
        Steakhouse, Inc.**
 **MANAGEMENT'S
        DISCUSSION AND ANALYSIS OF**
 **FINANCIAL
        CONDITION AND RESULTS OF OPERATIONS**
 
 **CRITICAL
        ACCOUNTING POLICIES AND ESTIMATES (continued)**
 
 Property,
        Fixtures and Equipment
 
 Property,
        fixtures and equipment are stated at cost, net of accumulated depreciation.
        At
        the time property, fixtures and equipment are retired, or otherwise disposed
        of,
        the asset and accumulated depreciation are removed from the accounts and
        any
        resulting gain or loss is included in earnings. We expense repair and
        maintenance costs incurred to maintain the appearance and functionality of
        the
        restaurant that do not extend the useful life of any restaurant asset or
        are
        less than $1,000. Improvements to leased properties are depreciated over
        the
        shorter of their useful life or the lease term, which includes cancelable
        renewal periods where failure to exercise such options would result in an
        economic penalty. Depreciation is computed on the straight-line method over
        the
        following estimated useful lives:
 
 Buildings
                  and building improvements
              
              20
                  to 31.5 years
              
              Equipment
              
              2
                  to 15 yearsFurniture
                  and fixtures
              
              7
                  years
              
              Leasehold
                  improvements
              
              5
                  to 20 years
 
 Our
        accounting policies regarding property, fixtures and equipment include certain
        management judgments and projections regarding the estimated useful lives
        of
        these assets.  These estimates, judgments and projections may produce
        materially different amounts of depreciation expense than would be reported
        if
        different assumptions were used.
 
 Operating
        Leases
 
 Rent
        expense for our operating leases, which generally have escalating rentals
        over
        the term of the lease, is recorded on a straight-line basis over the initial
        lease term and those renewal periods that are reasonably assured. The initial
        lease term includes the “build-out” period of our leases, where no rent payments
        are typically due under the terms of the lease. The difference between rent
        expense and rent paid is recorded as deferred rent and is included in the
        Consolidated Balance Sheets.
 
 Goodwill
 
 Goodwill
        represents the residual purchase price after allocation of the purchase price
        of
        assets acquired. On an annual basis, we review the recoverability of goodwill
        based primarily upon an analysis of discounted cash flows of the related
        investment asset as compared to the carrying value or whenever events or
        changes
        in circumstances indicate that the carrying amounts may not be recoverable.
        Generally, we perform our annual assessment for impairment during the third
        quarter of the fiscal year, unless facts and circumstances require
        differently.
 
 Impairment
        of Long-Lived Assets
 
 We
        assess
        the potential impairment of identifiable intangibles, long-lived assets and
        goodwill whenever events or changes in circumstances indicate that the carrying
        value may not be recoverable. Recoverability of assets is measured by comparing
        the carrying value of the asset to the future cash flows expected to be
        generated by the asset. In evaluating long-lived restaurant assets for
        impairment, we consider a number of factors such as:
 
 a)
              
              Restaurant
                  sales and cash flow trends;b)
              
              Local
                  competition;c)
              
              Changing
                  demographic profiles;d)
              
              Local
                  economic conditions;e)
              
              New
                  laws and government regulations that adversely affect sales and
                  profits;
                  andf)
              
              The
                  ability to recruit and train skilled restaurant
                  employees.
 40
 Table
            of Contents
  **Outback
        Steakhouse, Inc.**
 **MANAGEMENT'S
        DISCUSSION AND ANALYSIS OF**
 **FINANCIAL
        CONDITION AND RESULTS OF OPERATIONS**
 
 **CRITICAL
        ACCOUNTING POLICIES AND ESTIMATES (continued)**
 
 Impairment
        of Long-Lived Assets (continued)
 
 If
        the
        aforementioned factors indicate that we should review the carrying value
        of the
        restaurant’s long-lived assets, we perform an impairment analysis. Identifiable
        cash flows that are largely independent of other assets and liabilities
        typically exist for land and buildings and for combined fixtures, equipment
        and
        improvements for each restaurant. If the total future cash flows are less
        than
        the carrying amount of the asset, the carrying amount is written down to
        the
        estimated fair value, and a loss resulting from value impairment is recognized
        by a charge to earnings.
 
 Judgments
        and estimates made by us related to the expected useful lives of long-lived
        assets are affected by factors such as changes in economic conditions and
        changes in operating performance. As we assess the ongoing expected cash
        flows
        and carrying amounts of our long-lived assets, these factors could cause
        us to
        realize a material impairment charge.
 
