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# SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

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# FORM 10-Q

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# Quarterly Report Pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934

# For the Quarterly Period Ended July 1, 2001

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# Commission file number 0-19924

# RARE Hospitality International, Inc.(Exact name of registrant as specified in its charter)

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# Internal Revenue Service - Employer Identification No. 58-1498312

# 8215 Roswell Rd; Bldg. 600; Atlanta, GA 30350
(770) 399-9595

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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.

# XX   Yes      No

As of August 10, 2001, there were 21,425,442 shares of common stock of the
Registrant outstanding.

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# RARE Hospitality International, Inc. and Subsidiaries

# Index

`Part I - Financial Information                                                                 Page
                                                                                               ----
     Item 1. Consolidated Financial Statements:

                    Consolidated Balance Sheets as of
                    July 1, 2001 and December 31, 2000                                           1

                    Consolidated Statements of Earnings -
                    for the quarters and six months ended
                    July 1, 2001 and July 2, 2000                                                2

                    Consolidated Statement of Shareholders' Equity
                    and Comprehensive Income for the six months
                    ended July 1, 2001                                                           3

                    Condensed Consolidated Statements of Cash Flows -
                    for the six months ended July 1, 2001
                    and July 2, 2000                                                             4

                    Notes to the Consolidated Financial Statements                              5-7

     Item 2. Management's Discussion and Analysis of
                 Financial Condition and Results of Operations                                  7-11

     Item 3. Quantitative and Qualitative Disclosures About
                 Market Risk                                                                    11

Part II - Other Information

     Item 1. Legal Proceedings                                                                  12

     Item 2. Changes in Securities and Use of Proceeds                                          12

     Item 3. Defaults Upon Senior Securities   12

     Item 4. Submission of Matters to a Vote of Securities
                 Holders                                                                        12

     Item 5. Other Information                                                                  12

     Item 6. Exhibits and Reports on Form 8-K                                                   13

     Signatures                                                                                 14`

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# Part I. Financial Information
Item 1. Financial Statements

# RARE Hospitality International, Inc. and Subsidiaries
                                          Consolidated Balance Sheets
                                     (In thousands, except share amounts)
                                                  (Unaudited)

`July 1,             December 31,
Assets                                                           2001                     2000
                                                                 ----                     ----
Current assets:
    Cash and cash equivalents                                 $ 6,054                 $  3,771
    Accounts receivable                                         6,179                    5,596
    Inventories                                                12,724                   11,179
    Prepaid expenses                                            1,413                    1,246
    Refundable income taxes                                     6,500                    4,044
    Deferred income taxes                                       6,317                    5,780
                                                             --------                 --------
        Total current assets                                   39,187                   31,616

Property & equipment, less accumulated
  depreciation                                                251,728                  238,850
Goodwill, less accumulated amortization                        19,730                   20,272
Deferred income taxes                                           3,447                    2,316
Other                                                           2,770                    2,327
                                                             --------                 --------
        Total assets                                         $316,862                 $295,381
                                                             ========                 ========
Liabilities and Shareholders' Equity
Current liabilities:
    Accounts payable                                         $ 13,749                 $ 19,738
    Accrued expenses                                           31,706                   34,948
                                                             --------                 --------
        Total current liabilities                              45,455                   54,686

Debt, net of current installments                               4,000                   51,000
Obligations under capital leases                               20,952                   20,969
                                                             --------                 --------
        Total liabilities                                      70,407                  126,655

Minority interest                                               1,411                    1,469

Shareholders' equity:
    Preferred stock                                                 -                        -
    Common stock                                              177,098                  124,497
    Unearned compensation-restricted stock                       (377)                    (338)
    Retained earnings                                          68,772                   52,849
    Accumulated other comprehensive loss                         (449)                       -
    Treasury stock at cost; no shares in
      2001 and 870,750 shares in 2000                              --                   (9,751)
                                                             --------                 --------
        Total shareholders' equity                            245,044                  167,257
        Total liabilities and shareholders'                  --------                 --------
         equity                                              $316,862                 $295,381
                                                             ========                 ========`

See accompanying notes to consolidated financial statements

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# RARE Hospitality International, Inc. and Subsidiaries
                                      Consolidated Statements of Earnings
                               (In thousands, except per share data) (Unaudited)

