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





Commission
      File Number: 1-15935




**OSI
      RESTAURANT PARTNERS, INC.**


(Exact
      name of registrant as specified in its charter)




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





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


(Address
      of principal executive offices) (Zip Code)





**(813)
      282-1225**


(Registrant's
      telephone number, including area code)





**N/A**


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





Indicate
      by check mark whether the registrant (1) has filed all reports required to
      be
      filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
      the
      preceding 12 months (or for such shorter period that the registrant was required
      to file such reports), and (2) has been subject to such filing requirements
      for
      the past 90 days.





YES x NO o





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





Large
      accelerated filer x  Accelerated
      filer o  Non-accelerated
      filer o





Indicate
      by check mark whether the registrant is a shell company (as defined in Rule
      12b-2 of the Exchange Act).





YES o NO x


As
        of
        August 7, 2006, the registrant had outstanding 74,435,210 shares of Common
        Stock, $.01 par value.


Table
            of Contents











**OSI
      RESTAURANTPARTNERS, INC.**





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


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


**(Unaudited)**





**TABLE
      OF CONTENTS**








**PART
                I — FINANCIAL INFORMATION****Page
                No****.**Item 1.
            Consolidated
                Financial Statements:Consolidated
                Balance Sheets — June 30, 2006 (Unaudited) and
                December 31, 2005
            3Consolidated
                Statements of Income (Unaudited) —
              For
                the Three and Six Months Ended June 30, 2006 and
                2005
            5Consolidated
                Statements of Cash Flows (Unaudited)
                —
              For
                the Six Months Ended June 30, 2006 and
                2005
            6Notes
                to Consolidated Financial Statements
                (Unaudited)
            8Item 2.
            Management's
                Discussion and Analysis of Financial Condition
                and Results of Operations
            25Item 3.
            Quantitative
                and Qualitative Disclosures About Market
                Risk
            46Item 4.
            Controls
                and Procedures
            47**PART
                II****—****OTHER INFORMATION**Item 1.
            Legal
                Proceedings
            48Item
                1A.
            Risk
                Factors
            49Item
                2.
            Unregistered
                Sales of Equity Securities and Use of
                Proceeds
            49Item
                4.
            Submission
                of Matters to a Vote of Security
                Holders
            50Item 6.
            Exhibits
            51Signature
            52





2
 Table
            of Contents




**PART
      I: FINANCIAL INFORMATION**





**Item
      1. CONSOLIDATED FINANCIAL STATEMENTS**





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


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


**JUNE
                  30,**
              
              **DECEMBER
                  31,****2006**
              
              **2005****(UNAUDITED)**ASSETSCurrent
                  AssetsCash
                  and cash equivalents
              
              $
              57,591
              
              $
              84,876Short-term
                  investments
              
              
              1,852
              
              
              1,828Inventories
              
              
              67,205
              
              
              68,468Deferred
                  income tax assets
              
              
              20,157
              
              
              17,719Other
                  current assets
              
              
              63,608
              
              
              51,746Total
                  current assets
              
              
              210,413
              
              
              224,637Property,
                  fixtures and equipment, net
              
              
              1,476,277
              
              
              1,389,605Investments
                  in and advances to unconsolidated affiliates, net
              
              
              25,183
              
              
              21,397Deferred
                  income tax assets
              
              
              61,662
              
              
              33,073Goodwill
              
              
              114,317
              
              
              111,318Intangible
                  assets
              
              
              11,567
              
              
              11,562Other
                  assets
              
              
              146,073
              
              
              142,114Notes
                  receivable collateral for franchisee guarantee
              
              
              31,150
              
              
              31,150$
              2,076,642
              
              $
              1,964,856


(CONTINUED...)




3
 Table
            of Contents





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


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


**JUNE
                    30,**
                
                **DECEMBER
                    31,****2006**
                
                **2005****(UNAUDITED)**LIABILITIES
                    AND STOCKHOLDERS' EQUITYCurrent
                    LiabilitiesAccounts
                    payable
                
                $
                93,282
                
                $
                98,020Sales
                    taxes payable
                
                
                15,196
                
                
                17,761Accrued
                    expenses
                
                
                137,966
                
                
                130,583Current
                    portion of partner deposit and accrued buyout liability
                
                
                15,301
                
                
                15,175Unearned
                    revenue
                
                
                36,984
                
                
                110,448Income
                    taxes payable
                
                
                16,993
                
                
                695Current
                    portion of long-term debt
                
                
                77,237
                
                
                63,442Total
                    current liabilities
                
                
                392,959
                
                
                436,124Partner
                    deposit and accrued buyout liability
                
                
                93,031
                
                
                71,591Deferred
                    rent
                
                
                61,195
                
                
                55,206Long-term
                    debt
                
                
                185,393
                
                
                90,623Guaranteed
                    debt
                
                
                33,778
                
                
                31,283Other
                    long-term liabilities
                
                
                48,494
                
                
                45,890Total
                    liabilities
                
                
                814,850
                
                
                730,717Commitments
                    and contingenciesMinority
                    interests in consolidated entities
                
                
                42,953
                
                
                45,573Stockholders'
                    EquityCommon
                    stock, $0.01 par value, 200,000 shares authorized; 78,750
                    and78,750
                    shares issued; 74,432 and 74,854 shares outstanding asof
                    June 30, 2006 and December 31, 2005, respectively
                
                
                788
                
                
                788Additional
                    paid-in capital
                
                
                303,577
                
                
                291,035Retained
                    earnings
                
                
                1,133,995
                
                
                1,104,423Accumulated
                    other comprehensive income (loss)
                
                
                2,406
                
                
                384Unearned
                    compensation related to outstanding restricted stock
                
                
                -
                
                
                (40,858
                )1,440,766
                
                
                1,355,772Less
                    treasury stock, 4,318 and 3,896 shares at June 30, 2006and
                    December 31, 2005, respectively, at cost
                
                
                (221,927
                )
                
                (167,206
                )Total
                    stockholders’ equity
                
                
                1,218,839
                
                
                1,188,566$
                2,076,642
                
                $
                1,964,856
 See
          notes
          to unaudited consolidated financial statements.





4
 Table
            of Contents





**OSI
      RestaurantPartners, Inc.**


**CONSOLIDATED
      STATEMENTS OF INCOME**


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


**THREE
                  MONTHS ENDED**
              
              **SIX
                  MONTHS ENDED****JUNE
                  30,**
              
              **JUNE
                  30,****2006**
              
              **2005**
              
              **2006**
              
              **2005**RevenuesRestaurant
                  sales
              
              $
              983,529
              
              $
              910,120
              
              $
              1,967,928
              
              $
              1,800,161Other
                  revenues
              
              
              5,428
              
              
              5,669
              
              
              11,054
              
              
              10,750Total
                  revenues
              
              
              988,957
              
              
              915,789
              
              
              1,978,982
              
              
              1,810,911Costs
                  and expensesCost
                  of sales
              
              
              354,968
              
              
              331,936
              
              
              713,213
              
              
              657,106Labor
                  and other related
              
              
              275,473
              
              
              236,027
              
              
              544,825
              
              
              463,264Other
                  restaurant operating
              
              
              223,693
              
              
              191,571
              
              
              439,053
              
              
              370,453Depreciation
                  and amortization
              
              
              36,794
              
              
              30,892
              
              
              72,150
              
              
              60,342General
                  and administrative
              
              
              59,147
              
              
              51,309
              
              
              112,859
              
              
              101,150Provision
                  for impaired assets and restaurant closings
              
              
              502
              
              
              7,679
              
              
              3,034
              
              
              8,455(Income)
                  loss from operations of unconsolidated affiliates
              
              
              (235
              )
              
              4
              
              
              (125
              )
              
              101Total
                  costs and expenses
              
              
              950,342
              
              
              849,418
              
              
              1,885,009
              
              
              1,660,871Income
                  from operations
              
              
              38,615
              
              
              66,371
              
              
              93,973
              
              
              150,040Other
                  income (expense), net
              
              
              5,165
              
              
              (89
              )
              
              5,165
              
              
              (1,023
              )Interest
                  income
              
              
              804
              
              
              450
              
              
              1,361
              
              
              818Interest
                  expense
              
              
              (3,211
              )
              
              (1,513
              )
              
              (5,582
              )
              
              (2,671
              )Income
                  before provision for income taxes andelimination
                  of minority interest
              
              
              41,373
              
              
              65,219
              
              
              94,917
              
              
              147,164Provision
                  for income taxes
              
              
              9,995
              
              
              21,852
              
              
              26,861
              
              
              49,411Income
                  before elimination of minority interest
              
              
              31,378
              
              
              43,367
              
              
              68,056
              
              
              97,753Elimination
                  of minority interest
              
              
              1,834
              
              
              2,962
              
              
              5,473
              
              
              6,390Net
                  income
              
              $
              29,544
              
              $
              40,405
              
              $
              62,583
              
              $
              91,363Basic
                  earnings per common shareNet
                  income
              
              $
              0.40
              
              $
              0.55
              
              $
              0.85
              
              $
              1.24Basic
                  weighted average number of shares outstanding
              
              
              73,650
              
              
              74,001
              
              
              73,865
              
              
              73,901Diluted
                  earnings per common shareNet
                  income
              
              $
              0.39
              
              $
              0.53
              
              $
              0.82
              
              $
              1.19Diluted
                  weighted average number of shares outstanding
              
              
              75,907
              
              
              76,925
              
              
              76,492
              
              
              76,965Cash
                  dividends per common share
              
              $
              0.13
              
              $
              0.13
              
              $
              0.26
              
              $
              0.26


See
      notes
      to unaudited consolidated financial statements.


5
 Table
            of Contents




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


**CONSOLIDATED
      STATEMENTS OF CASH FLOWS**


**(IN
      THOUSANDS, UNAUDITED)**




**SIX
                  MONTHS ENDED****JUNE
                  30,****2006**
              
              **2005**Cash
                  flows from operating activities:Net
                  income
              
              $
              62,583
              
              $
              91,363Adjustments
                  to reconcile net income to cash provided by operating
                  activities:Depreciation
                  and amortization
              
              
              72,150
              
              
              60,342Provision
                  for impaired assets and restaurant closings
              
              
              3,034
              
              
              8,455Stock-based
                  compensation expense
              
              
              39,399
              
              
              5,320Income
                  tax benefits credited to equity
              
              
              5,821
              
              
              9,954Excess
                  income tax benefits from stock-based compensation
              
              
              (3,318
              )
              
              -Minority
                  interest in consolidated entities’ income
              
              
              5,473
              
              
              6,390(Income)
                  loss from operations of unconsolidated affiliates
              
              
              (125
              )
              
              101Contributions
                  to partner deferred compensation plans
              
              
              (6,310
              )
              
              -Change
                  in deferred income taxes
              
              
              (30,817
              )
              
              (20,203
              )Increase
                  in deferred rent
              
              
              5,989
              
              
              4,590Loss
                  on disposal of property, fixtures and equipment
              
              
              1,397
              
              
              2,280Gain
                  on lease termination agreement
              
              
              (5,165
              )
              
              -Change
                  in assets and liabilities, net of effects of acquisitions:Decrease
                  in inventories
              
              
              1,474
              
              
              5,501Increase
                  in other current assets
              
              
              (11,752
              )
              
              (993
              )Increase
                  in other assets
              
              
              (3,660
              )
              
              (4,035
              )(Decrease)
                  increase in accounts payable, sales taxes payable and accrued expenses
              
              
              (30
              )
              
              26,291Increase
                  in partner deposit and accrued buyout liability
              
              
              340
              
              
              4,962Decrease
                  in unearned revenue
              
              
              (73,464
              )
              
              (69,682
              )Increase
                  in income taxes payable
              
              
              16,298
              
              
              7,144Increase
                  (decrease) in other long-term liabilities
              
              
              1,895
              
              
              (1,189
              )Net
                  cash provided by operating activities
              
              
              81,212
              
              
              136,591Cash
                  flows used in investing activities:Purchase
                  of investment securities
              
              
              (3,030
              )
              
              (1,591
              )Maturities
                  of investment securities
              
              
              3,006
              
              
              1,244Cash
                  paid for acquisitions of businesses, net of cash acquired
              
              
              (7,456
              )
              
              (5,200
              )Capital
                  expenditures
              
              
              (157,260
              )
              
              (135,493
              )Proceeds
                  from the sale of property, fixtures and equipment
              
              
              5,887
              
              
              2,719Proceeds
                  from lease termination agreement
              
              
              6,014
              
              
              -Payments
                  from unconsolidated affiliates
              
              
              209
              
              
              71Investments
                  in and advances to unconsolidated affiliates
              
              
              (1,268
              )
              
              (337
              )Net
                  cash used in investing activities
              
              $
              (153,898
              )
              $
              (138,587
              )
 (CONTINUED...)





