**UNITED
      STATES**


**SECURITIES
      AND EXCHANGE COMMISSION**


**Washington,
      D.C. 20549**





**FORM
      10-Q**





**(Mark
                One)**[X]
            **Quarterly
                Report Pursuant to Section 13 or 15(d) of the Securities Exchange
                Act of
                1934**For
                the quarterly period ended**September
                30, 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





Indicate
      by check mark whether the registrant is a shell company (as defined in rule
      12b-2 of the Exchange Act).





YES o NO x





As
      of November 4, 2005, the registrant had outstanding 74,659,565
      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 September 30, 2005**





**TABLE
      OF CONTENTS**








**PART
                I — FINANCIAL INFORMATION****Page
                No****.**Item 1.
            Consolidated
                Financial Statements:Consolidated
                Balance Sheets — September 30, 2005 (Unaudited)
                and December 31, 2004
            3Consolidated
                Statements of Income (Unaudited) — For the Three
                and Nine Months Ended
              September
                30, 2005 and 2004
            4Consolidated
                Statements of Cash Flows (Unaudited) — For the
                Nine Months Ended
              September
                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
            45Item 4.
            Controls
                and Procedures
            46**PART
                II****—****OTHER INFORMATION**Item 1.
            Legal
                Proceedings
            47Item
                2.
            Unregistered
                Sales of Equity Securities and Use of
                Proceeds
            48Item 6.
            Exhibits
            49Signatures
            50











2
 Table
          of Contents





**P****ART
      I: FINANCIAL INFORMATION**





**Item
      1. CONSOLIDATED FINANCIAL STATEMENTS**





**Outback
      Steakhouse, Inc.** ****


**CONSOLIDATED
      BALANCE SHEETS** **(IN THOUSANDS)**




**SEPTEMBER
                  30,**
              
              **DECEMBER
                  31,****2005**
              
              **2004****(UNAUDITED)**ASSETSCurrent
                  AssetsCash
                  and cash equivalents
              
              $
              40,271
              
              $
              87,977Short-term
                  investments
              
              
              1,571
              
              
              1,425Inventories
              
              
              57,623
              
              
              63,448Deferred
                  income tax asset
              
              
              18,263
              
              
              12,969Other
                  current assets
              
              
              46,571
              
              
              53,068Total
                  current assets
              
              
              164,299
              
              
              218,887Property,
                  fixtures and equipment, net
              
              
              1,351,563
              
              
              1,235,151Investments
                  in and advances to unconsolidated affiliates, net
              
              
              19,896
              
              
              16,254Deferred
                  income tax asset
              
              
              30,589
              
              
              6,660Goodwill
              
              
              111,843
              
              
              107,719Intangible
                  assets, net
              
              
              20,625
              
              
              21,683Other
                  assets
              
              
              112,154
              
              
              71,438Notes
                  receivable collateral for franchisee guarantee
              
              
              30,380
              
              
              30,239$
              1,841,349
              
              $
              1,708,031LIABILITIES
                  AND STOCKHOLDERS' EQUITYCurrent
                  LiabilitiesAccounts
                  payable
              
              $
              70,905
              
              $
              74,162Sales
                  taxes payable
              
              
              19,610
              
              
              26,735Accrued
                  expenses
              
              
              125,327
              
              
              97,124Current
                  portion of partner deposit and accrued buyout liability
              
              
              13,695
              
              
              13,561Unearned
                  revenue
              
              
              21,330
              
              
              100,895Income
                  taxes payable
              
              
              7,150
              
              
              87Current
                  portion of long-term debt
              
              
              55,983
              
              
              54,626Total
                  current liabilities
              
              
              314,000
              
              
              367,190Partner
                  deposit and accrued buyout liability
              
              
              72,564
              
              
              63,102Deferred
                  rent
              
              
              49,877
              
              
              44,075Long-term
                  debt
              
              
              110,111
              
              
              59,900Guaranteed
                  debt of franchisee
              
              
              30,483
              
              
              30,343Other
                  long-term liabilities
              
              
              43,194
              
              
              6,114Total
                  liabilities
              
              
              620,229
              
              
              570,724Commitments
                  and contingenciesInterest
                  of minority partners in consolidated partnerships
              
              
              45,618
              
              
              48,905Stockholders'
                  EquityCommon
                  stock, $0.01 par value, 200,000 shares authorized; 78,750 and 78,750
                  shares issued;74,641
                  and 73,767 shares outstanding as of September 30, 2005 and December
                  31,
                  2004, respectively
              
              
              788
              
              
              788Additional
                  paid-in capital
              
              
              287,540
              
              
              271,109Retained
                  earnings
              
              
              1,092,570
              
              
              1,025,447Accumulated
                  other comprehensive loss
              
              
              (1,204
              )
              
              (2,118
              )Unearned
                  compensation related to outstanding restricted stock
              
              
              (23,416
              )
              
              -1,356,278
              
              
              1,295,226Less
                  treasury stock, 4,109 and 4,983 shares at September 30, 2005 and
                  December
                  31, 2004,respectively,
                  at cost
              
              
              (180,776
              )
              
              (206,824
              )Total
                  stockholders’ equity
              
              
              1,175,502
              
              
              1,088,402$
              1,841,349
              
              $
              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**
              
              **NINE
                  MONTHS ENDED****SEPTEMBER
                  30,**
              
              **SEPTEMBER
                  30,****2005**
              
              **2004**
              
              **2005**
              
              **2004****(restated)**
              
              
              
              **(restated)**RevenuesRestaurant
                  sales
              
              $
              867,424
              
              $
              776,355
              
              $
              2,667,585
              
              $
              2,365,828Other
                  revenues
              
              
              5,020
              
              
              4,243
              
              
              15,770
              
              
              13,254Total
                  revenues
              
              
              872,444
              
              
              780,598
              
              
              2,683,355
              
              
              2,379,082Costs
                  and expensesCost
                  of sales
              
              
              317,977
              
              
              293,666
              
              
              975,083
              
              
              888,132Labor
                  and other related
              
              
              215,382
              
              
              189,562
              
              
              647,233
              
              
              569,054Other
                  restaurant operating
              
              
              195,672
              
              
              166,356
              
              
              566,125
              
              
              487,221Distribution
                  expense to employee partners, excluding stock expense
              
              
              18,277
              
              
              17,867
              
              
              64,314
              
              
              55,649Employee
                  partner stock buyout expense
              
              
              838
              
              
              1,269
              
              
              5,313
              
              
              5,666Depreciation
                  and amortization
              
              
              32,393
              
              
              26,828
              
              
              92,735
              
              
              76,150General
                  and administrative
              
              
              40,001
              
              
              36,582
              
              
              122,052
              
              
              101,638Hurricane
                  property and inventory losses
              
              
              1,412
              
              
              3,024
              
              
              1,412
              
              
              3,024Provision
                  for impaired assets and restaurant closings
              
              
              1,396
              
              
              2,394
              
              
              9,851
              
              
              2,394Contribution
                  for “Dine Out for Hurricane Relief”
              
              
              1,000
              
              
              -
              
              
              1,000
              
              
              -Income
                  from operations of unconsolidated affiliates
              
              
              (766
              )
              
              (407
              )
              
              (665
              )
              
              (1,067
              )Total
                  costs and expenses
              
              
              823,582
              
              
              737,141
              
              
              2,484,453
              
              
              2,187,861Income
                  from operations
              
              
              48,862
              
              
              43,457
              
              
              198,902
              
              
              191,221Other
                  income (expense), net
              
              
              (75
              )
              
              (370
              )
              
              (1,098
              )
              
              (1,459
              )Interest
                  income
              
              
              658
              
              
              337
              
              
              1,476
              
              
              947Interest
                  expense
              
              
              (1,848
              )
              
              (1,009
              )
              
              (4,519
              )
              
              (2,408
              )Income
                  before elimination of minority partners'interest
                  and income taxes
              
              
              47,597
              
              
              42,415
              
              
              194,761
              
              
              188,301Elimination
                  of minority partners' interest
              
              
              1,168
              
              
              687
              
              
              7,558
              
              
              7,529Income
                  before provision for income taxes
              
              
              46,429
              
              
              41,728
              
              
              187,203
              
              
              180,772Provision
                  for income taxes
              
              
              16,297
              
              
              14,412
              
              
              65,708
              
              
              62,314Net
                  income
              
              $
              30,132
              
              $
              27,316
              
              $
              121,495
              
              $
              118,458Basic
                  earnings per common share
              
              $
              0.41
              
              $
              0.37
              
              $
              1.64
              
              $
              1.60Basic
                  weighted average number of shares outstanding
              
              
              74,167
              
              
              73,896
              
              
              73,991
              
              
              74,223Diluted
                  earnings per common share
              
              $
              0.39
              
              $
              0.36
              
              $
              1.58
              
              $
              1.52Diluted
                  weighted average number of shares outstanding
              
              
              76,832
              
              
              76,869
              
              
              76,794
              
              
              77,752Cash
                  dividends per common share
              
              $
              0.13
              
              $
              0.13
              
              $
              0.39
              
              $
              0.39


See
      notes
      to unaudited consolidated financial statements.