 Insurance
        Reserves
 
 We
        self-insure a significant portion of expected losses under our workers’
        compensation, general liability, health and property insurance programs.
        We
        purchase insurance for individual claims that exceed the amounts listed in
        the
        following table:
 
 **2005**Workers'
                  Compensation
              
              $
              1,000,000General
                  Liability (1)
              
              
              1,500,000Health
                  (2)
              
              
              300,000Property
                  Coverage
              
              
              5,000,000
 ____________
 (1)
              For
                  claims arising from liquor liability, there is an additional $1,000,000
                  deductible until a $2,000,000 aggregate has been met. At that time,
                  any
                  claims arising from liquor liability revert to the general liability
                  deductible.
 (2)
              We
                  are self-insured for annual aggregate health insurance claims that
                  exceed
                  113% of estimates provided by our third party administrator and
                  insurance
                  company.
 
 We
        record
        a liability for all unresolved claims and for an estimate of incurred but
        not
        reported claims at the anticipated cost to us based on estimates provided
        by a
        third party administrator and insurance company. Our accounting policies
        regarding insurance reserves include certain actuarial assumptions and
        management judgments regarding economic conditions, the frequency and severity
        of claims and claim development history and settlement practices. Unanticipated
        changes in these factors may produce materially different amounts of expense
        that would be reported under these programs.
 
 Revenue
        Recognition
 
 We
        record
        revenues for normal recurring sales upon the performance of services. Revenues
        from the sales of franchises are recognized as income when we have substantially
        performed all of our material obligations under the franchise agreement.
        Continuing royalties, which are a percentage of net sales of franchised
        restaurants, are accrued as income when earned. These revenues are included
        in
        the line “Other revenues” in the Consolidated Statements of Income.
 
 Unearned
        revenues primarily represent our liability for gift certificates that have
        been
        sold but not yet redeemed and are recorded at the anticipated redemption
        value.
        When the gift certificates are redeemed, we recognize restaurant sales and
        reduce the related deferred liability.
  41
 Table
            of Contents
  **Outback
        Steakhouse, Inc.**
 **MANAGEMENT'S
        DISCUSSION AND ANALYSIS OF**
 **FINANCIAL
        CONDITION AND RESULTS OF OPERATIONS**
 
 **CRITICAL
        ACCOUNTING POLICIES AND ESTIMATES (continued)**
 
 Employee
        Partner Stock Buyout Expense
 
 Area
        operating partners are required to purchase a 4% to 9% interest in the
        restaurants they develop for an initial investment of $50,000. This interest
        gives the area operating partner the right to receive a percentage of his
        or her
        restaurants' annual cash flows for the duration of the agreement. Under the
        terms of these partners' employment agreements, we have the option to purchase
        their interest after a five-year period under the conditions of the agreement.
        We estimate future purchases of area operating partners' interests using
        current
        information on restaurant performance to calculate and record an accrued
        buyout
        liability in the line item “Partner deposit and accrued buyout liability” in the
        Consolidated Balance Sheets. When partner buyouts occur, they are completed
        primarily through issuance of our common stock to the partner equivalent
        to the
        fair value of their interest. In the period we complete the buyout, an
        adjustment is recorded to recognize any remaining expense associated with
        the
        purchase and reduce the related accrued buyout liability.
 
 Principles
        of Consolidation
 
 The
        Consolidated Financial Statements include the accounts and operations of
        Outback
        Steakhouse, Inc. and our affiliated partnerships in which we are a general
        partner and own a controlling financial interest. We consolidate variable
        interest entities in which we absorb a majority of the entity’s expected losses,
        receive a majority of the entity’s expected residual returns, or both, as a
        result of ownership, contractual or other financial interests in the entity.
        We
        consolidate a limited liability company affiliated with our California
        franchisees that holds a line of credit that we guarantee. The consolidated
        financial statements also include the accounts and operations of our Roy’s
        consolidated venture in which we have a less than majority ownership. We
        consolidate this venture because we control the executive committee (which
        functions as a board of directors) through representation on the board by
        related parties and we are able to direct or cause the direction of management
        and operations on a day-to-day basis. Additionally, the majority of capital
        contributions made by our partner in the consolidated venture have been funded
        by loans to the partner from a third party where we are required to be a
        guarantor of the debt, which provides us control through our collateral interest
        in the joint venture partner’s membership interest. As a result of our
        controlling financial interest in this venture, it is included in our
        consolidated financial statements. The portion of income or loss attributable
        to
        the minority interests, not to exceed the minority interest’s equity in the
        subsidiary, is eliminated in the line item in our Consolidated Statements
        of
        Income entitled “Elimination of minority partners’ interest.” All material
        intercompany balances and transactions have been eliminated.
 
