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
      1934For
      the quarterly period ended March 31,
      2009Or[  ]
            Transition
      Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of
      1934For
      the transition period from ______ to
______


Commission
File Number: 1-15935





OSI
RESTAURANT PARTNERS, LLC


(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)





N/A


(Former
name, former address and former fiscal year, if changed since last
report)





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 checkmark whether the registrant has submitted electronically and posted on
its corporate Web site, if any, every Interactive Data File required to be
submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this
chapter) during the preceding 12 months (or for such shorter period that the
registrant was required to submit and post such files). YES o   NO
o





Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer, or a smaller reporting
company.  See the definitions of “large accelerated filer,”
“accelerated filer” and “smaller reporting company” in Rule 12b-2 of the
Exchange Act.  (Check one):




Large
accelerated filer oAccelerated filer  oNon-accelerated filer xSmaller reporting company 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 May
15, 2009, the registrant has 100 Common Units, no par
value, outstanding (all of which are owned by OSI HoldCo, Inc., the
registrant’s direct owner), and none are publicly traded.





Table of Contents










OSI RESTAURANT PARTNERS, LLC
 
 INDEX TO
QUARTERLY REPORT ON FORM 10-Q
 For the
Quarterly Period Ended March 31, 2009
 (Unaudited)
 
 TABLE OF
CONTENTS
 
 
 PART
      I — FINANCIAL INFORMATIONPage
      No.Item 1.
              Consolidated
      Financial Statements (Unaudited):Consolidated Balance Sheets — March 31, 2009 and December 31,
      2008
              3Consolidated Statements of
      Operations  —
                For the Three Months Ended March 31, 2009 and
      2008
              5Consolidated Statements of (Deficit) Equity —
                For the Three Months Ended March 31, 2009 and
      2008
              6Consolidated Statements of Cash
      Flows  —
                For the Three Months Ended March 31, 2009 and
      2008
              7Notes to Consolidated Financial
    Statements
              9Item 2.
              Management's Discussion and Analysis of Financial Condition
      and Results of Operations
              39Item 3.
              Quantitative and Qualitative Disclosures About Market
      Risk
              66Item 4.
              Controls and Procedures
              66PART
      II — OTHER INFORMATIONItem 1.
              Legal Proceedings
              67Item
      6.
              Exhibits
              69Signature
              70
 2
 Table of Contents




PART I: FINANCIALINFORMATION
 
 Item
1. Consolidated Financial Statements
 
 OSI
Restaurant Partners, LLC
 CONSOLIDATED
BALANCE SHEETS
 (IN
THOUSANDS, UNAUDITED)
 
 MARCH
      31,
              
              
              DECEMBER
      31,2009
              
              
              2008ASSETSCurrent
      AssetsCash
      and cash equivalents
              
              $
              123,088
              
              
              $
              271,470Current
      portion of restricted cash
              
              
              2,873
              
              
              
              5,875Inventories
              
              
              69,309
              
              
              
              84,568Deferred
      income tax assets
              
              
              39,106
              
              
              
              35,634Other
      current assets
              
              
              74,614
              
              
              
              61,823Total
      current assets
              
              
              308,990
              
              
              
              459,370Restricted
      cash
              
              
              184
              
              
              
              7Property,
      fixtures and equipment, net
              
              
              1,029,312
              
              
              
              1,073,499Investments
      in and advances to unconsolidated affiliates, net
              
              
              21,071
              
              
              
              20,322Goodwill
              
              
              459,800
              
              
              
              459,800Intangible
      assets, net
              
              
              647,147
              
              
              
              650,431Other
      assets, net
              
              
              174,360
              
              
              
              194,466Total
      assets
              
              $
              2,640,864
              
              
              $
              2,857,895
 
 (CONTINUED...)
  3
 Table of Contents
  OSI
Restaurant Partners, LLC
 CONSOLIDATED
BALANCE SHEETS
 (IN
THOUSANDS, EXCEPT COMMON UNITS, UNAUDITED)
 
 MARCH
      31,
              
              
              DECEMBER
      31,2009
              
              
              2008LIABILITIES
      AND DEFICITCurrent
      LiabilitiesAccounts
      payable
              
              $
              103,166
              
              
              $
              184,752Sales
      taxes payable
              
              
              14,860
              
              
              
              16,111Accrued
      expenses
              
              
              185,716
              
              
              
              168,095Current
      portion of accrued buyout liability
              
              
              17,709
              
              
              
              17,228Unearned
      revenue
              
              
              140,225
              
              
              
              212,677Income
      taxes payable
              
              
              729
              
              
              
              799Current
      portion of long-term debt
              
              
              30,258
              
              
              
              30,953Current
      portion of guaranteed debt
              
              
              -
              
              
              
              33,283Total
      current liabilities
              
              
              492,663
              
              
              
              663,898Partner
      deposit and accrued buyout liability
              
              
              107,451
              
              
              
              107,143Deferred
      rent
              
              
              55,965
              
              
              
              50,856Deferred
      income tax liability
              
              
              244,447
              
              
              
              199,984Long-term
      debt
              
              
              1,476,059
              
              
              
              1,721,179Other
      long-term liabilities, net
              
              
              273,782
              
              
              
              250,882Total
      liabilities
              
              
              2,650,367
              
              
              
              2,993,942Commitments
      and contingenciesDeficitOSI
      Restaurant Partners, LLC Unitholder’s DeficitCommon
      units, no par value, 100 units authorized, issued andoutstanding
      as of March 31, 2009 and December 31, 2008
              
              
              -
              
              
              
              -Additional
      paid-in capital
              
              
              699,769
              
              
              
              651,043Accumulated
      deficit
              
              
              (706,593
              )
              
              
              (788,940
              )Accumulated
      other comprehensive loss
              
              
              (28,456
              )
              
              
              (24,857
              )Total
      OSI Restaurant Partners, LLC unitholder’s deficit
              
              
              (35,280
              )
              
              
              (162,754
              )Noncontrolling
      interest
              
              
              25,777
              
              
              
              26,707Total
      deficit
              
              
              (9,503
              )
              
              
              (136,047
              )$
              2,640,864
              
              
              $
              2,857,895
 
 The
accompanying notes are an integral part of these Consolidated Financial
Statements.
  4
 Table of Contents
  OSI RestaurantPartners, LLC
 CONSOLIDATED
STATEMENTS OF OPERATIONS
 (IN
THOUSANDS, UNAUDITED)
 
 THREE
      MONTHS ENDEDMARCH
      31,2009
              
              
              2008RevenuesRestaurant
      sales
              
              $
              959,079
              
              
              $
              1,064,301Other
      revenues
              
              
              5,315
              
              
              
              5,181Total
      revenues
              
              
              964,394
              
              
              
              1,069,482Costs
      and expensesCost
      of sales
              
              
              321,339
              
              
              
              372,880Labor
      and other related
              
              
              269,571
              
              
              
              294,501Other
      restaurant operating
              
              
              236,749
              
              
              
              258,618Depreciation
      and amortization
              
              
              46,372
              
              
              
              47,051General
      and administrative
              
              
              58,483
              
              
              
              72,174Loss
      on contingent debt guarantee
              
              
              24,500
              
              
              
              -Provision
      for impaired assets and restaurant closings
              
              
              7,136
              
              
              
              3,664Income
      from operations of unconsolidated affiliates
              
              
              (472
              )
              
              
              (877
              )Total
      costs and expenses
              
              
              963,678
              
              
              
              1,048,011Income
      from operations
              
              
              716
              
              
              
              21,471Gain
      on extinguishment of debt
              
              
              158,061
              
              
              
              -Other
      expense, net
              
              
              (5,660
              )
              
              
              -Interest
      income
              
              
              195
              
              
              
              787Interest
      expense
              
              
              (27,010
              )
              
              
              (47,827
              )Income
      (loss) before provision (benefit) for income taxes
              
              
              126,302
              
              
              
              (25,569
              )Provision
      (benefit) for income taxes
              
              
              42,890
              
              
              
              (16,731
              )Net
      income (loss)
              
              
              83,412
              
              
              
              (8,838
              )Less:
      net income attributable to noncontrolling interest
              
              
              1,065
              
              
              
              859Net
      income (loss) attributable to OSI Restaurant Partners, LLC
              
              $
              82,347
              
              
              $
              (9,697
              )
 
 The
accompanying notes are an integral part of these Consolidated Financial
Statements.
  5
 Table of Contents
  OSI RestaurantPartners, LLC
 CONSOLIDATED
STATEMENTS OF (DEFICIT) EQUITY
 (IN
THOUSANDS, EXCEPT COMMON UNITS, UNAUDITED)
 
 ACCUMULATEDCOMMON
              
              
              ADDITIONAL
              
              
              
              
              
              OTHERCOMMON
              
              
              UNITS
              
              
              PAID-IN
              
              
              ACCUMULATED
              
              
              COMPREHENSIVE
              
              
              NONCONTROLLINGUNITS
              
              
              AMOUNT
              
              
              CAPITAL
              
              
              DEFICIT
              
              
              LOSS
              
              
              INTEREST
              
              
              TOTALBalance,
      December 31, 2008
              
              
              100
              
              
              $
              -
              
              
              $
              651,043
              
              
              $
              (788,940
              )
              
              $
              (24,857
              )
              
              $
              26,707
              
              
              $
              (136,047
              )Amortization
      of restricted stock
              
              
              -
              
              
              
              -
              
              
              
              1,726
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              1,726Contribution
      from OSI HoldCo, Inc.
              
              
              -
              
              
              
              -
              
              
              
              47,000
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              47,000Net
      income
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              82,347
              
              
              
              -
              
              
              
              1,065
              
              
              
              83,412Foreign
      currency translation adjustment
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              (3,599
              )
              
              
              -
              
              
              
              (3,599
              )Total
      comprehensive income
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              79,813Distributions
      to noncontrolling interest
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              (2,317
              )
              
              
              (2,317
              )Contributions
      from noncontrolling interest
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              322
              
              
              
              322Balance,
      March 31, 2009
              
              
              100
              
              
              $
              -
              
              
              $
              699,769
              
              
              $
              (706,593
              )
              
              $
              (28,456
              )
              
              $
              25,777
              
              
              $
              (9,503
              )
 
 
 ACCUMULATEDCOMMON
              
              
              ADDITIONAL
              
              
              
              
              
              OTHERCOMMON
              
              
              UNITS
              
              
              PAID-IN
              
              
              ACCUMULATED
              
              
              COMPREHENSIVE
              
              
              NONCONTROLLINGUNITS
              
              
              AMOUNT
              
              
              CAPITAL
              
              
              DEFICIT
              
              
              LOSS
              
              
              INTEREST
              
              
              TOTALBalance,
      December 31, 2007
              
              
              100
              
              
              $
              -
              
              
              $
              641,647
              
              
              $
              (40,055
              )
              
              $
              (2,200
              )
              
              $
              34,862
              
              
              $
              634,254Adjustment
      for EITF No. 06-4 adoption
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              (9,478
              )
              
              
              -
              
              
              
              -
              
              
              
              (9,478
              )Amortization
      of restricted stock and long-term incentives
              
              
              -
              
              
              
              -
              
              
              
              1,744
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              1,744Net
      loss
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              (9,697
              )
              
              
              
              
              
              
              859
              
              
              
              (8,838
              )Foreign
      currency translation adjustment
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              (3,829
              )
              
              
              -
              
              
              
              (3,829
              )Total
      comprehensive loss
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              (12,667
              )Distributions
      to noncontrolling interest
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              (1,340
              )
              
              
              (1,340
              )Contributions
      from noncontrolling interest
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              375
              
              
              
              375Balance,
      March 31, 2008
              
              
              100
              
              
              $
              -
              
              
              $
              643,391
              
              
              $
              (59,230
              )
              
              $
              (6,029
              )
              
              $
              34,756
              
              
              $
              612,888
 
 The
accompanying notes are an integral part of these Consolidated Financial
Statements.
  6
 Table of Contents
  OSI RestaurantPartners, LLC
 CONSOLIDATED
STATEMENTS OF CASH FLOWS
 (IN
THOUSANDS, UNAUDITED)
 
 THREE
      MONTHS ENDEDMARCH
      31,2009
              
              
              2008Cash
      flows from operating activities:Net
      income (loss)
              
              $
              83,412
              
              
              $
              (8,838
              )Adjustments
      to reconcile net income (loss) to cashused
      in operating activities:Depreciation
      and amortization
              
              
              46,372
              
              
              
              47,051Amortization
      of deferred financing fees
              
              
              2,374
              
              
              
              2,789Amortization
      of capitalized gift card sales commissions
              
              
              3,350
              
              
              
              -Provision
      for impaired assets and restaurant closings
              
              
              7,136
              
              
              
              3,483Stock-based
      and other non-cash compensation expense
              
              
              6,056
              
              
              
              5,660Income
      from operations of unconsolidated affiliates
              
              
              (472
              )
              
              
              (877
              )Change
      in deferred income taxes
              
              
              40,991
              
              
              
              (20,364
              )Loss
      on disposal of property, fixtures and equipment
              
              
              1,351
              
              
              
              3,689Unrealized
      (gain) loss on derivative financial instruments
              
              
              (174
              )
              
              
              10,848Loss
      on life insurance investments
              
              
              783
              
              
              
              3,378Gain
      on restricted cash investments
              
              
              (4
              )
              
              
              (268
              )Loss
      on contingent debt guarantee
              
              
              24,500
              
              
              
              -Gain
      on extinguishment of debt
              
              
              (158,061
              )
              
              
              -Gain
      on disposal of subsidiary
              
              
              (2,001
              )
              
              
              -Allowance
      for receivables
              
              
              2,037
              
              
              
              -Change
      in assets and liabilities:Decrease
      in inventories
              
              
              15,259
              
              
              
              3,409Increase
      in other current assets
              
              
              (26,091
              )
              
              
              (1,176
              )Decrease
      in other assets
              
              
              20,523
              
              
              
              6,084Increase
      in accrued interest payable
              
              
              4,903
              
              
              
              12,873Decrease
      in accounts payable, sales taxespayable
      and accrued expenses
              
              
              (67,780
              )
              
              
              (24,160
              )Increase
      in deferred rent
              
              
              5,145
              
              
              
              7,970Decrease
      in unearned revenue
              
              
              (72,312
              )
              
              
              (59,338
              )Decrease
      in income taxes payable
              
              
              (70
              )
              
              
              (544
              )(Decrease)
      increase in other long-term liabilities
              
              
              (3,705
              )
              
              
              4,491Net
      cash used in operating activities
              
              
              (66,478
              )
              
              
              (3,840
              )Cash
      flows used in investing activities:Purchase
      of Company-owned life insurance
              
              
              (261
              )
              
              
              -Proceeds
      from sale of Company-owned life insurance fordeferred
      compensation
              
              
              203
              
              
              
              -Acquisitions
      of liquor licenses
              
              
              (19
              )
              
              
              (498
              )Capital
      expenditures
              
              
              (15,191
              )
              
              
              (30,935
              )Proceeds
      from the sale of property, fixtures and equipment
              
              
              961
              
              
              
              -Restricted
      cash received for capital expenditures, propertytaxes
      and certain deferred compensation plans
              
              
              5,597
              
              
              
              3,725Restricted
      cash used to fund capital expenditures, propertytaxes
      and certain deferred compensation plans
              
              
              (2,768
              )
              
              
              (2,344
              )Distributions
      from unconsolidated affiliates
              
              
              -
              
              
              
              808Net
      cash used in investing activities
              
              $
              (11,478
              )
              
              $
              (29,244
              )
 
 (CONTINUED...)
  7
 Table of Contents
  OSI
Restaurant Partners, LLC
 CONSOLIDATED
STATEMENTS OF CASH FLOWS
 (IN
THOUSANDS, UNAUDITED)
 
 THREE
      MONTHS ENDEDMARCH
      31,2009
              
              
              2008Cash
      flows used in financing activities:Proceeds
      from issuance of long-term debt
              
              $
              -
              
              
              $
              29Repayments
      of long-term debt
              
              
              (5,951
              )
              
              
              (4,170
              )Extinguishment
      of senior notes
              
              
              (75,967
              )
              
              
              -Purchase
      of note related to guaranteed debt for consolidated
    affiliate
              
              
              (33,283
              )
              
              
              -Contribution
      from OSI HoldCo, Inc.
              
              
              47,000
              
              
              
              -Contributions
      from noncontrolling interest
              
              
              322
              
              
              
              375Distributions
      to noncontrolling interest
              
              
              (2,317
              )
              
              
              (1,340
              )Repayment
      of partner deposit andaccrued
      buyout contributions
              
              
              (1,305
              )
              
              
              (2,696
              )Receipt
      of partner deposit andaccrued
      buyout contributions
              
              
              1,075
              
              
              
              2,336Net
      cash used in financing activities
              
              
              (70,426
              )
              
              
              (5,466
              )Net
      decrease in cash and cash equivalents
              
              
              (148,382
              )
              
              
              (38,550
              )Cash
      and cash equivalents at the beginning of the period
              
              
              271,470
              
              
              
              171,104Cash
      and cash equivalents at the end of the period
              
              $
              123,088
              
              
              $
              132,554Supplemental
      disclosures of cash flow information:Cash
      paid for interest
              
              $
              20,324
              
              
              $
              19,938Cash
      paid (received) for income taxes, net of refunds
              
              
              1,516
              
              
              
              (1,867
              )Supplemental
      disclosures of non-cash items:Conversion
      of partner deposit and accrued buyoutliability
      to notes
              
              $
              282
              
              
              $
              2,293Acquisitions
      of property, fixtures and equipmentthrough
      accounts payable
              
              
              3,420
              
              
              
              2,714Litigation
      liability and insurance receivable
              
              
              1,401
              
              
              
              12,087
 
 The
accompanying notes are an integral part of these Consolidated Financial
Statements.
  8
 Table of Contents
  OSI RestaurantPartners, LLC
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 (UNAUDITED)
 
 1.           Basis
of Presentation
 
 Basis
of Presentation
 
 On June
14, 2007, OSI Restaurant Partners, Inc., by means of a merger and related
transactions (the “Merger”), was acquired by Kangaroo Holdings, Inc. (the
“Ultimate Parent” or “KHI”), which is controlled by an investor group comprised
of funds advised by Bain Capital Partners, LLC (“Bain Capital”), Catterton
Partners (“Catterton”), Chris T. Sullivan, Robert D. Basham and J. Timothy
Gannon (the “Founders” of the Company) and certain members of management of the
Company. In connection with the Merger, OSI Restaurant Partners, Inc. converted
into a Delaware limited liability company named OSI Restaurant Partners, LLC
(the “Company”).
 
 The total
purchase price for the Merger was approximately $3.1 billion, and it was
financed by borrowings under new senior secured credit facilities and proceeds
from the issuance of senior notes (see Note 8), proceeds from the sale-leaseback
transaction with Private Restaurant Properties, LLC (“PRP”), an investment made
by Bain Capital and Catterton, rollover equity from the Founders and investments
made by certain members of management.
 
 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 in the United
States (“U.S. GAAP”) 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.  The results of operations for interim periods are not
necessarily indicative of the results to be expected for the full
year. These financial statements should be read in conjunction with the
financial statements and financial notes thereto included in the Company’s
Annual Report on Form 10-K for the year ended December 31, 2008 (“2008
10-K”).
 
 On
January 1, 2009, the Company adopted SFAS No. 160, “Noncontrolling Interests in
Consolidated Financial Statements – Including an Amendment of ARB No. 51” (“SFAS
No. 160”).  SFAS No. 160 modifies the presentation of noncontrolling
interests in the consolidated balance sheet and the consolidated statement of
operations.  It requires noncontrolling interests to be clearly
identified, labeled and included separately from the parent’s equity (deficit)
and consolidated net income (loss).  The presentation and disclosure
requirements of SFAS No. 160 have been applied retrospectively, and the
Company’s consolidated financial statements have been recharacterized
accordingly.  Other than the change in presentation of noncontrolling
interests, the adoption of SFAS No. 160 on January 1, 2009 did not have a
material impact on the Company’s consolidated financial statements.
 
 The
Company owns and operates casual dining restaurants primarily in the United
States.  The Company’s concepts include Outback Steakhouse, Carrabba’s
Italian Grill, Bonefish Grill, Fleming’s Prime Steakhouse and Wine Bar, Roy’s
and Cheeseburger in Paradise.  Additional Outback Steakhouse,
Carrabba’s Italian Grill and Bonefish Grill restaurants in which the Company has
no direct investment are operated under franchise
agreements.
  9
 Table of Contents
  OSI
Restaurant Partners, LLC
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 (UNAUDITED)
 
 1.           Basis
of Presentation (continued)
 
 Economic
Outlook
 
 The
ongoing disruptions in the financial markets and adverse changes in the economy
have created a challenging environment for the Company and for the restaurant
industry and may limit the Company’s liquidity.  During 2008, the
Company incurred goodwill and intangible asset impairment charges of
$604,071,000 and $46,420,000, respectively, which were recorded during the
second and fourth quarters of 2008, and restaurant impairment charges of
$65,767,000, such that at December 31, 2008, the Company had Total OSI
Restaurant Partners, LLC unitholder’s deficit of $162,754,000.  During
the first quarter of 2009, the Company recorded a provision for impaired assets
and restaurant closings of $7,136,000 and at March 31, 2009 had Total OSI
Restaurant Partners, LLC unitholder’s deficit of $35,280,000.  In
2008, the Company experienced downgrades in its credit ratings, and it continues
to experience declining restaurant sales and be subject to risk from: consumer
confidence and spending patterns; the availability of credit presently arranged
from revolving credit facilities; the future cost and availability of credit;
interest rates; foreign currency exchange rates; and the liquidity or operations
of the Company’s third-party vendors and other service
providers.  Additionally, the Company’s substantial leverage could
adversely affect the ability to raise additional capital, to fund operations or
to react to changes in the economy or industry.  In response to these
conditions, the Company accelerated existing initiatives and implemented new
measures in 2008 to manage liquidity.
  The
Company has implemented various cost-saving initiatives, including food cost
decreases via waste reduction and supply chain efficiency, labor efficiency
initiatives and reductions to both capital expenditures and general and
administrative expenses.  The Company developed new menu items to
appeal to value-conscious consumers and has used marketing campaigns to promote
these items.  Additionally, interest expense declined significantly
for the first quarter of 2009 as compared to the same period in 2008 due to (1)
a significant decrease in outstanding senior notes as a result of the Company’s
open market purchases during the fourth quarter of 2008 and the completion of a
cash tender offer during the first quarter of 2009 and (2) an overall decline in
the variable interest rates on the Company’s senior secured term loan facility
and other variable-rate debt (see Note 8).
  If the
Company’s revenue and resulting cash flow decline to levels that cannot be
offset by reductions in costs, efficiency programs and improvements in working
capital management, the Company may not remain in compliance with the various
financial and operating covenants in the instruments governing its senior
secured credit facilities. If this occurs, the Company intends to take such
actions available and determined to be appropriate at such time, which may
include, but are not limited to, engaging in a permitted equity issuance,
seeking a waiver from its lenders, amending the terms of such facilities, or
refinancing all or a portion of the facilities under modified terms. There can
be no assurance that the Company will be able to effect any such actions on
terms that are acceptable or at all or that such actions will be successful in
maintaining covenant compliance.  The failure to meet debt service
obligations or to remain in compliance with the financial covenants would
constitute an event of default under those facilities and the lenders could
elect to declare all amounts outstanding to be immediately due and payable and
terminate all commitments to extend further credit.
 
 The
Company believes that these implemented initiatives and measures will allow it
to appropriately manage its liquidity to meet its debt service requirements,
operating lease obligations, capital expenditures and working capital
obligations for the next twelve months.  The Company’s anticipated
revenues and cash flows have been estimated based on results of actions taken,
its knowledge of the economic trends and the declines in sales at its
restaurants combined with its attempts to mitigate the impact of those
declines.  However, further deterioration in excess of the Company’s
estimates could cause a material adverse impact on its business, liquidity and
financial position.
  10
 Table of Contents
  OSI
Restaurant Partners, LLC
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 (UNAUDITED)
 
 2.           Recently
Issued Financial Accounting Standards
 
 In
September 2006, the Financial Accounting Standards Board (the “FASB”) issued
Statement of Financial Accounting Standards (“SFAS”) No. 157, “Fair Value
Measurements” (“SFAS No. 157”), which defines fair value, establishes a
framework for measuring fair value and expands the related disclosure
requirements.  The provisions of SFAS No. 157 are effective for fiscal
years beginning after November 15, 2007 for financial assets and liabilities or
for nonfinancial assets and liabilities that are re-measured at least
annually.  In February 2008, the FASB issued FASB Staff Position
(“FSP”) SFAS No. 157-2, “Effective Date of FASB Statement No. 157” to defer the
effective date for nonfinancial assets and liabilities that are recognized or
disclosed at fair value in the financial statements on a non-recurring basis
until fiscal years beginning after November 15, 2008.  Beginning
January 1, 2009, the Company applied SFAS No. 157 to nonfinancial assets and
liabilities that are recognized or disclosed at fair value on a nonrecurring
basis.  The adoption of SFAS No. 157 did not have a material impact on
the Company’s consolidated financial statements.  See Note 3 for the
Company’s disclosure requirements and accounting effect of the adoption of SFAS
No. 157 on the Company’s consolidated financial statements.
 
 In
October 2008, the FASB issued FSP SFAS No. 157-3, “Determining the Fair Value of
a Financial Asset When the Market for That Asset Is Not Active,” which clarifies
the application of SFAS No. 157 in a market that is not active and provides
guidance for determining the fair value of a financial asset when the market for
that financial asset is not active.  This FSP was effective upon
issuance, but it did not impact the Company’s consolidated financial
statements.  In April 2009, the FASB issued FSP SFAS No. 157-4,
“Determining Fair Value When the Volume and Level of Activity for the Asset or
Liability Have Significantly Decreased and Identifying Transactions That Are Not
Orderly” (“FSP SFAS No. 157-4”).  FSP SFAS No. 157-4 provides
additional guidance on measuring fair value when there has been a significant
decrease in the volume and level of activity for an asset or liability, and for
identifying transactions that are not orderly.  The guidance for FSP
SFAS No. 157-4 also emphasizes that the objective of a fair value measurement
will remain in accordance with SFAS No. 157’s provisions, even when there has
been a significant decrease in market activity and regardless of the valuation
technique used.   FSP SFAS No. 157-4 is effective for interim and
annual reporting periods ending after June 15, 2009.   The
Company does not expect FSP SFAS No. 157-4 to materially affect its consolidated
financial statements.
 