4
 Table
          of Contents




**Outback
      Steakhouse, Inc.**


**CONSOLIDATED
      STATEMENTS OF CASH FLOWS**


**(IN
      THOUSANDS, UNAUDITED)**




**NINE
                  MONTHS ENDED****SEPTEMBER
                  30,****2005**
              
              **2004****(restated)**Cash
                  flows from operating activities:Net
                  income
              
              $
              121,495
              
              $
              118,458Adjustments
                  to reconcile net income to cash provided by operating
                  activities:Depreciation
                  and amortization
              
              
              92,735
              
              
              76,150Provision
                  for impaired assets and restaurant closings
              
              
              11,263
              
              
              5,418Restricted
                  stock expense
              
              
              1,830
              
              
              -Employee
                  partner stock buyout expense
              
              
              5,313
              
              
              5,666Minority
                  partners’ interest in consolidated partnerships’ income
              
              
              7,558
              
              
              7,529Income
                  from operations of unconsolidated affiliates
              
              
              (665
              )
              
              (1,067
              )Change
                  in deferred income taxes
              
              
              (29,223
              )
              
              (8,320
              )Loss
                  on disposal of property, fixtures and equipment
              
              
              2,530
              
              
              2,990Change
                  in assets and liabilities, net of effects of acquisitions and FIN
                  46
                  consolidations:Decrease
                  in inventories
              
              
              5,617
              
              
              11,183Decrease
                  (increase) in other current assets
              
              
              4,679
              
              
              (9,158
              )Increase
                  in other assets
              
              
              (8,173
              )
              
              (7,494
              )Increase
                  in accounts payable, sales taxes payable and accrued expenses
              
              
              17,853
              
              
              27,554Increase
                  in partner deposit and accrued buyout liability
              
              
              6,821
              
              
              6,459Decrease
                  in other long-term liabilities
              
              
              (1,920
              )
              
              -Increase
                  in deferred rent
              
              
              5,802
              
              
              4,639Decrease
                  in unearned revenue
              
              
              (79,565
              )
              
              (65,701
              )Increase
                  in income taxes payable
              
              
              23,494
              
              
              24,911Net
                  cash provided by operating activities
              
              
              187,444
              
              
              199,217Cash
                  flows used in investing activities:Purchase
                  of investment securities
              
              
              (2,605
              )
              
              (60,125
              )Maturities
                  and sales of investment securities
              
              
              2,459
              
              
              72,414Cash
                  paid for acquisition of business, net of cash acquired
              
              
              (5,200
              )
              
              (28,066
              )Cash
                  paid for designation rights
              
              
              -
              
              
              (42,500
              )Capital
                  expenditures
              
              
              (215,236
              )
              
              (181,141
              )Proceeds
                  from the sale of property, fixtures and equipment
              
              
              4,337
              
              
              2,426Increase
                  in cash from adoption of FIN 46
              
              
              -
              
              
              1,080Payments
                  from unconsolidated affiliates
              
              
              131
              
              
              235Distributions
                  to unconsolidated affiliates
              
              
              -
              
              
              (121
              )Investments
                  in and advances to unconsolidated affiliates
              
              
              (2,194
              )
              
              (800
              )Net
                  cash used in investing activities
              
              
              (218,308
              )
              
              (236,598
              )


(CONTINUED...)





5
 Table
          of Contents





**Outback
      Steakhouse, Inc.**


**CONSOLIDATED
      STATEMENTS OF CASH FLOWS**


**(IN
      THOUSANDS, UNAUDITED)**




**NINE
                  MONTHS ENDED****SEPTEMBER
                  30,****2005**
              
              **2004****(restated)**Cash
                  flows (used in) provided by financing activities:Proceeds
                  from issuance of long-term debt
              
              
              94,954
              
              
              123,449Proceeds
                  from minority partners' contributions
              
              
              4,122
              
              
              3,042Distributions
                  to minority partners
              
              
              (13,300
              )
              
              (12,145
              )Repayments
                  of long-term debt
              
              
              (50,886
              )
              
              (31,013
              )Proceeds
                  from sale-leaseback transactions
              
              
              5,000
              
              
              -Dividends
                  paid
              
              
              (28,919
              )
              
              (28,925
              )Payments
                  for purchase of treasury stock
              
              
              (71,966
              )
              
              (84,955
              )Proceeds
                  from reissuance of treasury stock
              
              
              44,153
              
              
              30,690Net
                  cash (used in) provided by financing activities
              
              
              (16,842
              )
              
              143Net
                  decrease in cash and cash equivalents
              
              
              (47,706
              )
              
              (37,238
              )Cash
                  and cash equivalents at the beginning of the period
              
              
              87,977
              
              
              102,892Cash
                  and cash equivalents at the end of the period
              
              $
              40,271
              
              $
              65,654Supplemental
                  disclosures of cash flow information:Cash
                  paid for interest
              
              $
              4,379
              
              $
              2,055Cash
                  paid for income taxes
              
              
              73,142
              
              
              48,507Supplemental
                  disclosures of non-cash items:Purchase
                  of minority and employee partners' interests in cash flows of their
                  restaurants
              
              $
              3,128
              
              $
              932Litigation
                  liability and insurance receivable
              
              
              39,000
              
              
              -Debt
                  assumed under FIN 46R
              
              
              -
              
              
              28,743Issuance
                  of restricted stock
              
              
              25,245
              
              
              -


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
      for the year ended December 31, 2004 (“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.





On
      July
      22, 2005, the Company’s wholly-owned subsidiary OS Tropical, Inc. and
      Cheeseburger Holding Company, LLC (an unrelated entity controlled by Jimmy
      Buffett) entered into certain agreements. Pursuant to these agreements,
      Cheeseburger Holding Company, LLC transferred to OS Tropical, Inc. its 40%
      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.





**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.




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
      Consolidated Financial Statements as of and for the three and nine months ended
      September 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 nine months ended September 30, 2004 are summarized below.




The
      following table reflects the effect of the restatement on the Consolidated
      Statements of Income (in thousands):




**THREE
                  MONTHS ENDED**
              
              **NINE
                  MONTHS ENDED****SEPTEMBER
                  30,**
              
              **SEPTEMBER
                  30,****2004**
              
              **2004**
              
              **2004**
              
              **2004****as
                  previously reported**
              
              **as
                  restated**
              
              **as
                  previously reported**
              
              **as
                  restated**Selected
                  Statement of Income Data:Other
                  restaurant operating (1)
              
              $
              164,522
              
              $
              166,356
              
              $
              482,411
              
              $
              487,221Total
                  costs and expenses
              
              
              735,307
              
              
              737,141
              
              
              2,183,051
              
              
              2,187,861Income
                  from operations
              
              
              45,291
              
              
              43,457
              
              
              196,031
              
              
              191,221Income
                  before elimination of minority partners'interest
                  and income taxes
              
              
              44,249
              
              
              42,415
              
              
              193,111
              
              
              188,301Elimination
                  of minority partners' interest
              
              
              951
              
              
              687
              
              
              8,266
              
              
              7,529Income
                  before provision for income taxes
              
              
              43,298
              
              
              41,728
              
              
              184,845
              
              
              180,772Provision
                  for income taxes
              
              
              15,024
              
              
              14,412
              
              
              64,141
              
              
              62,314Net
                  income
              
              
              28,274
              
              
              27,316
              
              
              120,704
              
              
              118,458Basic
                  earnings per common share
              
              $
              0.38
              
              $
              0.37
              
              $
              1.63
              
              $
              1.60Diluted
                  earnings per common share
              
              $
              0.37
              
              $
              0.36
              
              $
              1.55
              
              $
              1.52
 ____________


(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):




**SEPTEMBER
                  30,****2004**
              
              **2004****as
                  previously reported**
              
              **as
                  restated**Selected
                  Balance Sheet Data:Investments
                  in and advances to unconsolidated affiliates, net
              
              $
              17,013
              
              $
              16,344Total
                  assets
              
              
              1,626,446
              
              
              1,625,777Deferred
                  rent
              
              
              1,946
              
              
              42,093Deferred
                  income tax liability
              
              
              10,780
              
              
              (4,111
              )Total
                  liabilities
              
              
              495,800
              
              
              521,056Interest
                  of minority partners in consolidated partnerships
              
              
              48,261
              
              
              45,627Retained
                  earnings
              
              
              1,019,615
              
              
              996,324Total
                  stockholders' equity
              
              
              1,082,385
              
              
              1,059,094Total
                  liabilities and stockholders' equity
              
              
              1,626,446
              
              
              1,625,777


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):




**NINE
                  MONTHS ENDED****SEPTEMBER
                  30,****2004**
              
              **2004****as
                  previously reported**
              
              **as
                  restated**Selected
                  Cash Flow Data:Net
                  income
              
              $
              120,704
              
              $
              118,458Minority
                  partners’ interest in consolidated partnerships’ income
              
              
              8,266
              
              
              7,529Change
                  in deferred income taxes
              
              
              (6,494
              )
              
              (8,320
              )Increase
                  in deferred rent
              
              
              -
              
              
              4,639


**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 nine months ended September
      30, 2004, this reclassification totaled $22,263,000 and $67,247,000,
      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 nine months ended September 30, 2004,
      this reclassification totaled $2,532,000 and $6,499,000, 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**
              
              **NINE
                  MONTHS ENDED****SEPTEMBER
                  30,**
              
              **SEPTEMBER
                  30,****2005**
              
              **2004**
              
              **2005**
              
              **2004****(restated)**
              
              
              
              **(restated)**Net
                  income
              
              $
              30,132
              
              $
              27,316
              
              $
              121,495
              
              $
              118,458Stock-based
                  employee compensation expense included innet
                  income, net of related taxes
              
              
              1,386
              
              
              774
              
              
              4,883
              
              
              3,460Total
                  stock-based employee compensation expense determinedunder
                  fair value based method, net of related taxes
              
              
              (5,132
              )
              
              (4,532
              )
              
              (16,105
              )
              
              (13,912
              )Pro
                  forma net income
              
              $
              26,386
              
              $
              23,558
              
              $
              110,273
              
              $
              108,006Earnings
                  per common share:Basic
              
              $
              0.41
              
              $
              0.37
              
              $
              1.64
              
              $
              1.60Basic
                  - pro forma
              
              $
              0.36
              
              $
              0.32
              
              $
              1.49
              
              $
              1.46Diluted
              
              $
              0.39
              
              $
              0.36
              
              $
              1.58
              
              $
              1.52Diluted
                  - pro forma
              
              $
              0.35
              
              $
              0.31
              
              $
              1.46
              
              $
              1.41


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 September 30, 2005 and 2004, respectively: (1) risk-free interest rates
        of
        4.1% and 3.4%; (2) dividend yield of 1.23% and 1.26%; (3) expected lives
        of 6.3
        years; and (4) volatility of 28.7% and 29.9%. The following assumptions were
        used for the nine months ended September 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 years; and (4) volatility of 28.9% and 30.2%.
        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
        Ju ly
        27,
        2005, the Company’s Board of Directors approved a grant of 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):


**SEPTEMBER
                  30,**
              
              **DECEMBER
                  31,****2005**
              
              **2004****(UNAUDITED)**Prepaid
                  expenses
              
              $
              20,080
              
              $
              23,020Accounts
                  receivable
              
              
              22,093
              
              
              19,473Accounts
                  receivable - franchisees
              
              
              1,487
              
              
              2,228Assets
                  held for sale
              
              
              -
              
              
              4,810Deposits
              
              
              2,411
              
              
              2,537Other
                  current assets
              
              
              500
              
              
              1,000$
              46,571
              
              $
              53,068


4.  Property,
      Fixtures and Equipment, Net





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





**SEPTEMBER
                30,**
            
            **DECEMBER
                31,****2005**
            
            **2004****(UNAUDITED)**Land
            
            $
            198,540
            
            $
            196,137Buildings
                & building improvements
            
            
            667,750
            
            
            603,856Furniture
                & fixtures
            
            
            216,152
            
            
            184,949Equipment
            
            
            482,568
            
            
            425,197Leasehold
                improvements
            
            
            324,130
            
            
            305,618Construction
                in progress
            
            
            78,477
            
            
            52,373Accumulated
                depreciation
            
            
            (616,054
            )
            
            (532,979
            )$
            1,351,563
            
            $
            1,235,151




During
      the nine months ended September 30, 2005, the Company recorded a provision
      for a
      restaurant closing of approximately $776,000 for an Outback Steakhouse in
      Tennessee, a provision for a restaurant closing of approximately $422,000 for
      an
      Outback Steakhouse in Maryland and a provision for the impairment of a Bonefish
      Grill in Washington of approximately $1,072,000.




