**UNITED
      STATES**


**SECURITIES
      AND EXCHANGE COMMISSION**


**Washington,
      D.C. 20549**





**FORM
      10-Q/A**


**(Amendment
      No. 1)**





**(Mark
                One)**[X]
            **Quarterly
                Report Pursuant to Section 13 or 15(d) of the Securities Exchange
                Act of
                1934**For
                the quarterly period ended**June
                30, 2006**or[
                ]
            **Transition
                Report Pursuant to Section 13 or 15(d) of the Securities Exchange
                Act of
                1934**For
                the transition period from ______ to
                ______





Commission
      File Number: 1-15935




**OSI
      RESTAURANT PARTNERS, INC.**


(Exact
      name of registrant as specified in its charter)




**DELAWARE**
            **59-3061413**(State
                or other jurisdiction of
              incorporation
                or organization)
            (I.R.S.
                Employer
              Identification
                No.)


**2202
      North West Shore Boulevard, Suite 500, Tampa, Florida
      33607**


(Address
      of principal executive offices) (Zip Code)





**(813)
      282-1225**


(Registrant's
      telephone number, including area code)





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





Large
      accelerated filer x  Accelerated
      filer o  Non-accelerated
      filer 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
      August 7, 2006, the registrant had outstanding 74,435,210 shares of Common
      Stock, $.01 par value.  Table
            of Contents





**EXPLANATORY
      NOTE**





We
      are
      filing this Amendment No. 1 on Form 10-Q/A to restate the unaudited consolidated
      financial statements of OSI Restaurant Partners, Inc. (“the Company”) for the
      quarters ended June 30, 2006 and 2005 and to revise certain disclosures. We
      also
      filed an Amendment No. 1 to our Annual Report on Form 10-K/A to
      restate the audited consolidated financial statements of the Company for the
      fiscal year ended December 31, 2005.





The
      Items
      of the Company’s Quarterly Report on Form 10-Q/A as of and for the quarters
      ended June 30, 2006 and 2005 that are amended and restated are as follows:
      Item 1 - Consolidated Financial Statements; Item 2 - Management’s
      Discussion and Analysis of Financial Condition and Results of Operations; and
      Item 4 - Controls and Procedures.





**Restatement
      of Previously Issued Consolidated Financial Statements**





In
      October 2006, we identified errors in our accounting for unearned revenue for
      unredeemed gift cards and certificates.  Upon completion of the review of
      accounting policies for gift cards and certificates as well as a review of
      certain other balance sheet accounts, we have restated our consolidated
      financial statements for certain prior periods to correct these and other
      errors, as described in this section.





*Unearned
      revenue and revenue recognition*


Unearned
      revenue represents our liability for gift cards and certificates that have
      been
      sold but not yet redeemed.  Historically, we recognized revenue for
      estimates of gift cards and certificates that will not be redeemed (“breakage”)
      at the time of the sale of the gift cards and certificates.  We have
      determined that the methodology we used to arrive at breakage was inappropriate
      and resulted in understatement of the liability for gift cards and certificates.
      We have also determined that revenue should not be recognized at the time of
      sale of the gift cards and certificates. Accordingly, we have adopted a policy
      to recognize breakage for those gift cards and certificates that will never
      be
      redeemed at the time at which their redemption becomes remote. Furthermore,
      certain expenses associated with gift card and certificate promotions were
      incorrectly netted against breakage income rather than reflected as expenses
      in
      our financial statements. Correction of these errors in our consolidated
      financial statements resulted in an increase in unearned revenue of $64,921,000
      and $60,337,000 as of June 30, 2006 and December 31, 2005, respectively, an
      increase in net income of $168,000 and $243,000 for the three and six months
      ended June 30, 2006 and a decrease in net income of $399,000 and $722,000 for
      the three and six months ended June 30, 2005. It also resulted in a $37,548,000
      decrease in retained earnings as of December 31, 2004.





*Minority
      interests in consolidated entities*


We
      have
      identified errors in the recorded amount of our minority interests in certain
      of
      our Carrabba’s Italian Grill subsidiaries, which were understated as a result of
      our incorrectly recording the entries relating to the correction in accounting
      for managing partners' interests in their stores from investment accounting
      to
      compensation accounting in 2003.  Additionally, we determined that in
      connection with our 2002 purchase of the 20% interest in Outback Steakhouse
      International, LP, the value of 28,570 shares that were payable upon meeting
      certain conditions should have been recorded at the acquisition date in 2002
      rather than upon their issuance in 2006.  Correction of these errors in our
      consolidated financial statements resulted in an increase in goodwill of
      $1,309,000 as of June 30, 2006 and December 31, 2005, an increase in minority
      interests in consolidated entities of $2,090,000 as of June 30, 2006 and a
      decrease in minority interests in consolidated entities of $1,314,000 as of
      December 31, 2005 and decreases in elimination of minority interest of $37,000
      and $20,000 for the three months ended June 30, 2006 and 2005, respectively,
      and
      $48,000 and $50,000 for the six months ended June 30, 2006 and 2005,
      respectively. It also resulted in an $119,000 increase in retained earnings
      as
      of December 31, 2004.


2
 Table
          of Contents


*Deferred
      rent and property, fixtures and equipment*


We
      identified errors in our straight-line lease calculations for certain properties
      where we received tenant improvement contributions from a landlord or where
      we
      determined that we were depreciating certain assets over lives different than
      the associated lease term.  Correction of these errors in our consolidated
      financial statements resulted in increases to deferred rent of $6,921,000 and
      $6,303,000 and decreases to property, fixtures and equipment of $2,208,000
      and
      $1,905,000 as of June 30, 2006 and December 31, 2005, respectively, and
      decreases to net income of $257,000 and $472,000 for the three months ended
      June
      30, 2006 and 2005, respectively, and $517,000 and $756,000 for the six months
      ended June 30, 2006 and 2005, respectively. It
      also
      resulted in a $3,862,000 decrease in retained earnings as of December 31,
      2004.





*Other
      adjustments*


We
      have
      increased additional paid-in capital and decreased retained earnings as of
      December 31, 2002 by $2,333,000 to correct an error in equity classification
      that arose prior to 2000, relating to acquisitions recorded as
      pooling-of-interest transactions.




We
      have
      decreased treasury stock and decreased additional paid-in capital as of March
      31, 2006 by $40,858,000 to correct an error in the elimination of the unearned
      compensation balance related to unvested restricted stock awards required by
      the
      adoption of SFAS No. 123R. Under previous guidance, this was accounted for
      as
      unearned compensation and, under SFAS No. 123R, should be treated as a reduction
      of additional paid-in capital.




We
      have
      increased other long-term liabilities and decreased additional paid-in capital
      as of June 30, 2006 by $5,556,000 to correct an error in the classification
      of
      the unfunded portion of the PEP Stock Plan which is owed to managing partners
      and chef partners.





Our
      Korean subsidiary receives payments from certain consumer product and service
      companies in connection with promotions under which we have agreed to provide
      discounts to their customers.  We have historically netted such monies
      received against cost of sales and other restaurant operating expenses.  We
      have determined that these amounts should be recorded as revenue with an equal
      offsetting amount in cost of sales and other restaurant operating
      expenses.  Correction of these errors in our consolidated financial
      statements increased restaurant sales by $2,673,000 and $3,911,000 for the
      three
      months ended June 30, 2006 and 2005, respectively, and $4,778,000 and $7,663,000
      for the six months ended June 30, 2006 and 2005, respectively, and were offset
      by changes in cost of sales and other restaurant operating expense with no
      effect on income from operations or net income.





As
      described in Note 1 to the Unaudited Notes to Consolidated Financial Statements
      in Item 1 of this Form 10-Q/A, the adjustments noted above impacted various
      items in our Unaudited Consolidated Statements of Cash Flows for the six months
      ended June 30, 2006 and 2005 by increasing net cash provided by operating
      activities by $8,265,000 and $988,000, respectively, increasing
      net cash used in investing activities by $6,310,000 and $0, respectively, and
      (decreasing) increasing net cash used in financing activities by
      ($1,955,000) and $988,000, respectively.





Please
      refer to Note 1 to the Unaudited Notes to Consolidated Financial Statements
      in
      Item 1 of this Form 10-Q/A and to “Controls and Procedures” in Item 4 of this
      Form 10-Q/A for more information related to the restatement.





The
      remaining Items contained within this Amendment No. 1 to Quarterly Report on
      Form 10-Q/A consist of all other Items originally contained in our Quarterly
      Report on Form 10-Q for the quarterly period ended June 30, 2006 in the form
      filed on August 9, 2006. This Form 10-Q/A does not reflect events occurring
      after the filing of the original Form 10-Q, nor modify or update those
      disclosures in any way other than as required to reflect the effects of the
      restatement.





New
      certifications of the principal executive officer and principal financial
      officer are included as exhibits to this Amendment.


3
 Table
          of Contents


**OSI
      RESTAURANTPARTNERS, INC.**





**INDEX
      TO QUARTERLY REPORT ON FORM 10-Q/A**


**For
      the Quarterly Period Ended June 30, 2006**


**(Unaudited)**





**TABLE
      OF CONTENTS**




**PART
                I — FINANCIAL INFORMATION****Page
                No****.**Item 1.
            Consolidated
                Financial Statements (Unaudited):Consolidated
                Balance Sheets — June 30, 2006 and
                December 31, 2005, as restated
            5Consolidated
                Statements of Income — For the Three and Six
                Months Ended June 30, 2006 and 2005, as restated
            7Consolidated
                Statements of Cash Flows — For the Six Months
                Ended June 30, 2006 and 2005, as restated
            8Notes
                to Consolidated Financial Statements
            10Item 2.
            Management's
                Discussion and Analysis of Financial Condition
                and Results of Operations
            32Item 3.
            Quantitative
                and Qualitative Disclosures About Market
                Risk
            53Item 4.
            Controls
                and Procedures
            54**PART
                II****—****OTHER INFORMATION**Item 1.
            Legal
                Proceedings
            58Item
                1A.
            Risk
                Factors
            59Item
                2.
            Unregistered
                Sales of Equity Securities and Use of
                Proceeds
            59Item
                4.
            Submission
                of Matters to a Vote of Security
                Holders
            60Item 6.
            Exhibits
            61Signature
            62


4
 Table
            of Contents
  **PART
      I: FINANCIALINFORMATION**





**Item
      1. CONSOLIDATED FINANCIAL STATEMENTS**





**OSI
      Restaurant Partners, Inc.** ****


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





**JUNE
                30,**
            
            **DECEMBER
                31,****2006**
            
            **2005****(restated)**
            
            **(restated)**ASSETSCurrent
                AssetsCash
                and cash equivalents
            
            $
            57,591
            
            $
            84,876Short-term
                investments
            
            
            1,852
            
            
            1,828Inventories
            
            
            67,205
            
            
            68,468Deferred
                income tax assets
            
            
            45,980
            
            
            43,697Other
                current assets
            
            
            62,627
            
            
            50,823Total
                current assets
            
            
            235,255
            
            
            249,692Property,
                fixtures and equipment, net
            
            
            1,474,069
            
            
            1,387,700Investments
                in and advances to unconsolidated affiliates, net
            
            
            25,183
            
            
            21,397Deferred
                income tax assets
            
            
            65,125
            
            
            36,180Goodwill
            
            
            115,626
            
            
            112,627Intangible
                assets
            
            
            11,567
            
            
            11,562Other
                assets
            
            
            146,073
            
            
            142,114Notes
                receivable collateral for franchisee guarantee
            
            
            31,150
            
            
            31,150$
            2,104,048
            
            $
            1,992,422




(CONTINUED...)




5
 Table
            of Contents





**OSI
      Restaurant Partners, Inc.** ****


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





**JUNE
                30,**
            
            **DECEMBER
                31,****2006**
            
            **2005****(restated)**
            
            **(restated)**LIABILITIES
                AND STOCKHOLDERS' EQUITYCurrent
                LiabilitiesAccounts
                payable
            
            $
            93,282
            
            $
            98,020Sales
                taxes payable
            
            
            15,196
            
            
            17,761Accrued
                expenses
            
            
            137,260
            
            
            135,660Current
                portion of partner deposit and accrued buyout liability
            
            
            15,301
            
            
            15,175Unearned
                revenue
            
            
            101,905
            
            
            170,785Income
                taxes payable
            
            
            16,993
            
            
            695Current
                portion of long-term debt
            
            
            77,237
            
            
            63,442Total
                current liabilities
            
            
            457,174
            
            
            501,538Partner
                deposit and accrued buyout liability
            
            
            93,031
            
            
            72,900Deferred
                rent
            
            
            68,116
            
            
            61,509Long-term
                debt
            
            
            185,393
            
            
            90,623Guaranteed
                debt
            
            
            33,778
            
            
            31,283Other
                long-term liabilities
            
            
            54,050
            
            
            45,890Total
                liabilities
            
            
            891,542
            
            
            803,743Commitments
                and contingenciesMinority
                interests in consolidated entities
            
            
            45,043
            
            
            44,259Stockholders'
                EquityCommon
                stock, $0.01 par value, 200,000 shares authorized; 78,750
                and78,750
                shares issued; 74,432 and 74,854 shares outstanding asof
                June 30, 2006 and December 31, 2005, respectively
            
            
            788
            
            
            788Additional
                paid-in capital
            
            
            262,807
            
            
            293,368Retained
                earnings
            
            
            1,082,399
            
            
            1,057,944Accumulated
                other comprehensive income
            
            
            2,406
            
            
            384Unearned
                compensation related to outstanding restricted stock
            
            
            -
            
            
            (40,858
            )1,348,400
            
            
            1,311,626Less
                treasury stock, 4,318 and 3,896 shares at June 30, 2006and
                December 31, 2005, respectively, at cost
            
            
            (180,937
            )
            
            (167,206
            )Total
                stockholders’ equity
            
            
            1,167,463
            
            
            1,144,420$
            2,104,048
            
            $
            1,992,422





See
      notes
      to unaudited consolidated financial statements.


6
 Table
          of Contents


**OSI
      RestaurantPartners, Inc.**


**CONSOLIDATED
      STATEMENTS OF INCOME**


**(IN
      THOUSANDS, EXCEPT PER SHARE DATA, UNAUDITED)**





**THREE
                MONTHS ENDED**
            
            **SIX
                MONTHS ENDED****JUNE
                30,**
            
            **JUNE
                30,****2006**
            
            **2005**
            
            **2006**
            
            **2005****(restated)**
            
            **(restated)**
            
            **(restated)**
            
            **(restated)**RevenuesRestaurant
                sales
            
            $
            986,597
            
            $
            913,444
            
            $
            1,973,331
            
            $
            1,806,806Other
                revenues
            
            
            5,428
            
            
            5,669
            
            
            11,054
            
            
            10,750Total
                revenues
            
            
            992,025
            
            
            919,113
            
            
            1,984,385
            
            
            1,817,556Costs
                and expensesCost
                of sales
            
            
            356,398
            
            
            334,801
            
            
            716,098
            
            
            662,786Labor
                and other related
            
            
            276,096
            
            
            236,027
            
            
            546,071
            
            
            463,264Other
                restaurant operating
            
            
            225,361
            
            
            193,333
            
            
            441,790
            
            
            373,443Depreciation
                and amortization
            
            
            36,947
            
            
            31,038
            
            
            72,452
            
            
            60,627General
                and administrative
            
            
            59,147
            
            
            51,309
            
            
            112,859
            
            
            101,150Provision
                for impaired assets and restaurant closings
            
            
            502
            
            
            7,679
            
            
            3,034
            
            
            8,630(Income)
                loss from operations of unconsolidated affiliates
            
            
            (235
            )
            
            4
            
            
            (125
            )
            
            101Total
                costs and expenses
            
            
            954,216
            
            
            854,191
            
            
            1,892,179
            
            
            1,670,001Income
                from operations
            
            
            37,809
            
            
            64,922
            
            
            92,206
            
            
            147,555Other
                income (expense), net
            
            
            5,165
            
            
            (89
            )
            
            5,165
            
            
            (1,023
            )Interest
                income
            
            
            804
            
            
            450
            
            
            1,361
            
            
            818Interest
                expense
            
            
            (3,211
            )
            
            (1,513
            )
            
            (5,582
            )
            
            (2,671
            )Income
                before provision for income taxes andelimination
                of minority interest
            
            
            40,567
            
            
            63,770
            
            
            93,150
            
            
            144,679Provision
                for income taxes
            
            
            9,938
            
            
            21,294
            
            
            26,662
            
            
            48,454Income
                before elimination of minority interest
            
            
            30,629
            
            
            42,476
            
            
            66,488
            
            
            96,225Elimination
                of minority interest
            
            
            1,797
            
            
            2,942
            
            
            5,425
            
            
            6,340Net
                income
            
            $
            28,832
            
            $
            39,534
            
            $
            61,063
            
            $
            89,885Basic
                earnings per common shareNet
                income
            
            $
            0.39
            
            $
            0.53
            
            $
            0.83
            
            $
            1.22Basic
                weighted average number of shares outstanding
            
            
            73,650
            
            
            74,001
            
            
            73,865
            
            
            73,901Diluted
                earnings per common shareNet
                income
            
            $
            0.38
            
            $
            0.51
            
            $
            0.80
            
            $
            1.17Diluted
                weighted average number of shares outstanding
            
            
            75,907
            
            
            76,925
            
            
            76,492
            
            
            76,965Cash
                dividends per common share
            
            $
            0.13
            
            $
            0.13
            
            $
            0.26
            
            $
            0.26





See
      notes
      to unaudited consolidated financial statements.


7
 Table
          of Contents


**OSI
      RestaurantPartners, Inc.** ****


**CONSOLIDATED
      STATEMENTS OF CASH FLOWS**


**(IN
      THOUSANDS, UNAUDITED)**


**SIX
                    MONTHS ENDED****JUNE
                    30,****2006**
                
                **2005****(restated)**
                
                **(restated)**Cash
                    flows from operating activities:Net
                    income
                
                $
                61,063
                
                $
                89,885Adjustments
                    to reconcile net income to cash provided by operating
                    activities:Depreciation
                    and amortization
                
                
                72,452
                
                
                60,627Provision
                    for impaired assets and restaurant closings
                
                
                3,034
                
                
                8,630Stock-based
                    compensation expense
                
                
                39,243
                
                
                5,320Income
                    tax benefits credited to equity
                
                
                5,821
                
                
                9,954Excess
                    income tax benefits from stock-based compensation
                
                
                (3,318
                )
                
                -Minority
                    interest in consolidated entities’ income
                
                
                5,425
                
                
                6,340(Income)
                    loss from operations of unconsolidated affiliates
                
                
                (125
                )
                
                101Change
                    in deferred income taxes
                
                
                (31,018
                )
                
                (21,160
                )Increase
                    in deferred rent
                
                
                6,607
                
                
                5,925(Gain)
                    loss on disposal of property, fixtures and equipment and lease
                    termination
                
                
                (3,768
                )
                
                2,280Change
                    in assets and liabilities, net of effects of acquisitions:Decrease
                    in inventories
                
                
                1,474
                
                
                5,501Increase
                    in other current assets
                
                
                (11,694
                )
                
                (983
                )Decrease
                    (increase) in other assets
                
                
                1,750
                
                
                (4,037
                )(Decrease)
                    increase in accounts payable, sales taxes payable and accrued
                    expenses
                
                
                (5,813
                )
                
                21,940(Decrease)
                    increase in partner deposit and accrued buyout liability
                
                
                (969
                )
                
                4,865Decrease
                    in unearned revenue
                
                
                (68,880
                )
                
                (63,564
                )Increase
                    in income taxes payable
                
                
                16,298
                
                
                7,144Increase
                    (decrease) in other long-term liabilities
                
                
                1,895
                
                
                (1,189
                )Net
                    cash provided by operating activities
                
                
                89,477
                
                
                137,579Cash
                    flows used in investing activities:Purchase
                    of investment securities
                
                
                (3,030
                )
                
                (1,591
                )Maturities
                    of investment securities
                
                
                3,006
                
                
                1,244Cash
                    paid for acquisitions of businesses, net of cash acquired
                
                
                (7,456
                )
                
                (5,200
                )Capital
                    expenditures
                
                
                (157,260
                )
                
                (135,493
                )Proceeds
                    from the sale of property, fixtures and equipment and lease
                    termination
                
                
                11,901
                
                
                2,719Contributions
                    to partner deferred compensation plans
                
                
                (6,310
                )
                
                -Payments
                    from unconsolidated affiliates
                
                
                209
                
                
                71Investments
                    in and advances to unconsolidated affiliates
                
                
                (1,268
                )
                
                (337
                )Net
                    cash used in investing activities
                
                $
                (160,208
                )
                $
                (138,587
                )


(CONTINUED...)


8
 Table
          of Contents


**OSI
      Restaurant Partners, Inc.**


**CONSOLIDATED
      STATEMENTS OF CASH FLOWS**


**(IN
      THOUSANDS, UNAUDITED)**




**SIX
                      MONTHS ENDED****JUNE
                      30,****2006**
                  
                  **2005****(restated)**
                  
                  **(restated)**Cash
                      flows provided by (used in) financing activities:Proceeds
                      from issuance of long-term debt
                  
                  $
                  178,388
                  
                  $
                  59,530Proceeds
                      from minority interest contributions
                  
                  
                  2,279
                  
                  
                  3,169Distributions
                      to minority interest
                  
                  
                  (12,327
                  )
                  
                  (9,907
                  )Repayments
                      of long-term debt
                  
                  
                  (69,823
                  )
                  
                  (33,242
                  )Dividends
                      paid
                  
                  
                  (19,460
                  )
                  
                  (19,289
                  )Excess
                      income tax benefits from stock-based compensation
                  
                  
                  3,318
                  
                  
                  -Payments
                      for purchase of treasury stock
                  
                  
                  (59,435
                  )
                  
                  (50,526
                  )Proceeds
                      from reissuance of treasury stock
                  
                  
                  20,506
                  
                  
                  31,399Net
                      cash provided by (used in) financing activities
                  
                  
                  43,446
                  
                  
                  (18,866
                  )Net
                      decrease in cash and cash equivalents
                  
                  
                  (27,285
                  )
                  
                  (19,874
                  )Cash
                      and cash equivalents at the beginning of the period
                  
                  
                  84,876
                  
                  
                  87,977Cash
                      and cash equivalents at the end of the period
                  
                  $
                  57,591
                  
                  $
                  68,103Supplemental
                      disclosures of cash flow information:Cash
                      paid for interest
                  
                  $
                  5,623
                  
                  $
                  2,636Cash
                      paid for income taxes, net of refunds
                  
                  
                  37,365
                  
                  
                  52,633Supplemental
                      disclosures of non-cash items:Purchase
                      of employee partners' interests in cash flows of their
                      restaurants
                  
                  $
                  3,795
                  
                  $
                  2,489Litigation
                      liability and insurance receivable
                  
                  
                  -
                  
                  
                  39,000Increase
                      in guaranteed debt and investment in unconsolidated
                      affiliate
                  
                  
                  2,495
                  
                  
                  -


See
      notes
      to unaudited consolidated financial statements.


9
 Table
          of Contents


**OSI
      RestaurantPartners, Inc.**


**NOTES
      TO CONSOLIDATED FINANCIAL STATEMENTS**


**(UNAUDITED)**





1.  Basis
      of
      Presentation and Restatement of Previously Issued Consolidated Financial
      Statements





On
      April
      25, 2006, the shareholders of Outback Steakhouse, Inc. approved changing the
      name of the corporation to OSI Restaurant Partners, Inc. (the “Company”). This
      Note should be read in conjunction with Note 1, “Summary of Significant
      Accounting Policies” under Notes to Consolidated Financial Statements included
      in Item 8, “Financial Statements and Supplementary Data” of the Company’s
      Amendment No. 1 to Annual Report on Form 10-K/A for the year ended December
      31,
      2005 (“2005 10-K/A”).