6
 Table
            of Contents





**OSI
      Restaurant Partners, Inc.**


**CONSOLIDATED
      STATEMENTS OF CASH FLOWS**


**(IN
      THOUSANDS, UNAUDITED)**


**SIX
                    MONTHS ENDED****JUNE
                    30,****2006**
                
                **2005**Cash
                    flows provided by (used in) financing activities:Proceeds
                    from issuance of long-term debt
                
                $
                178,388
                
                $
                59,530Proceeds
                    from minority interest contributions
                
                
                2,279
                
                
                3,169Distributions
                    to minority interest
                
                
                (10,372
                )
                
                (8,919
                )Repayments
                    of long-term debt
                
                
                (69,823
                )
                
                (33,242
                )Dividends
                    paid
                
                
                (19,460
                )
                
                (19,289
                )Excess
                    income tax benefits from stock-based compensation
                
                
                3,318
                
                
                -Payments
                    for purchase of treasury stock
                
                
                (59,435
                )
                
                (50,526
                )Proceeds
                    from exercise of employee stock options
                
                
                20,506
                
                
                31,399Net
                    cash provided by (used in) financing activities
                
                
                45,401
                
                
                (17,878
                )Net
                    decrease in cash and cash equivalents
                
                
                (27,285
                )
                
                (19,874
                )Cash
                    and cash equivalents at the beginning of the period
                
                
                84,876
                
                
                87,977Cash
                    and cash equivalents at the end of the period
                
                $
                57,591
                
                $
                68,103Supplemental
                    disclosures of cash flow information:Cash
                    paid for interest
                
                $
                5,623
                
                $
                2,636Cash
                    paid for income taxes, net of refunds
                
                
                37,365
                
                
                52,633Supplemental
                    disclosures of non-cash items:Purchase
                    of employee partners' interests in cash flows of their
                    restaurants
                
                $
                3,795
                
                $
                2,489Litigation
                    liability and insurance receivable
                
                
                -
                
                
                39,000Increase
                    in guaranteed debt and investment in unconsolidated
                    affiliate
                
                
                2,495
                
                
                -


See
      notes
      to unaudited consolidated financial statements.





7
 Table
            of Contents





**OSI
      RestaurantPartners, Inc.**


**NOTES
      TO CONSOLIDATED FINANCIAL STATEMENTS**


**(UNAUDITED)**





1.  Basis
      of
      Presentation





On
      April
      25, 2006, the shareholders of Outback Steakhouse, Inc. approved changing the
      name of the corporation to OSI Restaurant Partners, Inc. (the “Company”). This
      Note should be read in conjunction with Note 1, “Summary of Significant
      Accounting Policies,” under Notes to Consolidated Financial Statements included
      in Item 8, “Financial Statements and Supplementary Data,” of the Company’s
      Annual Report on Form 10-K for the year ended December 31, 2005 (“2005
      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 2005 10-K.





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





**Reclassification**





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




2.  Stock-Based
        Compensation
 
 **Adoption
        of New Accounting Pronouncement**
 
 Effective
        January 1, 2006, the Company adopted the fair value based method of accounting
        for stock-based employee compensation as required by SFAS No. 123R, “Share-Based
        Payment,” a revision of SFAS No. 123, “Accounting for Stock-Based Compensation.”
The fair value based method requires the Company to expense all stock-based
        employee compensation. SFAS No. 123R also requires the benefits of tax
        deductions in excess of recognized compensation
        cost to be reported as a financing cash flow, rather than as an operating
        cash
        flow as previously required. The Company has adopted SFAS No. 123R using
        the
        modified prospective method. Accordingly, the Company has expensed all unvested
        and newly granted stock-based employee compensation beginning January 1,
        2006,
        but prior period amounts have not been restated.
  The
          incremental pre-tax stock-based compensation expense recognized for stock
          options due to the adoption of SFAS No. 123R for the three and six months
          ended
          June 30, 2006 was approximately $2,288,000 and $4,852,000, respectively.
          Total
          stock-based compensation expense, including the incremental pre-tax stock-based
          compensation expense above, grants of other equity awards and employee
          partner
          stock buyout expense, was approximately $20,607,000 and $39,399,000, with
          an
          associated tax benefit of approximately $7,646,000 and $14,584,000 for
          the three
          and six months ended June 30, 2006, respectively. The Company did not capitalize
          any stock-based compensation costs during the six months ended June 30,
          2006.
 8
 Table
              of Contents


**OSI
      Restaurant Partners, Inc.**


**NOTES
      TO CONSOLIDATED FINANCIAL STATEMENTS**


**(UNAUDITED)**





2.  Stock-Based
      Compensation (continued)





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





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


**THREE
                MONTHS**
            
            **SIX
                MONTHS****ENDED**
            
            **ENDED****JUNE
                30,**
            
            **JUNE
                30,****2005**
            
            **2005**Net
                income
            
            $
            40,405
            
            $
            91,363Stock-based
                employee compensation expense included in net income, net of related
                taxes
            
            
            2,117
            
            
            3,497Total
                stock-based employee compensation expense determinedunder
                fair value based method, net of related taxes
            
            
            (6,865
            )
            
            (11,527
            )Pro
                forma net income
            
            $
            35,657
            
            $
            83,333Earnings
                per common share:Basic
            
            $
            0.55
            
            $
            1.24Basic
                - pro forma
            
            $
            0.48
            
            $
            1.13Diluted
            
            $
            0.53
            
            $
            1.19Diluted
                - pro forma
            
            $
            0.47
            
            $
            1.09





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




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


9
 Table
            of Contents





**OSI
      Restaurant Partners, Inc.**


**NOTES
      TO CONSOLIDATED FINANCIAL STATEMENTS**


**(UNAUDITED)**





2.  Stock-Based
      Compensation (continued)




**Stock-Based
        Compensation Plans (continued)**
 
 The
        purpose of the Stock Plan is to attract competent personnel, to provide
        long-term incentives to Directors and key employees, and to discourage employees
        from competing with the Company.
 
 In
        2002,
        the Company adopted the 2002 Managing Partner Stock Option Plan to provide
        for
        the issuance of options to managing partners and other key employees of the
        Company, including upon commencement of employment and to managing partners
        upon completion of the term of their employment agreements. In 2005, this
        plan
        was amended to allow the issuance of restricted stock and was renamed the
        2005
        Amended and Restated Managing Partner Stock Plan (the “MP Stock Plan”). No
        options or restricted stock may be granted under the MP Stock Plan to Directors
        or Officers of the Company or any of its subsidiaries or affiliated
        partnerships. The MP Stock Plan is administered by the Board of Directors.
        There
        are currently 7,500,000 shares of the Company’s common stock which may be
        issued or sold upon exercise of options or grants of restricted common stock
        under the MP Stock Plan. The term of options and restricted stock granted
        under
        the MP Stock Plan is determined by the Board of Directors and generally ranges
        from five to fifteen years.
 
 Options
        under the Stock Plan and the MP Stock Plan may be options which qualify under
        Section 422 of the Internal Revenue Code (“Incentive Stock Options”) or options
        which do not qualify under Section 422 (“Nonqualified Options”). To date, the
        Company has only issued Nonqualified Options.
 
 The
        exercise price for options granted under the Stock
        Plan and the MP Stock Plan generally cannot be less than fair market value
        at
        the date of grant of the shares covered by the option. The exercise price
        of
        options granted under the MP Stock Plan was historically determined by using
        a
        three-month weighted-average stock price to eliminate the daily trading
        increases and decreases in the stock price. This averaging method resulted
        in
        certain option grants under the MP Stock Plan that were above or below the
        closing price as of the exact grant date. Compensation expense resulted if
        the
        exercise price of these options was less than the market price on the date
        of
        grant. The Company discontinued use of the average stock price in November
        2005.
 
 In
        2006,
        the Company adopted the OSI Restaurant Partners, Inc. Partner Equity Plan
        (the
“PEP”) for managing partners and chef partners in domestic restaurants. The PEP,
        as approved by the Board and the Company’s shareholders, includes the Partner
        Equity Deferred Compensation Diversified Plan (the “Diversified Plan”) and
        the Partner Equity Deferred Compensation Stock Plan (the “PEP Stock Plan”).
 
 When
        a
        managing partner or chef partner of a domestic restaurant executes a five-year
        employment agreement, he or she makes a capital contribution in exchange
        for a
        partnership interest in the restaurant. Upon completion of each five-year
        term
        of employment, the participating partners will receive a deferred compensation
        benefit. The Diversified Plan will permit partners to direct the investment
        of
        their deferred compensation accounts into a variety of benchmark investment
        funds. Specified portions of partners’ accounts will be required to be invested
        in the PEP Stock Plan (a minimum of 75%, 50% and 25% based on completion
        of the
        first, second and third or subsequent employment terms, respectively). 
Only shares of the Company’s common stock purchased on the open market will be
        utilized in the PEP Stock Plan.
 
 The
        PEP
        is effective for all new partner employment agreements signed after
        March 1, 2006 and will replace the issuance of stock options to partners
        upon completion of their terms of employment. In addition, during the first
        quarter of 2006, all partners with existing employment agreements were given
        an
        opportunity to elect to participate in the PEP in lieu of the receipt of
        stock
        options upon completion of their terms of employment. As a result, the only
        partners who will receive stock option grants under the MP Stock Plan in
        the
        future are those partners who executed an employment agreement prior to March
        1,
        2006 and who did not elect to participate in the PEP.


10
 Table
            of Contents





**OSI
      Restaurant Partners, Inc.**


**NOTES
      TO CONSOLIDATED FINANCIAL STATEMENTS**


**(UNAUDITED)**





2.  Stock-Based
      Compensation (continued)




**Stock-Based
        Compensation Plans (continued)**
 
 The PEP
        Stock Plan is intended to be an unfunded, unsecured promise to
        pay the participant in the Company's common stock, subject to the
        terms and conditions of the PEP Stock Plan. The Diversified Plan also is
        intended to be an unfunded, unsecured promise to pay the participant in cash,
        subject to the terms and conditions of the Diversified Plan.
 