 Recently
        Issued Financial Accounting Standards
 
 In
        December 2004, the FASB issued SFAS No. 123 (Revised), “Share-Based Payment,” a
        revision of SFAS No. 123, “Accounting for Stock-Based Compensation.” SFAS No.
        123R requires the fair value measurement of all stock-based payments to
        employees, including grants of employee stock options, and recognition of
        those
        expenses in the statement of operations. SFAS No. 123R is effective at the
        beginning of the next fiscal year after June 15, 2005. We will continue to
        account for stock-based compensation using the intrinsic value method until
        adoption of SFAS No. 123R on January 1, 2006. Historically, the compensation
        expense recognized related to stock options under this method has been minimal.
        As a result, adoption of the provisions of SFAS No. 123R is expected to have
        a
        significant impact to reported net income and earnings per share. We have
        not
        yet determined the method of adoption or the effect of adopting SFAS No.
        123R
        and have not determined whether the adoption will result in amounts that
        are
        similar to the current pro forma disclosures under SFAS No.
        123.
  42
 Table
            of Contents
  **Outback
        Steakhouse, Inc.**
 **MANAGEMENT'S
        DISCUSSION AND ANALYSIS OF**
 **FINANCIAL
        CONDITION AND RESULTS OF OPERATIONS**
 
 **OUTLOOK**
 
 The
        following discussion of our 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 our
        expectations or beliefs concerning future events and may be identified by
        words
        such as “believes,”  “anticipates,”  “expects,”  “plans,”
         “should,”  “estimates” and similar expressions. Our forward-looking
        statements are subject to risks and uncertainties that could cause actual
        results to differ materially from those stated or implied in the forward-looking
        statement. We have endeavored to identify the most significant factors that
        could cause actual results to differ materially from those stated or implied
        in
        the forward-looking statements in the section entitled “Cautionary Statement”
        below. The results of operations for 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 Operation in our 2004 10-K, we provided information on the
        outlook for our businesses in 2005 and factors that may affect our financial
        results for the year. The remaining paragraphs in this Outlook section update
        the information provided in the Form referenced above and we recommend that
        this
        section be read in conjunction with our 2004 10-K.
 
 Future
        Operating Results
 
 Our
        revenues and financial results in the remainder of 2005 could vary significantly
        depending upon consumer and business spending trends.
 
 2005
        Revenue. During the three-month period ended June 30, 2005, compared with
        the
        same period a year ago, average unit volumes decreased by 1.3% for domestic
        Company-owned Outback Steakhouses and increased by 5.5% for domestic
        Company-owned Carrabba’s Italian Grills.  For the
        full year of 2005, average unit volumes for Outback Steakhouses are anticipated
        to be approximately 1.5% to 2.0% higher than 2004, predominantly resulting
        from
        increased menu prices and projected traffic levels similar to those experienced
        in 2004. This revised estimate is a decrease from the 3.0% estimate
        provided at the end of the first quarter. Average unit volumes for Carrabba's
        Italian Grills for the year are expected to be approximately 4.0% to 4.5%
        higher
        than 2004, which is an increase from our first quarter estimate of
        4.0%.
 
 During
        the quarter ended June 30, 2005, compared with the same period in 2004, average
        unit volumes for Fleming's Prime Steakhouse and Wine Bar increased 4.0%,
        Roy’s
        increased 9.3% and Bonefish Grills’ average unit volumes increased 1.6%. We are
        not adjusting our previous estimates on average unit volumes for Fleming’s. We
        are increasing our estimate of Roy’s average unit volumes to be approximately
        7.0% to 8.0% for the year from our 4.0% estimate at the end of the first
        quarter
        based upon the performance Roy’s has had year-to-date. We continue to estimate
        average unit volumes for Bonefish Grill to be flat for the year based on
        our
        most recent sales trends.
 
 2005
        Cost
        of Sales. As a result of more favorable commodity prices, particularly produce
        such as potatoes and onions, we now expect cost of goods sold as a percentage
        of
        restaurant sales to decrease approximately 70 to 80 basis points for 2005
        from
        2004 amounts.
 
 2005 Labor
        and Other Related Expenses. As a result of lowering the domestic Outback
        Steakhouse average unit volume gain expectations, we expect labor costs to
        be
        approximately 10 basis points higher in 2005 than in 2004.
 
 2005
        Restaurant Operating Expenses. Due to higher utility costs, lower domestic
        Outback Steakhouse average unit volumes and increases in fees charged by
        credit
        card companies experienced during the first half of 2005, we now expect
        restaurant operating expenses to be approximately 30 to 40 basis points higher
        for the year.
  43
 Table
            of Contents
  **Outback
        Steakhouse, Inc.**
 **MANAGEMENT'S
        DISCUSSION AND ANALYSIS OF**
 **FINANCIAL
        CONDITION AND RESULTS OF OPERATIONS**
 
 **OUTLOOK
        (continued)**
 
 2005
        Distribution Expense to Employee Partners. Distribution expense to employee
        partners is affected by the number of cash buyouts of managing partners’
        interests in their restaurants, average unit volumes, ownership percentage
        levels of our employee partners and operating margins across the consolidated
        brands. We expect distribution expense as a percentage of restaurant sales
        to decrease 10 basis points for the year.
 