**Basis
      of Presentation**





The
      accompanying unaudited consolidated financial statements have been prepared
      by
      the Company pursuant to the rules and regulations of the Securities and Exchange
      Commission (the “SEC”). Accordingly, they do not include all the information and
      footnotes required by generally accepted accounting principles for complete
      financial statements. In the opinion of the Company, all adjustments (consisting
      only of normal recurring entries) necessary for the fair presentation of the
      Company's results of operations, financial position and cash flows for the
      periods presented have been included. These financial statements should be
      read
      in conjunction with the financial statements and financial notes thereto
      included in the Company's 2005 10-K/A.





The
      results of operations for interim periods are not necessarily indicative of
      the
      results to be expected for the full year.





**Restatement
      of Previously Issued Consolidated Financial Statements**





In
      October 2006, the Company identified errors in its accounting for unearned
      revenue for unredeemed gift cards and certificates. Upon completion of the
      review of accounting policies for gift cards and certificates as well as a
      review of certain other balance sheet accounts, the Company has restated its
      consolidated financial statements for certain prior periods to correct these
      and
      other errors, as described in this note.




*Unearned
      revenue and revenue recognition*


Unearned
      revenue represents the Company’s liability for gift cards and certificates that
      have been sold but not yet redeemed. Historically, the Company recognized
      revenue for estimates of gift cards and certificates that will not be redeemed
      (“breakage”) at the time of the sale of the gift cards and certificates. The
      Company has determined that the methodology used to arrive at breakage was
      inappropriate and resulted in understatement of the liability for gift cards
      and
      certificates. The Company has also determined that revenue should not be
      recognized at the time of sale of the gift cards and certificates. Accordingly,
      the Company has adopted a policy to recognize breakage for those gift cards
      and
      certificates that will never be redeemed at the time at which their redemption
      becomes remote. Furthermore, certain expenses associated with gift card and
      certificate promotions were incorrectly netted against breakage income rather
      than reflected as expenses in the Company’s financial statements. Correction of
      these errors in the consolidated financial statements resulted in an increase
      in
      unearned revenue of $64,921,000 and $60,337,000 as of June 30, 2006 and December
      31, 2005, respectively, an increase in net income of $168,000 and $243,000
      for
      the three and six months ended June 30, 2006 and a decrease in net income of
      $399,000 and $722,000 for the three and six months ended June 30, 2005. It
      also
      resulted in a $37,548,000 decrease in retained earnings as of December 31,
      2004.


10
 Table
          of Contents


**OSI
      Restaurant Partners, Inc.**


**NOTES
      TO CONSOLIDATED FINANCIAL STATEMENTS**


**(UNAUDITED)**





1.  Basis
      of
      Presentation and Restatement of Previously Issued Consolidated Financial
      Statements (continued)





**Restatement
      of Previously Issued Consolidated Financial Statements
      (continued)**





*Minority
      interests in consolidated entities*


The
      Company has identified errors in the recorded amount of minority interests
      in
      certain of its Carrabba’s Italian Grill subsidiaries, which were understated as
      a result of the Company incorrectly recording the entries relating to the
      correction in accounting for managing partners’ interests in their stores from
      investment accounting to compensation accounting in 2003. Additionally, the
      Company determined that in connection with the Company’s 2002 purchase of the
      20% interest in Outback Steakhouse International, LP, the value of 28,570 shares
      that were payable upon meeting certain conditions should have been recorded
      at
      the acquisition date in 2002 rather than upon their issuance in 2006. Correction
      of these errors in the consolidated financial statements resulted in an increase
      in goodwill of $1,309,000 as of June 30, 2006 and December 31, 2005, an increase
      in minority interests in consolidated entities of $2,090,000 as of June 30,
      2006
      and a decrease in minority interests in consolidated entities of $1,314,000
      as
      of December 31, 2005 and decreases in elimination of minority interest of
      $37,000 and $20,000 for the three months ended June 30, 2006 and 2005,
      respectively, and $48,000 and $50,000 for the six months ended June 30, 2006
      and
      2005, respectively. It also resulted in an $119,000 increase in retained
      earnings as of December 31, 2004.





*Deferred
      rent and property, fixtures and equipment*


The
      Company identified errors in its straight-line lease calculations for certain properties
      where the
      Company received
      tenant improvement contributions from a landlord or where it determined that
      it
      was depreciating certain assets over lives different than the associated lease
      term. Correction of these errors in the consolidated financial statements
      resulted in increases to deferred rent of $6,921,000 and $6,303,000 and
      decreases to property, fixtures and equipment of $2,208,000 and $1,905,000
      as of
      June 30, 2006 and December 31, 2005, respectively, and decreases to net income
      of $257,000 and $472,000 for the three months ended June 30, 2006 and 2005,
      respectively, and $517,000 and $756,000 for the six months ended June 30, 2006
      and 2005, respectively. It
      also
      resulted in a $3,862,000 decrease in retained earnings as of December 31,
      2004.





*Other
      adjustments*


The
      Company has
      increased additional paid-in capital and decreased retained earnings as of
      December 31, 2002 by $2,333,000 to correct an error in equity classification
      that arose prior to 2000, relating to acquisitions recorded as
      pooling-of-interest transactions.




The
        Company has decreased treasury stock and decreased additional paid-in capital
        as
        of March 31, 2006 by $40,858,000 to correct an error in the elimination of
        the
        unearned compensation balance related to unvested restricted stock awards
        required by the adoption of SFAS No. 123R. Under previous guidance, this
        was
        accounted for as unearned compensation and, under SFAS No. 123R, should be
        treated as a reduction of additional paid-in capital.


The
      Company has increased other long-term liabilities and decreased additional
      paid-in capital as of June 30, 2006 by $5,556,000 to correct an error in the
      classification of the unfunded portion of the PEP Stock Plan which is owed
      to
      managing partners and chef partners.





The
      Company’s Korean subsidiary receives payments from certain consumer product and
      service companies in connection with promotions under which the Company has
      agreed to provide discounts to their customers. The Company has historically
      netted such monies received against cost of sales and other restaurant operating
      expenses. The Company has determined that these amounts should be recorded
      as
      revenue with an equal offsetting amount in cost of sales and other restaurant
      operating expenses. Correction of these errors in the consolidated financial
      statements increased restaurant sales by $2,673,000 and $3,911,000 for the
      three
      months ended June 30, 2006 and 2005, respectively, and $4,778,000 and $7,663,000
      for the six months ended June 30, 2006 and 2005, respectively, and were offset
      by changes in cost of sales and other restaurant operating expense with no
      effect on income from operations or net income.


11
 Table
          of Contents


**OSI
      Restaurant Partners, Inc.**


**NOTES
      TO CONSOLIDATED FINANCIAL STATEMENTS**


**(UNAUDITED)**





1.  Basis
      of
      Presentation and Restatement of Previously Issued Consolidated Financial
      Statements (continued)





**Restatement
      of Previously Issued Consolidated Financial Statements
      (continued)**





The
      Company restated its Consolidated Balance Sheets as of December 31, 2005 and
      2004, and the Consolidated Statements of Income, Stockholders’ Equity and Cash
      Flows for the years ended December 31, 2005, 2004 and 2003, all quarters in
      2005
      and 2004 and the first and second quarters of 2006 to correct errors related
      to
      the matters discussed above. The impact of the restatement on periods prior
      to
      2003 has been reflected as an adjustment to retained earnings of $36,128,000
      as
      of December 31, 2002 in the Consolidated Statements of Stockholders’ Equity
      included in the Company’s 2005 10-K/A.




The
        Consolidated Financial Statements for the three and six months ended June
        30,
        2006 and 2005 included in this Form 10-Q/A have been restated to reflect
        the
        adjustments described above. The effects of the Company’s restatement on
        previously reported Consolidated Financial Statements as of and for the three
        and six months ended June 30, 2006 and 2005 and as of December 31, 2005 are
        summarized below:
 
 The
      following table reflects the effect of the restatement on the Consolidated
      Balance Sheet (in thousands):


**JUNE
                  30,**
              
              **DECEMBER
                  31,****2006**
              
              **2006**
              
              **2005**
              
              **2005****As
                  previously reported**
              
              **As
                  restated**
              
              **As
                  previously reported**
              
              **As
                  restated**Selected
                  Balance Sheet Data:Deferred
                  income tax asset
              
              $
              20,157
              
              $
              45,980
              
              $
              17,719
              
              $
              43,697Other
                  current assets
              
              
              63,608
              
              
              62,627
              
              
              51,746
              
              
              50,823Total
                  current assets
              
              
              210,413
              
              
              235,255
              
              
              224,637
              
              
              249,692Property,
                  fixtures and equipment, net
              
              
              1,476,277
              
              
              1,474,069
              
              
              1,389,605
              
              
              1,387,700Deferred
                  income tax asset
              
              
              61,662
              
              
              65,125
              
              
              33,073
              
              
              36,180Goodwill
              
              
              114,317
              
              
              115,626
              
              
              111,318
              
              
              112,627Total
                  assets
              
              
              2,076,642
              
              
              2,104,048
              
              
              1,964,856
              
              
              1,992,422Accrued
                  expenses
              
              
              137,966
              
              
              137,260
              
              
              130,583
              
              
              135,660Unearned
                  revenue
              
              
              36,984
              
              
              101,905
              
              
              110,448
              
              
              170,785Total
                  current liabilities
              
              
              392,959
              
              
              457,174
              
              
              436,124
              
              
              501,538Partner
                  deposit and accrued buyout liability
              
              
              93,031
              
              
              93,031
              
              
              71,591
              
              
              72,900Deferred
                  rent
              
              
              61,195
              
              
              68,116
              
              
              55,206
              
              
              61,509Other
                  long-term liabilities
              
              
              48,494
              
              
              54,050
              
              
              45,890
              
              
              45,890Total
                  liabilities
              
              
              814,850
              
              
              891,542
              
              
              730,717
              
              
              803,743Minority
                  interests in consolidated entities
              
              
              42,953
              
              
              45,043
              
              
              45,573
              
              
              44,259Additional
                  paid-in capital
              
              
              303,577
              
              
              262,807
              
              
              291,035
              
              
              293,368Retained
                  earnings
              
              
              1,133,995
              
              
              1,082,399
              
              
              1,104,423
              
              
              1,057,944Treasury
                  stock
              
              
              (221,927
              )
              
              (180,937
              )
              
              (167,206
              )
              
              (167,206
              )Total
                  stockholders' equity
              
              
              1,218,839
              
              
              1,167,463
              
              
              1,188,566
              
              
              1,144,420Total
                  liabilities and stockholders' equity
              
              
              2,076,642
              
              
              2,104,048
              
              
              1,964,856
              
              
              1,992,422


12
 Table
            of Contents




**OSI
      Restaurant Partners, Inc.**


**NOTES
      TO CONSOLIDATED FINANCIAL STATEMENTS**


**(UNAUDITED)**





1.  Basis
      of
      Presentation and Restatement of Previously Issued Consolidated Financial
      Statements (continued)





**Restatement
      of Previously Issued Consolidated Financial Statements
      (continued)**





The
      following table reflects the effect of the restatement on the Consolidated
      Statements of Income (in thousands, except per share data):




**THREE
                  MONTHS ENDED**
              
              **SIX
                  MONTHS ENDED****JUNE
                  30,**
              
              **JUNE
                  30,****2006**
              
              **2006**
              
              **2005**
              
              **2005**
              
              **2006**
              
              **2006**
              
              **2005**
              
              **2005****As
                  previously reported**
              
              **As
                  restated**
              
              **As
                  previously reported**
              
              **As
                  restated**
              
              **As
                  previously reported**
              
              **As
                  restated**
              
              **As
                  previously reported**
              
              **As
                  restated**Selected
                  Statement of Income Data:Restaurant
                  sales
              
              $
              983,529
              
              $
              986,597
              
              $
              910,120
              
              $
              913,444
              
              $
              1,967,928
              
              $
              1,973,331
              
              $
              1,800,161
              
              $
              1,806,806Total
                  revenues
              
              
              988,957
              
              
              992,025
              
              
              915,789
              
              
              919,113
              
              
              1,978,982
              
              
              1,984,385
              
              
              1,810,911
              
              
              1,817,556Cost
                  of sales
              
              
              354,968
              
              
              356,398
              
              
              331,936
              
              
              334,801
              
              
              713,213
              
              
              716,098
              
              
              657,106
              
              
              662,786Labor
                  and other related
              
              
              275,473
              
              
              276,096
              
              
              236,027
              
              
              236,027
              
              
              544,825
              
              
              546,071
              
              
              463,264
              
              
              463,264Other
                  restaurant operating
              
              
              223,693
              
              
              225,361
              
              
              191,571
              
              
              193,333
              
              
              439,053
              
              
              441,790
              
              
              370,453
              
              
              373,443Depreciation
                  and amortization
              
              
              36,794
              
              
              36,947
              
              
              30,892
              
              
              31,038
              
              
              72,150
              
              
              72,452
              
              
              60,342
              
              
              60,627Provision
                  for impaired assets and restaurant closings
              
              
              502
              
              
              502
              
              
              7,679
              
              
              7,679
              
              
              3,034
              
              
              3,034
              
              
              8,455
              
              
              8,630Total
                  costs and expenses
              
              
              950,342
              
              
              954,216
              
              
              849,418
              
              
              854,191
              
              
              1,885,009
              
              
              1,892,179
              
              
              1,660,871
              
              
              1,670,001Income
                  from operations
              
              
              38,615
              
              
              37,809
              
              
              66,371
              
              
              64,922
              
              
              93,973
              
              
              92,206
              
              
              150,040
              
              
              147,555Income
                  before provision for income taxesand
                  elimination of minority interest
              
              
              41,373
              
              
              40,567
              
              
              65,219
              
              
              63,770
              
              
              94,917
              
              
              93,150
              
              
              147,164
              
              
              144,679Provision
                  for income taxes
              
              
              9,995
              
              
              9,938
              
              
              21,852
              
              
              21,294
              
              
              26,861
              
              
              26,662
              
              
              49,411
              
              
              48,454Income
                  before elimination of minority interest
              
              
              31,378
              
              
              30,629
              
              
              43,367
              
              
              42,476
              
              
              68,056
              
              
              66,488
              
              
              97,753
              
              
              96,225Elimination
                  of minority interest
              
              
              1,834
              
              
              1,797
              
              
              2,962
              
              
              2,942
              
              
              5,473
              
              
              5,425
              
              
              6,390
              
              
              6,340Net
                  income
              
              
              29,544
              
              
              28,832
              
              
              40,405
              
              
              39,534
              
              
              62,583
              
              
              61,063
              
              
              91,363
              
              
              89,885Basic
                  earnings per common share
              
              $
              0.40
              
              $
              0.39
              
              $
              0.55
              
              $
              0.53
              
              $
              0.85
              
              $
              0.83
              
              $
              1.24
              
              $
              1.22Diluted
                  earnings per common share
              
              $
              0.39
              
              $
              0.38
              
              $
              0.53
              
              $
              0.51
              
              $
              0.82
              
              $
              0.80
              
              $
              1.19
              
              $
              1.17
 13
 Table
              of Contents
  **OSI
        Restaurant Partners, Inc.**


**NOTES
      TO CONSOLIDATED FINANCIAL STATEMENTS**


**(UNAUDITED)**





1.  Basis
      of
      Presentation and Restatement of Previously Issued Consolidated Financial
      Statements (continued)





**Restatement
      of Previously Issued Consolidated Financial Statements
      (continued)**





The
      following table reflects the effect of the restatement on the Consolidated
      Statement of Cash Flows (in thousands):


**SIX
                    MONTHS ENDED****JUNE
                    30,****2006**
                
                **2006**
                
                **2005**
                
                **2005****As
                    previously reported**
                
                **As
                    restated**
                
                **As
                    previously reported**
                
                **As
                    restated**Selected
                    Cash Flow Data:Net
                    income
                
                $
                62,583
                
                $
                61,063
                
                $
                91,363
                
                $
                89,885Depreciation
                    and amortization
                
                
                72,150
                
                
                72,452
                
                
                60,342
                
                
                60,627Provision
                    for impaired assets and restaurant closings
                
                
                3,034
                
                
                3,034
                
                
                8,455
                
                
                8,630Stock-based
                    compensation expense
                
                
                39,399
                
                
                39,243
                
                
                5,320
                
                
                5,320Minority
                    interest in consolidated entities’ income
                
                
                5,473
                
                
                5,425
                
                
                6,390
                
                
                6,340Contributions
                    to partner deferred compensation plans
                
                
                (6,310
                )
                
                -
                
                
                -
                
                
                -Change
                    in deferred income taxes
                
                
                (30,817
                )
                
                (31,018
                )
                
                (20,203
                )
                
                (21,160
                )Increase
                    in deferred rent
                
                
                5,989
                
                
                6,607
                
                
                4,590
                
                
                5,925Increase
                    in other current assets
                
                
                (11,752
                )
                
                (11,694
                )
                
                (993
                )
                
                (983
                )(Decrease)
                    increase in other assets
                
                
                (3,660
                )
                
                1,750
                
                
                (4,035
                )
                
                (4,037
                )(Decrease)
                    increase in accounts payable, sales taxes payableand
                    accrued expenses
                
                
                (30
                )
                
                (5,813
                )
                
                26,291
                
                
                21,940Increase
                    (decrease) in partner deposit and accrued buyout liability
                
                
                340
                
                
                (969
                )
                
                4,962
                
                
                4,865Decrease
                    in unearned revenue
                
                
                (73,464
                )
                
                (68,880
                )
                
                (69,682
                )
                
                (63,564
                )Net
                    cash provided by operating activities
                
                
                81,212
                
                
                89,477
                
                
                136,591
                
                
                137,579Contributions
                    to partner deferred compensation plans
                
                
                -
                
                
                (6,310
                )
                
                -
                
                
                -Net
                    cash used in investing activities
                
                
                (153,898
                )
                
                (160,208
                )
                
                (138,587
                )
                
                (138,587
                )Distributions
                    to minority interest
                
                
                (10,372
                )
                
                (12,327
                )
                
                (8,919
                )
                
                (9,907
                )Net
                    cash provided by (used in) financing activities
                
                
                45,401
                
                
                43,446
                
                
                (17,878
                )
                
                (18,866
                )
  **Reclassification**





Certain
      prior year amounts shown in the accompanying unaudited consolidated financial
      statements have been reclassified to conform to the 2006 presentation.
      Distribution expense to employee partners has been included in the line item
      “Labor and other related” expenses for managing partner distributions and in
“General and administrative” expenses for area operating partner distributions
      in the Unaudited Consolidated Statements of Income. Employee partner stock
      buyout expense has been included in “General and administrative” expenses in the
      Unaudited Consolidated Statements of Income. These reclassifications had no
      effect on total assets, total liabilities, stockholders’ equity or net
      income.


14
 Table
          of Contents


**OSI
      Restaurant Partners, Inc.**


**NOTES
      TO CONSOLIDATED FINANCIAL STATEMENTS**


**(UNAUDITED)**





2.  Stock-Based
      Compensation





**Adoption
      of New Accounting Pronouncement**





Effective
      January 1, 2006, the Company adopted the fair value based method of accounting
      for stock-based employee compensation as required by SFAS No. 123R, “Share-Based
      Payment,” a revision of SFAS No. 123, “Accounting for Stock-Based Compensation.”
The fair value based method requires the Company to expense all stock-based
      employee compensation. SFAS No. 123R also requires the benefits of tax
      deductions in excess of recognized compensation
      cost to be reported as a financing cash flow, rather than as an operating cash
      flow as previously required. The Company has adopted SFAS No. 123R using the
      modified prospective method. Accordingly, the Company has expensed all unvested
      and newly granted stock-based employee compensation beginning January 1, 2006,
      but prior period amounts have not been restated.





The
      incremental pre-tax stock-based compensation expense recognized for stock
      options due to the adoption of SFAS No. 123R for the three and six months ended
      June 30, 2006 was approximately $2,288,000 and $4,852,000, respectively. Total
      stock-based compensation expense, including the incremental pre-tax stock-based
      compensation expense above, grants of other equity awards and employee partner
      stock buyout expense, was approximately $20,607,000 and $39,399,000, with an
      associated tax benefit of approximately $7,646,000 and $14,584,000 for the
      three
      and six months ended June 30, 2006, respectively. The Company did not capitalize
      any stock-based compensation costs during the six months ended June 30,
      2006.


15
 Table
          of Contents


**OSI
      Restaurant Partners, Inc.**


**NOTES
      TO CONSOLIDATED FINANCIAL STATEMENTS**


**(UNAUDITED)**





2.  Stock-Based
      Compensation (continued)





**Adoption
      of New Accounting Pronouncement (continued)**





Prior
      to
      January 1, 2006, the Company accounted for its
      stock-based employee compensation under the intrinsic value method. No
      stock-based employee compensation cost was reflected in net income to the extent
      options granted had an exercise price equal to or exceeding the fair market
      value of the underlying common stock on the date of grant. The following table
      provides pro forma net income and earnings per share amounts using the fair
      value based method of SFAS No. 123, “Accounting for Stock-Based Compensation”
(in thousands, except per share data):


**THREE
                MONTHS**
            
            **SIX
                MONTHS****ENDED**
            
            **ENDED****JUNE
                30,**
            
            **JUNE
                30,****2005**
            
            **2005****(restated)**
            
            **(restated)**Net
                income
            
            $
            39,534
            
            $
            89,885Stock-based
                employee compensation expense included in net income, net of related
                taxes
            
            
            2,117
            
            
            3,497Total
                stock-based employee compensation expense determinedunder
                fair value based method, net of related taxes
            
            
            (6,865
            )
            
            (11,527
            )Pro
                forma net income
            
            $
            34,786
            
            $
            81,855Earnings
                per common share:Basic
            
            $
            0.53
            
            $
            1.22Basic
                - pro forma
            
            $
            0.47
            
            $
            1.11Diluted
            
            $
            0.51
            
            $
            1.17Diluted
                - pro forma
            
            $
            0.46
            
            $
            1.07





The
      preceding pro forma results were calculated with the use of the Black-Scholes
      option pricing model. The following assumptions were used for options granted
      during the six months ended June 30, 2005: (1) risk-free interest rate of 4.2%;
      (2) dividend yield of 1.24%; (3) expected life of 6.3 years; and (4) volatility
      of 29.0%. Expected volatilities are based on historical volatility of the
      Company’s stock. The Company uses historical data to estimate option exercise
      and employee termination within the valuation model; separate groups of
      employees that have similar historical exercise behavior are considered
      separately for valuation purposes under SFAS No. 123R. The expected term of
      options granted represents the period of time that options granted are expected
      to be outstanding. The risk-free rate for periods within the contractual life
      of
      the option is based on the U.S. Treasury yield curve in effect at the time
      of
      grant. Results may vary depending on the assumptions applied within the model.
      In 2005, the Company identified certain assumptions surrounding the forfeiture
      of stock options used in the Black-Scholes model calculation and attribution
      of
      expense that were not correctly reflected in its pro forma expense. For the
      three and six months ended June 30, 2005, the Company presents pro forma
      compensation expense amounts that reflect actual attribution and forfeitures
      that occurred in that period.




**Stock-Based
      Compensation Plans**





The
      Company’s Amended and Restated Stock Option Plan was approved by the
      shareholders of the Company in April 1999, and has subsequently been amended
      as
      deemed appropriate by the Company’s Board of Directors or shareholders. In 2004,
      this plan was amended to allow the issuance of restricted stock and was renamed
      the Amended and Restated Stock Plan (the “Stock Plan”). There are currently
      23,500,000 shares of the Company’s common stock which may be issued and sold
      upon exercise of options or grants of restricted common stock under the Stock
      Plan. The term of options and restricted stock granted is determined by the
      Board of Directors and grantees generally vest in the options or shares over
      a
      one to ten year period.


