**UNITED
      STATES**


**SECURITIES
      AND EXCHANGE COMMISSION**


**Washington,
      D.C. 20549**





**FORM
      10-Q**


**(Mark
                One)**[X]
            **Quarterly
                Report Pursuant to Section 13 or 15(d) of the Securities Exchange
                Act of
                1934**For
                the quarterly period ended**March
                31, 2007**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 May
        8, 2007, the registrant had outstanding 75,582,567 shares of Common Stock,
        $0.01
        par value.


Table
            of Contents











**OSI
      RESTAURANT PARTNERS, INC.**





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


**For
      the Quarterly Period Ended March 31, 2007**


**(Unaudited)**





**TABLE
      OF CONTENTS**








**PART
                I — FINANCIAL INFORMATION****Page
                No****.**Item 1.
            Consolidated
                Financial Statements (Unaudited):Consolidated
                Balance Sheets — March 31, 2007 and December 31,
                2006
            3Consolidated
                Statements of Income —
              For
                the Three Months Ended March 31, 2007 and
                2006
            5Consolidated
                Statements of Cash Flows —
              For
                the Three Months Ended March 31, 2007 and
                2006
            6Notes
                to Consolidated Financial Statements
            8Item 2.
            Management's
                Discussion and Analysis of Financial Condition
                and Results of Operations
            23Item 3.
            Quantitative
                and Qualitative Disclosures About Market
                Risk
            42Item 4.
            Controls
                and Procedures
            44**PART
                II****—****OTHER INFORMATION**Item 1.
            Legal
                Proceedings
            45Item
                1A.
            Risk
                Factors
            47Item
                2.
            Unregistered
                Sales of Equity Securities and Use of
                Proceeds
            47Item 6.
            Exhibits
            48Signature
            49


2
 Table
            of Contents




**PART
      I: FINANCIAL INFORMATION**





**Item
      1. CONSOLIDATED FINANCIAL STATEMENTS**





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


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




**MARCH
                  31,**
              
              **DECEMBER
                  31,****2007**
              
              **2006**ASSETSCurrent
                  AssetsCash
                  and cash equivalents
              
              $
              69,768
              
              $
              94,856Short-term
                  investments
              
              
              1,879
              
              
              681Inventories
              
              
              83,543
              
              
              87,066Deferred
                  income tax assets
              
              
              24,492
              
              
              22,092Other
                  current assets
              
              
              63,054
              
              
              110,501Total
                  current assets
              
              
              242,736
              
              
              315,196Property,
                  fixtures and equipment, net
              
              
              1,555,758
              
              
              1,548,926Investments
                  in and advances to unconsolidated affiliates, net
              
              
              25,519
              
              
              26,269Deferred
                  income tax assets
              
              
              89,229
              
              
              69,952Goodwill
              
              
              150,107
              
              
              150,278Intangible
                  assets
              
              
              26,008
              
              
              26,102Other
                  assets
              
              
              92,990
              
              
              89,914Notes
                  receivable collateral for franchisee guarantee
              
              
              32,450
              
              
              31,950$
              2,214,797
              
              $
              2,258,587


(CONTINUED...)




3
 Table
            of Contents





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


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


**MARCH
                  31,**
              
              **DECEMBER
                  31,****2007**
              
              **2006**LIABILITIES
                  AND STOCKHOLDERS' EQUITYCurrent
                  LiabilitiesAccounts
                  payable
              
              $
              141,692
              
              $
              165,674Sales
                  taxes payable
              
              
              18,832
              
              
              22,978Accrued
                  expenses
              
              
              109,993
              
              
              97,134Current
                  portion of partner deposit and accrued buyout liability
              
              
              15,833
              
              
              15,546Unearned
                  revenue
              
              
              127,490
              
              
              186,977Income
                  taxes payable
              
              
              19,004
              
              
              15,497Current
                  portion of long-term debt
              
              
              38,936
              
              
              60,381Total
                  current liabilities
              
              
              471,780
              
              
              564,187Partner
                  deposit and accrued buyout liability
              
              
              106,503
              
              
              102,924Deferred
                  rent
              
              
              75,786
              
              
              73,895Long-term
                  debt
              
              
              155,598
              
              
              174,997Guaranteed
                  debt
              
              
              35,078
              
              
              34,578Other
                  long-term liabilities
              
              
              77,709
              
              
              49,864Total
                  liabilities
              
              
              922,454
              
              
              1,000,445Commitments
                  and contingenciesMinority
                  interests in consolidated entities
              
              
              37,823
              
              
              36,929Stockholders'
                  EquityCommon
                  stock, $0.01 par value, 200,000 shares authorized; 78,750
                  and78,750
                  shares issued; 75,539 and 75,127 shares outstanding asof
                  March 31, 2007 and December 31, 2006, respectively
              
              
              788
              
              
              788Additional
                  paid-in capital
              
              
              276,894
              
              
              269,872Retained
                  earnings
              
              
              1,100,230
              
              
              1,092,271Accumulated
                  other comprehensive income
              
              
              7,192
              
              
              8,3881,385,104
              
              
              1,371,319Less
                  treasury stock, 3,211 and 3,623 shares at March 31, 2007and
                  December 31, 2006, respectively, at cost
              
              
              (130,584
              )
              
              (150,106
              )Total
                  stockholders’ equity
              
              
              1,254,520
              
              
              1,221,213$
              2,214,797
              
              $
              2,258,587


See
      notes
      to unaudited consolidated financial statements.


4
 Table
          of Contents


**OSI
      Restaurant Partners, Inc.**


**CONSOLIDATED
      STATEMENTS OF INCOME**


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





**THREE
                MONTHS ENDED****MARCH
                31,****2007**
            
            **2006**RevenuesRestaurant
                sales
            
            $
            1,061,363
            
            $
            986,734Other
                revenues
            
            
            5,253
            
            
            5,626Total
                revenues
            
            
            1,066,616
            
            
            992,360Costs
                and expensesCost
                of sales
            
            
            376,148
            
            
            359,700Labor
                and other related
            
            
            292,656
            
            
            269,975Other
                restaurant operating
            
            
            238,054
            
            
            216,429Depreciation
                and amortization
            
            
            41,004
            
            
            35,505General
                and administrative
            
            
            67,240
            
            
            54,122Provision
                for impaired assets and restaurant closings
            
            
            5,296
            
            
            2,532Loss
                (income) from operations of unconsolidated affiliates
            
            
            708
            
            
            (628
            )Total
                costs and expenses
            
            
            1,021,106
            
            
            937,635Income
                from operations
            
            
            45,510
            
            
            54,725Other
                income (expense), net
            
            
            -
            
            
            (328
            )Interest
                income
            
            
            901
            
            
            557Interest
                expense
            
            
            (3,404
            )
            
            (2,371
            )Income
                before provision for income taxes andelimination
                of minority interest
            
            
            43,007
            
            
            52,583Provision
                for income taxes
            
            
            13,898
            
            
            16,724Income
                before elimination of minority interest
            
            
            29,109
            
            
            35,859Elimination
                of minority interest
            
            
            1,499
            
            
            3,628Net
                income
            
            $
            27,610
            
            $
            32,231Basic
                earnings per common shareNet
                income
            
            $
            0.37
            
            $
            0.44Basic
                weighted average number of shares outstanding
            
            
            74,407
            
            
            74,083Diluted
                earnings per common shareNet
                income
            
            $
            0.36
            
            $
            0.42Diluted
                weighted average number of shares outstanding
            
            
            77,166
            
            
            77,111Cash
                dividends per common share
            
            $
            0.13
            
            $
            0.13





See
      notes
      to unaudited consolidated financial statements.


5
 Table
            of Contents




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


**CONSOLIDATED
      STATEMENTS OF CASH FLOWS**


**(IN
      THOUSANDS, UNAUDITED)**




**THREE
                  MONTHS ENDED****MARCH
                  31,****2007**
              
              **2006**Cash
                  flows from operating activities:Net
                  income
              
              $
              27,610
              
              $
              32,231Adjustments
                  to reconcile net income to cash provided by operating
                  activities:Depreciation
                  and amortization
              
              
              41,004
              
              
              35,505Provision
                  for impaired assets and restaurant closings
              
              
              5,296
              
              
              2,532Stock-based
                  compensation expense
              
              
              14,043
              
              
              19,969Income
                  tax benefit credited to equity
              
              
              2,113
              
              
              5,239Excess
                  income tax benefits from stock-based compensation
              
              
              (983
              )
              
              (3,047
              )Minority
                  interest in consolidated entities’ income
              
              
              1,499
              
              
              3,628Loss
                  (income) from operations of unconsolidated affiliates
              
              
              708
              
              
              (628
              )Benefit
                  from deferred income taxes
              
              
              (19,106
              )
              
              (12,753
              )Loss
                  on disposal of property, fixtures and equipment
              
              
              2,552
              
              
              284Change
                  in assets and liabilities, net of effects of acquisitions:Decrease
                  (increase) in inventories
              
              
              3,523
              
              
              (42
              )Decrease
                  (increase) in other current assets
              
              
              45,048
              
              
              (19,175
              )Increase
                  in other assets
              
              
              (3,146
              )
              
              (634
              )Decrease
                  in accounts payable, sales taxes payable and accrued expenses
              
              
              (15,257
              )
              
              (3,762
              )Increase
                  in deferred rent
              
              
              1,891
              
              
              2,485Decrease
                  in unearned revenue
              
              
              (59,487
              )
              
              (56,325
              )Increase
                  in income taxes payable
              
              
              3,507
              
              
              19,253Increase
                  (decrease) in other long-term liabilities
              
              
              26,232
              
              
              (757
              )Net
                  cash provided by operating activities
              
              
              77,047
              
              
              24,003Cash
                  flows used in investing activities:Purchase
                  of investment securities
              
              
              (2,104
              )
              
              (1,934
              )Maturities
                  and sales of investment securities
              
              
              906
              
              
              1,930Cash
                  paid for acquisitions of businesses, net of cash acquired
              
              
              (250
              )
              
              (7,456
              )Capital
                  expenditures
              
              
              (55,003
              )
              
              (85,769
              )Proceeds
                  from the sale of property, fixtures and equipment
              
              
              8
              
              
              4,940Payments
                  from unconsolidated affiliates
              
              
              50
              
              
              141Investments
                  in and advances to unconsolidated affiliates
              
              
              (1,800
              )
              
              -Net
                  cash used in investing activities
              
              $
              (58,193
              )
              $
              (88,148
              )


(CONTINUED...)


6
 Table
          of Contents


**OSI
      Restaurant Partners, Inc.**


**CONSOLIDATED
      STATEMENTS OF CASH FLOWS**


**(IN
      THOUSANDS, UNAUDITED)**




**THREE
                  MONTHS ENDED****MARCH
                  31,****2007**
              
              **2006**Cash
                  flows (used in) provided by financing activities:Proceeds
                  from issuance of long-term debt
              
              $
              44,852
              
              $
              67,267Proceeds
                  from minority interest contributions
              
              
              1,919
              
              
              881Distributions
                  to minority interest
              
              
              (2,204
              )
              
              (7,521
              )(Decrease)
                  increase in partner deposit and accrued buyout liability
              
              
              (2,538
              )
              
              889Repayments
                  of long-term debt
              
              
              (87,543
              )
              
              (20,788
              )Dividends
                  paid
              
              
              (9,887
              )
              
              (9,779
              )Excess
                  income tax benefits from stock-based compensation
              
              
              983
              
              
              3,047Payments
                  for purchase of treasury stock
              
              
              -
              
              
              (11,576
              )Proceeds
                  from reissuance of treasury stock
              
              
              10,476
              
              
              18,217Net
                  cash (used in) provided by financing activities
              
              
              (43,942
              )
              
              40,637Net
                  decrease in cash and cash equivalents
              
              
              (25,088
              )
              
              (23,508
              )Cash
                  and cash equivalents at the beginning of the period
              
              
              94,856
              
              
              84,876Cash
                  and cash equivalents at the end of the period
              
              $
              69,768
              
              $
              61,368Supplemental
                  disclosures of cash flow information:Cash
                  paid for interest
              
              $
              3,318
              
              $
              2,384Cash
                  paid for income taxes, net of refunds
              
              
              1,495
              
              
              5,267Supplemental
                  disclosures of non-cash items:Purchase
                  of employee partners' interests in cash flows of their
                  restaurants
              
              $
              882
              
              $
              2,751Conversion
                  of partner deposit and accrued buyout liability to notes
              
              
              1,848
              
              
              100


See
      notes
      to unaudited consolidated financial statements.