`Quarter Ended             Six Months Ended
                                                              -------------             -----------------
                                                              13 Wks Ended         26 Wks Ended   27 Wks Ended
Revenues:                                                 July 1,       July 2,        July 1,      July 2,
                                                           2001          2000           2001         2000
                                                           ----          ----           ----         ----
Restaurant sales:
   LongHorn Steakhouse                                   $ 92,187       $ 77,941      $188,752     $163,149
   The Capital Grille                                      20,474         15,405        39,840       32,318
   Bugaboo Creek                                           16,471         15,029        33,817       31,674
   Specialty concepts                                       1,950          1,941         3,626        3,693
                                                         --------       --------      --------     --------
     Total restaurant sales                               131,082        110,316       266,035      230,834
   Franchise revenues                                          78            103           168          197
                                                         --------       --------      --------     --------
     Total revenues                                       131,160        110,419       266,203      231,031
Costs and expenses:                                      --------       --------      --------     --------
 Cost of restaurant sales                                  46,585         39,439        94,473       82,510
 Operating expenses - restaurants                          58,973         48,943       116,887      101,014
 Depreciation and amortization - restaurants                5,220          4,099        10,148        8,363
 Pre-opening expense - restaurants                            849            706         2,620        1,839
 General and administrative expenses                        7,991          7,358        15,829       15,460
                                                         --------       --------      --------     --------
     Total costs and expenses                             119,618        100,545       239,957      209,186
                                                         --------       --------      --------     --------
 Operating income                                          11,542          9,874        26,246       21,845
Interest expense, net                                         383          1,026         1,056        2,047
Early termination of interest rate
  swap agreement                                                -              -         1,100            -
Provision for litigation settlement                             -              -             -        1,000
Minority interest                                             155            484           400        1,137
                                                         --------       --------      --------     --------
   Earnings before income taxes                            11,004          8,364        23,690       17,661
Income tax expense                                          3,632          2,780         7,767        5,850
                                                         --------       --------      --------     --------
     Net earnings                                        $  7,372       $  5,584      $ 15,923     $ 11,811
                                                         ========       ========      ========     ========
Basic earnings per common share                          $   0.35       $   0.31      $   0.77     $   0.66
                                                         ========       ========      ========     ========
Diluted earnings per common share                        $   0.33       $   0.29      $   0.72     $   0.62
                                                         ========       ========      ========     ========
Weighted average common shares outstanding:
  Basic                                                    21,251         17,972        20,646       18,005
                                                         ========       ========      ========     ========
  Diluted                                                  22,592         19,340        22,042       19,071
                                                         ========       ========      ========     ========`

See accompanying notes to consolidated financial statements

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# RARE Hospitality International, Inc. and Subsidiaries
                                Consolidated Statement of Shareholders' Equity
                                           and Comprehensive Income
                                      For the quarter ended April 1, 2001
                                           (In thousands, unaudited)

`Common Stock                                          Other        Total
                                 ----------------  Restricted    Retained   Treasury Comprehensive Shareholders'
                                Shares     Amount      Stock     Earnings     Stock     Income       Equity
                                ------     ------      -----     --------     -----     ------       ------
Balance, December 31, 2000      19,627    $124,497     $(338)    $52,849     $(9,751)    $     -    $167,257
Comprehensive Income:                                                                               --------
Net earnings                         -           -          -      8,551            -          -       8,551
Cumulative effect of change in
 accounting principle (note 3)       -           -          -          -            -       (624)       (624)
Other comprehensive income,
 change in unrealized loss
 from interest rate swaps            -           -          -          -            -         91          91
                                                                                                     -------
      Total comprehensive income                                                                       8,018

Amortization of restricted
 stock                               -           -         51          -            -          -          51
Issuance of shares pursuant
  to restricted stock award          3          73        (73)         -            -          -           -
Issuance of shares pursuant
  to public offering             1,429      47,872          -          -        9,751          -      57,623
Issuance of shares pursuant
  to exercise of stock
  options                          191       2,098          -          -            -          -       2,098
                                ------    --------     ------    -------     --------      -----     -------
Balance, April 1, 2001          21,250     174,540       (360)    61,400            -       (533)    235,047

Net earnings                         -           -          -      7,372            -          -       7,372
Other comprehensive income,
 change in unrealized loss
 from interest rate swaps            -           -          -          -            -         84          84
                                                                                                     -------
       Total comprehensive income                                                                      7,456