16
 Table
            of Contents


**OSI
      Restaurant Partners, Inc.**


**NOTES
      TO CONSOLIDATED FINANCIAL STATEMENTS**


**(UNAUDITED)**





2.  Stock-Based
      Compensation (continued)





**Stock-Based
      Compensation Plans (continued)**





The
      purpose of the Stock Plan is to attract competent personnel, to provide
      long-term incentives to Directors and key employees, and to discourage employees
      from competing with the Company.





In
      2002,
      the Company adopted the 2002 Managing Partner Stock Option Plan to provide
      for
      the issuance of options to managing partners and other key employees of the
      Company, including upon commencement of employment and to managing partners
      upon
      completion of the term of their employment agreements. In 2005, this plan was
      amended to allow the issuance of restricted stock and was renamed the 2005
      Amended and Restated Managing Partner Stock Plan (the “MP Stock Plan”). No
      options or restricted stock may be granted under the MP Stock Plan to Directors
      or Officers of the Company or any of its subsidiaries or affiliated
      partnerships. The MP Stock Plan is administered by the Board of Directors.
      There
      are currently 7,500,000 shares of the Company’s common stock which may be
      issued or sold upon exercise of options or grants of restricted common stock
      under the MP Stock Plan. The term of options and restricted stock granted under
      the MP Stock Plan is determined by the Board of Directors and generally ranges
      from five to fifteen years.





Options
      under the Stock Plan and the MP Stock Plan may be options which qualify under
      Section 422 of the Internal Revenue Code (“Incentive Stock Options”) or options
      that do not qualify under Section 422 (“Nonqualified Options”). To date, the
      Company has only issued Nonqualified Options.





The
      exercise price for options granted under the Stock
      Plan and the MP Stock Plan generally cannot be less than fair market value
      at
      the date of grant of the shares covered by the option. The exercise price of
      options granted under the MP Stock Plan was historically determined by using
      a
      three-month weighted-average stock price to eliminate the daily trading
      increases and decreases in the stock price. This averaging method resulted
      in
      certain option grants under the MP Stock Plan that were above or below the
      closing price as of the exact grant date. Compensation expense resulted if
      the
      exercise price of these options was less than the market price on the date
      of
      grant. The Company discontinued use of the average stock price in November
      2005.





In
      2006,
      the Company adopted the OSI Restaurant Partners, Inc. Partner Equity Plan (the
      “PEP”) for managing partners and chef partners in domestic restaurants. The PEP,
      as approved by the Board and the Company’s shareholders, includes the Partner
      Equity Deferred Compensation Diversified Plan (the “Diversified Plan”) and
      the Partner Equity Deferred Compensation Stock Plan (the “PEP Stock Plan”).





When
      a
      managing partner or chef partner of a domestic restaurant executes a five-year
      employment agreement, he or she makes a capital contribution in exchange for
      a
      partnership interest in the restaurant. Upon completion of each five-year term
      of employment, the participating partners will receive a deferred compensation
      benefit. The Diversified Plan will permit partners to direct the investment
      of
      their deferred compensation accounts into a variety of benchmark investment
      funds. Specified portions of partners’ accounts will be required to be invested
      in the PEP Stock Plan (a minimum of 75%, 50% and 25% based on completion of
      the
      first, second and third or subsequent employment terms, respectively). 
Only shares of the Company’s common stock purchased on the open market will be
      utilized in the PEP Stock Plan.





The
      PEP
      is effective for all new partner employment agreements signed after
      March 1, 2006 and will replace the issuance of stock options to partners
      upon completion of their terms of employment. In addition, during the first
      quarter of 2006, all partners with existing employment agreements were given
      an
      opportunity to elect to participate in the PEP in lieu of the receipt of stock
      options upon completion of their terms of employment. As a result, the only
      partners who will receive stock option grants under the MP Stock Plan in the
      future are those partners who executed an employment agreement prior to March
      1,
      2006 and who did not elect to participate in the PEP.  17
 Table
            of Contents


**OSI
      Restaurant Partners, Inc.**


**NOTES
      TO CONSOLIDATED FINANCIAL STATEMENTS**


**(UNAUDITED)**





2.  Stock-Based
      Compensation (continued)





**Stock-Based
      Compensation Plans (continued)**





The PEP
      Stock Plan is intended to be an unfunded, unsecured promise to
      pay the participant in the Company’s common stock, subject to the
      terms and conditions of the PEP Stock Plan. The Diversified Plan also is
      intended to be an unfunded, unsecured promise to pay the participant in cash,
      subject to the terms and conditions of the Diversified Plan.





The
      Company currently intends to fund its PEP obligation by making a cash
      contribution to an irrevocable grantor or “rabbi” trust upon each partner’s
      completion of a term of employment (the Company is the sole owner of any assets
      in the trust and participants are general creditors of the Company with respect
      to their benefits under the PEP). A specified percentage of these funds will
      be
      required to be used by the trustee to purchase shares of the Company’s common
      stock on the open market. No shares will be issued by the Company to the PEP.





All
      distributions from PEP
      Stock
      Plan accounts will be made in whole shares of common stock. Distributions from
      Diversified Plan accounts will be made in cash. The maximum number of shares
      that may be distributed pursuant to the PEP Stock Plan is 5,000,000, subject
      to
      adjustment for stock dividends, stock splits and certain other changes in the
      Company's capitalization.





Participants’
      PEP Stock Plan accounts will be credited with phantom shares of the Company’s
      common stock at the time of a contribution based on the amount of the cash
      contribution to the PEP Stock Plan and the closing trading price of the
      Company’s common stock on the NYSE on the day of the contribution (or, if there
      is no trading of the shares on that day, on the next date on which trading
      occurs). Accounts will be credited with notional gains or losses from the date
      the contribution is credited based on actual increases and decreases in the
      value of the Company’s common stock. A participant will have no voting rights or
      other rights as a shareholder based on phantom shares of the Company’s common
      stock credited to his or her account, and the Company will have no obligation
      to
      set aside or reserve the Company’s common stock for the purpose of meeting its
      obligations under the PEP Stock Plan. Notwithstanding the foregoing, a
      participant will be entitled to receive credits to his or her account under
      the
      Diversified Plan equal to the amount of any dividends that are payable on the
      Company’s common stock based on the number of phantom shares of the Company’s
      common stock credited to the participant’s account at the time such dividend is
      declared. Although participants’ accounts in the PEP Stock Plan will not
      actually hold the Company’s common stock, the Company expects to cause the trust
      to purchase the Company’s common stock in the open market in amounts equal to
      the number of phantom shares credited to the PEP Stock Plan accounts. The
      Company will not issue shares of its common stock to the trust for PEP from
      its
      treasury or from authorized and unissued shares without shareholder
      approval.





Amounts
      credited to a partner’s accounts are fully vested at all times and participants
      will have no discretion with respect to the time and form of benefit payments
      under the PEP. Except in the event of the death or disability of the
      participant, each account will be distributed to the participant in three
      payments:





·
            25%
                of the then total account balance will be distributed five years
                after the
                Company contribution is made (which generally occurs at the end of
                the
                five-year employment term);





·
            an
                additional 25% of the account (i.e., one-third of the remaining account
                balance) will be distributed seven years after the Company contribution
                is
                made; and





·
            the
                remaining account balance will be distributed 10 years after the
                Company
                contribution is made.


18
 Table
            of Contents




**OSI
      Restaurant Partners, Inc.**


**NOTES
      TO CONSOLIDATED FINANCIAL STATEMENTS**


**(UNAUDITED)**





2.  Stock-Based
      Compensation (continued)





**Stock-Based
      Compensation Plans (continued)**





The
      Company currently administers the PEP Stock Plan. The administrator may, at
      any
      time, amend or terminate the PEP Stock Plan, except that no amendment or
      termination may reduce a participant’s account balance or accelerate benefits
      under the PEP Stock Plan in violation of Section 409A of the IRC. If the Company
      terminates the PEP Stock Plan, the Company must pay to each participant the
      balance of the participant’s accounts at the time and in the form such amounts
      would have been paid absent termination of the PEP Stock Plan. Notwithstanding
      the foregoing, to the extent permitted under Section 409A of the IRC, the
      Company may, in its complete and sole discretion, accelerate distributions
      under
      the PEP Stock Plan in the event of (i) change in the ownership or effective
      control of the Company, (ii) change in the ownership of a substantial portion
      of
      the assets of the Company, (iii) liquidation or bankruptcy of the Company,
      or
      (iv) any other circumstances permitted under Section 409A of the
      IRC.





After
      completion of each five-year employment term under the current terms of the
      PEP,
      each partner will be issued shares of the Company’s common stock (“Partner
      Shares”) under the MP Stock Plan. Once awarded, these Partner Shares are
      unrestricted and may be sold or transferred at any time. Partner Shares are
      accounted for in a similar manner as restricted stock and compensation expense
      is recognized over the five-year service period prior to the issuance date
      at
      the end of the employment term.





**Stock
      Options**





The
      following table presents a summary of the Company’s stock options as of June 30,
      2006 and activity in the Company’s stock option plans for the six months ended
      June 30, 2006 (in thousands, except option prices):




**WEIGHTED-****WEIGHTED-**
            
            **AVERAGE****AVERAGE**
            
            **REMAINING**
            
            **AGGREGATE****EXERCISE**
            
            **CONTRACTUAL**
            
            **INTRINSIC****OPTIONS**
            
            **PRICE**
            
            **LIFE
                (YEARS)**
            
            **VALUE**Outstanding
                at December 31, 2005
            
            
            16,643
            
            $
            32.25Granted
            
            
            15
            
            
            44.36Exercised
            
            
            (820
            )
            
            24.99Forfeited
            
            
            (353
            )
            
            38.94Outstanding
                at June 30, 2006
            
            
            15,485
            
            $
            32.50
            
            
            8.6
            
            $
            70,415Exercisable
                at June 30, 2006
            
            
            2,668
            
            $
            26.00
            
            
            4.9
            
            $
            23,473Fully
                vested, non-exercisable at June 30, 2006
            
            
            8,528
            
            $
            32.39
            
            
            10.6
            
            $
            39,665





The
      following assumptions were used for options granted during the six months ended
      June 30, 2006: (1) risk-free interest rate of 4.9%; (2) dividend yield of 1.24%;
      (3) expected life of 7.5 years; and (4) volatility of 28.4%.





The
      total
      intrinsic value (market value on date of exercise less exercise price) of
      options exercised during the six months ended June 30, 2006 was approximately
      $14,986,000. The aggregate intrinsic value of options outstanding as of June
      30,
      2006, disclosed in the table above, represents the closing stock price on the
      last trading day of the quarter less the exercise price, multiplied by the
      number of in-the-money stock options outstanding. The excess cash tax benefit
      classified as a financing cash inflow for the six months ended June 30, 2006
      was
      approximately $3,318,000.


19
 Table
          of Contents


**OSI
      Restaurant Partners, Inc.**


**NOTES
      TO CONSOLIDATED FINANCIAL STATEMENTS**


**(UNAUDITED)**





2.  Stock-Based
      Compensation (continued)





**Stock
      Options (continued)**





At
      June
      30, 2006, there was approximately $21,800,000 of unrecognized, pre-tax
      compensation expense related to non-vested stock options. This cost is expected
      to be recognized over a weighted-average period of 4.4 years. The
      weighted-average grant date fair value of stock options granted during the
      six
      months ended June 30, 2006 was $16.05 per share.





The
      Company has a policy of repurchasing shares on the open market to satisfy stock
      option exercises, to reduce the dilutive effect of restricted stock and for
      deposits in the PEP Stock Plan. The Company expects to repurchase approximately
      2,000,000 to 3,000,000 shares during 2006, based on estimates of exercises,
      vesting of restricted stock and contributions to the PEP Stock Plan for the
      year. The Company typically issues treasury shares upon exercise of stock
      options.





**Restricted
      Stock and Partner Shares**





The
      following table presents restricted stock and Partner Share activity in the
      Company’s plans for the six months ended June 30, 2006 (in thousands, except
      average fair value):





**NUMBER
                OF RESTRICTED SHARE AWARDS**
            
            **WEIGHTED-AVERAGE
                GRANT DATE FAIR VALUE PER AWARD**Restricted
                    stock and Partner Share awards outstanding at December 31,
                2005
            
            
            1,044
            
            $
            41.54Granted
            
            
            247
            
            
            42.38Vested
            
            
            -
            
            
            -Forfeited
            
            
            (18
            )
            
            42.47Restricted
                stock and Partner Share awards outstanding at June 30,
                2006
            
            
            1,273
            
            $
            41.69





The
      preceding table includes 146,500 non-vested Partner Shares granted with a
      weighted-average fair value of $41.05 and 1,000 Partner Shares forfeited with
      a
      weighted-average fair value of $41.78 during the six months ended June 30,
      2006.





Compensation
      expense recognized in net income for restricted stock and Partner Share awards
      granted during the three and six months ended June 30, 2006 was approximately
      $2,377,000 and $4,598,000, respectively. At June 30, 2006, unrecognized, pre-tax
      compensation expense related to non-vested restricted stock and Partner Share
      awards was approximately $45,587,000 and will be recognized over a
      weighted-average period of 5.8 years.





On
      April
      27, 2005, the Company’s Board of Directors approved a grant of restricted common
      stock to the Company’s Chief Executive Officer under the Stock Plan. Under the
      terms of the grant, 300,000 shares of restricted common stock were issued and
      will vest as follows: on December 31, 2009, 90,000 shares, plus an additional
      30,000 shares if the market capitalization of the Company exceeds
      $6,060,000,000; on December 31, 2011, 90,000 shares, plus an additional 30,000
      shares if the market capitalization of the Company exceeds $8,060,000,000;
      and
      on December 31, 2014, the balance of all remaining unvested shares. On December
      8, 2005, the Company’s Board of Directors approved an additional grant of
      restricted stock to the Company’s Chief Executive Officer under the Stock Plan.
      Under the terms of the grant, 150,000 shares of restricted stock were issued
      effective December 31, 2005 and will vest as follows: on December 31, 2009,
      75,000 shares and on December 31, 2011, the remaining 75,000
      shares.


20
 Table
          of Contents


**OSI
      Restaurant Partners, Inc.**


**NOTES
      TO CONSOLIDATED FINANCIAL STATEMENTS**


**(UNAUDITED)**





2.  Stock-Based
      Compensation (continued)





**Restricted
      Stock and Partner Shares (continued)**





On
      July
      27, 2005, the Company’s Board of Directors approved a grant of 50,000 shares of
      restricted common stock to the Senior Vice President of Real Estate and
      Development as an inducement grant in connection with his hiring. These shares
      were not issued under any existing stock plan of the Company. Under the terms
      of
      the grant, the 50,000 shares of restricted stock will vest as follows: on June
      13, 2008, 10,000 shares; on June 13, 2010, 10,000 shares; on June 13, 2012,
      15,000 shares; and on June 13, 2015, the balance of all remaining unvested
      shares.





On
      October 26, 2005, the Company’s Board of Directors approved a grant of 100,000
      shares of restricted common stock to the Senior Vice President and Chief
      Financial Officer as an inducement grant in connection with his hiring,
      effective November 1, 2005. These shares were not issued under any existing
      stock plan. Under the terms of the grant, the 100,000 shares of restricted
      stock
      will vest as follows: on November 1, 2010, 50,000 shares, plus an additional
      10,000 shares if the market capitalization of the Company exceeds
      $6,000,000,000; and on November 1, 2012, the balance of all remaining unvested
      shares.





**Liability-Based
      Awards**





On
      April
      25, 2006, the Company’s Board of Directors awarded an equivalent of 79,000
      shares of the Company’s common stock to certain employees with a
      weighted-average grant date fair value of $41.61 per award. These awards may
      be
      settled in cash or through issuance of restricted stock, and therefore, qualify
      as liability-based awards under SFAS No. 123R. The awards will be revalued
      at
      each reporting period and compensation expense will be adjusted
      accordingly.





Compensation
      expense recognized in net income for these awards granted during the three
      and
      six months ended June 30, 2006 was approximately $122,000. At June 30, 2006,
      unrecognized, pre-tax compensation expense related to these awards was
      approximately $2,611,000 and will be recognized over a weighted-average period
      of 4.7 years.





3.  Other
      Current Assets





Other
      current assets consisted of the following (in thousands):





**JUNE
                30,**
            
            **DECEMBER
                31,****2006**
            
            **2005****(restated)**
            
            **(restated)**Prepaid
                expenses
            
            $
            22,068
            
            $
            16,625Accounts
                receivable
            
            
            23,184
            
            
            19,396Accounts
                receivable - vendors
            
            
            13,056
            
            
            9,874Accounts
                receivable - franchisees
            
            
            1,282
            
            
            1,777Deposits
            
            
            2,537
            
            
            2,651Other
                current assets
            
            
            500
            
            
            500$
            62,627
            
            $
            50,823


21
 Table
            of Contents




**OSI
      Restaurant Partners, Inc.**


**NOTES
      TO CONSOLIDATED FINANCIAL STATEMENTS**


**(UNAUDITED)**





4.  Property,
      Fixtures and Equipment, Net





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





**JUNE
                30,**
            
            **DECEMBER
                31,****2006**
            
            **2005****(restated)**
            
            **(restated)**Land
            
            $
            204,396
            
            $
            200,394Buildings
                and building improvements
            
            
            724,012
            
            
            689,055Furniture
                and fixtures
            
            
            259,625
            
            
            231,608Equipment
            
            
            534,801
            
            
            498,018Leasehold
                improvements
            
            
            368,166
            
            
            345,640Construction
                in progress
            
            
            96,205
            
            
            68,878Less:
                Accumulated depreciation
            
            
            (713,136
            )
            
            (645,893
            )$
            1,474,069
            
            $
            1,387,700





During
      the six months ended June 30, 2005, the Company recorded a provision for
      impaired assets and restaurant closings of $ 8,630,000,
      which included $951,000 for the closing of one domestic Outback Steakhouse
      restaurant, $98,000 for the partial impairment of one Company-owned Bonefish
      Grill restaurant and $7,581,000 for an impairment charge against the deferred
      license fee receivable related to certain non-restaurant
      operations.





During
      the six months ended June 30, 2006, the Company recorded a provision for
      impaired assets and restaurant closings of $3,034,000, which included
      approximately $931,000 for an impairment charge for intangible and other asset
      impairments related to the closing of Paul Lee’s Chinese Kitchen, $1,618,000
      for the
      impairment of one Carrabba’s Italian Grill restaurant and $485,000 for the
      impairment of one domestic Outback Steakhouse restaurant.





In
      January 2005, the Company executed a lease termination agreement to vacate
      a
      premises occupied by a Company-owned Outback Steakhouse. In accordance with
      the
      terms of this agreement, the Company vacated the restaurant and terminated
      its
      lease in June 2006. The Company received approximately $6,014,000 and recorded
      a
      gain of $5,165,000 on the disposal of this restaurant during the three months
      ended June 30, 2006, which is included in the line item “Other income (expense),
      net” in the Company’s Unaudited Consolidated Statements of Income.





On
      May
      31, 2006, the Company sold its interests in two of its Company-owned Bonefish
      Grills to the minority owners of those restaurants in exchange for future
      royalties and other contingent payments. No gain or loss was recorded during
      the
      six months ended June 30, 2006 as these restaurants were impaired during 2005.
      This sale is retroactive to January 1, 2006, and these two locations are now
      operated as franchises.


22
 Table
          of Contents


**OSI
      Restaurant Partners, Inc.** ****


**NOTES
      TO CONSOLIDATED FINANCIAL STATEMENTS**


**(UNAUDITED)**





5.  Goodwill
      and Intangible Assets, Net





The
      change in the carrying amount
      of goodwill for the six months ended June
      30,
      200 6
      is as
      follows (in thousands):





December
                31, 2005, as restated
            
            $
            112,627Acquisitions
                (see Note 11 of Notes to Unaudited Consolidated Financial Statements)
            
            
            3,209Acquisition
                adjustment
            
            
            (210
            )June
                30, 2006, as restated
            
            $
            115,626





Intangible
      assets, net, consisted of the following (in thousands):




**WEIGHTED
                  AVERAGE****AMORTIZATION**
              
              **JUNE
                  30,**
              
              **DECEMBER
                  31,****PERIOD
                  (YEARS)**
              
              **2006**
              
              **2005**Trademarks
                  (gross)
              
              
              24
              
              $
              8,344
              
              $
              8,344Less:
                  accumulated amortization
              
              
              
              
              
              (686
              )
              
              (511
              )Net
                  trademarks
              
              
              
              
              
              7,658
              
              
              7,833Trade
                  dress (gross)
              
              
              15
              
              
              777
              
              
              777Less:
                  accumulated amortization
              
              
              
              
              
              (98
              )
              
              (72
              )Net
                  trade dress
              
              
              
              
              
              679
              
              
              705Favorable
                  leases (gross, lives ranging from 2 to 24 years)
              
              
              19
              
              
              3,524
              
              
              3,224Less:
                  accumulated amortization
              
              
              
              
              
              (294
              )
              
              (200
              )Net
                  favorable leases
              
              
              
              
              
              3,230
              
              
              3,024Intangible
                  assets, less total accumulated amortization of $1,078and
                  $783 at June 30, 2006 and December 31, 2005, respectively
              
              
              22
              
              $
              11,567
              
              $
              11,562
 
 The
      aggregate amortization expense related to thes e
      intangible assets was $368,000 for the six months ended June 30, 2006. Annual
      amortization expense related to these intangible assets for each of the next
      five years is anticipated to be approximately $625,000.


23
 Table
          of Contents


**OSI
      Restaurant Partners, Inc.**


**NOTES
      TO CONSOLIDATED FINANCIAL STATEMENTS**


**(UNAUDITED)**





6.  Other
      Assets





Other
      assets consisted of the following (in thousands):





**JUNE
                30,**
            
            **DECEMBER
                31,****2006**
            
            **2005**Other
                assets
            
            $
            70,357
            
            $
            59,921Insurance
                receivables (see Notes 9 and 14)
            
            
            40,591
            
            
            41,696Liquor
                licenses, net of accumulated amortization of $5,464 and $5,037 at
                June 30,
                2006and
                December 31, 2005, respectively
            
            
            15,562
            
            
            15,728Deferred
                license fee
            
            
            2,363
            
            
            2,136Assets
                held for sale
            
            
            17,200
            
            
            22,633$
            146,073
            
            $
            142,114





In
      accordance with SFAS
      No. 144, “Accounting for the Impairment or Disposal of Long-Lived Assets,”
the Company has classified certain land and building assets as “held for sale”
in its Unaudited Consolidated Balance Sheets. Assets held for sale as of June
      30, 2006 consisted of $16,006,000 of land and $1,194,000 of buildings. Assets
      held for sale as of December 31, 2005 consisted of $21,439,000 of land and
      $1,194,000 of buildings. No gain or loss has been recorded as it is anticipated
      that proceeds from the sale will exceed the net book value of the
      assets.





7.  Accrued
      Expenses





Accrued
      expenses consisted of the following (in thousands):





**JUNE
                30,**
            
            **DECEMBER
                31,****2006**
            
            **2005****(restated)**
            
            **(restated)**Accrued
                payroll and other compensation
            
            $
            45,906
            
            $
            53,709Accrued
                insurance
            
            
            35,861
            
            
            29,801Other
                accrued expenses
            
            
            55,493
            
            
            52,150$
            137,260
            
            $
            135,660





Remaining
      accrued restaurant closing expenses o f
      less
      than $100,000 were included
      in other accrued expenses as of June 30, 2006 and December 31, 2005, related
      to
      restaurant closing provisions.