 2005
        Depreciation and Amortization. Due to lower expected average unit volumes
        from
        domestic Outback Steakhouses and acceleration of some remodeling in those
        restaurants, we now expect depreciation and amortization to increase 10 to
        20
        basis points for the year.
 
 2005
        General and Administrative Costs. As a result of the lower domestic Outback
        Steakhouse average unit volumes during the first six months of 2005 and
        increased compensation expense from the issuance of restricted shares, we
        expect
        general and administrative costs to be approximately 10 to 20 basis points
        higher than the prior year.
 
 We
        are
        now planning for the remainder of 2005 for all other expense ratio variances
        to
        be comparable to those estimated in the 2004 10-K Outlook section.
 
 Expansion
        Strategy
 
 Our
        goal
        is to add new restaurants to the system during the remainder of 2005. The
        following table presents a summary of the expected restaurant openings
        during:
 
 **Second
                  Half**
              
              **Full
                  Year****2005**
              
              **2005**Outback
                  Steakhouses - DomesticCompany-owned
              21
              to
              23
              
              27
              to
              29Franchised
              3
              to
              4
              
              3
              to
              4Outback
                  Steakhouses - InternationalCompany-owned
              4
              to
              5
              
              18
              to
              19Franchised
              1
              to
              2
              
              2
              to
              3Carrabba’s
                  Italian GrillsCompany-owned
              12
              to
              17
              
              28
              to
              33Bonefish
                  GrillsCompany-owned
              22
              to
              27
              
              35
              to
              40Fleming’s
                  Prime Steakhouse and Wine BarsCompany-owned
              8
              to
              10
              
              9
              to
              11Cheeseburger
                  in ParadiseCompany-owned
              10
              to
              12
              
              17
              to
              19Roy’sCompany-owned
              
              1
              
              
              
              2Paul
                  Lee's Chinese KitchenCompany-owned
              
              1
              
              
              
              2Lee
                  Roy Selmon’sCompany-owned
              
              2
              
              
              
              2
  44
 Table
            of Contents
  **Outback
        Steakhouse, Inc.**
 **MANAGEMENT'S
        DISCUSSION AND ANALYSIS OF**
 **FINANCIAL
        CONDITION AND RESULTS OF OPERATIONS**
 
 **Cautionary
        Statement**
 
 As
        noted
        above, our 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)
              
              Our
                  results can be impacted by changes in consumer tastes and the level
                  of
                  consumer acceptance of our restaurant concepts (including consumer
                  tolerance of price increases); local, regional, national and international
                  economic conditions; the seasonality of our business; demographic
                  trends;
                  traffic patterns; change in consumer dietary habits; employee
                  availability; the cost of advertising and media; government actions
                  and
                  policies; inflation; and increases in various costs, including
                  construction and real estate costs;(iii)
              
              Our
                  results can be affected by consumer perception of food
                  safety;(iv)
              
              Our
                  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;(v)
              
              Price
                  and availability of commodities, including but not limited to,
                  such items
                  as beef, chicken, shrimp, pork, seafood, dairy, potatoes, onions
                  and
                  energy supplies, which are subject to fluctuation and could increase
                  or
                  decrease more than we expect; and/or(vi)
              
              Weather
                  and acts of God could result in construction delays and also adversely
                  affect the results of one or more restaurants for an indeterminate
                  amount
                  of time.
  45
 Table
            of Contents
  **Outback
        Steakhouse, Inc.**
 **QUANTITATIVE
        AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK**
 
 **Item
        3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET
        RISK**
 
 We
        are
        exposed to market risk from changes in interest rates on debt, changes in
        foreign currency exchange rates and changes in commodity prices.
 
 Our
        exposure to interest rate fluctuations is limited to our outstanding bank
        debt.
        At June 30, 2005, outstanding borrowings under our revolving lines of credit
        bear interest at 50 to 90 basis points over the 30, 60, 90 or 180-day London
        Interbank Offered Rate. The weighted average effective interest rate on the
        $74,000,000 outstanding balance under these lines at June 30, 2005 was 3.77%.
        At
        June 30, 2005, outstanding borrowings under our Japanese lines of credit
        bear
        interest at either 70.0 to 107.5 basis points over LIBOR or LIBOR divided
        by a
        percentage equal to 1.00 minus the Eurocurrency Reserve Percentage. The weighted
        average effective interest rate on the approximately $17,340,000 outstanding
        balance at June 30, 2005 was 0.72%. Notes payable of approximately $5,505,000
        to
        Japanese banks bear interest at 0.85%. Notes payable of approximately
        $36,462,000 to Korean banks bear interest at rates ranging from 5.45% to
        7.00%
        at June 30, 2005.
 
