10-K 1 form10-k2010.htm FORM 10-K - 12.31.10 form10-k2010.htm


 
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-K
 (Mark One)
 
[X]
Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
 
For the fiscal year ended: December 31, 2010
 
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 logo
OSI RESTAURANT PARTNERS, LLC
(Exact name of registrant as specified in its charter)
 
DELAWARE
59-3061413
 
 
(State or other jurisdiction of
incorporation or organization)
(I.R.S. Employer
Identification No.)
 
       
2202 North West Shore Boulevard, Suite 500, Tampa, Florida 33607
(Address of principal executive offices) (Zip Code)

(813) 282-1225
(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act: NONE
Securities registered pursuant to Section 12(g) of the Act: NONE
(Title of class)

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.  YES  o  NO  x

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. YES  o  NO  x

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. YES x   NO o

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

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§229.405 of this chapter) is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. x

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company.  See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.  (Check one):     Large accelerated filer o   Accelerated filer  o   Non-accelerated filer x (Do not check if smaller reporting company)         Smaller reporting company o

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act).  YES  o  NO  x

As of June 30, 2010, the last business day of the registrant’s most recently completed second fiscal quarter, there was no established public trading market for the registrant’s equity securities.

As of March 31, 2011, the registrant has 100 Common Units, no par value, outstanding (all of which are owned by OSI HoldCo, Inc., the registrant’s direct owner), and none are publicly traded.

DOCUMENTS INCORPORATED BY REFERENCE – NONE.



 


 
OSI RESTAURANT PARTNERS, LLC

INDEX TO ANNUAL REPORT ON FORM 10-K
For the Year Ended December 31, 2010
 
TABLE OF CONTENTS

 
Page No.
PART I
 
3
15
30
30
31
        Item 4. [Removed and Reserved] 32
PART II
 
33
34
36
73
75
139
139
139
PART III
 
140
146
169
171
175
PART IV
 
176
226
 

OSI Restaurant Partners, LLC

PART I

Cautionary Statement

This Annual Report on Form 10-K contains forward-looking statements within the meaning of Section 27A of the Securities Exchange Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. Forward-looking statements represent OSI Restaurant Partners, LLC’s expectations or beliefs concerning future events, including the following: any statements regarding future sales, costs and expenses and gross profit percentages, any statements regarding the continuation of historical trends, any statements regarding the expected number of future restaurant openings and expected capital expenditures and any statements regarding the sufficiency of our cash balances and cash generated from operating and financing activities for future liquidity and capital resource needs. Without limiting the foregoing, the words “believes,” “anticipates,” “plans,” “expects,” “could,” “may,” “would,” “if,” “should,” “estimates” and similar expressions are intended to identify forward-looking statements.

Our actual results could differ materially from those stated or implied in the forward-looking statements included elsewhere in this report and in our other filings with the Securities and Exchange Commission (the “SEC”), press releases and verbal statements made by or with the approval of one of our authorized officers.  We can provide no assurances that any of the events anticipated by the forward-looking statements will occur or, if any of them do, what impact they will have on our results of operations and financial condition.  In addition to the risks and uncertainties of ordinary business operations, the forward-looking statements contained in this report are subject to the risks and uncertainties described in this Form 10-K in Item 1A, Risk Factors.  Any forward-looking statements speak only as of the date on which such statements are made, and we undertake no obligation to update such statements for any reason to reflect the occurrence of anticipated or unanticipated events.


GENERAL
 
We are one of the largest casual dining restaurant companies in the world, with five restaurant concepts, more than 1,400 system-wide restaurants and 2010 Total revenues exceeding $3.6 billion. As of December 31, 2010, we operate in 49 states and in 23 countries internationally, predominantly through Company-owned restaurants, but we also operate under a variety of partnerships and franchises.  Our concepts are Outback Steakhouse (“Outback”), Carrabba’s Italian Grill (“Carrabba’s), Bonefish Grill (“Bonefish”), Fleming’s Prime Steakhouse and Wine Bar (“Flemings”) and Roy’s. Our plan is to exit our Roy’s concept, but we have not established a timeframe to do so.

We were incorporated in August 1987 as Multi-Venture Partners, Inc., a Florida corporation, and in January 1990 we changed our name to Outback Steakhouse, Inc. (“Outback Florida”). Outback Steakhouse, Inc., a Delaware corporation (“Outback Delaware”), was formed in April 1991 as part of a corporate reorganization completed in June 1991 in connection with our initial public offering, at which time Outback Delaware became a holding company for Outback Florida. Between 1993 and 2002, we acquired or developed our other restaurant concepts and began expanding the Outback concept internationally.  On April 25, 2006, we changed our name from Outback Steakhouse, Inc. to OSI Restaurant Partners, Inc.

On June 14, 2007, OSI Restaurant Partners, Inc. was acquired by Kangaroo Holdings, Inc. (the “Ultimate Parent” or “KHI”), which is controlled by an investor group comprised of funds advised by Bain Capital Partners, LLC (“Bain Capital”), Catterton Partners (“Catterton”), Chris T. Sullivan, Robert D. Basham and J. Timothy Gannon (our “Founders”) and certain members of our management for aggregate consideration of approximately $3.1 billion.  Immediately following consummation of the merger and related transactions (the “Merger”) on June 14, 2007, we converted into a Delaware limited liability company named OSI Restaurant Partners, LLC, and our shares of common stock were no longer listed on the New York Stock Exchange.


OSI Restaurant Partners, LLC

Item 1.  Business (continued)

GENERAL (continued)

In December 2008, we sold our interest in the Lee Roy Selmon’s (“Selmon’s) concept, which included six restaurants, to MVP LRS, LLC, an entity owned primarily by our Founders (two of whom are also members of our Board and of KHI’s Board), one of our named executive officers and a former employee.  In the third quarter of 2009, the named executive officer transferred his ownership interest in Selmon’s to two of our Founders (who are also members of our Board and of KHI’s Board) at his initial investment cost.  In September 2009, we sold our Cheeseburger in Paradise concept, which included 34 restaurants, to Paradise Restaurant Group, LLC (“PRG”), an entity formed and controlled by the president of the concept.

As of December 31, 2010, we own 89.62% of the Outback/Fleming's LLC, which is a consolidated entity that develops and operates Fleming’s Prime Steakhouse and Wine Bar.  We do not have an economic interest in nine Roy’s as of December 31, 2010: six in Hawaii and one each in the continental United States, Japan and Guam.
 
The selected consolidated financial data included in Item 6 in this Form 10-K is presented for two periods: Predecessor and Successor, which relate to the period preceding the Merger and the period succeeding the Merger, respectively.  The operations of OSI Restaurant Partners, Inc. and its subsidiaries are referred to for the Predecessor period and the operations of OSI Restaurant Partners, LLC and its subsidiaries are referred to for the Successor period.  Unless the context otherwise indicates, as used in this report, the term the “Company,” “we,” “us,” “our” and other similar terms mean: (a) prior to the Merger, OSI Restaurant Partners, Inc. and its subsidiaries and (b) after the Merger, OSI Restaurant Partners, LLC and its subsidiaries.

CONCEPTS AND STRATEGIES

Our restaurant system includes full-service restaurants with several types of ownership structures. At December 31, 2010, the system included restaurant formats and ownership structures as listed in the following table:
   
 
Outback
Steakhouse
(domestic)
 
 
Outback
Steakhouse
(international)
 
Carrabba’s
Italian
Grill
 
Bonefish
Grill
 
Fleming’s
Prime
Steakhouse and Wine Bar
 
Roy’s
     
Total
                                 
Company-owned
 
670
 
120
 
232
 
145
 
64
 
22
     
1,253
Development joint venture
 
-
 
29
 
-
 
-
 
-
 
-
     
29
Franchise
 
108
 
41
 
1
 
7
 
-
 
-
     
157
 Total
 
778
 
190
 
233
 
152
 
64
 
22
     
1,439
 
Outback Steakhouse restaurants generally serve dinner only on weeknights; however, many locations also serve an “early dinner” (opening as early as noon, but using the same dinner menu) on one or both days of the weekend. Outback Steakhouse features a limited menu of high quality, uniquely seasoned steaks, prime rib, pork, ribs, chicken, seafood and pasta and also offers specialty appetizers, including the signature “Bloomin’ Onion,” desserts and full liquor service. Carrabba’s Italian Grill restaurants generally serve lunch and dinner on Sundays and dinner only the rest of the week. Carrabba’s Italian Grill features a limited menu of high quality Italian cuisine including a variety of pastas, chicken, seafood, veal and wood-fired pizza.  It also offers specialty appetizers, desserts and full liquor service.  Bonefish Grill restaurants typically serve dinner only and feature a variety of fresh grilled fish complemented by a variety of sauces. Bonefish Grill also offers specialty appetizers, desserts and full liquor service. Fleming’s Prime Steakhouse and Wine Bar restaurants serve dinner only and feature a limited menu of prime cuts of beef, fresh seafood, veal and chicken entrees. Fleming’s Prime Steakhouse and Wine Bar also offers several specialty appetizers and desserts and a full service bar, including a selection of over 100 quality wines available by the glass. The majority of Roy’s restaurants serve dinner only and feature a limited menu of “Hawaiian Fusion” cuisine that includes a blend of flavorful sauces and Asian spices with a variety of seafood, beef, short ribs, pork, lamb and chicken. Roy’s also offers several specialty appetizers, desserts and full liquor service.


OSI Restaurant Partners, LLC

Item 1.  Business (continued)

CONCEPTS AND STRATEGIES (continued)

We believe that we differentiate our Outback Steakhouse, Carrabba’s Italian Grill, Bonefish Grill, Fleming’s Prime Steakhouse and Wine Bar and Roy’s restaurants by:

·  
emphasizing consistently high quality ingredients and preparation of a limited number of menu items that appeal to a broad array of tastes;

·  
attracting a diverse mix of customers through casual and upscale dining atmospheres emphasizing highly attentive service;

·  
hiring and retaining experienced restaurant management by providing managing partners an attractive compensation package that includes monthly payments based on a percentage of the monthly cash flows of the restaurants they manage; and

·  
limiting service to dinner only for the majority of our locations (generally from 4:30 p.m. to 11:00 p.m.), which reduces the hours of restaurant management and the number of employees.

OUTBACK STEAKHOUSE: 

Menu.  The Outback Steakhouse menu includes several cuts of freshly prepared, uniquely seasoned and seared steaks, plus prime rib, barbecued ribs, pork, chicken, seafood, pasta and seasonal specials. The menu is designed to have a limited number of selections to permit the greatest attention to quality while offering sufficient breadth to appeal to all taste preferences. We test new menu items to replace slower-selling items and regularly upgrade ingredients and cooking methods to improve the quality and consistency of our food offerings. The menu also includes several specialty appetizers and desserts, together with full bar service featuring Australian wine and Australian beer. Alcoholic beverages account for approximately 12% of domestic Outback Steakhouse’s restaurant sales. Including regional variances, the price range of appetizers is $4.95 to $10.95 and the price range of entrees is $7.50 to $33.95. The average check per person was approximately $19.00 to $20.00 during 2010. The prices that we charge in individual locations vary depending upon the demographics of the surrounding area. Outback Steakhouse also offers a low-priced children’s menu.
 
Casual Atmosphere.  Outback Steakhouse features a contemporary, casual dining atmosphere with decor suggestive of Australia. The decor includes blond woods, large booths and tables and Australian artwork.

OUTBACK STEAKHOUSE INTERNATIONAL:

Menu.  Outback Steakhouse’s international restaurants have substantially the same core menu items as domestic Outback locations, although certain side items and other menu items are local in nature. Local menus are designed to have the same limited quantity of items and attention to quality as those in the United States. The prices that we charge in individual locations vary significantly depending on local demographics and related local costs involved in procuring product.

Casual Atmosphere.  Outback Steakhouse’s international locations look very much like their domestic counterparts, although there is more diversity in certain restaurant layouts and sizes.


OSI Restaurant Partners, LLC

Item 1.  Business (continued)

CARRABBA’S ITALIAN GRILL: 

Menu.  The Carrabba’s Italian Grill menu includes several types of uniquely prepared Italian dishes including pastas, chicken, seafood, and wood-fired pizza. The menu is designed to have a limited number of selections to permit the greatest attention to quality while offering sufficient breadth to appeal to all taste preferences. We test new menu items to replace slower-selling items and regularly upgrade ingredients and cooking methods to improve quality and consistency of our food offerings. The menu also includes several specialty appetizers, desserts and coffees, together with full bar service featuring Italian wines and specialty drinks. Alcoholic beverages account for approximately 17% of Carrabba’s restaurant sales. The price range of appetizers is $5.00 to $12.00 and the price of entrees is $9.00 to $25.00 with nightly specials from $10.00 to $29.00. The average check per person was approximately $20.50 to $21.50 during 2010. The prices that we charge in individual locations vary depending upon the demographics of the surrounding area.
 
Casual Atmosphere.  Carrabba’s Italian Grill features a casual dining atmosphere with a traditional Italian exhibition kitchen where customers can watch their meals being prepared. The decor includes dark woods, large booths and tables and Italian memorabilia featuring Carrabba family photos, authentic Italian pottery and cooking utensils.

BONEFISH GRILL: 

Menu.  The Bonefish Grill menu offers fresh grilled fish and other seafood uniquely prepared with a variety of freshly prepared sauces. In addition to seafood, the menu also includes beef, pork and chicken entrees, several specialty appetizers and desserts. In addition to full bar service, Bonefish offers a specialty martini list. Alcoholic beverages account for approximately 25% of Bonefish’s restaurant sales. The price range of appetizers is $3.90 to $15.90 and the price of entrees is $8.90 to $27.00 with nightly specials from $8.90 to $25.90.  The average check per person was approximately $22.50 to $23.50 during 2010.
 
Casual Atmosphere.  Bonefish Grill offers a casual dining experience in an upbeat, refined setting. The warm, inviting dining room has hardwood floors, large booths and tables and distinctive artwork inspired by regional coastal settings.

FLEMING’S PRIME STEAKHOUSE AND WINE BAR: 

Menu.  The Fleming’s Prime Steakhouse and Wine Bar menu features prime cuts of beef, fresh seafood, as well as pork, veal and chicken entrees. Accompanying the entrees is an extensive assortment of freshly prepared salads and side dishes available a la carte. The menu also includes several specialty appetizers and desserts. In addition to full bar service, Fleming’s offers a selection of over 100 quality wines available by the glass. Alcoholic beverages account for approximately 31% of Fleming’s restaurant sales. The price range of entrees is $22.95 to $45.50. Appetizers generally range from $8.95 to $24.50 and side dishes range from $6.95 to $9.50. The average check per person was approximately $64.00 to $65.00 during 2010.
 
Upscale Casual Atmosphere.  Fleming’s Prime Steakhouse and Wine Bar offers an upscale dining experience in an upbeat, casual setting. The décor features an open dining room built around an exhibition kitchen and expansive bar. The refined and casually elegant setting features lighter woods and colors with rich cherry wood accents and high ceilings. Private dining rooms are available for private gatherings or corporate functions.


OSI Restaurant Partners, LLC

Item 1.  Business (continued)

ROY’S: 

Menu.  The Roy’s menu offers Chef Roy Yamaguchi’s “Hawaiian Fusion” cuisine, a blend of flavorful sauces and Asian spices and features a variety of fish and seafood, beef, short ribs, pork, lamb and chicken. The menu also includes several specialty appetizers and desserts. Alcoholic beverages account for approximately 28% of Roy’s restaurant sales. In addition to full bar service, Roy’s offers a large selection of quality wines. The price range of entrees is $19.95 to $39.95. Appetizers range from $6.95 to $26.95. The average check per person was approximately $54.50 to $55.50 during 2010.
 