24
 Table
          of Contents


**OSI
      Restaurant Partners, Inc.**


**NOTES
      TO CONSOLIDATED FINANCIAL STATEMENTS**


**(UNAUDITED)**





8.  Long-term
      Debt





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





**JUNE
                30,**
            
            **DECEMBER
                31,****2006**
            
            **2005**Revolving
                lines of credit, uncollateralized, interest rates ranging from 5.52%
                to
                5.81% atJune
                30, 2006 and 5.00% to 5.21% at December 31, 2005
            
            $
            174,000
            
            $
            73,000Outback
                Korea notes payable, interest rates ranging from 5.06% to 6.07%
                atJune
                30, 2006 and 4.95% to 6.06% at December 31, 2005
            
            
            55,000
            
            
            46,670Outback
                Japan notes payable, uncollateralized, interest rates ranging from
                0.86%to
                0.87% at June 30, 2006 and 0.86% at December 31, 2005
            
            
            7,818
            
            
            5,085Outback
                Japan revolving lines of credit, interest rates ranging
                from0.72%
                to 1.02% at June 30, 2006 and 0.69% to 0.77% at December 31,
                2005
            
            
            11,416
            
            
            14,636Other
                notes payable, uncollateralized, interest rates ranging
                from2.07%
                to 7.00% at June 30, 2006 and December 31, 2005
            
            
            8,146
            
            
            8,424Sale-leaseback
                obligation
            
            
            6,250
            
            
            6,250Guaranteed
                debt of franchisee
            
            
            31,283
            
            
            31,283Guaranteed
                debt of unconsolidated affiliate
            
            
            2,495
            
            
            -296,408
            
            
            185,348Less:
                current portion
            
            
            (77,237
            )
            
            (63,442
            )Less:
                guaranteed debt
            
            
            (33,778
            )
            
            (31,283
            )Long-term
                debtof
                OSI Restaurant Partners, Inc.
            
            $
            185,393
            
            $
            90,623





Effective
      March 10, 2006, the Company amended an uncollateralized $150,000,000 revolving
      credit facility that was scheduled to mature in June 2007 with a new
      $225,000,000 maximum borrowing amount and maturity date of June 2011. The
      amended line of credit permits borrowing at interest rates ranging from 45
      to 65
      basis points over the 30, 60, 90 or 180-day London Interbank Offered Rate
      (LIBOR) (ranging from 5.35% to 5.62% at June 30, 2006 and ranging from 4.39%
      to
      4.69% at December 31, 2005). At June 30, 2006, the unused portion of the
      revolving line of credit was $56,000,000.





The
      credit agreement contains certain restrictions and conditions as defined in
      the
      agreement that require the Company to maintain consolidated net worth equal
      to
      or greater than consolidated total debt and to maintain a ratio of total
      consolidated debt to EBITDAR (earnings before interest, taxes, depreciation,
      amortization and rent) equal to or less than 3.0 to 1.0. At June 30, 2006,
      the
      Company was in compliance with these debt covenants.





Effective
      March 10, 2006, the Company also amended a $30,000,000 line of credit that
      was
      scheduled to mature in June 2007 with a new $40,000,000 maximum borrowing amount
      and maturity date of June 2011. The amended line permits
      borrowing at interest rates ranging from 45 to 65 basis points over LIBOR for
      loan draws and 55 to 80 basis points over LIBOR for letter of credit advances.
      The credit agreement contains certain restrictions and conditions as defined
      in
      the agreement. At June 30, 2006, the outstanding balance on the line of credit
      was $5,000,000. There were no draws outstanding on this line of credit as of
      December 31, 2005. At June 30, 2006 and December 31, 2005, $25,072,000 and
      $20,072,000, respectively, of the line of credit was committed for the issuance
      of letters of credit as required by insurance companies that underwrite the
      Company’s workers’ compensation insurance and also, where required, for
      construction of new restaurants.


25
 Table
          of Contents


**OSI
      Restaurant Partners, Inc.**


**NOTES
      TO CONSOLIDATED FINANCIAL STATEMENTS**


**(UNAUDITED)**





8.  Long-term
      Debt (continued)





As
      of
      June 30, 2006, the Company had approximately $8,146,000 of notes payable at
      interest rates ranging from 2.07% to 7.00%. These notes have been primarily
      issued for buyouts of general manager interests in the cash flows of their
      restaurants and generally are payable over five years.





The
      Company has notes payable with banks bearing interest at rates ranging from
      5.06% to 6.07% and from 4.95% to 6.06% at June 30, 2006 and December 31, 2005,
      respectively, to finance development of the Company’s restaurants in South
      Korea. The notes are denominated and payable in Korean won, with outstanding
      balances as of June 30, 2006 maturing at dates ranging from August 2006 to
      June
      2007. As of June 30, 2006 and December 31, 2005, the outstanding balance was
      approximately $55,000,000 and $46,670,000, respectively. Certain of the notes
      payable are collateralized by lease and other deposits. At June 30, 2006 and
      December 31, 2005, collateralized notes totaled approximately $38,847,000 and
      $34,326,000, respectively. The Company has been pre-approved by these banks
      for
      additional borrowings of approximately $7,216,000 and $4,826,000 at June 30,
      2006 and December 31, 2005, respectively.





The
      Company has notes payable with banks to finance the development of the Company’s
      restaurants in Japan (“Outback Japan”). The notes are payable to banks,
      collateralized by letters of credit and lease deposits of approximately
      $3,300,000 and $3,100,000 at June 30, 2006 and December 31, 2005, respectively,
      and bear interest at rates ranging from 0.86% to 0.87% and at 0.86% at June
      30,
      2006 and December 31, 2005, respectively. The notes are denominated and payable
      in Japanese yen, with outstanding balances as of June 30, 2006 maturing in
      September 2006. As of June 30, 2006 and December 31, 2005, outstanding balances
      totaled approximately $7,818,000 and $5,085,000, respectively.





In
      October 2003, Outback Japan established a revolving line of credit to finance
      the development of new restaurants in Japan and refinance certain notes payable.
      The line permits borrowing up to a maximum of $10,000,000.
      Effective March 10, 2006, this revolving credit facility that was scheduled
      to
      mature in June 2007 was amended with a new maturity date in June 2011. The
      amended line of credit permits borrowing at interest rates ranging from 45
      to 65
      basis points over LIBOR. As of June 30, 2006 and December 31, 2005, the Company
      had borrowed approximately $9,320,000 and $9,043,000, respectively, on the
      line of
      credit
      at an average interest rate of 0.90%, with draws as of June 30, 2006 maturing
      from August 2006 to December 2006. The revolving line of credit contains certain
      restrictions and conditions as defined in the agreement. As of June 30, 2006,
      the Company was in compliance with all of the debt covenants.





In
      February 2004, Outback Japan established an additional revolving line of credit
      to finance the development of new restaurants in Japan and to refinance certain
      notes payable. The line permits borrowing up to a maximum of $10,000,000 with
      interest of LIBOR divided by a percentage equal to 1.00 minus the Eurocurrency
      Reserve Percentage. The line matures i n
      December 2006. As of June 30, 2006 and December 31, 2005, the Company had
      borrowed approximately $2,096,000 and $5,593,000, respectively, on the line
      of
      credit at an average interest rate of 1.02%, with draws as of June 30, 2006
      maturing in September 2006. The revolving line of credit contains certain
      restrictions and conditions as defined in the agreement. As of June 30, 2006,
      the Company was in compliance with all of the debt covenants.





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


26
 Table
          of Contents


**OSI
      Restaurant Partners, Inc.**


**NOTES
      TO CONSOLIDATED FINANCIAL STATEMENTS**


**(UNAUDITED)**





8.  Long-term
      Debt (continued)





The
      Company is the guarantor of an uncollateralized line of credit that permits
      borrowing of up to $35,000,000 for a limited liability company, T-Bird Nevada,
      LLC (“T-Bird”), owned by its California franchisee. This line of credit matures
      in December 2008. The line of credit bears 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 (“FIN 46R”), “Consolidation of Variable Interest Entities.” At June 30, 2006
      and December 31, 2005, the outstanding balance on the line of credit was
      approximately $31,283,000 and is included in the Company’s Unaudited
      Consolidated Balance Sheets as long-term debt. T-Bird uses proceeds from the
      line of credit for the purchase of real estate and construction of buildings
      to
      be opened as Outback Steakhouse restaurants and leased to the Company’s
      franchisees. According to the terms of the line of credit, T-Bird may borrow,
      repay, re-borrow or prepay advances at any time before the termination date
      of
      the agreement.





If
      a
      default under the line of credit were to occur requiring the Company to perform
      under the guarantee obligation, the Company has the right to call into default
      all of its franchise agreements in California and exercise any rights and
      remedies under those agreements as well as the right to recourse under loans
      T-Bird has made to individual corporations in California which own the land
      and/or building which is leased to those franchise locations. Events of default
      are defined in the line of credit agreement and include the Company’s covenant
      commitments under existing lines of credit.  The Company is not the primary
      obligor on the line of credit, and it is not aware of any non-compliance with
      the underlying terms of the line of credit agreement that would result in it
      having to perform in accordance with the terms of the guarantee.




DEBT
      GUARANTEES





The
      Company is the guarantor of an uncollateralized line of credit that permits
      borrowing of up to a maximum of $24,500,000 for its joint venture partner,
      RY-8,
      Inc. (“RY-8”), in the development of Roy's restaurants. The line of credit
      originally expired in December 2004 and was renewed twice with a new termination
      date in June 2011. According to the terms of the credit agreement, RY-8 may
      borrow, repay, re-borrow or prepay advances at any time before the termination
      date of the agreement. On the termination date of the agreement, the entire
      outstanding principal amount of the loan then outstanding and any accrued
      interest is due. At June 30, 2006 and December 31, 2005, the outstanding balance
      on the line of credit was approximately $23,581,000 and $22,926,000,
      respectively.





RY-8’s
      obligations under the line of credit are unconditionally guaranteed by the
      Company and Roy’s Holdings, Inc, (“RHI”). If an event of default occurs (as
      defined in the agreement, and including the Company’s covenant commitments under
      existing lines of credit), then the total outstanding balance, including any
      accrued interest, is immediately due from the guarantors.





If
      an
      event of default occurs and RY-8 is unable to pay the outstanding balance owed,
      the Company would, as guarantor, be liable for this balance. However, in
      conjunction with the credit agreement, RY-8 and RHI have entered into an
      Indemnity Agreement and a Pledge of Interest and Security Agreement in favor
      of
      the Company. These agreements provide that if the Company is required to perform
      its obligation as guarantor pursuant to the credit agreement, then RY-8 and
      RHI
      will indemnify the Company against all losses, claims, damages or liabilities
      which arise out of or are based upon its guarantee of the credit agreement.
      RY-8’s and RHI’s obligations under these agreements are collateralized by a
      first priority lien upon and a continuing security interest in any and all
      of
      RY-8’s interests in the joint venture.





As
      a
      result of the Company’s re course
      provisions and the financial performance of the restaurants that collateralize
      our guarantee, the estimated fair value of the guarantee to be recorded is
      immaterial to the Company’s financial condition and financial
      statements.


27
 Table
          of Contents


**OSI
      Restaurant Partners, Inc.**


**NOTES
      TO CONSOLIDATED FINANCIAL STATEMENTS**


**(UNAUDITED)**





8.  Long-term
      Debt (continued)





DEBT
      GUARANTEES (continued)





The
      Company is a guarantor of a portion of $68,000,000 in bonds issued by Kentucky
      Speedway, LLC (“Speedway”). Speedway is an unconsolidated affiliate in which the
      Company has a 22.5% equity interest and for which the Company operates catering
      and concession facilities. Payments on the bonds began in December 2003 and
      will
      continue according to a redemption schedule with final maturity in December
      2022. At June 30, 2006 and December 31, 2005, the outstanding balance on the
      bonds was $63,300,000.





In
      June
      2006, Speedway modified certain terms and conditions of its debt, including
      (i)
      lowering its interest rate, (ii) removing a liquidity coverage requirement,
      (iii) reducing a fixed charge coverage ratio, (iv) delaying redemption payments
      for 2006, 2007, and 2008, and (v) revising a put feature allowing the lenders
      to
      require full payment of the debt on or after June 2011. In connection with
      these
      modifications, in June 2006, the Company and other equity owners of Speedway
      entered into an amended guarantee, which increased the Company’s guarantee on
      the bonds from $9,445,000 to $17,585,000. The Company’s guarantee will
      proportionally decrease as payments are made on the bonds.





Additionally,
      as part of the amended guarantee, the Company and other Speedway equity owners
      are obligated to contribute, either as equity or subordinated debt, any amounts
      necessary to maintain Speedway’s defined fixed charge coverage ratio. The
      Company is obligated to contribute 27.78% of such amounts. Speedway has not
      yet
      reached its operating break-even point. Since the initial investment, the
      Company has made five additional working capital contributions and a loan to
      this affiliate in payments totaling $4,436,000. Of this amount, $1,392,000
      was
      loaned in 2005 and $800,000 was loaned during the six months ended June 30,
      2006.





Each
      guarantor has unconditionally guaranteed Speedway’s obligations under the bonds
      not to exceed its maximum guaranteed amount. The Company’s maximum guaranteed
      amount is $17,585,000. If an event of default occurs as defined by the amended
      guarantee, or if the lenders exercise the put feature, the total outstanding
      amount on the Bonds, plus any accrued interest, is immediately due from Speedway
      and each guarantor would be obligated to make payment under its guaranty up
      to
      its maximum guaranteed amount.





In
      June
      2006, 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 recognized a liability of
      $2,495,000 representing the estimated fair value of the guarantee and a
      corresponding increase to the Company’s investment in Speedway, which is
      included in the line item entitled “Investments In and Advances to
      Unconsolidated Affiliates, Net” in the Company’s Unaudited Consolidated Balance
      Sheets. Prior to the June 2006 modifications, the guarantee was not subject
      to
      the recognition or measurement requirements of FIN 45 and no liability related
      to the guarantee was recorded at December 31, 2005 or any prior period.





The
      Company’s contractual debt guarantees as of June 30, 2006 are summarized in the
      table below (in thousands):





**MAXIMUM**
            
            **AMOUNT****AVAILABILITY**
            
            **OUTSTANDING**
            
            **CARRYING****OF
                DEBT**
            
            **UNDER
                DEBT**
            
            **AMOUNT
                OF****GUARANTEES**
            
            **GUARANTEES**
            
            **LIABILITIES**T-Bird
                Nevada, LLC
            
            $
            35,000
            
            $
            31,283
            
            $
            31,283RY-8,
                Inc.
            
            
            24,500
            
            
            23,581
            
            
            -Kentucky
                Speedway, LLC
            
            
            17,585
            
            
            17,585
            
            
            2,495


28
 Table
            of Contents


**OSI
      Restaurant Partners, Inc.**


**NOTES
      TO CONSOLIDATED FINANCIAL STATEMENTS**


**(UNAUDITED)**





9.  Other
      Long-term Liabilities





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


**JUNE
                  30,**
              
              **DECEMBER
                  31,****2006**
              
              **2005****(restated)**Litigation
                  (See Notes 6 and 14)
              
              $
              39,000
              
              $
              39,000Accrued
                  insuranceliability
              
              
              5,591
              
              
              6,696Other
                  liabilities
              
              
              9,459
              
              
              194$
              54,050
              
              $
              45,890


Other
      long-term liabilities at June 30, 2006 also include $5,556,000 for the unfunded
      portion of the PEP Stock Plan and $2,533,000 for the Diversified Plan, which
      are
      owed to managing partners and chef partners (see Note 2).





10.  Foreign
      Currency Translation and Comprehensive Income





For
      all
      significant non-U.S. operations, the functional currency is the local currency.
      Assets and liabilities of those operations are translated into U.S. dollars
      using the exchange rates in effect at the balance sheet date. Results of
      operations are translated using the average exchange rates for the reporting
      period. Translation gains and losses are reported as a separate component of
      accumulated other comprehensive income (loss) in stockholders’ equity.





Comprehensive
      income includes net income and foreign currency translation adjustments. Total
      comprehensive income for the three months ended June 30, 2006 and 2005 was
      $29,184,000 and $39,944,000, respectively, which included the effect of gains
      from translation adjustments of approximately $352,000 and $410,000,
      respectively. Total comprehensive income for the six months ended June 30,
      2006
      and 2005 was $63,085,000 and $91,018,000, respectively, which included the
      effect of gains from translation adjustments of approximately $2,022,000 and
      $1,133,000, respectively.





11.  Business
      Combinations





On
      February 6, 2006, the Company purchased ten Outback Steakhouses from its
      franchisee in Eastern Canada for approximately $7,456,000 in cash and the
      assumption of the employee partner buyout liability for these locations of
      approximately $748,000 and other liabilities of approximately $134,000. 
The Company completed this acquisition because it believes the additional cash
      flows provided from ownership of these restaurants will meet its internally
      required rate of return and provide additional shareholder value.  The
      Company recorded goodwill of approximately $3,209,000 associated with this
      transaction, $2,407,000 of which is expected to be deductible for income tax
      purposes. Additionally, the Company recorded favorable lease intangibles of
      approximately $300,000, which will be amortized over the remaining terms of
      the
      associated leases, ranging from 4 to 15 years (see Note 5). On an unaudited
      pro
      forma basis, the effect of this acquisition was not significant to the Company’s
      results of operations.





12 .  Recently
      Issued Financial Accounting Standards





In
      July
      2006, the FASB issued Interpretation No. 48, “Accounting for Uncertainty in
      Income Taxes - an interpretation of FASB Statement No. 109” (“FIN 48”), which
      clarifies the accounting for and disclosure of uncertainty in tax positions.
      FIN
      48 prescribes a recognition threshold and measurement attribute for the
      financial statement recognition and measurement of a tax position taken or
      expected to be taken in a tax return. FIN 48 also provides guidance on
      derecognition, classification, interest and penalties, accounting in interim
      periods, disclosure and transition associated with tax positions. The provisions
      of FIN 48 are effective for fiscal years beginning after December 15, 2006.
      The
      Company is currently evaluating the impact that FIN 48 will have on its
      financial statements.


29
 Table
          of Contents


**OSI
      Restaurant Partners, Inc.**


**NOTES
      TO CONSOLIDATED FINANCIAL STATEMENTS**


**(UNAUDITED)**





13.  Earnings
      Per Share





The
      following table represents the computation of basic and diluted earnings per
      common share (in thousands, except per share data):





**THREE
                MONTHS ENDED**
            
            **SIX
                MONTHS ENDED****JUNE
                30,**
            
            **JUNE
                30,****2006**
            
            **2005**
            
            **2006**
            
            **2005****(restated)**
            
            **(restated)**
            
            **(restated)**
            
            **(restated)**Net
                income
            
            $
            28,832
            
            $
            39,534
            
            $
            61,063
            
            $
            89,885Basic
                weighted average number of common shares outstanding
            
            
            73,650
            
            
            74,001
            
            
            73,865
            
            
            73,901Basic
                earnings per common share
            
            $
            0.39
            
            $
            0.53
            
            $
            0.83
            
            $
            1.22Effect
                of stock-based compensation awards
            
            
            2,257
            
            
            2,924
            
            
            2,627
            
            
            3,064Diluted
                weighted average number of common shares outstanding
            
            
            75,907
            
            
            76,925
            
            
            76,492
            
            
            76,965Diluted
                earnings per common share
            
            $
            0.38
            
            $
            0.51
            
            $
            0.80
            
            $
            1.17





Basic
      earnings per common share is computed using net income and the basic weighted
      average number of common shares outstanding during the period. Diluted earnings
      per common share is computed using net income and the diluted weighted average
      number of common shares outstanding. Diluted weighted average common shares
      outstanding includes potentially dilutive common shares, restricted stock
      awards, Partner Shares and contingently issuable shares under the PEP
      outstanding during the period. Potentially dilutive common shares include the
      assumed exercise of stock options and issuance of restricted stock awards and
      Partner Shares using the treasury stock method.





Diluted
      earnings per common share excludes antidilutive stock options of approximately
      3,987,000 and 1,608,000 for the three months ended June 30, 2006 and 2005,
      respectively, and approximately 2,723,000 and 518,000 for the six months ended
      June 30, 2006 and 2005, respectively.





14.  Commitments
      and Contingencies





In
      June
      2003, in a civil case against the Company in Indiana state court alleging
      liability under the “dramshop” liquor liability
      statute, a jury returned a verdict in favor of the two plaintiffs who were
      injured by a drunk driver. The portion of the verdict against the Company was
      $39,000,000. The Company appealed the verdict to the Indiana Court of Appeals.
      On July 25, 2005, the Court of Appeals affirmed the verdict of the trial courts.
      The Company petitioned the Court of Appeals for rehearing and rehearing was
      denied. The Company filed a petition for
      transfer with the Indiana Supreme Court. On February 21, 2006, the Indiana
      Supreme Court granted transfer. That ruling means the Supreme Court has vacated
      the Court of Appeals’ decision and has accepted the case for review. As of May
      2006, the Indiana Supreme Court has
      heard
      oral argument on the case, but has not ren dered
      any
      decision on the merits of the case nor indicated when or how it might
      rule.





The
      Company has insurance coverage related to this case provided by its primary
      carrier for $21,000,000 and by an excess insurance carrier for the balance
      of
      the verdict of approximately $19,000,000. The excess insurance carrier has
      filed
      a declaratory judgment suit claiming it was not notified of the case and is
      therefore not liable for its portion of the verdict. The Company does not
      believe the excess carrier’s case has any merit and is vigorously defending this
      case. Activity in this case has been held in abeyance pending resolution of
      appeals in the “dramshop” case. The Company has filed counter-claims against the
      excess carrier and cross-claims against the primary carrier and its third-party
      administrator. The Company’s third-party administrator has executed an
      indemnification agreement indemnifying the Company against any liability
      resulting from the alleged failure to give notice to the excess insurance
      carrier.


30
 Table
          of Contents


**OSI
      Restaurant Partners, Inc.**


**NOTES
      TO CONSOLIDATED FINANCIAL STATEMENTS**


**(UNAUDITED)**





14.  Commitments
      and Contingencies (continued)





As
      a
      result of the affirmation ve rdict
      by
      the Court of Appeals, the Company has recorded the $39,000,000 verdict as a
      non-current liability in its Unaudited Consolidated Balance Sheets as well
      as a
      non-current receivable in other assets for the same amount which would be due
      from insurance carriers should this verdict prevail upon appeal.





As
      discussed in the Company’s 2005 10-K/A, in connection with the Company’s
      customary review of the results of international operations, it discovered
      that
      employees of Aussie Chung, Ltd., the Company’s 82% owned subsidiary in South
      Korea, may have made improper payments to government officials. Following that
      discovery, the Company’s Audit Committee engaged outside counsel to investigate
      the matter, and that investigation is substantially complete. Based on the
      results of the investigation to date, the payments, which were less than
      $75,000, may have violated the U.S. Foreign Corrupt Practices Act as well as
      South Korean law. The chief executive officer, chief operating officer and
      director of treasury of Aussie Chung have resigned as employees and from all
      offices they hold with that company and, in the case of the chief executive
      officer and chief operating officer, from its board of directors. The chief
      executive officer and the chief operating officer are minority owners of Aussie
      Chung. No other employees of Aussie Chung and no members of the Company’s
      management outside South Korea were implicated in the improper payments.




The
      Company has voluntarily reported this matter to the staff of the Securities
      and
      Exchange Commission and the U.S. Department of Justice. If the U.S. authorities
      determine that there has been a violation of the Foreign Corrupt Practices
      Act,
      they may seek to impose sanctions on the Company that may include injunctive
      relief, fines, penalties and modifications to the Company’s business practices.
      The Company could also face sanctions from South Korean authorities.




It
      is not
      possible at this time to predict whether the authorities will seek to impose
      sanctions on the Company, and if they do, what those sanctions might be. It
      is
      also not possible to predict how any U.S. or South Korean governmental
      investigation or resulting sanctions may impact the Company’s business in South
      Korea. Depending upon how these matters are resolved, the Company’s results of
      operations and prospects for growth in South Korea could be significantly
      impacted. In 2005, Aussie Chung had revenues and net income of $220,291,000
      and
      $11,458,000, respectively, representing approximately 5.8% and 7.8% of the
      Company’s consolidated revenues and net income.