 The
        Company currently intends to fund its PEP obligation by making a cash
        contribution to an irrevocable grantor or “rabbi” trust upon each partner’s
        completion of a term of employment (the Company is the sole owner of any
        assets
        in the trust and participants are general creditors of the Company with respect
        to their benefits under the PEP). A specified percentage of these funds will
        be
        required to be used by the trustee to purchase shares of the Company’s common
        stock on the open market. No shares will be issued by the Company to the
        PEP.
 
 All
        distributions from PEP
        Stock
        Plan accounts will be made in whole shares of common stock. Distributions
        from
        Diversified Plan accounts will be made in cash. The maximum number of shares
        that may be distributed pursuant to the PEP Stock Plan is 5,000,000, subject
        to
        adjustment for stock dividends, stock splits and certain other changes in
        the
        Company's capitalization.
 
 Participants’
        PEP Stock Plan accounts will be credited with phantom shares of the Company’s
        common stock at the time of a contribution based on the amount of the cash
        contribution to the PEP Stock Plan and the closing trading price of the
        Company’s common stock on the NYSE on the day of the contribution (or, if there
        is no trading of the shares on that day, on the next date on which trading
        occurs). Accounts will be credited with notional gains or losses from the
        date
        the contribution is credited based on actual increases and decreases in the
        value of the Company’s common stock. A participant will have no voting rights or
        other rights as a shareholder based on phantom shares of the Company’s common
        stock credited to his or her account, and the Company will have no obligation
        to
        set aside or reserve the Company’s common stock for the purpose of meeting its
        obligations under the PEP Stock Plan. Notwithstanding the foregoing, a
        participant will be entitled to receive credits to his or her account under
        the
        Diversified Plan equal to the amount of any dividends that are payable on
        the
        Company’s common stock based on the number of phantom shares of the Company’s
        common stock credited to the participant’s account at the time such dividend is
        declared. Although participants’ accounts in the PEP Stock Plan will not
        actually hold the Company’s common stock, the Company expects to cause the trust
        to purchase the Company’s common stock in the open market in amounts equal to
        the number of phantom shares credited to the PEP Stock Plan accounts. The
        Company will not issue shares of its common stock to the trust for PEP from
        its
        treasury or from authorized and unissued shares without shareholder
        approval.
 
 Amounts
        credited to a partner’s accounts are fully vested at all times and participants
        will have no discretion with respect to the time and form of benefit payments
        under the PEP. Except in the event of the death or disability of the
        participant, each account will be distributed to the participant in three
        payments:
 
 ·
              25%
                  of the then total account balance will be distributed five years
                  after the
                  Company contribution is made (which generally occurs at the end
                  of the
                  five-year employment term);
 
 ·
              an
                  additional 25% of the account (i.e., one-third of the remaining
                  account
                  balance) will be distributed seven years after the Company contribution
                  is
                  made; and
 
 ·
              the
                  remaining account balance will be distributed 10 years after the
                  Company
                  contribution is made.


11
 Table
            of Contents




**OSI
      Restaurant Partners, Inc.**


**NOTES
      TO CONSOLIDATED FINANCIAL STATEMENTS**


**(UNAUDITED)**





2.  Stock-Based
      Compensation (continued)




**Stock-Based
        Compensation Plans (continued)**
 
 The
        Company currently administers the PEP Stock Plan. The administrator may,
        at any
        time, amend or terminate the PEP Stock Plan, except that no amendment or
        termination may reduce a participant’s account balance or accelerate benefits
        under the PEP Stock Plan in violation of Section 409A of the IRC. If the
        Company
        terminates the PEP Stock Plan, the Company must pay to each participant the
        balance of the participant’s accounts at the time and in the form such amounts
        would have been paid absent termination of the PEP Stock Plan. Notwithstanding
        the foregoing, to the extent permitted under Section 409A of the IRC, the
        Company may, in its complete and sole discretion, accelerate distributions
        under
        the PEP Stock Plan in the event of (i) change in the ownership or effective
        control of the Company, (ii) change in the ownership of a substantial portion
        of
        the assets of the Company, (iii) liquidation or bankruptcy of the Company,
        or
        (iv) any other circumstances permitted under Section 409A of the
        IRC.
  After
          completion of each five-year employment term under the current terms of
          the PEP,
          each partner will be issued shares of the Company’s common stock (“Partner
          Shares”) under the MP Stock Plan. Once awarded, these Partner Shares are
          unrestricted and may be sold or transferred at any time. Partner Shares
          are
          accounted for in a similar manner as restricted stock and compensation
          expense
          is recognized over the five-year service period prior to the issuance date
          at
          the end of the employment term.
 
 **Stock
        Options**
 
 The
        following table presents a summary of the Company’s stock options as of June 30,
        2006 and activity in the Company’s stock option plans for the six months ended
        June 30, 2006 (in thousands, except option prices):
  **WEIGHTED-****WEIGHTED-**
              
              **AVERAGE****AVERAGE**
              
              **REMAINING**
              
              **AGGREGATE****EXERCISE**
              
              **CONTRACTUAL**
              
              **INTRINSIC****OPTIONS**
              
              **PRICE**
              
              **LIFE
                  (YEARS)**
              
              **VALUE**Outstanding
                  at December 31, 2005
              
              
              16,643
              
              $
              32.25Granted
              
              
              15
              
              
              44.36Exercised
              
              
              (820
              )
              
              24.99Forfeited
              
              
              (353
              )
              
              38.94Outstanding
                  at June 30, 2006
              
              
              15,485
              
              $
              32.50
              
              
              8.6
              
              $
              70,415Exercisable
                  at June 30, 2006
              
              
              2,668
              
              $
              26.00
              
              
              4.9
              
              $
              23,473Fully
                  vested, non-exercisable at June 30, 2006
              
              
              8,528
              
              $
              32.39
              
              
              10.6
              
              $
              39,665
 
 The
          following assumptions were used for options granted during the six months
          ended
          June 30, 2006: (1) risk-free interest rate of 4.9%; (2) dividend yield
          of 1.24%;
          (3) expected life of 7.5 years; and (4) volatility of 28.4%.
 The
        total
        intrinsic value (market value on date of exercise less exercise price) of
        options exercised during the six months ended June 30, 2006 was approximately
        $14,986,000. The aggregate intrinsic value of options outstanding as of June
        30,
        2006, disclosed in the table above, represents the closing stock price on
        the
        last trading day of the quarter less the exercise price, multiplied by the
        number of in-the-money stock options outstanding. The excess cash tax benefit
        classified as a financing cash inflow for the six months ended June 30, 2006
        was
        approximately $3,318,000.





12
 Table
            of Contents





**OSI
      Restaurant Partners, Inc.**


**NOTES
      TO CONSOLIDATED FINANCIAL STATEMENTS**


**(UNAUDITED)**





2.  Stock-Based
      Compensation (continued)




**Stock
        Options (continued)**
 
 At
        June
        30, 2006, there was approximately $21,800,000 of unrecognized, pre-tax
        compensation expense related to non-vested stock options. This cost is expected
        to be recognized over a weighted-average period of 4.4 years. The
        weighted-average grant date fair value of stock options granted during the
        six
        months ended June 30, 2006 was $16.05 per share.
  The
          Company has a policy of repurchasing shares on the open market to satisfy
          stock
          option exercises, to reduce the dilutive effect of restricted stock and
          for
          deposits in the PEP Stock Plan. The Company expects to repurchase approximately
          2,000,000 to 3,000,000 shares during 2006, based on estimates of exercises,
          vesting of restricted stock and contributions to the PEP Stock Plan for
          the
          year. The Company typically issues treasury shares upon exercise of stock
          options.
 **Restricted
        Stock and Partner Shares**
  The
          following table presents restricted stock and Partner Share activity in
          the
          Company’s plans for the six months ended June 30, 2006 (in thousands, except
          average fair value):
 
 **NUMBER
                    OF RESTRICTED SHARE AWARDS**
                
                **WEIGHTED-
                    AVERAGE GRANT DATE FAIR VALUE PER AWARD**Restricted
                    stock and Partner Share awards outstanding at December 31,
                    2005
                
                
                1,044
                
                $
                41.54Granted
                
                
                247
                
                
                42.38Vested
                
                
                -
                
                
                -Forfeited
                
                
                (18
                )
                
                42.47Restricted
                    stock and Partner Share awards outstanding at June 30,
                    2006
                
                
                1,273
                
                $
                41.69
 
 The
          preceding table includes 146,500 non-vested Partner Shares granted with
          a
          weighted-average fair value of $41.05 and 1,000 Partner Shares forfeited
          with a
          weighted-average fair value of $41.78 during the six months ended June
          30,
          2006.
 
 Compensation
          expense recognized in net income for restricted stock and Partner Share
          awards
          granted during the three and six months ended June 30, 2006 was approximately
          $2,377,000 and $4,598,000, respectively. At June 30, 2006, unrecognized,
          pre-tax
          compensation expense related to non-vested restricted stock and Partner
          Share
          awards was approximately $45,587,000 and will be recognized over a
          weighted-average period of 5.8 years.
  On
        April
        27, 2005, the Company’s Board of Directors approved a grant of restricted common
        stock to the Company’s Chief Executive Officer under the Stock Plan. Under the
        terms of the grant, 300,000 shares of restricted common stock were issued
        and
        will vest as follows: on December 31, 2009, 90,000 shares, plus an additional
        30,000 shares if the market capitalization of the Company exceeds
        $6,060,000,000; on December 31, 2011, 90,000 shares, plus an additional 30,000
        shares if the market capitalization of the Company exceeds $8,060,000,000;
        and
        on December 31, 2014, the balance of all remaining unvested shares. On December
        8, 2005, the Company’s Board of Directors approved an additional grant of
        restricted stock to the Company’s Chief Executive Officer under the Stock Plan.
        Under the terms of the grant, 150,000 shares of restricted stock were issued
        effective December 31, 2005 and will vest as follows: on December 31, 2009,
        75,000 shares and on December 31, 2011, the remaining 75,000
        shares.





13
 Table
            of Contents





**OSI
      Restaurant Partners, Inc.**


**NOTES
      TO CONSOLIDATED FINANCIAL STATEMENTS**


**(UNAUDITED)**





2.  Stock-Based
      Compensation (continued)




**Restricted
        Stock** **and Partner Shares (continued)**
 
 On
        July
        27, 2005, the Company’s Board of Directors approved a grant of 50,000 shares of
        restricted common stock to the Senior Vice President of Real Estate and
        Development as an inducement grant in connection with his hiring. These shares
        were not issued under any existing stock plan of the Company. Under the terms
        of
        the grant, the 50,000 shares of restricted stock will vest as follows: on
        June
        13, 2008, 10,000 shares; on June 13, 2010, 10,000 shares; on June 13, 2012,
        15,000 shares; and on June 13, 2015, the balance of all remaining unvested
        shares.
 
 On
        October 26, 2005, the Company’s Board of Directors approved a grant of 100,000
        shares of restricted common stock to the Senior Vice President and Chief
        Financial Officer as an inducement grant in connection with his hiring,
        effective November 1, 2005. These shares were not issued under any existing
        stock plan. Under the terms of the grant, the 100,000 shares of restricted
        stock
        will vest as follows: on November 1, 2010, 50,000 shares, plus an additional
        10,000 shares if the market capitalization of the Company exceeds
        $6,000,000,000; and on November 1, 2012, the balance of all remaining unvested
        shares.
 