Upscale Casual Atmosphere.  Roy’s offers an upscale casual dining experience, including spacious dining rooms, an expansive lounge area, an outdoor dining patio in certain locations and Roy’s signature exhibition kitchen. Private dining rooms are available for private gatherings or corporate functions.

RESTAURANT DEVELOPMENT

The following table includes our restaurant openings and closings for the year ended December 31, 2010:

   
DECEMBER 31,
   
RESTAURANT
   
DECEMBER 31,
 
   
2009
   
OPENINGS
   
CLOSINGS
   
OTHER
   
2010
 
Number of restaurants:
                             
Outback Steakhouse
                             
Company-owned - domestic
    680       -       (10 )     -       670  
Company-owned - international
    119       4       (3 )     -       120  
Franchised - domestic
    108       -       -       -       108  
Franchised and development joint venture - international
    63       8       (1 )     -       70  
Total
    970       12       (14 )     -       968  
Carrabba's Italian Grill
                                       
Company-owned
    232       -       -       -       232  
Franchised
    1       -       -       -       1  
Total
    233       -       -               233  
Bonefish Grill
                                       
Company-owned
    145       1       (1 )     -       145  
Franchised
    7       -       -       -       7  
Total
    152       1       (1 )             152  
Fleming’s Prime Steakhouse and Wine Bar
                                       
Company-owned
    64       -       -       -       64  
Other
                                       
Company-owned (1)
    58       -       (2 )     (34 )     22  
System-wide total
    1,477       13       (17 )     (34 )     1,439  
__________________
(1)
In September 2009, we sold our Cheeseburger in Paradise concept, which included 34 restaurants, to PRG. Based on the terms of the purchase and sale agreement, we consolidated PRG after the sale transaction. Upon adoption of new accounting guidance for variable interest entities, we deconsolidated PRG on January 1, 2010. As a result, the current period includes only our Roy’s concept.
 

OSI Restaurant Partners, LLC

Item 1.  Business (continued)

RESTAURANT DEVELOPMENT (continued)

Company-owned restaurants include restaurants owned by limited partnerships in which we are a general partner and joint ventures in which we are a member. Our legal ownership interests in the partnerships and joint ventures generally range from 50% to 90%.  Prior to January 1, 2010, Company-owned restaurants also included Cheeseburger in Paradise restaurants that were sold in September 2009 but continued to be consolidated since we were considered the primary beneficiary of the entity under the then applicable accounting guidance.  However, upon adoption of new accounting guidance for variable interest entities on January 1, 2010, we are no longer the primary beneficiary of PRG, and as a result, PRG is not included in our Consolidated Financial Statements as of and for the year ended December 31, 2010.  The adoption of the new accounting guidance for variable interest entities was not material to our Consolidated Financial Statements.

Company-owned restaurants also include restaurants owned by our Roy’s joint venture and our consolidated financial statements include the accounts and operations of our Roy’s joint venture even though we have less than majority ownership.  We determined we are the primary beneficiary of the joint venture since we have the power to direct or cause the direction of the activities that most significantly impact the entity on a day-to-day basis such as decisions regarding menu development, purchasing, restaurant expansion and closings and the management of employee-related processes.  Additionally, we have the obligation to absorb losses or the right to receive benefits of Roy’s joint venture that could potentially be significant to the Roy’s joint venture.  The majority of capital contributions made by our partner in the Roy’s joint venture, RY-8, Inc. (“RY-8”), have been funded by loans to RY-8 from a third party where we provide a guarantee. The guarantee is secured by a collateral interest in RY-8’s membership interest in the joint venture.  The results of operations of Company-owned restaurants are included in our consolidated operating results.  The portion of income or loss attributable to the other partners’ interests is eliminated in the line item in our Consolidated Statements of Operations entitled “Net income (loss) attributable to noncontrolling interests.”

Through a joint venture arrangement with PGS Participacoes Ltda., the Company holds a 50% ownership interest in PGS Consultoria e Serviços Ltda. (the “Brazilian Joint Venture”).  The Brazilian Joint Venture was formed in 1998 for the purpose of operating Outback franchise restaurants in Brazil. The Company accounts for the Brazilian Joint Venture under the equity method of accounting. We are responsible for 50% of the costs of new restaurants operated by the Brazilian Joint Venture and our joint venture partner is responsible for the other 50%.  Income and loss derived from the Brazilian Joint Venture is presented in the line item “Income from operations of unconsolidated affiliates” in our Consolidated Statements of Operations.


OSI Restaurant Partners, LLC

Item 1.  Business (continued)

COMPETITION

The restaurant industry is intensely competitive with a substantial number of restaurant operators that compete directly and indirectly with us in respect to price, service, location and food quality, and there are other well-established competitors with significant financial and other resources. Some of our competitors have been in existence for a substantially longer period than we have and may be better established in the markets where our restaurants are or may be located.  There is also active competition for management personnel as well as attractive suitable real estate sites.  Further, we face growing competition from the supermarket industry, with improved selections of prepared meals, and from quick service and fast casual restaurants, as a result of higher-quality food and beverage offerings.  We believe our principal strategies, which include but are not limited to, the use of high quality ingredients, the variety of our menu and concepts, the quality and consistency of our food and service, the use of various promotions and the selection of appropriate locations for our restaurants, allow us to effectively and efficiently compete in the restaurant industry.

RESTAURANT SITES

We currently lease approximately 25% of our restaurant sites from our sister company, Private Restaurant Properties, LLC (“PRP”), which is an indirect subsidiary of our direct owner, OSI HoldCo, Inc. (“OSI HoldCo”), and the remaining 75% of our restaurant sites from other third parties.  In the future, we intend to either convert existing third-party leased retail space or construct new restaurants through leases in the majority of circumstances.  We generally construct freestanding buildings on leased properties; although, our leased sites are also located in strip shopping centers.  We consider the location of a restaurant to be critical to its long-term success and devote significant effort to the investigation and evaluation of potential sites. The site selection process focuses on trade area demographics, site visibility, accessibility, parking availability and traffic volume. We also review potential competition and the profitability of national chain restaurants operating in the area. Construction of a new restaurant takes approximately 90 to 180 days from the date the location is leased or under contract and fully permitted.

We design the interior of our restaurants in-house and utilize outside architects when necessary. A typical Outback Steakhouse is approximately 6,200 square feet and features a dining room and an island, full-service liquor bar. The dining area of a typical Outback Steakhouse consists of 45 to 48 tables and seats approximately 220 people. The bar area consists of approximately ten tables and has seating capacity for approximately 54 people. Appetizers and complete dinners are served in the bar area.
 
International Outback Steakhouse restaurants range in size from 3,500 to 10,000 square feet and may be basement or above ground floor locations. Some are multiple stories, and some have customer parking underneath the restaurant.

A typical Carrabba’s Italian Grill is approximately 6,500 square feet and features a dining room, pasta bar and a full service liquor bar. The dining area of a typical Carrabba’s Italian Grill consists of 40 to 45 tables and seats approximately 230 people. The liquor bar area includes six tables and seating capacity for approximately 60 people, and the pasta bar has seating capacity for approximately ten people. Appetizers and complete dinners are served in both the pasta bar and liquor bar.

A typical Bonefish Grill is approximately 5,500 square feet and features a dining room and full service liquor bar. The dining area of a typical Bonefish Grill consists of approximately 38 tables and seats approximately 145 people. The bar area includes ten tables and bar seating with a capacity for approximately 72 people.


OSI Restaurant Partners, LLC

Item 1.  Business (continued)

RESTAURANT SITES (continued)

A typical Fleming’s Prime Steakhouse and Wine Bar is approximately 7,100 square feet and features a dining room, a private dining area, an exhibition kitchen and full service liquor bar. The main dining area of a typical Fleming’s consists of approximately 35 tables and seats approximately 170 people while the private dining area seats an additional 30 people. The bar area includes six tables and bar seating with a capacity for approximately 35 people.
 
A typical Roy’s is approximately 7,100 square feet and features a dining room, a private dining area, an exhibition kitchen and full service liquor bar. The main dining area of a typical Roy’s consists of approximately 41 tables and seats approximately 155 people while the private dining area seats an additional 50 people. The bar area includes tables and bar seating with a capacity for approximately 35 people.
 
RESTAURANT LOCATIONS

As of December 31, 2010, we had 1,439 system-wide restaurants in 49 states and 23 international countries as follows:

Company-Owned
Alabama
22
 
Kansas
10
 
New Hampshire
3
 
Utah
6
Arizona
31
 
Kentucky
17
 
New Jersey
39
 
Vermont
1
Arkansas
11
 
Louisiana
21
 
New Mexico
5
 
Virginia
58
California
20
 
Maine
1
 
New York
44
 
West Virginia
8
Colorado
28
 
Maryland
40
 
North Carolina
61
 
Wisconsin
11
Connecticut
12
 
Massachusetts
19
 
Ohio
48
 
Wyoming
2
Delaware
2
 
Michigan
35
 
Oklahoma
11
     
Florida
211
 
Minnesota
9
 
Pennsylvania
40
 
Hong Kong
7
Georgia
48
 
Mississippi
2
 
Rhode Island
3
 
Japan
9
Hawaii
7
 
Missouri
16
 
South Carolina
37
 
South Korea
103
Illinois
27
 
Montana
1
 
South Dakota
2
 
Puerto Rico
1
Indiana
23
 
Nebraska
7
 
Tennessee
36
     
Iowa
8
 
Nevada
16
 
Texas
74
     
                     
Franchise and Development Joint Venture
Alabama
1
 
Oregon
8
 
Costa Rica
1
 
Singapore
1
Alaska
1
 
South Carolina
1
 
Dominican Republic
1
 
Taiwan
4
California
63
 
Tennessee
3
 
Egypt
1
 
Thailand
1
Florida
3
 
Washington
20
 
Guam
1
 
United Arab Emirates
2
Idaho
6
       
Indonesia
2
 
United Kingdom
3
Mississippi
6
 
Australia
6
 
Malaysia
2
 
Venezuela
1
Montana
2
 
Brazil
29
 
Mexico
5
     
North Carolina
1
 
Canada
4
 
Philippines
3
     
Ohio
1
 
China
2
 
Saudia Arabia
1
     

Financial information about geographic areas is included in this Form 10-K in Item 8, Note 21 of Notes to Consolidated Financial Statements.


OSI Restaurant Partners, LLC

Item 1.  Business (continued)

RESTAURANT OPERATIONS

Management and Employees. The management staff of a typical Outback Steakhouse, Carrabba’s Italian Grill or Bonefish Grill consists of one managing partner, one assistant manager and one kitchen manager. The management staff of a typical Fleming’s or Roy’s consists of one managing partner, a chef partner and two assistant managers. Each restaurant also employs approximately 55 to 75 hourly employees, many of whom work part-time. The managing partner of each restaurant has primary responsibility for the day-to-day operation of his or her restaurant and is required to abide by Company-established operating standards.  Area operating partners are responsible for overseeing the operations of several restaurants and managing partners in a specific region.

Purchasing. Our management negotiates directly with suppliers for most food and beverage products to ensure uniform quality and adequate supplies and to obtain competitive prices. We and our franchisees purchase substantially all food and beverage products from authorized local or national suppliers, and we periodically make advance purchases of various inventory items to ensure adequate supply or to obtain favorable pricing.  In 2010, we purchased approximately 90% of our beef raw materials from four beef suppliers who represented approximately 76% of the total beef marketplace in the United States.  In 2011, we expect to purchase approximately 80% of our beef raw materials from four beef suppliers who represent approximately 76% of the total beef marketplace in the United States.

Supervision and Training. We require our area operating partners and restaurant managing partners to have significant experience in the full-service restaurant industry. In addition, all operating partners and managing partners are required to complete a comprehensive 12-week training course that emphasizes our operating strategy, procedures and standards. Our senior management meets quarterly with our operating partners to discuss business-related issues and share ideas. In addition, members of senior management visit restaurants regularly to ensure that our concept, strategy and standards of quality are being adhered to in all aspects of restaurant operations.
 
The restaurant managing and area operating partners, together with our Presidents, Regional Vice Presidents, Senior Vice Presidents of Training and Directors of Training, are responsible for selecting and training the employees for each new restaurant. The training period for new non-management employees lasts approximately one week and is characterized by on-the-job supervision by an experienced employee. Ongoing employee training remains the responsibility of the restaurant manager. Written tests and observation in the work place are used to evaluate each employee’s performance. Special emphasis is placed on the consistency and quality of food preparation and service which is monitored through monthly meetings between kitchen managers and management.

Advertising and Marketing. We promote our Outback Steakhouse and Carrabba’s Italian Grill restaurants through national and spot television and/or radio media and Bonefish through radio advertising.  We advertise on television in selected markets when our brands achieve sufficient penetration to make a meaningful broadcast schedule affordable. For all of our brands, we rely on word-of-mouth customer experience, site visibility, grassroots marketing in local venues, direct mail, on-line/digital advertising, billboards and public relations. This method of advertising promotes and maintains brand image and generates consumer awareness of new menu offerings, such as new items added to appeal to value-conscious consumers.  We also strive to increase sales through excellence in execution. Our marketing strategy of enticing customers to visit frequently and also recommending our restaurants to others complements what we believe are the fundamental elements of success: convenient sites, service-oriented employees and flawless execution in a well-managed restaurant.  Additionally, we engage in a variety of promotional activities, such as contributing goods, time and money to charitable, civic and cultural programs, in order to give back to the communities we serve and increase public awareness of our restaurants.


OSI Restaurant Partners, LLC

Item 1.  Business (continued)

MANAGING, CHEF AND AREA OPERATING PARTNER PROGRAMS

We believe our compensation structure for our managing, chef and area operating partners encourages high quality restaurant operations, fosters long-term employee commitment and generally results in profitable restaurants. Historically, the managing partner of each Company-owned domestic restaurant and the chef partner of each Fleming’s and Roy’s restaurant was required, as a condition of employment, to sign a five-year employment agreement and to purchase a non-transferable ownership interest in a partnership (“Management Partnership”) that provided management and supervisory services to his or her restaurant.  The purchase price for a managing partner’s ownership interest was fixed at $25,000, and the purchase price for a chef partner’s ownership interest ranged from $10,000 to $15,000.  Managing and chef partners had the right to receive distributions from the Management Partnership based on a percentage of their restaurant’s monthly cash flows for the duration of the agreement, which varied by concept from 6% to 10% for managing partners and 2% to 5% for chef partners.  Further, managing and chef partners were eligible to participate in the Partner Equity Plan (“PEP”), a deferred compensation program, upon completion of their five-year employment terms.  We are in the process of developing modifications to our managing and chef partner compensation structure.

Many of our international Outback Steakhouse restaurant managing partners enter into employment agreements and purchase participation interests in the cash distributions from the restaurants they manage. The amount and terms vary by country. This interest gives the managing partner the right to receive a percentage of his or her restaurant’s annual cash flows for the duration of the agreement.  Additionally, each new unaffiliated franchisee is required to provide the same opportunity to the managing partner of each new restaurant opened by that franchisee.