 In
December 2007, the FASB issued SFAS No. 141 (Revised), “Business Combinations”
(“SFAS No. 141R”), a revision of SFAS No. 141.  SFAS No. 141R retains
the fundamental requirements of SFAS No. 141, but revises certain elements
including: the recognition and fair value measurement as of the acquisition date
of assets acquired and liabilities assumed, the accounting for goodwill and
financial statement disclosures.  In April 2009, the FASB issued FSP
SFAS No. 141(R)-1, “Accounting for Assets Acquired and Liabilities Assumed in a
Business Combination That Arise from Contingencies” (“FSP SFAS No. 141(R)-1”),
which amends and clarifies the provisions in SFAS No. 141R relating to the
initial recognition and measurement, subsequent measurement and accounting, and
disclosures for assets and liabilities arising from contingencies in business
combinations.  The provisions of FSP SFAS No. 141(R)-1 are effective
for contingent assets and contingent liabilities acquired in business
combinations for which the acquisition date is on or after the beginning of the
first annual reporting period beginning on or after December 15,
2008.  The adoption of SFAS No. 141R and FSP SFAS No. 141(R)-1 on
January 1, 2009 did not have an effect on the Company’s consolidated financial
statements, as the Company did not engage in any business combinations during
the three months ended March 31, 2009.  SFAS No. 141R and FSP SFAS No.
141(R)-1 will only impact the Company’s accounting should it acquire any
businesses in the future.
  11
 Table of Contents
  OSI
Restaurant Partners, LLC
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 (UNAUDITED)
 
 2.           Recently
Issued Financial Accounting Standards (continued)
 
 In March
2008, the FASB issued SFAS No. 161, “Disclosures about Derivative Instruments
and Hedging Activities” (“SFAS No. 161”), an amendment of SFAS No. 133,
“Accounting for Derivative Instruments and Hedging Activities,” (“SFAS No.
133”). SFAS No. 161 is intended to enable investors to better understand how
derivative instruments and hedging activities affect the entity’s financial
position, financial performance and cash flows by enhancing
disclosures.  SFAS No. 161 requires disclosure of fair values of
derivative instruments and their gains and losses in a tabular format,
disclosure of derivative features that are credit-risk-related to provide
information about the entity’s liquidity and cross-referencing within the
footnotes to help financial statement users locate important information about
derivative instruments.  The adoption of SFAS No. 161 on January 1,
2009 did not have a material impact on the Company’s consolidated financial
statements.  See Note 4 for the Company’s disclosures required by the
adoption of SFAS No. 161.
 
 In April
2008, the FASB issued FSP SFAS No. 142-3, “Determination of the Useful Life of
Intangible Assets” (“FSP SFAS No. 142-3”).  FSP SFAS No. 142-3 amends
the factors an entity should consider when developing renewal or extension
assumptions for determining the useful life of recognized intangible assets
under SFAS No. 142, “Goodwill and Other Intangible Assets.”  FSP SFAS
No. 142-3 is intended to improve the consistency between the useful life of
recognized intangible assets under SFAS No. 142 and the period of expected cash
flows used to measure the fair value of assets under SFAS No. 141R and other
U.S. GAAP. The adoption of FSP SFAS No. 142-3 on January 1, 2009 did not
have a material impact on the Company’s consolidated financial
statements.
 
 In
November 2008, the FASB ratified the consensus on EITF Issue No. 08-6, “Equity
Method Investment Accounting Considerations” (“EITF No. 08-6”), which provides
guidance on and clarification of accounting and impairment considerations
involving equity method investments under SFAS No. 141R and SFAS No.
160.  EITF No. 08-6 provides guidance on how the equity method
investor should initially measure the equity method investment, account for
impairment charges of the equity method investment and account for a share
issuance by the investee.  The adoption of EITF No. 08-6 on January 1,
2009 did not have a material impact on the Company’s consolidated financial
statements.
 
 In April
2009, the FASB issued FSP SFAS No. 107-1 and Accounting Principles Board (“APB”)
Opinion No. 28-1, “Interim Disclosures about Fair Value of Financial
Instruments” (“FSP SFAS No. 107-1 and APB Opinion No. 28-1”).  FSP
SFAS No. 107-1 and APB Opinion No. 28-1 amends SFAS No. 107, “Disclosures about
Fair Value of Financial Instruments” and APB Opinion No. 28, “Interim Financial
Reporting,” to require disclosures about fair value of financial instruments for
interim reporting periods.  The provisions of FSP SFAS No. 107-1 and
APB Opinion No. 28-1 are effective for interim reporting periods ending after
June 15, 2009.  The Company does not expect FSP SFAS No. 107-1 and APB
Opinion No. 28-1 to materially affect its consolidated financial
statements.
  12
 Table of Contents
  OSI
Restaurant Partners, LLC
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 (UNAUDITED)
 
 3.           Fair
Value Measurements
 
 On
January 1, 2008, the Company adopted SFAS No. 157 for financial assets and
liabilities and nonfinancial assets and liabilities that are re-measured at
least annually.  On January 1, 2009, the Company applied SFAS No. 157
to nonfinancial assets and liabilities that are recognized or disclosed at fair
value on a nonrecurring basis.  SFAS No. 157 defines fair value,
establishes a framework for measuring fair value and expands disclosures about
fair value measurements.  SFAS No. 157 applies to reported balances
that are required or permitted to be measured at fair value under existing
accounting pronouncements; accordingly, the standard does not require any new
fair value measurements of reported balances.
 
 SFAS No.
157 emphasizes that fair value is a market-based measurement, not an
entity-specific measurement.  As defined in SFAS No. 157, fair
value is the price that would be received to sell an asset or paid to transfer a
liability in an orderly transaction between market participants at the
measurement date (exit price). To measure fair value, the Company incorporates
assumptions that market participants would use in pricing the asset or
liability, and utilizes market data to the maximum extent possible. In
accordance with SFAS No. 157, measurement of fair value incorporates
nonperformance risk (i.e., the risk that an obligation will not be fulfilled).
In measuring fair value, the Company reflects the impact of its own credit risk
on its liabilities, as well as any collateral. The Company also considers the
credit standing of its counterparties in measuring the fair value of its
assets.
 
 As a
basis for considering market participant assumptions in fair value measurements,
SFAS No. 157 establishes a three-tier fair value hierarchy which prioritizes the
inputs used in measuring fair value as follows:
 
 ·
              Level
      1 – Observable inputs such as quoted prices (unadjusted) in active markets
      for identical assets or liabilities that the Company has the ability to
      access;
 ·
              Level
      2 – Inputs, other than the quoted market prices included in Level 1, which
      are observable for the asset or liability, either directly or indirectly;
      and
 ·
              Level
      3 - Unobservable inputs for the asset or liability, which are typically
      based on an entity’s own assumptions, as there is little, if any, related
      market data available.
 
 In
instances where the determination of the fair value measurement is based on
inputs from different levels of the fair value hierarchy, the level in the fair
value hierarchy within which the entire fair value measurement falls is based on
the lowest level input that is significant to the fair value measurement in its
entirety. The Company’s assessment of the significance of a particular input to
the fair value measurement in its entirety requires judgment and considers
factors specific to the asset or liability.
 
 Fair
Value Measurements on a Recurring Basis
 
 The Company invests its
excess cash in money market fundsclassified as Cash and cash equivalents
or restricted cash in its Consolidated Balance Sheet at March 31, 2009 at a net
value of 1:1 for each dollar invested.  The fair value of the majority
of the investment in the money market fund is determined by using quotes for
similar assets in an active market.  As a result, the Company has
determined that the majority of the inputs used to value this investment fall
within Level 2 of the fair value hierarchy.  As of March 31, 2009,
$29,963,000 of the Company’s money market investments were guaranteed by the
federal government under the Treasury Temporary Guarantee Program for Money
Market Funds.  This program expires on September 18,
2009.
  13
 Table of Contents
  OSI
Restaurant Partners, LLC
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 (UNAUDITED)
 
 3.           Fair
Value Measurements (continued)
 
 Fair
Value Measurements on a Recurring Basis (continued)
 
 The
Company is highly leveraged and exposed to interest rate risk to the extent of
its variable-rate debt.  In September 2007, the
Company entered into an interest rate collar with a notional amount of
$1,000,000,000 as a method to limit the variability of its variable-rateterm
loan.  The valuation
of the Company’s interest rate collar is based on a discountedcash flow
analysis on the expected cash flows of the derivative.  This analysis
reflects the contractual terms of the collar, including the period to maturity,
and uses observable market-based inputs, including interest rate curves and
implied volatilities.
 
 Although
the Company has determined that the majority of the inputs used to value its
interest rate collar fall within Level 2 of the fair value hierarchy, the credit
valuation adjustments associated with this derivative utilize Level 3 inputs,
such as estimates of current credit spreads to evaluate the likelihood of
default by itself and its counterparties.  However, as of March 31,
2009, the Company has assessed the significance of the impact of the credit
valuation adjustments on the overall valuation of its interest rate collar
derivative positions and has determined that the credit valuation adjustments
are not significant to the overall valuation of this derivative.  As a
result, the Company has determined that its interest rate collar derivative
valuations in their entirety are classified in Level 2 of the fair value
hierarchy.
 
 The
Company’s restaurants are dependent upon energy to operate and are affected by
changes in energy prices, including natural gas.  The Company uses
derivative instruments to mitigate some of its overall exposure to material
increases in natural gas prices.  The valuation of the Company’s
natural gas derivatives is based on quoted exchange prices and isclassified in Level 2 of
the fair value hierarchy.
 
 The
Company’s third party distributor charges the Company for the diesel fuel used
to deliver inventory to the Company’s restaurants.   The Company
enters into forward contracts to procure certain amounts of this diesel fuel at
set prices in order to mitigate the Company’s exposure to unpredictable fuel
prices.  The effects of this derivative instrument were immaterial to
the Company’s financial statements for all periods presented and have been
excluded from the tables within this footnote.
 
 The
following table presents the Company’s money market funds and derivative
financial instruments measured at fair value on a recurring basis as of March
31, 2009, aggregated by the level in the fair value hierarchy within which those
measurements fall (in thousands):
 
 TOTALMARCH
      31,2009
              
              
              LEVEL
      1
              
              
              LEVEL
      2
              
              
              LEVEL
      3Assets:Money
      market funds
              
              $
              30,253
              
              
              $
              -
              
              
              $
              30,253
              
              
              $
              -Liabilities:Derivative
      financial instruments
              
              $
              24,726
              
              
              $
              -
              
              
              $
              24,726
              
              
              $
              -
 
 A SFAS
No. 157 credit valuation adjustment of $2,939,000 decreased the liability
recorded for the interest rate collar as of March 31, 2009.
  14
 Table of Contents
  OSI
Restaurant Partners, LLC
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 (UNAUDITED)
 
 3.           Fair
Value Measurements (continued)
 
 Fair
Value Measurements on a Nonrecurring Basis
 
 The
following table presents the Company’s assets and liabilities measured at fair
value on a nonrecurring basis during the three months ended March 31, 2009
aggregated by the level in the fair value hierarchy within which those
measurements fall (in thousands):
 
 THREE
      MONTHS ENDEDMARCH
      31,
              
              
              
              
              
              
              
              
              
              
              
              TOTAL2009
              
              
              LEVEL
      1
              
              
              LEVEL
      2
              
              
              LEVEL
      3
              
              
              LOSSESLong-lived
      assets held and used
              
              $
              711
              
              
              $
              -
              
              
              $
              -
              
              
              $
              711
              
              
              $
              5,130
 
 In
accordance with SFAS No. 144, “Accounting for the Impairment or Disposal of
Long-Lived Assets” (“SFAS No. 144”), the Company recorded $5,130,000 of
impairment charges as a result of the fair value measurement of its long-lived
assets held and used on a nonrecurring basis during the three months ended March
31, 2009.
 
 The
Company used a discounted cash flow model to estimate the fair value of these
long-lived assets at March 31, 2009.  Discount rate and growth rate
assumptions are derived from current economic conditions, expectations of
management and projected trends of current operating results. As a result, the Company
has determinedthat the majority of the inputs used to value itslong-lived assets held and
usedare
unobservable inputs that fall within Level 3of the fair value
hierarchy.
 
 4.           Derivative
Instruments and Hedging Activities
 
 Effective
January 1, 2009, the Company adopted SFAS No. 161 which requires
qualitative disclosures about objectives and strategies for using derivatives,
quantitative disclosures about the fair value of and gains and losses on
derivative instruments and disclosures about credit-risk-related contingent
features in derivative instruments.
 
 The
Company is exposed to market risk from changes in interest rates on debt,
changes in commodity prices and changes in foreign currency exchange
rates.
 
 The
Company’s exposure to interest rate fluctuations includes its borrowings under
its senior secured credit facilities that bear interest at floating rates based
on the Eurocurrency Rate or the Base Rate, in each case plus an applicable
borrowing margin (see Note 8).  The Company manages its interest rate
risk by offsetting some of its variable-rate debt with fixed-rate debt, through
normal operating and financing activities and, when deemed appropriate, through
the use of derivative financial instruments.  The Company does not
enter into financial instruments for trading or speculative
purposes.
 
 Many of
the ingredients used in the products sold in the Company’s restaurants are
commodities that are subject to unpredictable price volatility.  Although
the Company attempts 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 the Company is 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 Company attempts to offset the impact
of fluctuating commodity prices with other strategic purchasing
initiatives.
  15
 Table of Contents
  OSI
Restaurant Partners, LLC
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 (UNAUDITED)
 
 4.           Derivative
Instruments and Hedging Activities (continued)
 
 The
Company’s restaurants are dependent upon energy to operate and are impacted by
changes in energy prices, including natural gas.  The Company utilizes
derivative instruments to mitigate some of its overall exposure to material
increases in natural gas prices.
 
 The
Company’s third party distributor charges the Company for the diesel fuel used
to deliver inventory to the Company’s restaurants.   The Company
enters into forward contracts to procure certain amounts of this diesel fuel at
set prices in order to mitigate the Company’s exposure to unpredictable fuel
prices.  The effects of this derivative instrument were immaterial to
the Company’s financial statements for all periods presented and have been
excluded from the tables within this footnote.
 
 The
Company’s exposure to foreign currency exchange fluctuations relates primarily
to its direct investment in restaurants in South Korea, Japan, the Philippines
and Brazil and to our royalties from international franchisees.  The
Company does not use financial instruments to hedge foreign currency exchange
rate changes.
 
 In
addition to the market risks identified above, the Company is subject to
business risk as its beef supply is highly dependent upon a limited number of
vendors.  In 2008, the Company purchased approximately 90% of its beef
raw materials from four beef suppliers who represented 87% of the total beef
marketplace in the United States.
 
 Non-designated
Hedges of Interest Rate Risk and Commodity Price Risk
 
 The
Company’s objectives in using an interest rate derivative are to add stability
to interest expense and to manage its exposure to interest rate
movements.  For the Company’s variable-rate debt, interest rate
changes generally impact its earnings and cash flows, assuming other factors are
held constant.  The Company uses an interest rate collar as part of
its interest rate risk management strategy.
 
 In
September 2007, the Company entered into an interest rate collar with a notional
amount of $1,000,000,000 as a method to limit the variability of its
$1,310,000,000 variable-rate term loan.   The collar consists of a
LIBOR cap of 5.75% and a LIBOR floor of 2.99%.  The collar’s first
variable-rate set date was December 31, 2007, and the option pairs expire at the
end of each calendar quarter beginning March 31, 2008 and ending September 30,
2010.   The quarterly expiration dates correspond to the scheduled
amortization payments of the Company’s term loan.
 
 As of
March 31, 2009, the Company’s interest rate collar was a non-designated hedge of
the Company’s exposure to interest rate risk.  The Company records
marked-to-market changes in the fair value of the derivative instrument in
earnings in the period of change in accordance with SFAS No. 133.
 
 The
Company’s objective in using natural gas derivatives is to mitigate some of its
overall exposure to material increases in natural gas prices.  As of
March 31, 2009, the Company had a notional volume of 272,800 MMBtus in
unrealized natural gas swaps.  These natural gas derivatives were a
non-designated hedge, and the Company records marked-to-market changes in the
fair value of these derivative instruments in earnings in the period of change
in accordance with SFAS No. 133.
  16
 Table of Contents
  OSI
Restaurant Partners, LLC
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 (UNAUDITED)
 
 4.           Derivative
Instruments and Hedging Activities (continued)
 
 The
following table presents the fair value of the Company’s derivative financial
instruments and their classification in its Consolidated Balance Sheets as of
March 31, 2009 and December 31, 2008 (in thousands):
 
 FAIR
      VALUES OF DERIVATIVE INSTRUMENTSASSET
      DERIVATIVES
              
              LIABILITY
      DERIVATIVESMARCH
      31, 2009
              
              DECEMBER
      31, 2008
              
              MARCH
      31, 2009
              
              DECEMBER
      31, 2008BALANCE
              
              
              
              BALANCE
              
              
              
              BALANCE
              
              
              
              BALANCESHEET
              
              FAIR
              
              SHEET
              
              FAIR
              
              SHEET
              
              FAIR
              
              SHEET
              
              FAIRLOCATION
              
              VALUE
              
              LOCATION
              
              VALUE
              
              LOCATION
              
              VALUE
              
              LOCATION
              
              VALUEDerivatives
      not designated as hedginginstruments
      under SFAS No. 133Interest
      rate collar
              Other
      current assets
              
              $
              -
              
              Other
      current assets
              
              $
              -
              
              Accrued
      expenses
              
              $
              23,598
              
              Accrued
      expenses
              
              $
              24,285Natural
      gas swaps
              Other
      current assets
              
              
              -
              
              Other
      current assets
              
              
              -
              
              Accrued
      expenses
              
              
              1,128
              
              Accrued
      expenses
              
              
              1,172Total
      derivatives not designated ashedging
      instruments underSFAS
      No. 133
              
              
              $
              -
              
              
              
              $
              -
              
              
              
              $
              24,726
              
              
              
              $
              25,457
 
 The
following table presents the location and effects of the Company’s derivative
financial instruments on its Consolidated Statements of Operations for the three
months ended March 31, 2009 and 2008 (in thousands):
  AMOUNT
      OF GAIN OR (LOSS)LOCATION
      OF
                
                RECOGNIZED
      IN INCOMEGAIN
      OR (LOSS)
                
                ON
      DERIVATIVEDERIVATIVES
      NOT DESIGNATED
                RECOGNIZED
      IN
                
                THREE
      MONTHS ENDEDAS
      HEDGING INSTRUMENTS
                INCOME
      ON
                
                MARCH
      31,UNDER
      SFAS NO. 133
                DERIVATIVE
                
                2009
                
                
                2008Interest
      rate collar
                Interest
      expense
                
                $
                (3,154
                )
                
                $
                (10,856
                )Natural
      gas swaps
                Other
      restaurant operating
                
                
                (586
                )
                
                
                100Total
                
                
                $
                (3,740
                )
                
                $
                (10,756
                )
 Credit-risk-related
Contingent Features
 
 The
Company’s agreement with its derivative counterparty for the interest rate
collar contains a provision in which the Company could be declared in default on
its derivative obligation if repayment of the underlying indebtedness
is accelerated by the lender due to the Company’s default on the
indebtedness.
 
 As of
March 31, 2009 and December 31, 2008, the fair value of the interest rate collar
derivative related to this agreement, including accrued interest but excluding
any adjustment for nonperformance risk, was in a net liability position of
$26,586,000 and $28,857,000, respectively.  As of March 31, 2009 and
December 31, 2008, the Company was not required to post and did not post any
collateral related to this agreement. If the Company breached the agreement’s
provision at March 31, 2009, it would be required to settle its obligation under
the agreement at its termination value of $26,586,000.
  17
 Table of Contents
  OSI
Restaurant Partners, LLC
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 (UNAUDITED)
 
 5.           Other
Current Assets
 
 Other
current assets consisted of the following (in thousands):
 
 MARCH
      31,
              
              
              DECEMBER
      31,2009
              
              
              2008Prepaid
      expenses
              
              $
              28,103
              
              
              $
              14,664Accounts
      receivable
              
              
              18,633
              
              
              
              15,389Accounts
      receivable - vendors
              
              
              5,717
              
              
              
              9,907Accounts
      receivable - franchisees, net
              
              
              4,303
              
              
              
              4,476Other
      current assets
              
              
              17,858
              
              
              
              17,387$
              74,614
              
              
              $
              61,823
 
 6.           Property,
Fixtures and Equipment, Net
 
 During
the three months ended March 31, 2009 and 2008, the Company recorded impairment
charges and restaurant closing expense of $6,539,000 and $3,664,000,
respectively, for certain of the Company’s restaurants in the line item
“Provision for impaired assets and restaurant closings” in its Consolidated
Statement of Operations (see Note 3). These
fixed asset impairment charges primarily occurred as a result of the carrying
value of a restaurant’s assets exceeding its estimated fair market value,
generally due to anticipated closures or declining future cash flows from lower
projected future sales on existing locations.
 
 During
the first quarter of 2009, the Company continued to market its Cheeseburger in
Paradise concept for sale.  As of March 31, 2009, it determined that
its Cheeseburger in Paradise concept does not meet the assets held for sale
criteria defined in SFAS No. 144.  Subsequent to the end of the first
quarter, the Company executed a letter of intent to sell its Cheeseburger in
Paradise concept (see Note 15).
 
 7.           Accrued
Expenses
 
 Accrued
expenses consisted of the following (in thousands):
 
 MARCH
      31,
              
              
              DECEMBER
      31,2009
              
              
              2008Accrued
      payroll and other compensation
              
              $
              73,503
              
              
              $
              66,057Accrued
      insurance
              
              
              23,494
              
              
              
              19,480Other
      accrued expenses
              
              
              88,719
              
              
              
              82,558$
              185,716
              
              
              $
              168,095
 18
 Table of Contents
  OSI
Restaurant Partners, LLC
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 (UNAUDITED)
 
 8.           Long-term
Debt
 
 Long-term
debt consisted of the following (in thousands):
 
 MARCH
      31,
              
              
              DECEMBER
      31,2009
              
              
              2008Senior
      secured term loan facility, interest rate of 2.69% at March 31,
      2009and
      2.81% at December 31, 2008
              
              $
              1,181,725
              
              
              $
              1,185,000Senior
      secured working capital revolving credit facility, interest rate of 2.75%
      atMarch
      31, 2009 and 2.81% at December 31, 2008
              
              
              50,000
              
              
              
              50,000Senior
      secured pre-funded revolving credit facility, interest rate of 4.50%
      atMarch
      31, 2009 and 2.81% at December 31, 2008
              
              
              12,000
              
              
              
              12,000Senior
      notes, interest rate of 10.00% at March 31, 2009 and December 31,
      2008
              
              
              248,075
              
              
              
              488,220Other
      notes payable, uncollateralized, interest rates ranging from 1.54% to
      7.30%at
      March 31, 2009 and 2.28% to 7.30% at December 31, 2008
              
              
              9,592
              
              
              
              11,987Sale-leaseback
      obligations
              
              
              4,925
              
              
              
              4,925Guaranteed
      debt of consolidated affiliate
              
              
              -
              
              
              
              33,2831,506,317
              
              
              
              1,785,415Less:
      current portion of long-term debt of OSI Restaurant Partners,
      LLC
              
              
              (30,258
              )
              
              
              (30,953
              )Less:
      guaranteed debt
              
              
              -
              
              
              
              (33,283
              )Long-term
      debt of OSI Restaurant Partners, LLC
              
              $
              1,476,059
              
              
              $
              1,721,179
 
 On June
14, 2007, in connection with the Merger, the Company entered into senior secured
credit facilities with a syndicate of institutional lenders and financial
institutions.  These senior secured credit facilities provide for senior
secured financing of up to $1,560,000,000, consisting of a $1,310,000,000 term
loan facility, a $150,000,000 working capital revolving credit facility,
including letter of credit and swing-line loan sub-facilities, and a
$100,000,000 pre-funded revolving credit facility that provides financing for
capital expenditures only.
 
 The
senior secured term loan facility matures June 14, 2014, and its proceeds were
used to finance the Merger.  At each rate adjustment, the Company has the
option to select a Base Rate plus 125 basis points or a Eurocurrency Rate plus
225 basis points for the borrowings under this facility.  The Base Rate
option is the higher of the prime rate of Deutsche Bank AG New York Branch and
the federal funds effective rate plus 1⁄2 of 1% (“Base Rate”) (3.25% at March 31,
2009 and December 31, 2008, respectively).  The Eurocurrency Rate option is
the 30, 60, 90 or 180-day Eurocurrency Rate (“Eurocurrency Rate”) (ranging
from 0.50% to 1.74% and from 0.44% to 1.75% at March 31, 2009 and December 31,
2008, respectively).  The Eurocurrency Rate may have a nine- or
twelve-month interest period if agreed upon by the applicable lenders. 
With either the Base Rate or the Eurocurrency Rate, the interest rate is reduced
by 25 basis points if the Company’s Moody’s Applicable Corporate Rating then
most recently published is B1 or higher (the rating was Caa1 at March 31, 2009
and December 31, 2008, respectively).
 
 The
Company will be required to prepay outstanding term loans, subject to certain
exceptions, with:
 
 §
              50%
      of its “annual excess cash flow” (with step-downs to 25% and 0% based upon
      its rent-adjusted leverage ratio), as defined in the credit agreement and
      subject to certain exceptions;
 §
              100%
      of its “annual minimum free cash flow,” as defined in the credit
      agreement, not to exceed $50,000,000 for the fiscal year ended December
      31, 2007 or $75,000,000 for each subsequent fiscal year, if its
      rent-adjusted leverage ratio exceeds a certain minimum
      threshold;
 §
              100%
      of the net proceeds of certain assets sales and insurance and condemnation
      events, subject to reinvestment rights and certain other exceptions;
      and
 §
              100%
      of the net proceeds of any debt incurred, excluding permitted debt
      issuances.
  19
 Table of Contents
  OSI
Restaurant Partners, LLC
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 (UNAUDITED)
 
 8.           Long-term
Debt (continued)
 
 Additionally,
the Company will, on an annual basis, be required to (1) first, repay
outstanding loans under the pre-funded revolving credit facility and (2) second,
fund a capital expenditure account established on the closing date of the Merger
to the extent amounts on deposit are less than $100,000,000, in both cases with
100% of the Company’s “annual true cash flow,” as defined in the credit
agreement.  In accordance with these requirements, in April 2009, the
Company repaid its pre-funded revolving credit facility outstanding loan
balance.
 
 The
Company’s senior secured credit facilities require scheduled quarterly payments
on the term loans equal to 0.25% of the original principal amount of the term
loans for the first six years and three quarters following the closing of the
Merger.  These payments will be reduced by the application of any
prepayments, and any remaining balance will be paid at maturity.  The
outstanding balance on the term loans was $1,181,725,000 and $1,185,000,000 at
March 31, 2009 and December 31, 2008, respectively.
 
 Proceeds
of loans and letters of credit under the $150,000,000 working capital revolving
credit facility provide financing for working capital and general corporate
purposes and, subject to a rent-adjusted leverage condition, for capital
expenditures for new restaurant growth.  This revolving credit
facility matures June 14, 2013 and bears interest at rates ranging from 100 to
150 basis points over the Base Rate or 200 to 250 basis points over the
Eurocurrency Rate.  At March 31, 2009 and December 31, 2008, the
outstanding balance was $50,000,000.  In addition to outstanding borrowings
at March 31, 2009 and December 31, 2008, $69,435,000 and $63,300,000,
respectively, of the credit facility was not available for borrowing as (i)
$37,540,000 of the credit facility 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, (ii) $24,500,000 of the credit facility was committed for the
issuance of a letter of credit for the Company’s  guarantee of an
uncollateralized line of credit for its joint venture partner, RY-8, Inc.
(“RY-8”), in the development of Roy's restaurants (iii) $6,000,000 of the credit
facility at March 31, 2009 was committed for the issuance of a letter of credit
to the insurance company that underwrites our bonds for liquor licenses,
utilities, liens and construction and (iv) $1,395,000 and $1,260,000,
respectively, of the credit facility was committed for the issuance of other
letters of credit.  A maximum of $75,000,000 of letters of credit are
permitted to be issued under the working capital revolving credit
facility.  Subsequent to the end of the first quarter of 2009, the
Company committed an additional $1,311,000 of its working capital revolving
credit facility for the issuance of letters of credit (see Note
15).  Fees for the letters of credit range from 2.00% to 2.50% and the
commitment fees for unused working capital revolving credit commitments range
from 0.38% to 0.50%.
 