 **Liability-Based
        Awards**
  On
          April
          25, 2006, the Company’s Board of Directors awarded an equivalent of 79,000
          shares of the Company’s common stock to certain employees with a
          weighted-average grant date fair value of $41.61 per award. These awards
          may be
          settled in cash or through issuance of restricted stock, and therefore,
          qualify
          as liability-based awards under SFAS No. 123R. The awards will be revalued
          at
          each reporting period and compensation expense will be adjusted
          accordingly.
 
 Compensation
          expense recognized in net income for these awards granted during the three
          and
          six months ended June 30, 2006 was approximately $122,000. At June 30,
          2006,
          unrecognized, pre-tax compensation expense related to these awards was
          approximately $2,611,000 and will be recognized over a weighted-average
          period
          of 4.7 years.


3.  Other
      Current Assets





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


**JUNE
                30,**
            
            **DECEMBER
                31,****2006**
            
            **2005****(UNAUDITED)**Prepaid
                expenses
            
            $
            22,068
            
            $
            16,625Accounts
                receivable
            
            
            22,910
            
            
            19,122Accounts
                receivable - vendors
            
            
            13,056
            
            
            9,874Accounts
                receivable - franchisees
            
            
            2,537
            
            
            2,974Deposits
            
            
            2,537
            
            
            2,651Other
                current assets
            
            
            500
            
            
            500$
            63,608
            
            $
            51,746


14
 Table
            of Contents




**OSI
      Restaurant Partners, Inc.**


**NOTES
      TO CONSOLIDATED FINANCIAL STATEMENTS**


**(UNAUDITED)**





4.  Property,
      Fixtures and Equipment, Net





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




**JUNE
                  30,**
              
              **DECEMBER
                  31,****2006**
              
              **2005****(UNAUDITED)**Land
              
              $
              204,396
              
              $
              200,394Buildings
                  and building improvements
              
              
              724,976
              
              
              690,020Furniture
                  and fixtures
              
              
              259,625
              
              
              231,608Equipment
              
              
              534,801
              
              
              498,018Leasehold
                  improvements
              
              
              368,166
              
              
              345,640Construction
                  in progress
              
              
              96,205
              
              
              68,878Less:
                  Accumulated depreciation
              
              
              (711,892
              )
              
              (644,953
              )$
              1,476,277
              
              $
              1,389,605


During
      the six months ended June 30, 2005, the Company recorded a provision for
      impaired assets and restaurant closings of $8,455,000, which included $776,000
      for the closing of one domestic Outback Steakhouse restaurant, $98,000 for
      the
      partial impairment of one Company-owned Bonefish Grill restaurant and $7,581,000
      for an impairment charge against the deferred license fee receivable related
      to
      certain non-restaurant operations.





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




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


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





15
 Table
            of Contents





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


**NOTES
      TO CONSOLIDATED FINANCIAL STATEMENTS**


**(UNAUDITED)**





5.  Goodwill
      and Intangible Assets, Net





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





December
                31, 2005
            
            $
            111,318Acquisitions
                (see Note 11 of Notes to Unaudited Consolidated Financial Statements)
            
            
            3,209Acquisition
                adjustment
            
            
            (210
            )June
                30, 2006
            
            $
            114,317





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





**WEIGHTED
                AVERAGE**
            
            **JUNE
                30,**
            
            **DECEMBER
                31,****AMORTIZATION**
            
            **2006**
            
            **2005****PERIOD
                (YEARS)**
            
            **(UNAUDITED)**Trademarks
                (gross)
            
            
            24
            
            $
            8,344
            
            $
            8,344Less:
                accumulated amortization
            
            
            
            
            
            (686
            )
            
            (511
            )Net
                trademarks
            
            
            
            
            
            7,658
            
            
            7,833Trade
                dress (gross)
            
            
            15
            
            
            777
            
            
            777Less:
                accumulated amortization
            
            
            
            
            
            (98
            )
            
            (72
            )Net
                trade dress
            
            
            
            
            
            679
            
            
            705Favorable
                leases (gross, lives ranging from 2 to 24 years)
            
            
            19
            
            
            3,524
            
            
            3,224Less:
                accumulated amortization
            
            
            
            
            
            (294
            )
            
            (200
            )Net
                favorable leases
            
            
            
            
            
            3,230
            
            
            3,024Intangible
                assets, less total accumulated amortization of $1,078and
                $783 at June 30, 2006 and December 31, 2005, respectively
            
            
            22
            
            $
            11,567
            
            $
            11,562





The
      aggregate amortization expense related to thes e
      intangible assets was $368,000 for the six months ended June 30, 2006. Annual
      amortization expense related to these intangible assets for each of the next
      five years is anticipated to be approximately $625,000.





16
 Table
            of Contents





**OSI
      Restaurant Partners, Inc.**


**NOTES
      TO CONSOLIDATED FINANCIAL STATEMENTS**


**(UNAUDITED)**





6.  Other
      Assets





Other
      assets consisted of the following (in thousands):




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


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





7.  Accrued
      Expenses





Accrued
      expenses consisted of the following (in thousands):




**JUNE
                  30,**
              
              **DECEMBER
                  31,****2006**
              
              **2005****(UNAUDITED)**Accrued
                  payroll and other compensation
              
              $
              45,906
              
              $
              53,709Accrued
                  insurance
              
              
              35,861
              
              
              29,801Other
                  accrued expenses
              
              
              56,199
              
              
              47,073$
              137,966
              
              $
              130,583


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


17
 Table
            of Contents




**OSI
      Restaurant Partners, Inc.**


**NOTES
      TO CONSOLIDATED FINANCIAL STATEMENTS**


**(UNAUDITED)**





8.  Long-term
      Debt





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





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





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





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





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





18
 Table
            of Contents





**OSI
      Restaurant Partners, Inc.**


**NOTES
      TO CONSOLIDATED FINANCIAL STATEMENTS**


**(UNAUDITED)**





8.  Long-term
      Debt (continued)





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





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





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





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





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





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





19
 Table
            of Contents





**OSI
      Restaurant Partners, Inc.**


**NOTES
      TO CONSOLIDATED FINANCIAL STATEMENTS**


**(UNAUDITED)**





8.  Long-term
      Debt (continued)





The
      Company is the guarantor of an uncollateralized line of credit that permits
      borrowing of up to $35,000,000 for a limited liability company, T-Bird Nevada,
      LLC (“T-Bird”), owned by its California franchisee. This line of credit matures
      in December 2008. The line of credit bears interest at rates ranging from
      50 to 90 basis points over LIBOR. The Company was required to consolidate T-Bird
      effective January 1, 2004 upon adoption of revised FASB Interpretation No.
      46 (“FIN 46R”), “Consolidation of Variable Interest Entities.” At June 30, 2006
      and December 31, 2005, the outstanding balance on the line of credit was
      approximately $31,283,000 and is included in the Company’s Unaudited
      Consolidated Balance Sheets as long-term debt. T-Bird uses proceeds from the
      line of credit for the purchase of real estate and construction of buildings
      to
      be opened as Outback Steakhouse restaurants and leased to the Company’s
      franchisees. According to the terms of the line of credit, T-Bird may borrow,
      repay, re-borrow or prepay advances at any time before the termination date
      of
      the agreement.





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




DEBT
      GUARANTEES





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





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





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




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





20
 Table
            of Contents





**OSI
      Restaurant Partners, Inc.**


**NOTES
      TO CONSOLIDATED FINANCIAL STATEMENTS**


**(UNAUDITED)**





8.  Long-term
      Debt (continued)





DEBT
      GUARANTEES (continued)





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





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





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





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





In
      June
      2006, in accordance with FASB Interpretation No. 45, “Guarantor's Accounting and
      Disclosure Requirements for Guarantees, Including Indirect Guarantees of
      Indebtedness of Others” (“FIN 45”), the Company recognized a liability of
      $2,495,000 representing the estimated fair value of the guarantee and a
      corresponding increase to the Company’s investment in Speedway, which is
      included in the line item entitled “Investments In and Advances to
      Unconsolidated Affiliates, Net” in the Company’s Unaudited Consolidated Balance
      Sheets. Prior to the June 2006 modifications, the guarantee was not subject
      to
      the recognition or measurement requirements of FIN 45 and no liability related
      to the guarantee was recorded at December 31, 2005 or any prior period.





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





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





21
 Table
            of Contents





**OSI
      Restaurant Partners, Inc.**


**NOTES
      TO CONSOLIDATED FINANCIAL STATEMENTS**


**(UNAUDITED)**





9.  Other
      Long-term Liabilities





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


**JUNE
                30,**
            
            **DECEMBER
                31,****2006**
            
            **2005****(UNAUDITED)**Litigation
                (See Notes 6 and 14)
            
            $
            39,000
            
            $
            39,000Accrued
                insuranceliability
            
            
            5,591
            
            
            6,696Other
                long-term liabilities
            
            
            3,903
            
            
            194$
            48,494
            
            $
            45,890





Other
      long-term liabilities at June 30, 2006 also includes $2,533,000 owed to managing
      partners and chef partners for the Diversified Plan portion of the Partner
      Equity Plan.




10.  Foreign
      Currency Translation and Comprehensive Income





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





Comprehensive
      income includes net income and foreign currency translation adjustments. Total
      comprehensive income for the three months ended June 30, 2006 and 2005 was
      $29,896,000 and $40,815,000, respectively, which included the effect of gains
      from translation adjustments of approximately $352,000 and $410,000,
      respectively. Total comprehensive income for the six months ended June 30,
      2006
      and 2005 was $64,605,000 and $92,496,000, respectively, which included the
      effect of gains from translation adjustments of approximately $2,022,000 and
      $1,133,000, respectively.





11.  Business
      Combinations





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




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


22
 Table
            of Contents





**OSI
      Restaurant Partners, Inc.**


**NOTES
      TO CONSOLIDATED FINANCIAL STATEMENTS**


**(UNAUDITED)**





13.  Earnings
      Per Share





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





**THREE
                MONTHS ENDED**
            
            **SIX
                MONTHS ENDED****JUNE
                30,**
            
            **JUNE
                30,****2006**
            
            **2005**
            
            **2006**
            
            **2005**Net
                income
            
            $
            29,544
            
            $
            40,405
            
            $
            62,583
            
            $
            91,363Basic
                weighted average number of common shares outstanding
            
            
            73,650
            
            
            74,001
            
            
            73,865
            
            
            73,901Basic
                earnings per common share
            
            $
            0.40
            
            $
            0.55
            
            $
            0.85
            
            $
            1.24Effect
                of stock-based compensation awards
            
            
            2,257
            
            
            2,924
            
            
            2,627
            
            
            3,064Diluted
                weighted average number of common shares outstanding
            
            
            75,907
            
            
            76,925
            
            
            76,492
            
            
            76,965Diluted
                earnings per common share
            
            $
            0.39
            
            $
            0.53
            
            $
            0.82
            
            $
            1.19




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


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





14.  Commitments
      and Contingencies





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





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





23
 Table
            of Contents





**OSI
      Restaurant Partners, Inc.**


**NOTES
      TO CONSOLIDATED FINANCIAL STATEMENTS**


**(UNAUDITED)**





14.  Commitments
      and Contingencies (continued)





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





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




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




It
      is not
      possible at this time to predict whether the authorities will seek to impose
      sanctions on the Company, and if they do, what those sanctions might be. It
      is
      also not possible to predict how any U.S. or South Korean governmental
      investigation or resulting sanctions may impact the Company’s business in South
      Korea. Depending upon how these matters are resolved, the Company’s results of
      operations and prospects for growth in South Korea could be significantly
      impacted. In 2005, Aussie Chung had revenues and net income of $209,819,000
      and
      $11,629,000, respectively, representing approximately 5.8% and 7.8% of the
      Company’s consolidated revenues and net income.