Amortization of restricted
 stock                               -           -         54          -            -          -          54
Issuance of shares pursuant
  to restricted stock award          3          71        (71)         -            -          -           -
Issuance of shares to
    retirement plans                 8         232          -          -            -          -         232
Tax benefit of non-qualified
    stock options exercised          -         887          -          -            -          -         887
Issuance of shares pursuant
  to exercise of stock
  options                          134       1,368          -          -            -          -       1,368
                                ------    --------     ------    -------     --------    -------   ---------
Balance, July 1, 2001           21,395    $177,098     $(377)    $68,772     $      -     $ (449)   $245,044
                                ======    ========     ======    =======     ========    =======   =========`

See accompanying notes to consolidated financial statements

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# RARE Hospitality International, Inc. and Subsidiaries
                                Condensed Consolidated Statements of Cash Flows
                                           (In thousands, unaudited)

`Six Months Ended
                                                                                 -----------------
                                                                         July 1,                 July 2,
                                                                          2001                    2000
                                                                          ----                    ----
Cash Flows from operating activities:
  Net earnings                                                          $ 15,923                 $ 11,811
  Adjustments to reconcile net earnings to
    net cash provided by operating activities:
      Depreciation and amortization                                       11,524                    9,364
      Changes in working capital accounts                                (11,830)                  (1,207)
      Minority interest                                                      400                    1,137
      Deferred tax(benefit) expense                                         (617)                    (621)
                                                                        --------                 --------
  Net cash provided by operating activities                               15,400                   20,484
                                                                        --------                 --------
Cash flows from investing activities:
  Purchase of property and equipment                                     (23,648)                 (20,188)
                                                                        --------                 --------
  Net cash used by investing activities                                  (23,648)                 (20,188)
                                                                        --------                 --------
Cash flows from financing activities:
  Proceeds from (repayments of) credit facilities                        (47,000)                   3,000
  Proceeds from issuance of common stock                                  57,855                        -
  Proceeds from minority partners' contributions                               -                       92
  Distributions to minority partners                                        (458)                  (1,323)
  Increase in bank overdraft included in accounts
    payable                                                               (3,315)                  (1,575)
  Purchase of common stock for treasury                                        -                   (7,864)
  Principal payments on capital leases                                       (17)                       -
  Proceeds from exercise of stock options                                  3,466                    4,928
                                                                        --------                 --------
  Net cash provided by(used in) financing activities                      10,531                   (2,742)
                                                                        --------                 --------
Net decrease in cash and cash equivalents                                  2,283                   (2,446)
Cash and cash equivalents, beginning of period                             3,771                    8,864
                                                                        --------                 --------
Cash and cash equivalents, end of period                                 $ 6,054                 $  6,418
                                                                        ========                 ========`

See accompanying notes to consolidated financial statements

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# RARE Hospitality International, Inc.
                                  Notes to Consolidated Financial Statements
                                                  (Unaudited)

1.    Basis of Presentation

The  consolidated   financial   statements  of  RARE  Hospitality   International,   Inc.  and  subsidiaries   (the
Company) as of July 1, 2001 and December 31, 2000 and for the quarters and six months ended July 1, 2001 and
July 2, 2000 have been prepared by the Company,  pursuant to the rules and  regulations  of the  Securities and Exchange
Commission.  The information  furnished  herein reflects all adjustments  (consisting of normal  recurring  accruals and
adjustments),  which are, in the opinion of  management,  necessary  to fairly  present  the  operating  results for the
respective  periods.  Certain  information and footnote  disclosures  normally presented in annual financial  statements
prepared in accordance  with  generally  accepted  accounting  principles  have been omitted  pursuant to such rules and
regulations.  These financial  statements should be read in conjunction with the consolidated  financial  statements and
notes thereto contained in the Companys Annual Report on Form 10-K for the year ended December 31, 2000.

The Companys fiscal
     year is a 52- or 53-week  year ending on the last  Sunday in each  calendar
year.  Each of the  four  fiscal  quarters  is  typically  made up of 13  weeks;
however,  since  fiscal  2000 was a 53-week  period,  the first  quarter of 2000
contained 14 operating weeks compared to 13 operating weeks in the first quarter
of 2001.

2.      Shareholder Equity

In February 2001, the
Company  completed  an offering of  2,300,000  shares of its no par value common
stock at $26.00 per share.  Total net proceeds to the Company were approximately
$57.6 million.  Of those proceeds,  the Company used approximately $56.5 million
to repay amounts  outstanding  under its $100 million  revolving line of credit,
and approximately $1.1 million to pay a non-recurring pre-tax expense associated
with  amending its interest  rate swap  agreements  to fix the interest  rate on
amounts  expected to be outstanding  under the  Companys  credit  facility
following application of these proceeds.