By offering these types of compensation arrangements and by providing the managing and chef partners with a significant interest in the success of the restaurant, we believe we are able to attract and retain experienced and highly-motivated managing and chef partners.  In addition, since many of our restaurants are generally open for dinner only, we believe that we have an advantage in attracting and retaining servers, food preparers and other employees who find the shorter hours an attractive life-style alternative to restaurants serving both lunch and dinner.

Area operating partners are currently required, as a condition of employment, to make an initial investment of $50,000 in the Management Partnership that provides supervisory services to the restaurants that the area operating partner oversees.  This interest gives the area operating partner the right to distributions from the Management Partnership based on a percentage of his or her restaurants’ monthly cash flows for the duration of the agreement, typically ranging from 4% to 9%.  We have the option to purchase an area operating partner’s interest in the Management Partnership after the restaurant has been open for a five-year period on the terms specified in the agreement.

SEASONALITY AND QUARTERLY RESULTS
 
Our business is subject to seasonal fluctuations.  Historically, customer spending patterns for our established restaurants are generally highest in the first quarter of the year and lowest in the third quarter of the year.  Additionally, holidays, severe winter weather, hurricanes, thunderstorms and similar conditions may affect sales volumes seasonally in some of our markets.  Quarterly results have been and will continue to be significantly affected by general economic conditions, the timing of new restaurant openings and their associated pre-opening costs, restaurant closures and exit-related costs and impairments of goodwill and property, fixtures and equipment.  As a result of these and other factors, our financial results for any given quarter may not be indicative of the results that may be achieved for a full fiscal year. 


OSI Restaurant Partners, LLC

Item 1.  Business (continued)

UNAFFILIATED FRANCHISE PROGRAM

At December 31, 2010, there were 108 domestic franchised Outback Steakhouses and 41 international franchised Outback Steakhouses. Each unaffiliated domestic franchisee paid an initial franchise fee of $40,000 for each restaurant and pays a continuing monthly royalty of 3.0% of gross restaurant sales and a monthly marketing administration fee of 0.5% of gross restaurant sales. Initial fees and royalties for international franchisees vary by market. Generally, each unaffiliated international franchisee paid an initial franchise fee of $40,000 to $200,000 for each restaurant and pays a continuing monthly royalty of 2.0% to 4.0% of gross restaurant sales. Certain international franchisees enter into an international development agreement that requires them to pay a development fee in exchange for the right and obligation to develop and operate up to five restaurants within a defined development territory pursuant to separate franchise agreements.  All domestic unaffiliated franchisees are required to expend an annually adjusted percentage of gross restaurant sales, up to a maximum of 3.5%, for national advertising on a monthly basis (3.5% in 2010).

At December 31, 2010, there was one domestic franchised Carrabba’s Italian Grill. The unaffiliated domestic franchisee paid an initial franchise fee of $40,000 and pays a continuing monthly royalty of 5.75% of gross restaurant sales.

At December 31, 2010, there were seven domestic franchised Bonefish Grills.  Four of the unaffiliated domestic franchisees paid an initial franchise fee of $50,000 for each restaurant and pay a continuing monthly royalty of 4.0% of gross restaurant sales. Three of the unaffiliated domestic franchised locations pay royalties up to 4.0%, depending on sales volumes.  Under the terms of the franchise agreement, all domestic unaffiliated franchisees are required to expend, on a monthly basis, a minimum of 2.5% of gross restaurant sales on local advertising and pay a monthly marketing administration fee of 0.5% of gross restaurant sales.

There were no unaffiliated franchises of any of our other restaurant concepts at December 31, 2010.
              
All unaffiliated franchisees are required to operate their restaurants in compliance with each concept’s methods, standards and specifications regarding such matters as menu items, ingredients, materials, supplies, services, fixtures, furnishings, decor and signs, although the franchisee has full discretion to determine menu prices. In addition, all franchisees are required to purchase all food, ingredients, supplies and materials from approved suppliers.


OSI Restaurant Partners, LLC

Item 1.  Business (continued)

EMPLOYEES

As of December 31, 2010, we employed approximately 96,000 persons, approximately 775 of whom are corporate personnel employed by OSI Restaurant Partners, LLC. Approximately 4,900 are restaurant management personnel and the remainder are hourly restaurant personnel. Of the approximately 775 corporate employees, approximately 140 are in management and 635 are administrative or office employees.  None of our employees are covered by a collective bargaining agreement.

TRADEMARKS

We regard our “Outback Steakhouse,” “Carrabba’s Italian Grill,” “Bonefish Grill” and “Fleming’s Prime Steakhouse and Wine Bar” service marks and our “Bloomin’ Onion” trademark as having significant value and as being important factors in the marketing of our restaurants. We have also obtained a trademark for several of our other menu items and for various advertising slogans. We are aware of names and marks similar to the service marks of ours used by other persons in certain geographic areas in which we have restaurants. However, we believe such uses will not adversely affect us. Our policy is to pursue registration of our marks whenever possible and to oppose vigorously any infringement of our marks.

GOVERNMENT REGULATION

Our restaurants are subject to various federal, state, local and international laws affecting our business as more fully described in this Form 10-K in Item 1A, Risk Factors.

AVAILABLE INFORMATION
 
Our website at www.osirestaurantpartners.com contains a link (under the Investor Relations section) to our SEC filings, including our annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and all amendments to these reports.  All of these filings are available free of charge as soon as reasonably practicable after they are filed with or furnished to the SEC.
 

OSI Restaurant Partners, LLC

Item 1A. Risk Factors

The risk factors set forth below should be carefully considered. The risks described below are not the only risks facing us. Additional risks and uncertainties not currently known to us or those we currently view to be immaterial may also materially and adversely affect our business, financial condition or results of operations. Any of the following risks could materially and adversely affect our business, financial condition or results of operations.

Risks Related to Our Indebtedness and Certain Other Obligations

Our substantial leverage could adversely affect our ability to raise additional capital to fund our operations, limit our ability to react to changes in the economy or our industry, expose us to interest rate risk to the extent of our variable-rate debt and prevent us from meeting our obligations under the senior notes.

We are highly leveraged. The following chart shows our level of indebtedness as of December 31, 2010 (in thousands):

   
DECEMBER 31,
 
   
2010
 
Senior secured term loan facility
  $ 1,035,000  
Senior secured pre-funded revolving credit facility
    78,072  
Senior notes
    248,075  
Guaranteed debt, sale-leaseback and capital lease
       
 obligations and other notes payable
    35,680  
Total indebtedness
  $ 1,396,827  

As of December 31, 2010, we also had approximately $79,728,000 in available unused borrowing capacity under our working capital revolving credit facility (after giving effect to undrawn letters of credit of approximately $70,272,000) and $21,928,000 in available unused borrowing capacity under our pre-funded revolving credit facility that provides financing for capital expenditures only.

Our high degree of leverage could have important consequences, including:

·  
making it more difficult for us to make payments on indebtedness;
·  
increasing our vulnerability to general economic and industry conditions;
·  
requiring a substantial portion of cash flow from operations to be dedicated to the payment of principal and interest on our indebtedness, thereby reducing our ability to use our cash flow to fund our operations, capital expenditures and future business opportunities;
·  
exposing us to the risk of increased interest rates as certain of our borrowings under our senior secured credit facilities are at variable rates of interest;
·  
restricting us from making strategic acquisitions or causing us to make non-strategic divestitures;
·  
limiting our ability to obtain additional financing for working capital, capital expenditures, restaurant development, debt service requirements, acquisitions and general corporate or other purposes; and
·  
limiting our ability to adjust to changing market conditions and placing us at a competitive disadvantage compared to our competitors who may be less highly leveraged.

We and our subsidiaries may incur substantial additional indebtedness in the future, subject to the restrictions contained in our senior secured credit facilities and the indenture governing the senior notes. If new indebtedness is added to our current debt levels, the related risks that we now face could increase.

As of December 31, 2010, we had $1,113,072,000 of debt outstanding under our senior secured credit facilities, which bear interest based on a floating rate index. An increase in these floating rates could cause a material increase in our interest expense.


OSI Restaurant Partners, LLC

Item 1A. Risk Factors (continued)

Risks Related to Our Indebtedness and Certain Other Obligations (continued)

Our debt agreements contain restrictions that limit our flexibility in operating our business.

Our senior secured credit facilities and the indenture governing the senior notes contain various covenants that limit our ability to engage in specified types of transactions. These covenants limit our and our restricted subsidiaries’ ability to, among other things, incur or guarantee additional indebtedness, pay dividends on, redeem or repurchase our capital stock, make certain acquisitions or investments, incur or permit to exist certain liens, enter into transactions with affiliates or sell our assets to, merge or consolidate with or into, another company. In addition, our senior secured credit facilities require us to satisfy certain financial tests and ratios and limit our ability to make capital expenditures. Our ability to satisfy such tests and ratios may be affected by events outside of our control.

Upon the occurrence of an event of default under the senior secured credit facilities, the lenders could elect to declare all amounts outstanding under the senior secured credit facilities to be immediately due and payable and terminate all commitments to extend further credit. If we are unable to repay those amounts, the lenders under the senior secured credit facilities could proceed against the collateral granted to them to secure that indebtedness. We have pledged a significant portion of our assets as collateral under the senior secured credit facilities. If the lenders under the senior secured credit facilities accelerate the repayment of borrowings, we cannot be certain that we will have sufficient assets to repay the senior secured credit facilities, as well as our unsecured indebtedness, including the senior notes.

We may not be able to generate sufficient cash to service all of our indebtedness, including the senior notes, and operating lease obligations, and we may be forced to take other actions to satisfy our obligations under our indebtedness and operating lease obligations, which may not be successful.

Our ability to make scheduled payments on or to refinance our debt obligations and to satisfy our operating lease obligations depends on our financial condition and operating performance, which is subject to prevailing economic and competitive conditions and to certain financial, business and other factors beyond our control. We cannot be certain that we will maintain a level of cash flow from operating activities sufficient to permit us to pay the principal, premium, if any, and interest on our indebtedness, including the senior notes, or to pay our operating lease obligations. If our cash flow and capital resources are insufficient to fund our debt service obligations and operating lease obligations, we may be forced to reduce or delay capital expenditures, sell assets, seek additional capital or restructure or refinance our indebtedness, including the senior notes. These alternative measures may not be successful and may not permit us to meet our scheduled debt service obligations. In the absence of sufficient operating results and resources, we could face substantial liquidity problems and might be required to dispose of material assets or operations, or take other actions, to meet our debt service and other obligations. Our senior secured credit facilities and the indenture governing the senior notes restrict our ability to dispose of assets and use the proceeds from the disposition. We may not be able to consummate those dispositions or to obtain the proceeds that we could otherwise realize from such dispositions and any such proceeds that are realized may not be adequate to meet any debt service obligations then due.  The failure to meet our debt service obligations or the failure to remain in compliance with the financial covenants under our senior secured credit facilities would constitute an event of default under those facilities and the lenders could elect to declare all amounts outstanding under the senior secured credit facilities to be immediately due and payable and terminate all commitments to extend further credit.


OSI Restaurant Partners, LLC

Item 1A. Risk Factors (continued)

Risks Related to Our Indebtedness and Certain Other Obligations (continued)

If our revenue and resulting cash flow were to decline to levels that cannot be offset by reductions in costs, efficiency programs and improvements in working capital management, we may not remain in compliance with certain covenants in our senior secured credit facilities agreement or be able to fund debt service requirements, operating lease obligations, capital expenditures and working capital obligations.

If our revenue and resulting cash flow were to decline to levels that cannot be offset by reductions in costs, efficiency programs and improvements in working capital management, we may not remain in compliance with the leverage ratio and free cash flow covenants in our senior secured credit facilities agreement and furthermore, we may not be able to fund debt service requirements, operating lease obligations, capital expenditures and working capital obligations.  If this occurs, we intend to take such actions available to us as we determine to be appropriate at such time, which may include, but are not limited to, engaging in a permitted equity issuance, seeking a waiver from our lenders, amending the terms of such facilities, including the covenants described above, refinancing all or a portion of our senior secured credit facilities under modified terms, reducing or delaying capital expenditures, selling assets or seeking additional capital.  There can be no assurance that we will be able to effect any such actions on terms acceptable to us or at all or that such actions will be successful in maintaining our debt service or covenant compliance or meeting other obligations. The failure to meet our debt service obligations or the failure to remain in compliance with the financial covenants under our senior secured credit facilities would constitute an event of default under those facilities and the lenders could elect to declare all amounts outstanding under the senior secured credit facilities to be immediately due and payable and terminate all commitments to extend further credit.

Approximately 25% of our domestic company-owned restaurants are subject to a master lease with our sister company, Private Restaurant Properties, LLC. An event of default under this lease could result in our loss of use of some or all of these restaurant properties.

In connection with the Merger, the fee owned real estate and certain related assets associated with approximately 25% of our domestic company-owned restaurants were sold to PRP and then leased to us and our subsidiaries through a master lease and a series of underlying subleases. The master lease contains customary representations and warranties, affirmative and negative covenants and events of default. The master lease requires an aggregate monthly rental payment with respect to all leased restaurants, without any grace period for late payment. If a default occurs under the master lease, PRP is entitled to take various actions to enforce its rights, including, in certain circumstances, termination of the master lease. In addition, if PRP were to default under its real estate credit facility, the lenders would be entitled to take various actions to enforce their rights, including, in certain circumstances, foreclosing on the restaurant properties. PRP’s primary source of revenue (and consequently its primary source of funds available to service its own debt under its real estate credit facility) is the monthly rental payments we make under the master lease. If we fail to make payments or otherwise default under the master lease, PRP could default under its real estate credit facility. If the master lease were to be terminated in connection with any default by us or if the lenders under PRP’s real estate credit facility were to foreclose on the restaurant properties as a result of a PRP default under its real estate credit facility, we could, subject to the terms of a subordination and nondisturbance agreement, lose the use of some or all of the properties that we lease under the master lease. Any such loss of the use of such restaurant properties would have a material adverse effect on our business.
 

OSI Restaurant Partners, LLC

Item 1A. Risk Factors (continued)

Risks Related to Our Indebtedness and Certain Other Obligations (continued)

Any right to receive payments on the senior notes is effectively junior to those lenders who have a security interest in our assets.

Our obligations under the senior notes and our guarantors’ obligations under their guarantees of the senior notes are unsecured, but our obligations under our senior secured credit facilities and each guarantor’s obligations under their respective guarantees of the senior secured credit facilities are secured by a security interest in substantially all of our tangible and intangible assets, including the stock and the assets of certain of our current and future wholly-owned U.S. subsidiaries and a portion of the stock of certain of our non-U.S. subsidiaries. Our obligations under the senior notes are also structurally subordinated to our sale-leaseback. As of December 31, 2010, we had $1,396,827,000 in outstanding debt on our Consolidated Balance Sheet, of which approximately $1,113,072,000 was secured. We also had $79,728,000 in available unused borrowing capacity under our working capital revolving credit facility (after giving effect to undrawn letters of credit of approximately $70,272,000) and $21,928,000 in available unused borrowing capacity under our pre-funded revolving credit facility that provides financing for capital expenditures only.