15.  Subsequent
      Events





On
      January 24, 2006, the Company entered into an agreement in principle to sell
      its
      50% interest in the Paul Lee’s Chinese Kitchen (“PLCK”) joint venture to its
      partner. However, subsequent to the date of the Company’s last quarterly filing,
      this partner decided not to proceed with the purchase of the Company’s interest
      in PLCK. The Company closed the remaining two Paul Lee’s Chinese Kitchen
      restaurants in July 2006.





On
      July 25,
      2006, the Company’s Board of Directors declared a quarterly dividend of $0.13
      per share of the Company’s common stock. The dividend will be paid September 1,
      2006 to shareholders of record as of August 18, 2006.





On
      August
      1, 2006, the Company opened its first Blue Coral Seafood and Spirits restaurant
      (“Blue Coral”) in Newport Beach, California.  The Company entered into an
      agreement in July 2005 to form a limited liability company to develop and
      operate Blue Coral restaurants. The limited liability company is 75% owned
      by
      our wholly-owned subsidiary, OS USSF, Inc., a Florida corporation, and 25%
      owned
      by F-USFC, LLC, which is 95% owned by a minority interest holder in our
      Fleming’s Prime Steakhouse and Wine Bar joint venture. Blue Coral is an upscale
      casual seafood restaurant that serves dinner only and features fresh seafood
      entrees and spirits with a vodka bar.


31
 Table
          of Contents


**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.





**Overview**





We
      are
      one of the largest casual dining restaurant companies in the world,
      wit h
      a
      portfolio of eight re staurant
      concepts, ove r
      1,350 system-wide
      restaurants and 2005 annual revenues for Company-owned stores exceeding $3.6
      billion. We operate in all 50 states and in 21 countries internationally,
      predominantly through Company-owned stores, but we also operate under a variety
      of partnerships and franchises. Our primary focus as a company of restaurants
      is
      to provide a quality product together with quality service across all of our
      brands. This goal entails offering consumers of different demographic
      backgrounds an array of dining alternatives suited for differing needs. Our
      sales are primarily generated through a diverse customer base, which includes
      people eating in our restaurants as regular users who return for meals several
      times a week or on special occasions such as birthday parties, private events
      and for business entertainment. Secondarily, we generate revenues through sales
      of franchises and ongoing royalties as well as the sale and redemption of gift
      certificates.





The
      restaurant industry is a highly competitive and fragmented business, which
      is
      subject to sensitivity from changes in the economy, trends in lifestyles,
      seasonality (customer spending patterns at restaurants are generally highest
      in
      the first quarter of the year and lowest in the third quarter of the year)
      and
      fluctuating costs. Operating margins for restaurants are susceptible to
      fluctuations in prices of commodities, which include among other things, beef,
      chicken, seafood, butter, cheese, produce and other necessities to operate
      a
      store such as natural gas or other energy supplies. Additionally, the restaurant
      industry is characterized by a high initial capital investment, coupled with
      high labor costs. The combination of these factors underscores our initiatives
      to drive increased sales at existing stores in order to raise margins and
      profits, because the incremental sales contribution to profits from every
      additional dollar of sales above the minimum costs required to open, staff
      and
      operate a store is very high. We are not a company focused on growth in the
      number of restaurants just to generate additional sales. Our expansion and
      operation strategies are to balance investment costs and the economic factors
      of
      operation, in order to generate reasonable, sustainable margins and achieve
      acceptable returns on investment from our restaurant concepts.





Promotion
      of our Outback Steakhouse and Carrabba's Italian Grill restaurants is assisted
      by the use of national and spot television and radio media, which we have also
      begun to use in certain markets for our Bonefish Grill brand. We advertise
      on
      television in spot markets when our brands achieve sufficient penetration to
      make a meaningful broadcast schedule affordable. We rely on word-of-mouth
      customer experience, grassroots marketing in local venues, direct mail and
      national print media to support broadcast media and as the primary campaigns
      for
      our upscale casual and newer brands. We generally do not attempt to lure
      customers with discounts, as is common to many restaurants in the casual dining
      industry. Our advertising dollars are targeted to promote and maintain brand
      image and develop consumer awareness. We strive to drive sales through
      excellence in execution rather than through discounting and other short-lived
      marketing efforts. Our marketing strategy of encouraging customers to visit
      frequently and also recommending our restaurants to others complements what
      we
      believe are the fundamental elements of success: convenient sites,
      service-oriented employees and flawless execution in a well-managed
      restaurant.


32
 Table
          of Contents


**MANAGEMENT'S
      DISCUSSION AND ANALYSIS OF**


**FINANCIAL
      CONDITION AND RESULTS OF OPERATIONS**





**Overview
      (continued)**





Key
      factors that can be used in evaluating and understanding our restaurants and
      assessing our business include the following:





-
            Average
                unit volumes - a per store average sales amount, which helps us gauge
                the
                changes in consumer traffic, pricing and development of the
                brand;


-
            Operating
                margins - store revenues after deduction of the main store-level
                operating
                costs (including cost of sales, restaurant operating expenses and
                labor
                and related costs);


-
            System-wide
                sales - a total sales volume for all Company-owned, franchise and
                unconsolidated joint venture stores, regardless of ownership, to
                interpret
                the health of our brands; and


-
            Same-store
                or comparable sales - a year-over-year comparison of sales volumes
                for
                stores that are open in both years in order to remove the impact
                of new
                openings in comparing the operations of existing
                stores.





Our
      consolidated operating results are affected by the growth of our newer brands.
      As we continue to develop and expand new restaurant concepts at different rates,
      our cost of sales, labor costs, restaurant operating expenses and income from
      operations change from the mix of brands in our portfolio with slightly
      different operating characteristics. Labor and related expenses as a percentage
      of restaurant sales are higher at our new format stores than have typically
      been
      experienced at Outback Steakhouses. However, cost of sales as a percentage
      of
      restaurant sales at those stores is lower than those at Outback. These trends
      are expected to continue with our planned development of stores.





Revenues
      from restaurant sales in the first half of 2006 increased 9.2% compared with
      the
      same period in 2005. This increase was primarily driven by new unit openings
      as
      we experienced a softening of sales in our existing restaurants in the second
      quarter. This trend affected the casual dining segment as a whole and impacted
      all of our restaurant brands and certain international locations. We are
      developing plans for the remainder of the year and into 2007 to improve
      operating efficiency and to identify changes in marketing and real estate
      strategies to be more effective in what may be a sustained period of soft
      segment traffic and sales.





As
      previously disclosed, management has been working with the Board of Directors
      to
      analyze ideas for increasing shareholder value. In April 2006, the Board of
      Directors retained Wachovia Securities to assist it and management in analyzing
      these ideas, which include, among others, the separation or monetization of
      individual or multiple concepts, further leveraging the Company, share
      repurchases and the monetization of real estate assets. The final
      recommendations from this analysis are targeted to be presented to the Board
      by
      the end of the third quarter.





Our
      industry’s challenges and risks include, but are not limited to, 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, economic conditions and
      commodity pricing. Additionally, our planned development schedule is subject
      to
      risk because of rising real estate and construction costs, and our results
      are
      affected by consumer tolerance of price increases. Changes in our operations
      in
      the remainder of this year and in future periods may also result from changes
      in
      beef prices and other commodity costs, changes in consumer spending as a result
      of increased fuel prices and conflicts in the Middle East and continued
      pre-opening expenses from the development of new restaurants and our expansion
      strategy.





**Restatement
      of Previously Issued Consolidated Financial Statements**





In
      October 2006, we identified errors in our accounting for unearned revenue for
      unredeemed gift cards and certificates. Upon completion of the review of
      accounting policies for gift cards and certificates as well as a review of
      certain other balance sheet accounts, we have restated the consolidated
      financial statements as
      of
      June 30, 2006 and December 31, 2005 and for the
      three
      and six month periods ended June 30, 2006 and 2005, to correct these and other
      errors, as more fully described in Note 1 to the Notes to Unaudited Consolidated
      Financial Statements of Item 1: Consolidated Financial Statements, which is
      included in this Form 10-Q/A. All applicable amounts related to this restatement
      have been reflected herein and in our consolidated financial statements included
      in this Form 10-Q/A.  33
 Table
            of Contents


**MANAGEMENT'S
      DISCUSSION AND ANALYSIS OF**


**FINANCIAL
      CONDITION AND RESULTS OF OPERATIONS**





**Results
      of Operations**





The
      following tables set forth, for the periods indicated, (i) percentages that
      items in our Unaudited Consolidated Statements of Income bear to total revenues
      or restaurant sales, as indicated, and (ii) selected operating data:





**THREE
                MONTHS ENDED**
            
            **SIX
                MONTHS ENDED****JUNE
                30,**
            
            **JUNE
                30,****2006**
            
            **2005**
            
            **2006**
            
            **2005****(restated)**
            
            **(restated)**
            
            **(restated)**
            
            **(restated)**RevenuesRestaurant
                sales
            
            
            99.5
            %
            
            99.4
            %
            
            99.4
            %
            
            99.4
            %Other
                revenues
            
            
            0.5
            
            
            0.6
            
            
            0.6
            
            
            0.6Total
                revenues
            
            
            100.0
            
            
            100.0
            
            
            100.0
            
            
            100.0Costs
                and expensesCost
                of sales (1)
            
            
            36.1
            
            
            36.7
            
            
            36.3
            
            
            36.7Labor
                and other related (1)
            
            
            28.0
            
            
            25.8
            
            
            27.7
            
            
            25.6Other
                restaurant operating (1)
            
            
            22.8
            
            
            21.2
            
            
            22.4
            
            
            20.7Depreciation
                and amortization
            
            
            3.7
            
            
            3.4
            
            
            3.7
            
            
            3.3General
                and administrative
            
            
            6.0
            
            
            5.6
            
            
            5.7
            
            
            5.6Provision
                for impaired assets and restaurant closings
            
            
            0.1
            
            
            0.8
            
            
            0.2
            
            
            0.5(Income)
                loss from operations of unconsolidated affiliates
            
            
            (*
            )
            
            *
            
            
            (*
            )
            
            *Total
                costs and expenses
            
            
            96.2
            
            
            92.9
            
            
            95.4
            
            
            91.9Income
                from operations
            
            
            3.8
            
            
            7.1
            
            
            4.6
            
            
            8.1Other
                income (expense), net
            
            
            0.5
            
            
            (*
            )
            
            0.3
            
            
            *Interest
                income
            
            
            0.1
            
            
            *
            
            
            0.1
            
            
            *Interest
                expense
            
            
            (0.3
            )
            
            (0.2
            )
            
            (0.3
            )
            
            (0.1
            )Income
                before provision for income taxes andelimination
                of minority interest
            
            
            4.1
            
            
            6.9
            
            
            4.7
            
            
            8.0Provision
                for income taxes
            
            
            1.0
            
            
            2.3
            
            
            1.3
            
            
            2.7Income
                before elimination of minority interest
            
            
            3.1
            
            
            4.6
            
            
            3.4
            
            
            5.3Elimination
                of minority interest
            
            
            0.2
            
            
            0.3
            
            
            0.3
            
            
            0.4Net
                income
            
            
            2.9
            %
            
            4.3
            %
            
            3.1
            %
            
            4.9
            %


__________________


(1)
            As
                a percentage of restaurant sales.


*
            Less
                than 1/10 of one percent of total
                revenues.


34
 Table
            of Contents




**MANAGEMENT'S
      DISCUSSION AND ANALYSIS OF**


**FINANCIAL
      CONDITION AND RESULTS OF OPERATIONS**





**Results
      of Operations (continued)**





System-wide
      sales grew by 6.5% and 7.9% for the three and six months ended June 30, 2006,
      respectively, compared with the corresponding periods in 2005. System-wide
      sales
      is a non-GAAP financial measure that includes sales of all restaurants operating
      under our brand names, whether we own them or not. The two components of
      system-wide sales, including those of OSI Restaurant Partners, Inc. and those
      of
      franchisees and unconsolidated development joint ventures, are provided in
      the
      following tables:




**THREE
                  MONTHS ENDED**
              
              **SIX
                  MONTHS ENDED****JUNE
                  30,**
              
              **JUNE
                  30,****2006**
              
              **2005**
              
              **2006**
              
              **2005****(restated)**
              
              **(restated)**
              
              **(restated)**
              
              **(restated)****OSI
                  RESTAURANT PARTNERS, INC. RESTAURANT SALES****(in
                  millions):**Outback
                  SteakhousesDomestic
              
              $
              571
              
              $
              573
              
              $
              1,154
              
              $
              1,147International
              
              
              72
              
              
              68
              
              
              148
              
              
              129Total
              
              
              643
              
              
              641
              
              
              1,302
              
              
              1,276Carrabba's
                  Italian Grills
              
              
              163
              
              
              147
              
              
              325
              
              
              285Bonefish
                  Grills
              
              
              80
              
              
              56
              
              
              153
              
              
              107Fleming's
                  Prime Steakhouse and Wine Bars
              
              
              44
              
              
              35
              
              
              92
              
              
              73Other
                  restaurants
              
              
              56
              
              
              35
              
              
              101
              
              
              66Total
                  Company-owned restaurant sales
              
              $
              986
              
              $
              914
              
              $
              1,973
              
              $
              1,807
 35
 Table
              of Contents
  **MANAGEMENT'S
        DISCUSSION AND ANALYSIS OF**


**FINANCIAL
      CONDITION AND RESULTS OF OPERATIONS**





**Results
      of Operations (continued)**





The
      following information presents sales for franchised and unconsolidated
      development joint venture restaurants. These are restaurants that are not owned
      by us and from which we only receive a franchise royalty or a portion of their
      total income. 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, Inc., 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 ENDED**
              
              **SIX
                  MONTHS ENDED****JUNE
                  30,**
              
              **JUNE
                  30,****2006**
              
              **2005**
              
              **2006**
              
              **2005****FRANCHISE
                  AND DEVELOPMENT JOINT VENTURE SALES****(in
                  millions) (1):**Outback
                  SteakhousesDomestic
              
              $
              91
              
              $
              93
              
              $
              184
              
              $
              182International
              
              
              22
              
              
              27
              
              
              49
              
              
              56Total
              
              
              113
              
              
              120
              
              
              233
              
              
              238Bonefish
                  Grills
              
              
              5
              
              
              3
              
              
              8
              
              
              6Total
                  franchise and development joint venture sales (1)
              
              $
              118
              
              $
              123
              
              $
              241
              
              $
              244Income
                  from franchise and development joint ventures (2)
              
              $
              5
              
              $
              5
              
              $
              10
              
              $
              9
 __________________


(1)
            Franchise
                and development joint venture sales are not included in revenues
                as
                reported in the Unaudited Consolidated Statements of
                Income.


(2)
            Represents
                the franchise royalty and portion of total income related to restaurant
                operations included in the Unaudited Consolidated Statements of Income
                in
                the line items Other revenues or Income from operations of unconsolidated
                affiliates.


36
 Table
          of Contents


**MANAGEMENT'S
      DISCUSSION AND ANALYSIS OF**


**FINANCIAL
      CONDITION AND RESULTS OF OPERATIONS**





**Results
      of Operations (continued)**





**JUNE
                30,****2006**
            
            **2005**Number
                of restaurants (at end of the period):Outback
                SteakhousesCompany-owned
                - domestic
            
            
            676
            
            
            656Company-owned
                - international
            
            
            112
            
            
            82Franchised
                and development joint venture-
                domestic
            
            
            106
            
            
            104Franchised
                and development joint venture-
                international
            
            
            44
            
            
            55Total
            
            
            938
            
            
            897Carrabba's
                Italian GrillsCompany-owned
            
            
            211
            
            
            184Bonefish
                GrillsCompany-owned
            
            
            104
            
            
            72Franchised
                and development joint venture
            
            
            7
            
            
            4Total
            
            
            111
            
            
            76Fleming’s
                Prime Steakhouse and Wine BarsCompany-owned
            
            
            41
            
            
            32Roy’sCompany-owned
            
            
            22
            
            
            19Cheeseburger
                in ParadiseCompany-owned
            
            
            35
            
            
            17Lee
                Roy Selmon’sCompany-owned
            
            
            5
            
            
            2Paul
                Lee's Chinese KitchensCompany-owned
                (1)
            
            
            2
            
            
            3System-wide
                total
            
            
            1,365
            
            
            1,230


__________________


(1)
            We
                closed the remaining two Paul Lee’s Chinese Kitchen restaurants in July
                2006.


37
 Table
          of Contents


**MANAGEMENT'S
      DISCUSSION AND ANALYSIS OF**


**FINANCIAL
      CONDITION AND RESULTS OF OPERATIONS**





**Three
      months ended June 30** **,
      2006 and 2005**





REVENUES





*Restaurant
      sales.* Restaurant sales increased by 8.0% to $986,597,000 during the second quarter
      of
      2006 compared with $913,444,000 in the same period in 2005. The increase in
      restaurant sales was primarily attributable to additional revenues of
      approximately $97,112,000 from the opening of new restaurants after June 30,
      2005 and revenues of approximately $5,200,000 from the purchase in February
      2006
      of ten Eastern Canada Outback Steakhouse franchise restaurants, partially offset
      by decreases in sales at existing restaurants. The following table includes
      additional information about changes in restaurant sales at domestic
      Company-owned restaurants for the three months ended June 30, 2006 and
      2005:


**THREE
                  MONTHS ENDED****JUNE
                  30,****2006**
              
              **2005**Average
                  restaurant unit volumes (weekly):Outback
                  Steakhouses(1)
              
              $
              65,297
              
              $
              67,282Carrabba's
                  Italian Grills(1)
              
              
              60,517
              
              
              63,602Bonefish
                  Grills (1)
              
              
              61,218
              
              
              61,484Fleming's
                  Prime Steakhouse and Wine Bars
              
              
              84,077
              
              
              84,887Roy's
              
              
              74,090
              
              
              74,613Operating
                  weeks:Outback
                  Steakhouses
              
              
              8,758
              
              
              8,508Carrabba's
                  Italian Grills
              
              
              2,705
              
              
              2,316Bonefish
                  Grills
              
              
              1,304
              
              
              911Fleming's
                  Prime Steakhouse and Wine Bars
              
              
              525
              
              
              416Roy's
              
              
              286
              
              
              247Year
                  to year percentage change:Menu
                  price increases (2):Outback
                  Steakhouses
              
              
              0.6
              %
              
              4.7
              %Carrabba's
                  Italian Grills
              
              
              0.6
              %
              
              2.8
              %Bonefish
                  Grills
              
              
              1.5
              %
              
              3.0
              %Same-store
                  sales (stores open 18 months or more):Outback
                  Steakhouses
              
              
              -3.0
              %
              
              -0.9
              %Carrabba's
                  Italian Grills
              
              
              -2.1
              %
              
              8.3
              %Bonefish
                  Grills
              
              
              0.9
              %
              
              2.9
              %Fleming's
                  Prime Steakhouse and Wine Bars
              
              
              3.8
              %
              
              13.2
              %Roy's
              
              
              -1.4
              %
              
              5.8
              %
 __________________
 (1)
                We
                    have restated our previously reported consolidated financial
                    statements to
                    reflect certain adjustments as discussed in Note 1 of Unaudited
                    Consolidated Financial Statements of Item 1: Consolidated Financial
                    Statements, which is included in this Form
                    10-Q/A.
 (2)
                Reflects
                    nominal amounts of menu price changes, prior to any change in
                    product mix
                    because of price increases, and may not reflect amounts effectively
                    paid
                    by the customer. Menu price increases are not provided for Fleming's
                    and
                    Roy's as a significant portion of their sales come from specials,
                    which
                    fluctuate daily.


*Other
      revenues.* Other
      revenues, consisting primarily of initial franchise fees and royalties,
      decreased by $241,000 to $5,428,000 in the second quarter of 2006 as compared
      with $5,669,000 in 2005. This
      decrease primarily resulted from lower franchise fees and royalties for Outback
      Steakhouse International as a result of the purchase in February 2006 of
      ten  Eastern
      Canada Outback Steakhouse franchise restaurants. This decrease was partially
      offset by additional franchise fees for Outback Steakhouse and increased
      catering revenue during the second quarter of 2006 compared with the same period
      in 2005.  38
 Table
            of Contents


**MANAGEMENT'S
      DISCUSSION AND ANALYSIS OF**


**FINANCIAL
      CONDITION AND RESULTS OF OPERATIONS**





**Three
      months ended June 30, 2006 and 2005 (continued)**





COSTS
      AND EXPENSES





*Cost
      of sales.* Cost of
      sales, consisting of food and beverage costs, decreased 0.6% to 36.1% as a
      percentage of restaurant sales in the second quarter of 2006 compared with
      the
      same period in 2005. This decrease in cost of sales was attributable to an
      increase in the proportion of consolidated sales associated with our non-Outback
      Steakhouse restaurants that have lower cost of goods sold ratios than Outback
      Steakhouses. Decreases in dairy, chicken and shrimp costs and beef costs for
      our
      international restaurants for the quarter ended June 30, 2006 compared with
      the
      same period in 2005 were partially offset by higher produce and seafood
      costs.





*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 Program and other stock-based compensation
      expenses. Labor and other related expenses increased 2.2% as a percentage of
      restaurant sales to 28.0% in the second quarter of 2006 compared with the same
      period in 2005. Of the increase, approximately 0.7% was attributable to
      conversion costs related to the implementation of the new Partner Equity Program
      and 0.9% resulted from ongoing costs from the Partner Equity Program,
      stock-based compensation expenses resulting from the implementation of a new
      accounting standard and restricted stock grants to managing partners.
      Additionally, declines in average unit volumes at domestic Outback Steakhouses
      and Carrabba’s Italian Grills, minimum wage increases and increases in the
      proportion of new restaurant formats, which have higher average labor costs
      than
      domestic Outback Steakhouses and Carrabba's Italian Grills, increased labor
      and
      other related expenses as a percentage of restaurant sales compared to
      2005.





*Other
      restaurant operating expenses* .
      Other
      restaurant operating expenses include certain unit-level operating costs such
      as
      operating supplies, rent, repair and maintenance, advertising expenses,
      utilities, pre-opening costs and other occupancy costs. Substantial portions
      of
      these expenses are fixed or indirectly variable. These costs increased 1.6%
      to
      22.8% as a percentage of restaurant sales in the second quarter of 2006 compared
      with the same period in 2005. This
      increase resulted from declines in average unit volumes at domestic Outback
      Steakhouses and Carrabba’s Italian Grills, higher utility, repair and
      maintenance, occupancy, supply and pre-opening costs, higher advertising costs
      at Carrabba’s Italian Grill and an increase in the proportion of new format
      restaurants and international Outback Steakhouses in operation, which have
      higher average restaurant operating expenses as a percentage of restaurant
      sales
      than domestic Outback Steakhouses and Carrabba's Italian Grills.





*Depreciation
      and amortization* .
      Depreciation and amortization costs increased 0.3% as a percentage of total
      revenues to 3.7% in the second quarter of 2006 compared to the same period
      in
      2005. Increased depreciation expense as a percentage of total revenues resulted
      from lower average unit volumes at domestic Outback Steakhouses and Carrabba’s
      Italian Grills during the quarter, the continued rollout of a point of sale
      system to our Outback Steakhouse restaurants, remodeling of restaurants and
      higher depreciation costs for certain of our new restaurant formats, which
      have
      higher average construction costs than an Outback Steakhouse.