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 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, and in August 2005,
        the Company sold two of the properties with owned land and building. Thus,
        the
        remaining properties include 20 properties with owned land and building,
        eight
        ground leases and two leases, all
        of
        which were designated by September 30, 2005.
  5.  Goodwill
          and Intangible Assets, Net
 
 The
          change in the carrying amount of goodwill for the nine months ended September
          30, 200 5
          is as
          follows (in thousands):
 
 December
                    31, 2004
                
                $
                107,719Acquisition
                    (see Note 11)
                
                
                4,124September
                    30, 2005
                
                $
                111,843
 
 Intangible
          assets, net, consisted of the following (in thousands):
 **WEIGHTED
                    AVERAGE**
                
                **SEPTEMBER
                    30,**
                
                **DECEMBER
                    31,****AMORTIZATION**
                
                **2005**
                
                **2004****PERIOD
                    (YEARS)**
                
                **(UNAUDITED)**Trademarks
                    (gross)
                
                
                21
                
                $
                12,344
                
                $
                12,344Less:
                    accumulated amortization
                
                
                
                
                
                (757
                )
                
                (295
                )Net
                    trademarks
                
                
                
                
                
                11,587
                
                
                12,049Trade
                    dress (gross)
                
                
                11
                
                
                6,777
                
                
                6,777Less:
                    accumulated amortization
                
                
                
                
                
                (809
                )
                
                (320
                )Net
                    trade dress
                
                
                
                
                
                5,968
                
                
                6,457Favorable
                    leases (gross, lives ranging from 2 to 24 years)
                
                
                20
                
                
                3,224
                
                
                3,224Less:
                    accumulated amortization
                
                
                
                
                
                (154
                )
                
                (47
                )Net
                    favorable leases
                
                
                
                
                
                3,070
                
                
                3,177Intangible
                    assets, less total accumulated amortization of $1,720 and$662
                    at September 30, 2005 and December 31, 2004, respectively
                
                
                18
                
                $
                20,625
                
                $
                21,683
 
 The
          aggregate amortization expense related to thes e
          intangible assets was $1,058,000 for the nine months ended September 30,
          2005.
          Annual amortization expense related to these intangible assets for the
          next five
          years is anticipated to be approximately $1,500,000.


12
 Table
          of Contents




**Outback
      Steakhouse, Inc.**


**NOTES
      TO CONSOLIDATED FINANCIAL STATEMENTS**


**(UNAUDITED)**





6.  Other
      Assets





Other
      assets consisted of the following (in thousands):




**SEPTEMBER
                  30,**
              
              **DECEMBER
                  31,****2005**
              
              **2004****(UNAUDITED)**Other
                  assets
              
              $
              54,147
              
              $
              47,089Insurance
                  receivable (see Notes 9 and 14)
              
              
              39,000
              
              
              -Liquor
                  licenses, net of accumulated amortization of $4,831 and $4,291
                  at
                  September 30, 2005and
                  December 31, 2004, respectively
              
              
              15,788
              
              
              13,699Deferred
                  license fee, net of valuation provision of approximately $0 and
                  $3,000
                  atSeptember
                  30, 2005 and December 31, 2004, respectively
              
              
              1,909
              
              
              10,650Assets
                  held for sale
              
              
              1,310
              
              
              -$
              112,154
              
              $
              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. As 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 was recorded against the deferred license
      fee to reflect management’s best estimate of its current net realizable value as
      of June 30, 2005. The negotiation of the deferred license fee was finalized
      on September 20, 2005. The $7,000,000 agreed-upon license fees are
      to
      be received in $500,000 increments on July 31 of each year from 2006
      to
      2019 inclusive.




7.  Accrued
      Expenses





Accrued
      expenses consisted of the following (in thousands):




**SEPTEMBER
                  30,**
              
              **DECEMBER
                  31,****2005**
              
              **2004****(UNAUDITED)**Accrued
                  payroll and other compensation
              
              $
              38,444
              
              $
              38,552Accrued
                  insurance
              
              
              28,303
              
              
              21,818Other
                  accrued expenses
              
              
              58,580
              
              
              36,754$
              125,327
              
              $
              97,124


Remaining
      accrued restaurant closing expenses o f
      less
      than $100,000 were
      included in other accrued expenses as of September 30, 2005 and December 31,
      2004, related to restaurant closing provisions.




13
 Table
          of Contents


**Outback
      Steakhouse, Inc.**


**NOTES
      TO CONSOLIDATED FINANCIAL STATEMENTS**


**(UNAUDITED)**





8.  Debt





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


**SEPTEMBER
                30,**
            
            **DECEMBER
                31,****2005**
            
            **2004****(UNAUDITED)**Revolving
                lines of credit, uncollateralized, interest rates ranging from 4.02%
                to
                4.48% atSeptember
                30, 2005 and 2.89% to 3.05% at December 31, 2004
            
            $
            93,000
            
            $
            55,000Outback
                Korea notes payable, interest rates ranging from 5.30% to 7.00%
                atSeptember
                30, 2005 and 5.45% to 7.00% at December 31, 2004
            
            
            37,197
            
            
            27,717Outback
                Japan notes payable, uncollateralized, interest rates ranging from
                0.85%
                to 0.86%at
                September 30, 2005 and ranging from 0.95% to 0.96% at December 31,
                2004
            
            
            5,538
            
            
            5,769Outback
                Japan revolving lines of credit, interest rates ranging from 0.69%
                to
                0.76% atSeptember
                30, 2005 and 0.68% to 0.77% at December 31, 2004
            
            
            16,010
            
            
            18,895Other
                notes payable, uncollateralized, interest rates ranging
                from2.07%
                to 7.00% at September 30, 2005 and December 31, 2004
            
            
            8,099
            
            
            7,145Sale-leaseback
                obligation
            
            
            6,250
            
            
            -Guaranteed
                debt of franchisee
            
            
            30,483
            
            
            30,343196,577
            
            
            144,869Less
                current portion
            
            
            55,983
            
            
            54,626Less
                guaranteed debt of franchisee
            
            
            30,483
            
            
            30,343Long-term
                debtof
                Outback Steakhouse, Inc.
            
            $
            110,111
            
            $
            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 3.84% to 4.20% at September 30, 2005 and
      ranging from 2.42% to 2.78% at December 31, 2004). At September 30, 2005, the
      unused portion of the revolving line of credit was $66,000,000.





The
      credit agreement contains certain restrictions and conditions as defined in
      the
      agreement that require the Company to maintain consolidated net worth equal
      to
      or greater than consolidated total debt and to maintain a ratio of total
      consolidated debt to EBITDAR (earnings before interest, taxes, depreciation,
      amortization and rent) equal to or less than 3.0 to 1.0. At September 30, 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 September 30, 2005, the
      outstanding balance on the line of credit was $9,000,000. There were no draws
      outstanding on this line of credit as of December 31, 2004.  At September
      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.




As
      of
      September 30, 2005, the Company had approximately $8,099,000 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.


14
 Table
          of Contents





**Outback
      Steakhouse, Inc.**


**NOTES
      TO CONSOLIDATED FINANCIAL STATEMENTS**


**(UNAUDITED)**





8.  Debt
      (continued)




The
      Company has notes payable with banks bearing interest at rates ranging from
      5.30% to 7.00% to finance development of the Company’s restaurants in Korea. The
      notes are denominated and payable in Korean won and mature at dates ranging
      from
      October 2005 to January 2007. As of September 30, 2005 and December 31, 2004,
      the outstanding balance was approximately $37,197,000 and $27,717,000,
      respectively. Certain of the notes payable are collateralized by lease and
      other
      deposits. At September 30, 2005 and December 31, 2004, collateralized notes
      totaled approximately $32,519,000 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 letters of credit and lease deposits of approximately
      $3,200,000 and $3,600,000 at September 30, 2005 and December 31, 2004,
      respectively, and bear interest at rates ranging from 0.85% to 0.86% and at
      rates ranging from 0.95% to 0.96% at September 30, 2005 and December 31, 2004,
      respectively. The notes are denominated and payable in Japanese yen, with
      outstanding balances as of September 30, 2005 maturing in September 2006. As
      of
      September 30, 2005 and December 31, 2004, outstanding balances totaled
      approximately $5,538,000 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 September 30, 2005 and December 31, 2004,
      the
      Company had borrowed approximately $9,614,000 and $10,260,000, respectively,
      on
      the line of
      credit
      at an average interest rate of 0.69%, with draws as of September 30, 2005
      maturing from December 2005 to February 2006. The revolving line of credit
      contains certain restrictions and conditions as defined in the agreement. As
      of
      September 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 September 30,
      2005
      and December 31, 2004, the Company had borrowed
      approximately $6,396,000 and $8,635,000, respectively, on the line of credit
      at
      an average interest rate of 0.76%, with draws as of September 30, 2005 maturing
      from November 2005 to December 2005. The revolving line of credit contains
      certain restrictions and conditions as defined in the agreement. As of September
      30, 2005, the Company was in compliance with all of the debt
      covenants.