3.      Derivative Instruments and Hedging Activities

In June 1998, the
Financial Accounting  Standards Board issued SFAS No. 133,  Accounting for
Derivative Instruments and Hedging Activities. SFAS No. 133, as amended by
SFAS Nos.  137 and 138,  establishes  accounting  and  reporting  standards  for
derivative  instruments  and  hedging  activities.  It  requires  an  entity  to
recognize all  derivatives  as either assets or  liabilities in the statement of
financial  position and to measure those  instruments at fair value. The Company
has  historically  used interest rate swap  agreements  to  effectively  fix the
interest rate on variable rate borrowings under the Companys  $100 million
revolving credit facility. These interest rate swap agreements are classified as
a hedge of a cash flow exposure under SFAS No. 133; and accordingly, the initial
fair value and subsequent  changes  therein are reported as a component of other
comprehensive  loss  and  subsequently   reclassified  into  earnings  when  the
forecasted  cash  flows  affect  earnings.  The  Company  adopted  SFAS No.  133
beginning January 1, 2001. As a result of adopting this new accounting standard,
the Company  recorded a net transition  adjustment loss of $624,000  ($1,006,000
transition  adjustment  loss net of related  loss tax  benefit of  $382,000)  in
accumulated  other  comprehensive  loss at January 1, 2001.  The estimated  fair
value of this  agreement at July 1, 2001 was a net payable of $449,000 (of which
$241,000 is classified as current).

Concurrent with the
completion of the February 2001 common stock offering, the Company amended its
interest rate swap agreements to fix the interest rate on future amounts under
the Companys credit facility. The Company paid $1,100,000 resulting in an
after-tax expense of $682,000 associated with amending the interest rate swap
agreements to reduce the notional principal to amounts equal to the variable
rate debt expected to be outstanding in the future under the Companys
credit facility. The repayment of amounts outstanding under the credit agreement
combined with the termination of the associated hedge created an ineffective
hedge relationship, which is reported in earnings immediately; accordingly, the
$1,100,000 payment to terminate a portion of the swap agreements was reported as
a non-recurring expense in the first quarter.

4.   Long-Term Debt

In connection with the
Companys February 2001 common stock offering, the Company repaid
approximately $56.5 million of the amount outstanding under its $100 million
revolving line of credit, and used approximately $1.1 million to pay a
non-recurring pre-tax expense associated with amending its interest rate swap
agreements to fix the interest rate on amounts expected to be outstanding under
the Companys credit facility following its application of these proceeds.
After amending the interest rate swap agreements, the Company had effectively
fixed the interest rate at 6.52%, plus the applicable margin on $10.0 million
from July 2001 through June 2002; $15.0 million from July 2002 through March
2003; and $17.5 million from April 2003 through August 2004. At July 1, 2001, $4
million was outstanding under the Companys $100 million revolving credit
agreement at a weighted average interest rate of 5.3125%.

5.  Income Taxes

Income tax expense for the
six months ended July 1, 2001 has been provided for based on an estimated 33%
effective tax rate expected to be applicable for the full 2001 fiscal year as
adjusted for the tax benefit associated with the early termination of an
interest rate swap agreement. The effective income tax rate differs from
applying the statutory federal income tax rate of 35% to pre-tax earnings
primarily due to employee FICA tip tax credits (a reduction in income tax
expense) and work opportunity tax credits partially offset by state income
taxes.

6.   Earnings Per Share

The Company effected a
three-for-two stock split in the form of a 50% stock dividend paid on September
5, 2000 to shareholders of record on August 15, 2000. All references to the
number of common shares and common share amounts have been restated to give
retroactive effect to the stock split for all periods presented.