15.  Subsequent
      Events




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


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




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




24
 Table
            of Contents





**MANAGEMENT'S
      DISCUSSION AND ANALYSIS OF**


**FINANCIAL
      CONDITION AND RESULTS OF OPERATIONS**





**Item
      2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
      OF
      OPERATIONS**





Management’s
      discussion and analysis of financial condition and results of operations should
      be read in conjunction with the Unaudited Consolidated Financial Statements
      and
      the related Notes.





**Overview**





We
      are
      one of the largest casual dining restaurant companies in the world,
      wit h
      a
      portfolio of eight re staurant
      concepts, ove r
      1,350 system-wide
      restaurants and 2005 annual revenues for Company-owned stores exceeding $3.5
      billion. We operate in all 50 states and in 21 countries internationally,
      predominantly through Company-owned stores, but we also operate under a variety
      of partnerships and franchises. Our primary focus as a company of restaurants
      is
      to provide a quality product together with quality service across all of our
      brands. This goal entails offering consumers of different demographic
      backgrounds an array of dining alternatives suited for differing needs. Our
      sales are primarily generated through a diverse customer base, which includes
      people eating in our restaurants as regular users who return for meals several
      times a week or on special occasions such as birthday parties, private events
      and for business entertainment. Secondarily, we generate revenues through sales
      of franchises and ongoing royalties as well as the sale and redemption of gift
      certificates.





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





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





25
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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 store average sales amount, which helps us gauge
                the
                changes in consumer traffic, pricing and development of the
                brand;


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


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


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




Our
            consolidated operating results are affected by the growth of our newer
            brands.
            As we continue to develop and expand new restaurant concepts at different
            rates,
            our cost of sales, labor costs, restaurant operating expenses and income
            from
            operations change from the mix of brands in our portfolio with slightly
            different operating characteristics. Labor and related expenses as a
            percentage of restaurant sales are higher at our new format stores than
            have
            typically been experienced at Outback Steakhouses. However, cost of sales
            as a
            percentage of restaurant sales at those stores is lower than those at
            Outback.
            These trends are expected to continue with our planned development of
            stores.
 
 Revenues
            from restaurant sales in the first half of 2006 increased 9.3% compared
            with the
            same period in 2005. This increase was primarily driven by new unit openings
            as
            we experienced a softening of sales in our existing restaurants in the
            second
            quarter. This trend affected the casual dining segment as a whole and
            impacted
            all of our restaurant brands and certain international locations. We
            are
            developing plans for the remainder of the year and into 2007 to improve
            operating efficiency and to identify changes in marketing and real estate
            strategies to be more effective in what may be a sustained period of
            soft
            segment traffic and sales.
  As
          previously disclosed, management has been working with the Board of Directors
          to
          analyze ideas for increasing shareholder value. In April 2006, the Board
          of
          Directors retained Wachovia Securities to assist it and management in analyzing
          these ideas, which include, among others, the separation or monetization
          of
          individual or multiple concepts, further leveraging the Company, share
          repurchases and the monetization of real estate assets. The final
          recommendations from this analysis are targeted to be presented to the
          Board by
          the end of the third quarter.


Our
      industry’s challenges and risks include, but are not limited to, the impact of
      government regulation, the availability of qualified employees, consumer
      perceptions regarding food safety and/or the health benefits of certain types
      of
      food, including attitudes about alcohol consumption, economic conditions and
      commodity pricing. Additionally, our planned development schedule is subject
      to
      risk because of rising real estate and construction costs, and our results
      are
      affected by consumer tolerance of price increases. Changes in our operations
      in
      the remainder of this year and in future periods may also result from changes
      in
      beef prices and other commodity costs, changes in consumer spending as a result
      of increased fuel prices and conflicts in the Middle East and continued
      pre-opening expenses from the development of new restaurants and our expansion
      strategy.





26
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            of Contents





**MANAGEMENT'S
      DISCUSSION AND ANALYSIS OF**


**FINANCIAL
      CONDITION AND RESULTS OF OPERATIONS**





**Results
      of Operations**





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




**THREE
                  MONTHS ENDED**
              
              **SIX
                  MONTHS ENDED****JUNE
                  30,**
              
              **JUNE
                  30,****2006**
              
              **2005**
              
              **2006**
              
              **2005**RevenuesRestaurant
                  sales
              
              
              99.5
              %
              
              99.4
              %
              
              99.4
              %
              
              99.4
              %Other
                  revenues
              
              
              0.5
              
              
              0.6
              
              
              0.6
              
              
              0.6Total
                  revenues
              
              
              100.0
              
              
              100.0
              
              
              100.0
              
              
              100.0Costs
                  and expensesCost
                  of sales (1)
              
              
              36.1
              
              
              36.5
              
              
              36.2
              
              
              36.5Labor
                  and other related (1)
              
              
              28.0
              
              
              25.9
              
              
              27.7
              
              
              25.7Other
                  restaurant operating (1)
              
              
              22.7
              
              
              21.0
              
              
              22.3
              
              
              20.6Depreciation
                  and amortization
              
              
              3.7
              
              
              3.4
              
              
              3.6
              
              
              3.3General
                  and administrative
              
              
              6.0
              
              
              5.6
              
              
              5.7
              
              
              5.6Provision
                  for impaired assets and restaurant closings
              
              
              0.1
              
              
              0.8
              
              
              0.2
              
              
              0.5(Income)
                  loss from operations of unconsolidated affiliates
              
              
              (*
              )
              
              *
              
              
              (*
              )
              
              *Total
                  costs and expenses
              
              
              96.1
              
              
              92.8
              
              
              95.3
              
              
              91.7Income
                  from operations
              
              
              3.9
              
              
              7.2
              
              
              4.7
              
              
              8.3Other
                  income (expense), net
              
              
              0.5
              
              
              (*
              )
              
              0.3
              
              
              (0.1
              )Interest
                  income
              
              
              0.1
              
              
              *
              
              
              0.1
              
              
              *Interest
                  expense
              
              
              (0.3
              )
              
              (0.1
              )
              
              (0.3
              )
              
              (0.1
              )Income
                  before provision for income taxes andelimination
                  of minority interest
              
              
              4.2
              
              
              7.1
              
              
              4.8
              
              
              8.1Provision
                  for income taxes
              
              
              1.0
              
              
              2.4
              
              
              1.4
              
              
              2.7Income
                  before elimination of minority interest
              
              
              3.2
              
              
              4.7
              
              
              3.4
              
              
              5.4Elimination
                  of minority interest
              
              
              0.2
              
              
              0.3
              
              
              0.2
              
              
              0.4Net
                  income
              
              
              3.0
              %
              
              4.4
              %
              
              3.2
              %
              
              5.0
              %
 __________________


(1)
            As
                a percentage of restaurant sales.


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


27
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            of Contents




**MANAGEMENT'S
      DISCUSSION AND ANALYSIS OF**


**FINANCIAL
      CONDITION AND RESULTS OF OPERATIONS**





**Results
      of Operations (continued)**





System-wide
      sales grew by 6.7% and 8.1% for the three and six months ended June 30, 2006,
      respectively, compared with the corresponding periods in 2005. System-wide
      sales
      is a non-GAAP financial measure that includes sales of all restaurants operating
      under our brand names, whether we own them or not. The two components of
      system-wide sales, including those of OSI Restaurant Partners, Inc. and those
      of
      franchisees and unconsolidated development joint ventures, are provided in
      the
      following tables:





**THREE
                MONTHS ENDED**
            
            **SIX
                MONTHS ENDED****JUNE
                30,**
            
            **JUNE
                30,****2006**
            
            **2005**
            
            **2006**
            
            **2005****OSI
                RESTAURANT PARTNERS, INC. RESTAURANT SALES****(in
                millions):**Outback
                SteakhousesDomestic
            
            $
            571
            
            $
            574
            
            $
            1,154
            
            $
            1,148International
            
            
            70
            
            
            63
            
            
            143
            
            
            121Total
            
            
            641
            
            
            637
            
            
            1,297
            
            
            1,269Carrabba's
                Italian Grills
            
            
            163
            
            
            147
            
            
            325
            
            
            285Bonefish
                Grills
            
            
            80
            
            
            56
            
            
            153
            
            
            107Fleming's
                Prime Steakhouse and Wine Bars
            
            
            44
            
            
            35
            
            
            92
            
            
            73Other
                restaurants
            
            
            56
            
            
            35
            
            
            101
            
            
            66Total
                Company-owned restaurant sales
            
            $
            984
            
            $
            910
            
            $
            1,968
            
            $
            1,800








28
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            of Contents





**MANAGEMENT'S
      DISCUSSION AND ANALYSIS OF**


**FINANCIAL
      CONDITION AND RESULTS OF OPERATIONS**





**Results
      of Operations (continued)**





The
      following information presents sales for franchised and unconsolidated
      development joint venture restaurants. These are restaurants that are not owned
      by us and from which we only receive a franchise royalty or a portion of their
      total income. Management believes that franchise and unconsolidated development
      joint venture sales information is useful in analyzing our revenues because
      franchisees and affiliates pay service fees and/or royalties that generally
      are
      based on a percentage of sales. Management also uses this information to make
      decisions about future plans for the development of additional restaurants
      and
      new concepts as well as evaluation of current operations.





These
      sales do not represent sales of OSI Restaurant Partners, Inc., and are presented
      only as an indicator of changes in the restaurant system, which management
      believes is important information regarding the health of our restaurant
      brands.