In August
      2005, the Company entered into a sale- leaseback
      arrangement for five of its properties. Pursuant to this arrangement, the
      Company sold these properties for a total of $6,250,000, including $1,250,000
      for tenant improvements. The Company then leased the sites back for a 30-year
      term and will make lease payments on the first day of each calendar month.
      Since
      this transaction does not qualify for sale-leaseback accounting treatment,
      the
      Company has included the proceeds in the Company’s Consolidated Balance Sheet as
      long-term debt.





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 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. The Company was required to consolidate T-Bird effective January
      1, 2004 upon adoption of FIN 46R. At September 30, 2005 and December 31, 2004,
      the outstanding balance on the line of cred it
      was
      approximately $30,483,000 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 operated 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 termination
      date of the agreement.





15
 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 that 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
      $35,000 and $176,000 as of September 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 September 30, 2005 and December 31, 2004, the outstanding
      balance on the line of credit was approximately $22,641,000 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 the Company 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 September 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.




16
 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 September 30, 2005
      are summarized in the table below (in thousands):




**CURRENT**
              
              **LONG-TERM****TOTAL**
              
              **PORTION**
              
              **PORTION**Debtguarantees
              
              $
              33,980
              
              $
              9,445
              
              $
              24,535Amount
                  outstanding under debt guarantees
              
              
              32,121
              
              
              9,445
              
              
              22,676


9.  Other
      Long-term Liabilities





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




**SEPTEMBER
                  30,**
              
              **DECEMBER
                  31,****2005**
              
              **2004****(UNAUDITED)**Litigation
                  (see Notes 6 and 14)
              
              $
              39,000
              
              $
              -Accrued
                  insurance
              
              
              4,000
              
              
              4,000Other
                  deferred liability
              
              
              194
              
              
              2,114$
              43,194
              
              $
              6,114


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 September 30, 2005 and 2004
      was
      $29,913,000 and $27,290,000, respectively, which included the effect of losses
      from translation adjustments of approximately $219,000 and $26,000,
      respectively. Total comprehensive income for the nine months ended September
      30,
      2005 and 2004 was $122,409,000 and $118,040,000, respectively, which included
      the effect of gains and (losses) from translation adjustments of approximately
      $914,000 and ($418,000), respectively.




17
 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).





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**
            
            **NINE
                MONTHS ENDED****SEPTEMBER
                30,**
            
            **SEPTEMBER
                30,****2005**
            
            **2004**
            
            **2005**
            
            **2004****(restated)**
            
            
            
            **(restated)**Net
                income
            
            $
            30,132
            
            $
            27,316
            
            $
            121,495
            
            $
            118,458Basic
                weighted average number of common shares outstanding
            
            
            74,167
            
            
            73,896
            
            
            73,991
            
            
            74,223Basic
                earnings per common share
            
            $
            0.41
            
            $
            0.37
            
            $
            1.64
            
            $
            1.60Effect
                of dilutive stock options
            
            
            2,665
            
            
            2,973
            
            
            2,803
            
            
            3,529Diluted
                weighted average number of common shares outstanding
            
            
            76,832
            
            
            76,869
            
            
            76,794
            
            
            77,752Diluted
                earnings per common share
            
            $
            0.39
            
            $
            0.36
            
            $
            1.58
            
            $
            1.52




Diluted
        earnings per common share excludes antidilutive stock options of approximately
        2,281,000 and 2,541,000 for the three months ended September 30, 2005 and
        2004,
        respectively, and approximately 1,072,000 and 1,678,000 for the nine months
        ended September 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 material impact to reported net income and
        earnings per share, particularly as a result of stock options issued
        under the managing partner program. The Company has
        not yet
        determined the method of adoption or the effect of adopting SFAS No. 123R,
        and
        the adoption may result in materially different amounts than the current
        pro
        forma disclosures under SFAS No. 123.




18
 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 No. 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.





Also
      under SFAS No. 154, 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 No. 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 No. 109. The Board expects to issue a
      final Interpretation in the first quarter of 2006. 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.





19
 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 petitioned the Court of Appeals for rehearing and rehearing was
        denied. The Company has filed a petition for review with the Indiana Supreme
        Court.
 
 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. The Company's third-party administrator
        has
        executed an indemnification agreement indemnifying the Company against any
        liability resulting from the failure to give notice to the excess insurance
        carrier.
 
 As
        a
        result of the affirmation ve rdict
        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.
  The
        Company executed a lease termination agreement whereby it will receive
        $6,000,000 upon vacating a premises currently occupied by a Company-owned
        Outback Steakhouse.  The termination date will be the later of December
        31,
        2005 or 30 days following receipt of the payment.  The Company
        will
        record a gain upon disposal of this restaurant, which will be recorded when
        the
        cash is received by the Company and it has fulfilled its obligations under
        the
        agreement.


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). These executive officers received approximately $141,000 and $202,000
      as a
      result of their ownership interests in those joint venture
      restaurants.





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.






20
 Table
          of Contents


**Outback
        Steakhouse, Inc.**
 **NOTES
        TO CONSOLIDATED FINANCIAL STATEMENTS**
 **(UNAUDITED)**




16.  Subsequent
      Events





On
      October 5, 2005, the Company participated in the “Dine for America” fundraising
      event sponsored by the National Restaurant Association to provide relief to
      the
      victims of Hurricane Katrina. The funds were contributed in part to the American
      Red Cross and in part to other targeted relief efforts. The Company has recorded
      a pretax charge to earnings of $1,000,000 for the three- and nine-month periods
      ended September 30, 2005 for its contribution.




On
      October 11, 2005, the Company executed an agreement of purchase and sale for
      certain land in Las Vegas, Nevada where a Company-owned Outback Steakhouse
      is
      currently operated.  Pursuant to the agreement if the sale proceeds
      after
      the inspection and title and survey contingency periods, the Company will
      receive $8,800,000 on the closing date of the sale, which will be on or before
      March 31, 2008, and the Company will be provided space in a new development
      to
      operate an Outback Steakhouse.  The purchaser will pay an additional
      $5,000,000 to the Company if plans for the new restaurant are not agreed upon
      prior to the closing date.




On
      October 18, 2005, the Company appointed a new Senior Vice President and Chief
      Financial Officer of the Company and concurrently entered into an employment
      agreement and restricted stock agreement, effective as of November 1,
      2005.
      Under the terms of the restricted stock grant, 100,000 shares of restricted
      common stock were issued as an inducement grant in connection with his hiring
      and will vest as follows: on the fifth anniversary of his employment, 50,000
      shares, plus an additional 10,000 shares if the market capitalization of the
      Company exceeds $6,000,000,000; and on the seventh anniversary of his
      employment, the balance of all remaining unvested shares.  These
      shares were not issued under any existing stock plan of the
      Company.




On
        October 26, 2005, the Company’s Board of Directors approved up to $24,000,000 to
        be used for the purchase and development of 46 acres in Tampa, Florida. This
        purchase is expected to close in December 2005.


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
      1,250 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 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.





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 this year and in future
      periods.











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**
              
              **NINE
                  MONTHS ENDED****SEPTEMBER
                  30,**
              
              **SEPTEMBER
                  30,****2005**
              
              **2004**
              
              **2005**
              
              **2004****(restated)**
              
              
              
              **(restated)**RevenuesRestaurant
                  sales
              
              
              99.4
              %
              
              99.5
              %
              
              99.4
              %
              
              99.4
              %Other
                  revenues
              
              
              0.6
              
              
              0.5
              
              
              0.6
              
              
              0.6Total
                  revenues
              
              
              100.0
              
              
              100.0
              
              
              100.0
              
              
              100.0Costs
                  and expensesCost
                  of sales (1)
              
              
              36.7
              
              
              37.8
              
              
              36.6
              
              
              37.5Labor
                  and other related (1)
              
              
              24.8
              
              
              24.4
              
              
              24.3
              
              
              24.1Other
                  restaurant operating (1)
              
              
              22.6
              
              
              21.4
              
              
              21.2
              
              
              20.6Distribution
                  expense to employee partners, excludingstock
                  expense (1)
              
              
              2.1
              
              
              2.3
              
              
              2.4
              
              
              2.4Employee
                  partner stock buyout expense (1)
              
              
              0.1
              
              
              0.2
              
              
              0.2
              
              
              0.2Depreciation
                  and amortization
              
              
              3.7
              
              
              3.4
              
              
              3.5
              
              
              3.2General
                  and administrative
              
              
              4.6
              
              
              4.7
              
              
              4.5
              
              
              4.3Hurricane
                  property losses
              
              
              0.2
              
              
              0.4
              
              
              0.1
              
              
              0.1Provision
                  for impaired assets and restaurant closings
              
              
              0.2
              
              
              0.3
              
              
              0.4
              
              
              0.1Contribution
                  for "Dine Out for Hurricane Relief"
              
              
              0.1
              
              
              -
              
              
              *
              
              
              -Income
                  from operations of unconsolidated affiliates
              
              
              (0.1
              )
              
              (0.1
              )
              
              (*
              )
              
              (*
              )Total
                  costs and expenses
              
              
              94.4
              
              
              94.4
              
              
              92.6
              
              
              92.0Income
                  from operations
              
              
              5.6
              
              
              5.6
              
              
              7.4
              
              
              8.0Other
                  income (expense), net
              
              
              (*
              )
              
              (0.1
              )
              
              (*
              )
              
              (*
              )Interest
                  income
              
              
              0.1
              
              
              *
              
              
              0.1
              
              
              *Interest
                  expense
              
              
              (0.2
              )
              
              (0.1
              )
              
              (0.2
              )
              
              (0.1
              )Income
                  before elimination of minority partners' interest andincome
                  taxes
              
              
              5.5
              
              
              5.4
              
              
              7.3
              
              
              7.9Elimination
                  of minority partners' interest
              
              
              0.1
              
              
              0.1
              
              
              0.3
              
              
              0.3Income
                  before provision for income taxes
              
              
              5.4
              
              
              5.3
              
              
              7.0
              
              
              7.6Provision
                  for income taxes
              
              
              1.9
              
              
              1.8
              
              
              2.5
              
              
              2.6Net
                  income
              
              
              3.5
              %
              
              3.5
              %
              
              4.5
              %
              
              5.0
              %
 __________________


(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 11.0% for the quarter ended September 30, 2005 compared with
      the
      respective period in 2004. System-wide sales is a non-GAAP financial measure
      that includes sales of all restaurants operating under our brand names, whether
      we own them or not. The two components of system-wide sales, including those
      of
      Outback Steakhouse, Inc. and those of franchisees and unconsolidated development
      joint ventures, are provided in the following tables:




**THREE
                MONTHS ENDED**
            
            **NINE
                MONTHS ENDED****SEPTEMBER
                30,**
            
            **SEPTEMBER
                30,****2005**
            
            **2004**
            
            **2005**
            
            **2004**OUTBACK
                STEAKHOUSE, INC. RESTAURANT SALES (in millions):Outback
                SteakhousesDomestic
            
            $
            536
            
            $
            535
            
            $
            1,684
            
            $
            1,655International
            
            
            64
            
            
            50
            
            
            185
            
            
            123Total
            
            
            600
            
            
            585
            
            
            1,869
            
            
            1,778Carrabba's
                Italian Grills
            
            
            143
            
            
            117
            
            
            428
            
            
            358Other
                restaurants
            
            
            125
            
            
            75
            
            
            371
            
            
            230Total
                Company-owned restaurant sales
            
            $
            868
            
            $
            777
            
            $
            2,668
            
            $
            2,366





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**
            
            **NINE
                MONTHS ENDED****SEPTEMBER
                30,**
            
            **SEPTEMBER
                30,****2005**
            
            **2004**
            
            **2005**
            
            **2004**FRANCHISE
                AND DEVELOPMENT JOINT VENTURE SALES (in millions) (1):Outback
                SteakhousesDomestic
            
            $
            88
            
            $
            84
            
            $
            270
            
            $
            258International
            
            
            28
            
            
            25
            
            
            84
            
            
            69Total
            
            
            116
            
            
            109
            
            
            354
            
            
            327Bonefish
                Grills
            
            
            3
            
            
            3
            
            
            9
            
            
            9Total
                franchise and development joint venture sales (1)
            
            $
            119
            
            $
            112
            
            $
            363
            
            $
            336Income
                from franchise and development joint ventures (2)
            
            $
            5
            
            $
            4
            
            $
            14
            
            $
            12


__________________


(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)**





**SEPTEMBER
                30,****2005**
            
            **2004**Number
                of restaurants (at end of the period):Outback
                SteakhousesCompany-owned
                - domestic
            
            
            661
            
            
            645Company-owned
                - international
            
            
            87
            
            
            67Franchised
                and development joint venture-
                domestic
            
            
            105
            
            
            100Franchised
                and development joint venture-
                international
            
            
            51
            
            
            54Total
            
            
            904
            
            
            866Carrabba's
                Italian GrillsCompany-owned
            
            
            189
            
            
            163Bonefish
                GrillsCompany-owned
            
            
            78
            
            
            47Franchised
            
            
            4
            
            
            4Total
            
            
            82
            
            
            51Fleming’s
                Prime Steakhouse and Wine BarsCompany-owned
            
            
            34
            
            
            27Roy’sCompany-owned
            
            
            19
            
            
            18Cheeseburger
                in ParadiseCompany-owned
            
            
            21
            
            
            5Paul
                Lee's Chinese KitchensCompany-owned
            
            
            4
            
            
            1Lee
                Roy Selmon’sCompany-owned
            
            
            3
            
            
            2System-wide
                total
            
            
            1,256
            
            
            1,133




26
 Table
          of Contents


**Outback
      Steakhouse, Inc.**


**MANAGEMENT'S
      DISCUSSION AND ANALYSIS OF**


**FINANCIAL
      CONDITION AND RESULTS OF OPERATIONS**





**Three
      months ended September 30, 2005 and 2004**





REVENUES





*Restaurant
      sales.* Restaurant sales increased by 11.7% to $867,424,000 during the third quarter
      of
      2005 compared with $776,355,000 in the same period in 2004. The increase in
      restaurant sales was primarily attributable to additional revenues of
      approximately $80,713,000 from the opening of new restaurants after September
      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 September 30,
      2005
      and 2004:


**THREE
                  MONTHS ENDED****SEPTEMBER
                  30,****2005**
              
              **2004**Average
                  unit volumes (weekly) for restaurants opened for one year or
                  more:Outback
                  Steakhouses
              
              $
              62,359
              
              $
              63,686Carrabba's
                  Italian Grills
              
              
              59,218
              
              
              56,374Fleming's
                  Prime Steakhouse and Wine Bars
              
              
              82,354
              
              
              79,526Roy's
              
              
              61,849
              
              
              55,445Bonefish
                  Grills
              
              
              56,263
              
              
              53,518Average
                  unit volumes (weekly) for restaurants opened for less than one
                  year:Outback
                  Steakhouses
              
              $
              51,875
              
              $
              58,287Carrabba's
                  Italian Grills
              
              
              53,543
              
              
              53,808Fleming's
                  Prime Steakhouse and Wine Bars
              
              
              60,780
              
              
              61,112Roy's
              
              
              103,855
              (1)
              
              78,471Bonefish
                  Grills
              
              
              56,323
              
              
              52,630Operating
                  weeks:Outback
                  Steakhouses
              
              
              8,648
              
              
              8,421Carrabba's
                  Italian Grills
              
              
              2,446
              
              
              2,108Fleming's
                  Prime Steakhouse and Wine Bars
              
              
              430
              
              
              331Roy's
              
              
              250
              
              
              237Bonefish
                  Grills
              
              
              983
              
              
              569Year
                  to year percentage change:Menu
                  price increases (2):Outback
                  Steakhouses
              
              
              4.0
              %
              
              2.2
              %Carrabba's
                  Italian Grills
              
              
              2.5
              %
              
              2.0
              %Bonefish
                  Grills
              
              
              3.7
              %
              
              3.0
              %Same-store
                  sales (stores open 18 months or more):Outback
                  Steakhouses
              
              
              -1.6
              %
              
              1.0
              %Carrabba's
                  Italian Grills
              
              
              6.4
              %
              
              1.0
              %Fleming's
                  Prime Steakhouse and Wine Bars
              
              
              13.4
              %
              
              14.1
              %Roy's
              
              
              9.1
              %
              
              5.2
              %Bonefish
                  Grills
              
              
              7.7
              %
              
              -0.9
              %
 __________________


(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 September 30, 2005 and 2004 (continued)**





*Other
      revenues.* Other
      revenues, consisting primarily of initial franchise fees and royalties,
      increased by $777,000 to $5,020,000 in the third quarter of 2005 as compared
      with $4,243,000 in 2004. This
      increase primarily resulted from higher initial franchise fees and royalties
      from additional stores opened and operated as franchises during the third
      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 1.1% to 36.7% as a
      percentage of restaurant sales in the third 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 implemented to offset minimum
      wage increases reduced cost of sales as a percentage of restaurant sales
      and increases in commodity costs for beef and chicken during the period were
      partially offset by decreases in dairy and produce costs, particularly butter,
      cheese, 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 0.4% as a percentage of restaurant sales to 24.8% in the third 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. This increase was partially offset by reduced
      health and workers’ compensation insurance costs 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 1.2%
      to
      22.6% as a percentage of restaurant sales in the third 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 supply costs, rent, property taxes and liability
      insurance. These cost increases were partially offset by reduced advertising
      expense in the third quarter of 2005 as compared to the same period in 2004
      since 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 decreased
      0.2% as a percentage of restaurant sales to 2.1% in the third quarter of 2005
      compared with the same period in 2004. The decrease was primarily attributable
      to a lower accrual for cash buyouts recorded during the third
      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 0.1% of
      restaurant sales for the third 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 September 30, 2005 and 2004 (continued)**





*Depreciation
      and amortization* .
      Depreciation and amortization costs increased 0.3% as a percentage of total
      revenues to 3.7% in the third 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 $3,419,000 to $40,001,000 in the third
      quarter of 2005 compared with $36,582,000 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 $757,000 of compensation expense recognized for restricted
      stock benefits for certain members of senior management and approximately
      $640,000 of carrying costs associated with the acquisition of designation rights
      from Chi-Chi’s in 2004. These increases were partially offset by a reduction of
      $1,200,000 in consulting fees paid for supply chain management projects
      in
      2004 that did not recur in 2005.




*Hurricane
      property and inventory losses.* Hurricane
      property and inventory losses decreased by $1,612,000 to $1,412,000 in the
      third
      quarter of 2005 compared with $3,024,000 during the same period in 2004. We
      have a lower concentration of restaurants in the Gulf coast region than
      in
      Florida and had less damage from hurricanes in 2005 than in 2004 as a result
      of
      the regions affected by the storms.





*Provision
      for impaired assets and restaurant closing.* A
      provision of approximately $974,000 was recorded during the third quarter of
      2005 for the impairment of the
      Bonefish Grill restaurant in Washington, and a provision of approximately
      $422,000 was recorded during the third quarter of 2005 for the closing of one
      Company-owned Outback Steakhouse restaurant in Maryland.




*Contribution
      for “Dine Out for Hurricane Relief.”* This
      line
      item represents our $1,000,000 contribution for “Dine for America,” a
      fundraising effort in October 2005 to provide support to the victims of recent
      hurricanes.





*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 increased by $359,000 to income of $766,000 during
      the third quarter of 2005 compared with income of $407,000 during the same
      period in 2004. This increase was attributable primarily to continued
      improvement in our Brazilian joint venture.





*Income
      from operations* . As
      a
      result of the increase in revenues, the opening of new restaurants and the
      changes in the relationships between revenues and expenses discussed above,
      income from operations increased by $5,405,000 to $48,862,000 in the third
      quarter of 2005 compared with $43,457,000 in the same period in
      2004.





*Interest
      income* .
      Interest income was $658,000 during the third quarter of 2005 compared with
      $337,000 in the same period in 2004. Interest
      income increased due to higher interest rates on short-term investment balances
      during the third quarter of 2005 compared with the same period in 2004. Interest
      income for the quarters ended September 30, 2005 and 2004 included interest
      of
      approximately $286,000 and $147,000, respectively, from notes receivable 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 September 30, 2005 and 2004 (continued)**





*Interest
      expense* .
      Interest expense was $1,848,000 during the third quarter of 2005 compared with
      $1,009,000 in the same period in 2004. The
      increase in interest expense was due to higher average debt balances and higher
      interest rates during the third quarter of 2005 compared with the third quarter
      of 2004. Interest
      expense for the quarters ended September 30, 2005 and 2004 included
      approximately $286,000 and $147,000, respectively, of expense from outstanding
      borrowings on the line of credit held by a limited liability company owned
      by
      our California franchisee.