 Proceeds
of loans under the $100,000,000 pre-funded revolving credit facility are
available to provide financing for capital expenditures once the Company fully
utilizes $100,000,000 of restricted cash that was funded on the closing date of
the Merger.  At March 31, 2009 and December 31, 2008, the Company had fully
utilized all of its restricted cash for capital expenditures, and it had
borrowed $12,000,000 from its pre-funded revolving credit
facility.  This borrowing is recorded in “Current portion of long-term
debt” in the Company’s Consolidated Balance Sheets at March 31, 2009 and
December 31, 2008, as the Company was required to repay this outstanding loan in
April 2009 using its “annual true cash flow,” as defined in the credit
agreement.  This facility matures June 14, 2013.  At each rate
adjustment, the Company has the option to select the Base Rate plus 125 basis
points or a Eurocurrency Rate plus 225 basis points for the borrowings under
this facility.  In either case, the interest rate is reduced by 25 basis
points if the Company’s Moody’s Applicable Corporate Rating then most recently
published is B1 or higher.
  20
 Table of Contents
  OSI
Restaurant Partners, LLC
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 (UNAUDITED)
 
 8.           Long-term
Debt (continued)
 
 The
Company’s senior secured credit facilities require it to comply with certain
financial covenants, including a quarterly Total Leverage Ratio (“TLR”) test and
an annual Minimum Free Cash Flow (“MFCF”) test. The TLR is the ratio of
Consolidated Total Debt to Consolidated EBITDA (earnings before interest, taxes,
depreciation and amortization as defined in the senior secured credit
facilities) and may not exceed 6.00 to1.00.  On an annual basis, if
the Rent Adjusted Leverage Ratio is greater than or equal to 5.25 to1.00, the
Company’s MFCF cannot be less than $75,000,000.  MFCF is calculated as
Consolidated EBITDA plus decreases in Consolidated Working Capital less
Consolidated Interest Expense, Capital Expenditures (except for that funded by
the Company’s senior secured pre-funded revolving credit facility), increases in
Consolidated Working Capital and cash paid for taxes.  (All of the
above capitalized terms are as defined in the credit agreement).  The
Company’s senior secured credit facilities agreement also includes negative
covenants that, subject to significant exceptions, limit its ability and the
ability of its restricted subsidiaries to: incur liens, make investments and
loans, make capital expenditures (as described below), incur indebtedness or
guarantees, engage in mergers, acquisitions and assets sales, declare dividends,
make payments or redeem or repurchase equity interests, alter its business,
engage in certain transactions with affiliates, enter into agreements limiting
subsidiary distributions and prepay, redeem or purchase certain
indebtedness.  The Company’s senior secured credit facilities contain
customary representations and warranties, affirmative covenants and events of
default.
 
 The
Company’s capital expenditures are limited by the credit agreement.  The
annual capital expenditure limits range from $200,000,000 to $250,000,000 with
various carry-forward and carry-back allowances.  The Company’s annual
expenditure limits may increase after an acquisition.  However, if (i) the
Rent Adjusted Leverage Ratio at the end of a fiscal year is greater than 5.25 to
1.00, (ii) the “annual true cash flows” are insufficient to repay fully our
pre-funded revolving credit facility and (iii) the capital expenditure account
has a zero balance, its capital expenditures will be limited to $100,000,000 for
the succeeding fiscal year.  This limitation will remain until there are no
pre-funded revolving credit facility loans outstanding and the amount on deposit
in the capital expenditures account is greater than zero or until the Rent
Adjusted Leverage Ratio is less than 5.25 to 1.00.
 
 The
obligations under the Company’s senior secured credit facilities are guaranteed
by each of its current and future domestic 100% owned restricted subsidiaries in
its Outback Steakhouse, Carrabba’s Italian Grill and Cheeseburger in Paradise
concepts and certain non-restaurant subsidiaries (the “Guarantors”) and by OSI
HoldCo, Inc. (“OSI HoldCo”), the Company’s direct owner and an indirect,
wholly-owned subsidiary of the Company’s Ultimate Parent.  Subject to the
conditions described below, the obligations are secured by a perfected security
interest in substantially all of the Company’s assets and assets of the
Guarantors and OSI HoldCo, in each case, now owned or later acquired, including
a pledge of all of the Company’s capital stock, the capital stock of
substantially all of the Company’s domestic wholly-owned subsidiaries and 65% of
the capital stock of certain of the Company’s material foreign subsidiaries that
are directly owned by the Company, OSI HoldCo, or a Guarantor.  Also, the
Company is required to provide additional guarantees of the senior secured
credit facilities in the future from other domestic wholly-owned restricted
subsidiaries if the consolidated EBITDA (earnings before interest, taxes,
depreciation and amortization as defined in the senior secured credit
facilities) attributable to the Company’s non-guarantor domestic wholly-owned
restricted subsidiaries as a group exceeds 10% of the Company’s consolidated
EBITDA as determined on a Company-wide basis.  If this occurs, guarantees
would be required from additional domestic wholly-owned restricted subsidiaries
in such number that would be sufficient to lower the aggregate consolidated
EBITDA of the non-guarantor domestic wholly-owned restricted subsidiaries as a
group to an amount not in excess of 10% of the Company-wide consolidated
EBITDA.
 
 On June
14, 2007, the Company issued senior notes in an original aggregate principal
amount of $550,000,000 under an indenture among the Company, as issuer, OSI
Co-Issuer, Inc., as co-issuer (“Co-Issuer”), Wells Fargo Bank, National
Association, as trustee, and the Guarantors.  Proceeds from the issuance of
the senior notes were used to finance the Merger, and the senior notes mature on
June 15, 2015.  Interest is payable semiannually in arrears, at 10% per
annum, in cash on each June 15 and December 15, commencing on December 15,
2007.  Interest payments to the holders of record of the senior notes occur
on the immediately preceding June 1 and December 1.  Interest is computed
on the basis of a 360-day year consisting of twelve 30-day
months.
  21
 Table of Contents
  OSI
Restaurant Partners, LLC
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 (UNAUDITED)
 
 8.           Long-term
Debt (continued)
 
 The
senior notes are guaranteed on a senior unsecured basis by each restricted
subsidiary that guarantees the senior secured credit facility (see Note
11).  As of March 31, 2009 and December 31, 2008, all of the Company’s
consolidated subsidiaries were restricted subsidiaries.  The senior
notes are general, unsecured senior obligations of the Company, Co-Issuer and
the Guarantors and are equal in right of payment to all existing and future
senior indebtedness, including the senior secured credit facility.  The
senior notes are effectively subordinated to all of the Company’s, Co-Issuer’s
and the Guarantors’ secured indebtedness, including the senior secured credit
facility, to the extent of the value of the assets securing such
indebtedness.  The senior notes are senior in right of payment to all of
the Company’s, Co-Issuer’s and the Guarantors’ existing and future subordinated
indebtedness.
 
 The
indenture governing the senior notes limits, under certain circumstances, the
Company’s ability and the ability of Co-Issuer and the Company’s restricted
subsidiaries to: incur liens, make investments and loans, incur indebtedness or
guarantees, engage in mergers, acquisitions and assets sales, declare dividends,
make payments or redeem or repurchase equity interests, alter its business,
engage in certain transactions with affiliates, enter into agreements limiting
subsidiary distributions and prepay, redeem or purchase certain
indebtedness.
 
 In
accordance with the terms of the senior notes and the senior secured credit
facility, the Company’s restricted subsidiaries are also subject to restrictive
covenants.  Under certain circumstances, the Company is permitted to
designate subsidiaries as unrestricted subsidiaries, which would cause them not
to be subject to the restrictive covenants of the indenture or the credit
agreement.  In April 2009, one of the Company’s restricted
subsidiaries that operated six restaurants in Canada was designated as an
unrestricted subsidiary.
 
 Additional
senior notes may be issued under the indenture from time to time, subject to
certain limitations.  Initial and additional senior notes issued under the
indenture will be treated as a single class for all purposes under the
indenture, including waivers, amendments, redemptions and offers to
purchase.
 
 The
Company filed a Registration Statement on Form S-4 (which became effective June
2, 2008) for an exchange offer relating to its senior notes.  As a result,
the Company is required to file reports under Section 15(d) of the Securities
Exchange Act of 1934, as amended.
 
 The
Company may redeem some or all of the senior notes on and after June 15, 2011 at
the redemption prices (expressed as percentages of principal amount of the
senior notes to be redeemed) listed below, plus accrued and unpaid interest
thereon and additional interest, if any, to the applicable redemption
date.
 
 Year
              
              Percentage2011
              
              105.0%2012
              
              102.5%2013
      and thereafter
              
              100.0%
 
 The
Company also may redeem all or part of the senior notes at any time prior to
June 15, 2011, at a redemption price equal to 100% of the principal amount of
the senior notes redeemed plus the applicable premium as of, and accrued and
unpaid interest and additional interest, if any, to the date of
redemption.
 
 Upon a
change in control as defined in the indenture, the Company would be required to
make an offer to purchase all of the senior notes at a price in cash equal to
101% of the aggregate principal amount thereof plus accrued interest and unpaid
interest and additional interest, if any, to the date of purchase.
 
 Between
November 18, 2008 and November 21, 2008, the Company purchased on the open
market and extinguished $61,780,000 in aggregate principal amount of its
senior notes for $11,711,000, representing an average of 19.0% of face value,
and $2,729,000 of accrued interest.
  22
 Table of Contents
  OSI
Restaurant Partners, LLC
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 (UNAUDITED)
 
 8.           Long-term
Debt (continued)
 
 On
February 18, 2009, the Company commenced a cash tender offer to purchase the
maximum aggregate principal amount of its senior notes that it could purchase
for $73,000,000, excluding accrued interest. The tender offer was made upon the
terms and subject to the conditions set forth in the Offer to Purchase dated
February 18, 2009, as amended March 5 and March 20, 2009, and the related Letter
of Transmittal.  The tender offer expired on March 20, 2009, and the
Company accepted for purchase $240,145,000 in principal amount of its senior
notes.  The Company paid $72,998,000 for the senior notes accepted for
purchase and $6,671,000 of accrued interest.  The Company
recorded a gain from the extinguishment of its debt of $158,061,000 in the line
item “Gain on extinguishment of debt” in its Consolidated Statement of
Operations for the three months ended March 31, 2009.  The gain was
reduced by $6,117,000 for the pro rata portion of unamortized deferred
financing fees that related to the extinguished senior notes and by $2,969,000
of fees related to the tender offer. The principal balance of senior notes
outstanding at March 31, 2009 and December 31, 2008 was $248,075,000 and
$488,220,000, respectively. The purpose of the tender offer was to reduce
the principal amount of debt outstanding, reduce the related debt service
obligations and improve the Company’s financial covenant position under its
senior secured credit facilities.
 
 The
Company funded the tender offer with (i) cash on hand and (ii) proceeds from a
contribution (the “Contribution”) of $47,000,000 from the
Company’s direct owner, OSI HoldCo.  The Contribution was funded
through distributions to OSI HoldCo by one of its subsidiaries that owns
(indirectly through subsidiaries) approximately 340 restaurant properties that
are sub-leased to the Company.
 
 DEBT
GUARANTEE
  The
Company was the guarantor of an uncollateralized line of credit that
matured December 31, 2008 and permitted borrowing of up to $35,000,000 by a
limited liability company, T-Bird Nevada, LLC (“T-Bird”), which is owned by the
principal of each of the Company’s California franchisees of Outback Steakhouse
restaurants.  The line of credit bore interest at rates ranging from
50 to 90 basis points over LIBOR.  The Company was required to
consolidate T-Bird effective January 1, 2004 upon adoption of revised FASB
Interpretation No. 46, “Consolidation of Variable Interest Entities” (“FIN
46R”).  At December 31, 2008, the outstanding balance on the line of
credit was approximately $33,283,000 and was included in the Company’s
Consolidated Balance Sheet.T-Bird used
proceeds from the line of credit for loans to its affiliates (“T-Bird Loans”)
that serve as general partners of 42 franchisee limited partnerships, which
currently own and operate 41 Outback Steakhouse restaurants. The funds were
ultimately used for the purchase of real estate and construction of buildings to
be opened as Outback Steakhouse restaurants and leased to the franchisees’
limited partnerships.  According to the terms of the line of credit,
T-Bird was able to borrow, repay, re-borrow or prepay advances at any time
before the termination date of the agreement.
 
 On
January 12, 2009, the Company received notice that an event of default had
occurred in connection with the line of credit because T-Bird failed to pay the
outstanding balance of $33,283,000 due on the maturity date.  On
February 17, 2009, the Company terminated its guarantee obligation by purchasing
the note and all related rights from the lender for $33,311,000, which included
the principal balance due on maturity and accrued and unpaid interest.  In
anticipation of receiving a notice of default subsequent to the end of the year,
the Company recorded a $33,150,000 allowance for the T-Bird Loan receivables
during the fourth quarter of 2008.  Since T-Bird defaulted on its line
of credit, 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.  Therefore, on February 19, 2009,
the Company filed suit against T-Bird and its affiliates in Florida state court
seeking, among other remedies, to enforce the note and collect on the T-Bird
Loans.  On February 20, 2009, T-Bird and certain of its affiliates
filed suit against the Company and certain of its officers and affiliates (see
Note 12).
 
 As a
result of these lawsuits, the Company had to make certain assumptions and
estimates in its consolidation of T-Bird at and for the three months ended March
31, 2009, as T-Bird did not provide the Company with financial statements for
the first quarter of 2009.  The Company is not aware of any events or
transactions for T-Bird that are not reflected in the Company’s consolidated
financial statements at and for the three months ended March 31, 2009 that would
materially affect these financial statements.
  23
 Table of Contents
  OSI
Restaurant Partners, LLC
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 (UNAUDITED)
 
 9.           Comprehensive
Income (Loss) and Foreign Currency Translation and Transactions
 
 Comprehensive income
(loss) includes net income (loss) and foreign currency translation
adjustments.  Total comprehensive income (loss) for the three
months ended March 31, 2009 and 2008 was $79,813,000, and ($12,667,000),
respectively, which included the effect of losses from translation adjustments
of approximately ($3,599,000) and ($3,829,000), respectively.
 
 Accumulated
other comprehensive loss contained only foreign currency translation adjustments
as of March 31, 2009 and December 31, 2008.
 
 Foreign
currency transaction gains and losses are recorded in “Other expense, net” in
the Company’s Consolidated Statement of Operations and included a net loss of
$5,660,000 for the three months ended March 31, 2009.
 
 10.           Income
Taxes
 
 As of
March 31, 2009 and December 31, 2008, the Company had $16,465,000 and
$16,537,000, respectively, of unrecognized tax benefits ($10,340,000 and
$10,412,000, respectively, in “Other long-term liabilities” and $6,125,000 and
$6,125,000, respectively, in “Accrued expenses”).  Of these amounts,
$14,800,000 and $14,710,000, respectively, if recognized, would impact the
Company’s effective tax rate.  The difference between the total amount
of unrecognized tax benefits and the amount that would impact the effective tax
rate consists of items that are offset by deferred income tax assets and the
federal tax benefit of state income tax items.
 
 In many
cases, the Company’s uncertain tax positions are related to tax years that
remain subject to examination by the relevant taxable authorities.  Based
on the outcome of these examinations, or as a result of the expiration of the
statute of limitations for specific jurisdictions, it is reasonably possible
that the related recorded unrecognized tax benefits for tax positions taken on
previously filed tax returns will significantly decrease by
approximately $6,700,000 to $7,400,000 within the next twelve months of
March 31, 2009.
 
 The
Company is currently open to audit under the statute of limitations by the
Internal Revenue Service for the years ended December 31, 2005 through
2008. The Company and its subsidiaries’ state income tax returns and foreign
income tax returns also are open to audit under the statute of limitations for
the years ended December 31, 1999 through 2008.
 
 As of
March 31, 2009 and December 31, 2008, the Company accrued $5,440,000 and
$5,162,000, respectively, of interest and penalties related to uncertain
tax positions.  The Company accounts for interest and penalties
related to uncertain tax positions as part of its Provision (benefit)
for income taxes.  The Company’s policy on classification of
interest and penalties did not change as a result of the adoption of FIN 48, and
it has not changed since the adoption of FIN 48.
 The
effective income tax rate for the three months ended March 31, 2009 was 34.0%
compared to 65.4% for the three months ended March 31, 2008.  The
effective income tax rate for the three months ended March 31, 2008 was
significantly higher than the combined federal and state statutory rate of 39.6%
due to the benefit of the expected tax credit for excess FICA tax on
employee-reported tips being such a large percentage of projected annual pretax
loss.  The net decrease of 31.4% in the effective income tax rate
during the three months ended March 31, 2009 from the rate in the same period in
2008 was primarily due to the $158,061,000 gain on extinguishment of debt
realized during the first quarter of 2009.  The tax related to this
gain has been computed at the combined federal and state statutory rate of 38.9%
and recorded as a discrete item for the three months ended March 31,
2009.  As result of recording the gain, the expected benefit of the
tax credit for excess FICA tax on tips is a significantly smaller percentage of
pretax income for the three months ended March 31, 2009 as compared to the
expected tax credit benefit as a percentage of the pretax loss for the same
period in 2008.
  24
 Table of Contents
  OSI
Restaurant Partners, LLC
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 (UNAUDITED)
 
 11.           Supplemental
Guarantor Condensed Consolidating Financial Statements
 
 The
Company’s senior notes, in an aggregate principal amount of $248,075,000, are
jointly and severally, fully and unconditionally guaranteed on a senior
unsecured basis by the Guarantors, or each of its current and future domestic
100% owned restricted subsidiaries in its Outback Steakhouse, Carrabba’s Italian
Grill and Cheeseburger in Paradise concepts and certain non-restaurant
subsidiaries (see Note 8). All other concepts and certain non-restaurant
subsidiaries of the Company do not guarantee the senior notes
(“Non-Guarantors”).
 
 The
following condensed consolidating financial statements present the financial
position, results of operations and cash flows for the periods indicated of OSI
Restaurant Partners, LLC - Parent only (“OSI Parent”), OSI Co-Issuer, which is a
wholly-owned subsidiary and exists solely for the purpose of serving as a
co-issuer of the senior notes, the Guarantors, the Non-Guarantors and the
elimination entries necessary to consolidate the Company. Investments in
subsidiaries are accounted for using the equity method for purposes of the
consolidated presentation. The principal elimination entries relate to senior
notes presented as an obligation of both OSI Parent and OSI Co-Issuer,
investments in subsidiaries, and intercompany balances and
transactions.
 
 CONDENSED
      CONSOLIDATING BALANCE SHEETAS
      OF MARCH 31, 2009OSI
      Parent
              
              
              OSI
      Co-Issuer
              
              
              Guarantors
              
              
              Non-Guarantors
              
              
              Eliminations
              
              
              ConsolidatedASSETSCurrent
      AssetsCash
      and cash equivalents
              
              $
              69,689
              
              
              $
              -
              
              
              $
              25,672
              
              
              $
              27,727
              
              
              $
              -
              
              
              $
              123,088Current
      portion of restricted cash
              
              
              106
              
              
              
              -
              
              
              
              2,767
              
              
              
              -
              
              
              
              -
              
              
              
              2,873Inventories
              
              
              21,907
              
              
              
              -
              
              
              
              30,469
              
              
              
              16,933
              
              
              
              -
              
              
              
              69,309Deferred
      income tax assets
              
              
              37,759
              
              
              
              -
              
              
              
              1,392
              
              
              
              (45
              )
              
              
              -
              
              
              
              39,106Other
      current assets
              
              
              22,802
              
              
              
              -
              
              
              
              25,325
              
              
              
              26,487
              
              
              
              -
              
              
              
              74,614Total
      current assets
              
              
              152,263
              
              
              
              -
              
              
              
              85,625
              
              
              
              71,102
              
              
              
              -
              
              
              
              308,990Restricted
      cash
              
              
              184
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              184Property,
      fixtures and equipment, net
              
              
              25,887
              
              
              
              -
              
              
              
              626,949
              
              
              
              376,476
              
              
              
              -
              
              
              
              1,029,312Investments
      in and advances tounconsolidated
      affiliates, net
              
              
              1,078
              
              
              
              -
              
              
              
              -
              
              
              
              19,993
              
              
              
              -
              
              
              
              21,071Investments
      in subsidiaries
              
              
              -
              
              
              
              -
              
              
              
              1,727
              
              
              
              -
              
              
              
              (1,727
              )
              
              
              -Due
      from (to) subsidiaries
              
              
              2,357,391
              
              
              
              -
              
              
              
              170,546
              
              
              
              202,322
              
              
              
              (2,730,259
              )
              
              
              -Goodwill
              
              
              -
              
              
              
              -
              
              
              
              340,608
              
              
              
              119,192
              
              
              
              -
              
              
              
              459,800Intangible
      assets, net
              
              
              -
              
              
              
              -
              
              
              
              483,420
              
              
              
              163,727
              
              
              
              -
              
              
              
              647,147Other
      assets, net
              
              
              111,483
              
              
              
              -
              
              
              
              21,504
              
              
              
              41,373
              
              
              
              -
              
              
              
              174,360Total
      assets
              
              $
              2,648,286
              
              
              $
              -
              
              
              $
              1,730,379
              
              
              $
              994,185
              
              
              $
              (2,731,986
              )
              
              $
              2,640,864
 
 (CONTINUED...)
  25
 Table of Contents
  
 OSI
Restaurant Partners, LLC
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 (UNAUDITED)
 
 11.           Supplemental
Guarantor Condensed Consolidating Financial Statements (continued)
 
 CONDENSED
      CONSOLIDATING BALANCE SHEETAS
      OF MARCH 31, 2009OSI
      Parent
              
              
              OSI
      Co-Issuer
              
              
              Guarantors
              
              
              Non-Guarantors
              
              
              Eliminations
              
              
              ConsolidatedLIABILITIES
      AND (DEFICIT)EQUITYCurrent
      LiabilitiesAccounts
      payable
              
              $
              2,867
              
              
              $
              -
              
              
              $
              63,654
              
              
              $
              36,645
              
              
              $
              -
              
              
              $
              103,166Sales
      taxes payable
              
              
              -
              
              
              
              -
              
              
              
              10,778
              
              
              
              4,082
              
              
              
              -
              
              
              
              14,860Accrued
      expenses
              
              
              78,528
              
              
              
              -
              
              
              
              79,444
              
              
              
              27,744
              
              
              
              -
              
              
              
              185,716Current
      portion of accruedbuyout
      liability
              
              
              -
              
              
              
              -
              
              
              
              12,654
              
              
              
              5,055
              
              
              
              -
              
              
              
              17,709Unearned
      revenue
              
              
              244
              
              
              
              -
              
              
              
              109,870
              
              
              
              30,111
              
              
              
              -
              
              
              
              140,225Income
      taxes payable
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              729
              
              
              
              -
              
              
              
              729Current
      portion of long-term debt
              
              
              25,105
              
              
              
              -
              
              
              
              3,454
              
              
              
              1,699
              
              
              
              -
              
              
              
              30,258Total
      current liabilities
              
              
              106,744
              
              
              
              -
              
              
              
              279,854
              
              
              
              106,065
              
              
              
              -
              
              
              
              492,663Partner
      deposit and accruedbuyout
      liability
              
              
              221
              
              
              
              -
              
              
              
              79,387
              
              
              
              27,843
              
              
              
              -
              
              
              
              107,451Deferred
      rent
              
              
              851
              
              
              
              -
              
              
              
              34,958
              
              
              
              20,156
              
              
              
              -
              
              
              
              55,965Deferred
      income tax liability
              
              
              102,514
              
              
              
              -
              
              
              
              147,427
              
              
              
              (5,494
              )
              
              
              -
              
              
              
              244,447Long-term
      debt
              
              
              1,466,720
              
              
              
              248,075
              
              
              
              7,840
              
              
              
              1,499
              
              
              
              (248,075
              )
              
              
              1,476,059Accumulated
      losses in subsidiariesin
      excess of investment
              
              
              628,041
              
              
              
              -
              
              
              
              -
              
              
              
              1,933
              
              
              
              (629,974
              )
              
              
              -Due
      to (from) subsidiaries
              
              
              199,510
              
              
              
              -
              
              
              
              1,252,311
              
              
              
              1,278,439
              
              
              
              (2,730,260
              )
              
              
              -Other
      long-term liabilities, net
              
              
              178,965
              
              
              
              -
              
              
              
              71,077
              
              
              
              23,740
              
              
              
              -
              
              
              
              273,782Total
      liabilities
              
              
              2,683,566
              
              
              
              248,075
              
              
              
              1,872,854
              
              
              
              1,454,181
              
              
              
              (3,608,309
              )
              
              
              2,650,367(Deficit)
      EquityOSI
      Restaurant Partners, LLCUnitholder’s
      (Deficit) EquityAdditional
      paid-in capital
              
              
              699,769
              
              
              
              (248,075
              )
              
              
              -
              
              
              
              -
              
              
              
              248,075
              
              
              
              699,769(Accumulated
      deficit)retained
      earnings
              
              
              (706,593
              )
              
              
              -
              
              
              
              (142,475
              )
              
              
              (457,317
              )
              
              
              599,792
              
              
              
              (706,593
              )Accumulated
      other comprehensive(loss)
      income
              
              
              (28,456
              )
              
              
              -
              
              
              
              -
              
              
              
              (28,456
              )
              
              
              28,456
              
              
              
              (28,456
              )Total
      OSI RestaurantPartners,
      LLC unitholder’s(deficit)
      equity
              
              
              (35,280
              )
              
              
              (248,075
              )
              
              
              (142,475
              )
              
              
              (485,773
              )
              
              
              876,323
              
              
              
              (35,280
              )Noncontrolling
      interest
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              25,777
              
              
              
              -
              
              
              
              25,777Total
      (deficit) equity
              
              
              (35,280
              )
              
              
              (248,075
              )
              
              
              (142,475
              )
              
              
              (459,996
              )
              
              
              876,323
              
              
              
              (9,503
              )$
              2,648,286
              
              
              $
              -
              
              
              $
              1,730,379
              
              
              $
              994,185
              
              
              $
              (2,731,986
              )
              
              $
              2,640,864
  26
 Table of Contents
  OSI
Restaurant Partners, LLC
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 (UNAUDITED)
 
 11.           Supplemental
Guarantor Condensed Consolidating Financial Statements (continued)
 
 CONDENSED
      CONSOLIDATING BALANCE SHEETAS
      OF DECEMBER 31, 2008OSI
      Parent
              
              
              OSI
      Co-Issuer
              
              
              Guarantors
              
              
              Non-Guarantors
              
              
              Eliminations
              
              
              ConsolidatedASSETSCurrent
      AssetsCash
      and cash equivalents
              
              $
              178,275
              
              
              $
              -
              
              
              $
              50,126
              
              
              $
              43,069
              
              
              $
              -
              
              
              $
              271,470Current
      portion of restricted cash
              
              
              2,578
              
              
              
              -
              
              
              
              3,297
              
              
              