If we are declared bankrupt or insolvent, or if we default under our senior secured credit facilities, the lenders could declare all of the funds borrowed thereunder, together with accrued interest, immediately due and payable. If we were unable to repay such indebtedness, the lenders could foreclose on the pledged assets to the exclusion of holders of the senior notes, even if an event of default exists under the indenture governing the senior notes at such time. Because of the structural subordination of the senior notes relative to our secured indebtedness, in the event of our bankruptcy, liquidation or dissolution, our assets will not be available to pay obligations under the senior notes until we have made all payments in cash on our secured indebtedness. We cannot be certain that sufficient assets will remain after all these payments have been made to make any payments on the senior notes, including payments of principal or interest when due.
 
Furthermore, if the lenders foreclose and sell the pledged equity interests in any subsidiary guarantor under the senior notes, then that guarantor will be released from its guarantee of the senior notes automatically and immediately upon such sale. In any such event, because the senior notes will not be secured by any of our assets or the equity interests in subsidiary guarantors, it is possible that there would be no assets remaining from which any claims could be satisfied or, if any assets remained, they might be insufficient to satisfy any claims fully.

The indenture governing the senior notes permits us and our restricted subsidiaries to incur substantial additional indebtedness in the future, including additional senior secured indebtedness.


OSI Restaurant Partners, LLC

Item 1A. Risk Factors (continued)

Risks Related to Our Indebtedness and Certain Other Obligations (continued)

Any claims to our assets by holders of senior notes will be structurally subordinated to all of the creditors of any non-guarantor subsidiaries.

Not all of our subsidiaries guarantee the senior notes. The senior notes are structurally subordinated to indebtedness (and other liabilities) of our subsidiaries that do not guarantee the senior notes. In the event of a bankruptcy, liquidation or reorganization of any of these non-guarantor subsidiaries, the non-guarantor subsidiaries will pay the holders of their debt and their trade creditors before they will be able to distribute any of their assets to us for payment to our creditors, including holders of the senior notes.

The indenture requires that each of our domestic wholly-owned restricted subsidiaries that guarantees the obligations under the senior secured credit facilities or any of our other indebtedness also be a guarantor of the senior notes. Our other subsidiaries are not required to guarantee the senior notes under the indenture. The senior secured credit facilities require guarantees of the obligations thereunder from each of our current and future domestic wholly-owned restricted subsidiaries in our Outback Steakhouse and Carrabba’s Italian Grill concepts, which consequently are guarantors of the senior notes under the indenture. Additionally, the senior secured credit facilities will require us to provide additional guarantees of the senior secured credit facilities in the future from other domestic wholly-owned restricted subsidiaries if the Consolidated EBITDA (earnings before interest, taxes, depreciation and amortization and certain other adjustments as defined in the senior secured credit facilities) attributable to our non-guarantor domestic wholly-owned restricted subsidiaries (taken together as a group) would exceed 10% of our Consolidated EBITDA as determined on a Company-wide basis; at which time guarantees would be required from additional domestic wholly-owned restricted subsidiaries in such number that would be sufficient to lower the aggregate Consolidated EBITDA of the non-guarantor domestic wholly-owned restricted subsidiaries (taken together as a group) to an amount not in excess of 10% of our Company-wide Consolidated EBITDA. Consequently, such additional domestic wholly-owned restricted subsidiaries will be required to be guarantors of the senior notes under the indenture. The terms of the senior secured credit facilities, including the provisions relating to which of our subsidiaries guarantee the obligations under the senior secured credit facilities, may be amended, modified or waived, and guarantees thereunder may be released, in each case at the lenders’ discretion and without the consent or approval of noteholders. Noteholders will not have a claim as a creditor against any subsidiary that is no longer a guarantor of the senior notes, and the indebtedness and other liabilities, including trade payables, whether secured or unsecured, of those subsidiaries will effectively be senior, in respect of the assets of such subsidiaries, to claims of noteholders.

See the Supplemental Guarantor Condensed Consolidating Financial Statements in Item 8, Note 16 of the Notes to Consolidated Financial Statements in this Form 10-K for presentation of the financial position, results of operations and cash flows of OSI Restaurant Partners, LLC - Parent only, OSI Co-Issuer, which is a wholly-owned subsidiary and exists solely for the purpose of serving as co-issuer of the senior notes, the guarantor subsidiaries, the non-guarantor subsidiaries and the elimination entries necessary to consolidate the Company.


OSI Restaurant Partners, LLC

Item 1A. Risk Factors (continued)

Risks Related to Our Indebtedness and Certain Other Obligations (continued)

If we default on our obligations to pay our indebtedness, we may not be able to make payments on the senior notes.

Any default under the agreements governing our indebtedness, including a default under the senior secured credit facilities, that is not waived by the required lenders, and the remedies sought by the holders of such indebtedness, could prevent us from paying principal, premium, if any, and interest on the senior notes and could substantially decrease the market value of the senior notes. If we are unable to generate sufficient cash flow and are otherwise unable to obtain funds necessary to meet required payments of principal, premium, if any, and interest on our indebtedness, or if we otherwise fail to comply with the various covenants, including financial and operating covenants, in the instruments governing our indebtedness (including covenants in our senior secured credit facilities and the indenture governing the senior notes), we could be in default under the terms of the agreements governing such indebtedness, including our senior secured credit facilities and the indenture governing the senior notes. In the event of such default, the holders of such indebtedness could elect to declare all the funds borrowed thereunder to be due and payable, together with accrued and unpaid interest, the lenders under our senior secured credit facilities could elect to terminate their commitments thereunder, cease making further loans and institute foreclosure proceedings against our assets, and we could be forced into bankruptcy or liquidation. If our operating performance declines, we may in the future need to obtain waivers from the required lenders under our senior secured credit facilities to avoid being in default. If we breach our covenants under our senior secured credit facilities and seek a waiver, we may not be able to obtain a waiver from the required lenders. If this occurs, we would be in default under our senior secured credit facilities, the lenders could exercise their rights, as described above, and we could be forced into bankruptcy or liquidation.

We may not be able to repurchase the senior notes upon a change of control.

Upon the occurrence of specific kinds of change of control events, we are required to offer to repurchase all outstanding senior notes at 101% of their principal amount plus accrued and unpaid interest. The source of funds for any such purchase of the senior notes will be our available cash or cash generated from our subsidiaries’ operations or other sources, including borrowings, sales of assets or sales of equity. We may not be able to repurchase the senior notes upon a change of control because we may not have sufficient financial resources to purchase all of the senior notes that are tendered upon a change of control. Further, we are contractually restricted under the terms of our senior secured credit facilities from repurchasing all of the senior notes tendered by holders upon a change of control. Accordingly, we may not be able to satisfy our obligations to purchase the senior notes unless we are able to refinance or obtain waivers under our senior secured credit facilities. Our failure to repurchase the senior notes upon a change of control would cause a default under the indenture governing the senior notes and a cross-default under the senior secured credit facilities. The senior secured credit facilities also provide that a change of control will be a default that permits lenders to accelerate the maturity of borrowings thereunder. Any of our future debt agreements may contain similar provisions.


OSI Restaurant Partners, LLC

Item 1A. Risk Factors (continued)

Risks Related to Our Indebtedness and Certain Other Obligations (continued)

Federal and state fraudulent transfer laws may permit a court to void the senior notes or the guarantees, and, if that occurs, we may not be able to make any payments on the senior notes.

Federal and state fraudulent transfer and conveyance statutes may apply to the issuance of the senior notes and the incurrence of the guarantees. Under federal bankruptcy law and comparable provisions of state fraudulent transfer or conveyance laws, which may vary from state to state, the senior notes or guarantees could be voided as a fraudulent transfer or conveyance if (1) we or any of the guarantors, as applicable, issued the senior notes or incurred the guarantees with the intent of hindering, delaying or defrauding creditors or (2) we or any of the guarantors, as applicable, received less than reasonably equivalent value or fair consideration in return for either issuing the senior notes or incurring the guarantees and, in the case of (2) only, one of the following is also true at the time thereof:

·  
we or any of the guarantors, as applicable, were insolvent or rendered insolvent by reason of the issuance of the senior notes or the incurrence of the guarantees;
·  
the issuance of the senior notes or the incurrence of the guarantees left us or any of the guarantors, as applicable, with an unreasonably small amount of capital to carry on the business;
·  
we or any of the guarantors intended to, or believed that we or such guarantor would, incur debts beyond our or such guarantor’s ability to pay as they mature; or
·  
we or any of the guarantors were a defendant in an action for money damages, or had a judgment for money damages docketed against us or such guarantor if, in either case, after final judgment, the judgment is unsatisfied.

If a court were to find that the issuance of the senior notes or the incurrence of the guarantee was a fraudulent transfer or conveyance, the court could void the payment obligations under the senior notes or such guarantee or subordinate the senior notes or such guarantee to presently existing and future indebtedness of ours or of the related guarantor, or require the holders of the senior notes to repay any amounts received. In the event of a finding that a fraudulent transfer or conveyance occurred, we may not be able to make any payment on the senior notes. Further, the voidance of the senior notes could result in an event of default with respect to our and our subsidiaries’ other debt that could result in acceleration of such debt. As a general matter, value is given for a transfer or an obligation if, in exchange for the transfer or obligation, property is transferred or an antecedent debt is secured or satisfied. A debtor will generally not be considered to have received value in connection with a debt offering if the debtor uses the proceeds of that offering to make a dividend payment or otherwise retire or redeem equity securities issued by the debtor.

We cannot be certain as to the standards a court would use to determine whether or not we or the guarantors were solvent at the relevant time or, regardless of the standard that a court uses, that the senior notes or the guarantees would not be subordinated to our or any of our guarantors’ other debt.


OSI Restaurant Partners, LLC

Item 1A. Risk Factors (continued)

Risks Related to Our Business

Competition for customers, real estate, employees, and supplies, and changes in certain conditions may affect our profit margins.

The restaurant industry is intensely competitive with a substantial number of restaurant operators that compete directly and indirectly with us in respect to price, service, location and food quality, and there are other well-established competitors with significant financial and other resources. Some of our competitors have been in existence for a substantially longer period than we have and may be better established in the markets where our restaurants are or may be located.  There is also active competition for management personnel as well as attractive suitable real estate sites.  Changes in local, regional, national or international economic conditions, demographic trends, consumers’ discretionary purchasing power, consumer tastes, nutritional and dietary trends, traffic patterns and the type, number and location of competing restaurants often affect the restaurant business. In addition, factors such as inflation or deflation, increased food, labor and benefits costs, energy costs, consumer perceptions of food safety, financial stability of suppliers and the availability of experienced management and hourly employees may adversely affect the restaurant industry in general and our restaurants in particular.  Our results can be impacted by changes in the level of consumer acceptance of our restaurant concepts (including consumer tolerance of our prices), the seasonality of our business, our ability to effectively respond in a timely manner to changes in traffic patterns and the cost of advertising and media.  Further, we face growing competition from the supermarket industry, with the improvement of their “convenient meals” in the deli section, and from quick service and fast casual restaurants, as a result of higher-quality food and beverage offerings.  If we are unable to continue to compete effectively, our business, financial condition and results of operations would be adversely affected.

Challenging economic conditions may continue to affect our business by adversely impacting consumer confidence and discretionary spending, availability and cost of credit, foreign currency exchange rates and other items.

As noted in our other risk factors, our high degree of leverage could increase our vulnerability to general economic and industry conditions and require that a substantial portion of cash flow from operations be dedicated to the payment of principal and interest on our indebtedness.   Our cash flow from operations is dependent on consumer spending.  Challenging economic conditions may continue to negatively impact consumer confidence and thus cause a decline in our cash flow from operations.  Further, the availability of credit already arranged for under our revolving credit facilities and the cost and availability of future credit may be adversely impacted by the economic challenges.  Foreign currency exchange rates for the countries in which we operate may decline, and we may experience interruptions in supplies and other services from our third-party vendors as a result of the market conditions.  These disruptions in the economy are beyond our control, and there is no guarantee that any government response will restore consumer confidence, stabilize the economy or increase the availability of credit.

Our business is subject to seasonal fluctuations and past results are not indicative of future results.

Historically, customer spending patterns for our established restaurants are generally highest in the first quarter of the year and lowest in the third quarter of the year. Additionally, holidays, severe winter weather, hurricanes, thunderstorms and similar conditions may affect sales volumes seasonally in some of the markets where we operate. Our quarterly results have been and will continue to be affected by the timing of new restaurant openings and their associated pre-opening costs, as well as, restaurant closures and exit-related costs and impairments of goodwill and property, fixtures and equipment. As a result of these and other factors, our financial results for any given quarter may not be indicative of the results that may be achieved for a full fiscal year.


OSI Restaurant Partners, LLC

Item 1A. Risk Factors (continued)

Risks Related to Our Business (continued)

Significant adverse weather conditions and other disasters could negatively impact our results of operations.

Adverse weather conditions and acts of God, such as regional winter storms, floods, major hurricanes and earthquakes, and other disasters, such as oil spills, could negatively impact our results of operations. Temporary and prolonged restaurant closures may occur and customer traffic may decline due to the actual or perceived effects from these events.

Loss of key personnel or our inability to attract and retain new qualified personnel could hurt our business and inhibit our ability to operate and grow successfully.

Our success will continue to depend, to a significant extent, on our leadership team and other key management personnel. If we are unable to attract and retain sufficiently experienced and capable management personnel, our business and financial results may suffer. Our success also will continue to depend on our ability to attract and retain qualified personnel to operate our restaurants. When talented employees leave, we may have difficulty replacing them, and our business may suffer. There can be no assurance that we will be able to successfully attract and retain the personnel that we need.

Risks associated with our expansion plans may have adverse consequences on our ability to increase revenues.

We continue to pursue a disciplined growth strategy by expanding our restaurant base at a substantially reduced pace relative to recent history.  Current development schedules call for the construction of eight to ten new restaurants in 2011, across all concepts.  A variety of factors could cause the actual results and outcome of those expansion plans to differ from the anticipated results. Our development schedule for new restaurant openings is subject to a number of risks that could cause actual results to differ, including among other things:

·  
availability of attractive sites for new restaurants and the ability to obtain appropriate real estate sites at acceptable prices;
·  
the ability to obtain all required governmental permits, including zoning approvals and liquor licenses, on a timely basis;
·  
impact of moratoriums or approval processes of state, local or foreign governments, which could result in significant delays;
·  
the ability to obtain all necessary contractors and sub-contractors;
·  
union activities such as picketing and hand billing, which could delay construction;
·  
the ability to negotiate suitable lease terms;
·  
the ability to generate and borrow funds;
·  
the ability to recruit and train skilled management and restaurant employees;
·  
the ability to receive the premises from the landlord’s developer without any delays; and
·  
weather, acts of God and disasters beyond our control resulting in construction delays.
 
Some of our new restaurants may take several months to reach planned operating levels due to inefficiencies typically associated with new restaurants, including lack of market awareness and other factors. There is also the possibility that new restaurants may attract customers of existing restaurants we own, thereby reducing the revenues of such existing restaurants.

Development rates for each concept may differ significantly.  The development of each concept may not be as successful as our experience in the development of the Outback concept.  It is difficult to estimate the performance of newly opened restaurants. Earnings achieved to date by restaurants open for less than two years may not be indicative of future operating results. Should enough of these new restaurants not meet targeted performance, it could have a material adverse effect on our operating results.


OSI Restaurant Partners, LLC

Item 1A. Risk Factors (continued)

Risks Related to Our Business (continued)

Our ability to comply with government regulation, and the costs of compliance, could affect our business.