7
 Table
          of Contents


**OSI
      Restaurant Partners, Inc.**


**NOTES
      TO CONSOLIDATED FINANCIAL STATEMENTS**


**(UNAUDITED)**





1.  Basis
      of
      Presentation





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 t he
      Annual
      Report on Form 10-K of OSI Restaurant Partners, Inc. (the “Company”) for the
      year ended December 31, 2006 (“2006 10-K”).





**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 2006 10-K.





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





In
      June
      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. Effective
      January 1, 2007, the Company adopted the provisions of FIN 48 (see Note
      10).





**Revisions
      and Reclassifications**





Certain
      prior year amounts shown in the accompanying unaudited consolidated financial
      statements have been reclassified to conform to the 2007 presentation. The
      Company has revised its Unaudited Consolidated Statements of Cash Flows to
      reflect the line item “(Decrease) increase in partner deposit and accrued buyout
      liability” as financing cash flows rather than operating cash flows and
      reflected the conversion of partner deposits and accrued buyout liability to
      notes payable as a non-cash item. This revision caused “Net cash provided by
      operating activities” to decrease by $789,000 and “Net cash (used in) provided
      by financing activities” to increase by $789,000 for the three months ended
      March 31, 2006. These reclassifications had no effect on total assets, total
      liabilities, stockholders’ equity or net income.


8
 Table
          of Contents




**OSI
      Restaurant Partners, Inc.**


**NOTES
      TO CONSOLIDATED FINANCIAL STATEMENTS**


**(UNAUDITED)**





2.  Other
      Current Assets





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




**MARCH
                  31,**
              
              **DECEMBER
                  31,****2007**
              
              **2006**Income
                  tax deposits
              
              $
              4,818
              
              $
              41,091Accounts
                  receivable
              
              
              21,986
              
              
              21,539Accounts
                  receivable - vendors
              
              
              11,464
              
              
              25,160Accounts
                  receivable - franchisees
              
              
              1,931
              
              
              3,601Prepaid
                  expenses
              
              
              20,218
              
              
              16,516Deposits
              
              
              1,909
              
              
              2,094Other
                  current assets
              
              
              728
              
              
              500$
              63,054
              
              $
              110,501


3.  Property,
      Fixtures and Equipment, Net





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





**MARCH
                31,**
            
            **DECEMBER
                31,****2007**
            
            **2006**Land
            
            $
            199,537
            
            $
            196,308Buildings
                and building improvements
            
            
            807,550
            
            
            806,863Furniture
                and fixtures
            
            
            308,890
            
            
            295,848Equipment
            
            
            575,105
            
            
            567,463Leasehold
                improvements
            
            
            418,008
            
            
            383,939Construction
                in progress
            
            
            59,325
            
            
            75,111Less:
                accumulated depreciation
            
            
            (812,657
            )
            
            (776,606
            )$
            1,555,758
            
            $
            1,548,926





During
      the three months ended March 31, 2006, the Company recorded a provision for
      impaired assets and restaurant closings of $2,532,000, which included $914,000
      for an impairment charge for intangible and other asset impairments related
      to
      the closing of Paul Lee’s Chinese Kitchen and $1,618,000 for the
      impairment of one Carrabba’s Italian Grill.





During
      the three months ended March 31, 2007, the Company recorded a provision for
      impaired assets and restaurant closings of $5,296,000 which included the
      following: $3,779,000 of impairment charges for one domestic Outback Steakhouse
      restaurant, one Carrabba’s Italian Grill restaurant, one Bonefish Grill
      restaurant and one Lee Roy Selmon’s restaurant, a $512,000 impairment charge for
      one domestic Outback Steakhouse restaurant as a result of a fire and a
      $1,005,000 impairment charge related to one of the Company’s corporate
      aircraft.


9
 Table
          of Contents


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


**NOTES
      TO CONSOLIDATED FINANCIAL STATEMENTS**


**(UNAUDITED)**





4.  Goodwill
      and Intangible Assets, Net





The
      change in the carrying amount
      of goodwill for the three months ended March 31, 2007 is as follows (in
      thousands):





December
                31, 2006
            
            $
            150,278Acquisition
                adjustment
            
            
            (171
            )March
                31, 2007
            
            $
            150,107





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





**WEIGHTED
                AVERAGE****AMORTIZATION**
            
            **MARCH
                31,**
            
            **DECEMBER
                31,****PERIOD
                (YEARS)**
            
            **2007**
            
            **2006**Tradename
                (gross)
            
            
            Indefinite
            
            $
            13,100
            
            $
            13,100Trademarks
                (gross)
            
            
            24
            
            
            8,344
            
            
            8,344Less:
                accumulated amortization
            
            
            
            
            
            (949
            )
            
            (861
            )Net
                trademarks
            
            
            
            
            
            7,395
            
            
            7,483Trade
                dress (gross)
            
            
            15
            
            
            777
            
            
            777Less:
                accumulated amortization
            
            
            
            
            
            (136
            )
            
            (123
            )Net
                trade dress
            
            
            
            
            
            641
            
            
            654Favorable
                leases (gross, lives ranging from 2 to 30 years)
            
            
            20
            
            
            5,400
            
            
            5,416Less:
                accumulated amortization
            
            
            
            
            
            (528
            )
            
            (551
            )Net
                favorable leases
            
            
            
            
            
            4,872
            
            
            4,865Intangible
                assets, less total accumulated amortization of $1,613 and$1,535
                at March 31, 2007 and December 31, 2006, respectively
            
            
            22
            
            $
            26,008
            
            $
            26,102





Annual
      amortization expense related to these intangible assets for each of the next
      five years is anticipated to be approximately $720,000.


10
 Table
          of Contents


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


**NOTES
      TO CONSOLIDATED FINANCIAL STATEMENTS**


**(UNAUDITED)**





5.  Other
      Assets





Other
      assets consisted of the following (in thousands):





**MARCH
                31,**
            
            **DECEMBER
                31,****2007**
            
            **2006**Other
                assets
            
            $
            69,540
            
            $
            66,826Insurance
                receivables (see Note 8)
            
            
            2,885
            
            
            2,885Liquor
                licenses, net of accumulated amortization of $6,194 and $5,939 atMarch
                31, 2007 and December 31, 2006, respectively
            
            
            15,857
            
            
            15,540Deferred
                license fee
            
            
            1,594
            
            
            1,549Assets
                held for sale
            
            
            3,114
            
            
            3,114$
            92,990
            
            $
            89,914





Assets
      held for sale as of March 31, 2007 and December 31, 2006 consisted of $2,445,000
      of land and $669,000 of buildings.  A
      loss
      has not been recorded on assets held for sale as it is anticipated that proceeds
      from the sale will exceed the net book value of the assets.




6.  Accrued
      Expenses





Accrued
      expenses consisted of the following (in thousands):




**MARCH
                  31,**
              
              **DECEMBER
                  31,****2007**
              
              **2006**Accrued
                  payroll and other compensation
              
              $
              56,495
              
              $
              54,664Accrued
                  insurance
              
              
              16,718
              
              
              16,778Other
                  accrued expenses
              
              
              36,780
              
              
              25,692$
              109,993
              
              $
              97,134
 11
 Table
              of Contents




**OSI
      Restaurant Partners, Inc.**


**NOTES
      TO CONSOLIDATED FINANCIAL STATEMENTS**


**(UNAUDITED)**





7.  Long-term
      Debt





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





**MARCH
                31,**
            
            **DECEMBER
                31,****2007**
            
            **2006**Revolving
                lines of credit, uncollateralized, interest rates at 5.87%
                atMarch
                31, 2007 and at 6.00% at December 31, 2006
            
            $
            134,000
            
            $
            154,000Outback
                Korea notes payable, interest rates ranging from 5.90% to 6.16%
                atMarch
                31, 2007 and 5.27% to 6.29% at December 31, 2006
            
            
            36,040
            
            
            39,700Outback
                Korea long-term note payable, interest rate of 6.10% at March 31,
                2007and
                5.85% at December 31, 2006
            
            
            10,492
            
            
            10,629Outback
                Japan notes payable, interest rate of 1.40% at December 31,
                2006
            
            
            -
            
            
            5,114Outback
                Japan revolving lines of credit, interest rates ranging from 1.05%
                to
                1.26%at
                December 31, 2006
            
            
            -
            
            
            13,017Other
                notes payable, uncollateralized, interest rates ranging
                from2.07%
                to 7.25% at March 31, 2007 and 2.07% to 7.75% at December 31,
                2006
            
            
            9,077
            
            
            7,993Sale-leaseback
                obligation
            
            
            4,925
            
            
            4,925Guaranteed
                debt of franchisee
            
            
            32,583
            
            
            32,083Guaranteed
                debt of unconsolidated affiliate
            
            
            2,495
            
            
            2,495229,612
            
            
            269,956Less:
                current portion
            
            
            (38,936
            )
            
            (60,381
            )Less:
                guaranteed debt
            
            
            (35,078
            )
            
            (34,578
            )Long-term
                debtof
                OSI Restaurant Partners, Inc.
            
            $
            155,598
            
            $
            174,997





The
      Company has an uncollateralized $225,000,000 revolving credit facility that
      is
      scheduled to mature in June 2011. The 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 5.32% to 5.35% at March
      31,
      2007 and ranging from 5.35% to 5.36% at December 31, 2006). At March 31, 2007,
      the unused portion of the revolving line of credit was $91,000,000.





The
      Company also has a $40,000,000 line of credit that is scheduled to mature in
      June 2011. The 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.
      There were no draws outstanding on this line of credit as of March 31, 2007
      and
      December 31, 2006. At March 31, 2007 and December 31, 2006, $25,040,000 and
      $25,072,000, 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.





On
      October 12, 2006, the Company entered into a short-term uncollateralized line
      of
      credit agreement that has a maximum borrowing amount of $50,000,000 and an
      original maturity date of March 2007. On March 14, 2007, the Company amended
      the
      maturity date to May 30, 2007. The line permits borrowing at an interest rate
      55
      basis points over the LIBOR Market Index Rate at the time of each draw. There
      were no draws outstanding on this line of credit as of March 31, 2007 and
      December 31, 2006.


12
 Table
          of Contents


**OSI
      Restaurant Partners, Inc.**


**NOTES
      TO CONSOLIDATED FINANCIAL STATEMENTS**


**(UNAUDITED)**





7.  Long-term
      Debt (continued)





The
      Company has notes payable with banks bearing interest at rates ranging from
      5.90% to 6.16% and from 5.27% to 6.29% at March 31, 2007 and December 31, 2006,
      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 March 31, 2007 maturing at dates ranging from April 2007 to
      October 2007. As of March 31, 2007 and December 31, 2006, the combined
      outstanding balance was approximately $36,040,000 and $39,700,000, respectively.
      Certain of the notes payable are collateralized by lease and other deposits.
      At
      March 31, 2007 and December 31, 2006, collateralized notes totaled approximately
      $42,410,000 and $41,360,000, respectively. The Company has been pre-approved
      by
      these banks for additional borrowings of approximately $18,900,000 and
      $15,900,000 at March 31, 2007 and December 31, 2006, respectively.





Effective
      September 28, 2006, the Company established an uncollateralized note payable
      at
      a principal amount of 10,000,000,000 Korean won, which bears interest at 1.25%
      over the Korean Stock Exchange 3-month certificate of deposit rate (6.10% and
      5.85% as of March 31, 2007 and December 31, 2006, respectively).   The
      note is denominated and payable in Korean won and matures in September
      2009.  As of March 31, 2007 and December 31, 2006, the outstanding
      principle on this note was approximately $10,492,000 and $10,629,000,
      respectively.





The
      Company ha d
      notes
      payable with banks to finance the development of the Company’s restaurants in
      Japan (“Outback Japan”). The notes were payable to banks, collateralized by
      letters of credit and lease deposits of approximately $3,300,000 at December
      31,
      2006, and had an interest rate of 1.40% at December 31, 2006. The notes were
      denominated and payable in Japanese yen. As of December 31, 2006, the
      outstanding balance totaled approximately $5,114,000.  The
      notes
      had been paid as of March 31, 2007.