*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 0.1% during
      the quarters ended September 30, 2005 and 2004, respectively.





*Provision
      for income taxes* .
      The
      provision for income taxes in the third 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
      third quarter of 2005 and 34.5% during the third quarter of 2004. The increase
      in the rate resulted from non-deductibility of certain management compensation
      during the third quarter of 2005.  Approximately
      20% 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 third quarter of 2005 was $30,132,000 compared with $27,316,000
      in the same period in 2004. Basic earnings per share increased to $0.41 during
      the third quarter of 2005 compared with $0.37 for the same period in 2004 as
      a
      result of the increas e
      in net
      income, partially offset by an increase in basic weighted average shares
      outstanding of approximately 271,000 shares. Th e
      increase in basic weighted average shares outstanding for the quarter ended
      September 30, 2005 compared with September 30, 2004 was primarily due to the
      issuance of shares under stock option plans, partially offset by common stock
      repurchases.  Diluted
      earnings per share increased to $0.39 during the third quarter of 2005 compared
      with $0.36 for the same period in 2004 as a resu lt
      of the
      increase in net income and the decrease in diluted weighted average shares
      outstanding of approximately 37,000 shares.  The
      decrease in diluted weighted average shares outstanding was primarily due to
      the
      reduced number of dilutive options outstanding, partially offset by the
      increased number of basic shares outstanding for the quarter ended September
      30,
      2005 compared with September 30, 2004.





30
 Table
          of Contents


**Outback
      Steakhouse, Inc.**


**MANAGEMENT'S
      DISCUSSION AND ANALYSIS OF**


**FINANCIAL
      CONDITION AND RESULTS OF OPERATIONS**





**Nine
      months ended September 30, 2005 and 2004**





REVENUES





*Restaurant
      sales.* Restaurant sales increased by 12.8% to $2,667,585,000 during the first nine
      months of 2005 compared with $2,365,828,000 in the same period in 2004. The
      increase in restaurant sales was primarily attributable to additional revenues
      of approximately $203,956,000 from the opening of new restaurants after
      September 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 nine months ended September
      30, 2005 and 2004:


**NINE
                  MONTHS ENDED****SEPTEMBER
                  30,****2005**
              
              **2004**Average
                  unit volumes (weekly) for restaurants opened for one year or
                  more:Outback
                  Steakhouses
              
              $
              66,410
              
              $
              66,629Carrabba's
                  Italian Grills
              
              
              62,990
              
              
              59,516Fleming's
                  Prime Steakhouse and Wine Bars
              
              
              90,905
              
              
              87,804Roy's
              
              
              70,062
              
              
              66,707Bonefish
                  Grills
              
              
              62,106
              
              
              62,461Average
                  unit volumes (weekly) for restaurants opened for less than one
                  year:Outback
                  Steakhouses
              
              $
              55,889
              
              $
              58,412Carrabba's
                  Italian Grills
              
              
              54,375
              
              
              57,302Fleming's
                  Prime Steakhouse and Wine Bars
              
              
              70,623
              
              
              63,159Roy's
              
              
              109,672
              (1)
              
              60,701Bonefish
                  Grills
              
              
              58,147
              
              
              57,091Operating
                  weeks:Outback
                  Steakhouses
              
              
              25,537
              
              
              24,783Carrabba's
                  Italian Grills
              
              
              6,965
              
              
              6,066Fleming's
                  Prime Steakhouse and Wine Bars
              
              
              1,252
              
              
              919Roy's
              
              
              736
              
              
              705Bonefish
                  Grills
              
              
              2,699
              
              
              1,530Year
                  to year percentage change:Menu
                  price increases (2):Outback
                  Steakhouses
              
              
              4.3
              %
              
              2.2
              %Carrabba's
                  Italian Grills
              
              
              2.5
              %
              
              1.6
              %Bonefish
                  Grills
              
              
              2.9
              %
              
              3.2
              %Same-store
                  sales (stores open 18 months or more):Outback
                  Steakhouses
              
              
              -0.9
              %
              
              3.2
              %Carrabba's
                  Italian Grills
              
              
              6.4
              %
              
              2.6
              %Fleming's
                  Prime Steakhouse and Wine Bars
              
              
              12.2
              %
              
              17.0
              %Roy's
              
              
              6.1
              %
              
              11.6
              %Bonefish
                  Grills
              
              
              3.6
              %
              
              8.9
              %


__________________


(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**





**Nine
      months ended September 30, 2005 and 2004 (continued)**





*Other
      revenues.* Other
      revenues, consisting primarily of initial franchise fees and royalties,
      increased by $2,516,000 to $15,770,000 in the first nine months of 2005 as
      compared with $13,254,000 in 2004. This
      increase primarily resulted from higher initial franchise fees and royalties
      from additional stores opened and operated as franchises during the first nine
      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 36.6% as a
      percentage of restaurant sales in the first nine months 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, pork
      and chicken 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 0.2% as a percentage of restaurant sales to 24.3% in the first nine
      months 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 0.6%
      to
      21.2% as a percentage of restaurant sales in the first nine months 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.  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 remained
      flat at 2.4% as a percentage of restaurant sales in the first nine months of
      2005 compared with the same period in 2004.





*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 remained flat at 0.2% as a
      percentage of restaurant sales for
      the
      first nine months of 2005 compared with the same period in 2004. Decreases
      in
      expense due to buyouts of existing restaurants were 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**





**Nine
      months ended September 30, 2005 and 2004 (continued)**





*Depreciation
      and amortization* .
      Depreciation and amortization costs increased 0.3% as a percentage of total
      revenues to 3.5% in the first nine months 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
      period, 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
      $20,414,000 to $122,052,000 in the first nine months of 2005 compared with
      $101,638,000 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 $1,327,000 of compensation expense for restricted stock
      benefits for certain members of senior management and carrying costs of
      approximately $2,840,000 associated with the acquisition of designation rights
      from Chi-Chi’s in 2004. These increases were partially offset by a reduction of
      $3,200,000 in consulting fees paid for supply chain management projects in
      2004
      that did not recur in 2005.




*Hurricane
      property and inventory losses.*  Hurricane
      property and inventory losses decreased by $1,612,000 to $1,412,000 in the
      first
      nine months of 2005 compared with $3,024,000 during the same period in 2004.
      We
      have a lower concentration of restaurants in the Gulf coast region than
      in
      Florida and had less damage from hurricanes in 2005 than in 2004 as a result
      of
      the regions affected by the storms.




*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, a total provision of $1,072,000 was recorded during the second and
      third quarters of 2005 for the impairment of one Company-owned Bonefish Grill
      restaurant in Washington, and a provision of approximately $422,000 was recorded
      during the third quarter of 2005 for the closing of one Company-owned Outback
      Steakhouse restaurant in Maryland. Additionally, an impairment charge of
      $7,581,000 was recorded in the second quarter of 2005 against the deferred
      license fee receivable associated with certain non-restaurant operations to
      reflect management’s best estimate of its net realizable
      value.




*Contribution
      for “Dine Out for Hurricane Relief.”* This
      line
      item represents our $1,000,000 contribution for “Dine for America,” a
      fundraising effort in October 2005 to provide support to the victims of recent
      hurricanes.




*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 $402,000 to income of $665,000 during
      the first nine months of 2005 compared with income of $1,067,000 during the
      same
      period in 2004. This decrease was attributable primarily to a write-down in
      the
      second quarter of 2005 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. The cumulative decrease was partially offset by continued
      improvement in our Brazilian joint venture.





*Income
      from operations* . As
      a
      result of the increase in revenues, the opening of new restaurants and the
      changes in the relationships between revenues and expenses discussed above,
      income from operations increased by $7,681,000 to $198,902,000 in the first
      nine
      months of 2005 compared with $191,221,000 in the same period in
      2004.





33
 Table
          of Contents





**Outback
      Steakhouse, Inc.**


**MANAGEMENT'S
      DISCUSSION AND ANALYSIS OF**


**FINANCIAL
      CONDITION AND RESULTS OF OPERATIONS**





**Nine
      months ended September 30, 2005 and 2004 (continued)**





*Interest
      income* .
      Interest income was $1,476,000 during the first nine months of 2005 compared
      with $947,000 in the same period in 2004. Interest
      income increased due to higher interest rates on short-term investment balances
      during the first nine months of 2005 compared with the same period in 2004.
      Interest income for the nine months ended September 30, 2005 and 2004 included
      interest of approximately $786,000 and $387,000, respectively, from notes
      receivable held by a limited liability company owned by our California
      franchisee.





*Interest
      expense* .
      Interest expense was $4,519,000 during the first nine months of 2005 compared
      with $2,408,000 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 nine months of 2005 compared with the same
      period in 2004. Interest
      expense for the nine months ended September 30, 2005 and 2004 included
      approximately $786,000 and $387,000, respectively, of expense from outstanding
      borrowings on the line of credit held by a limited liability company owned
      by
      our California franchisee.





*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
      0.3% during the nine months ended September 30, 2005 and 2004,
      respectively.





*Provision
      for income taxes* .
      The
      provision for income taxes in the first nine months 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 nine months of 2005 and 34.5% during the first nine months
      of
      2004. The increase in the rate resulted from non-deductibility of certain
      management compensation during the first nine months of 2005.  Approximately
      20% 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 nine months of 2005 was $121,495,000 compared with
      $118,458,000 in the same period in 2004. Basic earnings per share increased
      to
      $1.64 during the first nine months of 2005 compared with $1.60 for the same
      period in 2004 as a result of the increas e
      in net
      income and decrease in basic weighted average shares outstanding of
      approximately 232,000 shares. Th e
      decrease in basic weighted average shares outstanding for the nine months ended
      September 30, 2005 compared with September 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 $1.58 during the first nine months of 2005
      compared with $1.52 for the same period in 2004 as a resu lt
      of the
      increase in net income and decrease in diluted weighted average shares
      outstanding of approximately 958,000 shares.  The
      decrease in diluted weighted average shares outstanding was primarily due to
      the
      reduced number of dilutive options outstanding and the decreased number of
      basic
      shares outstanding for the nine months ended September 30, 2005 compared with
      September 30, 2004.