              -
              
              
              
              -
              
              
              
              5,875Inventories
              
              
              36,343
              
              
              
              -
              
              
              
              30,523
              
              
              
              17,702
              
              
              
              -
              
              
              
              84,568Deferred
      income tax assets
              
              
              34,309
              
              
              
              -
              
              
              
              1,370
              
              
              
              (45
              )
              
              
              -
              
              
              
              35,634Other
      current assets
              
              
              12,228
              
              
              
              -
              
              
              
              24,483
              
              
              
              25,112
              
              
              
              -
              
              
              
              61,823Total
      current assets
              
              
              263,733
              
              
              
              -
              
              
              
              109,799
              
              
              
              85,838
              
              
              
              -
              
              
              
              459,370Restricted
      cash
              
              
              7
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              7Property,
      fixtures and equipment, net
              
              
              26,560
              
              
              
              -
              
              
              
              660,490
              
              
              
              386,449
              
              
              
              -
              
              
              
              1,073,499Investments
      in and advances tounconsolidated
      affiliates, net
              
              
              145
              
              
              
              -
              
              
              
              -
              
              
              
              20,177
              
              
              
              -
              
              
              
              20,322Investments
      in subsidiaries
              
              
              -
              
              
              
              -
              
              
              
              1,611
              
              
              
              -
              
              
              
              (1,611
              )
              
              
              -Due
      from (to) subsidiaries
              
              
              2,333,806
              
              
              
              -
              
              
              
              -
              
              
              
              20
              
              
              
              (2,333,826
              )
              
              
              -Goodwill
              
              
              -
              
              
              
              -
              
              
              
              340,608
              
              
              
              119,192
              
              
              
              -
              
              
              
              459,800Intangible
      assets, net
              
              
              -
              
              
              
              -
              
              
              
              484,572
              
              
              
              165,859
              
              
              
              -
              
              
              
              650,431Other
      assets, net
              
              
              127,647
              
              
              
              -
              
              
              
              23,040
              
              
              
              43,779
              
              
              
              -
              
              
              
              194,466Total
      assets
              
              $
              2,751,898
              
              
              $
              -
              
              
              $
              1,620,120
              
              
              $
              821,314
              
              
              $
              (2,335,437
              )
              
              $
              2,857,895
 
 (CONTINUED...)
  27
 Table of Contents
  OSI
Restaurant Partners, LLC
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 (UNAUDITED)
 
 11.           Supplemental
Guarantor Condensed Consolidating Financial Statements (continued)
 
 CONDENSED
      CONSOLIDATING BALANCE SHEETAS
      OF DECEMBER 31, 2008OSI
      Parent
              
              
              OSI
      Co-Issuer
              
              
              Guarantors
              
              
              Non-Guarantors
              
              
              Eliminations
              
              
              ConsolidatedLIABILITIES
      AND (DEFICIT)EQUITYCurrent
      LiabilitiesAccounts
      payable
              
              $
              11,119
              
              
              $
              -
              
              
              $
              114,757
              
              
              $
              58,876
              
              
              $
              -
              
              
              $
              184,752Sales
      taxes payable
              
              
              93
              
              
              
              -
              
              
              
              11,293
              
              
              
              4,725
              
              
              
              -
              
              
              
              16,111Accrued
      expenses
              
              
              69,854
              
              
              
              -
              
              
              
              71,863
              
              
              
              26,378
              
              
              
              -
              
              
              
              168,095Current
      portion of accruedbuyout
      liability
              
              
              -
              
              
              
              -
              
              
              
              12,948
              
              
              
              4,280
              
              
              
              -
              
              
              
              17,228Unearned
      revenue
              
              
              192
              
              
              
              -
              
              
              
              171,105
              
              
              
              41,380
              
              
              
              -
              
              
              
              212,677Income
      taxes payable
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              799
              
              
              
              -
              
              
              
              799Current
      portion of long-term debt
              
              
              25,106
              
              
              
              -
              
              
              
              4,008
              
              
              
              1,839
              
              
              
              -
              
              
              
              30,953Current
      portion of guaranteed debt
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              33,283
              
              
              
              -
              
              
              
              33,283Total
      current liabilities
              
              
              106,364
              
              
              
              -
              
              
              
              385,974
              
              
              
              171,560
              
              
              
              -
              
              
              
              663,898Partner
      deposit and accruedbuyout
      liability
              
              
              221
              
              
              
              -
              
              
              
              79,598
              
              
              
              27,324
              
              
              
              -
              
              
              
              107,143Deferred
      rent
              
              
              841
              
              
              
              -
              
              
              
              32,056
              
              
              
              17,959
              
              
              
              -
              
              
              
              50,856Deferred
      income tax liability
              
              
              58,293
              
              
              
              -
              
              
              
              147,421
              
              
              
              (5,730
              )
              
              
              -
              
              
              
              199,984Long-term
      debt
              
              
              1,710,140
              
              
              
              488,220
              
              
              
              9,405
              
              
              
              1,634
              
              
              
              (488,220
              )
              
              
              1,721,179Accumulated
      losses in subsidiariesin
      excess of investment
              
              
              659,249
              
              
              
              -
              
              
              
              -
              
              
              
              1,772
              
              
              
              (661,021
              )
              
              
              -Due
      to (from) subsidiaries
              
              
              228,495
              
              
              
              -
              
              
              
              1,070,286
              
              
              
              1,035,045
              
              
              
              (2,333,826
              )
              
              
              -Other
      long-term liabilities, net
              
              
              151,049
              
              
              
              -
              
              
              
              72,307
              
              
              
              27,526
              
              
              
              -
              
              
              
              250,882Total
      liabilities
              
              
              2,914,652
              
              
              
              488,220
              
              
              
              1,797,047
              
              
              
              1,277,090
              
              
              
              (3,483,067
              )
              
              
              2,993,942(Deficit)
      EquityOSI
      Restaurant Partners, LLCUnitholder’s
      (Deficit) EquityAdditional
      paid-in capital
              
              
              651,043
              
              
              
              (488,220
              )
              
              
              -
              
              
              
              -
              
              
              
              488,220
              
              
              
              651,043(Accumulated
      deficit)retained
      earnings
              
              
              (788,940
              )
              
              
              -
              
              
              
              (176,927
              )
              
              
              (457,626
              )
              
              
              634,553
              
              
              
              (788,940
              )Accumulated
      other comprehensive(loss)
      income
              
              
              (24,857
              )
              
              
              -
              
              
              
              -
              
              
              
              (24,857
              )
              
              
              24,857
              
              
              
              (24,857
              )Total
      OSI RestaurantPartners,
      LLC unitholder’s(deficit)
      equity
              
              
              (162,754
              )
              
              
              (488,220
              )
              
              
              (176,927
              )
              
              
              (482,483
              )
              
              
              1,147,630
              
              
              
              (162,754
              )Noncontrolling
      interest
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              26,707
              
              
              
              -
              
              
              
              26,707Total
      (deficit) equity
              
              
              (162,754
              )
              
              
              (488,220
              )
              
              
              (176,927
              )
              
              
              (455,776
              )
              
              
              1,147,630
              
              
              
              (136,047
              )$
              2,751,898
              
              
              $
              -
              
              
              $
              1,620,120
              
              
              $
              821,314
              
              
              $
              (2,335,437
              )
              
              $
              2,857,895
 28
 Table of Contents
  OSI
Restaurant Partners, LLC
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 (UNAUDITED)
 
 11.           Supplemental
Guarantor Condensed Consolidating Financial Statements (continued)
 
 CONDENSED
      CONSOLIDATING STATEMENT OF OPERATIONSTHREE
      MONTHS ENDED MARCH 31, 2009OSI
      Parent
              
              
              OSI
      Co-Issuer
              
              
              Guarantors
              
              
              Non-Guarantors
              
              
              Eliminations
              
              
              ConsolidatedRevenuesRestaurant
      sales
              
              $
              -
              
              
              $
              -
              
              
              $
              705,640
              
              
              $
              253,439
              
              
              $
              -
              
              
              $
              959,079Other
      revenues
              
              
              43
              
              
              
              -
              
              
              
              2,960
              
              
              
              2,312
              
              
              
              -
              
              
              
              5,315Total
      revenues
              
              
              43
              
              
              
              -
              
              
              
              708,600
              
              
              
              255,751
              
              
              
              -
              
              
              
              964,394Costs
      and expensesCost
      of sales
              
              
              -
              
              
              
              -
              
              
              
              239,782
              
              
              
              81,557
              
              
              
              -
              
              
              
              321,339Labor
      and other related
              
              
              4,120
              
              
              
              -
              
              
              
              194,698
              
              
              
              70,753
              
              
              
              -
              
              
              
              269,571Other
      restaurant operating
              
              
              102
              
              
              
              -
              
              
              
              172,346
              
              
              
              64,301
              
              
              
              -
              
              
              
              236,749Depreciation
      and amortization
              
              
              273
              
              
              
              -
              
              
              
              31,037
              
              
              
              15,062
              
              
              
              -
              
              
              
              46,372General
      and administrative
              
              
              14,145
              
              
              
              -
              
              
              
              29,841
              
              
              
              14,497
              
              
              
              -
              
              
              
              58,483Loss
      on contingent debt guarantee
              
              
              24,500
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              24,500Provision
      for impaired assetsand
      restaurant closings
              
              
              (10
              )
              
              
              -
              
              
              
              4,983
              
              
              
              2,163
              
              
              
              -
              
              
              
              7,136Loss
      (income) from operationsof
      unconsolidated affiliates
              
              
              145
              
              
              
              -
              
              
              
              -
              
              
              
              (617
              )
              
              
              -
              
              
              
              (472
              )Total
      costs and expenses
              
              
              43,275
              
              
              
              -
              
              
              
              672,687
              
              
              
              247,716
              
              
              
              -
              
              
              
              963,678(Loss)
      income from operations
              
              
              (43,232
              )
              
              
              -
              
              
              
              35,913
              
              
              
              8,035
              
              
              
              -
              
              
              
              716Equity
      in earnings (losses) of subsidiaries
              
              
              34,806
              
              
              
              -
              
              
              
              116
              
              
              
              (161
              )
              
              
              (34,761
              )
              
              
              -Gain
      on extinguishment of debt
              
              
              158,061
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              158,061Other
      expense, net
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              (5,660
              )
              
              
              -
              
              
              
              (5,660
              )Interest
      income
              
              
              1,327
              
              
              
              -
              
              
              
              408
              
              
              
              721
              
              
              
              (2,261
              )
              
              
              195Interest
      expense
              
              
              (26,798
              )
              
              
              -
              
              
              
              (1,840
              )
              
              
              (633
              )
              
              
              2,261
              
              
              
              (27,010
              )Income
      (loss) before provisionfor
      income taxes
              
              
              124,164
              
              
              
              -
              
              
              
              34,597
              
              
              
              2,302
              
              
              
              (34,761
              )
              
              
              126,302Provision
      for income taxes
              
              
              41,817
              
              
              
              -
              
              
              
              146
              
              
              
              927
              
              
              
              -
              
              
              
              42,890Net
      income (loss)
              
              
              82,347
              
              
              
              -
              
              
              
              34,451
              
              
              
              1,375
              
              
              
              (34,761
              )
              
              
              83,412Less:
      net income attributable tononcontrolling
      interest
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              1,065
              
              
              
              -
              
              
              
              1,065Net
      income (loss) attributable to OSIRestaurant
      Partners, LLC
              
              $
              82,347
              
              
              $
              -
              
              
              $
              34,451
              
              
              $
              310
              
              
              $
              (34,761
              )
              
              $
              82,347
 29
 Table of Contents
  OSI
Restaurant Partners, LLC
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 (UNAUDITED)
 
 11.           Supplemental
Guarantor Condensed Consolidating Financial Statements (continued)
 
 CONDENSED
      CONSOLIDATING STATEMENT OF OPERATIONSTHREE
      MONTHS ENDED MARCH 31, 2008OSI
      Parent
              
              
              OSI
      Co-Issuer
              
              
              Guarantors
              
              
              Non-Guarantors
              
              
              Eliminations
              
              
              ConsolidatedRevenuesRestaurant
      sales
              
              $
              -
              
              
              $
              -
              
              
              $
              773,226
              
              
              $
              291,075
              
              
              $
              -
              
              
              $
              1,064,301Other
      revenues
              
              
              -
              
              
              
              -
              
              
              
              3,112
              
              
              
              2,069
              
              
              
              -
              
              
              
              5,181Total
      revenues
              
              
              -
              
              
              
              -
              
              
              
              776,338
              
              
              
              293,144
              
              
              
              -
              
              
              
              1,069,482Costs
      and expensesCost
      of sales
              
              
              -
              
              
              
              -
              
              
              
              275,500
              
              
              
              97,380
              
              
              
              -
              
              
              
              372,880Labor
      and other related
              
              
              (2,412
              )
              
              
              -
              
              
              
              214,648
              
              
              
              82,265
              
              
              
              -
              
              
              
              294,501Other
      restaurant operating
              
              
              -
              
              
              
              -
              
              
              
              184,472
              
              
              
              74,146
              
              
              
              -
              
              
              
              258,618Depreciation
      and amortization
              
              
              702
              
              
              
              -
              
              
              
              30,016
              
              
              
              16,333
              
              
              
              -
              
              
              
              47,051General
      and administrative
              
              
              14,881
              
              
              
              -
              
              
              
              35,876
              
              
              
              21,417
              
              
              
              -
              
              
              
              72,174Provision
      for impaired assetsand
      restaurant closings
              
              
              -
              
              
              
              -
              
              
              
              3,992
              
              
              
              (328
              )
              
              
              -
              
              
              
              3,664Loss
      (income) from operationsof
      unconsolidated affiliates
              
              
              793
              
              
              
              -
              
              
              
              -
              
              
              
              (1,670
              )
              
              
              -
              
              
              
              (877
              )Total
      costs and expenses
              
              
              13,964
              
              
              
              -
              
              
              
              744,504
              
              
              
              289,543
              
              
              
              -
              
              
              
              1,048,011(Loss)
      income from operations
              
              
              (13,964
              )
              
              
              -
              
              
              
              31,834
              
              
              
              3,601
              
              
              
              -
              
              
              
              21,471Equity
      in earnings (losses) of subsidiaries
              
              
              31,603
              
              
              
              -
              
              
              
              335
              
              
              
              (301
              )
              
              
              (31,637
              )
              
              
              -Other
      (expense) income, net
              
              
              -
              
              
              
              -
              
              
              
              (19
              )
              
              
              19
              
              
              
              -
              
              
              
              -Interest
      income
              
              
              2,401
              
              
              
              -
              
              
              
              579
              
              
              
              1,034
              
              
              
              (3,227
              )
              
              
              787Interest
      expense
              
              
              (47,455
              )
              
              
              -
              
              
              
              (2,567
              )
              
              
              (1,032
              )
              
              
              3,227
              
              
              
              (47,827
              )(Loss)
      income before (benefit) provisionfor
      income taxes
              
              
              (27,415
              )
              
              
              -
              
              
              
              30,162
              
              
              
              3,321
              
              
              
              (31,637
              )
              
              
              (25,569
              )(Benefit)
      provision for income taxes
              
              
              (17,718
              )
              
              
              -
              
              
              
              395
              
              
              
              592
              
              
              
              -
              
              
              
              (16,731
              )Net
      (loss) income
              
              
              (9,697
              )
              
              
              -
              
              
              
              29,767
              
              
              
              2,729
              
              
              
              (31,637
              )
              
              
              (8,838
              )Less:
      net income attributable tononcontrolling
      interest
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              859
              
              
              
              -
              
              
              
              859Net
      (loss) income attributable to OSIRestaurant
      Partners, LLC
              
              $
              (9,697
              )
              
              $
              -
              
              
              $
              29,767
              
              
              $
              1,870
              
              
              $
              (31,637
              )
              
              $
              (9,697
              )
 30
 Table of Contents
  OSI
Restaurant Partners, LLC
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 (UNAUDITED)
 
 11.           Supplemental
Guarantor Condensed Consolidating Financial Statements (continued)
 
 CONDENSED
      CONSOLIDATING STATEMENT OF CASH FLOWSTHREE
      MONTHS ENDED MARCH 31, 2009OSI
      Parent
              
              
              OSI
      Co-Issuer
              
              
              Guarantors
              
              
              Non-Guarantors
              
              
              Eliminations
              
              
              ConsolidatedCash
      flows from operating activities:Net
      cash (used in) provided byoperating
      activities
              
              $
              (77,992
              )
              
              $
              -
              
              
              $
              (20,768
              )
              
              $
              32,282
              
              
              $
              -
              
              
              $
              (66,478
              )Cash
      flows provided by (used in)investing
      activities:Purchase
      of Company-ownedlife
      insurance
              
              
              (261
              )
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              (261
              )Proceeds
      from sale of Company-ownedlife
      insurance for deferredcompensation
              
              
              203
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              203Acquisitions
      of liquor licenses
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              (19
              )
              
              
              -
              
              
              
              (19
              )Capital
      expenditures
              
              
              (591
              )
              
              
              -
              
              
              
              (2,856
              )
              
              
              (11,744
              )
              
              
              -
              
              
              
              (15,191
              )Proceeds
      from the sale of property,fixtures
      and equipment
              
              
              -
              
              
              
              -
              
              
              
              961
              
              
              
              -
              
              
              
              -
              
              
              
              961Restricted
      cash received for capitalexpenditures,
      property taxes andcertain
      deferred compensation plans
              
              
              2,677
              
              
              
              -
              
              
              
              2,920
              
              
              
              -
              
              
              
              -
              
              
              
              5,597Restricted
      cash used to fund capitalexpenditures,
      property taxes andcertain
      deferred compensation plans
              
              
              (380
              )
              
              
              -
              
              
              
              (2,388
              )
              
              
              -
              
              
              
              -
              
              
              
              (2,768
              )Net
      cash provided by (used in)investing
      activities
              
              
              1,648
              
              
              
              -
              
              
              
              (1,363
              )
              
              
              (11,763
              )
              
              
              -
              
              
              
              (11,478
              )Cash
      flows used in financing activities:Repayments
      of long-term debt
              
              
              (3,275
              )
              
              
              -
              
              
              
              (2,144
              )
              
              
              (532
              )
              
              
              -
              
              
              
              (5,951
              )Extinguishment
      of senior notes
              
              
              (75,967
              )
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              (75,967
              )Purchase
      of note related to guaranteeddebt
      for consolidated affiliate
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              (33,283
              )
              
              
              -
              
              
              
              (33,283
              )Contribution
      from OSI HoldCo, Inc.
              
              
              47,000
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              47,000Contributions
      from noncontrollinginterest
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              322
              
              
              
              -
              
              
              
              322Distributions
      to noncontrolling interest
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              (2,317
              )
              
              
              -
              
              
              
              (2,317
              )Repayment
      of partner deposit andaccrued
      buyout contributions
              
              
              -
              
              
              
              -
              
              
              
              (809
              )
              
              
              (496
              )
              
              
              -
              
              
              
              (1,305
              )Receipt
      of partner deposit andaccrued
      buyout contributions
              
              
              -
              
              
              
              -
              
              
              
              630
              
              
              
              445
              
              
              
              -
              
              
              
              1,075Net
      cash used infinancing
      activities
              
              
              (32,242
              )
              
              
              -
              
              
              
              (2,323
              )
              
              
              (35,861
              )
              
              
              -
              
              
              
              (70,426
              )Net
      decrease in cashand
      cash equivalents
              
              
              (108,586
              )
              
              
              -
              
              
              
              (24,454
              )
              
              
              (15,342
              )
              
              
              -
              
              
              
              (148,382
              )Cash
      and cash equivalents at thebeginning
      of the period
              
              
              178,275
              
              
              
              -
              
              
              
              50,126
              
              
              
              43,069
              
              
              
              -
              
              
              
              271,470Cash
      and cash equivalents at theend
      of the period
              
              $
              69,689
              
              
              $
              -
              
              
              $
              25,672
              
              
              $
              27,727
              
              
              $
              -
              
              
              $
              123,088
 31
 Table of Contents
  OSI
Restaurant Partners, LLC
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 (UNAUDITED)
 
 11.           Supplemental
Guarantor Condensed Consolidating Financial Statements (continued)
 CONDENSED
      CONSOLIDATING STATEMENT OF CASH FLOWSTHREE
      MONTHS ENDED MARCH 31, 2008OSI
      Parent
                
                
                OSI
      Co-Issuer
                
                
                Guarantors
                
                
                Non-Guarantors
                
                
                Eliminations
                
                
                ConsolidatedCash
      flows from operating activities:Net
      cash provided by (used in)operating
      activities
                
                $
                15,926
                
                
                $
                -
                
                
                $
                (70,214
                )
                
                $
                (11,015
                )
                
                $
                61,463
                
                
                $
                (3,840
                )Cash
      flows used in investing activities:Acquisitions
      of liquor licenses
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                (498
                )
                
                
                -
                
                
                
                (498
                )Capital
      expenditures
                
                
                (1,017
                )
                
                
                -
                
                
                
                (13,404
                )
                
                
                (16,514
                )
                
                
                -
                
                
                
                (30,935
                )Restricted
      cash received for capitalexpenditures,
      property taxes andcertain
      deferred compensation plans
                
                
                660
                
                
                
                -
                
                
                
                3,065
                
                
                
                -
                
                
                
                -
                
                
                
                3,725Restricted
      cash used to fund capitalexpenditures,
      property taxes andcertain
      deferred compensation plans
                
                
                (161
                )
                
                
                -
                
                
                
                (2,183
                )
                
                
                -
                
                
                
                -
                
                
                
                (2,344
                )Distributions
      from unconsolidatedaffiliates
                
                
                13
                
                
                
                -
                
                
                
                -
                
                
                
                795
                
                
                
                -
                
                
                
                808Net
      cash used in investingactivities
                
                
                (505
                )
                
                
                -
                
                
                
                (12,522
                )
                
                
                (16,217
                )
                
                
                -
                
                
                
                (29,244
                )Cash
      flows used in financing activities:Proceeds
      from issuance oflong-term
      debt
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                29
                
                
                
                -
                
                
                
                29Repayments
      of long-term debt
                
                
                (3,275
                )
                
                
                -
                
                
                
                (702
                )
                
                
                (193
                )
                
                
                -
                
                
                
                (4,170
                )Contributions
      from noncontrollinginterest
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                375
                
                
                
                -
                
                
                
                375Distributions
      to noncontrolling interest
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                (1,340
                )
                
                
                -
                
                
                
                (1,340
                )Repayment
      of partner deposit andaccrued
      buyout contributions
                
                
                -
                
                
                
                -
                
                
                
                (2,239
                )
                
                
                (457
                )
                
                
                -
                
                
                
                (2,696
                )Receipt
      of partner deposit andaccrued
      buyout contributions
                
                
                -
                
                
                
                -
                
                
                
                1,156
                
                
                
                1,180
                
                
                
                -
                
                
                
                2,336Net
      cash used in financingactivities
                
                
                (3,275
                )
                
                
                -
                
                
                
                (1,785
                )
                
                
                (406
                )
                
                
                -
                
                
                
                (5,466
                )Net
      increase (decrease) in cashand
      cash equivalents
                
                
                12,146
                
                
                
                -
                
                
                
                (84,521
                )
                
                
                (27,638
                )
                
                
                61,463
                
                
                
                (38,550
                )Cash
      and cash equivalents at thebeginning
      of the period
                
                
                -
                
                
                
                -
                
                
                
                148,005
                
                
                
                84,562
                
                
                
                (61,463
                )
                
                
                171,104Cash
      and cash equivalents at theend
      of the period
                
                $
                12,146
                
                
                $
                -
                
                
                $
                63,484
                
                
                $
                56,924
                
                
                $
                -
                
                
                $
                132,554
 32
 Table of Contents
  OSI
Restaurant Partners, LLC
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 (UNAUDITED)
 
 12.           Commitments
and Contingencies
 
 The
consolidated financial statements include the accounts and operations of the
Roy’s consolidated venture in which the Company has a less than majority
ownership. The Company consolidates this venture because it controls the
executive committee (which functions as a board of directors) through
representation on the board by related parties, and it is able to direct or
cause the direction of management and operations on a day-to-day basis.
Additionally, the majority of capital contributions made by the Company’s
partner in the Roy’s consolidated venture have been funded by loans to the
partner from a third party where the Company provides a guarantee.  The
guarantee provides the Company control through its collateral interest in the
joint venture partner’s membership interest. As a result of the Company’s
controlling financial interest in this venture, it is included in the Company’s
consolidated financial statements. The portion of income or loss attributable to
the noncontrolling interest is eliminated in the line item in the Consolidated
Statements of Operations entitled “Net income attributable to the noncontrolling
interest.” All material intercompany balances and transactions have been
eliminated.
 
 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,
in the development of Roy's restaurants. The line of credit originally expired
in December 2004 and was amended for a fourth time on April 1, 2009 to a revised
termination date of April 15, 2013. 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 March 31, 2009 and December 31, 2008, the
outstanding balance on the line of credit was $24,500,000.
 
 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, then the total outstanding balance, including any
accrued interest, is immediately due from the guarantors.  As of March 31,
2009, the Company has made interest payments, paid line of credit renewal fees
and has made capital expenditures for additional restaurant development on
behalf of RY-8 totaling approximately $4,622,000 because the joint venture
partner’s $24,500,000 line of credit was fully extended. Additional payments on
behalf of RY-8 for these items may be required in the future.  The
Company recorded a long-term contingent obligation and a loss from this
guarantee of $24,500,000 in its consolidated financial statements at and for the
three months ended March 31, 2009.  At March 31, 2009 and December 31,
2008, $24,500,000 of the Company’s $150,000,000 working capital revolving credit
facility was committed for the issuance of a letter of credit for this
guarantee.
 
 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 the
Company’s favor. 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 it 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.
 
 Pursuant
to the Company’s joint venture agreement for the development of Roy’s
restaurants, RY-8, its joint venture partner, has the right to require the
Company to purchase up to 25% of RY-8’s interests in the joint venture at
any time after June 17, 2004 and up to another 25% (total 50%) of its
interests in the joint venture at any time after June 17,
2009.  The purchase price to be paid by the Company would be equal to
the fair market value of the joint venture as of the date that RY-8 exercised
its put option multiplied by the percentage purchased.
  33
 Table of Contents
  OSI
Restaurant Partners, LLC
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 (UNAUDITED)
 
 12.           Commitments
and Contingencies (continued)
 
 The
Company’s Korean subsidiary is the guarantor of debt owed by landlords of two of
the Company’s Outback Steakhouse restaurants in Korea.  The Company is
obligated to purchase the building units occupied by its two restaurants in the
event of default by the landlords on their debt obligations, which were
approximately $1,000,000 and $1,100,000 as of March 31, 2009 and approximately
$1,100,000 and $1,200,000 as of December 31, 2008.  Under the terms of
the guarantees, the Company’s monthly rent payments are deposited with the
lender to pay the landlords’ interest payments on the outstanding
balances.  The guarantees are in effect until the earlier of the date the
principal is repaid or the entire lease term of ten years for both restaurants,
which expire in 2014 and 2016.  The guarantees specify that upon default
the purchase price would be a maximum of 130% of the landlord’s outstanding debt
for one restaurant and the estimated legal auction price for the other
restaurant, approximately $1,300,000 and $1,600,000, respectively, as of March
31, 2009 and approximately $1,400,000 and $1,700,000, respectively, as of
December 31, 2008.  If the Company was required to perform under either
guarantee, it would obtain full title to the corresponding building unit and
could liquidate the property, each having an estimated fair value of
approximately $2,100,000 and $1,900,000, respectively, as of March 31, 2009 and
approximately $2,300,000 and $2,100,000, respectively, as of December 31,
2008.  The Company has considered these guarantees and accounted for them
in accordance with FASB Interpretation No. 45, “Guarantor's Accounting and
Disclosure Requirements for Guarantees, Including Indirect Guarantees of
Indebtedness of Others” (“FIN 45”).  The Company has various depository and
banking relationships with the lender.
 