Basic earnings per common
share equals net earnings divided by the weighted average number of common
shares outstanding and does not include the dilutive effect of stock options or
restricted stock. Diluted earnings per common share equals net earnings divided
by the weighted average number of common shares outstanding, after giving effect
to dilutive stock options and restricted stock. A reconciliation between basic
and diluted weighted average shares outstanding and the related earnings per
share calculation is presented below (in thousands, except per share amounts):

`13 Wks Ended        27 Wks Ended  26 Wks Ended
                                                          ----------------------   --------------------------
                                                           July 1,        July 2,       July 1,      July 2,
                                                            2001           2000          2001         2000
                                                            ----           ----          ----         ----
Basic weighted average shares outstanding                  21,251         17,972        20,646       18,005
Dilutive effect of stock options                            1,271          1,311         1,326        1,014
Dilutive effect of restricted stock                            70             57            70           52
                                                         --------       --------      --------     --------
Diluted weighted average shares outstanding                22,592         19,340        22,042       19,071
                                                         ========       ========      ========     ========
Net earnings                                             $  7,372       $  5,584       $15,923      $11,811
                                                         ========       ========      ========     ========
Basic earnings per common share                          $   0.35       $   0.31      $   0.77      $  0.66
                                                         ========       ========      ========     ========
Diluted earnings per common share                        $   0.33       $   0.29      $   0.72      $  0.62
                                                         ========       ========      ========     ========`

7.      Recent Accounting Pronouncement

In July 2001, the FASB
issued Statement of Financial Accounting Standards No. 142, Goodwill and
Other Intangible Assets (SFAS 142). Under SFAS 142, beginning
fiscal year 2002 the Company will no longer amortize goodwill and intangible
assets with indefinite lives, but instead will test those assets for impairment
at least annually. Intangibles with definite useful lives will be amortized over
such lives to their estimated residual values. The Company is required to adopt
SFAS 142 at the beginning of fiscal 2002, and within six months of that date, to
assess in accordance with the provisions of the Statement whether there is an
indication that any goodwill or other intangible assets with indefinite lives
are impaired as of that date.

As soon as possible after a
determination that any goodwill or other intangible assets may be impaired, but
not later than December 31, 2002, the Company must re-compute the amount of such
goodwill or other intangible asset with an indefinite life in accordance with
the provisions of the Statement. Any transitional impairment loss will be
recognized as the cumulative effect of a change in accounting principle.

As of the date of adoption,
the Company expects to have unamortized goodwill in the amount of $21.8 million,
which will be subject to the transition provisions of SFAS 142. Amortization
expense related to goodwill is projected to be approximately $1.1 million for
fiscal year 2001. Because of the extensive effort needed to comply with adopting
SFAS 142, it is not practicable to reasonably estimate the impact of adopting
this Statement on the Companys financial statements at the date of this
report, including whether it will be required to recognize any transitional
impairment losses as the cumulative effect of a change in accounting principle.

# Item 2.      Management's Discussion and Analysis of
             Financial Condition and Results of Operations

Results of Operations

Revenues

The Company currently
derives all of its revenues from restaurant sales and franchise revenues. Total
revenues increased 18.8% and 15.2% for the quarter and six months ended July 1,
2001, respectively, as compared to the same periods of the prior fiscal year.

The Companys fiscal
year is a 52- or 53-week year ending on the last Sunday in each calendar year.
Each of the four quarters is typically made up of 13 weeks; however, since
fiscal 2000 was a 53-week period, the first quarter of 2000 contained 14 weeks
compared to the 13 weeks in the first quarter of 2001. This additional week had
an unfavorable effect on the Companys revenue comparisons and operating
results for the six months of 2001 compared to the prior year.

Same store sales
comparisons for each of the Companys restaurant concepts for the quarter
ended April 1, 2001, consist of sales at restaurants opened prior to September
27, 1999.

LongHorn Steakhouse:

Sales in the LongHorn
Steakhouse restaurants for the quarter and six months ended July 1, 2001
increased 18.3% and 15.7%, respectively, as compared to the same periods of the
prior year. The increases reflect a 16.4% and 11.9% increase in restaurant
operating weeks in the quarter and six months ended July 1, 2001, respectively,
as compared to the same periods of the prior fiscal year, resulting primarily
from an increase in the restaurant base from 127 LongHorn Steakhouse restaurants
at the end of the second quarter of 2000 to 147 at the end of the second quarter
of 2001. The restaurant operating week comparison was negatively impacted for
the six month period by the effect of a fourteen-week first quarter in 2000.
Excluding this additional week in 2000, total restaurant operating weeks would
have increased by 16.3% in the first six months of 2001 as compared to the same
period in 2000. Average weekly sales for all LongHorn Steakhouse restaurants in
the second quarter of 2001 was $48,571, a 1.6% increase over the comparable
period in 2000. Same store sales for the comparable LongHorn Steakhouse
restaurants increased 1.9% in the second quarter of 2001 as compared to the same
period in 2000, primarily due to an increase in average check partially offset
by a decline in customer counts.