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 permitted borrowing up to a maximum of $10,000,000
      and was scheduled to mature in June 2011. The line of credit permitted borrowing
      at interest rates ranging from 45 to 65 basis points over LIBOR. As of December
      31, 2006, the Company had borrowed approximately $9,096,000 on the line of
      credit
      at an average interest rate of 1.19%.  Borrowings
      under this line of credit had been paid as of March 31,
      2007.





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 permitted 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 originally matured in December 2006, and Outback
      Japan amended it to extend the maturity of the line until the earlier of March
      31, 2007 or the date on which the acquisition of the Company by the investor
      group is final (see Note 11).  All other material provisions of the
      agreement remained the same. As of December 31, 2006, the Company had borrowed
      approximately $3,921,000 on the line of credit at an average interest rate
      of
      1.17%. As of March 31, 2007, borrowings
      under this line of credit had been paid.





As
      of
      March 31, 2007 and December 31, 2006, the Company had approximately $9,077,000
      and $7,993,000 of notes payable at interest rates ranging from 2.07% to 7.25%
      and from 2.07% to 7.75%, respectively. 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.


13
 Table
          of Contents


**OSI
      Restaurant Partners, Inc.**


**NOTES
      TO CONSOLIDATED FINANCIAL STATEMENTS**


**(UNAUDITED)**





7.  Long-term
      Debt (continued)





DEBT
      GUARANTEES





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 March 31, 2007
      and December 31, 2006, the outstanding balance on the line of credit was
      approximately $32,583,000 and $32,083,000, respectively, 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.





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 termination
      date in June 2007. According to the terms of the credit agreement, RY-8 may
      borrow, repay, re-borrow or prepay advances at any time before the termination
      date of the agreement. On the termination date of the agreement, the entire
      outstanding principal amount of the loan then outstanding and any accrued
      interest is due. At March 31, 2007 and December 31, 2006, the outstanding
      balance on the line of credit was approximately $24,355,000 and $24,349,000,
      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.


14
 Table
          of Contents


**OSI
      Restaurant Partners, Inc.**


**NOTES
      TO CONSOLIDATED FINANCIAL STATEMENTS**


**(UNAUDITED)**





7.  Long-term
      Debt (continued)





DEBT
      GUARANTEES (continued)





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





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





The
      Company is a guarantor of up to $17,585,000 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. The bonds have a put feature that allows the lenders to require
      full payment of the debt on or after June 2011. At March 31, 2007 and December
      31, 2006, the outstanding balance on the bonds was $63,300,000. The Company’s
      guarantee will proportionally decrease as payments are made on the
      bonds.





As
      part
      of the 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
      additional working capital contributions and loans to this affiliate in payments
      totaling $5,503,000. The Company did not make any additional working capital
      contributions or loans during the three months ended March 31, 2007, and it
      loaned $1,867,000 during 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 of 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.


15
 Table
          of Contents


**OSI
      Restaurant Partners, Inc.**


**NOTES
      TO CONSOLIDATED FINANCIAL STATEMENTS**


**(UNAUDITED)**





7.  Long-term
      Debt (continued)





DEBT
      GUARANTEES (continued)





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 Korean subsidiary is the guarantor of debt owed by landlords of two of
      the Company’s Outback Steakhouse restaurants in Korea. The Company is obligated
      to purchase the building units occupied by its two restaurants in the event
      of
      default by the landlords on their debt obligations, which were approximately
      $1,400,000 and $1,500,000 as of March 31, 2007 and December 31, 2006. Under
      the
      terms of the guarantees, the Company’s monthly rent payments are deposited with
      the lender to pay the landlords’ interest payments on the outstanding balances.
      The guarantees are in effect until the earlier of the date the principal is
      repaid or the entire lease term of ten years for both restaurants, which expire
      in 2014 and 2016. The guarantees specify that upon default the purchase price
      would be a maximum of 130% of the landlord’s outstanding debt for one restaurant
      and the estimated legal auction price for the other restaurant, approximately
      $1,900,000 and $2,300,000, respectively, as of March 31, 2007 and December
      31, 2006. If the Company were required to perform under either guarantee, it
      would obtain full title to the corresponding building unit and could liquidate
      the property, each having an estimated fair value of approximately $2,900,000.
      As a result, the Company has not recognized a liability related to these
      guarantees in accordance with FIN 45. The Company has various depository and
      banking relationships with the lender, including several outstanding notes
      payable.





The
      Company’s contractual debt guarantees as of March 31, 2007 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
            
            $
            32,583
            
            $
            32,583RY-8,
                Inc.
            
            
            24,500
            
            
            24,355
            
            
            -Kentucky
                Speedway, LLC
            
            
            17,585
            
            
            17,585
            
            
            2,495Korean
                landlords
            
            
            4,200
            
            
            4,200
            
            
            -$
            81,285
            
            $
            78,723
            
            $
            35,078


16
 Table
            of Contents




**OSI
      Restaurant Partners, Inc.**


**NOTES
      TO CONSOLIDATED FINANCIAL STATEMENTS**


**(UNAUDITED)**





8.  Other
      Long-term Liabilities





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




**MARCH
                  31,**
              
              **DECEMBER
                  31,****2007**
              
              **2006**Accrued
                  insuranceliability
              
              $
              33,729
              
              $
              31,236Other
                  liabilities
              
              
              43,980
              
              
              18,628$
              77,709
              
              $
              49,864
 Other
        long-term liabilities as of March 31, 2007 and December 31, 2006 include
        $13,415,000 and $ 10,409,000,
        respectively, for the unfunded portion of the Partner Equity Deferred
        Compensation Stock Plan and $7,756,000 and $5,799,000, respectively, for
        the
        Partner Equity Deferred Compensation Diversified Plan, which are owed to
        managing partners and chef partners.




9.  Foreign
      Currency Translation and Comprehensive Income





Comprehensive
      income includes net income and foreign currency translation adjustments. Total
      comprehensive income for the three months ended March 31, 2007 and 2006 was
      $26,414,000 and $33,901,000, respectively, which included the effect of (losses)
      and gains from translation adjustments of approximately ($1,196,000) and
      $1,670,000, respectively.





10.  Income
      Taxes




In
        June
        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.  Effective January 1, 2007, the Company adopted the
        provisions of FIN 48. As a result of the implementation of FIN 48, the Company
        recognized a $1,612,000 increase in its liability for unrecognized tax benefits,
        which was accounted for as a reduction to the January 1, 2007 balance of
        retained earnings.
  As
          of
          January 1, 2007, the Company recorded $22,184,000 of unrecognized tax
          benefits in “Other long-term liabilities.”  Of this
          amount, $13,256,000, if recognized, would impact the Company’s effective
          tax rate. The difference between the total amount of unrecognized tax benefits
          and the amount that would impact the effective tax rate consists of items
          that
          are offset by deferred tax assets and the federal tax benefit of state
          income
          tax items.  The liability has increased by $1,028,000 in the quarter ended
          March 31, 2007 to a total of $23,212,000.
  17
 Table
              of Contents




**OSI
      Restaurant Partners, Inc.**


**NOTES
      TO CONSOLIDATED FINANCIAL STATEMENTS**


**(UNAUDITED)**





10.  Income
      Taxes (continued)




In
        many
        cases, the Company’s uncertain tax positions are related to tax years that
        remain subject to examination by the relevant taxable authorities.  Based
        on the outcome of these examinations, or as a result of the expiration of
        the
        statute of limitations for specific jurisdictions, it is reasonably possible
        that the related unrecognized tax benefits for tax positions taken regarding
        previously filed tax returns will materially change from those recorded as
        liabilities for uncertain tax positions in the Company’s financial statements at
        January 1, 2007 by approximately $6,700,000 to $7,400,000 within the next
        twelve months.
 
 The
        Company is currently open to audit under the statute of limitations by the
        Internal Revenue Service for the years ended December 31, 2003 through
        2006. The Company and its subsidiaries’ state income tax returns and foreign
        income tax returns also are open to audit under the statute of limitations
        for the years ended December 31, 2000 through 2006.
  As
          of
          January 1, 2007, the Company accrued $3,951,000 of interest and
          penalties related to uncertain tax positions. As of March 31, 2007,
          the total amount of accrued interest and penalties was $4,677,000.
 The Company accounts for interest and penalties related to uncertain tax
          positions as part of its provision for income taxes. The adoption of FIN 48
          did not affect the Company’s policy on classification of interest and
          penalties.


11.  Proposed
      Merger





On
      November 5, 2006, the Company entered into a definitive agreement to be acquired
      by an investor group co mprised
      of affiliates of Bain Capital Partners, LLC and Catterton Partners and Company
      founders Chris T. Sullivan, Robert D. Basham and J. Timothy Gannon, for $40.00
      per share in cash (the “Merger Consideration”).  The
      Company’s Board of Directors, on the unanimous recommendation of a Special
      Committee of independent directors, approved the merger agreement and
      recommended that the Company’s shareholders adopt the agreement.




The
        total
        transaction value, including assumed debt, is approximately $3.2 billion. 
In addition to that value, an estimated $400,000,000 in funding will be
        necessary to complete the merger, refinance existing indebtedness, pay fees
        and
        expenses and provide a source of funds for capital expenditures. The transaction
        is subject to approval of the Company’s shareholders (without consideration of
        the vote of the Company’s founders and managers investing in the acquisition)
        and customary closing conditions (see Note 15). The transaction is not subject
        to a financing condition.
 After
        the
        effective time of the proposed merger, the Company will continue its current
        operations, except that it will cease to be an independent public company,
        and
        its common stock will no longer be traded on the New York Stock
        Exchange.





The
      merger agreement contains certain termination rights. The merger agreement
      provides that in certain circumstances, upon termination, the Company may be
      required to pay a termination fee of either $25,000,000 or, in certain
      circumstances, $45,000,000, and reimburse out-of-pocket fees and expenses
      incurred with respect to the transactions contemplated by the merger agreement,
      up to a maximum of $7,500,000. Also under certain circumstances, upon
      termination, the Company may be entitled to receive a termination fee of
      $45,000,000.





Merger
      expenses of approximately $6,138,000 for the three months ended March 31, 2007
      were included in the line item “General and administrative” expenses in the
      Company’s Unaudited Consolidated Statements of Income and reflect primarily the
      professional service costs incurred by the Company in connection with the
      proposed merger transaction.


18
 Table
            of Contents




**OSI
      Restaurant Partners, Inc.**


**NOTES
      TO CONSOLIDATED FINANCIAL STATEMENTS**


**(UNAUDITED)**





12.  Recently
      Issued Financial Accounting Standards





In
      June
      2006, the EITF reached a consensus on EITF Issue No. 06-4, “Accounting for
      Deferred Compensation and Postretirement Benefit Aspects of Endorsement
      Split-Dollar Life Insurance Arrangements” (“EITF 06-4”), which requires the
      application of the provisions of SFAS No. 106, “Employers’ Accounting for
      Postretirement Benefits Other Than Pensions” to endorsement split-dollar life
      insurance arrangements. This would require recognition of a liability for the
      discounted future benefit obligation owed to an insured employee by the
      insurance carrier. EITF 06-4 is effective for fiscal years beginning after
      December 15, 2007. The Company may have certain policies subject to the
      provisions of EITF 06-4 and is currently evaluating the impact that EITF 06-4
      would have on its financial statements.





In
      September 2006, the FASB issued SFAS No. 157, “Fair Value Measurements” (“SFAS
      No. 157”), which defines fair value, establishes a framework for measuring fair
      value and expands the related disclosure requirements. The provisions of SFAS
      No. 157 are effective for fiscal years beginning after November 15, 2007. The
      Company is currently evaluating the impact that SFAS No. 157 will have on its
      financial statements.





In
      February 2007, the FASB issued SFAS No. 159, “The Fair Value Option for
      Financial Assets and Financial Liabilities - Including an Amendment of FASB
      Statement No. 115” (“SFAS No. 159”).  SFAS No. 159
      permits entities to choose to measure eligible items at fair value at specified
      election dates and report unrealized gains and losses on items for which the
      fair value option has been elected in earnings at each subsequent reporting
      date. SFAS No. 159 is effective for fiscal years beginning after
      November 15, 2007. The Company is currently evaluating the effect that
      adoption of this statement will have on its financial statements.





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****MARCH
                31,****2007**
            
            **2006**Net
                income
            
            $
            27,610
            
            $
            32,231Basic
                weighted average number of common shares outstanding
            
            
            74,407
            
            
            74,083Basic
                earnings per common share
            
            $
            0.37
            
            $
            0.44Effect
                of stock-based compensation awards
            
            
            2,759
            
            
            3,028Diluted
                weighted average number of common shares outstanding
            
            
            77,166
            
            
            77,111Diluted
                earnings per common share
            
            $
            0.36
            
            $
            0.42





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 Partner Equity
      Plan 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
      3,596,000 and 2,226,000 for the three months ended March 31, 2007 and 2006,
      respectively.