*General
      and administrative* .
      General
      and administrative costs increased by $7,838,000 to $59,147,000 in the second
      quarter of 2006 compared with $51,309,000 during the same period in
      2005. This
      increase resulted from an increase in overall administrative costs associated
      with operating additional domestic and international Outback Steakhouses,
      Carrabba’s Italian Grills, Fleming’s Prime Steakhouses, Roy’s, Bonefish Grills
      and Cheeseburger in Paradise restaurants. Additionally, the increase resulted
      from $1,193,000 of compensation expense recognized for restricted stock benefits
      for certain members of senior management that was not recognized in the same
      period last year and $1,334,000 of stock options expensed as a result of the
      implementation of a new accounting standard. Also, a change in the timing of
      our
      annual managing partner conference caused a $2,000,000 increase compared to
      the
      2005 period, and during the three months ended June 30, 2006, we incurred
      $1,050,000 of consulting expenses for reviewing branding and strategic
      initiatives and a loss of $852,000
      in the cash surrender value of life insurance. These
      increases were offset by the reduction of $800,000 of carrying costs recognized
      in 2005 associated with the acquisition of designation rights from Chi-Chi’s in
      2004.


39
 Table
          of Contents


**MANAGEMENT'S
      DISCUSSION AND ANALYSIS OF**


**FINANCIAL
      CONDITION AND RESULTS OF OPERATIONS**





**Three
      months ended June 30, 2006 and 2005 (continued)**





*Provision
      for impaired assets and restaurant closings.* A
      provision of $502,000 was recorded during the second quarter of 2006 which
      included $485,000 for the impairment of one domestic Outback Steakhouse
      restaurant and $17,000 of additional charges for intangible and other asset
      impairments related to the closing of Paul Lee’s Chinese Kitchen. During the
      second quarter of 2005, a provision of $7,679,000 was recorded which included
      $98,000 for the partial impairment of one Company-owned Bonefish Grill
      restaurant and $7,581,000 for an impairment charge against the deferred license
      fee receivable related to certain non-restaurant operations.





*(Income)
      loss from operations of unconsolidated affiliates* .
      Income
      from operations of unconsolidated affiliates represents our portion of net
      income from restaurants operated as development joint ventures. Income from
      development joint ventures increased by $239,000 to income of $235,000 during
      the second quarter of 2006 compared with a loss of $4,000 during the same period
      in 2005. This increase was attributable primarily to a $574,000 write-down
      of an
      Outback Steakhouse operated as a joint venture in Pennsylvania during the second
      quarter of 2005. Operating performance issues and our inability to obtain more
      favorable lease terms resulted in a decision not to extend the lease for this
      restaurant past the initial term. This increase is partially offset by losses
      of
      $195,000 incurred on our investment in Kentucky Speedway, LLC during the second
      quarter of 2006.





*Income
      from operations* . Income
      from operations decreased by $27,113,000 to $37,809,000 in the second quarter
      of
      2006 compared with $64,922,000 in the same period in 2005 as a result of
      declines in average unit volumes at domestic Outback Steakhouses and Carrabba’s
      Italian Grills, conversion costs related to the implementation of the Partner
      Equity Program, stock-based compensation expenses resulting from the
      implementation of a new accounting standard and the changes in the relationships
      between revenues and expenses discussed above.





*Other
      income (expense), net.* Other
      income (expense), net increased by $5,254,000 to income of $5,165,000 in the
      second quarter of 2006 compared with an expense of $89,000 in the same period
      in
      2005 as a result of a gain of $5,165,000 recorded
      for the disposal of an Outback Steakhouse restaurant in accordance with the
      terms of a lease termination agreement.





*Interest
      income* .
      Interest income was $804,000 during the second quarter of 2006 compared with
      $450,000 in the same period in 2005. Interest
      income increased due to higher interest rates on short-term investment and
      cash
      equivalent balances during the second quarter of 2006 compared with the same
      period in 2005. Interest income for the quarters ended June 30, 2006 and 2005
      included interest of approximately $426,000 and $255,000, respectively, from
      notes receivable held by a limited liability company owned by our California
      franchisee.





*Interest
      expense* .
      Interest expense was $3,211,000 during the second quarter of 2006 compared
      with
      $1,513,000 in the same period in 2005. The
      increase in interest expense was due to higher average debt balances and higher
      interest rates during the second quarter of 2006 compared with the second
      quarter of 2005. Interest
      expense for the quarters ended June 30, 2006 and 2005 included approximately
      $426,000 and $255,000, respectively, of expense from outstanding borrowings
      on
      the line of credit held by a limited liability company owned by our California
      franchisee.





*Provision
      for income taxes* . The
      provision for income taxes was $9,938,000, or 24.4% of pretax income, for the
      second quarter of 2006 compared to $21,294,000, or 33.3%, in the second quarter
      of 2005. The decline in the effective tax rate during the second quarter of
      2006
      was primarily due to an increase in FICA tax credits for employee-reported
      tips
      as a percentage of income before provision for income taxes and a higher
      percentage of profits in lower-taxed jurisdictions.


40
 Table
          of Contents


**MANAGEMENT'S
      DISCUSSION AND ANALYSIS OF**


**FINANCIAL
      CONDITION AND RESULTS OF OPERATIONS**





**Three
      months ended June 30, 2006 and 2005 (continued)**





*Net
      income and earnings per share* .
      Net
      income for the second quarter of 2006 was $28,832,000 compared with $39,534,000
      in the same period in 2005. Basic earnings per share decreased to $0.39 during
      the second quarter of 2006 compared with $0.53 for the same period in 2005
      as a
      result of the decreas e
      in net
      income, partially offset by the decrease in basic weighted average shares
      outstanding of approximately 351,000 shares. The decrease in basic weighted
      average shares outstanding was primarily a result
      of common stock repurchases partially offset by the
      issuance of shares under stock option plans.  Diluted
      earnings per share decreased to $0.38 during the second quarter of 2006 compared
      with $0.51 for the same period in 2005 as a resu lt
      of the
      decrease in net income and partially offset by the decrease in diluted weighted
      average shares outstanding of approximately 1,018,000 shares. The decrease
      in diluted weighted average shares outstanding was primarily due to the reduced
      number of dilutive options outstanding and the decreased number of basic shares
      outstanding and was partially offset by the effect of contingently issuable
      shares related to the PEP Stock Plan for the quarter ended June 30, 2006
      compared with June 30, 2005 .


41
 Table
          of Contents


**MANAGEMENT'S
      DISCUSSION AND ANALYSIS OF**


**FINANCIAL
      CONDITION AND RESULTS OF OPERATIONS**





**Six
      months ended June 30, 2006 and 2005**





REVENUES





*Restaurant
      sales.* Restaurant sales increased by 9.2% to $1,973,331,000 during the first half
      of
      2006 compared with $1,806,806,000 in the same period in 2005. The increase
      in
      restaurant sales was primarily attributable to additional revenues of
      approximately $170,189,000 from the opening of new restaurants after June 30,
      2005, revenues of approximately $8,100,000 from the purchase in February 2006
      of
      ten Eastern Canada Outback Steakhouse franchise restaurants, partially offset
      by
      decreases in sales at existing restaurants. The following table includes
      additional information about changes in restaurant sales at domestic
      Company-owned restaurants for the six months ended June 30, 2006 and
      2005:


**SIX
                  MONTHS ENDED****JUNE
                  30,****2006**
              
              **2005**Average
                  restaurant unit volumes (weekly):Outback
                  Steakhouses(1)
              
              $
              66,419
              
              $
              67,823Carrabba's
                  Italian Grills(1)
              
              
              61,345
              
              
              63,029Bonefish
                  Grills (1)
              
              
              61,929
              
              
              62,188Fleming's
                  Prime Steakhouse and Wine Bars
              
              
              88,592
              
              
              88,663Roy's
              
              
              78,096
              
              
              75,933Operating
                  weeks:Outback
                  Steakhouses
              
              
              17,374
              
              
              16,889Carrabba's
                  Italian Grills
              
              
              5,307
              
              
              4,523Bonefish
                  Grills
              
              
              2,474
              
              
              1,716Fleming's
                  Prime Steakhouse and Wine Bars
              
              
              1,035
              
              
              822Roy's
              
              
              547
              
              
              487Year
                  to year percentage change:Menu
                  price increases (2):Outback
                  Steakhouses
              
              
              0.6
              %
              
              4.4
              %Carrabba's
                  Italian Grills
              
              
              1.0
              %
              
              2.5
              %Bonefish
                  Grills
              
              
              1.8
              %
              
              2.7
              %Same-store
                  sales (stores open 18 months or more):Outback
                  Steakhouses
              
              
              -2.0
              %
              
              -0.7
              %Carrabba's
                  Italian Grills
              
              
              0.2
              %
              
              6.3
              %Bonefish
                  Grills
              
              
              1.5
              %
              
              1.7
              %Fleming's
                  Prime Steakhouse and Wine Bars
              
              
              5.4
              %
              
              11.8
              %Roy's
              
              
              1.7
              %
              
              4.6
              %
 __________________
 (1)
                We
                    have restated our previously reported consolidated financial
                    statements to
                    reflect certain adjustments as discussed in Note 1 of Unaudited
                    Consolidated Financial Statements of Item 1: Consolidated Financial
                    Statements, which is included in this Form
                    10-Q/A.
 (2)
                Reflects
                    nominal amounts of menu price changes, prior to any change in
                    product mix
                    because of price increases, and may not reflect amounts effectively
                    paid
                    by the customer. Menu price increases are not provided for Fleming's
                    and
                    Roy's as a significant portion of their sales come from specials,
                    which
                    fluctuate daily.


*Other
      revenues.* Other
      revenues, consisting primarily of initial franchise fees and royalties,
      increased by $304,000 to $11,054,000 in the first half of 2006 as compared
      with
      $10,750,000 in 2005. This
      increase primarily resulted from higher initial franchise fees and royalties
      from additional stores opened and operated as franchises during the first half
      of 2006 compared with the same period in 2005, increased international royalties
      and increased catering revenue. This increase was partially offset by lower
      franchise fees and royalties for Outback Steakhouse International as a result
      of
      the purchase in February 2006 of ten Eastern Canada Outback Steakhouse franchise
      restaurants.  42
 Table
            of Contents


**MANAGEMENT'S
      DISCUSSION AND ANALYSIS OF**


**FINANCIAL
      CONDITION AND RESULTS OF OPERATIONS**





**Six
      months ended June 30, 2006 and 2005 (continued)**





COSTS
      AND EXPENSES





*Cost
      of sales.* Cost of
      sales, consisting of food and beverage costs, decreased 0.4% to 36.3% as a
      percentage of restaurant sales in the first half of 2006 compared with the
      same
      period in 2005. This decrease in cost of sales was attributable to an increase
      in the proportion of consolidated sales associated with our non-Outback
      Steakhouse restaurants that have lower cost of goods sold ratios than Outback
      Steakhouses.  Decreases
      in dairy, chicken, shrimp and international beef costs for the first half of
      2006 compared with the same period in 2005 were partially offset by higher
      produce and seafood costs.





*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 Program and other stock-based compensation
      expenses. Labor and other related expenses increased 2.1% as a percentage of
      restaurant sales to 27.7% in the first half of 2006 compared with the same
      period in 2005. Of the increase, approximately 0.9% was attributable to
      conversion costs related to the implementation of the new Partner Equity Program
      and 0.6% resulted from ongoing costs from the Partner Equity Program,
      stock-based compensation expenses resulting from the implementation of a new
      accounting standard and restricted stock grants to managing partners. The total
      costs associated with implementation of the Partner Equity Program caused a
      corresponding $18,705,000 increase in the “Partner deposit and accrued buyout
      liability” balance in our Unaudited Consolidated Balance Sheet as of June 30,
      2006 as compared to December 31, 2005. Additionally, declines in average unit
      volumes at domestic Outback Steakhouses and Carrabba’s Italian Grills, minimum
      wage increases and increases in the proportion of new restaurant formats, which
      have higher average labor costs than domestic Outback Steakhouses and Carrabba's
      Italian Grills, increased labor and other related expenses as a percentage
      of
      restaurant sales compared to 2005.





*Other
      restaurant operating expenses* .
      Other
      restaurant operating expenses include certain unit-level operating costs such
      as
      operating supplies, rent, repair and maintenance, advertising expenses,
      utilities, pre-opening costs and other occupancy costs. Substantial portions
      of
      these expenses are fixed or indirectly variable. These costs increased 1.7%
      to
      22.4% as a percentage of restaurant sales in the first half of 2006 compared
      with the same period in 2005. This
      increase resulted from higher utility and repair and maintenance costs, declines
      in average unit volumes at domestic Outback Steakhouses and Carrabba’s Italian
      Grills, higher advertising costs for Carrabba’s Italian Grill and an increase in
      the proportion of new format restaurants and international Outback Steakhouses
      in operation, which have higher average restaurant operating expenses as a
      percentage of restaurant sales than domestic Outback Steakhouses and Carrabba's
      Italian Grills.





*Depreciation
      and amortization* .
      Depreciation and amortization costs increased 0.4% as a percentage of total
      revenues to 3.7% in the first half of 2006 compared to the same period in 2005.
      Increased depreciation expense as a percentage of total revenues resulted from
      lower average unit volumes at domestic Outback Steakhouses and Carrabba’s
      Italian Grills during the first half of the year, the continued rollout of
      a
      point of sale system to our Outback Steakhouse restaurants, remodeling of
      restaurants and higher depreciation costs for certain of our new restaurant
      formats, which have higher average construction costs than an Outback
      Steakhouse.


43
 Table
          of Contents


**MANAGEMENT'S
      DISCUSSION AND ANALYSIS OF**


**FINANCIAL
      CONDITION AND RESULTS OF OPERATIONS**





**Six
      months ended June 30, 2006 and 2005 (continued)**





*General
      and administrative* .
      General
      and administrative costs increased by $11,709,000 to $112,859,000 in the first
      half of 2006 compared with $101,150,000 during the same period in
      2005. This
      increase resulted from an increase in overall administrative costs associated
      with operating additional domestic and international Outback Steakhouses,
      Carrabba’s Italian Grills, Fleming’s Prime Steakhouses, Roy’s, Bonefish Grills
      and Cheeseburger in Paradise restaurants. Additionally, the increase resulted
      from $2,593,000 of compensation expense recognized for restricted stock benefits
      for certain members of senior management that was not recognized in the same
      period last year and $2,888,000 of stock options expensed as a result of the
      implementation of a new accounting standard. Also, during the first half of
      2006
      we incurred $1,000,000 of expense from writing off investments in new
      Cheeseburger in Paradise restaurant development that was discontinued due to
      the
      anticipation that there would not be a favorable return on the investments,
      $1,310,000 of investigation costs for the possible violation of the Foreign
      Corrupt Practices Act in South Korea, $1,200,000 of consulting expenses for
      reviewing branding and strategic initiatives and a loss of $442,000 in the
      cash
      surrender value of life insurance. These increases were offset by the reduction
      of $1,690,000 of carrying costs recognized in 2005 associated with the
      acquisition of designation rights from Chi-Chi’s in 2004 and $2,100,000 in
      compensation expense associated with our Chief Executive Officer recognized
      during the first quarter of 2005, which did not recur in 2006.





*Provision
      for impaired assets and restaurant closings.* A
      provision of $3,034,000 was recorded during the first half of 2006 which
      included approximately $931,000 for an impairment charge for intangible and
      other asset impairments related to the closing of Paul Lee’s Chinese Kitchen,
      $1,618,000 for the
      impairment of one Carrabba’s Italian Grill restaurant and $485,000 for the
      impairment of one domestic Outback Steakhouse restaurant. During
      the six months ended June 30, 2005, a provision of $8,630,000 was recorded
      which
      included $951,000 for the closing of one domestic Outback Steakhouse restaurant,
      $98,000 for a partial impairment of a Bonefish Grill restaurant and $7,581,000
      for an impairment charge against the deferred license fee receivable related
      to
      certain non-restaurant operations.





*(Income)
      loss from operations of unconsolidated affiliates* .
      Income
      from operations of unconsolidated affiliates represents our portion of net
      income from restaurants operated as development joint ventures. Income from
      development joint ventures increased by $226,000 to income of $125,000 during
      the first half of 2006 compared with a loss of $101,000 during the same period
      in 2005. This increase was attributable to expenses resulting from the adoption
      of a buyout program for managing and area operating partners in certain Outback
      Steakhouses in our joint venture in Brazil during the first quarter of 2005,
      which did not recur in 2006. This increase is also attributable to a $574,000
      write-down of an Outback Steakhouse operated as a joint venture in Pennsylvania
      during the second quarter of 2005. Operating performance issues and our
      inability to obtain more favorable lease terms resulted in a decision not to
      extend the lease for this restaurant past the initial term. This increase is
      partially offset by losses of $933,000 incurred on our investment in Kentucky
      Speedway, LLC during the first half of 2006.





*Income
      from operations* . Income
      from operations decreased by $55,349,000 to $92,206,000 in the first half of
      2006 compared with $147,555,000 in the same period in 2005 as a result of
      declines in average unit volumes at domestic Outback Steakhouses and Carrabba’s
      Italian Grills, conversion costs related to the implementation of the Partner
      Equity Program, stock-based compensation expenses resulting from the
      implementation of a new accounting standard and the changes in the relationships
      between revenues and expenses discussed above.





*Other
      income (expense), net.* Other
      income (expense), net increased by $6,188,000 to income of $5,165,000 in the
      first half of 2006 compared with an expense of $1,023,000 in the same period
      in
      2005 as a result of a gain of $5,165,000 recorded
      for the disposal of an Outback Steakhouse restaurant in accordance with the
      terms of a lease termination agreement.





*Interest
      income* .
      Interest income was $1,361,000 during the first half of 2006 compared with
      $818,000 in the same period in 2005. Interest
      income increased due to higher interest rates on short-term investment and
      cash
      equivalent balances during the first half of 2006 compared with the same period
      in 2005. Interest income for the six months ended June 30, 2006 and 2005
      included interest of approximately $812,000 and $500,000, respectively, from
      notes receivable held by a limited liability company owned by our California
      franchisee.  44
 Table
            of Contents


**MANAGEMENT'S
      DISCUSSION AND ANALYSIS OF**


**FINANCIAL
      CONDITION AND RESULTS OF OPERATIONS**





**Six
      months ended June 30, 2006 and 2005 (continued)**





*Interest
      expense* .
      Interest expense was $5,582,000 during the first half of 2006 compared with
      $2,671,000 in the same period in 2005. The
      increase in interest expense was due to higher average debt balances and higher
      interest rates during the first half of 2006 compared with the first half of
      2005. Interest
      expense for the six months ended June 30, 2006 and 2005 included approximately
      $812,000 and $500,000, respectively, of expense from outstanding borrowings
      on
      the line of credit held by a limited liability company owned by our California
      franchisee.





*Provision
      for income taxes* . The
      provision for income taxes was $26,662,000, or 28.6% of pretax income, for
      the
      first half of 2006 compared to $48,454,000, or 33.5%, in the first half of
      2005.
      The decline in the effective tax rate during the first half of 2006 was
      primarily due to an increase in FICA tax credits for employee-reported tips
      as a
      percentage of income before provision for income taxes and a higher percentage
      of profits in lower-taxed jurisdictions.





*Net
      income and earnings per share* .
      Net
      income for the first half of 2006 was $61,063,000 compared with $89,885,000
      in
      the same period in 2005. Basic earnings per share decreased to $0.83 during
      the
      first half of 2006 compared with $1.22 for the same period in 2005 as a result
      of the decreas e
      in net
      income, partially offset by the decrease in basic weighted average shares
      outstanding of approximately 36,000 shares. Basic weighted average shares
      outstanding decreased as
      a
      result of common stock repurchases, partially offset by t he
      issuance of shares under stock option plans.  Diluted
      earnings per share decreased to $0.80 during the first half of 2006 compared
      with $1.17 for the same period in 2005 as a resu lt
      of the
      decrease in net income and partially offset by the decrease in diluted weighted
      average shares outstanding of approximately 473,000 shares. The decrease
      in diluted weighted average shares outstanding was primarily due to the reduced
      number of dilutive options outstanding and the decreased number of basic shares
      outstanding and was partially offset by the effect of contingently issuable
      shares related to the PEP Stock Plan for the six months ended June 30, 2006
      compared with June 30, 2005 .





**Liquidity
      and Capital Resources**





The
      following table presents a summary of our cash flows from operating, investing
      and financing activities for the periods indicated (in thousands):




**SIX
                    MONTHS ENDED****JUNE
                    30,****2006**
                
                **2005****(restated)**
                
                **(restated)**Net
                    cash provided by operating activities
                
                $
                89,477
                
                $
                137,579Net
                    cash used in investing activities
                
                
                (160,208
                )
                
                (138,587
                )Net
                    cash provided by (used in) financing activities
                
                
                43,446
                
                
                (18,866
                )Net
                    decrease in cash and cash equivalents
                
                $
                (27,285
                )
                $
                (19,874
                )





We
      require capital principally for the development of new restaurants, remodeling
      older restaurants and investments in technology, and on occasion also use
      capital for acquisitions of franchisees and joint venture partners. We also
      require capital to pay dividends to common stockholders (refer to additional
      discussion in the Dividends section of Management’s Discussion and Analysis of
      Financial Condition and Results of Operations). We also utilize capital to
      repurchase our common stock as part of an ongoing share repurchase program.
      Capital expenditures totaled approximately $327,862,000 for the year ended
      December 31, 2005 and approximately $157,260,000 and $135,493,000 during the
      first six months of 2006 and 2005, respectively. We either lease our restaurants
      under operating leases for periods ranging from five to 30 years (including
      renewal periods) or build free-standing restaurants where it is cost
      effective.


45
 Table
          of Contents


**MANAGEMENT'S
      DISCUSSION AND ANALYSIS OF**


**FINANCIAL
      CONDITION AND RESULTS OF OPERATIONS**





**Liquidity
      and Capital Resources (continued)**





If
      demand
      for our products and services were to decrease as a result of increased
      competition, changing consumer tastes, changes in local, regional, national
      and
      international economic conditions or changes in the level of consumer acceptance
      of our restaurant brands, our restaurant sales could decline significantly.
      The
      following table sets forth approximate amounts by which cash provided by
      operating activities may decline in the event of a decline in restaurant sales
      of 5%, 10% and 15% compared with total revenues for the year ended December
      31,
      2005 (in thousands, as restated):





**5%**
            
            **10%**
            
            **15%**Decrease
                in restaurant sales
            
            $
            (179,543
            )
            $
            (359,087
            )
            $
            (538,630
            )Decrease
                in cash provided by operating activities
            
            
            (33,844
            )
            
            (67,688
            )
            
            (101,532
            )





The
      estimates above are based on the assumption that cash provided by operating
      activities decreases approximately $0.19 for every $1.00 decrease in restaurant
      sales. These numbers are estimates only and do not consider other measures
      we
      could implement were such decreases in revenue to occur.





In
      January 2005, we executed a lease termination agreement to vacate a premises
      occupied by a Company-owned O utback
      Steakhouse. In accordance with the terms of this agreement, we vacated the
      restaurant and terminated its lease in June 2006. We received $6,014,000 and
      recorded a gain of $5,165,000 on the disposal of this restaurant during the
      three months ended June 30, 2006.





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





On
      October 26, 2005, our Board of Directors approved up to $24,000,000 to be used
      for the purchase and development of 46 acres in Tampa, Florida. This purchase
      closed in December 2005. We
      intend to sell approximately 42 acres of this property and keep three sites
      for
      restaurant development.





On
      May 31,
      2006, we sold our interests in two of our Company-owned Bonefish Grills to
      the
      minority owners of those restaurants in exchange for future royalties and other
      contingent payments. No gain or loss was recorded during the six months ended
      June 30, 2006 as these restaurants were impaired during 2005. This sale is
      retroactive to January 1, 2006, and these two locations are now operated as
      franchises.