The Capital Grille:

Sales in The Capital Grille
restaurants for the quarter and six months ended July 1, 2001, increased 32.9%
and 23.3%, respectively, as compared to the same periods of the prior fiscal
year. The increase reflects a 28.7% and 18.2% increase in restaurant weeks in
the quarter and six months ended July 1, 2001, as compared to the same periods
of the prior fiscal year, resulting primarily from an increase in the restaurant
base from 11 The Capital Grille restaurants at the end of the second quarter of
2000 to 15 at the end of the second quarter of 2001. Excluding the additional
week in the first six months of 2000, total restaurant operating weeks would
have increased by 22.7% in the first half of 2001 as compared to the same period
in 2000. Average weekly sales for all The Capital Grille restaurants in the
second quarter of 2001 were $111,271, a 3.3% increase from the comparable period
in 2000. Same store sales for the comparable The Capital Grille restaurants
increased 4.9% in the first quarter of 2001, primarily due to an increase in
average check.

Bugaboo Creek:

Sales in the Bugaboo Creek
restaurants increased for the quarter and six months ended July 1, 2001, 9.6%
and 6.8%, respectively, compared to the same periods of the prior fiscal year.
The increase reflects a 5.6% and 1.6% increase in restaurant weeks in the
quarter and six months ended July 1, 2001, respectively, as compared to the same
periods of the prior fiscal year, resulting primarily from an increase in the
restaurant base from 18 Bugaboo Creek restaurants at the end of the second
quarter of 2000 to 19 restaurants at the end of the second quarter of 2001,
partially offset by the additional week in the first six months of 2000.
Excluding the additional week in the first six months of 2000, total restaurant
operating weeks would have increased by 5.6% in the first six months of 2001 as
compared to the same period in 2000. Average weekly sales for all Bugaboo Creek
restaurants in the second quarter of 2001 were $66,685, a 3.8% increase from the
comparable period for 2000. Same store sales for the comparable Bugaboo Creek
restaurants in the second quarter of 2001 increased 1.3% as compared to the same
period in 2000, primarily due to an increase in average check partially offset
by a decline in customer counts.

Franchise Revenue:

Franchise revenues
decreased to $78,000 for the second quarter of 2001, from $103,000 for the same
period in 2000.

Costs and Expenses

Cost of restaurant sales as
a percentage of restaurant sales decreased to 35.5% for the second quarter of
2001 from 35.8% and decreased to 35.5% from 35.7% for the six months ended July
1, 2001, as compared to the respective periods in 2000. Favorable contract
pricing on seafood, bakery, and chicken products more than offset slightly
higher red meat costs during the second quarter of 2001. The Company is
currently under fixed price contracts with respect to all of its beef and pork
products and, for a majority of these products, these contracts are in effect
for the remainder of 2001.

Restaurant operating
expense as a percentage of restaurant sales increased to 45.0% from 44.4% for
the second quarter of 2001 and to 43.9% from 43.8% for the first six months of
2001, as compared to the respective periods in 2000. This increase as a
percentage of restaurant sales was due to an increase in utility and management
labor costs. Additionally, restaurant depreciation as a percentage of restaurant
sales increased to 4.0% from 3.7% for the second quarter and to 3.8% from 3.6%
for the first six months of 2001 as compared to the same periods of the prior
fiscal year primarily due to the depreciation associated with capital lease
accounting for the four recently opened The Capital Grille restaurants and the
Companys ongoing restaurant remodeling program.

Pre-opening expense for the
first six months of 2001 was $2.6 million, an increase from $1.8 million in the
same period of the prior year. This increase related to the 15 restaurants
opened during the periods as compared to nine restaurants opened in the same
period of the prior year.

General and administrative
expenses as a percentage of total revenues decreased to 6.1% from 6.7% for the
second quarter of 2001 and decreased to 5.9% from 6.7% for the six months ended
July 1, 2001 as compared to the respective periods of the prior year. These
decreases were principally due to greater leverage of fixed and semi-fixed
general and administrative expenses and a reduction of recruiting, training, and
relocation expenses, which ran lower than in the comparable prior period due to
an improvement in restaurant management retention.

As a result of the
relationships between revenues and expenses discussed above, the Companys
operating income increased to $11.5 million from $9.9 million for the second
quarter of 2001 and increased to $26.2 million from $21.8 million for the six
months ended July 1, 2001 as compared to the respective periods of the prior
year.