 At
        June
        30, 2005 and December 31, 2004, our total debt, including consolidated
        guaranteed debt, was approximately $171,097,000 and $144,869,000, respectively.
        Should interest rates based on our average borrowings of approximately
        $158,000,000 through June 30, 2005 increase by one percentage point, our
        estimated annual interest expense would increase by approximately $1,580,000
        over amounts reported for the year ended December 31, 2004.
 
 Our
        exposure to foreign currency exchange fluctuations relates primarily to our
        direct investment in restaurants in Korea, Hong Kong, Japan, the Philippines
        and
        Brazil, our outstanding debt to Japanese and Korean banks of approximately
        $22,845,000 and $36,462,000, respectively, at June 30, 2005 and to our royalties
        from international franchisees. We do not use financial instruments to hedge
        foreign currency exchange rate changes. Our investments in these countries
        totaled approximately $25,746,000 and $24,346,000 as of June 30, 2005 and
        December 31, 2004, respectively.
 
 Many
        of
        the ingredients used in the products sold in our restaurants are commodities
        that are subject to unpredictable price volatility.  Although we attempt
        to
        minimize the effect of price volatility by negotiating fixed price contracts
        for
        the supply of key ingredients, there are no established fixed price markets
        for
        certain commodities such as produce and wild fish, and we are subject to
        prevailing market conditions when purchasing those types of commodities.
        Other
        commodities are purchased based upon negotiated price ranges established
        with
        vendors with reference to the fluctuating market prices. The related agreements
        may contain contractual features that limit the price paid by establishing
        certain price floors and caps. We do 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 our financial results adversely, although any changes in commodity
        prices would affect our competitors at about the same time as us. 
        We
        expect that in most cases increased commodity prices could be passed through
        to
        our consumers via increases in menu prices.  However, if there is
        a time
        lag between the increasing commodity prices and our ability to increase menu
        prices or, if we believe the commodity price increase to be short in duration
        and we choose not to pass on the cost increases, our short-term financial
        results could be negatively affected. Additionally, from time to time,
        competitive circumstances could limit menu price flexibility, and in those
        cases
        margins would be negatively impacted by increased commodity prices.
 
 In
        addition to the market risks identified above and to the risks discussed
        in
“Management’s Discussion and Analysis of Financial Condition and Results of
        Operations,” we are subject to business risk as our beef supply is highly
        dependent upon four vendors. We currently purchase approximately 75% of our
        beef
        from the two largest beef suppliers in the country. If these vendors were
        unable
        to fulfill their obligations under their contracts, we would encounter supply
        shortages and incur higher costs to secure adequate supplies.
 
 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.
  46
 Table
            of Contents
  **Outback
        Steakhouse, Inc.**
 **CONTROLS
        AND PROCEDURES**
 
 **Item
        4. CONTROLS AND PROCEDURES**
 
 **Evaluation
        of Disclosure Controls and Procedures**
 
 We
        have
        established and maintain disclosure controls and procedures that are designed
        to
        ensure that material information relating to the Company and our subsidiaries
        required to be disclosed by us in the reports that we file or submit under
        the
        Securities Exchange Act of 1934 is recorded, processed, summarized and reported
        within the time periods specified in the SEC’s rules and forms, and that such
        information is accumulated and communicated to our management, including
        our
        Chief Executive Officer and Interim
        Principal Financial and Accounting Officer ,
        as
        appropriate to allow timely decisions regarding required disclosure. We carried
        out an evaluation, under the supervision and with the participation of our
        management, including our Chief Executive Officer and Interim
        Principal Financial and Accounting Officer ,
        of the
        effectiveness of the design and operation of our disclosure controls and
        procedures as of the end of the period covered by this report. Based on that
        evaluation, the Chief Executive Officer and Interim
        Principal Financial and Accounting Officer concluded that our disclosure controls and procedures were effective as of
        the
        date of such evaluation.
 
 **Changes
        in Internal Control over Financial Reporting**
 
 There
        have been no changes in our internal control over financial reporting during
        our
        most recent quarter ended June 30, 2005 that have materially affected, or
        are
        reasonably likely to affect, our internal control over financial
        reporting.
 