Our restaurants are subject to various federal, state, local and international laws affecting our business. Each of our restaurants is subject to licensing and regulation by a number of governmental authorities, which may include, among others, alcoholic beverage control, health and safety, nutritional menu labeling, health care, environmental and fire agencies in the state, municipality or country in which the restaurant is located. Difficulty in obtaining or failing to obtain the required licenses or approvals could delay or prevent the development of a new restaurant in a particular area. Additionally, difficulties or inabilities to retain or renew licenses, or increased compliance costs due to changed regulations, could adversely affect operations at existing restaurants.

Approximately 15% of our consolidated restaurant sales are attributable to the sale of alcoholic beverages. Alcoholic beverage control regulations require each of our restaurants to apply to a state authority and, in certain locations, county or municipal authorities for a license or permit to sell alcoholic beverages on the premises and to provide service for extended hours and on Sundays. Typically, licenses must be renewed annually and may be revoked or suspended for cause at any time. Alcoholic beverage control regulations relate to numerous aspects of daily operations of our restaurants, including minimum age of patrons and employees, hours of operation, advertising, wholesale purchasing, inventory control and handling and storage and dispensing of alcoholic beverages. The failure of a restaurant to obtain or retain liquor or food service licenses would adversely affect the restaurant’s operations. Additionally, we may be subject in certain states to “dramshop” statutes, which generally provide a person injured by an intoxicated person the right to recover damages from an establishment that wrongfully served alcoholic beverages to the intoxicated person. We carry liquor liability coverage as part of our existing comprehensive general liability insurance, but cannot guarantee that this insurance will be adequate in the event we are found liable.

Our restaurant operations are also subject to federal and state labor laws, including the Fair Labor Standards Act, governing such matters as minimum wages, overtime, tip credits and worker conditions. Our employees who receive tips as part of their compensation, such as servers, are paid at a minimum wage rate, after giving effect to applicable tip credits. Our other personnel, such as our kitchen staff, are typically paid in excess of minimum wage. As significant numbers of our food service and preparation personnel are paid at rates related to the applicable minimum wage, further increases in the minimum wage or other changes in these laws could increase our labor costs. Our ability to respond to minimum wage increases by increasing menu prices will depend on the responses of our competitors and customers. Government regulations could affect and change the items we procure for resale such as commodities.  Other governmental initiatives such as mandated health insurance, if implemented, could adversely affect us and the restaurant industry in general. We are currently evaluating the potential impact of the health care reform law, as it could cause an increase in our labor costs.  We are subject to the Americans With Disabilities Act, or the ADA, which, among other things, requires our restaurants to meet federally mandated requirements for the disabled. The ADA prohibits discrimination in employment and public accommodations on the basis of disability. Under the ADA, we could be required to expend funds to modify our restaurants to provide service to, or make reasonable accommodations for the employment of, disabled persons. In addition, our employment practices are subject to the requirements of the Immigration and Naturalization Service relating to citizenship and residency. We may also become subject to legislation or regulation seeking to tax and/or regulate high-fat and high-sodium foods, particularly in the United States, which could be costly to comply with.  Our results can be impacted by tax legislation and regulation in the jurisdictions in which we operate and by accounting standards or pronouncements.
 

OSI Restaurant Partners, LLC

Item 1A. Risk Factors (continued)

Risks Related to Our Business (continued)

We face a variety of risks associated with doing business in foreign markets.

We have a significant number of franchised and Company-owned Outback Steakhouse restaurants outside the United States, and we intend to continue our efforts to grow internationally.  Although we believe we have developed the support structure for international operations and growth, there is no assurance that international operations will be profitable or international growth will continue.

Our foreign operations are subject to all of the same risks as our domestic restaurants, as well as a number of additional risks. These additional risks include, among others, international economic and political conditions and the possibility of instability and unrest, differing cultures and consumer preferences, diverse government regulations and tax systems, the ability to source high-quality ingredients and other commodities in a cost-effective manner, uncertain or differing interpretations of rights and obligations in connection with international franchise agreements and the collection of ongoing royalties from international franchisees, the availability and cost of land and construction costs, and the availability of experienced management, appropriate franchisees and area operating partners.

Currency regulations and fluctuations in exchange rates could also affect our performance. We have direct investments in restaurants in South Korea, Japan, Hong Kong and Brazil, as well as international franchises, in a total of 23 countries. As a result, we may experience losses from foreign currency translation, and such losses could adversely affect our overall sales and earnings.
 
Additionally, we are subject to governmental regulation throughout the world, including antitrust and tax requirements, anti-boycott regulations, import/export/customs regulations and other international trade regulations, the USA Patriot Act and the Foreign Corrupt Practices Act. Any new regulatory or trade initiatives could impact our operations in certain countries. Failure to comply with any such legal requirements could subject us to monetary liabilities and other sanctions, which could harm our business, results of operations and financial condition.

Increased commodity, energy and other costs could adversely affect our business.

The performance of our restaurants depends on our ability to anticipate and react to changes in the price and availability of food commodities, including among other things beef, chicken, seafood, butter, cheese and produce. Prices may be affected due to market changes, the general risk of inflation, shortages or interruptions in supply due to weather, disease or other conditions beyond our control, or other reasons. Increased prices or shortages could affect the cost and quality of the items we buy. These events, combined with other more general economic and demographic conditions, could impact our pricing and negatively affect our profit margins.

The performance of our restaurants is also adversely affected by increases in the price of utilities, such as natural gas, whether as a result of inflation, shortages or interruptions in supply, or otherwise. We use derivative instruments to mitigate some of our overall exposure to material increases in natural gas prices. We do not apply hedge accounting to these instruments, and any changes in the fair value of the derivative instruments are marked-to-market through earnings in the period of change. To date, effects of these derivative instruments have been immaterial to our financial statements for all periods presented.

Our business also incurs significant costs for insurance, labor, marketing, taxes, real estate, borrowing and litigation, all of which could increase due to inflation, changes in laws, competition or other events beyond our control.

Our ability to respond to increased costs by increasing menu prices or by implementing alternative processes or products will depend on our ability to anticipate and react to such increases and other more general economic and demographic conditions, as well as the responses of our competitors and customers. All of these things may be difficult to predict and beyond our control. In this manner, increased costs could adversely affect our performance.


OSI Restaurant Partners, LLC

Item 1A. Risk Factors (continued)

Risks Related to Our Business (continued)

Infringement of our intellectual property could harm our business.

We regard our service marks, including “Outback Steakhouse,” “Carrabba’s Italian Grill,” “Bonefish Grill” and “Fleming’s Prime Steakhouse and Wine Bar,” and our “Bloomin’ Onion” trademark as having significant value and as being important factors in the marketing of our restaurants. We have also obtained trademarks for several of our other menu items and for various advertising slogans. In addition, the overall layout, appearance and designs of our restaurants are valuable assets. We believe that these and other intellectual property are valuable assets that are critical to our success. We rely on a combination of protections provided by contracts, copyrights, patents, trademarks, and other common law rights, such as trade secret and unfair competition laws, to protect our restaurants and services from infringement. We have registered certain trademarks and service marks and have other registration applications pending in the United States and foreign jurisdictions. However, not all of the trademarks or service marks that we currently use have been registered in all of the countries in which we do business and they may never be registered in all of these countries. There may not be adequate protection for certain intellectual property such as the overall appearance of our restaurants. We are aware of names and marks similar to our service marks being used by other persons in certain geographic areas in which we have restaurants. Although we believe such uses will not adversely affect us, further or currently unknown unauthorized uses or other misappropriation of our trademarks or service marks could diminish the value of our brands and restaurant concepts and may adversely affect our business. We may be unable to detect such unauthorized use of, or take appropriate steps to enforce, our intellectual property rights. Effective intellectual property protection may not be available in every country in which we have or intend to open or franchise a restaurant. Failure to adequately protect our intellectual property rights could damage or even destroy our brands and impair our ability to compete effectively. Even where we have effectively secured statutory protection for intellectual property, our competitors may misappropriate our intellectual property and our employees, consultants and suppliers may breach their obligations not to reveal our confidential information, including trade secrets. Although we have taken appropriate measures to protect our intellectual property, there can be no assurance that these protections will be adequate or that our competitors will not independently develop products or concepts that are substantially similar to our restaurants and services. Despite our efforts, it may be possible for third-parties to reverse-engineer, otherwise obtain, copy, and use information that we regard as proprietary. Furthermore, defending or enforcing our trademark rights, branding practices and other intellectual property, and seeking injunction and/or compensation for misappropriation of confidential information, could result in the expenditure of significant resources.

The interests of our controlling stockholders may conflict with the interests of any holder of the senior notes.

Affiliates of Bain Capital Partners, LLC and Catterton Partners, together with certain co-investors, indirectly own approximately 79% of our equity securities. Their interests as equity holders may conflict with those of the noteholders.  They may have an incentive to increase the value of their investment or cause us to distribute funds at the expense of our financial condition and affect our ability to make payments on the senior notes. In addition, they will have the power to elect a majority of our Board of Managers, which operates similarly to a Board of Directors (“Board of Directors”), and appoint new officers and management and, therefore, effectively control many significant operational decisions.

Litigation could adversely affect our business.

Our business is subject to the risk of litigation by employees, consumers, suppliers, shareholders or others through private actions, class actions, administrative proceedings, regulatory actions or other litigation. The outcome of litigation, particularly class action and regulatory actions, is difficult to assess or quantify. Plaintiffs may seek recovery of large amounts and the magnitude of potential loss may remain unknown for substantial periods of time. The cost to defend future litigation may be significant. Adverse publicity resulting from litigation, regardless of the validity of any allegations, may adversely affect our business. See Item 3 in Part I of this Form 10-K for a description of certain litigation involving the Company.


OSI Restaurant Partners, LLC

Item 1A. Risk Factors (continued)

Risks Related to Our Business (continued)

Conflict or terrorism could negatively affect our business.

We cannot predict the effects of actual or threatened armed conflicts or terrorist attacks, efforts to combat terrorism, military action against any foreign state or group located in a foreign state or heightened security requirements on local, regional, national, or international economies or consumer confidence.

Advertising and marketing programs and related costs could adversely affect our results of operations.

If our competitors either increase their spending on marketing and advertising programs, or develop more effective campaigns, we could experience a negative effect on our results of operations.  In addition, we are conducting ongoing brand awareness and customer loyalty programs.  If these programs are not successful they may result in excess expenses incurred without the benefit of higher revenues.

Unfavorable publicity could harm our business.

Our business could be negatively affected by publicity resulting from complaints or litigation, either against us or other restaurant companies, alleging poor food quality, food-borne illness, personal injury, adverse health effects (including obesity) or other concerns. Regardless of the validity of any such allegations, unfavorable publicity relating to any number of restaurants or even a single restaurant could adversely affect public perception of the entire brand.

Additionally, unfavorable publicity towards a food product generally could negatively impact our business. For example, publicity regarding health concerns or outbreaks of disease in a food product, such as bovine spongiform encephalopathy (also known as “mad cow” disease), could reduce demand for our menu offerings. These factors could have a material adverse affect on our business.
 
Consumer reaction to public health issues, such as an outbreak of flu viruses or other diseases, could have an adverse effect on our business.

Our business could be harmed if the United States and/or other international countries in which we operate experience an outbreak of flu viruses or other diseases.  If a virus is transmitted by human contact, our employees or guests could become infected or could choose or be advised to avoid gathering in public places.  This could adversely affect our restaurant traffic, our ability to adequately staff our restaurants, our ability to receive deliveries on a timely basis or our ability to perform functions at the corporate level. Our business could also be negatively affected if mandatory closures, voluntary closures or restrictions on operations are imposed in the jurisdictions in which we operate.  Even if such measures are not implemented and a virus or other disease does not spread significantly, the perceived risk of infection or significant health risk may have a material adverse affect on our business.


 OSI Restaurant Partners, LLC

Item 1A. Risk Factors (continued)

Risks Related to Our Business (continued)

The food service industry is affected by consumer preferences and perceptions. Changes in these preferences and perceptions may lessen the demand for our products, which would reduce sales and harm our business.

Food service businesses are affected by changes in consumer tastes, national, regional and local economic conditions, and demographic trends. For instance, if prevailing health or dietary preferences cause consumers to avoid steak and other products we offer in favor of foods that are perceived as more healthy, our business and operating results would be harmed.  Additionally, if consumers’ perception of the economy deteriorates, consumers may change spending patterns to reduce discretionary spending, including dining at restaurants.

We have long-term agreements and contracts with select suppliers. If our suppliers are unable to fulfill their obligations under their contracts, we could encounter supply shortages and incur higher costs.

We have a limited number of suppliers for our major products, such as beef. Domestically, in 2011, we expect to purchase approximately 80% of our beef raw materials from four beef suppliers who represent approximately 76% of the total beef marketplace in the United States. Although we have not experienced significant problems with our suppliers, if our suppliers are unable to fulfill their obligations under their contracts, we could encounter supply shortages and incur higher costs.

Shortages or interruptions in the supply or delivery of fresh food products could adversely affect our operating results.
 
We are dependent on frequent deliveries of fresh food products that meet our specifications. Shortages or interruptions in the supply of fresh food products caused by unanticipated demand, problems in production or distribution, inclement weather or other conditions could adversely affect the availability, quality and cost of ingredients, which would adversely affect our operating results.

We have begun to outsource certain accounting processes to a third-party vendor, which subjects us to many unforeseen risks.

In early 2011, we began to outsource certain accounting processes to a third-party vendor, which could adversely affect our business.  The third-party vendor may not be able to handle the volume of activity or perform the quality of service that we have currently achieved at a cost-effective rate.  Although we believe we will be able to attain certain cost savings initiatives, there may be certain unidentified intangible costs and legal and regulatory matters adversely affecting our results of operations or financial condition.  In addition, the transition of certain business processes to outsourcing could negatively impact our internal control processes.  We will continuously evaluate the operation and transition of outsourced business processes and make a diligent effort to ensure that outsourcing continues to meet our business objectives.

We rely heavily on information technology in our operations and any material failure, weakness, interruption or breach of security could prevent us from effectively operating our business.

We rely heavily on information systems across our operations including for point-of-sale processing in our restaurants, management of our supply chain, payment of obligations, collection of cash and other various processes and procedures.  Our ability to efficiently and effectively manage our business depends significantly on the reliability and capacity of these systems.  The failure of these systems to operate effectively, maintenance problems, upgrading or transitioning to new platforms, or a breach in security of these systems could result delays in customer service and reduce efficiency in our operations.  Remediation of such problems could result in significant unplanned capital investments.


OSI Restaurant Partners, LLC

Item 1A. Risk Factors (continued)

Risks Related to Our Business (continued)

An impairment in the carrying value of our goodwill or other intangible assets could adversely affect our financial condition and results of operations.

We test goodwill for impairment annually in the second quarter of each fiscal year and whenever events or changes in circumstances indicate that impairment may have occurred. We compare the carrying value of a reporting unit, including goodwill, to the fair value of the reporting unit. Carrying value is based on the assets and liabilities associated with the operations of that reporting unit. If the carrying value is less than the fair value, no impairment exists. If the carrying value is higher than the fair value, there is an indication of impairment. A significant amount of judgment is involved in determining if an indication of impairment exists. Factors may include, among others: a significant decline in our expected future cash flows; a sustained, significant decline in our stock price and market capitalization; a significant adverse change in legal factors or in the business climate; unanticipated competition; the testing for recoverability of a significant asset group within a reporting unit; and slower growth rates. Any adverse change in these factors would have a significant impact on the recoverability of these assets and negatively affect our financial condition and results of operations. We compute the amount of impairment by comparing the implied fair value of reporting unit goodwill with the carrying amount of that goodwill. We are required to record a non-cash impairment charge if the testing performed indicates that goodwill has been impaired.