 The
Company is subject to legal proceedings, claims and liabilities, such as liquor
liability, sexual harassment and slip and fall cases, which arise in the
ordinary course of business and are generally covered by insurance.  In the
opinion of management, the amount of ultimate liability with respect to those
actions will not have a materially adverse impact on the Company’s financial
position or results of operations and cash flows.  In addition, the Company
is subject to the following legal proceedings and actions, which depending on
the outcomes that are uncertain at this time, could have a material
adverse effect on the Company’s financial condition.
 
 Outback
Steakhouse of Florida, Inc. and OS Restaurant Services, Inc. are the
defendants in a class action lawsuit brought by the U.S. Equal Employment
Opportunity Commission (EEOC v. Outback Steakhouse of Florida, Inc. and OS
Restaurant Services, Inc., U.S. District Court, District of Colorado, filed
September 28, 2006) alleging that they have engaged in a pattern or
practice of discrimination against women on the basis of their gender with
respect to hiring and promoting into management positions as well as
discrimination against women in terms and condition of their employment and
seeks damages and injunctive relief. In addition to the EEOC, two former
employees have successfully intervened as party plaintiffs in the case. On
November 3, 2007, the EEOC’s nationwide claim of gender discrimination was
dismissed and the scope of the suit was limited to the states of Colorado,
Wyoming and Montana. However, the Company expects the EEOC to pursue claims of
gender discrimination against the Company on a nationwide basis through
other proceedings. Litigation is, by its nature, uncertain both as to time and
expense involved and as to the final outcome of such matters. While the
Company intends to vigorously defend itself in this lawsuit, protracted
litigation or unfavorable resolution of this lawsuit could have a material
adverse effect on the Company’s business, results of operations or financial
condition and could damage the Company’s reputation with its employees and its
customers.
  34
 Table of Contents
  OSI
Restaurant Partners, LLC
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 (UNAUDITED)
 
 12.           Commitments
and Contingencies (continued)
 
 On
February 21, 2008, a purported class action complaint captioned Ervin, et
al. v. OS Restaurant Services, Inc. was filed in the U.S. District Court,
Northern District of Illinois. This lawsuit alleges violations of state and
federal wage and hour law in connection with tipped employees and overtime
compensation and seeks relief in the form of unspecified back pay and
attorney fees. It alleges a class action under state law and a collective action
under federal law. While the Company intends to vigorously defend itself, it is
not possible at this time to reasonably estimate the possible loss or range of
loss, if any.
 
 In March
2008, one of the Company’s subsidiaries received a notice of proposed assessment
of employment taxes from the Internal Revenue Service (“IRS”) for calendar years
2004 through 2006. The IRS asserts that certain cash distributions paid to
the Company’s general manager partners, chef partners, and area operating
partners who hold partnership interests in limited partnerships with Company
affiliates should have been treated as wages and subjected to employment
taxes. The Company believes that it has complied and continues to comply
with the law pertaining to the proper federal tax treatment of partner
distributions.  In May 2008, the Company filed a protest of the proposed
employment tax assessment.  Because the Company is at a preliminary
stage of the administrative process for resolving disputes with the IRS, it
cannot, at this time, reasonably estimate the amount, if any, of additional
employment taxes or other interest, penalties or additions to tax that would
ultimately be assessed at the conclusion of this process. If the IRS examiner’s
position were to be sustained, the additional employment taxes and other amounts
that would be assessed would be material.
 
 On
December 29, 2008, American Restaurants, Inc. (“AR”) filed a Petition with the
United States District Court for the Southern District of Florida, captioned
American Restaurants, Inc. v. Outback Steakhouse Int’l, L.P., seeking
confirmation of a purported November 26, 2008 arbitration award against Outback
Steakhouse International, L.P. (“Outback International”), the Company’s indirect
wholly-owned subsidiary, in the amount of $97,997,450, plus interest from August
7, 2006.   The dispute that led to the purported award involved
Outback International’s alleged wrongful termination in 1998 of a Restaurant
Franchise Agreement (the “Agreement”) entered into in 1996 concerning one
restaurant in Argentina.  On February 20, 2009, Outback International
filed its Opposition to AR’s Petition.
 
 Outback
International believes that the purported arbitration award resulted from a
process that materially violated the terms of the Agreement, and that the
arbitrator who issued the purported award violated Outback International’s
rights to due process.  Outback International intends to contest
vigorously the validity and enforceability of the purported arbitration award in
the courts of both the United States and Argentina.
 
 On
December 9, 2008, in accordance with the procedure provided under Argentine law,
Outback International filed with the arbitrator a motion seeking leave to file
an appeal to nullify the purported award.   On February 27, 2009,
the arbitrator denied Outback International’s motion.  On March 16,
2009, Outback International filed a direct appeal with the Argentine Commercial
Court of Appeals challenging the arbitrator’s decision to deny Outback
International’s request to file an appeal.  Outback International has
requested that the court declare that enforcement of the award is suspended
during the pendency of the appeal.
 
 Based in
part on legal opinions Outback International has received from Argentine
counsel, the Company does not expect the arbitration award or the petition
seeking its confirmation to have a material adverse effect on its results of
operations, financial condition or cash flows.  However, litigation is
inherently uncertain and the ultimate resolution of this matter cannot be
guaranteed.
  35
 Table of Contents
  OSI
Restaurant Partners, LLC
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 (UNAUDITED)
 
 12.           Commitments
and Contingencies (continued)
 
 On
February 19, 2009, the Company filed an action against T-Bird Nevada,
LLC and its affiliates.  T-Bird is a limited liability company that is
owned by the principal of the franchisee of each of the California Outback
Steakhouse restaurants.  The action seeks payment on a promissory note
made by T-Bird that the Company purchased from T-Bird’s former
lender.  The principal balance on the promissory note, plus accrued
and unpaid interest, is approximately $33,000,000.  The action seeks,
among other remedies, to enforce the note (see Note 8).
 
 On
February 20, 2009, T-Bird and certain of its affiliates filed suit against the
Company and certain of its officers and affiliates.  The suit claims, among
other things, that the Company made various misrepresentations and breached
certain oral promises allegedly made by the Company and certain of its officers
to T-Bird and its affiliates that the Company would acquire the restaurants
owned by T-Bird and its affiliates and until that time the Company would
maintain financing for the restaurants that would be nonrecourse to T-Bird and
its affiliates.  The complaint seeks damages in excess of $100,000,000,
exemplary or punitive damages, and other remedies.  The Company and the
other defendants believe the suit is without merit, and they intend to defend
the suit vigorously (see Note 8).
 
 13.           Related
Parties
 
 In
connection with the Merger, the Company caused its wholly-owned subsidiaries to
sell substantially all of the Company’s domestic restaurant properties to its
sister company, PRP, for approximately $987,700,000. PRP then leased the
properties to Private Restaurant Master Lessee, LLC, the Company’s wholly-owned
subsidiary, under a master lease. The master lease is a triple net lease with a
15-year term. This sale-leaseback transaction resulted in operating leases for
the Company.  Under the master lease, the Company has the right to
request termination of a lease if it determines that the related location is
unsuitable for its intended use.  Rental payments continue as
scheduled until consummation of sale occurs for the property.  Once a
sale occurs, the Company must make up the differential, if one exists, between
the sale price and 90% of the original purchase price (the “Release Amount”), as
set forth in the master lease.  The Company is also responsible for
paying PRP an amount equal to the then present value, using a five percent
discount rate, of the excess, if any, of the scheduled rent payments for the
remainder of the 15-year term over the then fair market rental for the remainder
of the 15-year term.  The Company owed $961,000 of Release Amount to
PRP for the year ended December 31, 2008 and made this payment in January
2009.  The Company was not required to make any fair market rental
payments to PRP during 2008.  PRP reimbursed the Company $287,000 in
January 2009 for invoices that the Company had paid on PRP’s behalf during the
year ended December 31, 2008.
 
 Upon
completion of the Merger, the Company entered into a management agreement with
Kangaroo Management Company I, LLC (the “Management Company”), whose members are
the Founders and entities affiliated with Bain Capital and
Catterton.  In accordance with the terms of the agreement, the
Management Company will provide management services to the Company until the
tenth anniversary of the consummation of the Merger, with one-year extensions
thereafter until terminated.  The Management Company will receive an
aggregate annual management fee equal to $9,100,000 and reimbursement for
out-of-pocket expenses incurred by it, its members, or their respective
affiliates in connection with the provision of services pursuant to the
agreement.  Management fees, including out-of-pocket expenses, of
$2,541,000 and $2,275,000 for the three months ended March 31, 2009 and 2008
were included in general and administrative expenses in the Company’s
Consolidated Statements of Operations.  The management agreement
includes customary exculpation and indemnification provisions in favor of the
Management Company, Bain Capital and Catterton and their respective affiliates.
The management agreement may be terminated by the Company, Bain Capital and
Catterton at any time and will terminate automatically upon an initial public
offering or a change of control unless the Company and the counterparty(s)
determine otherwise.
 
 In
January 2009, Bain Capital and Catterton elected to defer receipt of their
portion of the first quarter of 2009 management fees of approximately
$865,000.  Reimbursement of any out-of-pocket expenses incurred in
connection with the provision of services pursuant to the agreement was not
deferred.
  36
 Table of Contents
  OSI
Restaurant Partners, LLC
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 (UNAUDITED)
 
 14.           Variable
Interest Entities
 
 The
Company’s consolidated financial statements include the accounts and operations
of OSI Restaurant Partners, LLC, OSI Co-Issuer, Inc. and the Company’s
affiliated partnerships and limited liability corporations in which it is a
general partner or managing member and owns a controlling financial interest.
OSI Co-Issuer, Inc., a wholly-owned subsidiary of OSI Restaurant Partners, LLC,
was formed to facilitate the Merger and does not conduct ongoing business
operations.  The Company consolidates variable interest entities in
which the Company absorbs a majority of the entity’s expected losses,
receives a majority of the entity’s expected residual returns, or both, as a
result of ownership, contractual or other financial interests in the entity.
Therefore, if the Company has a controlling financial interest in a variable
interest entity, the assets, liabilities, and results of the activities of the
variable interest entity are included in the consolidated financial
statements.
 
 The
Company’s consolidated financial statements include the accounts and operations
of its Roy’s consolidated joint venture in which it has a less than majority
ownership. The Company controls the executive committee (which functions as a
board of directors) through representation on the board by related parties, and
it is able to direct or cause the direction of management and operations on
a day-to-day basis. Additionally, the majority of capital contributions made by
the Company’s partner in the Roy’s consolidated joint venture have been funded
by loans to the partner from a third party where the Company is required to
be a guarantor of the debt, which provides the Company control through its
collateral interest in the joint venture partner’s membership interest. As a
result of the Company’s controlling financial interest and control of the
executive committee, the joint venture is included in the Company’s consolidated
financial statements. The portion of income or loss attributable to the
noncontrolling interest is eliminated in the line item in the consolidated
statements of operations entitled “Net income attributable to the noncontrolling
interest.” All material intercompany balances and transactions have been
eliminated.
 
 In
accordance with FIN 46R, the Company determined that PRP is a variable interest
entity; however the Company is not its primary beneficiary, as the Company
determined that it does not absorb a majority of the expected losses and/or
residual returns of PRP or protect equity and other variable interest holders
from suffering the majority of expected losses through implicit guarantees of
PRP’s assets or liabilities.  As a result, PRP has not been consolidated
into the Company’s financial statements.  If the master lease were to be
terminated in connection with any default by the Company or if the lenders under
PRP’s real estate credit facility were to foreclose on the restaurant properties
as a result of a PRP default under its real estate credit facility, the Company
could, subject to the terms of a subordination and nondisturbance agreement,
lose the use of some or all of the properties that it leases under the master
lease.The Company is
unable to estimate the maximum loss, which it has determined is remote, that
would be incurred from losing the use of the properties it leases under the
master lease.  Accordingly, the Company has not recognized an
obligation associated with the loss of use of some or all of its properties, but
it believes such a loss would be material.
 
 The
equity method of accounting is used for investments in affiliated companies
which: are not controlled by the Company, the Company’s interest is generally
between 20% and 50% and the Company has the ability to exercise significant
influence over the entity.  The Company’s share of earnings or losses
of affiliated companies accounted for under the equity method is recorded in
“Income from operations of unconsolidated affiliates” in its Consolidated
Statements of Operations.
  37
 Table of Contents
  OSI
Restaurant Partners, LLC
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 (UNAUDITED)
 
 14.           Variable
Interest Entities (continued)
 
 The
Company is a franchisor of 147 restaurants as of March 31, 2009, but does not
possess any ownership interests in its franchisees and generally does not
provide financial support to franchisees in its typical franchise relationship.
These franchise relationships are not deemed variable interest entities and are
not consolidated.
 
 The
Company was the guarantor on an uncollateralized line of credit that matured in
December 2008 and permitted borrowing of up to $35,000,000 for a limited
liability company, T-Bird, an entity affiliated with its California
franchisees.  This entity used proceeds from the line of credit for
loans to its affiliates, T-Bird Loans, that serve as general partners of 42
franchisee limited partnerships, which currently own and operate 41 Outback
Steakhouse restaurants. The funds were ultimately used for the purchase of real
estate and construction of buildings to be opened as Outback Steakhouse
restaurants and leased to the franchisees’ limited partnerships.  On
January 12, 2009, the Company received notice that an event of default had
occurred in connection with the line of credit because T-Bird failed to pay the
outstanding balance of $33,283,000 due on the maturity date.  On
February 17, 2009, the Company terminated its guarantee obligation by purchasing
the note and all related rights from the lender for $33,311,000, which included
the principal balance due on maturity and accrued and unpaid interest.  In
anticipation of receiving a notice of default subsequent to the end of the year,
the Company recorded a $33,150,000 allowance for the T-Bird Loan receivables
during the fourth quarter of 2008.  Since T-Bird defaulted on its line
of credit, 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.  Therefore, on February 19, 2009,
the Company filed suit against T-Bird and its affiliates in Florida state court
seeking, among other remedies, to enforce the note and collect on the T-Bird
Loans.  On February 20, 2009, T-Bird and certain of its affiliates
filed suit against the Company and certain of its officers and
affiliates.  The Company consolidates T-Bird because it is a variable
interest entity and the Company absorbs the majority of the expected losses (see
Note 8).
 
 15.           Subsequent
Events
 
 Subsequent
to the end of the first quarter of 2009, the Company committed $1,311,000 of its
working capital revolving credit facility for the issuance of letters of
credit.  As of the filing date of this report, the Company has total
outstanding letters of credit of $70,746,000, which is $4,254,000 below the
maximum of $75,000,000 of letters of credit permitted to be issued under its
working capital revolving credit facility (see Note 8).
 
 In May
2009, the Company executed a letter of intent to sell its Cheeseburger in
Paradise concept for $2,000,000 to an entity to be formed and controlled by
Steve Overholt, President of the concept.
  38
 Table of Contents
  OSI RestaurantPartners, LLC
 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.  Unless the context otherwise indicates, as used in
this report, the term the “Company,” “we,” “us,” “our” and other similar
terms mean OSI Restaurant Partners, LLC.
 
 Overview
 
 We are
one of the largest casual dining restaurant companies in the world, with six
restaurant concepts, more than 1,475 system-wide restaurants and 2008 annual
revenues for Company-owned restaurants exceeding $3.9 billion. We operate
in 49 states and in 20 countries internationally, predominantly through
Company-owned restaurants, but we also operate under a variety of partnerships
and franchises. Our primary concepts include Outback Steakhouse, Carrabba’s
Italian Grill, Bonefish Grill and Fleming’s Prime Steakhouse and Wine
Bar.  Our other non-core concepts include Roy’s and Cheeseburger in
Paradise.  In May 2009, we executed a letter of intent to sell
our Cheeseburger in Paradise concept for $2,000,000 to an entity to be formed
and controlled by Steve Overholt, President of the concept.  Our
long-range plan is to exit our Roy’s concept, but we do not have an established
timeframe within which this will occur.
 
 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 patrons 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.
 
 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
restaurant, 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 restaurants 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 restaurant is 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.
 
 The
ongoing disruptions in the economy and the financial markets pose challenges to
our business as consumer confidence and spending, availability of credit,
interest rates, foreign currency exchanges rates and other items are adversely
impacted (see “Current Economic Challenges and Impacts of Market Conditions”
included in “Management’s Discussion and Analysis of Financial Condition and
Results of Operations” for further discussion).
  39
 Table of Contents
  OSI
Restaurant Partners, LLC
 MANAGEMENT'S
DISCUSSION AND ANALYSIS OF
 FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
 
 Overview
(continued)
 
 We
promote our Outback Steakhouse, Carrabba’s Italian Grill and Bonefish Grill
restaurants through national and spot television and/or radio media. 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 smaller brands.  We have
developed a multi-year plan to refresh and update our Outback Steakhouse
restaurants. The new look delivers an experience that we believe reaches beyond
the existing interpretation of Australia and the Outback in our restaurants, and
it is expressed in updated fabrics, textures, art, lighting, props and
murals.  Our advertising spending is targeted to promote and maintain brand
image and develop consumer awareness of new menu offerings. We also strive to
increase sales through excellence in execution. Our marketing strategy of
enticing 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.
 
 Key
factors we use in evaluating our restaurants and assessing our business include
the following:
  ·
              Average
      unit volumes - average sales per restaurant to measure changes in
      consumer traffic, pricing and development of the
  brand;
 ·
              Operating
      margins - restaurant revenues after deduction of the main restaurant-level
      operating costs (including cost of sales, restaurant operating expenses,
      and labor and related costs);
 ·
              System-wide
      sales - total sales volume for all company-owned, franchise and
      unconsolidated joint venture restaurants, regardless of ownership, to
      interpret the overall health of our brands;
and
 ·
              Same-store
      or comparable sales - year-over-year comparison of sales volumes for
      restaurants that are open in both years in order to remove the impact of
      new openings in comparing the operations of existing
      restaurants.
 
 Our
industry’s challenges and risks include, but are not limited to, economic
conditions, including weak consumer spending, the impact of 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, and commodity pricing.
Additionally, our planned development schedule is subject to risk because of
significant real estate and construction costs and the availability of capital,
and our results are affected by consumer tolerance of price increases. Changes
in our operations in future periods may also result from changes in beef prices
and other commodity costs and continued pre-opening expenses from the
development of new restaurants and our expansion strategy.
 
 Our
substantial leverage could adversely affect our ability to raise additional
capital to fund our operations, limit our ability to make capital expenditures
to invest in new restaurants, limit our ability to react to changes in the
economy or our industry, expose us to interest rate risk to the extent of our
variable-rate debt and prevent us from meeting our obligations under the senior
notes.
  40
 Table of Contents
  OSI
Restaurant Partners, LLC
 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 Consolidated Statements of Operations bear to total revenues or
restaurant sales, as indicated, and (ii) selected operating data:
 
 THREE
      MONTHS ENDEDMARCH
      31,2009
              
              
              2008RevenuesRestaurant
      sales
              
              
              99.4
              %
              
              
              99.5
              %Other
      revenues
              
              
              0.6
              
              
              
              0.5Total
      revenues
              
              
              100.0
              
              
              
              100.0Costs
      and expensesCost
      of sales (1)
              
              
              33.5
              
              
              
              35.0Labor
      and other related (1)
              
              
              28.1
              
              
              
              27.7Other
      restaurant operating (1)
              
              
              24.7
              
              
              
              24.3Depreciation
      and amortization
              
              
              4.8
              
              
              
              4.4General
      and administrative
              
              
              6.1
              
              
              
              6.7Loss
      on contingent debt guarantee
              
              
              2.5
              
              
              
              -Provision
      for impaired assets and restaurant closings
              
              
              0.7
              
              
              
              0.3Income
      from operations of unconsolidated affiliates
              
              
              (*
              )
              
              
              (0.1
              )Total
      costs and expenses
              
              
              99.9
              
              
              
              98.0Income
      from operations
              
              
              0.1
              
              
              
              2.0Gain
      on extinguishment of debt
              
              
              16.4
              
              
              
              -Other
      expense, net
              
              
              (0.6
              )
              
              
              -Interest
      income
              
              
              *
              
              
              
              0.1Interest
      expense
              
              
              (2.8
              )
              
              
              (4.5
              )Income
      (loss) before provision (benefit) for income taxes
              
              
              13.1
              
              
              
              (2.4
              )Provision
      (benefit) for income taxes
              
              
              4.5
              
              
              
              (1.6
              )Net
      income (loss)
              
              
              8.6
              
              
              
              (0.8
              )Less:
      net income attributable to noncontrolling interest
              
              
              0.1
              
              
              
              0.1Net
      income (loss) attributable to OSI Restaurant Partners, LLC
              
              
              8.5
              %
              
              
              (0.9
              )%
 __________________
 (1)
              As a
      percentage of restaurant sales.
 *
              Less
      than 1/10 of one percent of total
revenues.
 41
 Table of Contents
  OSI
Restaurant Partners, LLC
 MANAGEMENT'S
DISCUSSION AND ANALYSIS OF
 FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
 
 Results
of Operations (continued)
 
 System-wide
sales declined by 9.6% for the three months ended March 31, 2009 compared with
the corresponding period in 2008. 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.  There are two components of system-wide
sales, sales of Company-owned restaurants of OSI Restaurant Partners, LLC
and sales of franchised and development joint venture
restaurants.  The table below presents the first component of
system-wide sales, sales of Company-owned restaurants:
 
 THREE
      MONTHS ENDEDMARCH
      31,2009
              
              
              2008COMPANY-OWNED
      RESTAURANT SALES(in
      millions):Outback
      SteakhouseDomestic
              
              $
              534
              
              
              $
              583International
              
              
              64
              
              
              
              84Total
              
              
              598
              
              
              
              667Carrabba's
      Italian Grill
              
              
              171
              
              
              
              185Bonefish
      Grill
              
              
              98
              
              
              
              100Fleming's
      Prime Steakhouse and Wine Bar
              
              
              52
              
              
              
              58Other
      restaurants
              
              
              40
              
              
              
              54Total
      Company-owned restaurant sales
              
              $
              959
              
              
              $
              1,064
 
 The
following information presents the second component of system-wide sales, sales
of 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.  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 percentage of sales.  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 OSI Restaurant Partners, LLC, and are presented
only as an indicator of changes in the restaurant system, which management
believes is important information regarding the health of our restaurant
brands.
 
 THREE
      MONTHS ENDEDMARCH
      31,2009
              
              
              2008FRANCHISE
      AND DEVELOPMENT JOINT VENTURE SALES(in
      millions) (1):Outback
      SteakhouseDomestic
              
              $
              80
              
              
              $
              88International
              
              
              34
              
              
              
              36Total
              
              
              114
              
              
              
              124Carrabba's
      Italian Grill
              
              
              1
              
              
              
              -Bonefish
      Grill
              
              
              4
              
              
              
              4Total
      franchise and development joint venture sales (1)
              
              $
              119
              
              
              $
              128Income
      from franchise and development joint ventures (2)
              
              $
              5
              
              
              $
              6
 __________________
 (1)
              Franchise
      and development joint venture sales are not included in revenues as
      reported in the Consolidated Statements of
  Operations.
 (2)
              Represents
      the franchise royalty and portion of total income related to restaurant
      operations included in the Consolidated Statements of Operations in the
      line items “Other revenues” or “Income from operations of unconsolidated
      affiliates.”
  42
 Table of Contents
  OSI
Restaurant Partners, LLC
 MANAGEMENT'S
DISCUSSION AND ANALYSIS OF
 FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
 
 Results
of Operations (continued)
 
 The table
below presents the number of our restaurants in operation at the end of the
periods indicated:
 
 MARCH
      31,2009
              
              
              2008Number
      of restaurants (at end of the period):Outback
      SteakhouseCompany-owned
      - domestic
              
              
              688
              
              
              
              689Company-owned
      - international
              
              
              121
              
              
              
              129Franchised
      and development joint venture - domestic
              
              
              108
              
              
              
              107Franchised
      and development joint venture - international
              
              
              53
              
              
              
              51Total
              
              
              970
              
              
              
              976Carrabba's
      Italian GrillCompany-owned
              
              
              231
              
              
              
              236Franchised
      and development joint venture
              
              
              1
              
              
              
              -Total
              
              
              232
              
              
              
              236Bonefish
      GrillCompany-owned
              
              
              143
              
              
              
              138Franchised
      and development joint venture
              
              
              7
              
              
              
              6Total
              
              
              150
              
              
              
              144Fleming’s
      Prime Steakhouse and Wine BarCompany-owned
              
              
              63
              
              
              
              54OtherCompany-owned
              
              
              63
              
              
              
              71System-wide
      total
              
              
              1,478
              
              
              
              1,481
 
 None of
our individual brands are considered separate reportable segments for purposes
of SFAS No. 131, “Disclosures about Segments of an Enterprise and Related
Information” (“SFAS No. 131”), as the brands have similar economic
characteristics, nature of products and services, class of customer and
distribution methods.
  43
 Table of Contents
  OSI
Restaurant Partners, LLC
 MANAGEMENT'S
DISCUSSION AND ANALYSIS OF
 FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
 Three
months ended March 31, 2009 compared to three months ended March 31,
2008
 
 REVENUES
 
 Restaurant sales.Restaurant
sales decreased by 9.9% or $105,222,000 during the three months ended March 31,
2009 as compared with the same period in 2008. The decrease in restaurant sales
was primarily attributable to decreases in sales volume at existing restaurants
and the closing of 34 restaurants since March 31, 2008 and was partially offset
by additional revenues of approximately $25,073,000 from the opening of 33 new
restaurants after March 31, 2008. The following table
includes additional information about changes in restaurant sales at domestic
Company-owned restaurants for the three months ended March 31, 2009 and
2008:
 THREE
      MONTHS ENDEDMARCH
      31,2009
                  
                  
                  2008Average
      restaurant unit volumes (weekly):Outback
      Steakhouse
                  
                  $
                  60,450
                  
                  
                  $
                  65,066Carrabba's
      Italian Grill
                  
                  $
                  57,487
                  
                  
                  $
                  59,991Bonefish
      Grill
                  
                  $
                  53,415
                  
                  
                  $
                  57,081Fleming's
      Prime Steakhouse and Wine Bar
                  
                  $
                  65,750
                  
                  
                  $
                  82,027Operating
      weeks:Outback
      Steakhouse
                  
                  
                  8,837
                  
                  
                  
                  8,962Carrabba's
      Italian Grill
                  
                  
                  2,973
                  
                  
                  
                  3,088Bonefish
      Grill
                  
                  
                  1,830
                  
                  
                  
                  1,761Fleming's
      Prime Steakhouse and Wine Bar
                  
                  
                  795
                  
                  
                  
                  702Year
      over year percentage change:Menu
      price increases: (1)Outback
      Steakhouse
                  
                  
                  1.9
                  %
                  
                  
                  3.2
                  %Carrabba's
      Italian Grill
                  
                  
                  1.6
                  %
                  
                  
                  1.4
                  %Bonefish
      Grill
                  
                  
                  2.2
                  %
                  
                  
                  1.2
                  %Fleming's
      Prime Steakhouse and Wine Bar
                  
                  
                  0.2
                  %
                  
                  
                  4.1
                  %Same-store
      sales (stores open 18 months or more):Outback
      Steakhouse
                  
                  
                  -8.4
                  %
                  
                  
                  -2.6
                  %Carrabba's
      Italian Grill
                  
                  
                  -7.3
                  %
                  
                  
                  0.7
                  %Bonefish
      Grill
                  
                  
                  -10.0
                  %
                  
                  
                  -3.9
                  %Fleming's
      Prime Steakhouse and Wine Bar
                  
                  
                  -19.9
                  %
                  
                  
                  -6.8
                  %
 __________________
 (1)           The
stated pricing excludes the impact of product mix shifts to new menu
offerings.
 44
 Table of Contents
  OSI
Restaurant Partners, LLC
 MANAGEMENT'S
DISCUSSION AND ANALYSIS OF
 FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
 
 Three
months ended March 31, 2009 compared to three months ended March 31, 2008
(continued)
 
 COSTS AND
EXPENSES
 
 Cost of sales.Cost of sales,
consisting of food and beverage costs, decreased by 1.5% of restaurant sales to
33.5% in the three months ended March 31, 2009 as compared with 35.0% in the
same period in 2008.  Of the decrease as a percentage of restaurant
sales, 1.2% was due to the impact of certain cost savings initiatives, 0.6% was
due to decreases in beef and dairy costs and 0.4% was a result of general menu
price increases.  This decrease as a percentage of restaurant sales
was partially offset by increases in produce, seafood, and other commodity costs
that negatively impacted cost of sales by 0.7% as a percentage of restaurant
sales.
 