34
 Table
          of Contents





**Outback
      Steakhouse, Inc.**


**MANAGEMENT'S
      DISCUSSION AND ANALYSIS OF**


**FINANCIAL
      CONDITION AND RESULTS OF OPERATIONS**





**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):




**NINE
                  MONTHS ENDED****SEPTEMBER
                  30,****2005**
              
              **2004**Net
                  cash provided by operating activities
              
              $
              187,444
              
              $
              199,217Net
                  cash used in investing activities
              
              
              (218,308
              )
              
              (236,598
              )Net
                  cash (used in) provided by financing activities
              
              
              (16,842
              )
              
              143Net
                  decrease in cash and cash equivalents
              
              $
              (47,706
              )
              $
              (37,238
              )


We
          requir e
          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 $215,236,000
          and $181,141,000 during the first nine 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.





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.




35
 Table
          of Contents




**Outback
      Steakhouse, Inc.**


**MANAGEMENT'S
      DISCUSSION AND ANALYSIS OF**


**FINANCIAL
      CONDITION AND RESULTS OF OPERATIONS**





**Liquidity
      and Capital Resources (continued)**





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 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, and in August 2005, we
        sold
        two of the properties with owned land and building. Thus, the remaining
        properties include 20 properties with owned land and building, eight ground
        leases and two leases, all of which were designated by September 30,
        2005.
  We executed
          a lease termination agreement whereby we will receive $6,000,000
          upon
          vacating a premises currently occupied by a Company-owned Outback
          Steakhouse.  The termination date will be the later of December
          31,
          2005 or 30 days following receipt of the payment.  We
          will record
          a gain upon disposal of this restaurant, which will be recorded when the
          cash is
          received by us and we have fulfilled our obligations
          under
          the agreement, currently anticipated in the first quarter of
          2006.
  On
          October 11, 2005, we executed an agreement of purchase and sale
          for certain
          land in Las Vegas, Nevada where a Company-owned Outback Steakhouse is currently
          operated.  Pursuant to the agreement if the sale proceeds after
          the
          inspection and title and survey contingency periods, we will receive $8,800,000
          on the closing date of the sale, which will be on or before March 31, 2008
          and
          will be provided space in a new development to operate an Outback
          Steakhouse.  The purchaser will pay an additional $5,000,000 to
          us if plans
          for the new restaurant are not agreed upon prior to the closing
          date.
  On
          October 26, 2005, our Board of Directors approved up to $24,000,000 to
          be used
          for the purchase and development of 46 acres in Tampa, Florida. This purchase
          is
          expected to close in December 2005.


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 3.84% to
      4.20% at September 30, 2005). At September 30, 2005, the unused portion of
      the
      line of credit was $66,000,000.





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 September 30, 2005, we were in
      compliance with these debt covenants.




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)




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 September 30, 2005, the outstanding balance on the line of credit
      was $9,000,000. At September 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
      our
      workers’ compensation insurance and also, where required, for construction of
      new restaurants.




As
        of
        September 30, 2005, we had approximately $8,099,000 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 5.30% 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 October 2005 to
      January 2007. As of September 30, 2005 and December 31, 2004, the outstanding
      balance was approximately $37,197,000 and $27,717,000, respectively. Certain
      of
      the notes payable are collateralized by lease and other deposits. At September
      30, 2005 and December 31, 2004, collateralized notes totaled approximately
      $32,519,000 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 letters of
      credit and lease deposits of approximately $3,200,000 and $3,600,000 at
      September 30, 2005 and December 31, 2004, respectively, and bear interest
      at rates ranging from 0.85% to 0.86% and at rates ranging from 0.95% to 0.96%
      at
      September 30, 2005 and December 31, 2004, respectively. The notes are
      denominated and payable in Japanese yen, with outstanding balances as of
      September 30, 2005 maturing in September 2006. As of September 30, 2005 and
      December 31, 2004, outstanding balances totaled approximately $5,538,000 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 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 September 30, 2005 and
      December 31, 2004, Outback Japan had borrowed approximately $9,614,000 and
      $10,260,000, respectively, on th e
      line of
      credit at an average interest rate of 0.69%, with draws as of September 30,
      2005
      maturing from December 2005 to February 2006. The revolving line of credit
      contains certain restrictions and conditions as defined in the agreement. As
      of
      September 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 September 30,
      2005
      and December 31, 2004, Outback Japan had borrowed approximately $6,396,000
      and
      $8,635,000, respectively, on the line of credit at an average interest rate
      of
      0.76%, with draws as of September 30, 2005 maturing from November 2005 to
      December 2005. The revolving line of credit contains certain restrictions and
      conditions as defined in the agreement. As of September 30, 2005, we were in
      compliance with all of the debt covenants.




37
 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 August
          2005, we entered into a sale-leaseback arrangement for five of our properties.
          Pursuant to this arrangement, we sold these properties for a total of
          $6,250,000, including $1,250,000 for tenant improvements. We then leased
          the
          sites back for a 30-year term and will make lease payments on the first
          day of
          each calendar month. Since this transaction does not qualify for sale-leaseback
          accounting treatment, we have recorded the proceeds in our Consolidated
          Balance
          Sheet as long-term debt.
  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 September 30, 2005 and December 31, 2004, the outstanding balance
          on
          the line of credit was approximately $30,483,000 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
      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 that 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
      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.





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
      September 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 $56,000,000; or (ii) earnings before interest, taxes,
      depreciation, amortization and rent decreased more than 6%. 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 $349,000,000; (ii) earnings
      before interest, taxes, depreciation, amortization and rent decreased more
      than
      37%; or (iii) our net worth decreased approximately 29%.




38
 Table
          of Contents


**Outback
      Steakhouse, Inc.**


**MANAGEMENT'S
      DISCUSSION AND ANALYSIS OF**


**FINANCIAL
      CONDITION AND RESULTS OF OPERATIONS**





**Liquidity
      and Capital Resources (continued)**




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 September 30, 2005, the outstanding balance on the line of credit was
        approximately $22,641,000.


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. Our
      investment is included in the line item entitled “Investments In and Advances to
      Unconsolidated Affiliates, Net” in our Consolidated Balance Sheets. At
      September 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, we would be responsible for our guarantee
      at that
      time. This
      affiliate has not yet reached its operating break-even point. Accordingly,
      we
      have made seven
      a dditional
      working capital contributions totaling $3,636,000 since
      2001, including contributions of approximately $867,000 in July 2005 and approximately $525,000
      in September 2005. We did not make any contributions during the first and second
      quarters of 2005 and
      $800,000 was paid in 2004. 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.




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 September 30,
          2005,
          approximately 8,452,000 shares of our common stock have been issued as
          the
          result of stock option exercises. As of September 30, 2005, under these
          authorizations we have repurchased approximately 13,466,000 shares of our
          common
          stock for approximately $472,225,000.


39
 Table
          of Contents




**Outback
        Steakhouse, Inc.**
 **MANAGEMENT'S
        DISCUSSION AND ANALYSIS OF**
 **FINANCIAL
        CONDITION AND RESULTS OF OPERATIONS**
 
 **Liquidity
        and Capital Resources (continued)**




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
            
            
            
            0.13October
                26, 2005
            
            November
                18, 2005
            
            December
                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.




**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
        material impact to reported net income and earnings per share, particularly
        as a
        result of stock options issued under our managing partner program, described
        below. We have not yet determined the method of adoption or the effect of
        adopting SFAS No. 123R, and the adoption may result in materially different
        amounts than the current pro forma disclosures under SFAS No. 123.
 
 As
        part
        of our managing partner program, the managing partner (and chef partner at
        Fleming’s and Roy’s) of each of our domestic restaurants is required, as a
        condition of employment, to sign a five-year employment agreement and is
        required to purchase an interest in the restaurant he or she is employed
        to
        manage. This interest gives the managing partner and chef partner the right
        to
        receive a percentage of their restaurant's monthly cash flows for the duration
        of the five-year agreement. For managing partners, the purchase price has
        been
        $25,000 for an interest ranging from 6% to 10% and for chef partners has
        ranged
        from a purchase price of $10,000 to $15,000 for an interest ranging from
        2% to
        5%. The specifics of the purchase prices and percentage interests for managing
        partners and chef partners are detailed in our 2004 Form 10-K. Upon completion
        of each five-year term of employment, each managing partner and chef partner
        is
        issued stock options (having an exercise price based on a three-month weighted
        average stock price) with the number of options determined by a formula based
        on
        a multiple of the cash flows distributed from their interest. We are currently
        evaluating changes to the existing managing partner program. Changes to the
        plan
        could have a material impact compared to our historically reported consolidated
        financial statements.


40
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          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 and those anticipated
      in
      2006 could vary significantly depending upon consumer and business spending
      trends.





2005
      Revenue. During the three-month period ended September 30, 2005, compared with
      the same period a year ago, average unit volumes decreased by 2.3% for domestic
      Company-owned Outback Steakhouses and increased by 4.4% 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 0.5% to 1.0% lower than 2004. This revised estimate is
      a
      decrease from the 1.5% to 2.0% higher than 2004 estimate provided at the end
      of
      the second quarter. Average unit volumes for Carrabba's Italian Grills for
      the
      year are expected to be approximately 4.5% to 5.0% higher than 2004, which
      is in
      line with our second quarter estimate of 4.0% to 4.5%.





During
      the quarter ended September 30, 2005, compared with the same period in 2004,
      average unit volumes for Fleming's Prime Steakhouse and Wine Bar increased
      4.2%,
      Roy’s increased 12.9% and Bonefish Grills’ average unit volumes increased 6.0%.
      We are increasing our estimate of Fleming’s average unit volumes to be
      approximately 4.5% to 5.0% for the year instead of 4.0% as we had previously
      estimated. We are increasing our estimate of Roy’s average unit volumes to be
      approximately 9.0% to 10.0% for the year from our 7.0% to 8.0% estimate at
      the
      end of the second quarter based upon the performance Roy’s has had year-to-date.
      We estimate average unit volumes for Bonefish Grill to be between flat and
      1.0%
      for the year. This is a slight increase from our earlier estimate of flat for
      the year and is based on our most recent sales trends.