In
      the
      first quarter of 2006, we implemented changes to our general manager partner
      program that are effective for all new general manager partner and chef
      partner employment agreements signed after March 1, 2006. Additionally, all
      managing partners currently under contract were given an opportunity to elect
      participation in the new plan. Upon completion of each five-year term of
      employment, the managing partner will participate in a deferred compensation
      program in lieu of receiving stock options under the historical plan. We will
      require the use of capital to fund this new Partner Equity Plan as each general
      managing partner earns a contribution and currently estimate funding
      requirements ranging from $20,000,000 to $25,000,000 in each of the first two
      years of the plan. Future funding requirements could vary significantly
      depending on timing of managing partner contracts, forfeiture rates and numbers
      of partner participants and may differ materially from
      estimates.


46
 Table
          of Contents


**MANAGEMENT'S
      DISCUSSION AND ANALYSIS OF**


**FINANCIAL
      CONDITION AND RESULTS OF OPERATIONS**





**Liquidity
      and Capital Resources (continued)**





CREDIT
      FACILITIES





Effective
      March 10, 2006, we amended an uncollateralized $150,000,000 revolving credit
      facility that was scheduled to mature in June 2007 with a new $225,000,000
      maximum borrowing amount and maturity date of June 2011. The amended line of
      credit permits borrowing at interest rates ranging from 45 to 65 basis points
      over the 30, 60, 90 or 180-day LIBOR (ranging from 5.35% to 5.62% at June 30,
      2006). At June 30, 2006, the unused portion of the line of credit was
      $56,000,000.





The
      credit agreement contains certain restrictions and conditions as defined in
      the
      agreement that require us to maintain consolidated net worth equal to or greater
      than consolidated total debt and to maintain a ratio of total consolidated
      debt
      to EBITDAR (earnings before interest, taxes, depreciation, amortization and
      rent) equal to or less than 3.0 to 1.0. At June 30, 2006, we were in compliance
      with these debt covenants.





Effective
      March 10, 2006, we also amended a $30,000,000 line of
      credit that was scheduled to mature in June 2007 with a new $40,000,000 maximum
      borrowing amount and maturity date of June 2011. The amended line permits
      borrowing at interest rates ranging from 45 to 65 basis points over LIBOR for
      loan draws and 55 to 80 basis points over LIBOR for letter of credit advances.
      The credit agreement contains certain restrictions and conditions as defined
      in
      the agreement. At June 30, 2006, the outstanding balance on the line of credit
      was $5,000,000. There were no draws outstanding on this line of credit as of
      December 31, 2005. At June 30, 2006 and December 31, 2005, $25,072,000 and
      $20,072,000, respectively, of the line of credit was committed for the issuance
      of letters of credit as required by insurance companies that underwrite our
      workers’ compensation insurance and also, where required, for construction of
      new restaurants.





As
      of
      June 30, 2006, we had approximately $8,146,000 of notes payable at interest
      rates ranging from 2.07% to 7.00%. These notes have been primarily issued for
      buyouts of general manager interests in the cash flows of their restaurants
      and
      generally are payable over five years.





We
      have
      notes payable with banks bearing interest at rates ranging from 5.06% to 6.07%
      and from 4.95% to 6.06% at June 30, 2006 and December 31, 2005, respectively,
      to
      finance development of our restaurants in South Korea. The notes are denominated
      and payable in Korean won, with outstanding balances as of June 30, 2006
      maturing at dates ranging from August 2006 to June 2007. As of June 30, 2006
      and
      December 31, 2005, the outstanding balance was approximately $55,000,000 and
      $46,670,000, respectively. Certain of the notes payable are collateralized
      by
      lease and other deposits. At June 30, 2006 and December 31, 2005, collateralized
      notes totaled approximately $38,847,000 and $34,326,000, respectively. We have
      been pre-approved by these banks for additional borrowings of approximately
      $7,216,000 and $4,826,000 at June 30, 2006 and December 31, 2005,
      respectively.





We
      have
      notes payable with banks to finance the development of our restaurants in Japan

      (“Outback Japan”). The notes are payable to banks, collateralized by letters of
      credit and lease deposits of approximately $3,300,000 and $3,100,000 at June
      30,
      2006 and December 31, 2005, respectively, and bear interest at rates ranging
      from 0.86% to 0.87% and at 0.86% at June 30, 2006 and December 31, 2005,
      respectively. The notes are denominated and payable in Japanese yen, with
      outstanding balances as of June 30, 2006 maturing in September 2006. As of
      June
      30, 2006 and December 31, 2005, outstanding balances totaled approximately
      $7,818,000 and $5,085,000, respectively.


47
 Table
          of Contents


**MANAGEMENT'S
      DISCUSSION AND ANALYSIS OF**


**FINANCIAL
      CONDITION AND RESULTS OF OPERATIONS**





**Liquidity
      and Capital Resources (continued)**





CREDIT
      FACILITIES (continued)





In
      October 2003, Outback Japan established a revolving line of credit to finance
      the development of new restaurants in Japan and refinance certain notes payable.
      The line permits borrowing up to a maximu m
      of
      $10,000,000. Effective March 10, 2006, this revolving credit facility that
      was
      scheduled to mature in June 2007 was amended with a new maturity date in June
      2011. The amended line of credit permits borrowing at interest rates ranging
      from 45 to 65 basis points over LIBOR. As of June 30, 2006 and December 31,
      2005, Outback Japan had borrowed approximately $9,320,000 and $9,043,000,
      respectively, on th e
      line of
      credit at an average interest rate of 0.90%, with draws as of June 30, 2006
      maturing from August 2006 to December 2006. The revolving line of credit
      contains certain restrictions and conditions as defined in the agreement. As
      of
      June 30, 2006, we were in compliance with all of the debt
      covenants.





In
      February 2004, Outback Japan established an additional revolving line of credit
      to finance the development of new restaurants in Japan and to refinance certain
      notes payable. The line permits borrowing up to a maximum of $10,000,000 with
      interest of LIBOR divided by a percentage equal to 1.00 minus the Eurocurrency
      Reserve Percentage. The line matures in December 2006. As of June 30, 2006
      and
      December 31, 2005, Outback Japan had borrowed approximately $2,096,000 and
      $5,593,000, respectively, on the line of credit at an average interest rate
      of
      1.02%, with draws as of June 30, 2006 maturing in September 2006. The revolving
      line of credit contains certain restrictions and conditions as defined in the
      agreement. As of June 30, 2006, we were in compliance with all of the debt
      covenants.





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





We
      are
      the guarantor of an uncollateralized line of credit that permits borrowing
      of up
      to $35,000,000 for a limited liability company, T-Bird Nevada, LLC (“T-Bird”),
      owned by a California franchisee. This line of credit bears interest at rates
      ranging from 50 to 90 basis points over LIBOR and matures in December 2008.
      We
      were required to consolidate T-Bird effective January 1, 2004 upon adoption
      of
      FIN 46R. At June 30, 2006 and December 31, 2005, the outstanding balance on
      the
      line of credit was approximately $31,283,000, and is included in our Unaudited
      Consolidated Balance Sheets as long-term debt.  T-Bird
      uses proceeds from the line of credit for the purchase of real estate and
      construction of buildings to be operated as Outback Steakhouse restaurants
      and
      leased to our franchisees. According to the terms of the line of credit, T-Bird
      may borrow, repay, re-borrow or prepay advances at any time before the
      termination date of the agreement.




If
      a
      default under the line of credit were to occur requiring us to perform under
      the
      guarantee obligation, we have the right to call into default all of our
      franchise agreements in California and exercise any rights and remedies under
      those agreements as well as the right to recourse under loans T-Bird has made
      to
      individual corporations in California which own the land and/or building that
      is
      leased to those franchise locations. Events of default are defined in the line
      of credit agreement and include our covenant commitments under existing lines
      of
      credit. We are not the primary obligor on the line of credit and we are not
      aware of any non-compliance with the underlying terms of the line of credit
      agreement that would result in us having to perform in accordance with the
      terms
      of the guarantee.





We
      expect
      that our capital requirements through the end of 2006 will be met by cash flows
      from operations and, to the extent needed, advances on our lines of
      credit.


48
 Table
          of Contents


**MANAGEMENT'S
      DISCUSSION AND ANALYSIS OF**


**FINANCIAL
      CONDITION AND RESULTS OF OPERATIONS**





**Liquidity
      and Capital Resources (continued)**





CREDIT
      FACILITIES (continued)





Our
      primary source of credit is our uncollateralized revolving line of credit that
      permits borrowing up to $225,000,000. Based upon provisions of the line of
      credit agreement and operating data and outstanding borrowings as of and through
      June 30, 2006, the margin over LIBOR rates charged to us on future amounts
      drawn
      under the line will continue to be 0.125% higher than our base margin unless:
      (i) outstanding debt balances decrease by more than $146,500,000; or (ii)
      earnings before interest, taxes, depreciation, amortization and rent increase
      more than 16.0%. Furthermore, the margin over LIBOR rates charged to us on
      future amounts drawn under the line would increase by an additional 0.125%
      if:
      (i) outstanding debt balances increased by more than $81,800,000; or (ii)
      earnings before interest, taxes, depreciation, amortization and rent decreased
      more than 7.2%. In addition, based upon provisions of the line of credit
      agreement, availability of funds under the uncollateralized revolving line
      of
      credit would not be affected unless: (i) outstanding debt balances increased
      by
      more than $107,400,000; (ii) earnings before interest, taxes, depreciation,
      amortization and rent decreased more than 22.6%; or (iii) our net worth
      decreased approximately 9.2%.





DEBT
      GUARANTEES





We
      are
      the guarantor of an uncollateralized line of credit that permits borrowing
      of up
      to a maximum of $24,500,000 for our joint venture partner, RY-8, Inc. (“RY-8”),
      in the development of Roy's restaurants. The line of credit originally expired
      in December 2004 and was renewed twice with a new termination date in June
      2011.
      According to the terms of the credit agreement, RY-8 may borrow, repay,
      re-borrow or prepay advances at any time before the termination date of the
      agreement. On the termination date of the agreement, the entire outstanding
      principal amount of the loan then outstanding and any accrued interest is due.
      At June 30, 2006, the outstanding balance on the line of credit was
      approximately $23,581,000.





RY-8’s
      obligations under the line of credit are unconditionally guaranteed by us and
      Roy’s Holdings, Inc. (“RHI”). If an event of default occurs (as defined in the
      agreement, and including our covenant commitments under existing lines of
      credit), then the total outstanding balance, including any accrued interest,
      is
      immediately due from the guarantors.





If
      an
      event of default occurs and RY-8 is unable to pay the outstanding balance owed,
      we would, as guarantor, be liable for this balance. However, in conjunction
      with
      the credit agreement, RY-8 and RHI have entered into an Indemnity Agreement
      and
      a Pledge of Interest and Security Agreement in favor of OSI Restaurant Partners,
      Inc. These agreements provide that if we are required to perform our obligation
      as guarantor pursuant to the credit agreement, then RY-8 and RHI will indemnify
      us against all losses, claims, damages or liabilities which arise out of or
      are
      based upon our guarantee of the credit agreement. RY-8’s and RHI’s obligations
      under these agreements are collateralized by a first priority lien upon and
      a
      continuing security interest in any and all of RY-8’s interests in the joint
      venture.





We
      are
      the guarantor on $68,000,000 in bonds issued by Kentucky Speedway, LLC
      (“Speedway”). Speedway is an unconsolidated affiliate in which we have a 22.5%
      equity interest and for which we operate catering and concession facilities.
      Payments on the bonds began in December 2003 and will continue according to
      a
      redemption schedule with final maturity in December 2022. At June 30 ,
      2006
      and December 31, 2005, the outstanding balance on the bonds was approximately
      $63,300,000.





In
      June
      2006, Speedway modified certain terms and conditions of its debt, including
      (i)
      lowering its interest rate, (ii) removing a liquidity coverage requirement,
      (iii) reducing a fixed charge coverage ratio, (iv) delaying redemption payments
      for 2006, 2007, and 2008, and (v) revising a put feature allowing the lenders
      to
      require full payment of the debt on or after June 2011. In connection with
      these
      modifications, in June 2006, we and other equity owners of Speedway entered
      into
      an amended guarantee, which increased our guarantee on the bonds from $9,445,000
      to $17,585,000. Our guarantee will proportionally decrease as payments are
      made
      on the bonds.


49
 Table
          of Contents


**MANAGEMENT'S
      DISCUSSION AND ANALYSIS OF**


**FINANCIAL
      CONDITION AND RESULTS OF OPERATIONS**





**Liquidity
      and Capital Resources (continued)**





DEBT
      GUARANTEES (continued)





Additionally,
      as part of the amended guarantee, we and other Speedway equity owners are
      obligated to contribute, either as equity or subordinated debt, any amounts
      necessary to maintain Speedway’s defined fixed charge coverage ratio. We are
      obligated to contribute 27.78% of such amounts. Speedway has not yet reached
      its
      operating break-even point. Since the initial investment, we have made five
      additional working capital contributions and a loan to this affiliate in
      payments totaling $4,436,000. Of this amount, $800,000 was loaned during the
      six
      months ended June 30, 2006 and $1,392,000 was loaned in 2005. In addition,
      based
      on current operating performance, we anticipate making additional contributions
      in 2006 of approximately $750,000 to $1,250,000. This affiliate is expected
      to
      incur further operating losses at least through 2006 .





Each
      guarantor has unconditionally guaranteed Speedway’s obligations under the bonds
      not to exceed its maximum guaranteed amount. Our maximum guaranteed amount
      is
      $17,585,000. If an event of default occurs as defined by the amended guarantee,
      or if the lenders exercise the put feature, the total outstanding amount on
      the
      Bonds, plus any accrued interest, is immediately due from Speedway and each
      guarantor would be obligated to make payment under its guaranty up to its
      maximum guaranteed amount.





In
      June
      2006, 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 recognized a liability of $2,495,000
      representing the estimated fair value of the guarantee and a corresponding
      increase to the investment in Speedway, which is included in the line item
      entitled “Investments In and Advances to Unconsolidated Affiliates, Net” in our
      Unaudited Consolidated Balance Sheets. Prior to the June 2006 modifications,
      the
      guarantee was not subject to the recognition or measurement requirements of
      FIN
      45 and no liability related to the guarantee was recorded at December 31, 2005
      or any prior period.





We
      are
      not aware of any non-compliance with the underlying terms of the borrowing
      agreements for which we provide a guarantee that would result in us having
      to
      perform in accordance with the terms of the guarantee.


50
 Table
          of Contents


**MANAGEMENT'S
      DISCUSSION AND ANALYSIS OF**


**FINANCIAL
      CONDITION AND RESULTS OF OPERATIONS**





**Liquidity
      and Capital Resources (continued)**





SHARE
      REPURCHASE





On
      July
      26, 2000, our Board of Directors authorized the repurchase of up to 4,000,000
      shares of our common stock, with the timing, price, quantity and manner of
      the
      purchases to be made at the discretion of management, depending upon market
      conditions. In addition, the Board of Directors authorized the repurchase of
      shares on a regular basis to offset shares issued as a result of stock option
      exercises. On July 23, 2003, our Board of Directors extended both the repurchase
      authorization for an additional 2,500,000 shares of our common stock, and the
      authorization to offset shares issued as a result of stock option exercises.
      We
      will fund the repurchase program with available cash and bank credit facilities.
      On February 13, 2006, our Board of Directors authorized the repurchase of an
      additional 1,500,000 shares and authorized the continued repurchase of shares
      on
      a regular basis to offset shares issued as a result of stock option exercises
      and as restricted shares vest and become dilutive. During the period from the
      authorization date through June 30, 2006, approximately 9,481,000 shares of
      our
      common stock have been issued as the result of stock option exercises. As of
      June 30, 2006, under these authorizations we have repurchased approximately
      15,415,000 shares of our common stock for approximately $552,057,000.





DIVIDENDS





Our
      Board
      of Directors authorized the following dividends during 2005 and
      2006:





Declaration
            
            Record
            
            Payable
            
            
            Amount
                per ShareDate
            
            Date
            
            Date
            
            
            of
                Common StockJanuary
                26, 2005
            
            February
                18, 2005
            
            March
                4, 2005
            
            
            $
            0.13April
                27, 2005
            
            May
                20, 2005
            
            June
                3, 2005
            
            
            
            0.13July
                27, 2005
            
            August
                19, 2005
            
            September
                2, 2005
            
            
            
            0.13October
                26, 2005
            
            November
                18, 2005
            
            December
                2, 2005
            
            
            
            0.13January
                24, 2006
            
            February
                17, 2006
            
            March
                3, 2006
            
            
            
            0.13April
                25, 2006
            
            May
                19, 2006
            
            June
                2, 2006
            
            
            
            0.13July
                25, 2006
            
            August
                18, 2006
            
            September
                1, 2006
            
            
            
            0.13





At
      the
      current dividend rate, the annual dividend payment is expected to be
      between $38,000,000 and $40,000,000 depending
      on the shares outstanding during the respective quarters. We intend to pay
      dividends with cash flow from operations.


51
 Table
          of Contents


**MANAGEMENT'S
      DISCUSSION AND ANALYSIS OF**


**FINANCIAL
      CONDITION AND RESULTS OF OPERATIONS**




**Cautionary
      Statement**





Our
      actual results could differ materially from those stated or implied in the
      forward-looking statements included in this report as a result, among other
      things, of the following:





(i)
            
            The
                restaurant industry is a highly competitive industry with many
                well-established competitors;(ii)
            
            Our
                results can be impacted by changes in consumer tastes and the level
                of
                consumer acceptance of our restaurant concepts (including consumer
                tolerance of price increases); local, regional, national and international
                economic conditions; the seasonality of our business; demographic
                trends;
                traffic patterns; change in consumer dietary habits; employee
                availability; the cost of advertising and media; government actions
                and
                policies; inflation; and increases in various costs, including
                construction and real estate costs;(iii)
            
            Substantial
                uncertainty exists as to the strength of consumer spending as a result
                of
                increased fuel prices and conflict in the Middle East, and the Company’s
                revenues and financial results in 2006 could vary significantly depending
                upon consumer spending trends throughout the remainder of the
                year;(iv)
            
            Our
                results can be affected by consumer perception of food
                safety;(v)
            
            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;(vi)
            
            Weather
                and acts of God could result in construction delays and also adversely
                affect the results of one or more restaurants for an indeterminate
                amount
                of time;(vii)
            
            Price
                and availability of commodities, including but not limited to, such
                items
                as beef, chicken, shrimp, pork, seafood, dairy, potatoes, onions
                and
                energy supplies, which are subject to fluctuation and could increase
                or
                decrease more than we expect;and/or(viii)
            
            Statements
                made concerning strategic initiatives are subject to the Board of
                Directors’ approval of any initiatives and there can be no assurance that
                the Board will decide to pursue any significant strategic
                initiative.


52
 Table
            of Contents




**OSI
      RestaurantPartners, Inc.**


**QUANTITATIVE
      AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK**





**Item
      3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET
      RISK**





We
      are
      exposed to market risk from changes in interest rates on debt, changes in
      foreign currency exchange rates and changes in commodity prices.





Our
      exposure to interest rate fluctuations is limited to our outstanding bank debt.
      At June 30, 2006, outstanding borrowings under our revolving lines of credit
      bear interest at 45 to 65 basis points over the 30, 60, 90 or 180-day London
      Interbank Offered Rate. The weighted average effective interest rate on the
      $174,000,000 outstanding balance under these lines at June 30, 2006 was 5.69%.
      At June 30, 2006, outstanding borrowings under our Japanese lines of credit
      bear
      interest at either 45 to 65 basis points over LIBOR or LIBOR divided by a
      percentage equal to 1.00 minus the Eurocurrency Reserve Percentage. The weighted
      average effective interest rate on the approximately $11,416,000 outstanding
      balance at June 30, 2006 was 0.92%. Notes payable of approximately $7,818,000
      to
      Japanese banks bear interest at rates ranging from 0.86% to 0.87%. Notes payable
      of approximately $55,000,000 to South Korean banks bear interest at rates
      ranging from 5.06% to 6.07% at June 30, 2006.





At
      June
      30, 2006 and December 31, 2005, our total debt, including consolidated
      guaranteed debt, was approximately $296,408,000 and $185,348,000, respectively.
      Should interest rates based on our average borrowings of approximately
      $240,900,000 through June 30, 2006 increase by one percentage point, our
      estimated annual interest expense would increase by approximately $2,409,000
      over amounts reported for the year ended December 31, 2005.





Our
      exposure to foreign currency exchange fluctuations relates primarily to our
      direct investment in restaurants in South Korea, Hong Kong, Japan, the
      Philippines and Brazil, our outstanding debt to Japanese and South Korean banks
      of approximately $19,234,000 and $55,000,000, respectively, at June 30, 2006
      and
      to our royalties from international franchisees. We do not use financial
      instruments to hedge foreign currency exchange rate changes. Our investments
      in
      these countries totaled approximately $36,229,000 and $24,802,000 as of June
      30,
      2006 and December 31, 2005, respectively.





Many
      of
      the ingredients used in the products sold in our restaurants are commodities
      that are subject to unpredictable price volatility.  Although we attempt to
      minimize the effect of price volatility by negotiating fixed price contracts
      for
      the supply of key ingredients, there are no established fixed price markets
      for
      certain commodities such as produce and wild fish, and we are subject to
      prevailing market conditions when purchasing those types of commodities. Other
      commodities are purchased based upon negotiated price ranges established with
      vendors with reference to the fluctuating market prices. The related agreements
      may contain contractual features that limit the price paid by establishing
      certain price floors and caps. We do not use financial instruments to hedge
      commodity prices because these purchase arrangements help control the ultimate
      cost paid.  Extreme changes in commodity prices and/or long-term changes
      could affect our financial results adversely, although any changes in commodity
      prices would affect our competitors at about the same time as us.  We
      expect that in most cases increased commodity prices could be passed through
      to
      our consumers via increases in menu prices.  However, if there is a time
      lag between the increasing commodity prices and our ability to increase menu
      prices or, if we believe the commodity price increase to be short in duration
      and we choose not to pass on the cost increases, our short-term financial
      results could be negatively affected. Additionally, from time to time,
      competitive circumstances could limit menu price flexibility, and in those
      cases
      margins would be negatively impacted by increased commodity prices.





In
      addition to the market risks identified above and to the risks discussed in
      “Management’s Discussion and Analysis of Financial Condition and Results of
      Operations,” we are subject to business risk as our beef supply is highly
      dependent upon five vendors. We currently purchase approximately 65% of our
      beef
      from two beef suppliers. If these vendors were unable to fulfill their
      obligations under their contracts, we would encounter supply shortages and
      incur
      higher costs to secure adequate supplies.





This
      market risk discussion contains forward-looking statements. Actual results
      may
      differ materially from the discussion based upon general market conditions
      and
      changes in domestic and global financial markets.


53
 Table
          of Contents


**OSI
      RestaurantPartners, Inc.**


**CONTROLS
      AND PROCEDURES**





**Item
      4. CONTROLS AND PROCEDURES**





In
      October 2006, we identified errors in our accounting for unearned revenue for
      unredeemed gift cards and certificates. Upon completion of the review of
      accounting policies for gift cards and certificates as well as a review of
      certain other balance sheet accounts, we have restated our consolidated
      financial statements for certain prior periods to correct these and other
      errors, as described in this section.





*Unearned
      revenue and revenue recognition*


Unearned
      revenue represents our liability for gift cards and certificates that have
      been
      sold but not yet redeemed.  Historically, we recognized revenue for
      estimates of gift cards and certificates that will not be redeemed (“breakage”)
      at the time of the sale of the gift cards and certificates.  We have
      determined that the methodology we used to arrive at breakage was inappropriate
      and resulted in understatement of the liability for gift cards and certificates.
      We have also determined that revenue should not be recognized at the time of
      sale of the gift cards and certificates. Accordingly, we have revised our policy
      to recognize breakage for those gift cards and certificates that will never
      be
      redeemed at the time at which their redemption becomes remote. Furthermore,
      certain expenses associated with gift card and certificate promotions were
      incorrectly netted against breakage income rather than reflected as expenses
      in
      our financial statements. Correction of these errors in our consolidated
      financial statements resulted in an increase in unearned revenue of $64,921,000
      and $60,337,000 as of June 30, 2006 and December 31, 2005, respectively, an
      increase in net income of $168,000 and $243,000 for the three and six months
      ended June 30, 2006 and a decrease in net income of $399,000 and $722,000 for
      the three and six months ended June 30, 2005. It also resulted in a $37,548,000
      decrease in retained earnings as of December 31, 2004.