 Labor and other related
expenses. Labor and other related expenses include all direct and
indirect labor costs incurred in operations, including distribution expense to
managing partners, costs related to the Partner Equity Plan (the “PEP”) and
other stock-based and incentive compensation expenses.  Labor and
other related expenses increased 0.4% as a percentage of restaurant sales to
28.1% in the three months ended March 31, 2009 as compared with 27.7% in the
same period in 2008.  Of the increase as a percentage of restaurant
sales, approximately 1.1% was attributable to declines in average unit volumes,
1.0% was from higher kitchen, service and management labor costs including
payroll tax expense and 0.1% was due to an increase in health insurance
costs.  The increase was partially offset by decreases as a percentage
of restaurant sales of approximately 1.5% from cost savings initiatives, 0.2%
for decreases in PEP expense and 0.1% as a result of a reduction in distribution
expense to managing partners.
 
 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. A substantial portion of these expenses is fixed or indirectly
variable.  These costs increased 0.4% to 24.7% as a percentage of
restaurant sales in the three months ended March 31, 2009 as compared with 24.3%
in the same period in 2008.  Of the increase as a percentage of
restaurant sales, approximately 1.1% was from declines in average unit volumes,
0.2% was due to increases in repair and maintenance costs and 0.1% resulted from
increases in other occupancy costs.  The increase was mostly offset by
decreases as a percentage of restaurant sales of 0.4% for lower general
liability insurance expense, 0.3% from certain cost savings initiatives, 0.2%
was due to decreases in advertising expenses and utilities costs and 0.1% from a
reduction in pre-opening costs.
 
 Depreciation and
amortization. Depreciation and amortization costs increased 0.4% as a
percentage of total revenues to 4.8% in the three months ended March 31, 2009 as
compared with 4.4% in the same period in 2008, resulting primarily from declines
in average unit volumes.
 
 General and administrative.
General and administrative costs decreased by $13,691,000 to $58,483,000 in the
three months ended March 31, 2009 as compared with $72,174,000 in the same
period in 2008.  This decrease primarily was attributable to a shift
in the timing of field operations’ meeting expenses to the second quarter of
2009 as opposed to the first quarter of 2008, a gain of $2,400,000 on the cash
surrender value of life insurance and $2,300,000 of reduced deferred
compensation expense for corporate employees.  Other general and
administrative costs decreases included results from certain cost savings
initiatives.
 
 Loss on contingent debt
guarantee.  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 (see “Debt Guarantees” included in “Management’s Discussion and
Analysis of Financial Condition and Results of Operations”).  We
recorded a $24,500,000 loss from this guarantee for the three months ended March
31, 2009.
  45
 Table of Contents
  OSI
Restaurant Partners, LLC
 MANAGEMENT'S
DISCUSSION AND ANALYSIS OF
 FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
 
 Three
months ended March 31, 2009 compared to three months ended March 31, 2008
(continued)
 
 COSTS AND EXPENSES
(continued)
 
 Provision for impaired assets and
restaurant closings. During the first
quarter of 2009, we recorded a provision for impaired assets and restaurant
closings of $7,136,000 which included $6,539,000 of impairment charges and
restaurant closing expense for certain of our restaurants and $597,000
of other impairment charges.  During the first quarter of 2008, we
recorded a provision for impaired assets and restaurant closings of $3,664,000
for certain of our restaurants. Restaurant
impairment charges primarily occurred as a result of the carrying value of a
restaurant’s assets exceeding its estimated fair market value, generally due to
anticipated closures or declining future cash flows from lower projected future
sales on existing locations.
 
 Gain on extinguishment of
debt. During the first quarter of 2009, we accepted for
purchase $240,145,000 in principal amount of our senior notes in a cash tender
offer.  We paid $72,998,000 for the senior notes accepted for purchase
and $6,671,000 of accrued interest.  We recorded a gain from the
extinguishment of our debt of $158,061,000 for the three months ended March 31,
2009.  The gain was reduced by $6,117,000 for the pro rata
portion of unamortized deferred financing fees that related to the extinguished
senior notes and by $2,969,000 for fees related to the tender
offer.
 
 Other expense, net. Other
expense, net represents the net of revenues and expenses from non-restaurant
operations.  Other expense, net for the three months ended March 31,
2009 related to foreign currency transaction losses of $5,660,000 on
international investments.
 
 Interest expense. Interest
expense was $27,010,000 for the three months ended March 31, 2009 as compared
with $47,827,000 in the same period in 2008. The decrease in interest expense
resulted from (1) a significant decrease in outstanding senior notes as a result
of our cash tender offer during the first quarter of 2009 and our open market
purchases during the fourth quarter of 2008, (2) an overall decline in the
variable interest rates on our senior secured term loan facility and other
variable-rate debt in the first quarter of 2009 as compared with the same period
in 2008 and (3) $687,000 of net interest income as compared to $10,848,000 of
net interest expense for the three months ended March 31, 2009 and 2008,
respectively, for mark-to-market adjustments on our interest rate
collar.
  Provision (benefit) for income
taxes.The effective income tax rate for the three months ended
March 31, 2009 was 34.0% compared to 65.4% for the three months ended March 31,
2008.  The effective income tax rate for the three months ended March
31, 2008 was significantly higher than the combined federal and state statutory
rate of 39.6% due to the benefit of the expected tax credit for excess FICA tax
on employee-reported tips being such a large percentage of projected annual
pretax loss.  The net decrease of 31.4% in the effective income tax
rate during the three months ended March 31, 2009 from the rate in the same
period in 2008 was primarily due to the $158,061,000 gain on extinguishment of
debt realized during the first quarter of 2009.  The tax related to
this gain has been computed at the combined federal and state statutory rate of
38.9% and recorded as a discrete item for the three months ended March 31,
2009.  As result of recording the gain, the expected benefit of the
tax credit for excess FICA tax on tips is a significantly smaller percentage of
pretax income for the three months ended March 31, 2009 as compared to the
expected tax credit benefit as a percentage of the pretax loss for the same
period in 2008.
  46
 Table of Contents
  OSI
Restaurant Partners, LLC
 MANAGEMENT'S
DISCUSSION AND ANALYSIS OF
 FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
 
 Financial
Condition
 
 Cash and
cash equivalents was $123,088,000 at March 31, 2009 as compared with
$271,470,000 at December 31, 2008.  This decrease was primarily due to
our cash tender offer in the first quarter of 2009 in which we paid $72,998,000
for the senior notes accepted for purchase and $6,671,000 of accrued
interest.  We funded the tender offer with (i) cash on hand and (ii)
proceeds from a $47,000,000 contribution from our direct owner, OSI
HoldCo, Inc. (“OSI HoldCo”), (see “Credit Facilities” included in “Management’s
Discussion and Analysis of Financial Condition and Results of
Operations”). In addition, we paid $33,311,000 upon termination of our
guarantee obligation for T-Bird Nevada, LLC (“T-Bird”) by purchasing the note
and all related rights from the lender in February 2009 (see “Debt Guarantees”
included in “Management’s Discussion and Analysis of Financial Condition and
Results of Operations”) and paid approximately $30,000,000 of Accounts payable
from December 31, 2008 that was delayed until the beginning of 2009 (which under
our historic practices would have been paid by December 31, 2008).
 
 Working
capital (deficit) totaled ($183,673,000) and ($204,528,000) at March 31, 2009
and December 31, 2008, respectively, and included Unearned revenue from gift
cards of $140,225,000 and $212,677,000 at March 31, 2009 and December 31, 2008,
respectively.
 
 Current
liabilities totaled $492,663,000 at March 31, 2009 as compared with $663,898,000
at December 31, 2008 with the decrease primarily due to an $81,586,000 decrease
in Accounts payable and a $72,452,000 decrease in Unearned
revenue.  The decline in Accounts payable is due to the normal
seasonal pattern combined with a reduction in purchasing volume, price savings
realized from certain costs savings initiatives and the aforementioned delay in
Accounts payable payments.  The decrease in Unearned revenue is due to
the typical seasonal pattern.  The decline in current liabilities also
resulted from the termination of our $33,283,000 guarantee obligation for T-Bird
in February 2009 (see “Debt Guarantees” included in “Management’s Discussion and
Analysis of Financial Condition and Results of Operations”). The decline
in Long-term debt to $1,476,059,000 at March 31, 2009 from $1,721,179,000 at
December 31, 2008 was a result of our cash tender offer in the first quarter of
2009 in which we accepted for purchase $240,145,000 in principal amount of our
senior notes.
 
 Liquidity
and Capital Resources
 
 CURRENT
ECONOMIC CHALLENGES AND POTENTIAL IMPACTS OF MARKET CONDITIONS
 
 We
require capital primarily for principal and interest payments on our debt,
prepayment requirements under our term loan facility (see “Credit Facilities and
Other Indebtedness” included in “Management’s Discussion and Analysis of
Financial Condition and Results of Operations”), obligations related to our
deferred compensation plans, the development of new restaurants, remodeling
older restaurants, investments in technology and acquisitions of franchisees and
joint venture partners.
 
 The
ongoing disruptions in the financial markets and adverse changes in the economy
have created a challenging environment for us and for the restaurant industry
and may limit our liquidity.  During 2008, we incurred goodwill and
intangible asset impairment charges of $604,071,000 and $46,420,000,
respectively, which were recorded during the second and fourth quarters of 2008,
and restaurant impairment charges of $65,767,000.  During the three
months ended March 31, 2009, we recorded a provision for impaired assets and
restaurant closings of $7,136,000.  In 2008, we experienced downgrades
in our credit ratings, and we continue to experience declining restaurant sales
and be subject to risk from: consumer confidence and spending patterns; the
availability of credit presently arranged from revolving credit facilities; the
future cost and availability of credit; interest rates; foreign currency
exchange rates; and the liquidity or operations of our third-party vendors and
other service providers.  Additionally, our substantial leverage could
adversely affect the ability to raise additional capital, to fund operations or
to react to changes in the economy or industry.  In response to these
conditions, we accelerated existing initiatives and implemented new measures in
2008 to manage liquidity.
  47
 Table of Contents
  OSI
Restaurant Partners, LLC
 MANAGEMENT'S
DISCUSSION AND ANALYSIS OF
 FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
 
 Liquidity
and Capital Resources (continued)
 
 CURRENT
ECONOMIC CHALLENGES AND POTENTIAL IMPACTS OF MARKET CONDITIONS
(continued)
 
 We have
implemented various cost-saving initiatives, including food cost decreases via
waste reduction and supply chain efficiency, labor efficiency initiatives and
reductions to both capital expenditures and general and administrative
expenses.  We developed new menu items to appeal to value-conscious
consumers and have used marketing campaigns to promote these
items.  Additionally, interest expense is expected to decline
significantly in future periods as a result of the completion of a cash tender
offer that significantly reduced the aggregate principal amount outstanding of
our senior notes (see “Credit Facilities and Other Indebtedness” included in
“Management’s Discussion and Analysis of Financial Condition and Results of
Operations”).  Based on anticipated revenues and cash flows, we
believe that the implemented initiatives and measures noted above will allow us
to appropriately manage our liquidity and meet our debt service
requirements.  Our anticipated revenues and cash flows have been
estimated based on results of actions taken, our knowledge of the economic
trends and the declines in sales at our restaurants combined with our attempts
to mitigate the impact of those declines.  However, further
deterioration in excess of our estimates could cause an adverse impact on our
liquidity and financial position.
 
 Continued
deterioration in the financial markets could adversely affect our ability to
borrow under our revolving credit facilities.  At this time, none of
our institutional lenders on our senior secured credit facilities have
failed.  During the first quarter of 2009, we did not borrow from our
working capital revolving credit facility or from our pre-funded revolving
credit facility.  At March 31, 2009, our outstanding balances on the
working capital revolving credit facility and on the pre-funded revolving credit
facility were $50,000,000 and $12,000,000, respectively.  In April
2009, we repaid outstanding loans under the pre-funded revolving credit facility
and funded our capital expenditures account using 100% of our “annual true
cash flow,” as required and defined in the credit agreement.
 
 At March
31, 2009 and December 31, 2008, our Moody’s Applicable Corporate Rating was
Caa1, and our Standard & Poor’s corporate credit rating was
B-.  Our credit agreement does not penalize us for a downgrade in our
credit ratings.  We have not experienced a material change and do not
anticipate experiencing a material change in vendor pricing or supply as a
result of our credit ratings from Standard and Poor’s and Moody’s Investors
Service.
 
 Our
current credit ratings, possible future downgrades in our credit ratings and
further disruptions in the financial markets could affect our ability to obtain
future credit and the cost of that credit.  On April 1, 2009, a
$24,500,000 line of credit that we guarantee expired and was amended with a
revised termination date of April 15, 2013 (see “Debt Guarantees” included in
“Management’s Discussion and Analysis of Financial Condition and Results of
Operations”).  We recorded a long-term contingent obligation and a
loss from this guarantee of $24,500,000 in our consolidated financial statements
at and for the three months ended March 31, 2009.  At this time, we
believe we have sufficient liquidity from our cash, short-term investments,
restricted cash and available borrowing capacity on our revolving credit
facilities to allow us to perform under the guarantee, if
necessary.
  48
 Table of Contents
  OSI
Restaurant Partners, LLC
 MANAGEMENT'S
DISCUSSION AND ANALYSIS OF
 FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
 
 Liquidity
and Capital Resources (continued)
 
 CURRENT
ECONOMIC CHALLENGES AND POTENTIAL IMPACTS OF MARKET CONDITIONS
(continued)
 
 In
January 2009, we received notice that an event of default had occurred in
connection with an uncollateralized line of credit that matured December 31,
2008 and permitted borrowing of up to $35,000,000 by a limited liability
company, T-Bird, which is owned by the principal of each of our California
franchisees of Outback Steakhouse restaurants (see “Debt Guarantees” included in
“Management’s Discussion and Analysis of Financial Condition and Results of
Operations”).  T-Bird used proceeds from the line of credit for loans
to its affiliates (“T-Bird Loans”) that serve as general partners of 42
franchisee limited partnerships, which currently own and operate 41 Outback
Steakhouse restaurants. The funds were ultimately used for the purchase of real
estate and construction of buildings to be opened as Outback Steakhouse
restaurants and leased to the franchisees’ limited
partnerships.  T-Bird failed to pay the outstanding balance of
$33,283,000 due on the maturity date, and this balance was recorded in “Current
portion of guaranteed debt” on our Consolidated Balance Sheet at December 31,
2008.  On February 17, 2009, we terminated our guarantee obligation by
purchasing the note and all related rights from the lender for $33,311,000,
which included the principal balance due on maturity and accrued and unpaid
interest. We consolidate T-Bird and the related T-Bird Loans and, in
anticipation of receiving a notice of default subsequent to the end of the year,
recorded a $33,150,000 allowance for the T-Bird Loan receivables during the
fourth quarter of 2008.  On February 19, 2009, we filed suit against T-Bird
and its affiliates in Florida state court seeking, among other remedies, to
enforce the note and collect on the T-Bird Loans.
 
 On
February 20, 2009, T-Bird and certain of its affiliates filed suit against us
and certain of our officers and affiliates.  The suit claims, among
other things, that we made various misrepresentations and breached certain oral
promises allegedly made by us and certain of our officers to T-Bird and our
affiliates that we would acquire the restaurants owned by T-Bird and its
affiliates and until that time we would maintain financing for the restaurants
that would be nonrecourse to T-Bird and its affiliates.  The complaint
seeks damages in excess of $100,000,000, exemplary or punitive damages, and
other remedies.  We and the other defendants believe the suit is
without merit, and we intend to defend the suit vigorously.
 
 Variable
interest rates on the senior secured term loan facility declined slightly during
the three months ended March 31, 2009 (between 2.81% at December 31, 2008 and
2.69% at March 31, 2009).  The amount of required interest payments on
our debt will change as future interest rates fluctuate, without considering the
effects of the interest rate collar. Between November 18, 2008 and November
21, 2008, in an effort to deleverage and reduce interest expense, we purchased
and extinguished $61,780,000 in aggregate principal amount of our senior notes
at a significant discount on the open market.  On February 18, 2009,
we commenced a cash tender offer to purchase the maximum aggregate
principal amount of our senior notes that we could purchase for $73,000,000,
excluding accrued interest.  The tender offer expired on March 20,
2009, and we accepted for purchase $240,145,000 in principal amount of our
senior notes(see “Credit
Facilities and Other Indebtedness” included in “Management’s Discussion and
Analysis of Financial Condition and Results of Operations”).
  Current
market conditions have impacted our foreign currency exchange
rates.  These rates have stabilized during the first quarter of
2009.  However, we may experience declines in our international
operating results during the remainder of 2009, primarily due to the
depreciation of foreign currency exchange rates for certain countries in which
we operate.
  The
challenging economy may adversely affect our suppliers and other third-party
service providers.  At this time, however, we do not anticipate an
interruption in supplies from our most significant vendors.  In the
first quarter of 2009, we committed $6,135,000 of our working capital revolving
credit facility for the issuance of letters of credit.  This was
primarily for a $6,000,000 letter of credit to the insurance company that
underwrites our bonds for liquor licenses, utilities, liens and
construction.  Subsequent to the end of the first quarter of 2009, we
committed an additional $1,311,000 of our working capital revolving credit
facility for the issuance of letters of credit.  We may have to extend
additional letters of credit in the future. As of the filing date of this
report, we have total outstanding letters of credit of $70,746,000, which is
$4,254,000 below the maximum of $75,000,000 of letters of credit permitted to be
issued under our working capital revolving credit facility.  If
requests for letters of credit exceed the remaining availability on our working
capital revolving credit facility, then we may have to use cash to fulfill our
collateral requirements.
  49
 Table of Contents
  OSI
Restaurant Partners, LLC
 MANAGEMENT'S
DISCUSSION AND ANALYSIS OF
 FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
 
 Liquidity
and Capital Resources (continued)
 
 CURRENT
ECONOMIC CHALLENGES AND POTENTIAL IMPACTS OF MARKET CONDITIONS
(continued)
 
 Our
insurance reserves have not been affected by the disruptions in the financial
markets, and we anticipate being able to renew our policies.  Any
changes in our counterparty credit risk for our interest rate collar have been
accounted for in the fair value measurement of the derivative (see “Fair Value
Measurements” included in “Management’s Discussion and Analysis of Financial
Condition and Results of Operations”).  As of March 31, 2009 and
December 31, 2008, the fair value of the interest rate collar derivative,
including accrued interest but excluding any adjustment for nonperformance risk,
was in a net liability position of $26,586,000 and $28,857,000,
respectively.  As of March 31, 2009 and December 31, 2008, we were not
required to post and did not post any collateral related to our interest rate
collar.  Our agreement with our counterparty for the interest rate
collar contains a provision in which we could be declared in default on our
derivative obligation if repayment of the underlying indebtedness is
accelerated by the lender due to our default on the indebtedness.  The
termination value for such a settlement would have been $26,586,000 at March 31,
2009.
 
 We
believe that expected cash flow from operations, planned borrowing capacity,
short-term investments and restricted cash balances are adequate to fund debt
service requirements, operating lease obligations, capital expenditures and
working capital obligations for the next twelve months.  However,
our ability to continue to meet these requirements will depend partially on our
ability to achieve anticipated levels of revenue and cash flow and to manage
costs.  If our cash flow and capital resources are insufficient to
fund our debt service obligations and operating lease obligations, we may be
forced to reduce or delay capital expenditures, or to sell assets, seek
additional capital or restructure or refinance our indebtedness, including the
senior notes.  These alternative measures may not be successful and
may not permit us to meet our scheduled debt service obligations. In the absence
of sufficient operating results and resources, we could face a substantial
liquidity shortfall and might be required to dispose of material assets or
operations, or take other actions, to meet our debt service and other
obligations. Our senior secured credit facilities and the indenture governing
the senior notes restrict our ability to dispose of assets and use the proceeds
from the disposition. We may not be able to consummate those dispositions or to
obtain the proceeds that we could otherwise realize from such dispositions and
any such proceeds that are realized may not be adequate to meet any debt service
obligations then due.  The failure to meet our debt service
obligations or the failure to remain in compliance with the financial covenants
under our senior secured credit facilities, as described below, would constitute
an event of default under those facilities and the lenders could elect to
declare all amounts outstanding under the senior secured credit facilities to be
immediately due and payable and terminate all commitments to extend further
credit.  See “Risk Factors” included in our Annual Report on Form 10-K
for the year ended December 31, 2008 (“2008 10-K”).
 
 Our
senior secured credit facilities require us to comply with certain financial
covenants, including a quarterly maximum total leverage ratio test, and, subject
to our exceeding a minimum rent-adjusted leverage level, an annual minimum free
cash flow test.  At March 31, 2009, we were in compliance
with our covenants.  However, our continued compliance with these
covenants will depend on our future levels of cash flow, which will be affected
by our ability to successfully reduce our costs, implement efficiency programs
and improve our working capital management.  If, as a result of the
economic challenges described above or otherwise, our revenue and resulting cash
flow decline to levels that cannot be offset by reductions in costs, efficiency
programs and improvements in working capital management, we may not remain in
compliance with the leverage ratio and free cash flow covenants in our senior
secured credit facilities agreement.  In the event of this occurrence,
we intend to take such actions available to us as we determine to be appropriate
at such time, which may include, but are not limited to, engaging in a permitted
equity issuance, seeking a waiver from our lenders, amending the terms of such
facilities, including the covenants described above, or refinancing all or a
portion of our senior secured credit facilities under modified
terms.  There can be no assurance that we will be able to effect any
such actions or terms acceptable to us or at all or that such actions will be
successful in maintaining our covenant compliance.
  50
 Table of Contents
  OSI
Restaurant Partners, LLC
 MANAGEMENT'S
DISCUSSION AND ANALYSIS OF
 FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
 
 Liquidity
and Capital Resources (continued)
 
 CAPITAL
EXPENDITURES
 
 Capital
expenditures totaled approximately $15,191,000 and $30,935,000 for the three
months ended March 31, 2009 and 2008, respectively.   We estimate that our
capital expenditures will total approximately $60,000,000 to $70,000,000 in
2009. However, the amount of actual capital expenditures may be affected by
general economic, financial, competitive, legislative and regulatory factors,
among other things, including restrictions imposed by our borrowing
arrangements. We expect to continue to review the level of capital expenditures
throughout the remainder of 2009.
 
 SUMMARY
OF CASH FLOWS
 
 The
following table presents a summary of our cash flows from operating, investing
and financing activities for the periods indicated (in thousands):
 
 THREE
      MONTHS ENDEDMARCH
      31,2009
              
              
              2008Net
      cash used in operating activities
              
              $
              (66,478
              )
              
              $
              (3,840
              )Net
      cash used in investing activities
              
              
              (11,478
              )
              
              
              (29,244
              )Net
      cash used in financing activities
              
              
              (70,426
              )
              
              
              (5,466
              )Net
      decrease in cash and cash equivalents
              
              $
              (148,382
              )
              
              $
              (38,550
              )
 
 Operating
activities
 Net cash
used in operating activities for the three months ended March 31, 2009 was
$66,478,000 compared to $3,840,000 for the same period in 2008.  The
increase in cash used in operating activities was primarily attributable to an
increase in payments made on accounts payable, an increase in gift card
redemptions and changes in timing of advertising and interest payments
between periods and is partially offset by decreases in inventory during the
first quarter of 2009 as compared to the first quarter of 2008.
 Investing
activities
 
 Net cash
used in investing activities for the three months ended March 31, 2009 was
$11,478,000 compared to $29,244,000 for the same period in 2008. Net cash used
in investing activities for the three months ended March 31, 2009 was primarily
attributable to capital expenditures of $15,191,000.  Net cash used in
investing activities for this period was partially offset by the $2,829,000 net
difference between restricted cash received and restricted cash used and was
primarily related to the conversion of restricted cash designated for property
taxes to cash.  Net cash used in investing activities for the three months
ended March 31, 2008 primarily included capital expenditures of
$30,935,000.
 
 Financing
activities
 
 Net cash
used in financing activities for the three months ended March 31, 2009 was
$70,426,000 compared to $5,466,000 for the same period in 2008.  Net
cash used in financing activities during the three months ended March 31, 2009
was primarily attributable to (1) $75,967,000 of cash paid for the
extinguishment of a portion of our senior notes and related fees, (2)
$33,283,000 of cash paid for the purchase of the note related to our guaranteed
debt for T-Bird and (3) repayments of long-term debt of
$5,951,000.  This was partially offset by a $47,000,000 contribution
from OSI HoldCo, our direct owner, to partially fund our extinguishment of a
portion of our senior notes.  Net cash used in financing activities
for the three months ended March 31, 2008 was primarily attributable to
repayments of long-term debt of $4,170,000.
  51
 Table of Contents
  OSI
Restaurant Partners, LLC
 MANAGEMENT'S
DISCUSSION AND ANALYSIS OF
 FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
 
 Liquidity
and Capital Resources (continued)
 
 TRANSACTIONS
 
 On June
14, 2007, OSI Restaurant Partners, Inc., by means of a merger and related
transactions (the “Merger”), was acquired by Kangaroo Holdings, Inc. (the
“Ultimate Parent” or “KHI”), which is controlled by an investor group comprised
of funds advised by Bain Capital Partners, LLC (“Bain Capital”), Catterton
Partners (“Catterton”), Chris T. Sullivan, Robert D. Basham and J. Timothy
Gannon (our “Founders”) and certain members of our management. In connection
with the Merger, OSI Restaurant Partners, Inc. converted into a Delaware limited
liability company named OSI Restaurant Partners, LLC.
 