19
 Table
          of Contents


**OSI
      Restaurant Partners, Inc.**


**NOTES
      TO CONSOLIDATED FINANCIAL STATEMENTS**


**(UNAUDITED)**





14.  Commitments
      and Contingencies





The
      consolidated financial statements include the accounts and operations of the
      Roy’s consolidated venture in which the Company has a less than majority
      ownership. The Company consolidates this venture because it controls the
      executive committee (which functions as a board of directors) through
      representation on the board by related parties, and it is able to direct or
      cause the direction of management and operations on a day-to-day basis.
      Additionally, the majority of capital contributions made by its partner in
      the
      Roy’s consolidated venture have been funded by loans to the partner from a third
      party where the Company is required to be a guarantor of the debt, which
      provides the Company control through its collateral interest in the joint
      venture partner’s membership interest. As a result of its controlling financial
      interest in this venture, it is included in the consolidated financial
      statements. The portion of income or loss attributable to the minority
      interests, not to exceed the minority interest’s equity in the subsidiary, is
      eliminated in the line item in the Unaudited Consolidated Statements of Income
      entitled “Elimination of minority interest.” All material intercompany balances
      and transactions have been eliminated.





Pursuant
      to the Company’s joint
      venture agreement for the development of Roy’s restaurants, RY-8, its joint
      venture partner, has the right to require the Company to purchase up to 25%
      of
      RY-8’s interests in the joint venture at anytime after June 17, 2004 and up to
      another 25% of its interests in the joint venture at anytime after June 17,
      2009. The purchase price to be paid by the Company would be equal to the fair
      market value of the joint venture as of the date that RY-8 exercised its put
      option multiplied by the percentage purchased.





Subsequent
      to the end of the first quarter, the Company made an interest payment of
      $242,000 on behalf of RY-8 because the joint venture partner’s $24,500,000 line
      of credit was fully extended. In the future, if RY-8 is unable to fund its
      working capital needs and interest payments, the Company would be obligated
      to
      make those payments on behalf of its joint venture partner.





Outback
      Steakhouse of Florida, Inc. and OS Restaurant Services, Inc., subsidiaries
      of
      the Company, are defendants in a class action lawsuit brought by the U.S Equal
      Employment Opportunity Commission (EEOC v. Outback Steakhouse of Florida, Inc.
      and OS Restaurant Services, Inc., U.S. District Court, District of Colorado,
      Case No. 06-cv-1935, filed September 28, 2006) alleging that they have engaged
      in a nationwide pattern or practice of discrimination against women on the
      basis
      of their gender with respect to hiring and promoting into management positions
      as well as discrimination against women in terms and condition of their
      employment. In addition to the EEOC, two former employees have successfully
      intervened as party plaintiffs in the case. The case is currently in the motion
      stage, and litigation is, by its nature, uncertain both as to time and expense
      involved and as to the final outcome of such matters. While the Company intends
      to vigorously defend itself in this lawsuit, protracted litigation or
      unfavorable resolution of this lawsuit could have a material adverse effect
      on
      the business, results of operations or financial condition and could damage
      its
      reputation with its employees and its customers.





On
      November 8, 2006, a putative class action complaint captioned Charter
      Township of Clinton Police and Fire Retirement System v. OSI Restaurant
      Partners, Inc., et al., No. 06-CA-010348, was filed in the Circuit Court of
      the 13th Judicial Circuit in and for Hillsborough County, Florida against the
      Company, each of the Company’s directors, J. Timothy Gannon, Bain Capital
      Partners, LLC, and Catterton Partners, challenging the proposed transaction
      as
      unfair and inadequate to the Company’s public stockholders.


20
 Table
          of Contents


**OSI
      Restaurant Partners, Inc.**


**NOTES
      TO CONSOLIDATED FINANCIAL STATEMENTS**


**(UNAUDITED)**





14.  Commitments
      and Contingencies (continued)





On
      January 25, 2007, plaintiff’s counsel in the Florida action voluntarily
      dismissed the action as to Mr. Gannon and filed an amended complaint, which
      did not name Mr. Gannon as a defendant, against the remaining defendants.
      The amended complaint alleges that the Company’s directors breached their
      fiduciary duties in connection with the proposed transaction by failing to
      maximize stockholder value and by approving a transaction that purportedly
      benefits the investor group at the expense of the Company’s public stockholders;
      that the directors of the Company breached their fiduciary duties by failing
      to
      disclose certain allegedly material information to stockholders; and that the
      Company, Bain Capital and Catterton aided and abetted the alleged fiduciary
      breaches. The amended complaint seeks, among other relief, class certification
      of the lawsuit, an injunction against the proposed transaction, declaratory
      relief, compensatory and/or rescissory damages to the putative class, and an
      award of attorneys’ fees and expenses to plaintiffs. Following a case management
      conference, the court granted plaintiff discovery from the defendants. On
      February 23, 2007, defendants Brabson, Carey, Fields, Franks, James, and
      Wilt answered the amended complaint and asserted affirmative defenses. The
      other
      defendants filed motions to dismiss the amended complaint on the same date.




On
      January 30, 2007, a class action complaint captioned Robert Mann v. Chris
      T. Sullivan, et al., No. CA2709-N, was filed in the Court of Chancery of
      Delaware in and for New Castle County against the same defendants stated above,
      including Mr. Gannon and except that Catterton Management Company LLC was
      named as a defendant rather than Catterton Partners. Paul E. Avery, Joseph
      J.
      Kadow, and Dirk A. Montgomery were also named as defendants. The complaint
      alleges that the Company’s directors and the officer defendants breached their
      fiduciary duties in connection with the proposed transaction, and that
      Mr. Gannon, Bain Capital and Catterton aided and abetted the alleged
      fiduciary breaches. The complaint seeks, among other relief, an injunction
      against the proposed transaction, declaratory relief, compensatory and/or
      rescissory damages to the putative class, and an award of attorneys’ fees and
      expenses to plaintiffs.




Counsel
        for the parties to these two suits have reached an agreement in principle,
        expressed in a memorandum of understanding, providing for the settlement
        of the
        suits subject to Florida court approval and on terms and conditions that
        include, among other things, certain supplemental disclosure in the proxy
        statement prepared in connection with the special meeting of stockholders
        at
        which the adoption of the merger agreement will be voted upon and, in the
        event
        that any termination fee becomes due and payable by the Company, an agreement
        by
        Bain Capital and Catterton to waive a portion of such Company termination
        fee.
        The defendants have vigorously denied, and continue to vigorously deny, any
        wrongdoing or liability with respect to all claims asserted in these suits.
        If
        the Florida court approves the settlement contemplated in the memorandum
        of
        understanding, both suits will be dismissed with prejudice. The absence of
        an
        injunction arising from these matters prohibiting the consummation of the
        merger
        is a condition to the closing of the merger. The settlement contemplated
        by the
        parties is expressly conditioned upon the affirmative vote of a majority
        of the
        outstanding shares of OSI’s common stock entitled to vote at the special meeting
        (or any adjournment thereof) for the adoption of the merger agreement with,
        and
        without, consideration as to the vote of any shares held by the investor
        group
        and on the closing of the merger and the merger agreement and transactions
        contemplated thereby. The defendants considered it desirable that the actions
        be
        settled to avoid the burden, expense, risk, inconvenience and distraction
        of
        continued litigation and to resolve all of the claims that were or could
        have
        been brought in the actions being settled.


The
      Company is subject to other legal proceedings, claims and liabilities that
      arise
      in the ordinary course of business. In the opinion of management, the amount
      of
      the ultimate liability with respect to those actions will not materially affect
      the Company’s financial position or results of operations and cash
      flows.


21
 Table
          of Contents


**OSI
      Restaurant Partners, Inc.**


**NOTES
      TO CONSOLIDATED FINANCIAL STATEMENTS**


**(UNAUDITED)**





15.  Subsequent
      Events





In
      April
      2007, the Company was served with a putative class action complaint captioned
      Gerald D. Wells, Jr. et al. v. OSI Restaurant Partners, Inc., Case No. 07-1431,
      that was filed in the United States District Court for the District of
      Pennsylvania alleging violations of the Fair and Accurate Credit Transactions
      Act, or FACTA. In addition, the Company had previously been provided with a
      copy
      of a putative class action complaint captioned Saunders v. Roy’s Family of
      Restaurants, Inc., Case No. SACV07-164 CJC (ANx), that was filed in the United
      States District Court for the Central District of California also alleging
      violations of FACTA, but have not yet been formally served in the suit. FACTA
      restricts, among other things, the credit and debit card data that may be
      included on the electronically printed receipts provided to retail customers
      at
      the point of sale. The suits allege that the defendants violated a provision
      of
      FACTA by including more information on the electronically printed credit and
      debit card receipts provided to customers than is permitted under FACTA. Both
      complaints seek monetary damages, including statutory damages, punitive damages,
      attorneys’ fees and injunctive relief. These lawsuits are among a number of
      lawsuits with similar allegations that have been filed recently against large
      retailers and foodservice operators, among others, as a result of the
      implementation of FACTA, which became fully effective as of December 4, 2006.
      The Company is currently examining information relating to the allegations
      in
      these complaints and is evaluating developing judicial interpretations of the
      statute. While the Company intends to vigorously defend against these actions,
      both of these cases are in the preliminary stages of litigation, and as a
      result, the ultimate outcome of these cases and their potential financial impact
      on the Company are not determinable at this time.





On
      April
      12, 2007, the Company announced the appointment of a new president of Outback
      Steakhouse of Florida, Inc., a subsidiary of the Company. This officer has
      invested $111,000 in eleven Outback Steakhouse restaurants, $176,000 in fourteen
      Carrabba’s restaurants and $105,000 in ten Bonefish Grill restaurants. He
      received distributions of $34,000 and $96,000 during the quarter ended March
      31,
      2007 and the year ended December 31, 2006, respectively, from these ownership
      interests. Additionally,
      this officer has made an investment of $93,000 in a franchisee that operates
      five Bonefish Grill restaurants. He
      received distributions of $6,000 and $23,000 during the quarter ended March
      31,
      2007 and the year ended December 31, 2006, respectively, from
      this franchisee.




On
        May 8,
        2007, the Company announced that the special meeting of stockholders that
        had
        been called for May 8 to consider and vote upon the merger agreement was
        postponed until May 15, 2007. The meeting was postponed to permit the
        solicitation of additional votes (see Note 11).




22
 Table
          of Contents


**MANAGEMENT'S
      DISCUSSIONAND 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
        eight
        resta urant
        concepts, more than 1,400 system-wide restaurants and 2006 annual revenues
        for
        Company-owned restaurants exceeding $3.9 billion. We operate in all 50 states
        and in 20 countries internationally, predominantly through Company-owned
        restaurants, 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 patrons who return for meals several times a week or on special
        occasions such as birthday parties, private events and for business
        entertainment. Secondarily, we generate revenues through sales of franchises
        and
        ongoing royalties.
 
 The
        restaurant industry is a highly competitive and fragmented business, which
        is
        subject to sensitivity from changes in the economy, trends in lifestyles,
        seasonality (customer spending patterns at restaurants are generally highest
        in
        the first quarter of the year and lowest in the third quarter of the year)
        and
        fluctuating costs. Operating margins for restaurants are susceptible to
        fluctuations in prices of commodities, which include among other things,
        beef,
        chicken, seafood, butter, cheese, produce and other necessities to operate
        a
        restaurant, such as natural gas or other energy supplies. Additionally, the
        restaurant industry is characterized by a high initial capital investment,
        coupled with high labor costs. The combination of these factors underscores
        our
        initiatives to drive increased sales at existing restaurants in order to
        raise
        margins and profits, because the incremental sales contribution to profits
        from
        every additional dollar of sales above the minimum costs required to open,
        staff
        and operate a restaurant is 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 do not attempt to lure customers with
      discounts, as is common to many restaurants in the casual dining industry.
      Our
      advertising spending is 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 getting people 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.


