| OUTBACK STEAKHOUSE INC ITEM 1A RISK FACTORS You should carefully consider the following risks and other information contained or incorporated by reference in this Form 10-K The risks and uncertainties described below are not the only risks we face |
| Additional risks not presently known to us or which we consider immaterial based on information currently available to us may also materially affect our business |
| If any of the following risks or uncertainties actually occur, our business, financial condition and results of operations could be materially adversely affected |
| Risks Associated With Our Expansion Plans May Have Adverse Consequences on Our Ability to Increase Revenues As part of our business strategy, we intend to continue to expand our current portfolio of restaurants |
| A variety of factors could cause the actual results and experience of our expansion plans to differ from the anticipated results |
| Our development schedule for new restaurant openings is subject to a number of risks that could cause actual results to differ, including among other things: (i) Availability of attractive sites for new restaurants and the ability to obtain appropriate real estate sites at acceptable prices; (ii) The ability to obtain all required governmental permits, including zoning approvals and liquor licenses, on a timely basis; (iii) Impact of moratoriums or approval processes of state, local or foreign governments, which could result in significant delays; (iv) The ability to obtain all necessary contractors and sub-contractors; (v) Union activities such as picketing and hand billing which could delay construction; (vi) The ability to negotiate suitable lease terms; (vii) The ability to generate and borrow funds; (viii) The ability to recruit and train skilled management and restaurant employees; (ix) The ability to receive the premises from the landlord’s developer without any delays; and (x) Weather and acts of God beyond our control resulting in construction delays |
| Additionally, some of our new restaurants may take several months to reach planned operating levels due to inefficiencies typically associated with new restaurants, including lack of market awareness and other factors |
| Another risk related to the opening of new restaurants in our existing markets is the possibility that new restaurants may attract customers of existing restaurants, thereby reducing the revenues of such existing restaurants |
| Also, it is difficult to estimate the performance of newly opened restaurants |
| Earnings achieved to date by restaurants opened for less than two years may not be indicative of future operating results |
| Should enough of these new restaurants not meet targeted performance, it could have a material adverse effect on our operating results |
| The development of newer concepts may not be as successful as our experience in the development of the Outback Steakhouse concept |
| Development rates for newer brands may differ significantly and there is increased risk in the development of a new restaurant system |
| 16 _________________________________________________________________ [37]Table of Contents Competition for Customers, Real Estate, Employees, and Supplies May Affect Profit Margins The restaurant industry is intensely competitive with respect to price, service, location and food quality, and there are many well-established competitors with substantially greater financial and other resources than ours |
| Some of our competitors have been in existence for a substantially longer period than us and may be better established in the markets where our restaurants are or may be located |
| Changes in consumer tastes, nutritional and dietary trends, attitudes about alcohol consumption, local, regional, national or international economic conditions, demographic trends, traffic patterns, and the type, number and location of competing restaurants often affect the restaurant business |
| In addition, factors such as inflation, increased prices for food, marketing costs and effectiveness, labor and benefit costs, energy costs and the availability of experienced management and hourly employees may adversely affect the restaurant industry in general and our restaurants in particular |
| There is also active competition for management personnel as well as attractive suitable real estate sites |
| Our Business is Subject to Seasonal Fluctuations Historically, customer spending patterns for our established restaurants are generally highest in the first quarter of the year and lowest in the third quarter of the year |
| Additionally, holidays, severe winter weather, hurricanes, thunderstorms and similar conditions may affect sales volumes seasonally in some of the markets where we operate |
| Our quarterly results have been and will continue to be significantly affected by the timing of new restaurant openings and their associated preopening costs |
| As a result of these and other factors, our financial results for any given quarter may not be indicative of the results that may be achieved for a full fiscal year |
| Our Ability to Comply with Government Regulation, and the Costs of Compliance, Could Affect Our Business Our restaurants are subject to various federal, state, local and international laws affecting our business |
| Each of our restaurants is subject to licensing and regulation by a number of governmental authorities, which may include, among others, alcoholic beverage control, health and safety, environmental and fire agencies in the state, municipality or country in which the restaurant is located |