 47
 Table
            of Contents
  **Outback
        Steakhouse, Inc.**
 **PART
        II: OTHER INFORMATION**
 
 **Item
        1. Legal Proceedings**
 
 We
        are
        subject to legal proceedings, claims and liabilities, such as liquor liability,
        sexual harassment and slip and fall cases, etc., which arise in the ordinary
        course of business and are generally covered by insurance. In the opinion
        of
        management, the amount of the ultimate liability with respect to those actions
        will not have a materially adverse impact on our financial position or results
        of operations and cash flows.
 
 We
        filed
        a report on Form 8-K with the Securities and Exchange Commission dated June
        27,
        2003 regarding the jury verdict in a civil suit against us. On June 26, 2003,
        in
        a civil case against us in the Delaware Circuit Court, County of Delaware,
        State
        of Indiana, titled David D. Markley and Lisa K. Markley, Plaintiffs, vs.
        Outback
        Steakhouse of Florida, Inc., et. al, Defendants, alleging liability under
        the
“dramshop” 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 us was $39,000,000. We appealed the verdict to the Indiana Court
        of
        Appeals .
        On July
        25, 2005, the Court of Appeals affirmed the verdict of the trial courts.
        We
        intend to petition the Court of Appeals for rehearing and, if necessary,
        to seek
        review by the Supreme Court of Indiana. We have
        insurance coverage related to this case provided by our primary carrier for
        $21,000,000 and by an excess insurance carrier for the balance of the verdict
        of
        approximately $19,000,000. The excess insurance carrier, Fireman's Fund
        Insurance Company, has filed a declaratory judgment suit in the U.S. District
        Court, Southern District of Indiana claiming it was not notified of the case
        and
        is therefore not liable for its portion of the verdict. We do not believe
        the
        excess carrier’s case has any merit and we are vigorously defending this case.
        Activity in this case has been held in abeyance pending the decision of the
        appellate court in the “dramshop” case. We have filed counter-claims against the
        excess carrier and cross-claims against the primary carrier and our third-party
        administrator. If the excess carrier’s suit were to succeed, we believe we would
        have rights against the primary carrier and our third party administrator
        to
        recover any amounts we may have to pay.
 
 48
 Table
            of Contents
  ****Outback
        Steakhouse, Inc.****
 **PART
        II: OTHER INFORMATION**
 
 **Item
        2. Unregistered Sales of Equity Securities and Use of
        Proceeds**
  (a)
        Following is information relating to the shares of common stock issued by
        us in
        transactions not registered under the Securities Act of 1933:
  During
        the quarter ended June 30, 2005, we issued approximately 40,200 shares of
        our
        common stock at $46.05 per share to five of our area operating partners for
        their interests in three Outback Steakhouses and 15 Carrabba’s Italian Grills.
        The aggregate value of shares issued was approximately $1,853,000. This issuance
        of securities was exempt from the registration requirements of the
        Securities Act of 1933 in reliance on Section 4(2) of the Securities Act
        as a
        transaction by an issuer not involving a public offering.
 
 On
        June
        13, 2005, we granted 50,000 shares of our restricted common stock to the
        Senior
        Vice President of Real Estate and Development as an inducement grant in
        connection with his hiring. These shares were not issued under any existing
        stock plan. The aggregate value of shares issued was approximately $2,255,000.
        Under the terms of the grant, the 50,000 shares of restricted stock will
        vest as
        follows: on June 13, 2008, 10,000 shares; on June 13, 2010, 10,000 shares;
        on
        June 13, 2012, 15,000 shares; and on June 13, 2015, the balance of all remaining
        unvested shares. This
        issuance of securities was exempt from the registration requirements
        of the
        Securities Act of 1933 in reliance on Section 4(2) of the Securities Act
        as a
        transaction by an issuer not involving a public offering.
 
 (c)
        Issuer Purchases of Equity Securities
 
 The
        following table includes information with respect to purchases of our common
        stock made by us during the quarter ended June 30, 2005:
 
 **Period**
              
              **(a)**
                **Total
                  number of shares purchased (1)**
              
              **Average
                  price paid**
                **per
                  share**
              
              **(c)**
                **Total
                  number of shares purchased as part of publicly announced programs
                  (1)**
              
              **(d)**
                **Maximum
                  number of shares that may yet be purchased under the programs
                  (2)**Month
                  #1(April
                  1 to April 30)
              
              
              175,000
              
              $
              44.67
              
              
              175,000
              
              
              1,355,000Month
                  #2(May
                  1 to May 31)
              
              
              350,000
              
              
              41.91
              
              
              350,000
              
              
              1,464,000Month
                  #3(June
                  1 to June 30)
              
              
              225,000
              
              
              45.20
              
              
              225,000
              
              
              1,408,000Total
              
              
              750,000
              
              
              