23
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          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 restaurant calculated average sales amount,
                which
                helps us gauge the changes in consumer traffic, pricing and development
                of
                the brand; ·
            Operating
                margins - restaurant revenues after deduction of the main restaurant-level
                operating costs (including cost of sales, restaurant operating expenses,
                and labor and related costs); ·
            System-wide
                sales - a total sales volume for all company-owned, franchise and
                unconsolidated joint venture restaurants, 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
                restaurants that are open in both years in order to remove the impact
                of
                new openings in comparing the operations of existing
                restaurants. 
 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 newer format restaurants than have
        typically been experienced at Outback Steakhouses. However, cost of sales
        as a
        percentage of restaurant sales at those restaurants is lower than those at
        Outback Steakhouse. These trends are expected to continue with our planned
        development of restaurants.




On
        November 5, 2006, we entered into a definitive agreement to be acquired by
        an
        investor group comprised of Bain Capital Partners, LLC, Catterton Partners
        and
        Company founders Chris T. Sullivan, Robert D. Basham and J. Timothy Gannon,
        for
        $40.00 per share in cash.  Our
        Board
        of Directors, on the unanimous recommendation of a Special Committee of
        independent directors, approved the merger agreement and recommended that
        our
        shareholders adopt the agreement.


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
      future periods may also result from changes in beef prices and other commodity
      costs and continued pre-opening expenses from the development of new restaurants
      and our expansion strategy.


24
 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****MARCH
                31,****2007**
            
            **2006**RevenuesRestaurant
                sales
            
            
            99.5
            %
            
            99.4
            %Other
                revenues
            
            
            0.5
            
            
            0.6Total
                revenues
            
            
            100.0
            
            
            100.0Costs
                and expensesCost
                of sales (1)
            
            
            35.4
            
            
            36.5Labor
                and other related (1)
            
            
            27.6
            
            
            27.4Other
                restaurant operating (1)
            
            
            22.4
            
            
            21.9Depreciation
                and amortization
            
            
            3.8
            
            
            3.6General
                and administrative
            
            
            6.3
            
            
            5.5Provision
                for impaired assets and restaurant closings
            
            
            0.5
            
            
            0.3Loss
                (income) from operations of unconsolidated affiliates
            
            
            0.1
            
            
            (0.1
            )Total
                costs and expenses
            
            
            95.7
            
            
            94.5Income
                from operations
            
            
            4.3
            
            
            5.5Other
                income (expense), net
            
            
            -
            
            
            (*
            )Interest
                income
            
            
            0.1
            
            
            *Interest
                expense
            
            
            (0.4
            )
            
            (0.2
            )Income
                before provision for income taxes andelimination
                of minority interest
            
            
            4.0
            
            
            5.3Provision
                for income taxes
            
            
            1.3
            
            
            1.7Income
                before elimination of minority interest
            
            
            2.7
            
            
            3.6Elimination
                of minority interest
            
            
            0.1
            
            
            0.4Net
                income
            
            
            2.6
            %
            
            3.2
            %


__________________


(1)
            As
                a percentage of restaurant sales.


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


25
 Table
            of Contents
  **MANAGEMENT'S
      DISCUSSION AND ANALYSIS OF**


**FINANCIAL
      CONDITION AND RESULTS OF OPERATIONS**





**Results
      of Operations (continued)**




System-wide
        sales grew by 5.9 %
        for the
        quarter ended March 31, 2007 compared with the corresponding period in 2006.
        System-wide sales is a non-GAAP financial measure that includes sales of
        all
        restaurants operating under our brand names, whether we own them or not.
        There
        are two components of system-wide sales, sales of Company-owned restaurants
        of
        OSI Restaurant Partners, Inc. and sales of franchised and development joint
        venture restaurants. The table below presents the first component of system-wide
        sales, sales of Company-owned restaurants:


**THREE
                MONTHS ENDED****MARCH
                31,****2007**
            
            **2006****OSI
                RESTAURANT PARTNERS, INC. RESTAURANT SALES****(in
                millions):**Outback
                SteakhousesDomestic
            
            $
            592
            
            $
            583International
            
            
            85
            
            
            76Total
            
            
            677
            
            
            659Carrabba's
                Italian Grills
            
            
            180
            
            
            162Bonefish
                Grills
            
            
            91
            
            
            73Fleming's
                Prime Steakhouse and Wine Bars
            
            
            56
            
            
            48Other
                restaurants
            
            
            57
            
            
            45Total
                Company-owned restaurant sales
            
            $
            1,061
            
            $
            987


26
 Table
          of Contents


**MANAGEMENT'S
      DISCUSSION AND ANALYSIS OF**


**FINANCIAL
      CONDITION AND RESULTS OF OPERATIONS**





**Results
      of Operations (continued)**




The
        following information presents the
        second component of system-wide sales, 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****MARCH
                31,****2007**
            
            **2006****FRANCHISE
                AND DEVELOPMENT JOINT VENTURE SALES****(in
                millions) (1):**Outback
                SteakhousesDomestic
            
            $
            92
            
            $
            93International
            
            
            18
            
            
            27Total
            
            
            110
            
            
            120Bonefish
                Grills
            
            
            4
            
            
            3Total
                franchise and development joint venture sales (1)
            
            $
            114
            
            $
            123Income
                from franchise and development joint ventures (2)
            
            $
            5
            
            $
            5


__________________


(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.


27
 Table
          of Contents


**MANAGEMENT'S
      DISCUSSION AND ANALYSIS OF**


**FINANCIAL
      CONDITION AND RESULTS OF OPERATIONS**





**Results
      of Operations (continued)**





**MARCH
                31,****2007**
            
            **2006**Number
                of restaurants (at end of the period):Outback
                SteakhousesCompany-owned
                - domestic
            
            
            684
            
            
            672Company-owned
                - international
            
            
            122
            
            
            106Franchised
                and development joint venture-
                domestic
            
            
            107
            
            
            106Franchised
                and development joint venture-
                international
            
            
            45
            
            
            42Total
            
            
            958
            
            
            926Carrabba's
                Italian GrillsCompany-owned
            
            
            234
            
            
            205Bonefish
                GrillsCompany-owned
            
            
            120
            
            
            97Franchised
                and development joint venture
            
            
            7
            
            
            6Total
            
            
            127
            
            
            103Fleming’s
                Prime Steakhouse and Wine BarsCompany-owned
            
            
            50
            
            
            40Roy’sCompany-owned
            
            
            23
            
            
            21Cheeseburger
                in ParadiseCompany-owned
            
            
            40
            
            
            32Lee
                Roy Selmon’sCompany-owned
            
            
            6
            
            
            4Blue
                Coral Seafood and SpiritsCompany-owned
            
            
            2
            
            
            -Paul
                Lee's Chinese KitchensCompany-owned
            
            
            -
            
            
            3System-wide
                total
            
            
            1,440
            
            
            1,334  28
 Table
            of Contents




**MANAGEMENT'S
      DISCUSSION AND ANALYSIS OF**


**FINANCIAL
      CONDITION AND RESULTS OF OPERATIONS**





**Three
      months ended March 31, 2007 and 2006**





REVENUES





*Restaurant
      sales.* Restaurant sales increased by 7.6% to $1,061,363,000 during the first quarter
      of
      2007 compared with $986,734,000 in the same period in 2006. The increase in
      restaurant sales was attributable to additional revenues of approximately
      $79,433,000 from the opening of new restaurants after March 31, 2006. This
      increase was 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 March
      31,
      2007 and 2006:





**THREE
                MONTHS ENDED****MARCH
                31,****2007**
            
            **2006**Average
                restaurant unit volumes (weekly):Outback
                Steakhouses
            
            $
            67,579
            
            $
            67,584Carrabba's
                Italian Grills
            
            
            60,463
            
            
            62,222Bonefish
                Grills
            
            
            60,351
            
            
            62,722Fleming's
                Prime Steakhouse and Wine Bars
            
            
            91,653
            
            
            93,239Roy's
            
            
            80,362
            
            
            82,478Operating
                weeks:Outback
                Steakhouses
            
            
            10,118
            
            
            8,615Carrabba's
                Italian Grills
            
            
            2,976
            
            
            2,601Bonefish
                Grills
            
            
            1,504
            
            
            1,170Fleming's
                Prime Steakhouse and Wine Bars
            
            
            608
            
            
            510Roy's
            
            
            296
            
            
            261Year
                to year percentage change:Menu
                price increases (1):Outback
                Steakhouses
            
            
            0.4
            %
            
            0.6
            %Carrabba's
                Italian Grills
            
            
            3.2
            %
            
            1.2
            %Bonefish
                Grills
            
            
            1.9
            %
            
            2.2
            %Same-store
                sales (stores open 18 months or more):Outback
                Steakhouses
            
            
            -0.5
            %
            
            -1.1
            %Carrabba's
                Italian Grills
            
            
            -1.3
            %
            
            2.7
            %Bonefish
                Grills
            
            
            -0.6
            %
            
            2.1
            %Fleming's
                Prime Steakhouse and Wine Bars
            
            
            3.3
            %
            
            7.0
            %Roy's
            
            
            -2.2
            %
            
            4.6
            %


__________________


(1)
            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 $373,000 to $5,253,000 in the first quarter of 2007 as compared
      with $5,626,000 in 2006. This
      decrease primarily resulted from lower royalties for Outback Steakhouse
      International as a result of the acquisition of the remaining 18% minority
      ownership interests in eighty-eight Outback Steakhouse restaurants in South
      Korea in November 2006 and 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.


29
 Table
          of Contents


**MANAGEMENT'S
      DISCUSSION AND ANALYSIS OF**


**FINANCIAL
      CONDITION AND RESULTS OF OPERATIONS**





**Three
      months ended March 31, 2007 and 2006 (continued)**





COSTS
      AND EXPENSES




*Cost
        of sales.* Cost of
        sales, consisting of food and beverage costs, decreased 1.1% to 35.4% as
        a
        percentage of restaurant sales in the first quarter of 2007 compared with
        the
        same period in 2006. This decrease in cost of sales was attributable to an
        increase in the proportion of consolidated sales associated with our non-Outback
        Steakhouse restaurants, which have lower cost of goods sold ratios than
        Outback Steakhouses. This decrease as a percentage of restaurant sales is
        also
        the result of the impact of certain Outback Steakhouse efficiency initiatives
        and general price increases, partially offset by increases in beef and produce
        costs. The Outback Steakhouse efficiency initiatives announced in 2006 reduced
        cost of sales by 0.7% as a percentage of restaurant sales. Beginning in February
        2007, the Company experienced increases in beef costs of approximately 5%,
        which
        negatively impacted cost of sales by 0.4% as a percentage of restaurant sales,
        while all other commodities provided a net 0.1% benefit. The remaining decrease
        in cost of sales as a percentage of restaurant sales was driven by price
        increases.
 
 *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 0.2% as a percentage
        of
        restaurant sales to 27.6% in the first quarter of 2007 compared with the
        same
        period in 2006. This increase in labor costs as a percentage of restaurant
        sales
        was due to minimum wage initiatives in several states and increases
        in the proportion of new restaurant formats, which have higher average labor
        costs than domestic Outback Steakhouses and Carrabba's Italian
        Grills .
        The
        increase as a percentage of restaurant sales was partially offset by Outback
        Steakhouse labor efficiencies, a reduction in the conversion costs related
        to
        the implementation of the Partner Equity Program and general price
        increases .
 
 *Other
        restaurant operating expenses* .
        Other
        restaurant operating expenses include certain unit-level operating costs
        such as
        operating supplies, rent, repair and maintenance, advertising expenses,
        utilities, pre-opening costs and other occupancy costs. Substantial portions
        of
        these expenses are fixed or indirectly variable. These costs increased 0.5%
        to
        22.4% as a percentage of restaurant sales in the first quarter of 2007 compared
        with the same period in 2006. This
        increase primarily
        resulted from increased advertising at Outback Steakhouse. Other
        restaurant operating expense increases as a percentage of restaurant sales
        are
        also due to declines in average unit volumes 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 0.2% as a percentage of total
        revenues to 3.8% in the first quarter of 2007 compared to the same period
        in
        2006. Increased depreciation expense as a percentage of total revenues resulted
        from lower average unit volumes during the quarter 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 $13,118,000 to $67,240,000 in the first
        quarter of 2007 compared with $54,122,000 during the same period in
        2006. 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 $6,138,000 of costs
        associated with the proposed merger transaction and increases of $2,539,000
        in
        professional fees for the Outback Steakhouse re-branding initiative and
        accounting remediation costs, which were incurred in the first quarter of
        2007.