We evaluate the useful lives of our other intangible assets, primarily the Outback Steakhouse (Domestic and International), Carrabba’s Italian Grill, Bonefish Grill, Flemings Prime Steakhouse and Wine Bar and Roy’s trademarks or trade names, to determine if they are definite or indefinite-lived. Reaching a determination on useful life requires significant judgments and assumptions regarding the future effects of obsolescence, demand, competition, other economic factors (such as the stability of the industry, legislative action that results in an uncertain or changing regulatory environment, and expected changes in distribution channels), the level of required maintenance expenditures, and the expected lives of other related groups of assets.

As with goodwill, we test our indefinite-lived intangible assets for impairment annually in the second quarter of each fiscal year and whenever events or changes in circumstances indicate that their carrying value may not be recoverable. We estimate the fair value of these indefinite-lived intangible assets based on an income valuation model using the relief from royalty method, which requires assumptions related to projected revenues from our annual long-range plan, assumed royalty rates that could be payable if we did not own the assets and a discount rate.

During the year ended December 31, 2010, we did not record any goodwill or material intangible asset impairment charges.  During the year ended December 31, 2009, we recorded goodwill and intangible asset impairment charges of $11,078,000 and $43,741,000, respectively.  During the year ended December 31, 2008, we recorded goodwill and intangible asset impairment charges of $604,071,000 and $46,420,000, respectively.  We cannot accurately predict the amount and timing of any impairment of assets. Should the value of goodwill or other intangible assets become further impaired, there could be an adverse effect on our financial condition and results of operations.

Changes to estimates related to our property and equipment, or operating results that are lower than our current estimates at certain restaurant locations, may cause us to incur impairment charges on certain long-lived assets.

In accordance with accounting guidance as it relates to the impairment of long-lived assets, we make certain estimates and projections with regards to individual restaurant operations, as well as our overall performance in connection with our impairment analyses for long-lived assets.  When impairment triggers are deemed to exist for any given location, the estimated undiscounted future cash flows are compared to its carrying value.  If the carrying value exceeds the undiscounted cash flows, an impairment charge equal to the difference between the carrying value and the sum of the discounted cash flows is recorded.  The projection of future cash flows used in these analyses require the use of judgment and a number of estimates and projections of future operating results.  If actual results differ from our estimates, additional charges for asset impairments may be required in the future.  If impairment charges are significant, our results of operations could be adversely affected.


OSI Restaurant Partners, LLC

Item 1A. Risk Factors (continued)

Risks Related to Our Business (continued)

The possibility of future misstatement exists due to inherent limitations in our control systems.

We cannot be certain that our internal control over financial reporting and disclosure controls and procedures will prevent all possible error and fraud. A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Because of inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of error or fraud, if any, in our Company have been detected. These inherent limitations include the realities that judgments in decision-making can be faulty and that breakdowns can occur because of simple error or mistake.

Item 1B. Unresolved Staff Comments

Not applicable.

Item 2.  Properties

In connection with the Merger, we caused our wholly-owned subsidiaries to sell substantially all of our domestic restaurant properties to our sister company, PRP, for approximately $987,700,000.  PRP then leased the properties to Private Restaurant Master Lessee, LLC, our wholly-owned subsidiary, under a 15-year master lease.  The sale of substantially all of our domestic wholly-owned restaurant properties to PRP and entry into the master lease and the underlying subleases resulted in operating leases.

We currently lease approximately 25% of our restaurant sites from PRP and the remaining 75% of our restaurant sites from other third parties.  In the future, we intend to either convert existing third-party leased retail space or construct new restaurants through leases in the majority of circumstances.  Initial lease expirations primarily range from five to ten years, with the majority of the leases providing for an option to renew for two or more additional terms.  All of our leases provide for a minimum annual rent, and many leases call for additional rent based on sales volume at the particular location over specified minimum levels. Generally, the leases are net leases that require us to pay our share of the costs of insurance, taxes and common area operating costs.  See Item 1 for a listing of restaurant locations.

As of December 31, 2010, we lease approximately 128,000 square feet of office space in Tampa, Florida under a lease expiring in 2014 (except as noted below).  We exercised termination options contained in the lease to release 28,800 square feet as of March 31, 2010.  Additional space of approximately 4,500 square feet was leased in June 2010 and expires in January 2012.


OSI Restaurant Partners, LLC

Item 3. Legal Proceedings

We are subject to legal proceedings, claims and liabilities, such as liquor liability, sexual harassment and slip and fall cases, which arise in the ordinary course of business and are generally covered by insurance. In the opinion of management, the amount of ultimate liability with respect to those actions will not have a material adverse impact on our financial position or results of operations and cash flows. We accrue for loss contingencies that are probable and reasonably estimable.  We generally do not accrue for legal costs expected to be incurred with a loss contingency until those services are provided.

We are subject to the following legal proceedings and actions, which depending on the outcomes that are mostly uncertain at this time, could have a material adverse effect on our financial condition:

In March 2008, one of our subsidiaries received a notice of proposed assessment of employment taxes from the Internal Revenue Service (“IRS”) for calendar years 2004 through 2006 in the amount of $68,396,000. The IRS asserts that certain cash distributions paid to our managing, chef and area operating partners who hold partnership interests in limited partnerships with our affiliates should have been treated as wages and subjected to employment taxes. We believe that we have complied and continue to comply with the law pertaining to the proper federal tax treatment of partner distributions.  We appealed the proposed assessment to the IRS Office of Appeals.  We believe the amounts reasonably likely to be incurred upon final settlement of the issues are not material.
 
On December 29, 2008, American Restaurants, Inc. (“American Restaurants”) filed a Petition with the United States District Court for the Southern District of Florida, captioned American Restaurants, Inc. v. Outback Steakhouse International, L.P., seeking confirmation of a purported November 24, 2008 arbitration award against Outback Steakhouse International, L.P. (“Outback International”), our indirect wholly-owned subsidiary, in the amount of $97,997,000, plus interest from August 7, 2006.   The award purportedly resolved a dispute involving Outback International’s alleged wrongful termination in 1998 of a Restaurant Franchise Agreement entered into in 1996 concerning one restaurant in Argentina.  On February 20, 2009, Outback International filed its opposition to the petition to confirm and raised five separate and independent defenses to confirmation under Article 5 of the Inter-American Convention on International Commercial Arbitration.  On July 28, 2009, the U.S. District Court for the Southern District of Florida stayed all further proceedings and closed the case administratively, pending final resolution of Outback International’s appeal before the Argentine Commercial Court of Appeals (“Argentine Court of Appeals”) seeking annulment of the purported award.

On December 9, 2008, in accordance with a procedure provided under Argentine law, Outback International filed with the arbitrator a motion seeking leave to file an appeal to nullify the purported award.   On February 27, 2009, the arbitrator denied Outback International’s motion.  On March 16, 2009, Outback International filed a direct appeal with the Argentine Court of Appeals seeking to annul the purported award.  On June 26, 2009, the Argentine Court of Appeals accepted Outback International’s appeal and expressly suspended enforcement of the purported award in Argentina pending the outcome of Outback International’s appeal seeking nullification.    On May 14, 2010, the Argentine Court of Appeals granted Outback International’s petition and declared the purported award null and void. The Argentine Court of Appeals also levied all costs against American Restaurants. On July 7, 2010, American Restaurants filed an extraordinary appeal with the Argentine Court of Appeals arguing that its May 14, 2010 nullification decision was in error and should be reviewed by the Argentine Supreme Court. The Argentine Court of Appeals rejected American Restaurant’s extraordinary appeal on August 20, 2010. On September 3, 2010, American Restaurants filed a direct appeal to the Argentine Supreme Court. On November 23, 2010, the Argentine Supreme Court rejected American Restaurant’s appeal.  Accordingly, the May 14, 2010 decision of the Argentine Court of Appeals nullifying the purported award and levying costs against American Restaurants is final.


OSI Restaurant Partners, LLC

Item 3. Legal Proceedings (continued)

On February 19, 2009, we filed an action in the Circuit Court for the Thirteenth Judicial District of Florida in Hillsborough County against T-Bird Nevada, LLC (“T-Bird”) and its affiliates.  T-Bird is a limited liability company affiliated with our California franchisees of Outback Steakhouse restaurants.  The action seeks payment on a promissory note made by T-Bird that we purchased from T-Bird’s former lender, among other remedies.  The principal balance on the promissory note, plus accrued and unpaid interest, was approximately $33,000,000 at the time it was purchased.  On July 31, 2009, the Hillsborough County Circuit Court denied T-Bird’s motions to dismiss for lack of personal jurisdiction and improper venue.  On September 11, 2009, T-Bird and certain of its affiliates filed an answer and counterclaims against us and certain of our officers and affiliates.  The answer generally denied T-Bird's liability on the loan, and the counterclaims restated the same claims made by T-Bird in its California action (as described below).  We have filed motions to dismiss all counterclaims for failure to state a claim.  We believe the counterclaims are without merit.

On February 20, 2009, T-Bird and certain of its affiliates filed suit against us and certain of our officers and affiliates in the Superior Court of the State of California, County of Los Angeles.  We filed motions to dismiss T-Bird's complaint on the grounds that a binding agreement related to the loan at issue in the Florida litigation requires that T-Bird litigate its claims in Florida, rather than in California.   On September 11, 2009, the motion to dismiss was granted and the case was dismissed.  T-Bird appealed the dismissal and on May 17, 2010, the California Court of Appeal reversed the trial court decision and ordered T-Bird’s complaint reinstated.  On September 1, 2010, the California Supreme Court denied without opinion our petition seeking further review of the California Court of Appeal’s decision and the case was returned to the Los Angeles Superior Court. T-Bird filed an amended complaint on November 29, 2010.  Like the original complaint, T-Bird’s amended complaint claims, among other things, that we made various misrepresentations and breached certain oral promises allegedly made by us and certain of our officers to T-Bird and its affiliates that we would acquire the restaurants owned by T-Bird and its affiliates and until that time we would maintain financing for the restaurants that would be nonrecourse to T-Bird and its affiliates.  The amended complaint seeks damages in excess of $100,000,000, exemplary or punitive damages, and other remedies.  We have moved to dismiss the complaint.  We and the other defendants believe the suit is without merit. 

Item 4. [Removed and Reserved]


OSI Restaurant Partners, LLC

PART II

Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities

MARKET INFORMATION

There is no public trading market for our common units.

HOLDERS

As of March 31, 2011, OSI HoldCo, Inc. (our direct owner and an indirect, wholly-owned subsidiary of our Ultimate Parent) was the only owner of record of our common units.

DIVIDENDS

Payment of dividends is prohibited under our credit agreements, except for certain limited circumstances.  We have not paid any cash dividends since the Merger.

SECURITIES AUTHORIZED FOR ISSUANCE UNDER EQUITY COMPENSATION PLANS

As of December 31, 2010, none of our common units were authorized for issuance under any equity compensation plan.  See Item 12 in Part III of this Form 10-K.  Our Ultimate Parent has authorized and issued stock options under an equity compensation plan after the Merger.  See Item 8, Note 3 of Notes to Consolidated Financial Statements for additional information.

RECENT SALES OF UNREGISTERED SECURITIES; USE OF PROCEEDS FROM REGISTERED SECURITIES

None.

PURCHASES OF EQUITY SECURITIES BY THE ISSUER AND AFFILIATED PURCHASERS

None.

CORPORATE HEADQUARTERS

OSI Restaurant Partners, LLC, 2202 North West Shore Boulevard, Suite 500, Tampa, Florida 33607.

COMPANY NEWS

For Company information, visit our website at www.osirestaurantpartners.com.


OSI Restaurant Partners, LLC

Item 6. Selected Financial Data

This section should be read in conjunction with the Consolidated Financial Statements and Notes thereto, included in Item 8 of this report, and Management’s Discussion and Analysis of Financial Condition and Results of Operations, included in Item 7 of this report.  The following table sets forth selected consolidated financial data for the years ended December 31, 2010, 2009 and 2008, the period from June 15 to December 31, 2007, the period from January 1 to June 14, 2007 and the year ended December 31, 2006 and selected consolidated financial data at each of the five fiscal years in the period from December 31, 2006 to December 31, 2010 (in thousands):

   
SUCCESSOR (1)
   
PREDECESSOR
 
                     
PERIOD
   
PERIOD
       
                     
FROM
   
FROM
       
 
                   
JUNE 15 to
   
JANUARY 1 to
   
YEAR ENDED
 
 
 
YEARS ENDED DECEMBER 31,
   
DECEMBER 31,
   
JUNE 14,
   
DECEMBER 31,
 
   
2010
   
2009
   
2008
   
2007
   
2007
   
2006
 
Statements of Operations Data:
                                   
Revenues
                               
 
 
Restaurant sales
  $ 3,594,681     $ 3,573,761     $ 3,939,436     $ 2,227,926     $ 1,916,689     $ 3,919,776  
Other revenues
    33,785       28,066       23,421       12,098       9,948       21,183  
Total revenues
    3,628,466       3,601,827       3,962,857       2,240,024       1,926,637       3,940,959  
Costs and expenses
                                               
Cost of sales
    1,151,951       1,184,301       1,389,392       790,592       681,455       1,415,459  
Labor and other related
    1,034,308       1,023,990       1,095,057       623,159       540,281       1,087,258  
Other restaurant operating
    939,352       926,343       1,012,724       557,459       440,545       885,562  
Depreciation and amortization
    135,396       162,731       185,786       102,263       74,846       151,600  
General and administrative
    251,273       250,097       263,204       138,376       158,147       234,642  
Loss on contingent debt guarantee
    -       24,500       -       -       -       -  
Goodwill impairment
    -       11,078       604,071       -       -       -  
Provision for impaired assets and
                                               
restaurant closings
    6,875       138,212       112,430       21,766       8,530       14,154  
Allowance for notes receivable for
                                               
affiliated entity
    -       -       33,150       -       -       -  
(Income) loss from operations of
                                               
unconsolidated affiliates
    (5,488 )     (2,196 )     (2,343 )     (1,261 )     692       (5 )
Total costs and expenses
    3,513,667       3,719,056       4,693,471       2,232,354       1,904,496       3,788,670  
Income (loss) from operations
    114,799       (117,229 )     (730,614 )     7,670       22,141       152,289  
Gain on extinguishment of debt (2)
    -       158,061       48,409       -       -       -  
Other income (expense), net
    2,993       (198 )     (11,122 )     -       -       7,950  
Interest expense, net (2)
    (69,870 )     (93,006 )     (154,428 )     (93,997 )     (4,651 )     (11,492 )
Income (loss) before provision
                                               
(benefit) for income taxes
    47,922       (52,372 )     (847,755 )     (86,327 )     17,490       148,747  
Provision (benefit) for income taxes
    20,078       2,034       (105,305 )     (47,143 )     (1,656 )     41,812  
Net income (loss)
    27,844       (54,406 )     (742,450 )     (39,184 )     19,146       106,935  
Less: net income (loss) attributable
                                               
 to noncontrolling interests
    6,208       (380 )     (3,041 )     871       1,685       6,775  
Net income (loss) attributable
                                               
to OSI Restaurant Partners, LLC
  $ 21,636     $ (54,026 )   $ (739,409 )   $ (40,055 )   $ 17,461     $ 100,160  

(CONTINUED...)