Interest expense, net
decreased to $383 thousand in the second quarter of 2001 from $1.0 million in
the same period of the prior year. This decrease is principally due to the
Companys common stock offering in February 2001, the proceeds of which
were used to pay down borrowings under the Companys revolving credit
facility.

Concurrent with the
completion of the February 2001 common stock offering, the Company amended its
interest rate swap agreements to fix the interest rate on future amounts under
the Companys credit facility. The Company paid $1,100,000 resulting in an
after-tax expense of $682,000 associated with amending the interest rate swap
agreements to reduce the notional principal to amounts equal to the variable
rate debt expected to be outstanding in the future under the Companys
credit facility. The repayment of amounts outstanding under the credit agreement
combined with the termination of the associated hedge created an ineffective
hedge relationship, which was reported as a charge to earnings in the first
quarter of 2001.

Minority interest expense
decreased to $155 thousand for the second quarter of 2001 from $484 thousand for
the same period of the prior year primarily due to the full effect of the
Companys acquisition of nineteen joint venture restaurants from two joint
venture partners in July 2000.

Income tax expense for the
second quarter of 2001 was 33.0% of earnings before income taxes. Income tax
expense for the first six months of 2001 was 32.8%, which reflects an effective
income tax rate of 33% reduced by the tax benefit associated with the early
termination of an interest rate swap agreement in the first quarter of 2001.
These rates in 2001 compare to rates of 33.2% and 33.1% for the quarter and six
months ended July 2, 2000, respectively. The Companys effective income tax
rate differs from applying the statutory federal income tax rate of 35% to
pre-tax income, primarily due to employee FICA tip tax credits and work
opportunity tax credits partially offset by state income taxes.

Net earnings increased to
$7.4 million for the second quarter of 2001 from net earnings of $5.6 million
for the second quarter of 2000, reflecting the net effect of the items discussed
above.

Liquidity and Capital Resources:

The Company requires
capital primarily for the development of new restaurants, selected acquisitions
and the remodeling of existing restaurants. During the first six months of 2001
the Companys principal sources of working capital were proceeds from the
issuance of common stock in a registered public offering ($57.6 million), cash
provided by operating activities ($15.4 million) and proceeds from the exercise
of employee stock options ($3.5 million). For the first six months of 2001 the
principal uses of working capital were repayment of amounts outstanding under
the Companys revolving credit facility ($47.0 million) and capital
expenditures ($23.7 million) for new and improved facilities. As of July 1, 2001
the Company had $4.0 million outstanding under the Companys $100 million
revolving credit facility.

The Company intends to open
19 to 20 Company-owned LongHorn Steakhouse restaurants, and three The Capital
Grille restaurants in fiscal year 2001. The Company estimates that its capital
expenditures for fiscal year 2001 will be approximately $50-55 million. During
the first six months of 2001, the Company opened 12 LongHorn Steakhouse
restaurants and three The Capital Grille restaurants. Seven to eight additional
LongHorn Steakhouse restaurants are expected to be opened by the end of 2001.
Management believes that available cash, cash provided by operations, and
available borrowings under the Companys $100 million revolving credit
facility will provide sufficient funds to finance the Companys expansion
plans through the year 2004.

Since substantially all
sales in the Companys restaurants are for cash, and accounts payable are
generally due in seven to 30 days, the Company operates with little or negative
working capital.

Forward-Looking Statements

Statements contained in
this Report concerning future results, performance or expectations are
forward-looking statements within the meaning of Section 21E of the Securities
Exchange Act of 1934, as amended. All forward-looking statements in this Report
are based upon information available to the Company on the date of this Report.
All forward-looking statements involve risks and uncertainties that could cause
actual results, performance or developments to differ materially from those
expressed or implied by those forward-looking statements, such as: the
Companys ability to open the anticipated number of new restaurants on time
and within budget; the Companys ability to continue to increase same-store
sales at anticipated rates; a recession or other negative effect on business
dining patterns, or some other negative effect on the economy in general;
unexpected increases in cost of sales or other expenses; and the impact of any
negative publicity or public attitudes related to the consumption of beef. Other
risks and uncertainties include fluctuations in quarterly operating results,
seasonality, guest trends, competition and risks associated with the development
and management of new restaurant sites. More information about factors that
potentially may affect the Companys results, performance or development is
included in the Companys other filings with the Securities and Exchange
Commission, including its annual report on Form 10-K for the year ended December
31, 2000, its current reports on Form 8-K filed during the first quarter of
2001, and the Companys press releases and other communications.