30
 Table
          of Contents


**MANAGEMENT'S
      DISCUSSION AND ANALYSIS OF**


**FINANCIAL
      CONDITION AND RESULTS OF OPERATIONS**





**Three
      months ended March 31, 2007 and 2006 (continued)**




*Provision
        for impaired assets and restaurant closings.* A
        provision of $5,296,000 was recorded during the first quarter of 2007 which
        included the following: $3,779,000 of impairment charges for one domestic
        Outback Steakhouse restaurant, one Carrabba’s Italian Grill restaurant, one
        Bonefish Grill restaurant and one Lee Roy Selmon’s restaurant, a $512,000
        impairment charge for one domestic Outback Steakhouse restaurant as a result
        of
        a fire and a $1,005,000 impairment charge related to one of our corporate
        aircraft. During the first quarter of 2006, a provision of $2,532,000 was
        recorded which included $914,000 for an impairment charge for intangible
        and
        other asset impairments related to the closing of Paul Lee’s Chinese Kitchen and
        $1,618,000 for the
        impairment of one Carrabba’s Italian Grill.
 
 *Loss
        (income) from operations of unconsolidated affiliates* .
        Loss
        (income) from operations of unconsolidated affiliates represents our portion
        of
        net income or loss from restaurants operated as development joint ventures.
        Income from development joint ventures decreased by $1,336,000 to a loss
        of
        $708,000 during the first quarter of 2007 compared with income of $628,000
        during the same period in 2006. This decrease was attributable primarily
        to
        losses of $1,019,000 incurred on our investment in the Kentucky Speedway
        during
        the first quarter of 2007.
 
 *Income
        from operations* . Income
        from operations decreased by $9,215,000 to $45,510,000 in the first quarter
        of
        2007 compared with $54,725,000 in the same period in 2006 as a result of
        declines in average unit volumes at domestic Outback Steakhouses and Carrabba’s
        Italian Grills, costs associated with the proposed merger transaction, increases
        in professional fees for the Outback Steakhouse re-branding initiative and
        accounting remediation, the provision for impaired assets and restaurant
        closings and the changes in the relationships between revenues and expenses
        discussed above.
 
 *Interest
        income* .
        Interest income was $901,000 during the first quarter of 2007 compared with
        $557,000 in the same period in 2006. Interest
        income increased due to higher interest rates on short-term investment and
        cash
        equivalent balances during the first quarter of 2007 compared with the same
        period in 2006. Interest income for the quarters ended March 31, 2007 and
        2006
        included interest of approximately $460,000 and $386,000, respectively, from
        notes receivable held by a limited liability company owned by our California
        franchisee.
 
 *Interest
        expense* .
        Interest expense was $3,404,000 during the first quarter of 2007 compared
        with
        $2,371,000 in the same period in 2006. The
        increase in interest expense was due to higher average debt balances and
        higher
        interest rates during the first quarter of 2007 compared with the first quarter
        of 2006. Interest
        expense for the quarters ended March 31, 2007 and 2006 included approximately
        $460,000 and $386,000, 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 reflects expected income taxes due at federal
        statutory rates and state income tax rates, net of the federal benefit. The
        effective income tax rate was 32.3% for the first quarter of 2007 compared
        to
        31.8% for the first quarter of 2006. This increase in the effective income
        tax
        rate was primarily due to non-deductible merger costs incurred and
        an increase in tax contingency reserves, partially offset with an increase
        in FICA tax credits for employee-reported tips that we expect to receive
        for
        fiscal 2007.
 31
 Table
              of Contents


**MANAGEMENT'S
      DISCUSSION AND ANALYSIS OF**


**FINANCIAL
      CONDITION AND RESULTS OF OPERATIONS**





**Three
      months ended March 31, 2007 and 2006 (continued)**





*Elimination
      of minority interest.* The
      allocation of minority owners’ income included in this line item represents the
      portion of income or loss from operations included in consolidated operating
      results attributable to the ownership interests in certain restaurants in which
      we have a controlling interest. As a percentage of revenues, the income
      allocations were 0.1% for the first quarter of 2007 compared with 0.4% for
      the
      first quarter of 2006.  This decrease is due to the acquisition of the
      remaining minority ownership interests in twenty-six Carrabba’s restaurants in
      August 2006, the acquisition of the remaining minority ownership interests
      in
      eleven Carrabba’s restaurants in October 2006, the acquisition of the remaining
      minority ownership interests in nine Bonefish Grill restaurants in October
      2006
      and the acquisition of the remaining minority ownership interests in
      eighty-eight Outback Steakhouse restaurants in South Korea in November
      2006.




*Net
        income and earnings per share* .
        Net
        income for the first quarter of 2007 was $27,610,000 compared with $32,231,000
        in the same period in 2006. Basic earnings per share decreased to $0.37 during
        the first quarter of 2007 compared with $0.44 for the same period in 2006
        as a
        result of the decreas e
        in net
        income and the increase in basic weighted average shares outstanding of
        approximately 324,000 shares .
        Basic
        weighted average shares outstanding increased as a result of the issuance
        of
        shares under stock option plans. Diluted earnings per share decreased to
        $0.36
        during the first quarter of 2007 compared with $0.42 for the same period
        in 2006
        as a result of the decrease in net income and the increase in diluted weighted
        average shares outstanding of approximately 55,000 shares. The increase in
        diluted weighted average shares outstanding was primarily due to the effect
        of
        contingently issuable shares related to the Partner Equity Deferred Compensation
        Stock Plan for the quarter ended March 31, 2007 compared with March 31, 2006
        and
        the issuance of shares under stock option plans .


32
 Table
          of Contents


**MANAGEMENT'S
      DISCUSSION AND ANALYSIS OF**


**FINANCIAL
      CONDITION AND RESULTS OF OPERATIONS**





**Liquidity
      and Capital Resources**





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




**THREE
                  MONTHS ENDED****MARCH
                  31,****2007**
              
              **2006**Net
                  cash provided by operating activities
              
              $
              77,047
              
              $
              24,003Net
                  cash used in investing activities
              
              
              (58,193
              )
              
              (88,148
              )Net
                  cash (used in) provided by financing activities
              
              
              (43,942
              )
              
              40,637Net
                  decrease in cash and cash equivalents
              
              $
              (25,088
              )
              $
              (23,508
              )


We
      require capital principally for the development of new restaurants, remodeling
      older restaurants and investments in technology, and we also use capital
      for acquisitions of franchisees and joint venture partners. We require capital
      to pay dividends to common stockholders (refer to additional discussion in
      the
      Dividend section of Management’s Discussion and Analysis of Financial Condition
      and Results of Operation). We also utilize capital to repurchase our common
      stock as part of an ongoing share repurchase program. Capital expenditures
      totaled approximately $315,235,000 for the year ended December 31, 2006 and
      approximately $55,003,000 and $85,769,000 during the first three months of
      2007
      and 2006, 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.





Pursuant
      to our joint venture agreement for the development of Roy’s restaurants, RY-8,
      our joint venture partner, has the right to require us to purchase up to 25%
      of
      RY-8’s interests in the joint venture at anytime after June 17, 2004 and up to
      another 25% (total 50%) of its interest in the joint venture at anytime after
      June 17, 2009. Our purchase price would be equal to the fair market value of
      the
      joint venture as of the date that RY-8 exercised its put option multiplied
      by
      the percentage purchased.




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 will vary significantly depending
        on timing of partner contracts, forfeiture rates and numbers of partner
        participants and may differ materially from estimates.
  On
      November 5, 2006, we entered into a definitive agreement to be acquired by
      an
      investor group comprised of Bain Capital Partners, LLC, Catterton Partners
      and
      our founders Chris T. Sullivan, Robert D. Basham and J. Timothy Gannon, for
      $40.00 per share in cash (the “Merger Consideration”). Our Board of Directors,
      on the unanimous recommendation of a Special Committee of independent directors,
      approved the merger agreement and recommended that our shareholders adopt the
      agreement.




The
        total
        transaction value, including assumed debt, is approximately $3.2 billion. 
In addition to that value, an estimated $400,000,000 in funding will be
        necessary to complete the merger, refinance existing indebtedness, pay fees
        and
        expenses and provide a source of funds for capital expenditures. The transaction
        is subject to approval of our shareholders (without consideration of the
        vote of
        our founders and managers investing in the acquisition) and customary closing
        conditions. The transaction is not subject to a financing
        condition.




33
 Table
          of Contents


**MANAGEMENT'S
      DISCUSSION AND ANALYSIS OF**


**FINANCIAL
      CONDITION AND RESULTS OF OPERATIONS**





**Liquidity
      and Capital Resources (continued)**




On
        May 8,
        2007, we announced that the special meeting of stockholders that had been
        called
        for May 8 to consider and vote upon the merger agreement was postponed until
        May
        15, 2007. The meeting was postponed to permit the solicitation of additional
        votes.


After
      the
      effective time of the proposed merger, we will continue our current operations,
      except that we will cease to be an independent public company, and our common
      stock will no longer be traded on the New York Stock Exchange.





The
      merger agreement contains certain termination rights. The merger agreement
      provides that in certain circumstances, upon termination, we may be required
      to
      pay a termination fee of $25,000,000 to $45,000,000 and reimburse out-of-pocket
      fees and expenses incurred with respect to the transactions contemplated by
      the
      merger agreement, up to a maximum of $7,500,000. Also under certain
      circumstances, upon termination, we may be entitled to receive a termination
      fee
      of $45,000,000.





Merger
      expenses of approximately $6,138,000 for the three months ended March 31, 2007
      were included in the line item “General and administrative” expenses in our
      Consolidated Statements of Income and reflect primarily the professional service
      costs incurred in connection with the proposed merger transaction.




CREDIT
      FACILITIES





We
      have
      an uncollateralized $225,000,000 revolving credit facility that is scheduled
      to
      mature in June 2011. The 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 5.32% to 5.35% at March 31, 2007 and ranging from 5.35% to 5.36% at
      December 31, 2006). At March 31, 2007, the unused portion of the line of credit
      was $91,000,000.





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 March 31, 2007, we were in compliance
      with these debt covenants.





We
      also
      have a $40,000,000 line of
      credit that is scheduled to mature in June 2011. The 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
      March
      31, 2007, we were in compliance with these debt covenants. There
      were no draws outstanding on this line of credit as of March 31, 2007 and
      December 31, 2006. At March 31, 2007 and December 31, 2006, $25,040,000 and
      $25,072,000, 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.


34
 Table
          of Contents


**MANAGEMENT'S
      DISCUSSION AND ANALYSIS OF**


**FINANCIAL
      CONDITION AND RESULTS OF OPERATIONS**





**Liquidity
      and Capital Resources (continued)**





CREDIT
      FACILITIES (continued)





On
      October 12, 2006, we entered into a short-term uncollateralized line of credit
      agreement that has a maximum borrowing amount of $50,000,000 and an original
      maturity date of March 2007. On March 14, 2007, we amended the maturity date
      to
      May 30, 2007. The line permits borrowing at an interest rate 55 basis points
      over the LIBOR Market Index Rate at the time of each draw. The credit agreement
      contains certain restrictions and conditions as defined in the agreement. At
      March 31, 2007, we were in compliance with these debt covenants. There
      were no draws outstanding on this line of credit as of March 31, 2007 and
      December 31, 2006.





We
      have
      notes payable with banks bearing interest at rates ranging from 5.90% to 6.16%
      and from 5.27% to 6.29% at March 31, 2007 and December 31, 2006, respectively,
      to finance development of our restaurants in South Korea. The notes are
      denominated and payable in Korean won, with outstanding balances as of March
      31,
      2007 maturing at dates ranging from April 2007 to October 2007. As of March
      31,
      2007 and December 31, 2006, the combined outstanding balance was approximately
      $36,040,000 and $39,700,000, respectively. Certain of the notes payable are
      collateralized by lease and other deposits. At March 31, 2007 and December
      31,
      2006, collateralized notes totaled approximately $42,410,000 and $41,360,000,
      respectively. We have been pre-approved by these banks for additional borrowings
      of approximately $18,900,000 and $15,900,000 at March 31, 2007 and December
      31,
      2006, respectively.