 Our
non-core concepts include Roy’s and Cheeseburger in Paradise.  Our
long-range plan is to exit our Roy’s concept, but we do not have an established
timeframe within which this will occur.  During the first quarter of
2009, we continued to market our Cheeseburger in Paradise concept for
sale.  As of March 31, 2009, we determined that our Cheeseburger in
Paradise concept does not meet the assets held for sale criteria defined in SFAS
No. 144, “Accounting for the Impairment or Disposal of Long-Lived Assets,”
(“SFAS No. 144”).  However, if these criteria are met in the future,
we may need to record an impairment loss in our Consolidated Statement of
Operations, and this impairment loss may be material to our consolidated
financial statements.  In May 2009, we executed a letter of intent to
sell our Cheeseburger in Paradise concept for $2,000,000 to an entity to be
formed and controlled by Steve Overholt, President of the concept.
 
 CREDIT
FACILITIES AND OTHER INDEBTEDNESS
 
 On June
14, 2007, in connection with the Merger, we entered into senior secured credit
facilities with a syndicate of institutional lenders and financial
institutions.  These senior secured credit facilities provide for
senior secured financing of up to $1,560,000,000, consisting of a $1,310,000,000
term loan facility, a $150,000,000 working capital revolving credit facility,
including letter of credit and swing-line loan sub-facilities, and a
$100,000,000 pre-funded revolving credit facility that provides financing for
capital expenditures only.
 
 The
senior secured term loan facility matures June 14, 2014, and its proceeds were
used to finance the Merger.  At each rate adjustment, we have the
option to select a Base Rate plus 125 basis points or a Eurocurrency Rate plus
225 basis points for the borrowings under this facility.  The Base
Rate option is the higher of the prime rate of Deutsche Bank AG New York Branch
and the federal funds effective rate plus 1⁄2 of 1% (“Base Rate”) (3.25% at March
31, 2009 and December 31, 2008).  The Eurocurrency Rate option is the
30, 60, 90 or 180-day Eurocurrency Rate (“Eurocurrency Rate”) (ranging from
0.50% to 1.74% and from 0.44% to 1.75% at March 31, 2009 and December 31, 2008,
respectively).  The Eurocurrency Rate may have a nine- or twelve-month
interest period if agreed upon by the applicable lenders.  With either
the Base Rate or the Eurocurrency Rate, the interest rate is reduced by 25 basis
points if our Moody’s Applicable Corporate Rating then most recently published
is B1 or higher (the rating was Caa1 at March 31, 2009 and December 31,
2008).
 
 We will
be required to prepay outstanding term loans, subject to certain exceptions,
with:
 
 §
              50%
      of our “annual excess cash flow” (with step-downs to 25% and 0% based upon
      our rent-adjusted leverage ratio), as defined in the credit agreement and
      subject to certain exceptions;
 §
              100%
      of our “annual minimum free cash flow,” as defined in the credit
      agreement, not to exceed $50,000,000 for the fiscal year ended December
      31, 2007 or $75,000,000 for each subsequent fiscal year, if our
      rent-adjusted leverage ratio exceeds a certain minimum
      threshold;
 §
              100%
      of the net proceeds of certain assets sales and insurance and condemnation
      events, subject to reinvestment rights and certain other exceptions;
      and
 §
              100%
      of the net proceeds of any debt incurred, excluding permitted debt
      issuances.
  52
 Table of Contents
  OSI
Restaurant Partners, LLC
 MANAGEMENT'S
DISCUSSION AND ANALYSIS OF
 FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
 
 Liquidity
and Capital Resources (continued)
 
 CREDIT
FACILITIES AND OTHER INDEBTEDNESS (continued)
 
 Additionally,
we will, on an annual basis, be required to (1) first, repay outstanding loans
under the pre-funded revolving credit facility and (2) second, fund a capital
expenditure account established on the closing date of the Merger to the extent
amounts on deposit are less than $100,000,000, in both cases with 100% of our
“annual true cash flow,” as defined in the credit agreement.  In
accordance with these requirements, in April 2009, we repaid our pre-funded
revolving credit facility outstanding loan balance.
 
 Our
senior secured credit facilities require scheduled quarterly payments on the
term loans equal to 0.25% of the original principal amount of the term loans for
the first six years and three quarters following the closing of the
Merger.  These payments will be reduced by the application of any
prepayments, and any remaining balance will be paid at maturity.  The
outstanding balance on the term loans was $1,181,725,000 and $1,185,000,000 at
March 31, 2009 and December 31, 2008, respectively.
 
 Proceeds
of loans and letters of credit under the $150,000,000 working capital revolving
credit facility provide financing for working capital and general corporate
purposes and, subject to a rent-adjusted leverage condition, for capital
expenditures for new restaurant growth.  This revolving credit
facility matures June 14, 2013 and bears interest at rates ranging from 100 to
150 basis points over the Base Rate or 200 to 250 basis points over the
Eurocurrency Rate.  At March 31, 2009 and December 31, 2008, the
outstanding balance was $50,000,000.  In addition to outstanding
borrowings at March 31, 2009 and December 31, 2008, $69,435,000 and $63,300,000,
respectively, of the credit facility was not available for borrowing as (i)
$37,540,000 of the credit facility 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, (ii) $24,500,000 of the credit facility was committed for the
issuance of a letter of credit for our guarantee of an uncollateralized line of
credit for our joint venture partner, RY-8, in the development of Roy's
restaurants, (iii) $6,000,000 of the credit facility at March 31, 2009 was
committed for the issuance of a letter of credit to the insurance company that
underwrites our bonds for liquor licenses, utilities, liens and construction and
(iv) $1,395,000 and $1,260,000, respectively, of the credit facility was
committed for the issuance of other letters of credit.  Subsequent to
the end of the first quarter of 2009, we committed an additional $1,311,000 of
our working capital revolving credit facility for the issuance of letters of
credit.  We may have to extend additional letters of credit in the
future. As of the filing date of this report, we have total outstanding letters
of credit of $70,746,000, which is $4,254,000 below the maximum of $75,000,000
of letters of credit permitted to be issued under our working capital revolving
credit facility.  Fees for the letters of credit range from 2.00% to
2.50% and the commitment fees for unused working capital revolving credit
commitments range from 0.38% to 0.50%.
 
 Proceeds
of loans under the $100,000,000 pre-funded revolving credit facility are
available to provide financing for capital expenditures once we fully utilize
$100,000,000 of restricted cash that was funded on the closing date of the
Merger.  At March 31, 2009 and December 31, 2008, we had fully
utilized all of our restricted cash for capital expenditures, and we had
borrowed $12,000,000 from our pre-funded revolving credit
facility.  This borrowing is recorded in “Current portion of long-term
debt” in our Consolidated Balance Sheets at March 31, 2009 and December 31,
2008, as we were required to repay this outstanding loan in April 2009 using our
“annual true cash flow,” as defined in the credit agreement.  This
facility matures June 14, 2013.  At each rate adjustment, we have the
option to select the Base Rate plus 125 basis points or a Eurocurrency Rate plus
225 basis points for the borrowings under this facility.  In either
case, the interest rate is reduced by 25 basis points if our Moody’s Applicable
Corporate Rating then most recently published is B1 or higher.
  53
 Table of Contents
  OSI
Restaurant Partners, LLC
 MANAGEMENT'S
DISCUSSION AND ANALYSIS OF
 FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
 
 Liquidity
and Capital Resources (continued)
 
 CREDIT
FACILITIES AND OTHER INDEBTEDNESS (continued)
 
 Our
senior secured credit facilities require us to comply with certain financial
covenants, including a quarterly Total Leverage Ratio (“TLR”) test and an annual
Minimum Free Cash Flow (“MFCF”) test. The TLR is the ratio of Consolidated Total
Debt to Consolidated EBITDA (earnings before interest, taxes, depreciation
and amortization as defined in the senior secured credit facilities) and may not
exceed 6.00 to 1.00.  On an annual basis, if the Rent Adjusted
Leverage Ratio is greater than or equal to 5.25 to1.00, our MFCF cannot be less
than $75,000,000.  MFCF is calculated as Consolidated EBITDA plus
decreases in Consolidated Working Capital less Consolidated Interest Expense,
Capital Expenditures (except for that funded by our senior secured pre-funded
revolving credit facility), increases in Consolidated Working Capital and cash
paid for taxes.  (All of the above capitalized terms are as defined in
the credit agreement). Our senior secured credit facilities agreement also
includes negative covenants that, subject to significant exceptions, limit our
ability and the ability of our restricted subsidiaries to: incur liens, make
investments and loans, make capital expenditures (as described below), incur
indebtedness or guarantees, engage in mergers, acquisitions and assets sales,
declare dividends, make payments or redeem or repurchase equity interests, alter
our business, engage in certain transactions with affiliates, enter into
agreements limiting subsidiary distributions and prepay, redeem or purchase
certain indebtedness.  Our senior secured credit facilities contain
customary representations and warranties, affirmative covenants and events of
default.  At March 31, 2009, we were in compliance with our debt
covenants (see “Current Economic Challenges and Potential Impacts of Market
Conditions” included in “Management’s Discussion and Analysis of Financial
Condition and Results of Operations”).
 
 Our
capital expenditures are limited by the credit agreement.  Our annual
capital expenditure limits range from $200,000,000 to $250,000,000 with various
carry-forward and carry-back allowances.  Our annual expenditure
limits may increase after an acquisition.  However, if (i) the Rent
Adjusted Leverage Ratio at the end of a fiscal year is greater than 5.25 to
1.00, (ii) the “annual true cash flows” are insufficient to repay fully our
pre-funded revolving credit facility and (iii) the capital expenditure account
has a zero balance, our capital expenditures will be limited to $100,000,000 for
the succeeding fiscal year.  This limitation will remain until there
are no pre-funded revolving credit facility loans outstanding and the amount on
deposit in the capital expenditures account is greater than zero or until the
Rent Adjusted Leverage Ratio is less than 5.25 to 1.00.
 
 The
obligations under our senior secured credit facilities are guaranteed by each of
our current and future domestic 100% owned restricted subsidiaries in our
Outback Steakhouse, Carrabba’s Italian Grill and Cheeseburger in Paradise
concepts and certain non-restaurant subsidiaries (the “Guarantors”) and by OSI
HoldCo, our direct owner and an  indirect, wholly-owned subsidiary of
our Ultimate Parent.  Subject to the conditions described below, the
obligations are secured by a perfected security interest in substantially all of
our assets and assets of the Guarantors and OSI HoldCo, in each case, now owned
or later acquired, including a pledge of all of our capital stock, the capital
stock of substantially all of our domestic wholly-owned subsidiaries and 65% of
the capital stock of certain of our material foreign subsidiaries that are
directly owned by us, OSI HoldCo, or a Guarantor.  Also, we are
required to provide additional guarantees of the senior secured credit
facilities in the future from other domestic wholly-owned restricted
subsidiaries if the consolidated EBITDA (earnings before interest, taxes,
depreciation and amortization as defined in the senior secured credit
facilities) attributable to our non-guarantor domestic wholly-owned restricted
subsidiaries as a group exceeds 10% of our consolidated EBITDA as determined on
a Company-wide basis.  If this occurs, guarantees would be required
from additional domestic wholly-owned restricted subsidiaries in such number
that would be sufficient to lower the aggregate consolidated EBITDA of the
non-guarantor domestic wholly-owned restricted subsidiaries as a group to an
amount not in excess of 10% of our Company-wide consolidated
EBITDA.
  54
 Table of Contents
  OSI
Restaurant Partners, LLC
 MANAGEMENT'S
DISCUSSION AND ANALYSIS OF
 FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
 
 Liquidity
and Capital Resources (continued)
 
 CREDIT
FACILITIES AND OTHER INDEBTEDNESS (continued)
 
 On June
14, 2007, we issued senior notes in an original aggregate principal amount of
$550,000,000 under an indenture among us, as issuer, OSI Co-Issuer, Inc., as
co-issuer (“Co-Issuer”), Wells Fargo Bank, National Association, as trustee, and
the Guarantors.  Proceeds from the issuance of the senior notes were
used to finance the Merger, and the senior notes mature on June 15,
2015.  Interest is payable semiannually in arrears, at 10% per annum,
in cash on each June 15 and December 15, commencing on December 15,
2007.  Interest payments to the holders of record of the senior notes
occur on the immediately preceding June 1 and December 1.  Interest is
computed on the basis of a 360-day year consisting of twelve 30-day
months.
 
 The
senior notes are guaranteed on a senior unsecured basis by each restricted
subsidiary that guarantees the senior secured credit facility.  As of
March 31, 2009 and December 31, 2008, all of our consolidated subsidiaries were
restricted subsidiaries. The senior notes are general, unsecured senior
obligations of us, Co-Issuer and the Guarantors and are equal in right of
payment to all existing and future senior indebtedness, including the senior
secured credit facility.  The senior notes are effectively
subordinated to all of our, Co-Issuer’s and the Guarantors’ secured
indebtedness, including the senior secured credit facility, to the extent of the
value of the assets securing such indebtedness.  The senior notes are
senior in right of payment to all of our, Co-Issuer’s and the Guarantors’
existing and future subordinated indebtedness.
 
 The
indenture governing the senior notes limits, under certain circumstances, our
ability and the ability of Co-Issuer and our restricted subsidiaries to: incur
liens, make investments and loans, incur indebtedness or guarantees, engage in
mergers, acquisitions and assets sales, declare dividends, make payments or
redeem or repurchase equity interests, alter our business, engage in certain
transactions with affiliates, enter into agreements limiting subsidiary
distributions and prepay, redeem or purchase certain indebtedness.
 
 In
accordance with the terms of the senior notes and the senior secured credit
facility, our restricted subsidiaries are also subject to restrictive
covenants.  Under certain circumstances, we are permitted to designate
subsidiaries as unrestricted subsidiaries, which would cause them not to be
subject to the restrictive covenants of the indenture or the credit
agreement.  In April 2009, one of our restricted subsidiaries that
operated six restaurants in Canada was designated as an unrestricted
subsidiary.
 
 Additional
senior notes may be issued under the indenture from time to time, subject to
certain limitations.  Initial and additional senior notes issued under
the indenture will be treated as a single class for all purposes under the
indenture, including waivers, amendments, redemptions and offers to
purchase.
 
 We filed
a Registration Statement on Form S-4 (which became effective June 2, 2008) for
an exchange offer relating to our senior notes.  As a result, we are
required to file reports under Section 15(d) of the Securities Exchange Act of
1934, as amended.
 
 We may
redeem some or all of the senior notes on and after June 15, 2011 at the
redemption prices (expressed as percentages of principal amount of the senior
notes to be redeemed) listed below, plus accrued and unpaid interest thereon and
additional interest, if any, to the applicable redemption date.
 
 Year
              
              Percentage2011
              
              105.0%2012
              
              102.5%2013
      and thereafter
              
              100.0%
 55
 Table of Contents
  OSI
Restaurant Partners, LLC
 MANAGEMENT'S
DISCUSSION AND ANALYSIS OF
 FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
 
 Liquidity
and Capital Resources (continued)
 
 CREDIT
FACILITIES AND OTHER INDEBTEDNESS (continued)
 
 We also
may redeem all or part of the senior notes at any time prior to June 15, 2011,
at a redemption price equal to 100% of the principal amount of the senior notes
redeemed plus the applicable premium as of, and accrued and unpaid interest and
additional interest, if any, to the date of redemption.
 
 Upon a
change in control as defined in the indenture, we would be required to make an
offer to purchase all of the senior notes at a price in cash equal to 101% of
the aggregate principal amount thereof plus accrued interest and unpaid interest
and additional interest, if any, to the date of purchase.  If we were
required to make this offer, we may not have sufficient financial resources to
purchase all of the senior notes tendered and may be limited by our senior
secured facilities from doing so.  See “Risk Factors” in our 2008 10-K
for additional information.
 
 We may
from time to time seek to retire or purchase our outstanding debt through cash
purchases in open market purchases, privately negotiated transactions or
otherwise.  Such repurchases or exchanges, if any, will depend on
prevailing market conditions, our liquidity requirements, contractual
restrictions and other factors. The amounts involved may be
material.
 
 Between
November 18, 2008 and November 21, 2008, we purchased on the open market
and extinguished $61,780,000 in aggregate principal amount of our senior
notes for $11,711,000, representing an average of 19.0% of face value, and
$2,729,000 of accrued interest.
 
 On
February 18, 2009, we commenced a cash tender offer to purchase the maximum
aggregate principal amount of our senior notes that we could purchase for
$73,000,000, excluding accrued interest. The tender offer was made upon the
terms and subject to the conditions set forth in the Offer to Purchase dated
February 18, 2009, as amended March 5 and March 20, 2009, and the related Letter
of Transmittal.  The tender offer expired on March 20, 2009, and we
accepted for purchase $240,145,000 in principal amount of our senior
notes.  We paid $72,998,000 for the senior notes accepted for
purchase and $6,671,000 of accrued interest.  We recorded a gain
from the extinguishment of our debt of $158,061,000 in the line item “Gain on
extinguishment of debt” in our Consolidated Statement of Operations for the
three months ended March 31, 2009.  The gain was reduced by $6,117,000
for the pro rata portion of unamortized deferred financing fees that
related to the extinguished senior notes and by $2,969,000 of fees related to
the tender offer. The principal balance of senior notes outstanding at
March 31, 2009 and December 31, 2008 was $248,075,000 and $488,220,000,
respectively. The purpose of the tender offer was to reduce the principal
amount of debt outstanding, reduce the related debt service obligations and
improve our financial covenant position under our senior secured credit
facilities.  Annual interest expense will be reduced by approximately
$30,000,000 as a result of the extinguishment of our senior notes through our
open market purchases and our tender offer.
 
 We funded
the tender offer with (i) cash on hand and (ii) proceeds from a contribution
(the “Contribution”) of $47,000,000 from our direct owner, OSI
HoldCo.  The Contribution was funded through distributions to OSI
HoldCo by one of its subsidiaries that owns (indirectly through subsidiaries)
approximately 340 restaurant properties that are sub-leased to
us.
  56
 Table of Contents
  OSI
Restaurant Partners, LLC
 MANAGEMENT'S
DISCUSSION AND ANALYSIS OF
 FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
 
 Liquidity
and Capital Resources (continued)
 
 DEBT
GUARANTEES
 
 We were
the guarantor of an uncollateralized line of credit that matured December 31,
2008 and permitted borrowing of up to $35,000,000 by a limited liability
company, T-Bird, which is owned by the principal of each of our California
franchisees of Outback Steakhouse restaurants.  The line of credit
bore interest at rates ranging from 50 to 90 basis points over LIBOR. We
were required to consolidate T-Bird effective January 1, 2004 upon adoption of
FIN 46R.  At December 31, 2008, the outstanding balance on the line of
credit was approximately $33,283,000 and was included in our Consolidated
Balance Sheet.T-Bird used
proceeds from the line of credit for loans to its affiliates, T-Bird Loans, that
serve as general partners of 42 franchisee limited partnerships, which currently
own and operate 41 Outback Steakhouse restaurants. The funds were ultimately
used for the purchase of real estate and construction of buildings to be opened
as Outback Steakhouse restaurants and leased to the franchisees’ limited
partnerships.  According to the terms of the line of credit, T-Bird
was able to borrow, repay, re-borrow or prepay advances at any time before the
termination date of the agreement.
 
 On
January 12, 2009, we received notice that an event of default had occurred in
connection with the line of credit because T-Bird failed to pay the outstanding
balance of $33,283,000 due on the maturity date.  On February 17,
2009, we terminated our guarantee obligation by purchasing the note and all
related rights from the lender for $33,311,000, which included the principal
balance due on maturity and accrued and unpaid interest. In anticipation of
receiving a notice of default subsequent to the end of the year, we recorded a
$33,150,000 allowance for the T-Bird Loan receivables during the fourth quarter
of 2008. Since T-Bird defaulted on its line of credit, 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.  Therefore, on February 19, 2009, we filed suit against
T-Bird and its affiliates in Florida state court seeking, among other remedies,
to enforce the note and collect on the T-Bird Loans.
 
 On
February 20, 2009, T-Bird and certain of its affiliates filed suit against us
and certain of our officers and affiliates.  The suit claims, among
other things, that we made various misrepresentations and breached certain oral
promises allegedly made by us and certain of our officers to T-Bird and its
affiliates that we would acquire the restaurants owned by T-Bird and its
affiliates and until that time we would maintain financing for the restaurants
that would be nonrecourse to T-Bird and its affiliates.  The complaint
seeks damages in excess of $100,000,000, exemplary or punitive damages, and
other remedies.  We and the other defendants believe the suit is
without merit, and we intend to defend the suit vigorously.
 
 As a
result of the lawsuits described above, we had to make certain assumptions and
estimates in our consolidation of T-Bird at and for the three months ended March
31, 2009, as T-Bird did not provide us with financial statements for the first
quarter of 2009.  We are not aware of any events or transactions for
T-Bird that are not reflected in our consolidated financial statements at and
for the three months ended March 31, 2009 that would materially affect these
financial statements.
  57
 Table of Contents
  OSI
Restaurant Partners, LLC
 MANAGEMENT'S
DISCUSSION AND ANALYSIS OF
 FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
 
 Liquidity
and Capital Resources (continued)
 
 DEBT
GUARANTEES (continued)
 
 The
consolidated financial statements include the accounts and operations of our
Roy’s consolidated venture in which we have a less than majority ownership. We
consolidate this venture because we control the executive committee (which
functions as a board of directors) through representation on the board by
related parties, and we are able to direct or cause the direction of management
and operations on a day-to-day basis. Additionally, the majority of capital
contributions made by our partner in the Roy’s consolidated venture have been
funded by loans to the partner from a third party which we are required to
guarantee.  The guarantee provides us control through our collateral
interest in the joint venture partner’s membership interest. As a result of our
controlling financial interest in this venture, it is included in our
consolidated financial statements. The portion of income or loss attributable to
the noncontrolling interest is eliminated in the line item in our Consolidated
Statements of Operations entitled “Net income attributable to the noncontrolling
interest.” All material intercompany balances and transactions have been
eliminated.
 
 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, in the
development of Roy's restaurants. The line of credit originally expired in
December 2004 and was amended for a fourth time on April 1, 2009 to a revised
termination date of April 15, 2013. 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 March 31, 2009 and December 31, 2008, the
outstanding balance on the line of credit was $24,500,000.
 
 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, then the total outstanding balance, including any accrued interest,
is immediately due from the guarantors.  As of March 31, 2009, we have made
interest payments, paid line of credit renewal fees and have made capital
expenditures for additional restaurant development on behalf of RY-8 totaling
approximately $4,622,000 because the joint venture partner’s $24,500,000 line of
credit was fully extended. Additional payments on behalf of RY-8 for these items
may be required in the future.  We recorded a long-term contingent
obligation and a loss from this guarantee of $24,500,000 in our
consolidated financial statements at and for the three months ended March 31,
2009.  At March 31, 2009 and December 31, 2008, $24,500,000 of our
$150,000,000 working capital revolving credit facility was committed for the
issuance of a letter of credit for this guarantee.
 
 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 our
favor. 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.
 
 Pursuant
to our joint venture agreement for the development of Roy’s restaurants, RY-8,
our joint venture partner, has the right to require us to purchase up to 25% of
RY-8’s interests in the joint venture at any time after June 17, 2004 and up to
another 25% (total 50%) of its interest in the joint venture at any time after
June 17, 2009.  Our purchase price would be equal to the fair market
value of the joint venture as of the date that RY-8 exercised its put option
multiplied by the percentage purchased.
  58
 Table of Contents
  OSI
Restaurant Partners, LLC
 MANAGEMENT'S
DISCUSSION AND ANALYSIS OF
 FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
 
 Liquidity
and Capital Resources (continued)
 
 DEBT
GUARANTEES (continued)
 
 Our
Korean subsidiary is the guarantor of debt owed by landlords of two of our
Outback Steakhouse restaurants in Korea.  We are obligated to purchase
the building units occupied by our two restaurants in the event of default by
the landlords on their debt obligations, which were approximately $1,000,000 and
$1,100,000 as of March 31, 2009 $1,100,000 and $1,200,000 as of December 31,
2008.  Under the terms of the guarantees, our monthly rent payments
are deposited with the lender to pay the landlords’ interest payments on the
outstanding balances.  The guarantees are in effect until the earlier
of the date the principal is repaid or the entire lease term of ten years for
both restaurants, which expire in 2014 and 2016.  The guarantees
specify that upon default the purchase price would be a maximum of 130% of the
landlord’s outstanding debt for one restaurant and the estimated legal auction
price for the other restaurant, approximately $1,300,000 and $1,600,000,
respectively, as of March 31, 2009 and approximately $1,400,000 and $1,700,000,
respectively, as of December 31, 2008.  If we were required to perform
under either guarantee, we would obtain full title to the corresponding building
unit and could liquidate the property, each having an estimated fair value of
approximately $2,100,000 and $1,900,000, respectively, as of March 31, 2009 and
approximately $2,300,000 and $2,100,000, respectively, as of December 31,
2008.  We have considered these guarantees and accounted for them in
accordance with FASB Interpretation No. 45, “Guarantor's Accounting and
Disclosure Requirements for Guarantees, Including Indirect Guarantees of
Indebtedness of Others” (“FIN 45”).  We have various depository and
banking relationships with the lender.
 
 We are
not aware of any non-compliance with the underlying terms of the borrowing
agreements for which we currently provide a guarantee that would result in us
having to perform in accordance with the terms of the guarantee.
 
 FAIR
VALUE MEASUREMENTS
 
 SFAS No.
157, “Fair Value Measurements” (“SFAS No. 157”), emphasizes that fair value is a
market-based measurement, not an entity-specific measurement.  As
defined in SFAS No. 157, fair value is the price that would be received to
sell an asset or paid to transfer a liability in an orderly transaction between
market participants at the measurement date (exit price). To measure fair value,
we incorporate assumptions that market participants would use in pricing the
asset or liability, and utilize market data to the maximum extent possible. In
accordance with SFAS No. 157, measurement of fair value incorporates
nonperformance risk (i.e., the risk that an obligation will not be fulfilled).
In measuring fair value, we reflect the impact of our own credit risk on our
liabilities, as well as any collateral. We also consider the credit standing of
our counterparties in measuring the fair value of our assets.
 