              
              
              750,000
              
              
              1,408,000
 ____________
 (1)
              Noshares were repurchased other than through our publicly announced
                  repurchase programs and authorizations during the second quarter
                  ended
                  June 30, 2005.
 (2)
              On
                  July 26, 2000, our Board of Directors authorized the repurchase
                  of up to
                  4,000,000 shares of our common stock, with the timing, price, quantity
                  and
                  manner of the purchases to be made at the discretion of management,
                  depending upon market conditions. In addition, the Board of Directors
                  also
                  authorized the repurchase of shares on a regular basis to offset
                  shares
                  issued as a result of stock option exercises. On July 23, 2003,
                  our Board
                  of Directors extended both the repurchase authorization for an
                  additional
                  2,500,000 shares of our common stock, and the authorization to
                  offset
                  shares issued as a result of stock option exercises. During the
                  period
                  from the authorization date through June 30, 2005, approximately
                  7,874,000
                  shares of our common stock have been issued as the result of stock
                  option
                  exercises. As of June 30, 2005, under these authorizations we have
                  repurchased approximately 12,966,000 shares of our common stock
                  for
                  approximately $450,784,000.
  49
 Table
            of Contents
  **Outback
        Steakhouse, Inc.**
 **PART
        II: OTHER INFORMATION**
  **Item
        4. Submission of Matters to a Vote of Security Holders**
 
 The
        Company held its Annual Meeting of Stockholders on April 27, 2005. Two items
        were submitted for vote at the annual meeting. The results of the election
        are
        as follows:
  1.
                
                To
                    elect four directors, three to serve for a term of three years
                    and one to
                    serve for a term of two years, and until his or her successor
                    is duly
                    elected and qualified.Abstentions and broker non-votes did not count for or against
                    any nominee
                    for director. The following continued to serve as directors as
                    of the
                    Annual Meeting: Chris T. Sullivan, John A. Brabson, Jr., Debbi
                    Fields,
                    Thomas A. James, and Lee Roy Selmon. On April 27, 2005, Robert
                    S. Merritt
                    resigned from the Board of Directors, and the Board voted unanimously
                    to
                    appoint A. William Allen, III, Chief Executive Officer
                    of the
                    Company, as a director to fill the vacancy created by Mr. Merritt’s
                    resignation. Mr. Allen shall serve as a director of the Company
                    until the
                    next Annual Meeting of Shareholders of the Company, April 26,
                    2006,
                    or until his earlier resignation or removal. The results for
                    the election
                    of the directors are as follows:
 
 ****
                **Name
                    of Nominee/Director**
                
                **Votes
                    For**
                
                **Votes
                    Withheld******
                Robert
                    D. Basham
                
                67,572,811
                
                1,930,801****
                W.
                    R. “Max” Carey, Jr.
                
                67,464,779
                
                2,038,833Toby
                    S. Wilt
                
                65,453,137
                
                4,050,475General
                    (Ret) Tommy Franks
                
                68,017,987
                
                1,485,645
 
 2.
                
                A
                    Company proposal to approve an amendment and restatement of the
                    Company’s
                    Managing Partner Stock Plan (the “Plan”). The amendment allows for the
                    grant of shares of restricted common stock under the Plan, but
                    does not
                    increase the number of shares under the Plan. Abstentions had
                    the effect
                    of a vote against the amendment, and broker non-votes were not
                    counted for
                    or against the amendment. The results for the approval of the
                    amendment
                    are as follows:
  **Votes
                  For**
              
              **Votes
                  Against**
              
              **Votes
                  Abstained**36,202,474
              
              26,111,047
              
              696,399
 
  50
 Table
            of Contents
  **Outback
        Steakhouse, Inc.**
 **PART
        II: OTHER INFORMATION**
 
 **Item
        6. Exhibits**
  **Number**
                
                **Description**10.01*
                
                Employment
                    Agreement effective March 8, 2005 by and among A. William Allen,
                    III, OS
                    Restaurant Services, Inc., and Outback Steakhouse, Inc. (included
                    as an
                    exhibit to Registrant’s Current Report on Form 8-K/A filed May 18, 2005
                    and incorporated herein by reference)10.02*
                
                Amendment
                    to Officer Employment Agreement entered into by and among OS
                    Restaurant
                    Services, Inc., Outback Steakhouse, Inc. and Paul E. Avery effective
                    for
                    all purposes as of March 8, 2005 (filed herewith)10.03*
                
                Restricted
                    Stock Agreement effective April 27, 2005 by and between OS Restaurant
                    Services, Inc., Outback Steakhouse, Inc., and A. William Allen,
                    III
                    (included as an exhibit to Registrant’s Current Report on Form 8-K/A filed
                    May 18, 2005 and incorporated herein by reference)10.04*
                