| Difficulty in obtaining or failing to obtain the required licenses or approvals could delay or prevent the development of a new restaurant in a particular area |
| Additionally, difficulties or inabilities to retain or renew licenses, or increased compliance costs due to changed regulations, could adversely affect operations at existing restaurants |
| Approximately 15prca of our restaurant sales are attributable to the sale of alcoholic beverages |
| Alcoholic beverage control regulations require each of our restaurants to apply to a state authority and, in certain locations, county or municipal authorities for a license or permit to sell alcoholic beverages on the premises and to provide service for extended hours and on Sundays |
| Typically, licenses must be renewed annually and may be revoked or suspended for cause at any time |
| Alcoholic beverage control regulations relate to numerous aspects of daily operations of our restaurants, including minimum age of patrons and employees, hours of operation, advertising, wholesale purchasing, inventory control and handling and storage and dispensing of alcoholic beverages |
| The failure of a restaurant to obtain or retain liquor or food service licenses would adversely affect the restaurant’s operations |
| Additionally, we may be subject in certain states to “dramshop” statutes, which generally provide a person injured by an intoxicated person the right to recover damages from an establishment that wrongfully served alcoholic beverages to the intoxicated person |
| We carry liquor liability coverage as part of our existing comprehensive general liability insurance, but cannot guarantee that this insurance will be adequate in the event we are found liable |
| Our restaurant operations are also subject to federal and state labor laws, including the Fair Labor Standards Act, governing such matters as minimum wages, overtime, tip credits and working conditions |
| Significant numbers of our food service and preparation personnel are paid at rates related to the federal minimum wage and, accordingly, further increases in the minimum wage or other changes in these laws could increase our labor costs |
| The Americans with Disabilities Act prohibits discrimination in employment and public accommodations on the basis of disability |
| The Act became effective in January 1992 with respect to public accommodation and July 1992 with respect to employment |
| Under the Act, we could be required to expend funds to modify our restaurants to provide service to, or make reasonable accommodations for the employment of, disabled persons |
| 17 _________________________________________________________________ [38]Table of Contents We Face a Variety of Risks Associated With Doing Business in Foreign Markets We have a significant number of company-owned and franchised Outback Steakhouse restaurants outside the United States and intend to continue our efforts to grow internationally |
| Although we believe we have developed the support structure for international operations and growth, there is no assurance that international operations will be profitable or international growth will occur |
| Our foreign operations are subject to all of the same risks as our domestic restaurants, as well as a number of additional risk factors |
| These additional risk factors include, among others, international economic and political conditions and the possibility of instability and unrest, differing cultures and consumer preferences, diverse government regulations and tax systems, the ability to source high-quality ingredients and other commodities in a cost-effective manner, uncertain or differing interpretations of rights and obligations in connection with international franchise agreements and the collection of royalties from international franchisees, the availability and cost of land and construction costs, and the availability of experienced management, appropriate franchisees, and joint venture partners |
| Currency regulations and fluctuations in exchange rates could also affect our performance |
| We have direct investments in restaurants in South Korea, Hong Kong, Japan, the Philippines, Puerto Rico and Brazil, as well as international franchises in fifteen countries |
| As a result, we may experience losses from foreign currency translation, and such losses could adversely affect our overall sales and earnings |
| Additionally, we are subject to governmental regulation throughout the world, including antitrust and tax requirements, anti-boycott regulations, import/export/customs regulations and other international trade regulations, the USA Patriot Act and the Foreign Corrupt Practices Act |
| Any new regulatory or trade initiatives could impact our operations in certain countries |
| Failure to comply with any such legal requirements could subject us to monetary liabilities and other sanctions, which could harm our business, results of operations and financial condition |
| Increased Commodity, Energy and other Costs Could Adversely Affect Our Business The performance of our restaurants depends on our ability to anticipate and react to changes in the price and availability of food commodities, including among other things beef, chicken, seafood, butter, cheese and produce |