**THREE
                MONTHS ENDED**
            
            **SIX
                MONTHS ENDED****JUNE
                30,**
            
            **JUNE
                30,****2006**
            
            **2005**
            
            **2006**
            
            **2005****FRANCHISE
                AND DEVELOPMENT JOINT VENTURE SALES****(in
                millions) (1):**Outback
                SteakhousesDomestic
            
            $
            91
            
            $
            93
            
            $
            184
            
            $
            182International
            
            
            22
            
            
            27
            
            
            49
            
            
            56Total
            
            
            113
            
            
            120
            
            
            233
            
            
            238Bonefish
                Grills
            
            
            5
            
            
            3
            
            
            8
            
            
            6Total
                franchise and development joint venture sales (1)
            
            $
            118
            
            $
            123
            
            $
            241
            
            $
            244Income
                from franchise and development joint ventures (2)
            
            $
            5
            
            $
            5
            
            $
            10
            
            $
            9


__________________


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


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





29
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            of Contents





**MANAGEMENT'S
      DISCUSSION AND ANALYSIS OF**


**FINANCIAL
      CONDITION AND RESULTS OF OPERATIONS**





**Results
      of Operations (continued)**




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


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





30
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            of Contents





**MANAGEMENT'S
      DISCUSSION AND ANALYSIS OF**


**FINANCIAL
      CONDITION AND RESULTS OF OPERATIONS**





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





REVENUES





*Restaurant
      sales.* Restaurant sales increased by 8.1% to $983,529,000 during the second quarter
      of
      2006 compared with $910,120,000 in the same period in 2005. The increase in
      restaurant sales was primarily attributable to additional revenues of
      approximately $96,524,000 from the opening of new restaurants after June 30,
      2005 and revenues of approximately $5,200,000 from the purchase in February
      2006
      of ten Eastern Canada Outback Steakhouse franchise restaurants, partially offset
      by decreases in sales at existing restaurants. The following table includes
      additional information about changes in restaurant sales at domestic
      Company-owned restaurants for the three months ended June 30, 2006 and
      2005:


**THREE
                MONTHS ENDED****JUNE
                30,****2006**
            
            **2005**Average
                restaurant unit volumes (weekly):Outback
                Steakhouses
            
            $
            65,274
            
            $
            67,335Carrabba's
                Italian Grills
            
            
            60,457
            
            
            63,663Bonefish
                Grills
            
            
            61,197
            
            
            61,475Fleming's
                Prime Steakhouse and Wine Bars
            
            
            84,077
            
            
            84,887Roy's
            
            
            74,090
            
            
            74,613Operating
                weeks:Outback
                Steakhouses
            
            
            8,758
            
            
            8,508Carrabba's
                Italian Grills
            
            
            2,705
            
            
            2,316Bonefish
                Grills
            
            
            1,304
            
            
            911Fleming's
                Prime Steakhouse and Wine Bars
            
            
            525
            
            
            416Roy's
            
            
            286
            
            
            247Year
                to year percentage change:Menu
                price increases (1):Outback
                Steakhouses
            
            
            0.6
            %
            
            4.7
            %Carrabba's
                Italian Grills
            
            
            0.6
            %
            
            2.8
            %Bonefish
                Grills
            
            
            1.5
            %
            
            3.0
            %Same-store
                sales (stores open 18 months or more):Outback
                Steakhouses
            
            
            -3.0
            %
            
            -0.9
            %Carrabba's
                Italian Grills
            
            
            -2.1
            %
            
            8.3
            %Bonefish
                Grills
            
            
            0.9
            %
            
            2.9
            %Fleming's
                Prime Steakhouse and Wine Bars
            
            
            3.8
            %
            
            13.2
            %Roy's
            
            
            -1.4
            %
            
            5.8
            %


__________________


(1)
            Reflects
                nominal amounts of menu price changes, prior to any change in product
                mix
                because of price increases, and may not reflect amounts effectively
                paid
                by the customer. Menu price increases are not provided for Fleming's
                and
                Roy's as a significant portion of their sales come from specials,
                which
                fluctuate daily.




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


31
 Table
            of Contents





**MANAGEMENT'S
      DISCUSSION AND ANALYSIS OF**


**FINANCIAL
      CONDITION AND RESULTS OF OPERATIONS**





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





COSTS
      AND EXPENSES




*Cost
        of sales.* Cost of
        sales, consisting of food and beverage costs, decreased 0.4% to 36.1% as
        a
        percentage of restaurant sales in the second quarter of 2006 compared with
        the
        same period in 2005. This decrease in cost of sales was attributable to an
        increase in the proportion of consolidated sales associated with our non-Outback
        Steakhouse restaurants that have lower cost of goods sold ratios than Outback
        Steakhouses. Decreases in dairy, chicken and shrimp costs and beef costs
        for our
        international restaurants for the quarter ended June 30, 2006 compared with
        the
        same period in 2005 were partially offset by higher produce and seafood
        costs.


*Labor
        and other related expenses* .
        Labor
        and other related expenses include all direct and indirect labor costs incurred
        in operations, including distribution expense to managing partners, costs
        related to the Partner Equity Program and other stock-based compensation
        expenses. Labor and other related expenses increased 2.1% as a percentage
        of
        restaurant sales to 28.0% in the second quarter of 2006 compared with the
        same
        period in 2005. Of the increase, approximately 0.7% was attributable to
        conversion costs related to the implementation of the new Partner Equity
        Program
        and 0.9% resulted from ongoing costs from the Partner Equity Program,
        stock-based compensation expenses resulting from the implementation of a
        new
        accounting standard and restricted stock grants to managing partners.
        Additionally, declines in average unit volumes at domestic Outback Steakhouses
        and Carrabba’s Italian Grills, minimum wage increases and increases in the
        proportion of new restaurant formats, which have higher average labor costs
        than
        domestic Outback Steakhouses and Carrabba's Italian Grills, increased labor
        and
        other related expenses as a percentage of restaurant sales compared to
        2005.
 
 *Other
        restaurant operating expenses* .
        Other
        restaurant operating expenses include certain unit-level operating costs
        such as
        operating supplies, rent, repair and maintenance, advertising expenses,
        utilities, pre-opening costs and other occupancy costs. Substantial portions
        of
        these expenses are fixed or indirectly variable. These costs increased 1.7%
        to
        22.7% as a percentage of restaurant sales in the second quarter of 2006 compared
        with the same period in 2005. This
        increase resulted from declines in average unit volumes at domestic Outback
        Steakhouses and Carrabba’s Italian Grills, higher utility, repair and
        maintenance, occupancy, supply and pre-opening costs, higher advertising
        costs
        at Carrabba’s Italian Grill and an increase in the proportion of new format
        restaurants and international Outback Steakhouses in operation, which have
        higher average restaurant operating expenses as a percentage of restaurant
        sales
        than domestic Outback Steakhouses and Carrabba's Italian Grills.
 
 *Depreciation
        and amortization* .
        Depreciation and amortization costs increased 0.3% as a percentage of total
        revenues to 3.7% in the second quarter of 2006 compared to the same period
        in
        2005. Increased depreciation expense as a percentage of total revenues resulted
        from lower average unit volumes at domestic Outback Steakhouses and Carrabba’s
        Italian Grills during the quarter, the continued rollout of a point of sale
        system to our Outback Steakhouse restaurants, remodeling of restaurants and
        higher depreciation costs for certain of our new restaurant formats, which
        have
        higher average construction costs than an Outback Steakhouse.
  *General
          and administrative* .
          General
          and administrative costs increased by $7,838,000 to $59,147,000 in the
          second
          quarter of 2006 compared with $51,309,000 during the same period in
          2005. This
          increase resulted from an increase in overall administrative costs associated
          with operating additional domestic and international Outback Steakhouses,
          Carrabba’s Italian Grills, Fleming’s Prime Steakhouses, Roy’s, Bonefish Grills
          and Cheeseburger in Paradise restaurants. Additionally, the increase resulted
          from $1,193,000 of compensation expense recognized for restricted stock
          benefits
          for certain members of senior management that was not recognized in the
          same
          period last year and $1,334,000 of stock options expensed as a result of
          the
          implementation of a new accounting standard. Also, a change in the timing
          of our
          annual managing partner conference caused a $2,000,000 increase compared
          to the
          2005 period, and during the three months ended June 30, 2006, we incurred
          $1,050,000 of consulting expenses for reviewing branding and strategic
          initiatives and a loss of $852,000
          in the cash surrender value of life insurance. These
          increases were offset by the reduction of $800,000 of carrying costs recognized
          in 2005 associated with the acquisition of designation rights from Chi-Chi’s in
          2004.


32
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            of Contents





**MANAGEMENT'S
      DISCUSSION AND ANALYSIS OF**


**FINANCIAL
      CONDITION AND RESULTS OF OPERATIONS**





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




*Provision
        for impaired assets and restaurant closing* *s.* A
        provision of $502,000 was recorded during the second quarter of 2006 which
        included $485,000 for the impairment of one domestic Outback Steakhouse
        restaurant and $17,000 of additional charges for intangible and other asset
        impairments related to the closing of Paul Lee’s Chinese Kitchen. During the
        second quarter of 2005, a provision of $7,679,000 was recorded which included
        $98,000 for the partial impairment of one Company-owned Bonefish Grill
        restaurant and $7,581,000 for an impairment charge against the deferred license
        fee receivable related to certain non-restaurant operations.
  *(* *Income)
          loss from operations of unconsolidated affiliates* .
          Income
          from operations of unconsolidated affiliates represents our portion of
          net
          income from restaurants operated as development joint ventures. Income
          from
          development joint ventures increased by $239,000 to income of $235,000
          during
          the second quarter of 2006 compared with a loss of $4,000 during the same
          period
          in 2005. This increase was attributable primarily to a $574,000 write-down
          of an
          Outback Steakhouse operated as a joint venture in Pennsylvania during the
          second
          quarter of 2005. Operating performance issues and our inability to obtain
          more
          favorable lease terms resulted in a decision not to extend the lease for
          this
          restaurant past the initial term. This increase is partially offset by
          losses of
          $195,000 incurred on our investment in Kentucky Speedway, LLC during the
          second
          quarter of 2006.
 *Income
        from operations* . Income
        from operations decreased by $27,756,000 to $38,615,000 in the second quarter
        of
        2006 compared with $66,371,000 in the same period in 2005 as a result of
        declines in average unit volumes at domestic Outback Steakhouses and Carrabba’s
        Italian Grills, conversion costs related to the implementation of the Partner
        Equity Program, stock-based compensation expenses resulting from the
        implementation of a new accounting standard and the changes in the relationships
        between revenues and expenses discussed above.
 
 *Other
        income (expense), net.* Other
        income (expense), net increased by $5,254,000 to income of $5,165,000 in
        the
        second quarter of 2006 compared with an expense of $89,000 in the same period
        in
        2005 as a result of a gain of $5,165,000 recorded
        for the disposal of an Outback Steakhouse restaurant in accordance with the
        terms of a lease termination agreement.
  *Interest
          income* .
          Interest income was $804,000 during the second quarter of 2006 compared
          with
          $450,000 in the same period in 2005. Interest
          income increased due to higher interest rates on short-term investment
          and cash
          equivalent balances during the second quarter of 2006 compared with the
          same
          period in 2005. Interest income for the quarters ended June 30, 2006 and
          2005
          included interest of approximately $426,000 and $255,000, respectively,
          from
          notes receivable held by a limited liability company owned by our California
          franchisee.
 *Interest
        expense* .
        Interest expense was $3,211,000 during the second quarter of 2006 compared
        with
        $1,513,000 in the same period in 2005. The
        increase in interest expense was due to higher average debt balances and
        higher
        interest rates during the second quarter of 2006 compared with the second
        quarter of 2005. Interest
        expense for the quarters ended June 30, 2006 and 2005 included approximately
        $426,000 and $255,000, respectively, of expense from outstanding borrowings
        on
        the line of credit held by a limited liability company owned by our California
        franchisee.
 
 *Provision
        for income taxes* . The
        provision for income taxes was $9,995,000, or 24.2% of pretax income, for
        the
        second quarter of 2006 compared to $21,852,000, or 33.5%, in the second quarter
        of 2005. The decline in the effective tax rate during the second quarter
        of 2006
        was primarily due to an increase in FICA tax credits for employee-reported
        tips
        as a percentage of income before provision for income taxes and a higher
        percentage of profits in lower-taxed jurisdictions.