OSI Restaurant Partners, LLC

Item 6. Selected Financial Data (continued)

   
SUCCESSOR (1)
   
PREDECESSOR
 
   
DECEMBER 31,
   
DECEMBER 31,
 
   
2010
   
2009
   
2008
   
2007
   
2006
 
Balance Sheets Data:
                             
Working capital deficit
  $ (187,087 )   $ (228,219 )   $ (204,528 )   $ (222,428 )   $ (248,991 )
Cash and cash equivalents
    300,111       289,162       271,470       171,104       94,856  
Total assets
    2,479,123       2,585,029       2,857,895       3,703,459       2,258,587  
Long-term obligations (2) (3)
    1,301,543       1,393,819       1,721,179       1,810,970       209,575  
Noncontrolling interests
    13,323       18,972       26,707       34,862       36,929  
__________________
(1)
On June 14, 2007, OSI Restaurant Partners, Inc. was acquired by an investor group.  Immediately following consummation of the Merger on June 14, 2007, OSI Restaurant Partners, Inc. converted into a Delaware limited liability company named OSI Restaurant Partners, LLC.  Therefore, the selected consolidated financial data is presented for two periods: Predecessor and Successor, which relate to the period preceding the Merger and the period succeeding the Merger, respectively.  As a result of the Merger, there are several factors that affect the comparability of the selected financial data for the two periods.  At the time of the Merger, our assets and liabilities were assigned values that were part carryover basis and part fair value, similar to a step acquisition, pursuant to generally accepted accounting principles in the United States.  Consequently, retained earnings and accumulated depreciation were zero after the allocation was completed.  Other factors impacting comparability include, but are not limited to: (i) depreciation and amortization are higher in the Successor periods through 2009 due to these fair value assessments, (ii) annual interest expense increased substantially in the Successor period in connection with our financing agreements, (iii) certain professional service costs incurred in connection with the Merger and the management services provided by our management company are included in General and administrative expenses in our Consolidated Statements of Operations in the Successor period and (iv) annual rent expense increased substantially in the Successor period in connection with the PRP sale-leaseback transaction, in which we sold substantially all of our domestic wholly-owned restaurant properties to our sister company, PRP, and then leased them back under a 15-year master lease.
(2)
In November 2008 and March 2009, the Company repurchased $61,780,000 and $240,145,000, respectively, of outstanding senior notes for $11,711,000 and $73,000,000, respectively.  This resulted in gains on extinguishment of debt, after the pro-rata reduction of unamortized deferred financing fees and other related costs, of $48,409,000 in 2008 and $158,061,000 in 2009.  Annualized interest expense savings from these debt extinguishments approximates $30,193,000 per year.
(3)
Long-term obligations include our long-term debt and long-term guaranteed debt.


OSI Restaurant Partners, LLC
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Item 7. 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 our Consolidated Financial Statements and the related Notes.

Overview

We are one of the largest casual dining restaurant companies in the world, with five restaurant concepts, more than 1,400 system-wide restaurants and 2010 Total revenues exceeding $3.6 billion. As of December 31, 2010, we operate in 49 states and in 23 countries internationally, predominantly through Company-owned restaurants, but we also operate under a variety of partnerships and franchises.  Our operating concepts consist of Outback Steakhouse, Carrabba’s Italian Grill, Bonefish Grill, Fleming’s Prime Steakhouse and Wine Bar and Roy’s.  Our plan is to exit our Roy’s concept, but we have not established a timeframe to do so.

Our primary focus 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. We generate our sales primarily from a diverse customer base, which includes people eating in our restaurants as regular patrons who return for meals several times a week, those celebrating special occasions such as birthday parties, individuals holding private events and those conducting business. Secondarily, we generate revenues through sales of franchise rights and ongoing royalties.

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

We have developed a multi-year plan to refresh and update our Outback Steakhouse restaurants. The new look delivers a more contemporary expression of Australia in our restaurants using updated colors, fabrics, textures, art, lighting, props and murals.

Key factors we use in evaluating our restaurants and assessing our business include the following:
 
·  
Average restaurant unit volumes - average sales per restaurant to measure changes in consumer traffic, pricing and development of the brand;
·  
Operating margins - restaurant revenues after deduction of the main restaurant-level operating costs (including cost of sales, other restaurant operating expenses, and labor and other related costs);
·  
System-wide sales - total restaurant sales volume for all Company-owned, franchise and unconsolidated joint venture restaurants, regardless of ownership, to interpret the overall health of our brands; and
·  
Same-store or comparable-store sales - year-over-year comparison of sales volumes for restaurants that are open 18 months or more in order to remove the impact of new restaurant openings in comparing the operations of existing restaurants.


OSI Restaurant Partners, LLC
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Overview (continued)

Our 2010 financial results compared to 2009 include:

·  
Increase in consolidated revenues of 0.7% to $3.6 billion, driven primarily by a $90.0 million increase in comparable-store sales at our existing restaurants and partially offset by a $75.6 million decrease in restaurant sales from the sale and January 1, 2010 de-consolidation of 34 Cheeseburger in Paradise locations;
·  
13 system-wide restaurant openings compared to 17 system-wide restaurant closings, across most brands;
·  
Exceeding our 2010 efficiency improvement goal by achieving $67.0 million in savings;
·  
Generation of Income from operations of $114.8 million in 2010 compared to (Loss) from operations of ($117.2) million in 2009, partially attributable to a $142.4 million decrease in total impairment charges and a $27.3 million decrease in depreciation and amortization expense;
·  
Decline in net interest expense of 24.9% primarily driven by a net $14.1 million decrease in interest expense mainly due to mark to market adjustments on our interest rate collar that matured effective September 30, 2010 and an approximately $5.2 million reduction of interest expense as a result of the $240.1 million decrease in principal outstanding on senior notes from our completion of a cash tender offer during March of 2009.

During 2010, we had the following four key objectives:

·  
Revitalize top line growth;
·  
Elevate organizational effectiveness;
·  
Accelerate continuous productivity improvement to fund growth; and
·  
Deliver our 2010 financial plan to maintain stable cash flow while making necessary investments to drive sustainable, long-term growth.

We made progress on our top line revitalization efforts during 2010, as we generated positive comparable-store sales and gained traffic share compared to the restaurant segment across our major concepts throughout the year.  We increased the overall level of marketing spending to drive sustainable traffic improvement and developed unique promotions throughout our concepts that fit our brand positioning, looked beyond price and leveraged consumer touch points.  We also accelerated certain innovation opportunities in our menu, service and operations at each of our concepts.  Examples include the launch of signature pasta meals starting at $10 and smaller portion options at Carrabba’s Italian Grill, weekday promotions at Bonefish Grill and new salad, appetizer and seafood items at Outback Steakhouse.

Our key area of focus in elevating organizational effectiveness was in building the appropriate talent and infrastructure to accelerate innovation and drive sustainable top line growth and productivity.  We made progress in this area during 2010 by increasing our resources in consumer insights, research and development, productivity and human resources.  We also invested in our infrastructure, as we improved our data warehousing capability and made progress towards establishing a consistent technology platform across our concepts.

In the area of productivity improvement, we created a team that is responsible for building a sustainable model for continuous improvement that will be identifying best practices and improving productivity resource allocation and utilization.  Our 2010 efficiency savings were $67,000,000.
 
During 2010, we successfully balanced our investments in infrastructure and long-term brand growth with the benefits of efficiency plans and traffic share gains to enable growth in cash flow over 2009 while creating a platform for sustainable growth in the future.


OSI Restaurant Partners, LLC
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Overview (continued)

As we look towards 2011, global economic conditions appear to be improving, but at a slower pace in the United States.  The casual dining segment experienced negative comparable-store traffic in 2010 but is expected to stabilize in 2011 with the possibility of growth if economic conditions continue to improve.  Competitive pressure for market share, inflation, foreign currency exchange rates and other market conditions could adversely impact our business. 

In 2011, we will continue to balance near-term growth in share gains with investments to achieve sustainable growth.  Our key objectives for 2011 include:

·  
Continue share growth by enhancing brand competitiveness in a challenging environment;
·  
Effectively manage costs by mitigating commodity risk and accelerating continuous productivity improvement;
·  
Elevate organizational effectiveness and build infrastructure for sustainable growth;
·  
Increase brand investment pace, including renovations and new unit development; and
·  
Deliver our 2011 financial plan to maintain stable cash flow while investing for long-term growth.
 
In order to continue to drive share gains, we plan to build on our successful marketing and brand position improvements in 2010 by continuing our strategy of developing unique promotions throughout our concepts that fit our brand positioning, focus on delivering superior brand experience and leverage consumer touch points.  We will also continue to identify opportunities to increase innovation in our menu, service and operations across all our concepts. 

Our productivity improvement goal in 2011 is $50 million in savings, and we will combine productivity improvement with modest pricing action to offset commodity inflation.
 
We will continue to increase our organizational effectiveness by continuing to build the growth-enabling functions via infrastructure investments in areas such as information technology and human resources.

Our brand investments will be focused on increasing unit development in higher return, high-growth concepts with focus on Bonefish Grill, accelerating Outback Steakhouse renovations and building our infrastructure.
 

OSI Restaurant Partners, LLC
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Overview (continued)

At December 31, 2010, the OSI Restaurant Partners, LLC restaurant system included the following:
   
 
Outback
Steakhouse
(domestic)
 
 
Outback
Steakhouse
(international)
 
Carrabba’s
Italian
Grill
 
Bonefish
Grill
 
Fleming’s
Prime
Steakhouse and Wine Bar
 
Roy’s
     
Total
                                 
Company-owned
 
670
 
120
 
232
 
145
 
64
 
22
     
1,253
Development joint venture
 
-
 
29
 
-
 
-
 
-
 
-
     
29
Franchise
 
108
 
41
 
1
 
7
 
-
 
-
     
157
 Total
 
778
 
190
 
233
 
152
 
64
 
22
     
1,439
 
 
Company-owned restaurants include restaurants owned by limited partnerships in which we are a general partner and joint ventures in which we are a member. Our legal ownership interests in the partnerships and joint ventures generally range from 50% to 90%.  Company-owned restaurants also include restaurants owned by our Roy’s joint venture and our consolidated financial statements include the accounts and operations of our Roy’s joint venture even though we have less than majority ownership (See Item 8, Note 20 of Notes to Consolidated Financial Statements for additional information).

Through a joint venture arrangement with PGS Participacoes Ltda., the Company holds a 50% ownership interest in PGS Consultoria e Serviços Ltda. (the “Brazilian Joint Venture”).  The Brazilian Joint Venture was formed in 1998 for the purpose of operating Outback franchise restaurants in Brazil. The Company accounts for the Brazilian Joint Venture under the equity method of accounting. We are responsible for 50% of the costs of new restaurants operated by the Brazilian Joint Venture and our joint venture partner is responsible for the other 50%.  Income and loss derived from the Brazilian Joint Venture is presented in the line item “Income from operations of unconsolidated affiliates” in our Consolidated Statements of Operations.

We derive no direct income from operations of franchised restaurants other than initial and developmental franchise fees and ongoing royalties, which are included in “Other revenues” in our Consolidated Statements of Operations.


OSI Restaurant Partners, LLC
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Results of Operations

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

   
YEARS ENDED DECEMBER 31,
 
   
2010
   
2009
   
2008
 
Revenues
                 
Restaurant sales
    99.1 %     99.2 %     99.4 %
Other revenues
    0.9       0.8       0.6  
Total revenues
    100.0       100.0       100.0  
Costs and expenses
                       
Cost of sales (1)
    32.0       33.1       35.3  
Labor and other related (1)
    28.8       28.7       27.8  
Other restaurant operating (1)
    26.1       25.9       25.7  
Depreciation and amortization
    3.7       4.5       4.7  
General and administrative
    6.9       6.9       6.6  
Loss on contingent debt guarantee
    -       0.7       -  
Goodwill impairment
    -       0.3       15.2  
Provision for impaired assets and restaurant closings
    0.2       3.8       2.8  
Allowance for notes receivable for affiliated entity
    -       -       0.8  
Income from operations of unconsolidated affiliates
    (0.2 )     (0.1 )     (0.1 )
Total costs and expenses
    96.8       103.3       118.4  
Income (loss) from operations
    3.2       (3.3 )     (18.4 )
Gain on extinguishment of debt
    -       4.4       1.2  
Other income (expense), net
    0.1       (* )     (0.3 )
Interest expense, net
    (1.9 )     (2.6 )     (3.9 )
Income (loss) before provision (benefit) for income taxes
    1.4       (1.5 )     (21.4 )
Provision (benefit) for income taxes
    0.6       *       (2.6 )
Net income (loss)
    0.8       (1.5 )     (18.8 )
Less: net income (loss) attributable to noncontrolling interests
    0.2       (* )     (0.1 )
Net income (loss) attributable to OSI Restaurant Partners, LLC
    0.6 %     (1.5 )%     (18.7 )%
________________
(1)
As a percentage of restaurant sales.
*
Less than 1/10th of one percent of total revenues.
 

OSI Restaurant Partners, LLC
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Results of Operations (continued)

The table below presents the number of our restaurants in operation at the end of the periods indicated:

   
DECEMBER 31,
 
   
2010
   
2009
   
2008
 
Number of restaurants (at end of the period):
                 
Outback Steakhouse
                 
Company-owned - domestic
    670       680       689  
Company-owned - international
    120       119       129  
Franchised - domestic
    108       108       107  
Franchised and development joint venture - international
    70       63       53  
Total
    968       970       978  
Carrabba's Italian Grill
                       
Company-owned
    232       232       237  
Franchised
    1       1       1  
Total
    233       233       238  
Bonefish Grill
                       
Company-owned
    145       145       142  
Franchised
    7       7       7  
Total
    152       152       149  
Fleming’s Prime Steakhouse and Wine Bar
                       
Company-owned
    64       64       61  
Other
                       
Company-owned (1)
    22       58       65  
System-wide total
    1,439       1,477       1,491  
__________________
(1)
In September 2009, we sold our Cheeseburger in Paradise concept, which included 34 restaurants, to PRG.  Based on the terms of the purchase and sale agreement, we consolidated PRG after the sale transaction. Upon adoption of new accounting guidance for variable interest entities, we deconsolidated PRG on January 1, 2010. As a result, the current period includes only our Roy’s concept.

Our restaurant concepts operate as one reportable segment, as the brands have similar economic characteristics, resulting in similar long-term expected financial performance, as well as nature of products and services, class of customer and distribution methods.


OSI Restaurant Partners, LLC
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Results of Operations (continued)

System-wide sales increased 2.2% in 2010 and declined 8.6% in 2009.  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.  System-wide sales is comprised of sales of Company-owned restaurants of OSI Restaurant Partners, LLC and sales of franchised and unconsolidated development joint venture restaurants.  The table below presents the first component of system-wide sales, which is sales of Company-owned restaurants:

   
YEARS ENDED DECEMBER 31,
 
   
2010
   
2009
   
2008
 
COMPANY-OWNED RESTAURANT SALES
                 
(in millions):
                 
Outback Steakhouse
                 
Domestic
  $ 1,960     $ 1,954     $ 2,153  
International
    281       260       298  
Total
    2,241       2,214       2,451  
Carrabba's Italian Grill
    653       633       681  
Bonefish Grill
    403       375       384  
Fleming's Prime Steakhouse and Wine Bar
    223       199       216  
Other (1)
    75       153       207  
Total Company-owned restaurant sales
  $ 3,595     $ 3,574     $ 3,939  
__________________
(1)
In September 2009, we sold our Cheeseburger in Paradise concept, which included 34 restaurants, to PRG.  Based on the terms of the purchase and sale agreement, we consolidated PRG after the sale transaction. Upon adoption of new accounting guidance for variable interest entities, we deconsolidated PRG on January 1, 2010.  As a result, the current period includes primarily our Roy’s concept.
 