# Item 3. Quantitative and Qualitative Disclosures About Market Risk

Interest Rate Risk

As of August 10, 2001,
$10.0 million was outstanding under the Companys $100 million revolving
credit facility. Amounts outstanding under such credit facility bear interest at
LIBOR plus a margin of 1.25% to 2.0% (depending on the Companys leverage
ratio), or the administrative agents prime rate of interest plus a margin
of 0% to 0.75% (depending on the Companys leverage ratio) at the
Companys option. Accordingly, the Company is exposed to the impact of
interest rate fluctuations. To achieve the Companys objective of managing
its exposure to interest rate changes, the Company from time to time uses
interest rate swaps.

The Company has interest
rate swap agreements with a commercial bank, which effectively fix the interest
rate at 6.52%, plus the margin on $10.0 million from July 2001 through June
2002; $15.0 million from July 2002 through March 2003; and $17.5 million from
April 2003 through August 2004. The Company is exposed to credit losses on this
interest rate swap in the event of counterparty non-performance, but does not
anticipate any such losses.

While changes in LIBOR and
the administrative agents prime rate of interest could affect the cost of
borrowings under the credit facility in excess of amounts covered by the
interest rate swap agreement in the future, the Company does not consider its
current exposure to changes in such rates to be material, and the Company
believes that the effect, if any, of reasonably possible near-term changes in
interest rates on the Companys financial condition, results of operations
or cash flows would not be material.

Investment Portfolio

The Company invests
portions of its excess cash, if any, in highly liquid investments. At July 1,
2001, the Company had $2.8 million invested in high-grade overnight repurchase
agreements.

---

# Part II - Other Information

Item 1. Legal Proceedings

None

Item 2.  Changes in Securities and Use of Proceeds

None

Item 3. Defaults Upon Senior Securities

None

Item 4. Submission of Matters to a Vote of Securities Holders

The 2001 Annual Meeting of
Shareholders of the Company was held on May 14, 2001 at which the following
proposals were voted upon by the shareholders: (i) election of one Class II
director to serve until the 2003 Annual Meeting of Shareholders and two Class
III directors to serve until the 2004 Annual Meeting of Shareholders; (ii)
amendment of Article Four of the Companys Articles of Incorporation to
increase the number of shares of common stock, no par value, from 25,000,000 to
60,000,000; and (iii) ratification of the selection of KPMG LLP as the
Companys independent auditors for the fiscal year ending December 30,
2001. Holders of 21,237,694 shares of the Companys common stock were
entitled to vote at that meeting.

The shareholders elected
one Class II director with a term expiring at the 2003 Annual Meeting and two
Class III directors with a term expiring at the 2004 Annual Meeting. As to each
of the following named individuals, the holders of the indicated number of
shares of the Companys common stock voted for his election, and the
holders of the indicated number of shares withheld authority to vote for
election. There were no broker non-votes.

`Shares Voting               Shares Witholding
Class II                                                  For:                      Authority:
Eugene I. Lee, Jr.                                  14,848,368                       3,296,585

Class III
Carolyn H. Baldwin                                  17,664,825                         480,128
Ronald W. San Martin                                17,664,525                         480,428`

The amendment to Article
Four of the Companys Articles of Incorporation to increase the number of
shares of common stock was ratified as follows: 13,776,028 shares voted in favor
of ratification; 4,364,832 shares voted against ratification; and 4,093 shares
abstained. There were no broker non-votes.

The selection of KPMG LLP
as independent auditors for the Company for the fiscal year ending December 30,
2001 was ratified as follows: 18,058,296 shares voted in favor of ratification;
86,128 shares voted against the ratification; and 529 shares abstained. There
were no broker non-votes.

Item 5. Other Information

None

Item 6. Exhibits and Reports on Form 8-K

| | (a) | Exhibits Filed.

             None
| | --- | ----------------------------------

| | (b) | Reports filed on Form 8-K.

             None
| | --- | ---------------------------------------------

Pursuant to the
requirements of the Securities Exchange Act of 1934, the registrant has duly
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.

---

# 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 by the undersigned, thereunto duly
authorized.

`Date:    August 10, 2001                              /s/ W. Douglas Benn
         ------------------                           ------------------------
                                                      W. Douglas Benn
                                                      Executive Vice President, Finance
                                                      and Chief Financial Officer
                                                      (Principal Financial and
                                                      Accounting Officer)`