33
 Table
            of Contents





**MANAGEMENT'S
      DISCUSSION AND ANALYSIS OF**


**FINANCIAL
      CONDITION AND RESULTS OF OPERATIONS**





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




*Net
        income and earnings per share* .
        Net
        income for the second quarter of 2006 was $29,544,000 compared with $40,405,000
        in the same period in 2005. Basic earnings per share decreased to $0.40 during
        the second quarter of 2006 compared with $0.55 for the same period in 2005
        as a
        result of the decreas e
        in net
        income, partially offset by the decrease in basic weighted average shares
        outstanding of approximately 351,000 shares. The decrease in basic weighted
        average shares outstanding was primarily a result
        of common stock repurchases partially offset by the
        issuance of shares under stock option plans.  Diluted
        earnings per share decreased to $0.39 during the second quarter of 2006 compared
        with $0.53 for the same period in 2005 as a resu lt
        of the
        decrease in net income and partially offset by the decrease in diluted weighted
        average shares outstanding of approximately 1,018,000 shares. The decrease
        in diluted weighted average shares outstanding was primarily due to the reduced
        number of dilutive options outstanding and the decreased number of basic
        shares
        outstanding and was partially offset by the effect of contingently issuable
        shares related to the PEP Stock Plan for the quarter ended June 30, 2006
        compared with June 30, 2005 .




34
 Table
            of Contents





**MANAGEMENT'S
      DISCUSSION AND ANALYSIS OF**


**FINANCIAL
      CONDITION AND RESULTS OF OPERATIONS**





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





REVENUES




*Restaurant
        sales.* Restaurant sales increased by 9.3% to $1,967,928,000 during the first half
        of
        2006 compared with $1,800,161,000 in the same period in 2005. The increase
        in
        restaurant sales was primarily attributable to additional revenues of
        approximately $169,180,000 from the opening of new restaurants after June
        30,
        2005, revenues of approximately $8,100,000 from the purchase in February
        2006 of
        ten Eastern Canada Outback Steakhouse franchise restaurants, partially offset
        by
        decreases in sales at existing restaurants. The following table includes
        additional information about changes in restaurant sales at domestic
        Company-owned restaurants for the six months ended June 30, 2006 and
        2005:


**SIX
                MONTHS ENDED****JUNE
                30,****2006**
            
            **2005**Average
                restaurant unit volumes (weekly):Outback
                Steakhouses
            
            $
            66,401
            
            $
            67,870Carrabba's
                Italian Grills
            
            
            61,295
            
            
            63,074Bonefish
                Grills
            
            
            61,912
            
            
            62,180Fleming's
                Prime Steakhouse and Wine Bars
            
            
            88,592
            
            
            88,663Roy's
            
            
            78,096
            
            
            75,933Operating
                weeks:Outback
                Steakhouses
            
            
            17,374
            
            
            16,889Carrabba's
                Italian Grills
            
            
            5,307
            
            
            4,523Bonefish
                Grills
            
            
            2,474
            
            
            1,716Fleming's
                Prime Steakhouse and Wine Bars
            
            
            1,035
            
            
            822Roy's
            
            
            547
            
            
            487Year
                to year percentage change:Menu
                price increases (1):Outback
                Steakhouses
            
            
            0.6
            %
            
            4.4
            %Carrabba's
                Italian Grills
            
            
            1.0
            %
            
            2.5
            %Bonefish
                Grills
            
            
            1.8
            %
            
            2.7
            %Same-store
                sales (stores open 18 months or more):Outback
                Steakhouses
            
            
            -2.0
            %
            
            -0.7
            %Carrabba's
                Italian Grills
            
            
            0.2
            %
            
            6.3
            %Bonefish
                Grills
            
            
            1.5
            %
            
            1.7
            %Fleming's
                Prime Steakhouse and Wine Bars
            
            
            5.4
            %
            
            11.8
            %Roy's
            
            
            1.7
            %
            
            4.6
            %


__________________


(1)
            Reflects
                nominal amounts of menu price changes, prior to any change in product
                mix
                because of price increases, and may not reflect amounts effectively
                paid
                by the customer. Menu price increases are not provided for Fleming's
                and
                Roy's as a significant portion of their sales come from specials,
                which
                fluctuate daily.





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





35
 Table
            of Contents





**MANAGEMENT'S
      DISCUSSION AND ANALYSIS OF**


**FINANCIAL
      CONDITION AND RESULTS OF OPERATIONS**





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





COSTS
      AND EXPENSES




*Cost
        of sales.* Cost of
        sales, consisting of food and beverage costs, decreased 0.3% to 36.2% as
        a
        percentage of restaurant sales in the first half of 2006 compared with the
        same
        period in 2005. This decrease in cost of sales was attributable to an increase
        in the proportion of consolidated sales associated with our non-Outback
        Steakhouse restaurants that have lower cost of goods sold ratios than Outback
        Steakhouses.  Decreases
        in dairy, chicken, shrimp and international beef costs for the first half
        of
        2006 compared with the same period in 2005 were partially offset by higher
        produce and seafood costs.
 
 *Labor
        and other related expenses* .
        Labor
        and other related expenses include all direct and indirect labor costs incurred
        in operations, including distribution expense to managing partners, costs
        related to the Partner Equity Program and other stock-based compensation
        expenses. Labor and other related expenses increased 2.0% as a percentage
        of
        restaurant sales to 27.7% in the first half of 2006 compared with the same
        period in 2005. Of the increase, approximately 0.9% was attributable to
        conversion costs related to the implementation of the new Partner Equity
        Program
        and 0.6% resulted from ongoing costs from the Partner Equity Program,
        stock-based compensation expenses resulting from the implementation of a
        new
        accounting standard and restricted stock grants to managing partners. The
        total
        costs associated with implementation of the Partner Equity Program caused
        a
        corresponding $18,705,000 increase in the “Partner deposit and accrued buyout
        liability” balance in our Unaudited Consolidated Balance Sheet as of June 30,
        2006 as compared to December 31, 2005. Additionally, declines in average
        unit
        volumes at domestic Outback Steakhouses and Carrabba’s Italian Grills, minimum
        wage increases and increases in the proportion of new restaurant formats,
        which
        have higher average labor costs than domestic Outback Steakhouses and Carrabba's
        Italian Grills, increased labor and other related expenses as a percentage
        of
        restaurant sales compared to 2005.
 
 *Other
        restaurant operating expenses* .
        Other
        restaurant operating expenses include certain unit-level operating costs
        such as
        operating supplies, rent, repair and maintenance, advertising expenses,
        utilities, pre-opening costs and other occupancy costs. Substantial portions
        of
        these expenses are fixed or indirectly variable. These costs increased 1.7%
        to
        22.3% as a percentage of restaurant sales in the first half of 2006 compared
        with the same period in 2005. This
        increase resulted from higher utility and repair and maintenance costs, declines
        in average unit volumes at domestic Outback Steakhouses and Carrabba’s Italian
        Grills, higher advertising costs for Carrabba’s Italian Grill and an increase in
        the proportion of new format restaurants and international Outback Steakhouses
        in operation, which have higher average restaurant operating expenses as
        a
        percentage of restaurant sales than domestic Outback Steakhouses and Carrabba's
        Italian Grills.
 
 *Depreciation
        and amortization* .
        Depreciation and amortization costs increased 0.3% as a percentage of total
        revenues to 3.6% in the first half of 2006 compared to the same period in
        2005.
        Increased depreciation expense as a percentage of total revenues resulted
        from
        lower average unit volumes at domestic Outback Steakhouses and Carrabba’s
        Italian Grills during the first half of the year, the continued rollout of
        a
        point of sale system to our Outback Steakhouse restaurants, remodeling of
        restaurants and higher depreciation costs for certain of our new restaurant
        formats, which have higher average construction costs than an Outback
        Steakhouse.


36
 Table
            of Contents





**MANAGEMENT'S
      DISCUSSION AND ANALYSIS OF**


**FINANCIAL
      CONDITION AND RESULTS OF OPERATIONS**





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




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





*Provision
      for impaired assets and restaurant closings.* A
      provision of $3,034,000 was recorded during the first half of 2006 which
      included approximately $931,000 for an impairment charge for intangible and
      other asset impairments related to the closing of Paul Lee’s Chinese Kitchen,
      $1,618,000 for the
      impairment of one Carrabba’s Italian Grill restaurant and $485,000 for the
      impairment of one domestic Outback Steakhouse restaurant. During
      the six months ended June 30, 2005, a provision of $8,455,000 was recorded
      which
      included $776,000 for the closing of one domestic Outback Steakhouse restaurant,
      $98,000 for a partial impairment of a Bonefish Grill restaurant and $7,581,000
      for an impairment charge against the deferred license fee receivable related
      to
      certain non-restaurant operations.




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


*Income
      from operations* . Income
      from operations decreased by $56,067,000 to $93,973,000 in the first half of
      2006 compared with $150,040,000 in the same period in 2005 as a result of
      declines in average unit volumes at domestic Outback Steakhouses and Carrabba’s
      Italian Grills, conversion costs related to the implementation of the Partner
      Equity Program, stock-based compensation expenses resulting from the
      implementation of a new accounting standard and the changes in the relationships
      between revenues and expenses discussed above.





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




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


37
 Table
            of Contents





**MANAGEMENT'S
      DISCUSSION AND ANALYSIS OF**


**FINANCIAL
      CONDITION AND RESULTS OF OPERATIONS**





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




*Interest
        expense* .
        Interest expense was $5,582,000 during the first half of 2006 compared with
        $2,671,000 in the same period in 2005. The
        increase in interest expense was due to higher average debt balances and
        higher
        interest rates during the first half of 2006 compared with the first half
        of
        2005. Interest
        expense for the six months ended June 30, 2006 and 2005 included approximately
        $812,000 and $500,000, respectively, of expense from outstanding borrowings
        on
        the line of credit held by a limited liability company owned by our California
        franchisee.
 
 *Provision
        for income taxes* . The
        provision for income taxes was $26,861,000, or 28.3% of pretax income, for
        the
        first half of 2006 compared to $49,411,000, or 33.6%, in the first half of
        2005.
        The decline in the effective tax rate during the first half of 2006 was
        primarily due to an increase in FICA tax credits for employee-reported tips
        as a
        percentage of income before provision for income taxes and a higher percentage
        of profits in lower-taxed jurisdictions.
  *Net
          income and earnings per share* .
          Net
          income for the first half of 2006 was $62,583,000 compared with $91,363,000
          in
          the same period in 2005. Basic earnings per share decreased to $0.85 during
          the
          first half of 2006 compared with $1.24 for the same period in 2005 as a
          result
          of the decrease in net income, partially offset by the decrease in basic
          weighted average shares outstanding of approximately 36,000 shares. Basic
          weighted average shares outstanding decreased as a result of common stock
          repurchases, partially offset by the issuance of shares under stock option
          plans.  Diluted
          earnings per share decreased to $0.82 during the first half of 2006 compared
          with $1.19 for the same period in 2005 as a result of the decrease in net
          income
          and partially offset by the decrease in diluted weighted average shares
          outstanding of approximately 473,000 shares. The decrease in diluted weighted
          average shares outstanding was primarily due to the reduced number of dilutive
          options outstanding and the decreased number of basic shares outstanding
          and was
          partially offset by the effect of contingently issuable shares related
          to the
          PEP Stock Plan for the six months ended June 30, 2006 compared with June
          30,
          2005.