                Restricted
                    Stock Agreement effective April 27, 2005 by and between Outback
                    Steakhouse, Inc. and General (Ret) Tommy R. Franks (included
                    as an exhibit
                    to Registrant’s Current Report on Form 8-K filed May 26, 2005 and
                    incorporated herein by reference)10.05*
                
                Summary
                    of Consulting Arrangement between Robert S. Merritt and Outback
                    Steakhouse, Inc. (filed herewith)10.06
                
                Restricted
                    Stock Agreement, Partner Form (filed herewith)10.07
                
                Restricted
                    Stock Agreement, Director Form (filed herewith)10.08
                
                Restricted
                    Stock Agreement, Officer Form (filed herewith)10.09
                
                Restricted
                    Stock Agreement, Officer Inducement Form (filed
                    herewith)10.10
                
                First
                    Amendment to Lease Agreement made as of June 14, 1999 between
                    Crescent
                    Resources, Inc. and Outback Steakhouse, Inc. (filed
                    herewith)10.11
                
                Second
                    Amendment to Lease dated as of October 19, 2001 by and between
                    Crescent
                    Brookdale Associates, LLC and Outback Steakhouse, Inc. (filed
                    herewith)10.12
                
                Third
                    Amendment to Lease Agreement made as of December 31, 2003 by
                    and between
                    Crescent Brookdale Associates, LLC and Outback Steakhouse, Inc.
                    (filed
                    herewith)10.13
                
                Fourth
                    Amendment to Lease Agreement made as of March 17, 2005 by and
                    between
                    Crescent Brookdale Associates, LLC and Outback Steakhouse, Inc.
                    (filed
                    herewith)10.14
                
                Fifth
                    Amendment to Lease Agreement made as of June 23, 2005 by and
                    between
                    Crescent Brookdale Associates, LLC and Outback Steakhouse, Inc.
                    (filed
                    herewith)10.15*
                
                Restricted
                    Stock Agreement by and between Outback Steakhouse, Inc. and Richard
                    Renninger effective on the date of commencement of Grantee’s employment
                    with the Company (filed herewith)10.16
                
                Amended
                    and Restated Sublicense Agreement dated as of July 22, 2005 and
                    effective
                    as of January 1, 2005 by and between Cheeseburger Holding Company,
                    LLC and
                    Cheeseburger in Paradise, LLC (filed herewith)10.17
                
                Action
                    by Unanimous Written Consent of the Members of OS/PLCK, LLC executed
                    August 8, 2005 to be effective as of July 21, 2005 (filed
                    herewith)10.18
                
                Action
                    by Unanimous Written Consent of the Members of Outback/Fleming’s, LLC
                    executed August 8, 2005 to be effective as of July 21, 2005 (filed
                    herewith)
 51
 Table
            of Contents
  
 **Number**
              
              **Description**31.1
              
              Certification
                  of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley
                  Act of 200231.2
              
              Certification
                  of Interim Principal Financial and Accounting Officer pursuant
                  to Section
                  302 of the Sarbanes-Oxley Act of 200232.1
              
              Certification
                  of Chief Executive Officer pursuant to 18 U.S.C. Section 1350,
                  as adopted
                  pursuant to Section 906 of the Sarbanes-Oxley Act of 2002132.2
              
              Certification
                  of Interim Principal Financial and Accounting Officer pursuant
                  to 18
                  U.S.C. Section 1350, as adopted pursuant to Section 906 of the
                  Sarbanes-Oxley Act of 20021
 
 *
        Management contract or compensatory plan or arrangement required to be filed
        as
        an exhibit.
 
 1 These
        certifications are not deemed to be “filed” for purposes of Section 18 of the
        Exchange Act, or otherwise subject to the liability of that section. These
        certifications will not be deemed to be incorporated by reference into any
        filing under the Securities Act or the Exchange Act, except to the extent
        that
        the registrant specifically incorporates them by reference.
 
 The
        registrant hereby undertakes to furnish supplementally a copy of any omitted
        schedule or other attachment to the Securities and Exchange Commission upon
        request.
 
  52
 Table
            of Contents
  **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.
 
 
 
 Date:
                  August 9, 2005
              
              OUTBACK
                  STEAKHOUSE, INC.By:/s/
                  A. William Allen,
                  IIIA.
                  William Allen, III
                Chief
                  Executive Officer
                (Principal
                  Executive Officer)By:/s/
                  Joseph W.
                  HartnettJoseph
                  W. Hartnett
                Vice
                  President - Corporate Accounting
                (Interim
                  Principal Financial and Accounting Officer)
  
 53