 We are
highly leveraged and exposed to interest rate risk to the extent of our
variable-rate debt.  In September 2007, we entered into an interest
rate collar with a notional amount of $1,000,000,000 as a method to limit the
variability of our $1,310,000,000 variable-rate term loan.   The
collar consists of a LIBOR cap of 5.75% and a LIBOR floor of 2.99%.  The
collar’s first variable-rate set date was December 31, 2007, and the option
pairs expire at the end of each calendar quarter beginning March 31, 2008 and
ending September 30, 2010.   The quarterly expiration dates correspond
to the scheduled amortization payments of our term loan.  We paid
$3,834,000 of interest expense for the three months ended March 31, 2009 as a
result of the quarterly expiration of the collar’s option pairs.  We
record marked-to-market changes in the fair value of the derivative instrument
in earnings in the period of change in accordance with SFAS No. 133, “Accounting
for Derivative Instruments and Hedging Activities,” (“SFAS No.
133”).  We included $23,598,000 and $24,285,000 in the line item
“Accrued expenses” in our Consolidated Balance Sheets as of March 31, 2009 and
December 31, 2008, respectively, and included $687,000 of net interest income
and $10,848,000 of net interest expense for the three months ended March 31,
2009 and 2008, respectively, in the line item “Interest expense” in our
Consolidated Statement of Operations for the mark-to-market effects of this
derivative instrument.  A SFAS No. 157 credit valuation adjustment of
$2,939,000 and $4,529,000 decreased the liability recorded as of March 31, 2009
and December 31, 2008.
  59
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  OSI
Restaurant Partners, LLC
 MANAGEMENT'S
DISCUSSION AND ANALYSIS OF
 FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
 
 Liquidity
and Capital Resources (continued)
 
 FAIR
VALUE MEASUREMENTS (continued)
 
 The valuation of our
interest rate collar is based on a discountedcash flow analysis of the
expected cash flows of the derivative.  This analysis reflects the
contractual terms of the collar, including the period to maturity, and uses
observable market-based inputs, including interest rate curves and implied
volatilities.
 
 Although
we have determined that the majority of the inputs used to value our interest
rate collar fall within Level 2 of the fair value hierarchy, the credit
valuation adjustments associated with this derivative utilize Level 3 inputs,
such as estimates of current credit spreads to evaluate the likelihood of
default by us and our counterparties.  However, as of March 31, 2009,
we have assessed the significance of the impact of the credit valuation
adjustments on the overall valuation of our interest rate collar derivative
positions and have determined that the credit valuation adjustments are not
significant to the overall valuation of this derivative.  As a result,
we have determined that our interest rate collar derivative valuations in their
entirety are classified in Level 2 of the fair value hierarchy.
 
 Additionally,
our restaurants are dependent upon energy to operate and are affected by changes
in energy prices, including natural gas.  We use derivative
instruments to mitigate some of our overall exposure to material increases in
natural gas prices.  The valuation of our natural gas derivatives is
based on quoted exchange prices and is classified in Level 2 of the fair value
hierarchy.
 
 Our third
party distributor charges us for the diesel fuel used to deliver inventory to
our restaurants.   We enter into forward contracts to procure
certain amounts of this diesel fuel at set prices in order to mitigate our
exposure to unpredictable fuel prices.  The effects of this derivative
instrument were immaterial to our financial statements for all periods
presented.
 
 We investourexcess cash in money
market fundsclassified as Cash and cash equivalents or restricted cash
in our Consolidated Balance Sheet at March 31, 2009 at a net value of 1:1 for
each dollar invested.  The fair value of the majority of the
investment in the money market fund is determined by using quotes for similar
assets in an active market.  As a result, we have determined that the
majority of the inputs used to value this investment fall within Level 2 of the
fair value hierarchy.  As of March 31, 2009, $29,963,000 of our money
market investments were guaranteed by the federal government under the Treasury
Temporary Guarantee Program for Money Market Funds.  This program
expires on September 18, 2009.
 
 In
accordance with SFAS No. 144, we recorded $5,130,000 of impairment charges as a
result of the fair value measurement of our long-lived assets held and used on a
nonrecurring basis during the three months ended March 31, 2009.
 
 We used a
discounted cash flow model to estimate the fair value of these long-lived assets
at March 31, 2009.  Discount rate and growth rate assumptions are
derived from current economic conditions, expectations of management and
projected trends of current operating results. As a result,we havedeterminedthat
the majority of the inputs used to value ourlong-lived assets held and
usedare
unobservable inputs that fall within Level
3of the fair
value hierarchy.
  60
 Table of Contents
  OSI
Restaurant Partners, LLC
 MANAGEMENT'S
DISCUSSION AND ANALYSIS OF
 FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
 
 Liquidity
and Capital Resources (continued)
 
 STOCK-BASED
AND DEFERRED COMPENSATION PLANS
 
 Under our
general manager partner program, upon completion of each five-year term of
employment, our general manager and chef partners are eligible to participate in
a deferred compensation program (the Partner Equity Plan or “PEP”). We will
require the use of capital to fund the PEP as each general manager and chef
partner earns a contribution and currently estimate funding requirements ranging
from $15,000,000 to $20,000,000 in each of the next two years of the plan.
Future funding requirements may vary significantly depending on timing of
partner contracts, forfeiture rates and numbers of partner participants and may
differ materially from estimates.
 
 Upon the
closing of the Merger, certain stock options that had been granted to managing
partners and chef partners under a pre-merger managing partner stock plan (the
“MP Stock Plan”) upon completion of a previous employment contract and at the
beginning of an employment agreement were converted into the right to receive
cash in the form of a “Supplemental PEP” contribution and a “Supplemental Cash”
payment, respectively.
 
 Upon the
closing of the Merger, all outstanding, unvested partner employment grants of
restricted stock under the MP Stock Plan were converted into the right to
receive cash on a deferred basis. Additionally, certain members of management
were given the option to either convert some or all of their restricted stock
granted under the pre-merger stock plan in the same manner as managing partners
or convert some or all of it into restricted stock of KHI.  Grants of
restricted stock under the pre-merger stock plan that converted into the right
to receive cash are referred to as “Restricted Stock
Contributions.”
 
 As of
March 31, 2009, our total liability with respect to obligations under the PEP,
Supplemental PEP, Supplemental Cash and Restricted Stock Contributions was
approximately $83,541,000, of which approximately $12,304,000 and $71,237,000
was included in the line items “Accrued expenses” and “Other long-term
liabilities,” respectively, in our Consolidated Balance Sheet.  As of
December 31, 2008, our total liability with respect to obligations under the
PEP, Supplemental PEP, Supplemental Cash and Restricted Stock Contributions was
approximately $83,858,000, of which approximately $13,302,000 and $70,556,000
was included in the line items “Accrued expenses” and “Other long-term
liabilities,” respectively, in our Consolidated Balance
Sheet.  Partners and management may allocate the contributions into
benchmark investment funds, and these amounts due to participants will fluctuate
according to the performance of their allocated investments and may differ
materially from the initial contribution and current obligation.
 
 As of
March 31, 2009 and December 31, 2008, we had approximately $57,767,000 and
$59,086,000, respectively, in various corporate owned life insurance policies
and another $290,000 and $2,579,000, respectively, of restricted cash, both of
which are held within an irrevocable grantor or “rabbi” trust account for
settlement of our obligations under the PEP, Supplemental PEP and Restricted
Stock Contributions. We are the sole owner of any assets within the rabbi trust
and participants are considered our general creditors with respect to assets
within the rabbi trust.
 
 Certain
partners participating in the PEP were to receive common stock (“Partner
Shares”) upon completion of their employment contract.  Upon closing
of the Merger, these partners now receive a deferred payment of cash instead of
common stock upon completion of their current employment
term.  Partners will not receive the deferred cash payment if they
resign or are terminated for cause prior to completing their current employment
terms.  There will not be any future earnings or losses on these
amounts prior to payment to the partners.  The amount accrued for the
Partner Shares obligation is $4,909,000 and $4,587,000 as of March 31, 2009 and
December 31, 2008, respectively, and is included in the line item “Other
long-term liabilities” in our Consolidated Balance Sheets.
 
 As of
March 31, 2009 and December 31, 2008, there is approximately $31,792,000 and
$28,501,000, respectively, of unfunded obligations related to the aforementioned
contribution liabilities that may require the use of future cash
resources.
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  OSI
Restaurant Partners, LLC
 MANAGEMENT'S
DISCUSSION AND ANALYSIS OF
 FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
 
 Liquidity
and Capital Resources (continued)
 
 STOCK-BASED
AND DEFERRED COMPENSATION PLANS (continued)
 
 In
November 2008, we announced a plan to accelerate the distribution of PEP and
Supplemental PEP benefits to certain active participants.  Under the
revised PEP, active general managers and chef partners who complete an
employment contract on or after January 1, 2009 and who remain employed with us
until their PEP accounts are fully distributed will receive their PEP
distributions according to the following schedule:
 
 ·
              One
      year through four years after completion of employment contract – each
      year, lesser of $10,000 or remaining account
  balance;
 ·
              Five
      years through six years after completion of employment contract – each
      year, lesser of $20,000 or remaining account balance;
  and
 ·
              Seven
      years after completion of employment contract, participants will receive
      their entire remaining account balance.
 
 General
managers and chef partners who complete an employment contract on or after
January 1, 2009 and who do not remain employed with us until their PEP accounts
are fully distributed will receive their entire PEP account balance in the
seventh year after completion of their employment contract.  Their PEP
account balance will be determined as of the date of termination of employment,
subject to any subsequent increases or decreases based on the performance of
their investment elections.
 
 DIVIDENDS
 
 Payment
of dividends is prohibited under our credit agreements, except for certain
limited circumstances.
 
 Recently
Issued Financial Accounting Standards
 
 In
September 2006, the FASB issued SFAS No. 157, “Fair Value Measurements” (“SFAS
No. 157”), which defines fair value, establishes a framework for measuring fair
value and expands the related disclosure requirements.  The provisions
of SFAS No. 157 are effective for fiscal years beginning after November 15, 2007
for financial assets and liabilities or for nonfinancial assets and liabilities
that are re-measured at least annually.  In February 2008, the FASB
issued FASB Staff Position (“FSP”) SFAS No. 157-2, “Effective Date of FASB
Statement No. 157” to defer the effective date for nonfinancial assets and
liabilities that are recognized or disclosed at fair value in the financial
statements on a non-recurring basis until fiscal years beginning after November
15, 2008. Beginning January 1, 2009, we applied SFAS No. 157 to
nonfinancial assets and liabilities that are recognized or disclosed at fair
value on a nonrecurring basis.  The adoption of SFAS No. 157 did not
have a material impact on our consolidated financial statements.
 
 In
October 2008, the FASB issued FSP SFAS No. 157-3, “Determining the Fair Value of
a Financial Asset When the Market for That Asset Is Not Active,” which clarifies
the application of SFAS No. 157 in a market that is not active and provides
guidance for determining the fair value of a financial asset when the market for
that financial asset is not active.  This FSP was effective upon
issuance, but it did not impact our consolidated financial
statements.  In April 2009, the FASB issued FSP SFAS No. 157-4,
“Determining Fair Value When the Volume and Level of Activity for the Asset or
Liability Have Significantly Decreased and Identifying Transactions That Are Not
Orderly” (“FSP SFAS No. 157-4”).  FSP SFAS No. 157-4 provides
additional guidance on measuring fair value when there has been a significant
decrease in the volume and level of activity for an asset or liability, and for
identifying transactions that are not orderly.  The guidance for FSP
SFAS No. 157-4 also emphasizes that the objective of a fair value measurement
will remain in accordance with SFAS No. 157’s provisions, even when there has
been a significant decrease in market activity and regardless of the valuation
technique used.   FSP SFAS No. 157-4 is effective for interim and
annual reporting periods ending after June 15, 2009.  We do not expect
FSP SFAS No. 157-4 to materially affect our consolidated financial
statements.
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  OSI
Restaurant Partners, LLC
 MANAGEMENT'S
DISCUSSION AND ANALYSIS OF
 FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
 
 Recently
Issued Financial Accounting Standards (continued)
 
 In
December 2007, the FASB issued SFAS No. 141 (Revised), “Business Combinations”
(“SFAS No. 141R”), a revision of SFAS No. 141.  SFAS No. 141R retains
the fundamental requirements of SFAS No. 141, but revises certain elements
including: the recognition and fair value measurement as of the acquisition date
of assets acquired and liabilities assumed, the accounting for goodwill and
financial statement disclosures.  In April 2009, the FASB issued FSP
SFAS No. 141(R)-1, “Accounting for Assets Acquired and Liabilities Assumed in a
Business Combination That Arise from Contingencies” (“FSP SFAS No. 141(R)-1”),
which amends and clarifies the provisions in SFAS No. 141R relating to the
initial recognition and measurement, subsequent measurement and accounting, and
disclosures for assets and liabilities arising from contingencies in business
combinations.  The provisions of FSP SFAS No. 141(R)-1 are effective
for contingent assets and contingent liabilities acquired in business
combinations for which the acquisition date is on or after the beginning of the
first annual reporting period beginning on or after December 15,
2008.  The adoption of SFAS No. 141R and FSP SFAS No. 141(R)-1 on
January 1, 2009 did not have an effect on our consolidated financial statements,
as we did not engage in any business combinations during the three months ended
March 31, 2009.  SFAS No. 141R and FSP SFAS No. 141(R)-1 will only
impact our accounting should we acquire any businesses in the
future.
 
 In
December 2007, the FASB issued SFAS No. 160, “Noncontrolling Interests in
Consolidated Financial Statements – Including an Amendment of ARB No. 51” (“SFAS
No. 160”).  SFAS No. 160 modifies the presentation of noncontrolling
interests in the consolidated balance sheet and the consolidated statement of
operations.  It requires noncontrolling interests to be clearly
identified, labeled and included separately from the parent’s equity (deficit)
and consolidated net income (loss).  The presentation and disclosure
requirements of SFAS No. 160 have been applied retrospectively.  Other
than the change in presentation of noncontrolling interests, the adoption of
SFAS No. 160 on January 1, 2009 did not have a material impact on our
consolidated financial statements.
 
 In March
2008, the FASB issued SFAS No. 161, “Disclosures about Derivative Instruments
and Hedging Activities” (“SFAS No. 161”), an amendment of SFAS No. 133. SFAS No.
161 is intended to enable investors to better understand how derivative
instruments and hedging activities affect the entity’s financial position,
financial performance and cash flows by enhancing disclosures.  SFAS
No. 161 requires disclosure of fair values of derivative instruments and their
gains and losses in a tabular format, disclosure of derivative features that are
credit-risk-related to provide information about the entity’s liquidity and
cross-referencing within the footnotes to help financial statement users locate
important information about derivative instruments.  The adoption of
SFAS No. 161 on January 1, 2009 did not have a material impact on our
consolidated financial statements.
 
 In April
2008, the FASB issued FSP SFAS No. 142-3, “Determination of the Useful Life of
Intangible Assets” (“FSP SFAS No. 142-3”).  FSP SFAS No. 142-3 amends
the factors an entity should consider when developing renewal or extension
assumptions for determining the useful life of recognized intangible assets
under SFAS No. 142, “Goodwill and Other Intangible Assets.”  FSP SFAS
No. 142-3 is intended to improve the consistency between the useful life of
recognized intangible assets under SFAS No. 142 and the period of expected cash
flows used to measure the fair value of assets under SFAS No. 141R and other
U.S. GAAP. The adoption of FSP SFAS No. 142-3 on January 1, 2009 did not
have a material impact on our consolidated financial
statements.
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  OSI
Restaurant Partners, LLC
 MANAGEMENT'S
DISCUSSION AND ANALYSIS OF
 FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
 
 Recently
Issued Financial Accounting Standards (continued)
 
 In
November 2008, the FASB ratified the consensus on EITF Issue No. 08-6, “Equity
Method Investment Accounting Considerations” (“EITF No. 08-6”), which provides
guidance on and clarification of accounting and impairment considerations
involving equity method investments under SFAS No. 141R and SFAS No.
160.  EITF No. 08-6 provides guidance on how the equity method
investor should initially measure the equity method investment, account for
impairment charges of the equity method investment and account for a share
issuance by the investee.  The adoption of EITF No. 08-6 on January 1,
2009 did not have a material impact on our consolidated financial
statements.
 
 In April
2009, the FASB issued FSP SFAS No. 107-1 and Accounting Principles Board (“APB”)
Opinion No. 28-1, “Interim Disclosures about Fair Value of Financial
Instruments” (“FSP SFAS No. 107-1 and APB Opinion No. 28-1”).  FSP
SFAS No. 107-1 and APB Opinion No. 28-1 amends SFAS No. 107, “Disclosures about
Fair Value of Financial Instruments” and APB Opinion No. 28, “Interim Financial
Reporting,” to require disclosures about fair value of financial instruments for
interim reporting periods.  The provisions of FSP SFAS No. 107-1 and
APB Opinion No. 28-1 are effective for interim reporting periods ending after
June 15, 2009.  We do not expect FSP SFAS No. 107-1 and APB Opinion
No. 28-1 to materially affect our consolidated financial
statements.
 
 Cautionary
Statement
 
 This
Quarterly Report on Form 10-Q contains forward-looking statements within the
meaning of Section 27A of the Securities Exchange Act of 1933, as amended, and
Section 21E of the Securities Exchange Act of 1934, as amended. Forward-looking
statements represent OSI Restaurant Partners, LLC’s expectations or beliefs
concerning future events, including the following: any statements regarding
future sales, costs and expenses and gross profit percentages, any statements
regarding the continuation of historical trends, any statements regarding the
expected number of future restaurant openings and expected capital expenditures
and any statements regarding the sufficiency of our cash balances and cash
generated from operating and financing activities for future liquidity and
capital resource needs. Without limiting the foregoing, the words “believes,”
“anticipates,” “plans,” “expects,” “should,” “estimates” and similar expressions
are intended to identify forward-looking statements.
 
 Our
actual results could differ materially from those stated or implied in the
forward-looking statements included elsewhere in this report as a result, among
other things, of the following:
 
 (i)
              
              Our
      substantial leverage and significant restrictive covenants in our various
      credit facilities could adversely affect our ability to raise additional
      capital to fund our operations, limit our ability to make capital
      expenditures to invest in new restaurants, limit our ability to react to
      changes in the economy or our industry, expose us to interest rate risk to
      the extent of our variable-rate debt and prevent us from meeting our
      obligations under the senior notes;(ii)
              
              The
      ongoing disruptions in the financial markets and the state of the economy
      may affect our liquidity by adversely impacting numerous items that
      include, but are not limited to: consumer confidence and spending
      patterns; the availability of credit presently arranged from our revolving
      credit facilities; the future cost and availability of credit; interest
      rates; foreign currency exchange rates; and the liquidity or operations of
      our third-party vendors and other service providers;(iii)
              
              The
      restaurant industry is a highly competitive industry with many
      well-established competitors;(iv)
              
              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 and our ability to effectively respond in a timely manner
      to changes in traffic patterns; changes in consumer dietary habits;
      employee availability; the cost of advertising and media; government
      actions and policies; inflation; interest rates; exchange rates; and
      increases in various costs, including construction and real estate
      costs;
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  OSI
Restaurant Partners, LLC
 MANAGEMENT'S
DISCUSSION AND ANALYSIS OF
 FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
 
 Cautionary
Statement (continued)
 (v)
              
              Our
      results can be affected by consumer reaction to public health issues such
      as an outbreak of H1N1 flu (swine flu);(vi)
              
              Our
      results can be affected by consumer perception of food
safety;(vii)
              
              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;
      the ability to recruit and train skilled management and restaurant
      employees; and the ability to receive the premises from the landlord’s
      developer without any delays;(viii)
              
              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;
 
 (ix)
              
              Commodities,
      including but not limited to, such items as beef, chicken, shrimp, pork,
      seafood, dairy, potatoes, onions and energy supplies, are subject to
      fluctuation in price and availability and price could increase or decrease
      more than we expect;(x)
              
              Minimum
      wage increases could cause a significant increase in our labor costs;
      and/or(xi)
              
              Our
      results can be impacted by tax and other legislation and regulation in the
      jurisdictions in which we operate and by accounting standards or
      pronouncements.
 65
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  OSI
Restaurant Partners, LLC
 
 Item3.  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.  We
have not experienced a material change in market risk from changes in interest
rates on debt, changes in foreign currency exchange rates and changes in
commodity prices since December 31, 2008.  See “Quantitative and
Qualitative Disclosures about Market Risk” in our Annual Report on Form 10-K for
the year ended December 31, 2008 filed with the Securities and Exchange
Commission on March 31, 2009 for further information about market
risk.
 
 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 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 Securities and Exchange
Commission’s  rules and forms, and that such information is
accumulated and communicated to our management, including our Chief Executive
Officer and Chief Financial 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 Chief Financial Officer, of the effectiveness 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 Chief
Financial Officer concluded that our disclosure controls and procedures were
effective as of March 31, 2009.
 
 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 March 31, 2009 that have materially affected, or are
reasonably likely to materially affect, our internal control over financial
reporting.
  66
 Table of Contents
  OSI RestaurantPartners, LLC
 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, which arise in the ordinary course of
business and are generally covered by insurance. In the opinion of management,
the amount of 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. In addition, we are subject to the following legal proceedings and
actions, which depending on the outcomes that are uncertain at this time, could
have a material adverse effect on our financial condition.
 
 Outback
Steakhouse of Florida, Inc. and OS Restaurant Services, Inc. are the defendants
in a class action lawsuit brought by the U.S. Equal Employment Opportunity
Commission (EEOC v. Outback Steakhouse of Florida, Inc. and OS Restaurant
Services, Inc., U.S. District Court, District of Colorado, filed September 28,
2006) alleging that they have engaged in a pattern or practice of discrimination
against women on the basis of their gender with respect to hiring and promoting
into management positions as well as discrimination against women in terms and
condition of their employment and seeks damages and injunctive relief.  In
addition to the EEOC, two former employees have successfully intervened as party
plaintiffs in the case. On November 3, 2007, the EEOC’s nationwide claim of
gender discrimination was dismissed and the scope of the suit was limited to the
states of Colorado, Wyoming and Montana. However, we expect the EEOC to pursue
claims of gender discrimination against us on a nationwide basis through other
proceedings. Litigation is, by its nature, uncertain both as to time and expense
involved and as to the final outcome of such matters. While we intend to
vigorously defend ourselves in this lawsuit, protracted litigation or
unfavorable resolution of this lawsuit could have a material adverse effect on
our business, results of operations or financial condition and could damage our
reputation with our employees and our customers.
 
 On
February 21, 2008, a purported class action complaint captioned Ervin, et al. v.
OS Restaurant Services, Inc. was filed in the U.S. District Court, Northern
District of Illinois. This lawsuit alleges violations of state and federal wage
and hour law in connection with tipped employees and overtime compensation and
seeks relief in the form of unspecified back pay and attorney fees. It alleges a
class action under state law and a collective action under federal law. While we
intend to vigorously defend ourselves, it is not possible at this time to
reasonably estimate the possible loss or range of loss, if any.
 
 In March
2008, one of our subsidiaries received a notice of proposed assessment of
employment taxes from the Internal Revenue Service (“IRS”) for calendar years
2004 through 2006. The IRS asserts that certain cash distributions paid to our
general manager partners, chef partners, and area operating partners who hold
partnership interests in limited partnerships with our affiliates should have
been treated as wages and subjected to employment taxes. We believe that we have
complied and continue to comply with the law pertaining to the proper federal
tax treatment of partner distributions. In May 2008, we filed a protest of the
proposed employment tax assessment. Because we are at a preliminary stage of the
administrative process for resolving disputes with the IRS, we cannot, at this
time, reasonably estimate the amount, if any, of additional employment taxes or
other interest, penalties or additions to tax that would ultimately be assessed
at the conclusion of this process. If the IRS examiner’s position were to be
sustained, the additional employment taxes and other amounts that would be
assessed would be material.
 
 On
December 29, 2008, American Restaurants, Inc. (“AR”) filed a Petition with the
United States District Court for the Southern District of Florida, captioned
American Restaurants, Inc. v. Outback Steakhouse Int’l, L.P., seeking
confirmation of a purported November 26, 2008 arbitration award against Outback
Steakhouse International, L.P. (“Outback International”), our indirect
wholly-owned subsidiary, in the amount of $97,997,450, plus interest from August
7, 2006.   The dispute that led to the purported award involved
Outback International’s alleged wrongful termination in 1998 of a Restaurant
Franchise Agreement (the “Agreement”) entered into in 1996 concerning one
restaurant in Argentina.  On February 20, 2009, Outback International
filed its Opposition to AR’s Petition.
 
 Outback
International believes that the purported arbitration award resulted from a
process that materially violated the terms of the Agreement, and that the
arbitrator who issued the purported award violated Outback International’s
rights to due process.  Outback International intends to contest
vigorously the validity and enforceability of the purported arbitration
award in the courts of both the United States and
Argentina.
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  OSI
Restaurant Partners, LLC
 PART
II:  OTHER INFORMATION
 
 Item
1. Legal Proceedings (continued)
 
 On
December 9, 2008, in accordance with the procedure provided under Argentine law,
Outback International filed with the arbitrator a motion seeking leave to file
an appeal to nullify the purported award.   On February 27, 2009,
the arbitrator denied Outback International’s motion.  On March 16,
2009, Outback International filed a direct appeal with the Argentine Commercial
Court of Appeals challenging the arbitrator’s decision to deny Outback
International’s request to file an appeal.  Outback International has
requested that the court declare that enforcement of the award is suspended
during the pendency of the appeal.
 
 Based in
part on legal opinions Outback International has received from Argentine
counsel, we do not expect the arbitration award or the petition seeking its
confirmation to have a material adverse effect on our results of operations,
financial condition or cash flows.  However, litigation is inherently
uncertain and the ultimate resolution of this matter cannot be
guaranteed.
 
 On
February 19, 2009, we filed an action in the Circuit Court for the Thirteenth
Judicial District of Florida in Hillsborough County against T-Bird
Nevada, LLC (“T-Bird”) and its affiliates.  T-Bird is a limited
liability company that is owned by the principal of the franchisee of each of
the California Outback Steakhouse restaurants.  The action seeks
payment on a promissory note made by T-Bird that we purchased from T-Bird’s
former lender.  The principal balance on the promissory note, plus
accrued and unpaid interest, is approximately $33,000,000.  The action
seeks, among other remedies, to enforce the note.  See “Debt
Guarantees” included in “Management’s Discussion and Analysis of Financial
Condition and Results of Operations” for further discussion.
 
 On
February 20, 2009, T-Bird and certain of its affiliates filed suit against us
and certain of our officers and affiliates in the Superior Court of the State of
California, County of Los Angeles.  The suit claims, among other things,
that we made various misrepresentations and breached certain oral promises
allegedly made by us and certain of our officers to T-Bird and its affiliates
that we would acquire the restaurants owned by T-Bird and its affiliates and
until that time we would maintain financing for the restaurants that would be
nonrecourse to T-Bird and its affiliates.  The complaint seeks damages in
excess of $100,000,000, exemplary or punitive damages, and other remedies. 
We and the other defendants believe the suit is without merit, and we intend to
defend the suit vigorously.
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  OSI RestaurantPartners, LLC
 PART
II:  OTHER INFORMATION
 
 Item
6.  Exhibits
 
 Number
              
              Description31.1
              
              Certification
      of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley
      Act of 200231.2
              
              Certification
      of Chief Financial 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 Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted
      pursuant to Section 906 of the Sarbanes-Oxley Act of 20021
 
 1 These
certifications are not deemed to be “filed” for purposes of Section 18 of the
Exchange Act, or otherwise subject to the liability of that section. These
certifications will not be deemed to be incorporated by reference into any
filing under the Securities Act or the Exchange Act, except to the extent that
the registrant specifically incorporates them by reference.
 
 The
registrant hereby undertakes to furnish supplementally a copy of any omitted
schedule or other attachment to the Securities and Exchange Commission upon
request.
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  SIGNATURE
 
 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:
      May 15, 2009
              
              OSI
      RESTAURANT PARTNERS, LLCBy:  /s/ Dirk A.
      MontgomeryDirk
      A. Montgomery
                Senior
      Vice President and Chief Financial Officer
                (Principal
      Financial and Accounting Officer)







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