**Liquidity
      and Capital Resources**





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




**SIX
                  MONTHS ENDED****JUNE
                  30,****2006**
              
              **2005**Net
                  cash provided by operating activities
              
              $
              81,212
              
              $
              136,591Net
                  cash used in investing activities
              
              
              (153,898
              )
              
              (138,587
              )Net
                  cash provided by (used in) financing activities
              
              
              45,401
              
              
              (17,878
              )Net
                  decrease in cash and cash equivalents
              
              $
              (27,285
              )
              $
              (19,874
              )


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





38
 Table
            of Contents





**MANAGEMENT'S
      DISCUSSION AND ANALYSIS OF**


**FINANCIAL
      CONDITION AND RESULTS OF OPERATIONS**





**Liquidity
      and Capital Resources (continued)**





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





**5%**
            
            **10%**
            
            **15%**Decrease
                in restaurant sales
            
            $
            (178,991
            )
            $
            (357,982
            )
            $
            (536,973
            )Decrease
                in cash provided by operating activities
            
            
            (33,740
            )
            
            (67,479
            )
            
            (101,219
            )





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





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





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





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





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





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





39
 Table
            of Contents





**MANAGEMENT'S
      DISCUSSION AND ANALYSIS OF**


**FINANCIAL
      CONDITION AND RESULTS OF OPERATIONS**





**Liquidity
      and Capital Resources (continued)**





CREDIT
      FACILITIES





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





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





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





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





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





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





40
 Table
            of Contents





**MANAGEMENT'S
      DISCUSSION AND ANALYSIS OF**


**FINANCIAL
      CONDITION AND RESULTS OF OPERATIONS**





**Liquidity
      and Capital Resources (continued)**





CREDIT
      FACILITIES (continued)





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





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





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





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




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





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





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            of Contents





**MANAGEMENT'S
      DISCUSSION AND ANALYSIS OF**


**FINANCIAL
      CONDITION AND RESULTS OF OPERATIONS**





**Liquidity
      and Capital Resources (continued)**





CREDIT
      FACILITIES (continued)




Our
        primary source of credit is our uncollateralized revolving line of credit
        that
        permits borrowing up to $225,000,000. Based upon provisions of the line of
        credit agreement and operating data and outstanding borrowings as of and
        through
        June 30, 2006, the margin over LIBOR rates charged to us on future amounts
        drawn
        under the line will continue to be 0.125% higher than our base margin unless:
        (i) outstanding debt balances decrease by more than $98,500,000; or (ii)
        earnings before interest, taxes, depreciation, amortization and rent increase
        more than 10.5%. 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 $136,800,000; or (ii)
        earnings before interest, taxes, depreciation, amortization and rent decreased
        more than 11.6%. 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 $179,000,000; (ii) earnings before interest, taxes, depreciation,
        amortization and rent decreased more than 26.4%; or (iii) our net worth
        decreased approximately 14.7%.


DEBT
      GUARANTEES





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





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





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





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





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





42
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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)





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





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





In
      June
      2006, in accordance with FASB Interpretation No. 45, “Guarantor's Accounting and
      Disclosure Requirements for Guarantees, Including Indirect Guarantees of
      Indebtedness of Others” (“FIN 45”), we recognized a liability of $2,495,000
      representing the estimated fair value of the guarantee and a corresponding
      increase to the investment in Speedway, which is included in the line item
      entitled “Investments In and Advances to Unconsolidated Affiliates, Net” in our
      Unaudited Consolidated Balance Sheets. Prior to the June 2006 modifications,
      the
      guarantee was not subject to the recognition or measurement requirements of
      FIN
      45 and no liability related to the guarantee was recorded at December 31, 2005
      or any prior period.





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





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            of Contents





**MANAGEMENT'S
      DISCUSSION AND ANALYSIS OF**


**FINANCIAL
      CONDITION AND RESULTS OF OPERATIONS**





**Liquidity
      and Capital Resources (continued)**





SHARE
      REPURCHASE





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





DIVIDENDS





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





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





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





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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)
              
              Substantial
                  uncertainty exists as to the strength of consumer spending as a
                  result of
                  increased fuel prices and conflict in the Middle East, and the
                  Company’s
                  revenues and financial results in 2006 could vary significantly
                  depending
                  upon consumer spending trends throughout the remainder of the
                  year;(iv)
              
              Our
                  results can be affected by consumer perception of food
                  safety;(v)
              
              Our
                  ability to expand is dependent upon various factors such as the
                  availability of attractive sites for new restaurants; ability to
                  obtain
                  appropriate real estate sites at acceptable prices; ability to
                  obtain all
                  required governmental permits including zoning approvals and liquor
                  licenses on a timely basis; impact of government moratoriums or
                  approval
                  processes, which could result in significant delays; ability to
                  obtain all
                  necessary contractors and subcontractors; union activities such
                  as
                  picketing and hand billing that could delay construction; the ability
                  to
                  generate or borrow funds; the ability to negotiate suitable lease
                  terms;
                  the ability to recruit and train skilled management and restaurant
                  employees; and the ability to receive the premises from the landlord’s
                  developer without any delays;(vi)
              
              Weather
                  and acts of God could result in construction delays and also adversely
                  affect the results of one or more restaurants for an indeterminate
                  amount
                  of time;(vii)
              
              Price
                  and availability of commodities, including but not limited to,
                  such items
                  as beef, chicken, shrimp, pork, seafood, dairy, potatoes, onions
                  and
                  energy supplies, which are subject to fluctuation and could increase
                  or
                  decrease more than we expect;and/or(viii)
              
              Statements
                  made concerning strategic initiatives are subject to the Board
                  of
                  Directors’ approval of any initiatives and there can be no assurance that
                  the Board will decide to pursue any significant strategic
                  initiative.
 45
 Table
              of Contents




**OSI
      RestaurantPartners, Inc.**


**QUANTITATIVE
      AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK**





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





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





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





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





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





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





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





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





46
 Table
            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 the design and operation 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
      the
      date of such evaluation.





**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 June 30, 2006 that have materially affected, or are
      reasonably likely to affect, our internal control over financial
      reporting.


47
 Table
            of Contents




**OSI
      RestaurantPartners, Inc.**


**PART
      II: OTHER INFORMATION**





**Item
      1. Legal Proceedings**





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





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





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





48
 Table
            of Contents





**OSI
      RestaurantPartners, Inc.**


**PART
      II: OTHER INFORMATION**





**Item
      1A. Risk Factors**





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




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


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




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




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





(c)
      Issuer Purchases of Equity Securities





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


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


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


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


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            of Contents




**** **OSI
        Restaurant Partners, Inc.**
 **PART
        II: OTHER INFORMATION**




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




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




1.
              
              To
                  elect four Directors to serve for a term of three years each, and
                  until
                  his or her successor is duly elected and qualified. Abstentions
                  and broker
                  non-votes did not count for or against any nominee for Director.
                  The
                  following continued to serve as Directors as of the Annual Meeting:
                  Robert D. Basham, John A. Brabson, Jr., W.R. Carey, Jr., General
                  (Ret.) Tommy Franks, Lee Roy Selmon and Toby S. Wilt. The results
                  for the
                  election of the Directors are as
                  follows:
 
 ****
              **Name
                  of Nominee/Director**
              
              **Votes
                  For**
              
              **Votes
                  Withheld**
              
              **Broker
                  Non-Votes******
              A.
                  William Allen, III
              
              63,993,326
              
              2,604,289
              
              N/A****
              Debbi
                  Fields
              
              62,492,302
              
              4,105,313
              
              N/AThomas
                  A. James
              
              65,114,905
              
              1,482,710
              
              N/AChris
                  T. Sullivan
              
              62,395,248
              
              4,202,367
              
              N/A
 
 2.
              
              A
                  Company proposal to approve an amendment to the Company’s Certificate of
                  Incorporation changing its name to OSI Restaurant Partners,
                  Inc.:
  **Votes
                  For**
              
              **Votes
                  Against**
              
              **Votes
                  Abstained**
              
              **Broker
                  Non-Votes**66,388,015
              
              100,807
              
              108,793
              
              N/A
 
 3.
              
              A
                  Company proposal to ratify the Board’s selection of independent auditors
                  for 2006:
  **Votes
                  For**
              
              **Votes
                  Against**
              
              **Votes
                  Abstained**
              
              **Broker
                  Non-Votes**66,493,114
              
              52,698
              
              51,803
              
              N/A
 
 4.
              
              A
                  Company proposal to amend the Outback Steakhouse, Inc. Partner
                  Equity Plan
                  to include the Partner Equity Deferred Compensation Stock Plan
                  Document:
  **Votes
                  For**
              
              **Votes
                  Against**
              
              **Votes
                  Abstained**
              
              **Broker
                  Non-Votes**56,416,801
              
              1,830,067
              
              82,790
              
              8,267,957
 
 5.
              
              A
                  shareholder proposal relating to reporting
                  of political contributions:
  **Votes
                  For**
              
              **Votes
                  Against**
              
              **Votes
                  Abstained**
              
              **Broker
                  Non-Votes**11,306,666
              
              43,576,850
              
              3,446,142
              
              8,267,957
 
 6.
              
              A
                  shareholder proposal relating to reporting
                  on the implementation of controlled atmosphere killing by chicken
                  suppliers.
  **Votes
                  For**
              
              **Votes
                  Against**
              
              **Votes
                  Abstained**
              
              **Broker
                  Non-Votes**2,635,768
              
              51,774,821
              
              3,919,069
              
              8,267,957




50
 Table
          of Contents




**OSI
      RestaurantPartners, Inc.**


**PART
      II: OTHER INFORMATION**





**Item
      6. Exhibits**





**Number**
            
            **Description**10.01*
            
            Employment
                Agreement effective January 1, 2002 by and between Michael W. Coble
                and
                Outback Steakhouse International, L.P. (filed herewith)10.02*
            
            Employment
                Agreement effective May 1, 2002 by and between Greg L. Walther and
                Outback
                Steakhouse International, L.P. (filed herewith)10.03*
            
            Amendment
                to Employment Agreement effective January 25, 2006 by and among Outback
                Steakhouse International, L.P. and Greg L. Walther (filed
                herewith)10.04
            
            Amendment
                to Bond Documents and Supplemental Indenture dated as of June 30,
                2006 by
                and among The Huntington National Bank; Fifth Third Bank; PNC Bank,
                National Association; Kentucky Speedway, LLC; The Huntington National
                Bank, Trustee; County of Gallatin, Kentucky; OSI Restaurant Partners,
                Inc.; Richard L. Duchossois; Richard T. Farmer; Jerry L. Carroll;
                John R.
                Lindahl; Larry T. Thrailkill, Trustee of the Deepwater Trust and
                John R.
                Lindahl, Trustee of The Blue Water Trust (filed
                herewith)10.05
            
            Amended
                and Restated Limited Guarantee dated as of June 30, 2006 by and among
                The
                Huntington National Bank; Fifth Third Bank; PNC Bank, National
                Association; The Huntington National Bank, Trustee; OSI Restaurant
                Partners, Inc.; Richard L. Duchossois; Richard T. Farmer; Jerry L.
                Carroll; John R. Lindahl; Larry T. Thrailkill, Trustee of the Deepwater
                Trust and John R. Lindahl, Trustee of The Blue Water Trust (filed
                herewith)31.1
            
            Certification
                of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley
                Act of 200231.2
            
            Certification
                of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley
                Act of 200232.1
            
            Certification
                of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as
                adopted
                pursuant to Section 906 of the Sarbanes-Oxley Act of 2002132.2
            
            Certification
                of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as
                adopted
                pursuant to Section 906 of the Sarbanes-Oxley Act of 20021





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





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





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








51
 Table
            of Contents





**SIGNATURE**





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











Date:
                August 9, 2006
            
            OSI
                RESTAURANT PARTNERS, INC.By:/s/
                Dirk A.
                MontgomeryDirk
                A. Montgomery
              Senior
                Vice President and Chief Financial Officer
              (Principal
                Financial and Accounting Officer)











52