Effective
      September 28, 2006, we established an uncollateralized note payable at a
      principal amount of 10,000,000,000 Korean won, which bears interest at 1.25%
      over the Korean Stock Exchange 3-month certificate of deposit rate (6.10% and
      5.85% as of March 31, 2007 and December 31, 2006, respectively).  The note
      is denominated and payable in Korean won and matures in September 2009.  As
      of March 31, 2007 and December 31, 2006, the outstanding principle on this
      note
      was approximately $10,492,000 and $10,629,000, respectively. The note contains
      certain restrictions and conditions as defined in the agreement that require
      our
      Korean subsidiary to maintain a ratio of debt to equity equal to or less than
      2.5 to 1.0 and to maintain a ratio of bank borrowings to total assets equal
      to
      or less than 0.4 to 1.0.  At March 31, 2007, we were in compliance with
      these debt covenants.





We
      had
      notes payable with banks to finance the development of our restaurants in Japan
      (“Outback Japan”). The notes were payable to banks, collateralized by letters of
      credit and lease deposits of approximately $3,300,000 at December 31, 2006,
      and had an interest rate of 1.40% at December 31, 2006. The notes were
      denominated and payable in Japanese yen. As of December 31, 2006, the
      outstanding balance totaled approximately $5,114,000.  The
      notes
      had been paid as of March 31, 2007.





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 permitted borrowing up to a maximum of $10,000,000, contained certain
      restrictions and conditions as defined in the agreement and was scheduled to
      mature in June 2011. The line of credit permitted borrowing at interest rates
      ranging from 45 to 65 basis points over LIBOR. As of December 31, 2006, Outback
      Japan had borrowed approximately $9,096,000 on the line of credit at an average
      interest rate of 1.19%.  As
      of
      March 31, 2007, borrowings under this line of credit had been
      paid.




35
 Table
            of Contents




**MANAGEMENT'S
      DISCUSSION AND ANALYSIS OF**


**FINANCIAL
      CONDITION AND RESULTS OF OPERATIONS**





**Liquidity
      and Capital Resources (continued)**





CREDIT
      FACILITIES (continued)





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 permitted 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 revolving line of credit contains certain restrictions
      and conditions as defined in the agreement. The line originally matured in
      December 2006, and Outback
      Japan amended it to extend the maturity of the line until the earlier of March
      31, 2007 or the date on which the acquisition of us by the investor group is
      final (see
      Note
      11 of Unaudited Notes to Consolidated Financial Statements included in Item
      1 of
      this report).  All other material provisions of the agreement
      remained the same. As of
      December 31, 2006, Outback Japan had borrowed approximately $3,921,000 on the
      line of credit at an average interest rate of 1.17%.  As
      of
      March 31, 2007, borrowings under this line of credit had been
      paid. As
        of
        March 31, 2007 and December 31, 2006 ,
        we had
        approximately $9,077,000 and $7,993,000, respectively, of notes payable at
        interest rates ranging from 2.07% to 7.25% and from 2.07% to 7.75%,
        respectively. 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.




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
        March 31, 2007, 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 $101,200,000;
        or
        (ii) earnings before interest, taxes, depreciation, amortization and rent
        increase more than 10.8%. 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 $132,900,000; or
        (ii)
        earnings before interest, taxes, depreciation, amortization and rent decreased
        more than 11.4%. 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 $217,000,000; (ii) earnings before interest, taxes, depreciation,
        amortization and rent decreased more than 26.1%; or (iii) our net worth
        decreased approximately 17.3%.


36
 Table
          of Contents


**MANAGEMENT'S
      DISCUSSION AND ANALYSIS OF**


**FINANCIAL
      CONDITION AND RESULTS OF OPERATIONS**





**Liquidity
      and Capital Resources (continued)**





DEBT
      GUARANTEES





We
      are
      the guarantor of an uncollateralized line of credit that permits borrowing
      of up
      to $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. The outstanding balance on the line of credit at March 31, 2007 and
      December 31, 2006 was approximately $32,583,000 and $32,083,000 ,
      respectively, 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 2007 will be met by cash flows
      from operations and, to the extent needed, advances on our lines of credit. If
      the
      proposed merger is approved by our shareholders, the terms of our credit
      agreements may change significantly, and we may have substantially more
      debt.





The
      consolidated financial statements also include the accounts and operations
      of
      our Roy’s consolidated venture in which we have a less than majority ownership.
      We consolidate this venture because we control the executive committee (which
      functions as a board of directors) through representation on the board by
      related parties, and we are able to direct or cause the direction of management
      and operations on a day-to-day basis. Additionally, the majority of capital
      contributions made by our partner in the Roy’s consolidated venture have been
      funded by loans to the partner from a third party where we are required to
      be a
      guarantor of the debt, which provides us control through our collateral interest
      in the joint venture partner’s membership interest. As a result of our
      controlling financial interest in this venture, it is included in our
      consolidated financial statements. The portion of income or loss attributable
      to
      the minority interests, not to exceed the minority interest’s equity in the
      subsidiary, is eliminated in the line item in our Unaudited Consolidated
      Statements of Income entitled “Elimination of minority interest.” All material
      intercompany balances and transactions have been eliminated.





We
      are
      the guarantor of an uncollateralized line of credit that permits borrowing
      of up
      to a maximum of $24,500,000 for our joint venture partner, RY-8, 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 termination date in June 2007.
      According to the terms of the credit agreement, RY-8 may borrow, repay,
      re-borrow or prepay advances at any time before the termination date of the
      agreement. On the termination date of the agreement, the entire outstanding
      principal amount of the loan then outstanding and any accrued interest is due.
      At March 31, 2007 and December 31, 2006, the outstanding balance on the line
      of
      credit was approximately $24,355,000 and $24,349,000, respectively.





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. At
      March
      31, 2007, we were in compliance with the debt covenants.


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          of Contents


**MANAGEMENT'S
      DISCUSSION AND ANALYSIS OF**


**FINANCIAL
      CONDITION AND RESULTS OF OPERATIONS**





**Liquidity
      and Capital Resources (continued)**





DEBT
      GUARANTEES (continued)





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 of up to $17,585,000 of $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. The
      bonds have a put feature that allows the lenders to require full payment of
      the
      debt on or after June 2011. At March 31, 2007 and December 31, 2006, the
      outstanding balance on the bonds was approximately $63,300,000. Our guarantee
      will proportionally decrease as payments are made on the bonds.





As
      part
      of the 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 additional working
      capital contributions and loans to this affiliate in payments totaling
      $5,503,000. We did not make any additional working capital contributions or
      loans during the three months ended March 31, 2007, and we loaned $1,867,000
      during 2006. In addition, based on current operating performance, we anticipate
      making additional contributions in 2007 of approximately $1,500,000 to
      $2,000,000. This affiliate is expected to incur further operating losses at
      least through 2007 .





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 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.


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          of Contents


**MANAGEMENT'S
      DISCUSSION AND ANALYSIS OF**


**FINANCIAL
      CONDITION AND RESULTS OF OPERATIONS**





**Liquidity
      and Capital Resources (continued)**





DEBT
      GUARANTEES (continued)





Our
      Korean subsidiary is the guarantor of debt owed by landlords of two of our
      Outback Steakhouse restaurants in Korea. We are obligated to purchase the
      building units occupied by our two restaurants in the event of default by the
      landlords on their debt obligations, which were approximately $1,400,000 and
      $1,500,000 as of March 31, 2007 and December 31, 2006. Under the terms of the
      guarantees, our monthly rent payments are deposited with the lender to pay
      the
      landlords’ interest payments on the outstanding balances. The guarantees are in
      effect until the earlier of the date the principal is repaid or the entire
      lease
      term of ten years for both restaurants, which expire in 2014 and 2016. The
      guarantees specify that upon default the purchase price would be a maximum
      of
      130% of the landlord’s outstanding debt for one restaurant and the estimated
      legal auction price for the other restaurant, approximately $1,900,000 and
      $2,300,000, respectively, as of March 31, 2007 and December 31, 2006. If we
      were required to perform under either guarantee, we would obtain full title
      to
      the corresponding building unit and could liquidate the property, each having
      an
      estimated fair value of approximately $2,900,000. As a result, we have not
      recognized a liability related to these guarantees in accordance with FIN 45.
      We
      have various depository and banking relationships with the lender, including
      several outstanding notes payable.





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.




INCOME
        TAXES
 
 In
        June
        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. Effective
        January 1, 2007, we adopted the provisions of FIN 48 (see Note 10 of
        Unaudited Notes to Consolidated Financial Statements included in Item 1 of
        this
        report).


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 March 31, 2007, approximately 10,398,000 shares
        of
        our common stock have been issued as the result of stock option exercises.
        As of
        March 31, 2007, under these authorizations we have repurchased approximately
        15,415,000 shares of our common stock for approximately $552,057,000. No
        share
        repurchases were made in the quarter ended March 31,
        2007.


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          of Contents


**MANAGEMENT'S
      DISCUSSION AND ANALYSIS OF**


**FINANCIAL
      CONDITION AND RESULTS OF OPERATIONS**





DIVIDENDS





Our
      Board
      of Directors authorized the following dividends during 2006 and
      2007:




Declaration
              
              Record
              
              Payable
              
              
              Amount
                  per ShareDate
              
              Date
              
              Date
              
              
              of
                  Common StockJanuary
                  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
              
              
              
              0.13October
                  24, 2006
              
              November
                  17, 2006
              
              December
                  1, 2006
              
              
              
              0.13January
                  23, 2007
              
              February
                  16, 2007
              
              March
                  2, 2007
              
              
              
              0.13


As
      a
      result of the proposed merger transaction, we have not yet declared a dividend
      in the second quarter of 2007, and our payment of future dividends is restricted
      by the terms of the merger agreement. If the merger is not completed or if
      it is
      significantly delayed, then we will continue to base future dividend decisions
      on a number of factors, including our operating results and financial
      requirements. If we were to continue to pay dividends at the current dividend
      rate, the annual dividend payment would be between $38,000,000 and $40,000,000,
      depending on the shares outstanding during the respective quarters. We would
      pay
      the dividend with cash flow from operations.





**Recently
      Issued Financial Accounting Standards**





In
      June
      2006, the EITF reached a consensus on EITF Issue No. 06-4, “Accounting for
      Deferred Compensation and Postretirement Benefit Aspects of Endorsement
      Split-Dollar Life Insurance Arrangements” (“EITF 06-4”), which requires the
      application of the provisions of SFAS No. 106, “Employers’ Accounting for
      Postretirement Benefits Other Than Pensions” to endorsement split-dollar life
      insurance arrangements. This would require recognition of a liability for the
      discounted future benefit obligation owed to an insured employee by the
      insurance carrier. EITF 06-4 is effective for fiscal years beginning after
      December 15, 2007. We may have certain policies subject to the provisions of
      EITF 06-4 and are currently evaluating the impact that EITF 06-4 would have
      on
      our financial statements.





In
      September 2006, the FASB issued SFAS No. 157, “Fair Value Measurements” (“SFAS
      No. 157”), which defines fair value, establishes a framework for measuring fair
      value and expands the related disclosure requirements. The provisions of SFAS
      No. 157 are effective for fiscal years beginning after November 15, 2007. We
      are
      currently evaluating the impact that SFAS No. 157 will have on our financial
      statements.





In
      February 2007, the FASB issued SFAS No. 159, “The Fair Value Option for
      Financial Assets and Financial Liabilities - Including an Amendment of FASB
      Statement No. 115” (“SFAS No. 159”).  SFAS No. 159
      permits entities to choose to measure eligible items at fair value at specified
      election dates and report unrealized gains and losses on items for which the
      fair value option has been elected in earnings at each subsequent reporting
      date. SFAS No. 159 is effective for fiscal years beginning after
      November 15, 2007. We are currently evaluating the effect that adoption of
      this statement will have on our financial statements.


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          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)
            
            Our
                results can be affected by consumer perception of food
                safety;(iv)
            
            Our
                ability to expand is dependent upon various factors such as the
                availability of attractive sites for new restaurants; ability to
                obtain
                appropriate real estate sites at acceptable prices; ability to obtain
                all
                required governmental permits including zoning approvals and liquor
                licenses on a timely basis; impact of government moratoriums or approval
                processes, which could result in significant delays; ability to obtain
                all
                necessary contractors and subcontractors; union activities such as
                picketing and hand billing that could delay construction; the ability
                to
                generate or borrow funds; the ability to negotiate suitable lease
                terms;
                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;(v)
            
            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;(vi)
            
            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;(vii)
            
            Minimum
                wage increases in certain states including Florida, Nevada, Colorado,
                New
                York, Missouri, Arizona, Ohio, California, Hawaii, Connecticut and
                Arkansas and North Carolina in 2007 could cause a significant increase
                in
                our “Labor and other related” expenses; and/or(viii)
            
            The
                occurrence of any event, change or other circumstance that could
                result in
                the termination of the merger agreement, including but not limited
                to
                failing to obtain shareholder approval or the failure or inability
                to
                satisfy other conditions required to complete the proposed
                merger.