2005
      Cost
      of Sales. As a result of menu price increases and more favorable commodity
      prices, particularly dairy and produce, we now expect cost of goods sold as
      a
      percentage of restaurant sales to decrease approximately 80 to 90 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 expectations, we expect labor costs to be approximately
      10
      to 20 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, supply costs, rent and property taxes experienced during the
      first nine months of 2005, we now expect restaurant operating expenses to be
      approximately 60 to 70 basis points higher for the year.




41
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          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 be
      flat for the year primarily as a result of the lower domestic Outback Steakhouse
      average unit volumes.





We
      are
      now planning for the remainder of 2005 for all other expense ratio variances
      to
      be comparable to those experienced in and reported for the first nine months
      of
      2005.





2006
      Operating Results




The
        following Outlook information for anticipated financial results in 2006 may
        differ materially from actual results achieved and does not include the effects
        of adoption of SFAS No. 123R or of changes to the managing partner program
        that
        are currently being evaluated.




2006
      Revenue. We plan to grow revenues in 2006 by opening additional restaurants
      and
      increasing comparable store sales in all brands. Our expansion plans are
      summarized in this section. Based upon current economic conditions, we are
      currently planning for average unit volumes for Outback Steakhouse to increase
      by approximately 1.0% to 1.5% during 2006 compared with 2005 because of traffic
      increases. We currently do not anticipate any price increases in 2006 for
      Outback Steakhouse. In addition, we are planning for average unit volumes for
      Carrabba’s Italian Grill to increase by approximately 2.5% to 3.0% resulting
      from anticipated price increases of 1.0% to 1.5% and traffic increases. We
      are
      also currently planning for average unit volumes to be flat for Fleming’s Prime
      Steakhouse, to increase approximately 2.0% to 2.5% for Roy’s and to increase
      approximately 1.0% to 1.5% for Bonefish Grill. We will also reevaluate menu
      pricing for our brands periodically and may change prices as economic and
      commodity conditions dictate.





2006
      Cost
      of Sales. We anticipate cost of sales as a percentage of restaurant
      sales to decrease primarily as a result of the 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. We have
      not
      yet contracted our beef prices for 2006 but estimate beef costs will approximate
      those experienced in 2005. Although the total change in food cost is subject
      to
      several factors, such as the mix of new restaurants, commodity availability
      and
      usage and price fluctuations in commodities for which we do not have purchase
      contracts, the current expectation for the Company is for a decrease of
      approximately 10 to 20 basis points for the full year.





2006
      Labor Costs. As more of the new format restaurants (primarily Roy’s and
      Fleming’s Prime Steakhouse) are opened, labor costs as a percentage of
      restaurant sales are expected to increase because the labor costs as a
      percentage of sales at the new restaurant formats run at a higher rate than
      at
      Outback Steakhouses and Carrabba’s Italian Grills. Additionally, minimum wage
      increases such as a $0.25 increase in Florida cause us to anticipate that labor
      costs as a percentage of restaurant sales will increase 20 to 30 basis points
      in
      2006.





2006
      Restaurant Operating Expenses. Restaurant operating expense is expected to
      increase 30 to 40 basis points as a result of the increase in the proportion
      of
      new format restaurants and international Outback Steakhouses in operation that
      have higher average restaurant operating expenses as a percentage of restaurant
      sales than domestic Outback Steakhouses and Carrabba's Italian Grills. Also,
      we
      are planning for increased utility costs, especially during the first half
      of
      2006.




2006
      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 are currently planning for distribution expense as a percentage
      of
      restaurant sales to be flat to down 10 basis points in 2006 compared with
      2005.


42
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          of Contents





**Outback
      Steakhouse, Inc.**


**MANAGEMENT'S
      DISCUSSION AND ANALYSIS OF**


**FINANCIAL
      CONDITION AND RESULTS OF OPERATIONS**





**OUTLOOK
      (continued)**





2006
      Employee Partner Stock Buyout Expense. The proportion of restaurants where
      the
      area operating partners’ interest is remaining to be purchased, the relative
      value of those interests, and the timing of buyouts all affect employee partner
      stock buyout expense. As a percentage of restaurant sales, we currently
      anticipate expenses recorded in 2006 associated with accrued buyouts of our
      area
      operating partners to remain consistent with those experienced in
      2005.




2006
        Depreciation and Amortization. We expect depreciation costs to be flat
        to up 10 basis points as a result of higher depreciation costs for
        certain
        of our new restaurant formats, which have higher average construction costs
        than
        an Outback Steakhouse. We estimate that capital expenditures for the development
        of new restaurants will be approximately $260,000,000 to $280,000,000 in
        2006.


2006
      General and Administrative Expenses. Currently, we expect that total general
      and
      administrative costs will decrease by approximately 30 to 40 basis points in
      2006 compared with 2005. We expect to gain increased leverage from the growth
      of
      our new format restaurants and will avoid the one-time compensation
      costs
      associated with changes in senior management that occurred in 2005.





Expansion
      Strategy





Our
      goal
      is to add new restaurants to the system during the remainder of 2005 and in
      2006. The following table presents a summary of the expected restaurant openings
      during:




**4****th****Quarter**
              
              **Full
                  Year****2005**
              
              **2006**Outback
                  Steakhouses - DomesticCompany-owned
              8
              to
              10
              
              20
              to
              22Franchised
              0
              to
              1
              
              0
              to
              2Outback
                  Steakhouses - InternationalCompany-owned
              
              1
              
              
              18
              to
              20Franchised
              0
              to
              1
              
              4
              to
              6Carrabba’s
                  Italian GrillsCompany-owned
              9
              to
              10
              
              26
              to
              28Bonefish
                  GrillsCompany-owned
              11
              to
              12
              
              33
              to
              35Fleming’s
                  Prime Steakhouse and Wine BarsCompany-owned
              
              6
              
              
              9
              to
              10Cheeseburger
                  in ParadiseCompany-owned
              
              8
              
              
              18
              to
              20Roy’sCompany-owned
              
              1
              
              
              
              2Lee
                  Roy Selmon’sCompany-owned
              
              0
              
              
              
              2Paul
                  Lee's Chinese KitchenCompany-owned
              
              0
              
              
              
              1


43
 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.








44
 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 September 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 $93,000,000 outstanding balance under these lines at September 30, 2005
      was
      4.31%. At September 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 $16,010,000
      outstanding balance at September 30, 2005 was 0.72%. Notes payable of
      approximately $5,538,000 to Japanese banks bear interest at rates ranging from
      0.85% to 0.86%. Notes payable of approximately $37,197,000 to Korean banks
      bear
      interest at rates ranging from 5.30% to 7.00% at September 30, 2005.





At
      September 30, 2005 and December 31, 2004, our total debt, including consolidated
      guaranteed debt, was approximately $196,577,000 and $144,869,000, respectively.
      Should interest rates based on our average borrowings of approximately
      $170,700,000 through September 30, 2005 increase by one percentage point, our
      estimated annual interest expense would increase by approximately $1,707,000
      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
      $21,548,000 and $37,197,000, respectively, at September 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 $24,921,000 and $24,346,000 as of September 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.





45
 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 September 30, 2005 that have materially affected,
      or
      are reasonably likely to affect, our internal control over financial
      reporting.





46
 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 petitioned the Court of Appeals for rehearing
        and
        rehearing was denied. We have filed a petition for review with the Indiana
        Supreme Court.
 
 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 Markley case. We have filed counter-claims against
        the
        excess carrier and cross-claims against the primary carrier and our third-party
        administrator. Our third-party administrator, Wachovia Insurance Services,
        Inc.,
        has executed an indemnification agreement indemnifying us against any liability
        resulting from the failure to give notice to Fireman’s Fund Insurance
        Company.


47
 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 September 30, 2005 ,
        we
        issued approximately 14,300 shares of our common stock at $44.67 per share
        to
        eight of our area operating partners for their interests in eight Outback
        Steakhouses and one Fleming’s Prime Steakhouse and Wine Bar. The aggregate value
        of shares issued was approximately $639,000. 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.
 
 (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 September 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)**July
                    1, 2005 - July 31, 2005
                
                
                -
                
                $
                -
                
                
                -
                
                
                1,525,000August
                    1, 2005 - August 31, 2005
                
                
                300,000
                
                
                44.74
                
                
                300,000
                
                
                1,658,000September
                    1, 2005 - September 30, 2005
                
                
                200,000
                
                
                40.09
                
                
                200,000
                
                
                1,486,000Total
                
                
                500,000
                
                
                
                
                
                500,000
                
                
                1,486,000
 ____________
 (1)
              Noshares were repurchased other than through our publicly announced
                  repurchase programs and authorizations during the third quarter
                  ended
                  September 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 September 30, 2005, approximately
                  8,452,000 shares of our common stock have been issued as the result
                  of
                  stock option exercises. As of September 30, 2005, under these
                  authorizations we have repurchased approximately 13,466,000 shares
                  of our
                  common stock for approximately
                  $472,225,000.


48
 Table
          of Contents




**Outback
      Steakhouse, Inc.**


**PART
      II: OTHER INFORMATION**





**Item
      6. Exhibits**





**Number**
            
            **Description**10.01
            
            License
                Agreement amended effective September 20, 2005 by and among Outback
                Sports, LLC, OS Suites, LTD., OS Golf Marketing, LTD., Horne Tipps
                Trophy
                Suites, Inc., Horne Tipps Paradise Golf, LTD., Horne Tipps Holding
                Company, William E. Horne, James R. Tipps, Jr., Joseph L. Rousselle,
                Jr.
                and Craig Gonzales (included as an exhibit to Registrant’s Current Report
                on Form 8-K filed September 23, 2005 and incorporated herein by
                reference)10.02*
            
            Officer
                Employment Agreement made and entered into effective October 18,
                2005, for
                a term commencing November 1, 2005, by and among Dirk Montgomery
                and
                Outback Steakhouse, Inc. (included as an exhibit to Registrant’s Current
                Report on Form 8-K filed October 21, 2005 and incorporated herein
                by
                reference)10.03*
            
            Restricted
                Stock Agreement made and entered into by and between Outback Steakhouse,
                Inc. and Dirk Montgomery effective on the date of commencement of
                Grantee’s employment with the Company (included as an exhibit to
                Registrant’s Current Report on Form 8-K filed October 21, 2005 and
                incorporated herein by reference)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.





1These
      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.








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 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:
                November 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)











50