*Minority
      interests in consolidated entities*


We
      have
      identified errors in the recorded amount of our minority interests in certain
      of
      our Carrabba’s Italian Grill subsidiaries, which were understated as a result of
      our incorrectly recording the entries relating to the correction in accounting
      for managing partners' interests in their stores from investment accounting
      to
      compensation accounting in 2003.  Additionally, we determined that in
      connection with our 2002 purchase of the 20% interest in Outback Steakhouse
      International, LP, the value of 28,570 shares that were payable upon meeting
      certain conditions should have been recorded at the acquisition date in 2002
      rather than upon their issuance in 2006.  Correction of these errors in our
      consolidated financial statements resulted in an increase in goodwill of
      $1,309,000 as of June 30, 2006 and December 31, 2005, an increase in minority
      interests in consolidated entities of $2,090,000 as of June 30, 2006 and a
      decrease in minority interests in consolidated entities of $1,314,000 as of
      December 31, 2005 and decreases in elimination of minority interest of $37,000
      and $20,000 for the three months ended June 30, 2006 and 2005, respectively,
      and
      $48,000 and $50,000 for the six months ended June 30, 2006 and 2005,
      respectively. It also resulted in an $119,000 increase in retained earnings
      as
      of December 31, 2004.





*Deferred
      rent and property, fixtures and equipment*


We
      identified errors in our straight-line lease calculations for certain properties
      where we received tenant improvement contributions from a landlord or where
      we
      determined that we were depreciating certain assets over lives different than
      the associated lease term.  Correction of these errors in our consolidated
      financial statements resulted in increases to deferred rent of $6,921,000 and
      $6,303,000 and decreases to property, fixtures and equipment of $2,208,000
      and
      $1,905,000 as of June 30, 2006 and December 31, 2005, respectively, and
      decreases to net income of $257,000 and $472,000 for the three months ended
      June
      30, 2006 and 2005, respectively, and $517,000 and $756,000 for the six months
      ended June 30, 2006 and 2005, respectively. It
      also
      resulted in a $3,862,000 decrease in retained earnings as of December 31,
      2004.


54
 Table
          of Contents


**OSI
      Restaurant Partners, Inc.**


**CONTROLS
      AND PROCEDURES**





**Item
      4. CONTROLS AND PROCEDURES (continued)**





*Other
      adjustments*


We
      have
      increased additional paid-in capital and decreased retained earnings as of
      December 31, 2002 by $2,333,000 to correct an error in equity classification
      that arose prior to 2000, relating to acquisitions recorded as
      pooling-of-interest transactions.




We
        have
        decreased treasury stock and decreased additional paid-in capital as of March
        31, 2006 by $40,858,000 to correct an error in the elimination of the unearned
        compensation balance related to unvested restricted stock awards required
        by the
        adoption of SFAS No. 123R. Under previous guidance, this was accounted for
        as
        unearned compensation and, under SFAS No. 123R, should be treated as a reduction
        of additional paid-in capital.




We
      have
      increased other long-term liabilities and decreased additional paid-in capital
      as of June 30, 2006 by $5,556,000 to correct an error in the classification
      of
      the unfunded portion of the PEP Stock Plan which is owed to managing partners
      and chef partners.





Our
      Korean subsidiary receives payments from certain consumer product and service
      companies in connection with promotions under which we have agreed to provide
      discounts to their customers.  We have historically netted such monies
      received against cost of sales and other restaurant operating expenses.  We
      have determined that these amounts should be recorded as revenue with an equal
      offsetting amount in cost of sales and other restaurant operating
      expenses.  Correction of these errors in our consolidated financial
      statements increased restaurant sales by $2,673,000 and $3,911,000 for the
      three
      months ended June 30, 2006 and 2005, respectively, and $4,778,000 and $7,663,000
      for the six months ended June 30, 2006 and 2005, respectively, and were offset
      by changes in cost of sales and other restaurant operating expense with no
      effect on income from operations or net income.





As
      described in Note 1 to the Unaudited Notes to Consolidated Financial Statements
      in Item 1 of this Form 10-Q/A, the adjustments noted above impacted various
      items in our Unaudited Consolidated Statements of Cash Flows for the six months
      ended June 30, 2006 and 2005 by increasing net cash provided by operating
      activities by $8,265,000 and $988,000, respectively, increasing
      net cash used in investing activities by $6,310,000 and $0, respectively, and
      (decreasing) increasing net cash used in financing activities by
      ($1,955,000) and $988,000, respectively.





**Evaluation
      of Disclosure Controls and Procedures**





Under
      the
      supervision and with the participation of the Company’s management, including our
      Chief
      Executive Officer (“CEO”) and Chief
      Financial Officer (“CFO”), the Company conducted an evaluation of the
      effectiveness of its disclosure controls and procedures (as such term is defined
      in Rules 13a-15(e) and 15d-15(e)) under the Securities Exchange Act of 1934,
      as
      amended (the “Exchange Act”), as of June 30, 2006. At the time that our
      Quarterly Report on Form 10-Q for the quarterly period ended June 30, 2006
      was
      filed on August 9, 2006, our CEO and CFO concluded that our disclosure controls
      and procedures were effective as of June 30, 2006. Subsequent to that
      evaluation, our CEO and CFO, concluded that, as a result of the material
      weakness discussed below, the Company’s disclosure controls and procedures were
      not effective as of June 30, 2006. The Company’s disclosure controls and
      procedures are designed to ensure that information required to be disclosed
      by
      us in the reports we file under the Exchange Act is recorded, processed,
      summarized and reported within the time periods specified in the SEC’s rules and
      forms and that such information is accumulated and communicated to management,
      including the CEO and CFO, to allow timely decisions regarding required
      disclosure.  Notwithstanding
      the existence of the material weakness, management has concluded that the
      financial statements included in this quarterly report fairly present in all
      material respects our financial condition, results of operations and cash flows
      for the periods presented.


55
 Table
          of Contents


**OSI
      Restaurant Partners, Inc.**


**CONTROLS
      AND PROCEDURES**





**Item
      4. CONTROLS AND PROCEDURES (continued)**





**Evaluation
      of Disclosure Controls and Procedures (continued)**





In
      connection with the issuance of our 2005 Form 10-K/A for the year ended December
      31, 2005, management assessed the effectiveness of our disclosure controls
      and
      procedures and internal control over financial reporting as of December 31,
      2005
      as more fully described in Item 9A of our Form 10-K/A. Based on that assessment,
      management identified a material weakness in our internal controls. The
      Company did not maintain effective controls over the completeness and accuracy
      of unearned revenue. Specifically, the Company did not have controls designed
      and in place to ensure that the Company's obligations related to gift cards
      and
      certificates as presented in the financial statements were reconciled to the
      underlying detail of gift cards and certificates outstanding and that revenue
      was recognized in accordance with generally accepted accounting principles.
      This
      control deficiency resulted in the restatement of the Company's consolidated
      financial statements as of December 31, 2005 and 2004 and for the years ended
      December 31, 2005, 2004 and 2003, all quarters in 2005 and 2004 and the first
      and second quarters of 2006. In
      addition, this control deficiency could result in a material misstatement to
      unearned revenue for gift cards and certificates, revenue and related
      expenses  that
      would result in a material misstatement to the Company's annual or interim
      consolidated financial statements that would not be prevented or detected.
      Accordingly, management determined that this control deficiency constitutes
      a
      material weakness. As
      described in our 2005 Form 10-K/A, we made significant changes in our internal
      control over financial reporting, and we continue to spend a significant amount
      of time and effort to improve our control environment. Although the actions
      described below that we have taken significantly improved our internal control
      environment, we are currently assessing and testing the internal control
      initiatives implemented to determine whether they are operating as intended.
      As
      a result, they were not considered fully effective in remediating the material
      weakness as of June 30, 2006.





**Management
      Consideration of Restatement**





As
      discussed in Note 1 of the Notes to the Unaudited Consolidated Financial
      Statements included in this Report on Form 10-Q/A, we restated our consolidated
      financial statements as of December 31, 2005 and 2004 and for the years ended
      December 31, 2005, 2004 and 2003, all quarters in 2005 and 2004
      and the
      first and second quarters of 2006 for
      matters other than the unearned revenue described above. The other restatement
      items are, in part, the result of a number of control deficiencies relating
      to
      accounting for minority interest in consolidated entities, additional
      paid-in-capital, deferred rent, lease expense, fixed assets and depreciation
      expense.





Management
      has concluded that the other control deficiencies included in the restatement
      of
      the previously issued financial statements relating to the accounts referenced
      in the previous paragraph, either individually or in the aggregate, did not
      rise
      to the level of a material weakness as of June 30, 2006. Management's evaluation
      of these control deficiencies was based on a thorough assessment of the related
      quantitative impact of these deficiencies on these restated financial statements
      and an appropriate consideration of qualitative factors, including appropriate
      consideration of controls designed and in place to prevent or detect a material
      misstatement.


56
 Table
          of Contents


**OSI
      Restaurant Partners, Inc.**


**CONTROLS
      AND PROCEDURES**





**Item
      4. CONTROLS AND PROCEDURES (continued)**





**Changes
      in Internal Control over Financial Reporting and Remediation of Material
      Weakness in Internal Control over Financial Reporting**





At
      the
      direction of our board of directors and audit committee, management has
      commenced a plan to remediate the material weakness described above. The
      remediation initiatives developed by management were both organizational and
      process focused.





During
      the fourth quarter of 2006 and in connection with preparing our quarterly report
      on Form 10-Q for the quarter ended September 30, 2006, the Company implemented
      the following measures to address the material weakness described
      above:





·****
            Created
                a new position of Vice President, Corporate Controller, to lead process
                and organizational change required to improve substantiation of more
                complex and/or estimate-based accounting, including accounting for
                gift
                cards and certificates and related
                revenue.





·
            Developed
                and implemented a consistent accounting policy for gift card and
                certificate accounting across all Company concepts in accordance
                with
                generally accepted accounting
                principles.





·
            Implemented
                procedures to perform monthly reconciliations of the Company’s unearned
                revenue balance to detailed support for gift cards and certificates
                outstanding, and gift card and certificate sales and redemptions.





·
            Established
                a process for expensing gift card incentive programs as
                incurred.





The
      Company is in the process of implementing the following additional measures
      to
      address the material weakness described above:





·
            Acquiring
                additional resources to create a centralized accounting team that
                will be
                responsible for gift card and certificate
                accounting.





·
            Establishing
                policies to ensure appropriate communication regarding operating
                changes
                affecting accounting and control
                design.





·
            Developing
                a process for tracking and recording gift card discounts or expense
                as
                issued.





Except
      as
      described above, there were no changes in our internal control over financial
      reporting that occurred during the most recent fiscal quarter that have
      materially affected, or are reasonably likely to materially affect, our internal
      control over financial reporting.


57
 Table
            of Contents




**OSI
      RestaurantPartners, Inc.**


**PART
      II: OTHER INFORMATION**





**Item
      1. Legal Proceedings**





We
      are
      subject to legal proceedings, claims and liabilities, such as liquor liability,
      sexual harassment and slip and fall cases, etc., which arise in the ordinary
      course of business and are generally covered by insurance. In the opinion of
      management, the amount of the ultimate liability with respect to those actions
      will not have a materially adverse impact on our financial position or results
      of operations and cash flows.





We
      filed
      a report on Form 8-K with the Securities and Exchange Commission dated June
      27,
      2003 regarding the jury verdict in a civil suit against us. On June 26, 2003,
      in
      a civil case against us in the Delaware Circuit Court, County of Delaware,
      State
      of Indiana, titled *David
      D. Markley and Lisa K. Markley, Plaintiffs, vs. Outback Steakhouse of Florida,
      Inc., et. al, Defendants* ,
      alleging liability under the “dramshop” liquor liability statute, a jury
      returned a verdict in favor of the two plaintiffs who were injured by a drunk
      driver. The portion of the verdict against us was $39,000,000. We appealed
      the
      verdict to the Indiana Court of Appeals.  On July 25, 2005, the Court of
      Appeals affirmed the verdict of the trial courts.  We petitioned the Court
      of Appeals for rehearing and rehearing was denied. We filed a petition for
      transfer with the Indiana Supreme Court. On February 21, 2006, the Indiana
      Supreme Court granted transfer. That ruling means the Supreme Court has vacated
      the Court of Appeals’ decision and has accepted the case for review. As of May
      2006, the Indiana Supreme Court has
      heard
      oral argument on the case, but has not ren dered
      any
      decision on the merits of the case nor indicated when or how it might
      rule.





We
      have
      insurance coverage related to this case provided by our primary carrier for
      $21,000,000 and by an excess in surance
      carrier for the balance of the verdict of approximately $19,000,000. The excess
      insurance carrier, Fireman’s Fund Insurance Company, has filed a declaratory
      judgment suit in the U.S. District Court, Southern District of Indiana claiming
      it was not notified of the case and is therefore not liable for its portion
      of
      the verdict. We do not believe the excess carrier’s case has any merit and we
      are vigorously defending this case. Activity in this case has been held in
      abeyance pending resolution of appeals in the Markley case. We have filed
      counter-claims against the excess carrier and cross-claims against the primary
      carrier and our third-party administrator. Our third-party administrator,
      Wachovia Insurance Services, Inc., has executed an indemnification agreement
      indemnifying us against any liability resulting from the alleged failure to
      give
      notice to Fireman’s Fund Insurance Company.


58
 Table
            of Contents
 **OSI
      RestaurantPartners, Inc.**


**PART
      II: OTHER INFORMATION**





**Item
      1A. Risk Factors**





In
      addition to the other information discussed in this report, the factors
      described in Part I, Item 1A., “Risk Factors” in our 2005 10-K/A should be
      considered as these could materially affect our business, financial condition
      or
      future results. These are not the only risks facing our Company. Additional
      risks and uncertainties not currently known to us or that we currently deem
      to
      be immaterial also may adversely affect our business, financial condition or
      operating results.





In
      addition to the risk factors described in the 2005 10-K/A, s ubstantial
      uncertainty exists as to the strength of consumer spending as a result of
      increased fuel prices and conflict in the Middle East, and the Company’s
      revenues and financial results in 2006 could vary significantly depending upon
      consumer spending trends throughout the remainder of the year.





**Item
      2. UnregisteredSales of Equity Securities and Use of
      Proceeds**







(a)
      Following is information relating to the shares of common stock issued by us
      in
      transactions not registered under the Securities Act of 1933:




During
      the quarter ended June 30, 2006, we issued approximately 24,200 shares of our
      common stock at $43.15 per share to 11 of our area operating partners for their
      interests in ten Outback Steakhouses, one Carrabba’s Italian Grill and two
      Roy’s. The aggregate value of shares issued was approximately $1,044,000. This
      issuance of securities was exempt from the registration requirements of the
      Securities Act of 1933 in reliance on Section 4(2) of the Securities Act as
      a
      transaction by an issuer not involving a public offering.





(c)
      Issuer Purchases of Equity Securities





The
      following table includes information with respect to purchases of our common
      stock made by us during the quarter ended June 30, 2006:




**Period**
            
            **(a)
                Total number of shares purchased (1)**
            
            **(b)
                Average price paid per share**
            
            **(c)
                Total number of shares purchased as part of publicly announced programs
                (1)**
            
            **(d)
                Maximum number of shares that may yet be purchased under the programs
                (2)**April
                1, 2006 - April 30, 2006
            
            
            605,000
            
            $
            42.05
            
            
            605,000
            
            
            2,539,000May
                1, 2006 - May 31, 2006
            
            
            550,000
            
            
            40.76
            
            
            550,000
            
            
            2,037,000June
                1, 2006 - June 30, 2006
            
            
            -
            
            
            -
            
            
            -
            
            
            2,067,000Total
            
            
            1,155,000
            
            
            
            
            
            1,155,000
            
            
            2,067,000


___________


(1)
            No
                shares were repurchased other than through our publicly announced
                repurchase programs and authorizations during the second quarter
                ended
                June 30, 2006.


(2)
            On
                July 26, 2000, our Board of Directors authorized the repurchase of
                up to
                4,000,000 shares of our common stock, with the timing, price, quantity
                and
                manner of the purchases to be made at the discretion of management,
                depending upon market conditions. In addition, the Board of Directors
                authorized the repurchase of shares on a regular basis to offset
                shares
                issued as a result of stock option exercises. On July 23, 2003, our
                Board
                of Directors extended both the repurchase authorization for an additional
                2,500,000 shares of our common stock, and the authorization to offset
                shares issued as a result of stock option exercises. On February
                13, 2006,
                our Board of Directors authorized the repurchase of an additional
                1,500,000 shares and authorized the continued repurchase of shares
                on a
                regular basis to offset shares issued as a result of stock option
                exercises and as restricted shares vest and become dilutive. During
                the
                period from the authorization date through June 30, 2006, approximately
                9,481,000 shares of our common stock have been issued as the result
                of
                stock option exercises. As of June 30, 2006, under these authorizations
                we
                have repurchased approximately 15,415,000 shares of our common stock
                for
                approximately $552,057,000.  59
 Table
            of Contents




**OSI
      RestaurantPartners, Inc.**


**PART
      II: OTHER INFORMATION**





**Item
      4. Submission of Matters to a Vote of Security Holders**





The
      Company held its Annual Meeting of Stockholders on April 25, 2006. Six items
      were submitted for vote at the annual meeting. The results of the election
      are
      as follows:




1.
            
            To
                elect four Directors to serve for a term of three years each, and
                until
                his or her successor is duly elected and qualified. Abstentions and
                broker
                non-votes did not count for or against any nominee for Director.
                The
                following continued to serve as Directors as of the Annual Meeting:
                Robert D. Basham, John A. Brabson, Jr., W.R. Carey, Jr., General
                (Ret.) Tommy Franks, Lee Roy Selmon and Toby S. Wilt. The results
                for the
                election of the Directors are as
                follows:





****
            **Name
                of Nominee/Director**
            
            **Votes
                For**
            
            **Votes
                Withheld**
            
            **Broker
                Non-Votes******
            A.
                William Allen, III
            
            63,993,326
            
            2,604,289
            
            N/A****
            Debbi
                Fields
            
            62,492,302
            
            4,105,313
            
            N/AThomas
                A. James
            
            65,114,905
            
            1,482,710
            
            N/AChris
                T. Sullivan
            
            62,395,248
            
            4,202,367
            
            N/A





2.
            
            A
                Company proposal to approve an amendment to the Company’s Certificate of
                Incorporation changing its name to OSI Restaurant Partners,
                Inc.:




**Votes
                For**
            
            **Votes
                Against**
            
            **Votes
                Abstained**
            
            **Broker
                Non-Votes**66,388,015
            
            100,807
            
            108,793
            
            N/A





3.
            
            A
                Company proposal to ratify
                the Board’s selection of independent auditors for 2006:







**Votes
                For**
            
            **Votes
                Against**
            
            **Votes
                Abstained**
            
            **Broker
                Non-Votes**66,493,114
            
            52,698
            
            51,803
            
            N/A





4.
            
            A
                Company proposal toamend
                the Outback Steakhouse, Inc. Partner Equity Plan to include the Partner
                Equity Deferred Compensation Stock Plan
                Document:




**Votes
                For**
            
            **Votes
                Against**
            
            **Votes
                Abstained**
            
            **Broker
                Non-Votes**56,416,801
            
            1,830,067
            
            82,790
            
            8,267,957





5.
            
            A
                shareholder proposal relating to reporting
                of political contributions:




**Votes
                For**
            
            **Votes
                Against**
            
            **Votes
                Abstained**
            
            **Broker
                Non-Votes**11,306,666
            
            43,576,850
            
            3,446,142
            
            8,267,957





6.
            
            A
                shareholder proposal relating to reporting
                on the implementation of controlled atmosphere killing by chicken
                suppliers.




**Votes
                For**
            
            **Votes
                Against**
            
            **Votes
                Abstained**
            
            **Broker
                Non-Votes**2,635,768
            
            51,774,821
            
            3,919,069
            
            8,267,957


60
 Table
            of Contents




**OSI
      RestaurantPartners, Inc.**


**PART
      II: OTHER INFORMATION**





**Item
      6. Exhibits**





**Number**
            
            **Description**10.01*
            
            Employment
                Agreement effective January 1, 2002 by and between Michael W. Coble
                and
                Outback Steakhouse International, L.P. (included as an exhibit to
                Registrant’s Report on Form 10-Q for the quarter ended June 30, 2006 and
                incorporated herein by reference)10.02*
            
            Employment
                Agreement effective May 1, 2002 by and between Greg L. Walther and
                Outback
                Steakhouse International, L.P. (included as an exhibit to Registrant’s
                Report on Form 10-Q for the quarter ended June 30, 2006 and incorporated
                herein by reference)10.03*
            
            Amendment
                to Employment Agreement effective January 25, 2006 by and among Outback
                Steakhouse International, L.P. and Greg L. Walther (included as an
                exhibit
                to Registrant’s Report on Form 10-Q for the quarter ended June 30, 2006
                and incorporated herein by reference)10.04
            
            Amendment
                to Bond Documents and Supplemental Indenture dated as of June 30,
                2006 by
                and among The Huntington National Bank; Fifth Third Bank; PNC Bank,
                National Association; Kentucky Speedway, LLC; The Huntington National
                Bank, Trustee; County of Gallatin, Kentucky; OSI Restaurant Partners,
                Inc.; Richard L. Duchossois; Richard T. Farmer; Jerry L. Carroll;
                John R.
                Lindahl; Larry T. Thrailkill, Trustee of the Deepwater Trust and
                John R.
                Lindahl, Trustee of The Blue Water Trust (included as an exhibit
                to
                Registrant’s Report on Form 10-Q for the quarter ended June 30, 2006 and
                incorporated herein by reference)10.05
            
            Amended
                and Restated Limited Guarantee dated as of June 30, 2006 by and among
                The
                Huntington National Bank; Fifth Third Bank; PNC Bank, National
                Association; The Huntington National Bank, Trustee; OSI Restaurant
                Partners, Inc.; Richard L. Duchossois; Richard T. Farmer; Jerry L.
                Carroll; John R. Lindahl; Larry T. Thrailkill, Trustee of the Deepwater
                Trust and John R. Lindahl, Trustee of The Blue Water Trust (included
                as an
                exhibit to Registrant’s Report on Form 10-Q for the quarter ended June 30,
                2006 and incorporated herein by reference)23.01
            
            Consent
                of PricewaterhouseCoopers LLP (filed herewith)31.1
            
            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





*
      Management contract or compensatory plan or arrangement required to be filed
      as
      an exhibit.





1 These
      certifications are not deemed to be “filed” for purposes of Section 18 of the
      Exchange Act, or otherwise subject to the liability of that section. These
      certifications will not be deemed to be incorporated by reference into any
      filing under the Securities Act or the Exchange Act, except to the extent that
      the registrant specifically incorporates them by reference.





The
      registrant hereby undertakes to furnish supplementally a copy of any omitted
      schedule or other attachment to the Securities and Exchange Commission upon
      request.


61
 Table
            of Contents




**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 of the undersigned thereunto
      duly authorized.











Date:
                January 17, 2007
            
            OSI
                RESTAURANT PARTNERS, INC.By:/s/
                Dirk A.
                MontgomeryDirk
                A. Montgomery
              Senior
                Vice President and Chief Financial Officer
              (Principal
                Financial and Accounting Officer)











62