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          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 March 31, 2007, 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
      $134,000,000 outstanding balance under these lines at March 31, 2007 was 5.87%.
      Notes payable of approximately $46,532,000 to South Korean banks bear interest
      at rates ranging from 5.90% to 6.16% at March 31, 2007.  Our
      Japanese lines of credit and notes payablehad
      been
      paid as of March 31, 2007.




At
      March
      31, 2007 and December 31, 2006, our total debt, excluding consolidated
      guaranteed debt, was approximately $194,534,000 and $235,378,000, respectively.
      Should interest rates based on our average borrowings through March 31, 2007
      increase by one percentage point, our estimated annual interest expense would
      increase by approximately $2,498,000 over amounts reported for the three months
      ended March 31, 2007.





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 South Korean banks of
      approximately $46,532,000 at March 31, 2007 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 $41,015,000 and $42,211,000 as of March 31, 2007 and December
      31,
      2006, 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. 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.





Our
      restaurants are dependent upon energy to operate and are impacted by changes
      in
      energy prices, including natural gas. We utilized derivative instruments to
      mitigate our exposure to material increases in natural gas prices between
      November 2006 and October 2007. We are not applying hedge accounting, as defined
      by SFAS No. 133, “Accounting for Derivative Instruments and Hedging Activities,”
and any changes in fair value of the derivative instruments are marked-to-market
      through earnings in the period of change. The effects of these derivative
      instruments were immaterial to our financial statements for all periods
      presented.


42
 Table
          of Contents


**OSI
      Restaurant Partners, Inc.**


**QUANTITATIVE
      AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK**





**Item
      3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
      (continued)**





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.


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          of Contents


**OSI
      RestaurantPartners, Inc.**


**CONTROLS
      AND PROCEDURES**





**Item
      4. CONTROLS AND PROCEDURES**





**Evaluation
      of Disclosure Controls and Procedures**





We
      have
      established and maintain disclosure controls and procedures that are designed
      to
      ensure that material information relating to the Company and our subsidiaries
      required to be disclosed by us in the reports that we file or submit under
      the
      Securities Exchange Act of 1934 is recorded, processed, summarized, and reported
      within the time periods specified in the SEC’s rules and forms, and that such
      information is accumulated and communicated to our management, including our
      Chief Executive Officer and Chief Financial Officer, as appropriate to allow
      timely decisions regarding required disclosure. We carried out an evaluation,
      under the supervision and with the participation of our management, including
      our Chief Executive Officer and Chief Financial Officer, of the effectiveness
      of
      our disclosure controls and procedures as of the end of the period covered
      by
      this report. Based on that evaluation, the Chief Executive Officer and Chief
      Financial Officer concluded that our disclosure controls and procedures were
      effective as of March 31, 2007.





**Changes
      in Internal Control over Financial Reporting**





There
      have been no changes in our internal control over financial reporting during
      our
      most recent quarter ended March 31, 2007 that have materially affected, or
      are
      reasonably likely to affect, our internal control over financial
      reporting.


44
 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.





Outback
      Steakhouse of Florida, Inc. and OS Restaurant Services, Inc., our subsidiaries,
      are defendants in a class action lawsuit brought by the U.S Equal Employment
      Opportunity Commission (EEOC v. Outback Steakhouse of Florida, Inc. and OS
      Restaurant Services, Inc., U.S. District Court, District of Colorado, Case
      No.
      06-cv-1935, filed September 28, 2006) alleging that they have engaged in a
      nationwide pattern or practice of discrimination against women on the basis
      of
      their gender with respect to hiring and promoting into management positions
      as
      well as discrimination against women in terms and condition of their employment.
      In addition to the EEOC, two former employees have successfully intervened
      as
      party plaintiffs in the case. The case is currently in the motion stage, and
      litigation is, by its nature, uncertain both as to time and expense involved
      and
      as to the final outcome of such matters. While we intend to vigorously defend
      ourselves in this lawsuit, protracted litigation or unfavorable resolution
      of
      this lawsuit could have a material adverse effect on our business, results
      of
      operations or financial condition and could damage our reputation with our
      employees and our customers.





On
      November 8, 2006, a putative class action complaint captioned Charter
      Township of Clinton Police and Fire Retirement System v. OSI Restaurant
      Partners, Inc., et al., No. 06-CA-010348, was filed in the Circuit Court of
      the 13th Judicial Circuit in and for Hillsborough County, Florida against us,
      each of our directors, J. Timothy Gannon, Bain Capital Partners, LLC, and
      Catterton Partners, challenging the proposed transaction as unfair and
      inadequate to our public stockholders.




On
      January 25, 2007, plaintiff’s counsel in the Florida action voluntarily
      dismissed the action as to Mr. Gannon and filed an amended complaint, which
      did not name Mr. Gannon as a defendant, against the remaining defendants.
      The amended complaint alleges that our directors breached their fiduciary duties
      in connection with the proposed transaction by failing to maximize stockholder
      value and by approving a transaction that purportedly benefits the investor
      group at the expense of our public stockholders; that our directors breached
      their fiduciary duties by failing to disclose certain allegedly material
      information to stockholders; and that we, Bain Capital and Catterton aided
      and
      abetted the alleged fiduciary breaches. The amended complaint seeks, among
      other
      relief, class certification of the lawsuit, an injunction against the proposed
      transaction, declaratory relief, compensatory and/or rescissory damages to
      the
      putative class, and an award of attorneys’ fees and expenses to plaintiffs.
      Following a case management conference, the court granted plaintiff discovery
      from the defendants. On February 23, 2007, defendants Brabson, Carey,
      Fields, Franks, James, and Wilt answered the amended complaint and asserted
      affirmative defenses. The other defendants filed motions to dismiss the amended
      complaint on the same date.





On
      January 30, 2007, a class action complaint captioned Robert Mann v. Chris
      T. Sullivan, et al., No. CA2709-N, was filed in the Court of Chancery of
      Delaware in and for New Castle County against the same defendants stated above,
      including Mr. Gannon and except that Catterton Management Company LLC was
      named as a defendant rather than Catterton Partners. Paul E. Avery, Joseph
      J.
      Kadow, and Dirk A. Montgomery were also named as defendants. The complaint
      alleges that our directors and the officer defendants breached their fiduciary
      duties in connection with the proposed transaction, and that Mr. Gannon,
      Bain Capital and Catterton aided and abetted the alleged fiduciary breaches.
      The
      complaint seeks, among other relief, an injunction against the proposed
      transaction, declaratory relief, compensatory and/or rescissory damages to
      the
      putative class, and an award of attorneys’ fees and expenses to plaintiffs.




45
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          of Contents




**OSI
        Restaurant Partners, Inc.**
 **PART
        II: OTHER INFORMATION**
 
 **Item
        1. Legal Proceedings (continued)**


Counsel
      for the parties to these two suits have reached an agreement in principle,
      expressed in a memorandum of understanding, providing for the settlement of
      the
      suits subject to Florida court approval and on terms and conditions that
      include, among other things, certain supplemental disclosure in the proxy
      statement prepared in connection with the special meeting of stockholders at
      which the adoption of the merger agreement will be voted upon and, in the event
      that any termination fee becomes due and payable by us, an agreement by Bain
      Capital and Catterton to waive a portion of such company termination fee. The
      defendants have vigorously denied, and continue to vigorously deny, any
      wrongdoing or liability with respect to all claims asserted in these suits.
      If
      the Florida court approves the settlement contemplated in the memorandum of
      understanding, both suits will be dismissed with prejudice. The absence of
      an
      injunction arising from these matters prohibiting the consummation of the merger
      is a condition to the closing of the merger. The settlement contemplated by
      the
      parties is expressly conditioned upon the affirmative vote of a majority of
      the
      outstanding shares of OSI’s common stock entitled to vote at the special meeting
      (or any adjournment thereof) for the adoption of the merger agreement with,
      and
      without, consideration as to the vote of any shares held by the investor group
      and on the closing of the merger and the merger agreement and transactions
      contemplated thereby. The defendants considered it desirable that the actions
      be
      settled to avoid the burden, expense, risk, inconvenience and distraction of
      continued litigation and to resolve all of the claims that were or could have
      been brought in the actions being settled.




In
      April
      2007, we were served with a putative class action complaint captioned Gerald
      D.
      Wells, Jr. et al. v. OSI Restaurant Partners, Inc., Case No. 07-1431, that
      was
      filed in the United States District Court for the District of Pennsylvania
      alleging violations of the Fair and Accurate Credit Transactions Act, or FACTA.
      In addition, we had previously been provided with a copy of a putative class
      action complaint captioned Saunders v. Roy’s Family of Restaurants, Inc., Case
      No. SACV07-164 CJC (ANx), that was filed in the United States District Court
      for
      the Central District of California also alleging violations of FACTA, but have
      not yet been formally served in the suit. FACTA restricts, among other things,
      the credit and debit card data that may be included on the electronically
      printed receipts provided to retail customers at the point of sale. The suits
      allege that the defendants violated a provision of FACTA by including more
      information on the electronically printed credit and debit card receipts
      provided to customers than is permitted under FACTA. Both complaints seek
      monetary damages, including statutory damages, punitive damages, attorneys’ fees
      and injunctive relief. These lawsuits are among a number of lawsuits with
      similar allegations that have been filed recently against large retailers and
      foodservice operators, among others, as a result of the implementation of FACTA,
      which became fully effective as of December 4, 2006. We are currently examining
      information relating to the allegations in these complaints and are evaluating
      developing judicial interpretations of the statute. While we intend to
      vigorously defend against these actions, both of these cases are in the
      preliminary stages of litigation, and as a result, the ultimate outcome of
      these
      cases and their potential financial impact on us are not determinable at this
      time.


46
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            of Contents




**OSI
      RestaurantPartners, Inc.**


**PART
      II: OTHER INFORMATION**





**Item
      1A. Risk Factors**





In
      addition to the other information discussed in this report, please consider
      the
      factors described in Part I, Item 1A., “Risk Factors” in our 2006 10-K which
      could materially affect our business, financial condition or future results.
      There have not been any significant changes with respect to the risks described
      in our 2006 10-K, but 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.





**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 March 31, 2007, we issued approximately 2,330 shares of our
      common stock at $32.38 per share to one of our area operating partners for
      his
      interest in one Outback Steakhouse. The aggregate value of shares issued was
      approximately $75,000 .
      We also
      issued approximately 17,620 shares of our common stock at $38.47 per share
      to
      one of our area operating partners for his interest in five Outback Steakhouses.
      The aggregate value of shares issued was approximately $678,000. 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 March 31, 2007:




**Period**
              
              **(a)
                  Total number of shares purchased**
              
              **(b)
                  Average price paid per share**
              
              **(c)
                  Total number of shares purchased as part of publicly announced
                  programs**
              
              **(d)
                  Maximum number of shares that may yet be purchased under the programs
                  (1)**January
                  1, 2007 - January 31, 2007
              
              
              -
              
              
              
              
              
              -
              
              
              2,749,000February
                  1, 2007 - February 28, 2007
              
              
              -
              
              
              
              
              
              -
              
              
              2,908,000March
                  1, 2007 - March 31, 2007
              
              
              -
              
              
              
              
              
              -
              
              
              2,984,000Total
              
              
              -
              
              
              
              
              
              -
              
              
              2,984,000
 ___________


(1)
            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 March 31, 2007, approximately
                10,398,000 shares of our common stock have been issued as the result
                of
                stock option exercises. As of March 31, 2007, under these authorizations
                we have repurchased approximately 15,415,000 shares of our common
                stock
                for approximately $552,057,000.




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**OSI
      RestaurantPartners, Inc.**


**PART
      II: OTHER INFORMATION**





**Item
      6. Exhibits**





**Number**
            
            **Description**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




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





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


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**SIGNATURE**





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











Date:
                May 10, 2007
            
            OSI
                RESTAURANT PARTNERS, INC.By:/s/
                Dirk A.
                MontgomeryDirk
                A. Montgomery
              Senior
                Vice President and Chief Financial Officer
              (Principal
                Financial and Accounting Officer)










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