| Prices may be affected due to the general risk of inflation, shortages or interruptions in supply due to weather, disease or other conditions beyond our control, or other reasons |
| Increased prices or shortages could affect the cost and quality of the items we buy |
| These events, combined with other more general economic and demographic conditions, could impact our pricing and negatively affect our profit margins |
| The performance of our restaurants is also adversely affected by increases in the price of utilities on which the restaurants depend, such as natural gas, whether as a result of inflation, shortages or interruptions in supply, or otherwise |
| Our business also incurs significant costs for and including among other things, insurance, labor, marketing, tax, real estate, borrowing and litigation, all of which could increase due to inflation, changes in laws, competition, or other events beyond our control |
| Our ability to respond to increased costs by increasing menu prices or by implementing alternative processes or products will depend on our ability to anticipate and react to such increases and other more general economic and demographic conditions, as well as the responses of our competitors and customers |
| All of these things may be difficult to predict and beyond our control |
| In this manner, increased costs could adversely affect our performance |
| 18 _________________________________________________________________ [39]Table of Contents Litigation Could Adversely Affect Our Business Our business is subject to the risk of litigation by employees, consumers, suppliers, shareholders or others through private actions, class actions, administrative proceedings, regulatory actions or other litigation |
| In recent years, a number of restaurant companies have been subject to lawsuits alleging violations of federal and state law regarding workplace, employment and similar matters |
| A number of these lawsuits have resulted in the payment of substantial damages by the defendants |
| The outcome of litigation, particularly class action and regulatory actions, is difficult to assess or quantify |
| Plaintiffs may seek recovery of large amounts and the magnitude of potential loss may remain unknown for substantial periods of time |
| The cost to defend future litigation may be significant |
| Adverse publicity resulting from litigation, regardless of the validity of any allegations, may adversely affect our business |
| Unfavorable Publicity Could Harm Our Business Our business could be negatively affected by publicity resulting from complaints or litigation alleging poor food quality, food-borne illness, personal injury, adverse health effects (including obesity) or other concerns |
| Regardless of the validity of any such allegations, unfavorable publicity relating to any number of restaurants or even a single restaurant could adversely affect public perception of the entire brand |
| Additionally, unfavorable publicity towards a food product generally could negatively impact our business |
| For example, publicity regarding health concerns or outbreaks of disease in a food product, such as bovine spongiform encephalopathy (ie, “mad cow” disease), could reduce demand for our menu offerings |
| These factors could have a material adverse affect on our business |
| Conflict or Terrorism Could Negatively Affect Our Business We cannot predict the effects of actual or threatened armed conflicts or terrorist attacks, efforts to combat terrorism, military action against any foreign state or group located in a foreign state or heightened security requirements on local, regional, national, or international economies or consumer confidence |
| Statement on Inherent Limitations in Control Systems and Possibility of Misstatement Our management does not expect that our internal controls and disclosure controls will prevent all possible error and all fraud |
| A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met |
| Because of inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, in our Company have been detected |
| These inherent limitations include the realities that judgments in decision-making can be faulty and that breakdowns can occur because of simple error or mistake |
| Further, controls can be circumvented by the individual acts of some persons or by collusion of two or more persons |
| Because of inherent limitations in a control system, misstatements due to error or fraud may occur and not be detected |
| Infringement of Our Intellectual Property Could Harm Our Business We regard our Outback Steakhouse, Carrabba’s Italian Grill, Bonefish Grill, Fleming’s Prime Steakhouse and Wine Bar, Roy’s, Cheeseburger in Paradise and Lee Roy Selmon’s service marks and our “Bloomin’ Onion” trademark as having significant value and as being important factors in the marketing of our restaurants |
| Just Right,” “Aussie Mood |
| Awesome Food |
| ” and other advertising slogans |
| We believe that our trademarks and service marks are valuable assets that are critical to our success |
| We are aware of names and marks similar to the service marks of ours used by other persons in certain geographic areas in which we have restaurants |
| Although we believe such uses will not adversely affect us, further or currently unknown unauthorized uses or other misappropriation of our trademarks or service marks could diminish the value of our brands and restaurant concepts and may adversely affect our business |