The following information presents the second component of system-wide sales, which are sales of franchised and unconsolidated development joint venture restaurants.  These are restaurants that are not consolidated 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 royalties and/or service fees that generally are based on a percentage of sales.  Management also uses this information to make decisions about future plans for the development of additional restaurants and new concepts as well as evaluation of current operations.

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

   
YEARS ENDED DECEMBER 31,
 
   
2010
   
2009
   
2008
 
FRANCHISE AND UNCONSOLIDATED DEVELOPMENT
                 
JOINT VENTURE SALES (in millions) (1):
                 
Outback Steakhouse
                 
Domestic
  $ 296     $ 294     $ 325  
International
    234       170       159  
Total
    530       464       484  
Carrabba's Italian Grill
    4       3       -  
Bonefish Grill
    16       16       16  
Total franchise and unconsolidated development joint venture sales (1)
  $ 550     $ 483     $ 500  
Income from franchise and unconsolidated development joint ventures (2)
  $ 31     $ 26     $ 23  
__________________
(1)
Franchise and unconsolidated development joint venture sales are not included in revenues in the Consolidated Statements of Operations.
(2)
Represents the franchise royalty and the portion of total income related to restaurant operations included in the Consolidated Statements of Operations in the line items “Other revenues” or “Income from operations of unconsolidated affiliates.”
 
 
 OSI Restaurant Partners, LLC
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Results of Operations (continued)

REVENUES

Restaurant sales

   
YEARS ENDED
               
YEARS ENDED
             
   
DECEMBER 31,
               
DECEMBER 31,
             
(dollars in thousands):
 
2010
   
2009
   
$ Change
   
% Change
   
2009
   
2008
   
$ Change
   
% Change
 
Restaurant sales
  $ 3,594,681     $ 3,573,761     $ 20,920       0.6 %   $ 3,573,761     $ 3,939,436     $ (365,675 )     (9.3 )%

The increase in restaurant sales in 2010 as compared to 2009 was primarily attributable to a $90,023,000 increase in comparable-store sales at our existing restaurants and a $23,128,000 increase in sales from 32 restaurants not included in our comparable-store sales base.  This increase was partially offset by a $75,558,000 decrease from the sale and de-consolidation of 34 Cheeseburger in Paradise locations and a $16,673,000 decrease from the closing of 16 restaurants during 2010.

The decrease in restaurant sales in 2009 as compared to 2008 was primarily attributable to the following: (i) a $356,297,000 decrease in comparable-store sales at our existing restaurants, (ii) a $44,751,000 decrease from the closing of 34 restaurants during 2009 and (iii) a $19,099,000 decrease from the sale of six Lee Roy Selmon’s locations at December 31, 2008 and was partially offset by a $54,472,000 increase in sales from 73 restaurants not included in our comparable-store sales base.

The following table includes additional information about changes in restaurant sales at domestic Company-owned restaurants for our significant brands:

   
YEARS ENDED DECEMBER 31,
 
   
2010
   
2009
   
2008
 
Average restaurant unit volumes (in thousands):
                 
Outback Steakhouse
  $ 2,906     $ 2,857     $ 3,130  
Carrabba's Italian Grill
  $ 2,816     $ 2,737     $ 2,865  
Bonefish Grill
  $ 2,781     $ 2,606     $ 2,726  
Fleming's Prime Steakhouse and Wine Bar
  $ 3,476     $ 3,148     $ 3,797  
Operating weeks:
                       
Outback Steakhouse
    35,200       35,720       35,984  
Carrabba's Italian Grill
    12,097       12,065       12,394  
Bonefish Grill
    7,553       7,491       7,366  
Fleming's Prime Steakhouse and Wine Bar
    3,337       3,292       2,962  
Year over year percentage change:
                       
Menu price (decreases) increases: (1)
                       
Outback Steakhouse
    -0.1 %     1.3 %     3.2 %
Carrabba's Italian Grill
    0.4 %     1.6 %     1.7 %
Bonefish Grill
    0.2 %     1.5 %     1.6 %
Fleming's Prime Steakhouse and Wine Bar
    0.5 %     0.6 %     3.3 %
Comparable-store sales (stores open 18 months or more):
                 
Outback Steakhouse
    1.5 %     -8.8 %     -6.1 %
Carrabba's Italian Grill
    2.9 %     -6.1 %     -4.2 %
Bonefish Grill
    6.5 %     -5.9 %     -8.5 %
Fleming's Prime Steakhouse and Wine Bar
    10.4 %     -16.4 %     -11.4 %
__________________
(1)           The stated menu price changes exclude the impact of product mix shifts to new menu offerings.


OSI Restaurant Partners, LLC
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Results of Operations (continued)

REVENUES (continued)

Other revenues

   
YEARS ENDED
         
YEARS ENDED
       
   
DECEMBER 31,
         
DECEMBER 31,
       
(in thousands):
 
2010
   
2009
   
Change
   
2009
   
2008
   
Change
 
Other revenues
  $ 33,785     $ 28,066     $ 5,719     $ 28,066     $ 23,421     $ 4,645  

Other revenues, consisting primarily of initial franchise fees, royalties and sublease revenue, increased in 2010 as compared to 2009.  This increase was primarily attributable to $2,400,000 of increased development and franchise royalties from international Outback Steakhouse restaurants and $800,000 of increased sublease revenue primarily generated from PRG as a result of the sale of our Cheeseburger in Paradise concept in September 2009.

The increase in 2009 as compared to 2008 was primarily attributable to $3,100,000 of increased development and franchise royalties from international Outback Steakhouse restaurants and increased sublease revenue of $2,500,000 and was partially offset by a $1,300,000 decline in domestic franchise royalties.

COSTS AND EXPENSES

Cost of sales

   
YEARS ENDED
         
YEARS ENDED
       
   
DECEMBER 31,
         
DECEMBER 31,
       
(dollars in thousands):
 
2010
   
2009
   
Change
   
2009
   
2008
   
Change
 
Cost of sales
  $ 1,151,951     $ 1,184,301           $ 1,184,301     $ 1,389,392        
% of Restaurant sales
    32.0 %     33.1 %     (1.1 )%     33.1 %     35.3 %     (2.2 )%

Cost of sales, consisting of food and beverage costs, decreased as a percentage of restaurant sales in 2010 as compared to 2009.  The decrease as a percentage of restaurant sales was primarily 1.1% from the impact of certain cost savings initiatives and 0.7% from decreases in beef costs. The decrease was partially offset by increases as a percentage of restaurant sales of the following: (i) 0.3% from increases in produce, dairy and other commodity costs, (ii) 0.2% due to changes in our product mix and (iii) 0.2% from changes in our limited time offers and other promotions.

The decrease as a percentage of restaurant sales in 2009 as compared to 2008 was primarily due to the following: (i) 1.2% from the impact of certain cost savings initiatives, (ii) 0.7% from decreases in beef and dairy costs and (iii) 0.3% from general menu price increases.


OSI Restaurant Partners, LLC
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Results of Operations (continued)

COSTS AND EXPENSES (continued)

Labor and other related expenses

   
YEARS ENDED
         
YEARS ENDED
       
   
DECEMBER 31,
         
DECEMBER 31,
       
(dollars in thousands):
 
2010
   
2009
   
Change
   
2009
   
2008
   
Change
 
Labor and other related
  $ 1,034,308     $ 1,023,990           $ 1,023,990     $ 1,095,057        
% of Restaurant sales
    28.8 %     28.7 %     0.1 %     28.7 %     27.8 %     0.9 %

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 PEP and other stock-based and incentive compensation expenses.  Labor and other related expenses increased as a percentage of restaurant sales in 2010 as compared with 2009.  The increase as a percentage of restaurant sales was primarily due to the following: (i) 0.4% from higher kitchen, service and management labor costs, (ii) 0.2% from an increase in health insurance expense and (iii) 0.2% from higher distribution expense to managing partners.  The increase was partially offset by decreases as a percentage of restaurant sales of 0.5% from the impact of certain cost savings initiatives and 0.2% from higher average unit volumes at our restaurants.

The increase as a percentage of restaurant sales in 2009 as compared to 2008 was primarily due to the following: (i) 1.5% from declines in average unit volumes, (ii) 0.6% from higher kitchen, service and management labor costs, including payroll tax and health insurance expense and (iii) 0.5% from an increase in expenses incurred as a result of gains on participants’ PEP and other deferred compensation investment accounts.  The increase was partially offset by decreases as a percentage of restaurant sales of approximately 1.5% from certain cost savings initiatives and 0.2% from reduced workers’ compensation insurance costs.

Other restaurant operating expenses

   
YEARS ENDED
         
YEARS ENDED
       
   
DECEMBER 31,
         
DECEMBER 31,
       
(dollars in thousands):
 
2010
   
2009
   
Change
   
2009
   
2008
   
Change
 
Other restaurant operating
  $ 939,352     $ 926,343           $ 926,343     $ 1,012,724        
% of Restaurant sales
    26.1 %     25.9 %     0.2 %     25.9 %     25.7 %     0.2 %

Other restaurant operating expenses include certain unit-level operating costs such as operating supplies, rent, repairs and maintenance, advertising expenses, utilities, pre-opening costs and other occupancy costs. A substantial portion of these expenses is fixed or indirectly variable.  The increase as a percentage of restaurant sales in 2010 as compared to 2009 was primarily due to the following: (i) 0.4% from increases in advertising costs, (ii) 0.2% from increases in the recognition of deferred gift card fees, (iii) 0.2% from increases in repairs and maintenance costs, occupancy costs and operating supplies expense and (iv) 0.2% from higher general liability insurance expense.  The increase was partially offset by decreases as a percentage of restaurant sales of 0.5% from higher average unit volumes at our restaurants and 0.2% from certain cost savings initiatives.

The increase as a percentage of restaurant sales in 2009 as compared to 2008 was primarily 1.4% from declines in average unit volumes.  The increase was partially offset by decreases as a percentage of restaurant sales of 0.4% from certain cost savings initiatives, 0.3% from decreases in utilities costs, 0.3% from reduced general liability insurance expenses and 0.2% from reduced pre-opening costs.


OSI Restaurant Partners, LLC
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Results of Operations (continued)

COSTS AND EXPENSES (continued)

Depreciation and amortization

   
YEARS ENDED
         
YEARS ENDED
       
   
DECEMBER 31,
         
DECEMBER 31,
       
(dollars in thousands):
 
2010
   
2009
   
Change
   
2009
   
2008
   
Change
 
Depreciation and amortization
  $ 135,396     $ 162,731           $ 162,731     $ 185,786        
% of Total revenues
    3.7 %     4.5 %     (0.8 )%     4.5 %     4.7 %     (0.2 )%

Depreciation and amortization expense decreased as a percentage of total revenues in 2010 as compared to 2009.  This decrease as a percentage of total revenues was primarily 0.7% from certain assets being fully depreciated as of June 2009 and June 2010.

The decrease as a percentage of total revenues in 2009 as compared to 2008 was primarily 0.5% from certain assets being fully depreciated as of June 2009 and 0.2% from a reduction in our depreciable asset base primarily due to significant property, fixtures and equipment impairment charges during 2009 and 2008.  The decrease as a percentage of total revenues was partially offset by 0.5% from declines in average unit volumes.

General and administrative
 
   
YEARS ENDED
         
YEARS ENDED
       
   
DECEMBER 31,
         
DECEMBER 31,
       
(in thousands):
 
2010
   
2009
   
Change
   
2009
   
2008
   
Change
 
General and administrative
  $ 251,273     $ 250,097     $ 1,176     $ 250,097     $ 263,204     $ (13,107 )
 
General and administrative costs increased in 2010 as compared to 2009 primarily due to the following: (i) $10,200,000 of increased general and administrative costs associated with field support, managers-in-training and distribution expense, (ii) $10,000,000 of additional consulting and legal fees primarily related to our productivity improvement and brand growth strategies, (iii) $4,400,000 of additional corporate compensation expense as a result of increasing our resources in consumer insights, research and development, productivity and human resources and (iv) a $4,100,000 reduction in the gain on the cash surrender value of life insurance investments.  This increase was partially offset by the following: (i) a $14,000,000 decrease in restricted stock, deferred compensation and partner buyout expenses that was mostly due to the accelerated vesting of restricted stock for certain executive officers in 2009, (ii) a $7,100,000 reduction of bonus and severance expenses, (iii) a $3,800,000 decrease from certain cost savings initiatives and (iv) a $1,300,000 decrease in ongoing operating costs at closed locations.

The decrease in 2009 as compared to 2008 was primarily attributable to the following: (i) an $8,501,000 gain on the cash surrender value of life insurance investments in 2009 as opposed to a $15,471,000 loss in 2008, (ii) $13,600,000 of certain professional fees and other cost savings initiatives, (iii) $9,900,000 of decreased general and administrative costs associated with field support and managers-in-training, (iv) $4,600,000 of reduced general and administrative costs in 2009 as a result of the sale of our Selmon’s concept effective December 31, 2008 and (v) $5,700,000 of decreased legal, government relations, accounting and advertising costs.  This decrease was partially offset by $27,700,000 of incremental bonus and severance expenses and $9,500,000 of incremental deferred compensation and stock option expenses in 2009 as compared to 2008 and a $6,662,000 gain from the sale of land in Las Vegas, Nevada that occurred in 2008.


OSI Restaurant Partners, LLC
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Results of Operations (continued)

COSTS AND EXPENSES (continued)

Loss on contingent debt guarantee

We are the guarantor of an uncollateralized line of credit that permits borrowing of up to a maximum of $24,500,000 for our joint venture partner, RY-8, in the development of Roy's restaurants (see “Debt Guarantees” included in “Management’s Discussion and Analysis of Financial Condition and Results of Operations”).  We recorded a $24,500,000 loss associated with this guarantee in the year ended December 31, 2009.

Goodwill impairment

We did not record a goodwill impairment charge during the year ended December 31, 2010.  We recorded an aggregate goodwill impairment charge of $11,078,000 for the domestic Outback Steakhouse, Bonefish Grill and Fleming’s Prime Steakhouse and Wine Bar concepts during the second quarter of 2009 in connection with our annual impairment test. During 2008, we recorded an aggregate goodwill impairment charge of $604,071,000 for the domestic and international Outback Steakhouse, Bonefish Grill and Fleming’s Prime Steakhouse and Wine Bar concepts.

Our review of the recoverability of goodwill was based primarily upon an analysis of the discounted cash flows of the related reporting units as compared to their carrying values.  These goodwill impairment charges occurred due to poor overall economic conditions, declining sales at our restaurants, reductions in our projected results for future periods and a challenging environment for the restaurant industry (see “Critical Accounting Policies and Estimates” included in “Management’s Discussion and Analysis of Financial Condition and Results of Operations”).

Provision for impaired assets and restaurant closings

   
YEARS ENDED
         
YEARS ENDED